Business Context and Reporting Period
Company: Integrated Media Technology Ltd (IMT)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2017
Reporting Currency: Australian Dollars (A$)
Accounting Standards: International Financial Reporting Standards (IFRS)
IMT is an Australian-incorporated technology company focused on the development, sale, and distribution of autostereoscopic (glasses-free) 3D display technology, 3D conversion equipment, software, and audio products. The company operates primarily in Hong Kong and China. In May 2017, the company effected a 1-for-30 reverse stock split to meet Nasdaq listing requirements.
Key Financial Metrics
| Metric | 2017 (A$) | 2016 (A$) |
|---|---|---|
| Total Revenue | 5,762,711 | 13,929,670 |
| Net Profit | 1,692,666 | 3,595,068 |
| Profit Margin | 29.3% | 25.8% |
| Cash and Cash Equivalents | 2,070,072 | 1,036,965 |
| Working Capital | 5,478,132 | 8,263,311 |
| Total Assets | 35,859,449 | 43,481,437 |
| Long-term Debt | 16,748,877 | 22,657,065 |
| Shareholders' Equity | 15,390,334 | 14,354,982 |
Note: Net profit for 2017 includes a non-cash gain of A$3,953,537 from the fair value change in contingent consideration liability related to the acquisition of Marvel Digital Limited.
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by approximately 59% (A$8.17 million) compared to 2016. This decline is primarily attributed to the absence of one-off sales of software and technology solutions totaling approximately A$8.39 million recorded in 2016.
- Profitability: Despite the revenue drop, the company maintained profitability in 2017 (A$1.69 million) compared to 2016 (A$3.60 million). The 2017 profit was significantly bolstered by the A$3.95 million write-down of contingent consideration liability.
- Operating Expenses: Total operating expenses increased slightly by 3% (A$222,942) to A$8.65 million, driven mainly by a 10% increase in employee benefit expenses due to salary increments, despite a reduction in staff headcount from 74 to 53.
- Balance Sheet: Cash and cash equivalents increased by A$1.03 million. Long-term debt decreased by A$5.9 million, largely due to the reclassification of the contingent consideration liability to "Amount due to ultimate holding company" as the performance fee was finalized.
Guidance, Outlook, and Risks
Outlook and Capital Needs: Management anticipates requiring substantial additional funding of approximately A$5 million to achieve long-term goals and complete R&D for current 3D products. The company expects to fund operations for the next 12 months with current cash reserves but may need to raise capital through equity or debt markets. In January 2018, a subsidiary issued HK$23 million (approx. A$3.8 million) in convertible bonds to fund 3D business development.
Recent Developments: In March 2018, the company announced two sale distribution agreements valued at approximately A$14.8 million for autostereoscopic 3D digital video walls and standalone digital signage.
Key Risks:
- Going Concern: The company has a history of operating losses until recently and faces uncertainty in maintaining profitability without continued sales of 3D products and services.
- Liquidity: Limited cash resources; failure to raise additional funds could force the company to curtail operations or cease as a going concern.
- Customer Concentration: In 2017, the top 5 customers accounted for 86% of total revenue.
- Technology and Market: Risks associated with the commercialization of 3D products, rapid technological changes, and competition from established players.
- Regulatory and Legal: Risks related to PRC government policies, currency exchange fluctuations, and potential intellectual property infringement claims.
Investor Verification Checklist
- Revenue Quality: Verify the sustainability of revenue streams given the 59% drop from 2016, which was driven by one-off software sales.
- Non-Operating Gains: Assess the impact of the A$3.95 million non-cash gain on contingent consideration on the reported net profit.
- Liquidity Position: Confirm the company's ability to meet the A$5 million funding requirement for R&D and operations without dilutive equity raises.
- Customer Concentration: Evaluate the risk associated with 86% of revenue coming from just five customers.
- Convertible Bonds: Review the terms of the HK$23 million convertible bonds issued in January 2018 and the associated dilution risk.
- Share Swap Lapse: Note that a conditional share swap agreement with Sharing Economy International Inc. (SEII) lapsed in March 2018.