IMTE is a holding company incorporated in Australia
with operations conducted by its subsidiaries based in Hong Kong and the People’s Republic of China (“PRC”). IMTE is
an Australia company and not a Chinese company. IMTE itself does not conduct any business operation in Hong Kong, China or elsewhere,
other than in Australia as a holding company listed on the Nasdaq Capital Markets. IMTE conducts its business through its subsidiary companies
based in Hong Kong and China. Throughout this Form 20-F, IMTE is referred to as “IMTE” or the “Company”, and any
reference to any of the subsidiaries will be by the subsidiary company name. Use of the word “our” or “we” refers
to IMTE and its subsidiaries taken as a whole. IMTE, a company incorporated in Australia, is the Nasdaq-listed entity in which investors
may invest.
As at December 31, 2021, the list of country of
incorporation and principal activities for each subsidiaries are as follows:
Due to our group structure, a substantial
portion of our business operations and assets are subject to unique risks relating to the uncertain development, interpretation and
application of PRC laws, including uncertain actions that Chinese authorities can take against companies. The Chinese government can
take unpredictable action with little advance notice, including seeking to intervene or influence operations and or disallow this
structure would likely result in a material change in our operations. Our PRC-based subsidiaries could be subject to sanctions
imposed by PRC regulatory agencies if they fail to comply with existing or new PRC laws and any such sanctions could negatively
affect our financial performance and results of operations and, as a result, could cause the value of IMTE shares to significantly
decline or become worthless. Further information, see “Risks Related to Doing Business in China” starting on page 31 in
our annual report on Form 20-F, as originally filed with the SEC.
IMTE’s subsidiaries are subject to
legal and operational risks associated with their operations in China as the Chinese government has exercised, and may continue to
exercise, substantial influence or control over virtually every sector of the Chinese economy through regulation and state
ownership. PRC laws governing our current business operations, including the electronic glass manufacturing operation, are sometimes
subject to interpretation of the local authorities. Recently, the Chinese government initiated a series of regulatory actions and
statements to regulate businesses in China with little advance notice, including cracking down on illegal activities in the
securities market, enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope of
cybersecurity reviews, gathering and processing of data, and expanding the efforts in anti-monopoly enforcement. Any such actions
directed at IMTE’s subsidiaries could adversely affect their operations and thereby cause the value of IMTE shares to
significantly decline or become worthless. Further information, please see “Risks Related to Doing Business in China”
starting on page 31 in our annual report on Form 20-F, as originally filed with the SEC.
Given IMTE is an Australian corporation, no approval
of any Chinese authority is required for the offer and sale of IMTE’s ordinary shares. There is no liquidity risk in relation to
trading of IMTE shares as IMTE is incorporated in Australia and IMTE’s ordinary shares are listed on Nasdaq. PRC authorities could,
however, block further foreign investment into our PRC and Hong Kong-based subsidiaries. If this were to occur, it could have a material
adverse effect on our consolidated operations and thereby cause the value of IMTE’s shares to significantly decline or become worthless.
If IMTE were to re-domicile to a Chinese jurisdiction
(which IMTE’s Board does not propose and which would be subject to super-majority approval of shareholders) or if the Australian
government were to come under the control of the PRC government (which we do not expect), then IMTE’s ability to issue securities
to foreign investors could be restricted directly by the PRC government. In addition, given the operations of IMTE’s subsidiaries
in the PRC and Hong Kong, it is possible that the PRC government could seek to threaten our subsidiaries in an effort to indirectly control
IMTE’s ability to issue securities. If IMTE were required to obtain approval from the PRC government in order to issue securities
to foreign investors in any of these or other scenarios and if IMTE were not to receive or maintain such approvals, inadvertently conclude
that such approvals were not required, or applicable laws, regulations or interpretations change and IMTE were required to obtain such
approval in the future, then our ability to offer securities to foreign investors could be adversely affected and thus cause severe liquidity
problems for IMTE, including a material adverse effect on our financial condition, and the value of our securities could significantly
decline or become worthless.
IMTE’s subsidiaries have received all requisite
approvals required to operate their businesses as currently conducted. IMTE has received permission from Chinese authorities to incorporate
Smartglass Zhenjiang and Dynasty Jiaxing. Smartglass Zhenjiang has received permission from Chinese authorities to operate a factory.
Our ability to operate in China could be undermined if our PRC subsidiaries are not able to obtain or maintain approvals to operate in
China. The central or local governments in the PRC could impose new, stricter regulations or interpretations of existing regulations that
could require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. If our
PRC subsidiaries do not receive or maintain approvals, inadvertently conclude that approvals needed for their business are not required
or if there are changes in applicable laws (including regulations) or interpretations of laws and our PRC subsidiaries are required but
unable to obtain approvals in the future, then such changes or need for approvals (if not obtained) could adversely affect the operations
of our PRC subsidiaries and the value of IMTE shares could significantly decline or become worthless.
IMTE has operating subsidiaries based in Hong
Kong and the PRC. IMTE is not aware of any restrictions or limitations on foreign currency exchange in Hong Kong, or on the ability to
transfer cash between entities. Nor is IMTE aware of any restrictions and limitations on the ability of Hong Kong subsidiaries to distribute
earnings from their businesses to IMTE.
As for PRC subsidiaries, the Chinese government
has controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, the Chinese
government could impose administrative requirements or make it otherwise difficult to remit foreign currency for the payment of dividends
from our profits, if any. Furthermore, if our subsidiaries and affiliates in the PRC incur debt on their own in the future, the instruments
governing the debt could restrict their ability to pay dividends or make other payments. If IMTE or our subsidiaries were unable to receive
all of the revenue from our operations, IMTE could be unable to pay dividends on our ordinary shares. Additional details on the convertibility
of RMB into foreign currencies is set out in the “Risks Related to Doing Business in China” in the “Risk Factors”
section.
On December 16, 2021, the Public Company Accounting
Oversight Board (“PCAOB”) issued a report notifying the SEC of its determination that it is unable to inspect or investigate
completely accounting firms headquartered in mainland China or Hong Kong. Our auditor, Audit Alliance LLP, is a PCAOB-registered firm
based in Singapore and is subject to the laws applicable in the United States pursuant to which the PCAOB conducts regular inspections
to assess its compliance with the applicable professional standards. As of the date of this annual report, under the Holding Foreign Companies
Accountable Act (“HFCA Act”), the PCAOB is permitted to inspect our independent public accounting firm. Therefore, we do not
expect that the HFCA Act, the Accelerating Holding Foreign Companies Accountable Act and related regulations will affect IMTE, including
the time frame change in PCAOB inspections for two consecutive years instead of three years. We have not been identified nor do we expect
to be identified by the SEC under the HFCAA. Further details are set out in the “Risks Related to Doing Business in China”.
ITEM 3. KEY INFORMATION
A. [Reserved]
B. Capitalization
and Indebtedness
Not applicable.
C. Reasons
for the Offer and Use of Proceeds
Not applicable.
D. Risk
Factors
The following risks relate
specifically to our business and should be considered carefully. Our business, financial condition and results of operations could be
harmed by any of the following risks. The risks and uncertainties described below are not the only ones that we face. Additional risks
and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any
of the following risks and uncertainties develops into actual events, our business, financial condition, and results of operations could
be materially and adversely affected, and the trading price of our Ordinary Shares could decline. As a result of the above factors, the
trading price of our Ordinary Shares could decline, and the holders could lose part or all of their investment.
IMTE is a holding company incorporated in Australia
with operations conducted by its subsidiaries based in Hong Kong and PRC. Due to our group structure, a substantial portion of our business
operations and assets are subject to unique risks relating to the uncertain development, interpretation and application of PRC laws, including
uncertain actions that Chinese authorities can take against companies. The Chinese government can take unpredictable action with little
advance notice, including seeking to intervene or influence operations. Our PRC- based subsidiaries could be subject to sanctions imposed
by PRC regulatory agencies if they fail to comply with existing or new PRC laws and any such sanctions could negatively affect our financial
performance and results of operations and, as a result, could cause the value of IMTE shares to significantly decline or become worthless. Given
IMTE is an Australian corporation, no approval of any Chinese authority is required for the offer and sale of IMTE’s ordinary shares.
There is no liquidity risk in relation to trading of IMTE ordinary shares as IMTE is incorporated in Australia and our ordinary shares
are listed on Nasdaq. PRC authorities could, however, block further foreign investment into our PRC and Hong Kong-based subsidiaries.
If this were to occur, it could have a material adverse effect on our consolidated operations and thereby cause the value of IMTE’s
ordinary shares to significantly decline or become worthless.
The Chinese government has exercised, and may
continue to exercise, substantial influence or control over virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in China could be undermined if our PRC subsidiaries are not able to obtain or maintain approvals to
operate in China. The central or local governments could impose new, stricter regulations or interpretations of existing regulations that
could require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. If our
PRC subsidiaries do not receive or maintain approvals, inadvertently conclude that approvals needed for their business are not required
or if there are changes in applicable laws (including regulations) or interpretations of laws and our PRC subsidiaries are required but
unable to obtain approvals in the future, then such changes or need for approvals (if not obtained) could adversely affect the operations
of our PRC subsidiaries and the value of IMTE shares could significantly decline or become worthless.
In addition, IMTE’s subsidiaries are subject to legal and operational
risks associated with their operations in China. PRC laws governing our current business operations, including the electronic glass manufacturing
operation, are sometimes subject to interpretation of the competent authorities. Recently, the Chinese government initiated a series of
regulatory actions and statements to regulate businesses in China with little advance notice, including cracking down on illegal activities
in the securities market, enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope
of cybersecurity reviews, gathering and processing of data, and expanding the efforts in anti-monopoly enforcement. Any such actions directed
at IMTE’s subsidiaries could adversely affect their operations and thereby cause the value of IMTE shares to significantly decline
or become worthless. Further details are set out in the “Risks Related to Doing Business in China” in the “Risk Factors”
Section.
General Risks
The recurrence of
the coronavirus disease (“COVID-19”), or similar adverse public health developments in Korea, China and Hong Kong, may materially
and adversely affect our business and operating results.
The COVID-19 is currently
impacting countries, communities, supply chains and markets globally. The outbreak of COVID-19 in Korea, China and Hong Kong
has resulted and may continue to result in increased travel restrictions, border control, and shutdown of businesses, which may cause
slower recovery of the global economies. We may experience impact from quarantines and market downturns related to pandemic fears and
impact on our workforce if the virus continues to spread. COVID-19 affects our workforce and supplier’s workforce, and as a result we
are experiencing a slow resumption of operations and may experience delays or the inability to deliver goods on a timely basis. In addition,
one or more of our customers, partners, service providers or suppliers may experience financial distress, delayed or defaults on payment,
file for bankruptcy protection, sharp diminishing of business, or suffer disruptions in their business due to the outbreak. The extent
to which the COVID-19 impacts our results are highly uncertain and will include emerging information concerning the severity of the COVID-19
and the actions taken by governments at various levels and private businesses to attempt to contain the virus. Wider-spread COVID-19 in the
countries we operate and globally could prolong the deterioration in economic conditions and could cause decreases in demand and
reduce and/or negatively impact our ability to grow our revenues. Any decreased collectability of accounts receivable, bankruptcy of small
and medium businesses, or early termination of agreements due to deterioration in economic conditions could negatively impact our results
of operations. Although the Company is taking measures to mitigate the effect as much as possible, there is no assurance that the steps
will be sufficient. In most respects it is still early in the pandemic to be able to quantify all the ramifications.
Geopolitical and other
challenges and uncertainties due to the ongoing military conflict between Russia and Ukraine could have a material adverse effect on the
global economy, certain material and commodity prices and our business.
Global markets are currently
operating in a period of economic uncertainty, volatility and disruption following Russia’s full-scale invasion of Ukraine on February
24, 2022. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine and any other
geopolitical tensions could have an adverse effect on the economy and business activity globally and lead to:
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credit and capital market disruptions; |
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significant volatility in commodity prices (such as grains, fertilizer inputs and oil and gas); |
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increased expenses related to direct and indirect materials used in our production process (i.e., packaging, logistics and inputs, among others); |
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increased costs of resources (such as energy, natural gas and coal) for our operations; |
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slowdown or disruption of the global and local supply chain, which may lead to shortages and lack of critical materials, commodities and products in the market; |
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potential appreciation of the U.S. dollar; |
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increase in interest rates and inflation in the markets in which we operate, which may contribute to further increases in the prices of energy, oil and other commodities; and |
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lower or negative global growth. |
Any such event may increase our costs and adversely affect our business
if we are not able to pass such increased costs onto our customers.
Additionally, Russia’s
prior annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent
military interventions in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other
countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s
Republic, including the agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial
Telecommunication, or SWIFT, payment system. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian
military actions, the resulting sanctions and Russian counter measures or retaliatory actions (including cyberattacks and espionage) could
adversely affect the global economy and financial markets and lead to further instability and lack of liquidity in capital markets.
The impact of these measures,
as well as potential responses to them by Russia, is currently unknown and, while we currently have no exposure to Russia and Ukraine,
current and future measures could significantly and adversely affect our business, financial condition and results of operations, including,
for example, increase in costs of exporting to Europe for our halal products, potential sanctions in the marketing of our products to
Russia and threats to the safety of our employees in locations close to the conflict. Geopolitical and economic risks have also increased
over the past few years as a result of trade tensions between the United States and China, Brexit, and the rise of populism. Growing tensions
may lead, among others, to a deglobalization of the world economy, an increase in protectionism or barriers to immigration, a general
reduction of international trade in goods and services and a reduction in the integration of financial markets, any of which could materially
and adversely affect our business, financial condition, and results of operations.
We are continuing to
monitor the situation in Russia, Ukraine and globally and assess its potential impact on our business. Any of the abovementioned factors
could adversely affect our business, prospects, financial condition, and operating results. The extent and duration of the military action,
sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify
the impact of other risks described elsewhere in this annual report.
Risks Related to Our
Business
We have a history of operating losses and
may not achieve profitability in the future.
We have a long history
of operating losses and, unless we are able to generate sufficient and consistent revenue, we will incur losses from operations and may
not achieve or maintain profitability. As of December 31, 2021, we had an accumulated deficit of A$37,169,358. For the year ended December
31, 2021 we recorded loss of A$6,585,626 which was mainly resulted from the decline in sales of our 3D display products due to the
worldwide pandemic. Our 3D display sales are targeted to consumer and the advertising sectors, both of which have been adversely effected
by the pandemic. The Company could not sell its 3D products and services on a consistent basis through distribution channels to commercial
and consumer sectors to increase revenue. Therefore, the Company has been broadening its revenue base by expanding its business to electronic
glass, nano-coated plate air filters and air purifier products, halal certification and sale of halal products, and the operation of a
digital asset exchange. At the end of 2021, the Company stopped the sale of its 3D display products to curtail its overhead costs due
to the prolonged pandemic outlook. In addition, the Company will continue to try to increase sales in other products, and reduce its operating
overhead to return to profitability. There is no certainty that we can solve these issues facing the Company.
If we fail to achieve
profitability, or if we are unable to fund our continuing operations, our business will be harmed, and the holders of our Ordinary Shares
could lose all or part of their investment. There is a substantial risk that we may not be able to fund the new businesses in nano-coated
plate filters, the lamination operation for switchable glass, halal certification and sale of halal products, and operating of a digital
assets exchange. We will rely on halal certification and sale of halal food, operating the digital assets exchange, sale of switchable
glass, and nano-coated plate filters, to generate revenues in the future. It is possible that none of them will be successfully commercialized
which would prevent us from achieving and maintaining profitability.
We have a limited operating history, and
it may be difficult for potential investors to evaluate our business.
We are just starting our new businesses in nano-coated
plate filters, the lamination operation for switchable glass, halal certification and sale of halal products, and operating of a digital
assets exchange (“New Businesses”). Our limited operating history in these New Businesses makes it difficult for potential investors
to evaluate our New Businesses or prospective operations with long term view. We are subject to all the risks inherent in the initial
organization, financing, expenditures, complications and delays inherent in these relatively new businesses. Our New Businesses may face
delays in sales and financing from suppliers due to our new entry into the market of our products or services which may face challenges
in consumer recognition and acceptance, where more established players and products have better resources to penetrate the markets. Moreover,
as a new entrant in these competitive markets, we face many questions on our Company, organization, finances, and product information
before distributors are willing to carry our products into their network. Thus, it takes additional time to establish distributor network
for our products, and for these distributors to accept our products into their network. Our products may never be accepted by distributors
and thereby hinder our ability to sell our products in the target markets. Investors should evaluate an investment in us considering the
uncertainties encountered by such companies in a competitive environment. Our New Businesses is dependent upon the implementation of our
business plan for each business segment, as well as the ability to access continuous innovation in our products and improve our services.
There can be no assurance that our efforts will be successful or that we will be able to attain profitability.
We may incur significant delays and/or
expenses relating to the COVID-19 outbreak in Korea, China and Hong Kong.
Beginning in late 2019,
COVID-19 was reported in Wuhan, China. The World Health Organization has declared the outbreak to constitute a “Public Health Emergency
of International Concern.” This has prompted government-imposed quarantines, closures of certain travel and businesses. In February
2022, the Company temporarily shut down its Hong Kong office for a few weeks due to a staff family member contracting the virus. In addition,
from March 2022 the borders between Hong Kong and Shenzhen, China has been severely restricted making travel between Hong Kong and mainland
China prohibitively difficult. In April 2022, the restriction in travel and the border situation have somewhat eased. In 2022, our offices
have generally been open but some of our staff have been working remotely from home. This has delayed in delivery of products to our factory,
interruption of the supply chain, and the effects of the increase in logistic costs for shipping goods. Our sales activities have been
severely affected by the pandemic due to travel restrictions in Hong Kong and China. It is presently unknown whether and to what extent
the Company’s sales pipeline may be affected if the pandemic persists for an extended time. The Company will likely incur significant
losses as most of our sales are expected to be derived from selling our electronic glass, air filters and air purifiers, and halal products
- all requiring close interaction with our sales distributors and customers as our products and services are new to the markets. This
restriction in travel could have a material adverse impact on our business, operating results, and financial condition.
We will require additional
financing in the future to sufficiently fund our operations.
We had incurred a significant
loss in for the past 3 years from 2019 to 2021, and we may incur losses in the future as we continue to develop our businesses in new
businesses in nano-coated plat filters, the lamination operation for switchable glass, halal certification and sale of halal products
and operating of a digital assets exchange. Our actual cash requirements may vary from those now planned and will depend upon many factors,
including: the timing, costs and results of commercialization of our products; the commercial potential of our products; our ability to
outsource manufacturing capabilities; and the status and timing of competitive developments.
We anticipate that as
the development of our businesses including the capital-intensive lamination operation for our switchable glass operation, we will require
additional funds to achieve our long-term goals of commercialization. In addition, we will require funds to defend our intellectual property
rights, outsource manufacturing capacity, develop marketing and sales capability and fund operating expenses for all our products. We
intend to seek such additional funding through public or private financings and or other arrangements with corporate partners. However,
such financing, licensing opportunities or other arrangements may not be available from any sources on acceptable terms, or at all. Any
shortfall in funding could result in our having to curtail or sell or cease our operations, which would harm our business, financial conditions,
and results of operations.
We have limited cash
resources and if we cannot raise additional funds or generate more revenues, we will not be able to pay our vendors and will probably
not be able to continue as a going concern.
We will need to raise
additional funds to pay outstanding debts, purchase of lamination equipment, vendor invoices and execute our business plan. Our future
cash flows depend on our ability to enter into, and be paid under, contracts with our distributors for the sale of halal products, switchable
glass and the nano-coated plate filters and air purifiers. There can be no assurance that additional funds will be available when needed
from any source or, if available, will be available on terms that are acceptable to us.
We may be required to
pursue sources of additional capital through various means, including joint venture projects and debt or equity financings. Future financings
through equity investments will be dilutive to existing shareholders. Also, the terms of securities we may issue in future capital transactions
may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, and the issuance
of warrants or other convertible securities, which will have additional dilutive effects. Further, we may incur substantial costs in pursuing
future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and
other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible
notes and warrants, which will adversely impact our financial condition and results of operations.
Our ability to obtain
needed financing may be impaired by such factors as the weakness of capital markets and the fact that we have incurred a substantial loss
in the past few years which could impact the availability or cost of future financing. If the amount of capital we are able to raise from
financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that
we reduce our operations, we may be required to sell or cease operations.
Our limited operating
history and rapidly evolving business makes it difficult for us to accurately forecast revenues and expenses.
We have a limited operating history on which to
base an evaluation of our business and prospects, especially since our businesses are newly established. Our operating results may fluctuate
as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a
period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.
Our prospects must be considered in light of inherent risks, expenses, and difficulties encountered by companies in their early stages
of development, particularly in new and evolving markets.
Some of the other risks
and uncertainties of our business relate to our ability to:
- offer innovative products
and services across our businesses to attract and retain customer base;
- attract customers;
- increase awareness
of our brand and continue to develop consumer and customer loyalty;
- respond to competitive
market conditions;
- respond to changes
in our regulatory environment;
- manage risks associated
with intellectual property rights;
- maintain effective
control of our costs and expenses;
- raise sufficient capital
to sustain and expand our business;
- attract, retain and
motivate qualified personnel; and
- upgrade our technology
to support increased traffic and expanded services.
If we are unsuccessful
in addressing any of these risks and uncertainties, our business may be materially and adversely affected.
The development of
our business is dependent upon the completion and integration of acquisitions and other transactions that have only recently closed or
incurred in the future.
Our business may not be successful if we are unable to successfully
operate and integrate the businesses we acquire such as the nano-coated plate filter business. Accordingly, it is difficult to evaluate
our business based upon our historical financial results. We expect to continually look for new businesses to acquire to develop and grow
our operations. If we fail to identify such business, or are unable to acquire such businesses on reasonable terms, or fail to successfully
integrate such businesses, our operating results and prospects could be harmed.
We face significant
competition and may suffer from a loss of customers as a result.
We expect to face significant
competition in our nano-coated plate filter, switchable glass, halal products and digital assets marketplace businesses, particularly
from other companies that seek to provide similar products and services. Many of these competitors have significantly greater financial
resources and more personnel than we have. They may also have longer operating histories and more experience in attracting, retaining
and managing customers. They may use their experience and resources to compete with us in a variety of ways, including by competing more
for users, customers, distributors, media channels and by investing more heavily in research and development and making acquisitions.
If we fail to compete effectively, our business, financial condition and results of operation will be adversely affected.
Exchange rate fluctuations
will continue to affect our reported results of operations.
The functional currency
of each of our Group’s entities is measured using the currency of the primary economic environment in which that entity operates. For
our operations in Korea, China and Hong Kong, the functional currency for the companies operating in these territories will have a functional
currency of South Korea won, Chinese Renminbi and Hong Kong dollars, respectively. Substantially all of our revenues are realized, and
a significant portion of our operating costs are incurred, in Korea, Chinese Renminbi and Hong Kong dollars. Movement in currency exchange
rates will also affect cash denominated in U.S. dollars and Australian dollars and therefore will affect our reported results of operations.
We have limited manufacturing
experience with our production candidates. Delays in manufacturing sufficient quantities of products may negatively impact our business
and operations.
We have limited manufacturing
experience. We manufacture nano-coated plate filters. In the second half of 2022, we expect to operate the lamination lines for the switchable
glass, but we may not have the expertise, staffing and technical capability to operate a successful and profitable manufacturing operation.
We may need to develop additional manufacturing resources, enter into collaborative arrangements with other parties, or have third parties
manufacture our products on a contract basis. We may not have access, on acceptable terms, to financing required to scale-up production
and develop commercial manufacturing processes. We may not be able to enter into collaborative or contractual arrangements on acceptable
terms with third parties that will meet our requirements for quality, quantity and timeliness. Such delays and hurdles could harm our
business, financial condition and results of operations.
To the extent we rely
significantly on contractors, we will be exposed to risks related to the business conditions of our contractors.
We are a small company
and we rely on a variety of contractors to manufacture our air filters and air purifier products. Adverse events that affect one or more
of our contractors could adversely affect us. For example:
| ● | a contractor is unable to retain key staff that have been
working on our manufacturing orders; |
| ● | a contractor produces substandard products that are unacceptable
to us; |
| ● | a contractor is unable to sustain operations due to financial
or other business issues; |
| ● | a contractor loses its business
permits or licenses that may be required to manufacture our products; or errors, negligence or misconduct that occur within a contractor
may adversely affect our business concerns although we may not be directly responsible. |
To the extent we are
able to enter into collaborative arrangements or strategic alliances, we will be exposed to risks related to those collaborations and
alliances.
An important element
of our strategy for developing, manufacturing and commercializing our nano-coated plate filter and halal products is entering into partnerships
and strategic alliances with other distribution companies or other industry participants to advance our distribution capabilities and
enable us to maintain our financial and operational capacity. We may not be able to negotiate alliances on acceptable terms, if at all.
Although we are not currently parties to any collaborative arrangements or strategic alliances that we believe are material to our business.
In the future we may rely on collaborative arrangements or strategic alliances to complete the development and commercialization of some
of our nano-coated plate filter and halal products. Although we have no specific reason to believe that we will be at a disadvantage when
negotiating such collaborative arrangements or strategic alliances, our negotiating position will be influenced by our financial capacity
at the relevant time to continue the development and commercialization of the relevant products, as well as the timing of any such negotiations
and the stage of development of the relevant product candidate. These arrangements may result in us receiving less revenue than if we
sold such products directly, may place the development, sales and marketing of our products outside our control, may require us to relinquish
important rights or may otherwise be on terms unfavorable to us. Collaborative arrangements or strategic alliances will subject us to
a number of risks, including the risk that:
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we may not be able to control the amount and timing of resources that our strategic partners/collaborators may devote to our products; |
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our strategic partners/collaborators may experience financial difficulties; |
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we may be required to relinquish important rights such as marketing and distribution rights; |
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business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement; |
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a collaborator could independently move forward with a competing product developed either independently or in collaboration with others, including our competitors; and |
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collaborative arrangements are often terminated or allowed to expire, which would delay the development and may increase the cost of developing our product candidates. |
We may face intellectual
property infringement claims and other related claims that could be time-consuming and costly to defend and may result in our inability
to continue providing certain of our existing services.
Technology and service
companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition,
and invasion of privacy, defamation and other violations of third-party rights. The validity, enforceability and scope of protection of
intellectual property, particularly in China, are uncertain and still evolving. In addition, many parties are actively developing and
seeking protection for electronics technologies, including seeking patent protections. There may be patents issued or pending that are
held by others that cover significant aspects of our technologies, products, business methods or services. As we face increasing competition
and as litigation becomes more common in the United States, China, Hong Kong and elsewhere in Asia for resolving commercial disputes,
we face a higher risk of being the subject of intellectual property infringement claims.
Intellectual property
litigation is expensive and time-consuming and could divert resources and management attention from the operations of our businesses.
If there is a successful claim of infringement, we may be required to pay substantial fines and damages or enter into royalty or license
agreements that may not be available on commercially acceptable terms, if at all. Our failure to obtain a license of the rights on a timely
basis could harm our business. Any intellectual property litigation could have a material adverse effect on our business, financial condition
or results of operations.
If we fail to maintain
an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent
fraud.
We are subject to reporting obligations under
the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public
company to include in its annual report a management report on such company’s internal controls over financial reporting which contains
management’s assessment of the effectiveness of the company’s internal controls over financial reporting. In addition, if the Company
qualifies under certain revenue or market capitalization test an independent registered public accounting firm must attest to and report
on management’s assessment of the effectiveness of the company’s internal controls over financial reporting. In addition, an independent
registered public accounting firm must attest to and report on management’s assessment of the effectiveness of the company’s internal
controls over financial reporting. Our management may conclude that our internal controls over financial reporting are not effective.
Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered
public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if they are
not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets
the relevant requirements differently from us. Our reporting obligations as a public company will place a significant strain on our management,
operational and financial resources and systems for the foreseeable future. We are a Company with a small team of accounting personnel
and other resources with which to address our internal financial controls and procedures. If we fail to timely achieve and maintain the
adequacy of our internal financial controls, we may not be able to conclude that we have effective internal controls over financial reporting
at a reasonable assurance level. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable
financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls
over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn
could harm our business and negatively impact the market price of our shares.
If we fail to attract
customers for our nano-coat plated filter, switchable glass products, halal products and services, and digital asset marketplace, our
growth prospects could be seriously harmed.
Our distributors will
not work with us if our products and services offerings do not sell well or do not have adequate sales margin for their sales channels.
In addition, our customers will not maintain their business relationships with us if we cannot secure attractive competitive products
and service offerings. Failure to retain customers, distributors or channel partners could seriously harm our business and growth prospects.
Because we primarily
rely on distributors in distributing our halal products, nano-coated plate filter products and switchable glass products, our failure
to retain key distributors or attract additional distributors could materially and adversely affect our business.
We mainly rely on distributors
to sell our halal products, nano-coated plate filter products and switchable glass products. If our distributors do not provide quality
services to its customers, they may lose customers and our results of operations may be materially and adversely affected indirectly.
There is no assurance that we can maintain favorable relationships with our current distributors. Our distribution arrangements will be
non-exclusive. Furthermore, some of our potential distributors may have contracts with our competitors or potential competitors and may
not sign distribution agreements with us. If we fail to retain our key distributors or attract additional distributors on terms that are
commercially reasonable, our business and results of operations could be materially and adversely affected.
We operate in a capital-intensive
industry and require a significant amount of cash to fund our lamination operations and to manufacture our electronic glass. If we fail
to obtain sufficient capital to fund our lamination equipment and operations, our business, financial condition and future prospects may
be materially and adversely affected.
The operation of manufacturing
electronic glass requires significant and continuous investment in equipment. Manufacturing the electronic glass is costly due to the
need to build up inventory for large construction projects which typically requires the glass to be installed at the final stage of construction.
The ability and possibly the need to fund this working capital requirement may determine the ability to win contracts. If we cannot obtain
adequate capital to meet our capital needs, we may not be able to fully execute our strategic plans for growth and our business, financial
condition and prospects may be materially and adversely affected.
We are subject to
payment processing risk.
Our marketplace and e-commerce
customers pay for their services using a variety of different online payment methods. We rely on third parties to process such payments.
Acceptance and processing of these payment methods are subject to certain rules and regulations and require payment of interchange and
other fees. To the extent there are increases in payment processing fees, material changes in the payment ecosystem, such as delays in
receiving payments from payment processors and/or changes to rules or regulations concerning payment processing, our revenues, operating
expenses and results of operations could be adversely impacted.
Security breaches
and attacks against our internal systems and network, and any potential resulting breach or failure to otherwise protect confidential
and proprietary information, could damage our reputation and negatively impact our business, as well as materially and adversely affect
our financial condition and results of operations.
Although we have employed resources to develop
security measures against unauthorized access to our systems and networks, our cybersecurity measures may not successfully detect or prevent
all unauthorized attempts to access the data on our network or compromise and disable our systems. Unauthorized access to our network
and systems may result in the misappropriation of information or data, deletion or modification of user information, or a denial-of-service
or other interruption to our business operations. As techniques used to obtain unauthorized access to or sabotage systems change frequently
and may not be known until launched against us or our third-party service providers, we may be unable to anticipate, or implement adequate
measures to protect against these attacks. If we are unable to avert these attacks and security breaches, we could be subject to significant
legal and financial liability, our reputation would be harmed and we could sustain substantial revenue loss from user dissatisfaction.
We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Actual or
anticipated attacks and risks may cause us to incur significantly higher costs, including costs to deploy additional personnel and network
protection technologies, train employees, and engage third-party experts and consultants. Cybersecurity breaches would not only harm our
reputation and business, but also could materially decrease our revenue and net income.
Disruption or failure
of our IT systems could impair our users’ online experience and adversely affect our reputation.
Our ability to provide
users with a high-quality online experience on our marketplace and e-commerce platform depends on the continuous and reliable operation
of our IT systems. We cannot assure you that we will be able to procure sufficient bandwidth in a timely manner or on acceptable terms
or at all. Failure to do so may significantly impair user experience on our platform and decrease the overall effectiveness of our platform
to our users.
If we experience frequent
or persistent service disruptions, whether caused by failures of our own systems or those of third-party service providers, our users’
experience may be negatively affected, which in turn, may have a material and adverse effect on our reputation. We cannot assure you that
we will be successful in minimizing the frequency or duration of service interruptions.
We face risks related
to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
We are vulnerable to
natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war,
riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology platform failures
or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect
our ability to produce video content or provide products and services on our e-commerce platform.
Our business operations
could be disrupted if any of our employees are suspected of having COVID-19, Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, SARS
or other epidemic, since we could require our employees to be quarantined and/or our offices to be disinfected. In addition, our business,
financial condition or results of operations could be materially and adversely affected to the extent that any of these epidemics harms
the global economy in general.
Our failure to protect
our intellectual property rights could have a negative impact on our business.
We believe our brand,
trade names, trademarks and other intellectual property are critical to our success. The success of our business depends substantially
upon our continued ability to use our brand, trade names and trademarks to increase brand awareness and to further develop our brand.
The unauthorized reproduction of our trade names or trademarks could diminish the value of our brand and our market acceptance, competitive
advantages or goodwill. In addition, our proprietary information, which has not been patented or otherwise registered as our property,
is a component of our competitive advantage and our growth strategy.
Monitoring and preventing
the unauthorized use of our intellectual property is difficult. The measures we take to protect our brand, trade names, trademarks and
other intellectual property rights may not be adequate to prevent their unauthorized use by third parties. In addition, the application
of laws governing intellectual property rights in Malaysia, China and other countries are uncertain and evolving, and could involve substantial
risks to us. To our knowledge, the relevant authorities in China historically have not protected intellectual property rights to the same
extent as the United States. If we are unable to adequately protect our brand, trade names, trademarks and other intellectual property
rights, we may lose these rights and our business may suffer materially. Further, unauthorized use of our brands, trade names or trademarks
could cause brand confusion among advertisers and harm our reputation as a provider of high quality and comprehensive advertising services.
If our brand recognition decreases, we may lose advertisers and fail in our expansion strategies, and our business, results of operations,
financial condition and prospects could be materially and adversely affected.
The creation of non-fungible
token (“NFT”) marketplace is dependent on our ability to develop an acceptable blockchain.
Our ability to create
NFTs that can be minted, accepted and transferred is dependent on our ability to develop an accepted and secured blockchain. Failure to
develop a secured and reliable blockchain, will adversely affect our ability to create a marketplace where our users can trade, purchase
and sell their NFTs.
We do not have any
access or working relationship with metaverse universe platform and no assurance can be given that we will have a third party metaverse
platform that will be accepted by our users or generate sufficient interest.
We do not have a metaverse
platform to feature our NFT. It is our intent that we will cooperate with a metaverse platform featuring a virtual world containing immersive
experiences in social networking, gaming and NFT, boasting a wide range of “online + offline” and “virtual + reality”
scenarios to promote the development of new content by creators and owners of NFT.
There can be no assurance
that the market for NFTs will be developed and/or sustained, which may materially adversely affect our business operations.
The market for digital assets, including, without
limitation, NFTs, is still nascent. Accordingly, the market for NFTs may not develop, of if a market does develop, such value be maintained.
If no market develops for NFTs in the future, it may be difficult or impossible for us to develop and maintain a marketplace where our
users can trade, purchase and sell their NFTs.
The technology underlying
blockchain technology is subject to a number of industry-wide challenges and risks relating to consumer acceptance of blockchain technology.
The slowing or stopping of the development or acceptance of blockchain networks and blockchain assets would have a material adverse effect
on the successful development of our NFT marketplace platform.
The growth of the blockchain
industry is subject to a high degree of uncertainty regarding consumer adoption and long-term development. The factors affecting the further
development of the blockchain and NFT industry include, without limitation:
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Worldwide growth in the adoption and use of NFTs and other blockchain technologies; |
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government and quasi-government regulation of NFTs and their use, or restrictions on or regulation of access to and operation of blockchain networks or similar systems; |
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the maintenance and development of the open-source software protocol of blockchain networks; |
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changes in consumer demographics and public tastes and preferences; |
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the availability and popularity of other forms or methods of buying and selling goods and services, or trading assets, including new means of using government-backed currencies or existing networks; |
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the extent to which current interest in NFTs represents a speculative “bubble”; |
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general economic conditions in the United States and the world; |
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the regulatory environment relating to NFTs and blockchains; and |
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a decline in the popularity or acceptance of NFTs or other digital assets. |
The NFT industry as a
whole has been characterized by rapid changes and innovations and is constantly evolving. Although it has experienced significant growth
in recent years, the slowing or stopping of the development, general acceptance and adoption and usage of blockchain networks and blockchain
assets may deter or delay the acceptance and adoption of NFTs.
The slowing or stopping
of the development, general acceptance and adoption and usage of blockchain networks or blockchain assets may adversely impact the value
of NFTs. The value of specific NFTs relies on the development, general acceptance and adoption and usage of the applicable blockchain
network which depends on ability to readily access the applicable network.
The prices of digital
assets are extremely volatile.
Decreases in the price
of even a single other digital asset may cause volatility in the entire digital asset industry and may affect the value of other digital
assets. For example, a security breach or any other incident or set of circumstances that affects purchaser or user confidence in
a well-known digital asset may affect the industry as a whole and may also cause the price of other digital assets, including NFTs, to
fluctuate.
If we cannot continue
to innovate technologically or develop, market and sell new products and services, or enhance existing technology and products and services
to meet customer requirements, our ability to grow our revenue could be impaired.
Our growth largely depends
on our ability to innovate and add value to our existing creative platform and to provide our customers and contributors with a scalable,
high-performing technology infrastructure that can efficiently and reliably handle increased customer and contributor usage globally,
as well as the deployment of new features. We will continually make investments to maintain and enhance the technology and infrastructure
and to evolve our information processes and computer systems in order to run our business more efficiently and remain competitive. We
may not achieve the anticipated benefits, significant growth or increased market share from these investments for several years,
if at all. If we are unable to manage our investments successfully or in a cost-efficient manner, our business and results of operations
may be adversely affected.
The value of NFT is
uncertain and may subject us to unforeseeable risks.
NFTs are unique, one-of-a-kind digital assets
made possible by certain digital asset network protocols. Because of their non-fungible nature, NFTs introduce digital scarcity and have
become popular as online “collectibles,” similar to physical rare collectible items, such as trading cards or art pieces. Like
real world collectibles, the value of NFTs may be prone to “boom and bust” cycles as popularity increases and subsequently subsides.
If any of these bust cycles were to occur, it could adversely affect the value of certain of our future strategies. In addition, because
NFTs generally rely on the same types of underlying technologies as digital assets, most risks applicable to digital assets are also applicable
to NFTs, which will subject us to general digital assets risks as described elsewhere in these risk factors.
A particular digital
asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and depending upon the
activities undertaken by our customers utilizing our products and services, we and our customers may be subject to regulatory scrutiny,
investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.
The SEC and its staff
have taken the position that certain digital assets fall within the definition of a “security” under the U.S. federal securities
laws. The legal test for determining whether any given digital asset is a security is a highly complex, fact-driven analysis that evolves
over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status
of any particular asset as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict
the direction or timing of any continuing evolution. With respect to various digital assets, there is currently no certainty under the
applicable legal test that such assets are not securities, notwithstanding the conclusions we may draw based on our risk-based assessment
regarding the likelihood that a particular asset could be deemed a “security” under applicable laws.
The classification of
a digital asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer,
sale and trading of such assets. For example, a digital asset that is a security in the United States may generally only be offered or
sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from
registration. Persons that effect transactions in assets that are securities in the United States may be subject to registration with
the SEC as a “broker” or “dealer.” Platforms that bring together purchasers and sellers to trade digital assets that
are securities in the United States are generally subject to registration as national securities exchanges, or must qualify for an exemption,
such as by being operated by a registered broker-dealer as an alternative trading system, or ATS, in compliance with rules for ATSs. Persons
facilitating clearing and settlement of securities may be subject to registration with the SEC as a clearing agency. Foreign jurisdictions
may have similar licensing, registration, and qualification requirements.
If the SEC, foreign regulatory
authority, or a court were to determine that a supported digital asset offered, sold, or traded by one of our customers on a platform
provided by us is a security, our customer would not be able to offer such asset for trading until it was able to do so in a compliant
manner, which would require significant expenditures by the customer. In addition, we or our customer could be subject to judicial or
administrative sanctions for failing to offer or sell the digital asset in compliance with the registration requirements, or for acting
as a broker, dealer, or national securities exchange without appropriate registration. Such an action could result in injunctions, cease
and desist orders, as well as civil monetary penalties, fines, disgorgement, criminal liability, and reputational harm which could negatively
impact our business, operating results, and financial condition.
As a branded goods
business, our success depends on the value and relevance of our brand and products to consumers and on our ability to innovate and remain
competitive.
For halal products, consumer
tastes, preferences and behaviors are constantly changing and our ability to anticipate and respond to these changes and to continue to
maintain loyalty to the halal products we distribute is vital to our business. If we are unable to innovate effectively, our sales or
margins could be materially adversely affected.
The successful introduction
of innovative products and packaging on a periodic basis has become increasingly important to our ability to maintain and grow our sales
in halal products. Accordingly, the continued acceptance of our products and the future degree of market acceptance of any of products,
which may be accompanied by significant promotional expenditures, is likely to have an important impact on our future financial results.
We may not be able
to compete effectively in the highly competitive halal food markets.
The halal food markets
are highly competitive. In addition, many of our principal competitors are large, diversified companies with resources significantly greater
than ours. We expect strong competition to continue, including competition for adequate distribution and competition for the limited shelf
space for the halal categories in supermarkets and other retail food outlets. Competition in our product categories is based on product
innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, and the ability to
identify and satisfy consumer preferences. Our ability to grow our revenue could also be adversely impacted if we are not successful in
introducing innovative products in response to changing consumer demands or by new product introductions of our competitors. If we are
unable to build and sustain brand equity by offering recognizably superior product quality, we may be unable to maintain pricing advantages
over competitive products.
From time to time, our
customers experience price pressure in some of our markets as a result of competitors’ promotional pricing practices as well as general
market conditions. Our failure to match or exceed our competitors’ cost reductions through innovative products and other improvements
could weaken our competitive position. Competition is based on product quality, reliability, food safety, distribution effectiveness,
brand loyalty, price, effective promotional activities, the ability to identify and satisfy emerging consumer preferences and the ability
to provide ancillary support services. We may not be able to compete effectively with these larger, more diversified companies.
A material change
in consumer demand for our halal products could have a significant impact on our business.
For our halal business we rely on continued demands
from consumers for our products. To achieve business goals, we must develop and sell halal products that appeal to consumers. If demand
and growth rates fall substantially below expected levels, our results could be negatively impacted. This could occur due to unforeseen
negative economic or political events or to changes in consumer trends and habits.
Economic conditions
adversely affecting consumer discretionary spending may negatively impact our business and operating results.
We believe that our halal
products revenues and profitability are strongly correlated to consumer spending habits, which is influenced by general economic conditions,
unemployment levels, and the availability of discretionary income. In an economic downturn or in the event of the continued spread of
COVID-19, our business and results of operations could be materially and adversely affected.
The recent global
economic and financial market crisis due to COVID-19 has had and may continue to have a negative effect on our business and results of
operations.
Global economic conditions
as a result of COVID-19 have had a negative effect on our business and results of operations as the economic activity in China and throughout
much of the world has also undergone an economic downturn. As a result, the global credit and liquidity have tightened in much of the
world, some of our potential customers in Korea, China and Hong Kong may face business downturn and credit issues, and could experience
cash flow problems and other financial hardships, which could affect timeliness of doing business with us.
Changes in governmental
banking, monetary and fiscal policies to restore liquidity and increase credit availability may not be effective in alleviating the global
economic declines due to the COVID-19 pandemic. It is difficult to determine the breadth and duration of the economic and financial market
problems and the many ways in which they may affect our customers and our business in general. Nonetheless, continuation or further worsening
of these difficult financial and macroeconomic conditions could have a significant effect on our business and results of operations.
The success of our
business depends on the continuing contributions of key personnel who may terminate their employment with us at any time, and we will
need to hire additional qualified personnel.
We rely heavily on the
services of technical and management personnel. Loss of the services of any such individuals would adversely impact our operations. In
addition, we believe our technical personnel represent a significant asset and provide us with a competitive advantage over many of our
competitors and that our future success will depend upon our ability to retain these key employees and our ability to attract and retain
other skilled financial, engineering, technical and managerial personnel. We do not currently maintain any “key man” life insurance
with respect to any of such individuals.
Our success depends
on the continuing efforts of our senior management team and other key personnel and our business may be harmed if we lose their services.
Our future success depends
heavily upon the continuing services of the members of our senior management. If one or more of our senior executives or other key personnel
are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business
may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior
management and key personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services
of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future.
In addition, if any member
of our senior management team or any of our other key personnel joins a competitor or forms a competing company, we may lose customers,
distributors, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment
agreement with us which contains confidentiality and non-competition provisions. Legal proceedings to enforce such provisions would be
costly in both money and management time and such provisions may not be enforced or enforceable.
We rely on highly
skilled personnel and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.
Our performance and future
success depends on the talents and efforts of highly skilled individuals. We will need to continue to identify, hire, develop, motivate
and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense.
Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.
As competition in our
industry intensifies, it may be more difficult for us to hire, motivate and retain highly skilled personnel. If we do not succeed in doing
so, we may be unable to grow effectively.
We have no business
insurance coverage.
We do not have any business
liability or disruption insurance coverage for our operations in Korea, China and Hong Kong. Any business disruption, litigation or natural
disaster may result in our incurring substantial costs and the diversion of our resources.
We are exposed to
risks associated with the weakening global economy as a result of COVID-19, which increase the uncertainty of consumers purchasing products
and/or services.
The recent severe tightening of the credit markets,
turmoil in the financial markets, and weakening global economy due to COVID-19 pandemic are contributing to a decrease in spending by
consumers. If these economic conditions are prolonged or deteriorate further, as a result of COVID-19, the market for our products and
services will decrease accordingly.
Our Company may experience,
and continues to experience, rapid growth in operations, which may place, and may continue to place, significant demands on its management,
operational and financial infrastructure.
If the Company does not
effectively manage its growth, the quality of its products and services could suffer, which could negatively affect the Company’s brand
and operating results. To effectively manage this growth, the Company will need to continue to improve its operational, financial and
management controls and its reporting systems and procedures. Failure to implement these improvements could hurt the Company’s ability
to manage its growth and financial position.
Our Company’s business
faces inherent risk in the switchable glass and halal products and services.
Our Company’s business
is subject to certain risks inherent in the switchable glass and halal products and services. Our Company’s revenue and operating results
could be adversely affect by many factors which include, amongst others, changes in general economic, business and credit conditions,
fluctuation in foreign exchange rates, changes in demand for and market acceptance of our products and services, our ability to introduce
new products and services and enhancements in a timely manner, rapid technological changes, increase in operating expenses, lower profit
margins due to pricing competition and delay in expansion plans.
Our Company seeks to
limit these business risks through, inter-alia prudent management policies, keeping abreast with new developments and technologies in
the relevant industries and maintaining good relationship with customers and suppliers. However, there can be no assurance that any changes
in these factors will not have any material adverse effect on our Company’s business.
Our Company’s business
faces competitions from local and foreign competitors.
Our Company faces competitions
from both local and foreign competitors which offer similar products that of our Company offerings. Increased competitions could result
in competitive pricing resulting in lower profit margins. However, our Company believes that we have several competitive edges over our
competitors; including amongst others, better quality products, and technological expertise.
Our Company seeks to
limit the competitive risks through, inter-alia constant review of our product development and marketing strategies to adapt to changes
in economic conditions and market demands as well as focusing on certain markets and industries. However, there can be no assurance that
our Company will be able to compete effectively against our competitors and that competitive pressure will not materially and adversely
affect our Company’s business, operations and results and or financial condition.
Our production of
products from lamination machinery and nano-coat plating equipment involve a significant degree of risk and uncertainty in terms of operational
performance and costs.
We rely on complex machinery
for production of our products, and we may experience unexpected malfunctions from time to time requiring repairs and spare parts to fix
the equipment. The availability of spare parts may not be available when needed. Unexpected malfunctions of our lamination and nano-coated
plate filter equipment (“Manufacturing Equipment”) may significantly affect our operational efficiency and production. In addition,
the operational performance and costs associated with the Manufacturing Equipment can be difficult to predict and may be influenced by
factors outside of our control, such as, but not limited to, failures by suppliers to deliver necessary equipment components in a timely
manner and at prices and volumes acceptable to us, which could have a material adverse effect on our operational performance, cash flows,
financial condition, or prospects.
Disaster events may
disrupt our business.
Unforeseen events, or the prospect of such events,
including public health issues including health epidemics or pandemics, war and terrorism and other international conflicts, and natural
disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in Asia or
elsewhere, could disrupt our operations, disrupt the operations of suppliers or business customers or result in political or economic
instability. These types of events outside of our control could adversely affect our operating results. We cannot assure that any backup
systems will be adequate to protect it from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures,
break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to interruptions, breakdowns, system
failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software
or hardware as well as adversely affect our ability to manufacture products and provide services. These events could reduce demand for
our products and services, make it difficult or impossible to receive equipment from suppliers or impair our ability to deliver products
and services to business customers on a timely basis. Any such disruption could damage our reputation and cause business customer attrition.
We could be subject to claims or litigation with respect to losses caused by such disruptions. Our insurance may not cover a particular
event at all or be sufficient to fully cover our losses.
Risk Factors Relating
to Quality of Products
If our products fail
to perform as expected, our ability to develop, market and sell our products and services could be harmed.
If our products of nano-coated
plate filters or our lamination glass products to be manufactured in the second half of 2022 contain defects in design and manufacture
that cause them not to perform as expected or that require repair, or certain features of its products take longer than expected to become
enabled or are legally restricted, our ability to develop, sell, and service its products could be harmed. Although we will attempt to
remedy any issues it observes in its products as effectively and rapidly as possible, such efforts may not be timely, may hamper production
or may not be to the satisfaction of our customers. While we will perform extensive internal testing on the products we manufacture, we
currently have a limited frame of reference by which to evaluate detailed long-term quality, reliability, durability and performance characteristics
of our products. There can be no assurance that we will be able to detect and fix any defects in our products prior to their sale to our
customers.
Our inability to provide
products or services in a timely manner, legal restrictions on product features, or defects in our products or services, including products
and services of third parties that we incorporate into our product offerings, could adversely affect our reputation, result in delivery
delays, product recalls, product liability claims, and significant warranty and other expenses, and subject the Company to claims or litigation.
In addition, our inability to meet our customers’ expectations with respect to our products or services could affect our ability to generate
new business customers and thereby have a material adverse effect on our business, financial condition, cash flow or results of operations.
We rely on certain
third-party providers of licensed software and services integral to our operations.
Certain aspects of the
operation of our business may depend on third-party software and service providers. With regard to licensed software technology, we may
become dependent upon the ability of third parties to maintain, enhance or develop their software and services on a timely and cost-effective
basis, to meet industry technological standards and innovations to deliver software and services that are free of defects or security
vulnerabilities, and to ensure their software and services are free from disruptions or interruptions. Further, these third-party services
and software licenses may not always be available to us on commercially reasonable terms or at all.
If the third-party software
or services become obsolete, fail to function properly, are incompatible with future versions of our products or services, or are defective
or otherwise fail to address our needs, there is no assurance that we would be able to replace the functionality provided by any future
third-party software or services with software or services from alternative providers. Any of these factors could have a material adverse
effect on our financial condition, cash flows or results of operations.
We may need to defend
ourselves against and may face liability in respect of claims for infringing, misappropriating or otherwise violating the intellectual
property rights of others, which may be time-consuming and could cause us to incur substantial costs and/or materially impact our ability
to operate.
From time to time, legal
action by us may be necessary to enforce our contractual rights, to protect our manufacturing and distribution operation or to defend
against claims of infringement, misappropriation or invalidity. Such litigation could result in substantial costs and diversion of resources
and could negatively affect our business, operating results and financial condition. Others, including our competitors, may hold or obtain
patents, copyrights, trademarks or other proprietary rights that could prevent, limit or interfere with our ability to make, use, develop,
or sell its products and services, which could make it more difficult for us to operate our business. We may receive inquiries from holders
of patents or trademarks inquiring whether we are infringing their proprietary rights and/or seek court declarations that they do not
infringe upon our rights.
We may consider entering
into licensing agreements with respect to such rights, although no assurance can be given that such licenses can be obtained on acceptable
terms or that litigation will not occur, and such licenses could significantly increase our operating expenses. Companies holding patents
or other intellectual property rights relating to switchable glass or nano-coated plating technologies may bring suits alleging infringement
of such rights or otherwise asserting their rights and seeking licenses. In addition, if we are determined to have infringed upon a third
party’s intellectual property rights, it may be required to cease making, selling or incorporating certain components or intellectual
property into the goods and services it offers, to pay substantial damages and/or license royalties, obtain a license from the holder
of the infringed intellectual property right, which license may not be available on reasonable terms or at all, to redesign its products
and services, and/or to establish and maintain alternative branding for its products and services. In the event that we were required
to take one or more such actions, our business, prospects, operating results and financial condition could be materially adversely affected.
In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources
and management attention.
We cannot be certain that our products and services
or those of third parties that we incorporate into our products do not and will not infringe the intellectual property rights of others.
We do not own any patent technologies but rely on our equipment suppliers and technology partners. In future, we may be subject to claims
based on allegations of infringement, misappropriation or other violations of the intellectual property rights of others, including litigation
brought by competitors, potential competitors or special purpose or so-called “non-practicing” entities that
focus solely on extracting royalties and settlements by enforcing intellectual property rights and against whom our patents may therefore
provide little or no deterrence or protection.
Regardless of their merits,
intellectual property claims divert the attention of our personnel and are often time-consuming and expensive. In addition, to the extent
claims against us are successful, we may have to pay substantial monetary damages (including, for example, treble damages if we are found
to have wilfully infringed patents and increased statutory damages if we are found to have wilfully infringed copyrights) or discontinue
or modify certain products or services that are found to infringe another party’s rights or enter into licensing agreements with costly
royalty payments. Defending against claims of infringement, misappropriation or other violations or being deemed to be infringing, misappropriating
or otherwise violating the intellectual property rights of others could impair our ability to innovate, develop, distribute and sell our
current and planned products and services. Furthermore, because of the substantial amount of discovery required in connection with intellectual
property litigation, there is a risk that some of own confidential information could be compromised by the discovery process. Although
claims of this kind have not materially affected our business to date, there can be no assurance material claims will not arise in the
future.
Our switchable glass
products must comply with local building codes and ordinances, and failure of our products to comply with such codes and ordinances may
have an adverse effect on our business.
Our switchable glass
product must comply with local building codes and ordinances. Building codes may also affect the products our customers are allowed to
use, and, consequently, changes in building codes may also affect the sale of our products. If our products fail to comply with such local
building codes or ordinances, our ability to market and sell such products would be impaired. Also, should these codes and ordinances
be amended or expanded, or should new laws and regulations be enacted, we could incur additional costs or become subject to requirements
or restrictions that require us to modify our products or adversely affect its ability to market and sell our products. If our products
do not adequately or quickly adapt to building standards, we may lose market share to competitors, which would adversely affect our business,
results of operation, financial condition, and cash flows. Furthermore, failure of our products to comply with such codes or ordinances
could subject us to negative publicity or damage our reputation.
Our insurance strategy
may not be adequate to protect us from all business risks.
We may be subject, in
the ordinary course of business, to losses resulting from products liability, accidents, acts of God and other claims against us, for
which we may have no insurance coverage. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts,
which could adversely affect our financial condition and operating results.
We are subject to all
of the ordinary course operating hazards and risks that may come with the provision of our products and services and business operations.
In addition to contractual provisions limiting our liability to business customers and third parties, we maintain insurance policies in
such amounts and with such coverage and deductibles as required by law and that we believe are reasonable and prudent. Nevertheless, such
insurance may not be adequate to protect us from all the liabilities and expenses that may arise from claims for personal injury, death
or property damage arising in the ordinary course of our business and current levels of insurance may not be able to be maintained or
be available at economical prices. If a significant liability claim is brought against us that is not covered by insurance, then we may
have to pay the claim with our own funds, which could have a material adverse effect on our business, financial condition, cash flows
or results of operations. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms
or at reasonable costs when needed, particularly if we do face liability for its products and are forced to make a claim under our policy.
We may become subject
to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure
against such claims.
Although our switchable
glass and nano-coated plate filter products are designed and produced to be safe, product liability claims, even those without merit,
could harm our business, prospects, operating results and financial condition. We face inherent risk of exposure to claims in the event
our products do not perform or are claimed to not have performed as expected. A successful product liability claim against us could require
us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our products
and business and could have a material adverse effect on our business, prospects and operating results.
If we are unable to
achieve our targeted manufacturing costs for our products, our financial condition and operating results will suffer.
While we will continue reduce costs in our operations
and from our suppliers, including through economies of scale in increased production, there is no guarantee that we will be able to achieve
sufficient cost savings to reach our planned gross margin and profitability goals, or our other financial targets. If our efforts to continue
to decrease manufacturing costs are not successful, we may incur substantial costs or cost overruns in utilizing and increasing the production
capability of our manufacturing facility. Many of the factors that impact our manufacturing costs are beyond our control, such as potential
increases in the costs of materials and components. If we are unable to continue to control and reduce our manufacturing costs, our operating
results, business and prospects will be harmed.
Risks Relating to
Our Organization
If we infringe the
intellectual property rights of third parties, it may increase our costs or prevent us from the commercialization our product candidates.
There is a risk that
we are or may infringe the proprietary rights of third parties of which we are unaware. There has been substantial litigation and other
proceedings regarding patent and other intellectual property rights in the electronics industries. To date, we have not been involved
in any such third-party claims and we are not aware that our products (digital asset trading platform, ecommerce platform for halal products,
nano-coated plate filters and air purifiers, and switchable glass) infringe the intellectual property rights of third parties. As a result
of intellectual property infringement claims, or to avoid potential claims, we might be:
|
● |
prohibited from selling or licensing any products or digital asset trading or ecommerce platforms that we may develop unless the patent holder licenses the patent to us, which it is not required to do; |
|
● |
required to expend considerable amounts of money in defending the claim; |
|
● |
required to pay substantial royalties or grant a cross license to our patents to another patent holder; |
|
● |
required to redesign the formulation of a product so that it does not infringe, which may not be possible or could require substantial funds and time; or |
|
● |
required to pay substantial monetary damages. |
Future sales of our
products may suffer if they are not accepted in the marketplace by consumers and customers.
There is a risk that
our products (halal products, nano-coated plate filters and air purifier products, and switchable glass) may not gain market acceptance
by consumers and customers. The degree of market acceptance of any of our products will depend on a variety of factors, including:
|
● |
timing of market introduction; and |
|
● |
price and product feature compared to existing and new products. |
We may be exposed
to product liability claims which could harm our business.
The marketing and sale
of consumer and electronic products entails an inherent risk of product liability. We face product liability exposure related to our products.
Regardless of merit or eventual outcome, liability claims may result in:
|
● |
decreased demand for our products; |
|
● |
injury to our reputation; |
|
● |
costs of related litigation; |
|
● |
substantial monetary awards to customers and others; |
|
● |
the inability to commercialize our other products. |
If there is a claim made
against us or some other problems that is attributable to our products, our share price may be negatively affected. Even if we were ultimately
successful in product liability litigation, the litigation would consume substantial amounts of our financial and managerial resources
and may create adverse publicity, all of which would impair our ability to generate sales of our product candidates. We may incur substantial
liabilities or be required to limit development or commercialization of our product candidates if we cannot successfully defend ourselves
against product liability claims. Such coverage may not be available in the future on acceptable terms, or at all. We have no insurance
coverage and even if we have adequate insurance coverage, product liability claims or recalls could result in negative publicity and force
us to devote significant managerial and financial resources to those matters, and the commercialization of our other products may be delayed
or severely compromised.
Changes in government
legislation and policy may adversely affect us.
While we do not anticipate in the near future
any specific material changes in government legislation that may adversely affect us, any material changes in interest rates, exchange
rates, relevant taxation and other legal regimes and government policies may adversely affect our operations, the use of our financial
resources and the market price of our Ordinary Shares.
Currency fluctuations
may expose us to increased costs and revenue decreases.
Our business may in the
future be affected by fluctuations in foreign exchange rates. Currency fluctuations could, therefore, cause our costs to increase and
revenues to decline. The majority of our expenses will continue to be denominated in Korea won, United States dollars, Hong Kong dollars
and Renminbi. In the past year, the Australian dollars, our reporting currency, has, as a general trend, appreciated against the U.S.
currency. We cannot anticipate whether this trend will continue in respect of the U.S. dollars. The exchange rates of the Australian dollar
to the Korea won, Hong Kong and the Chinese Renminbi have also fluctuated over the same period. In circumstances where the Australian
dollar appreciates against either or both of the U.S. dollar, Korea won, Hong Kong dollar or Chinese Renminbi, this may have a positive
effect on our costs incurred in either the U.S. or Korea won or Hong Kong or China (as applicable) but may have a negative effect on any
revenues which we source from the U.S. or South Korea or Hong Kong or China (as applicable). The same principles apply in respect of our
costs and revenues in other jurisdictions. In addition, we conduct operations in South Korea, Hong Kong and China, which exposes us to
potential cost increases resulting from fluctuations in exchange rates. In 2021, we have been affected negatively on foreign exchange
losses as a result of currency fluctuations.
Australian takeovers
laws may discourage takeover offers being made for us or may discourage the acquisition of large numbers of our shares.
We are incorporated in
Australia and are subject to the takeover laws of Australia. Amongst other things, we are subject to the Corporations Act 2001 (Commonwealth
of Australia). Subject to a range of exceptions, the Corporations Act prohibits the acquisition of a direct or indirect interest in our
issued voting shares if the acquisition of that interest will lead to a person’s or someone else’s voting power in us increasing from
20% or below to more than 20%, or increasing from a starting point that is above 20% and below 90%. Exceptions to the general prohibition
include circumstances where the person makes a formal takeover bid for us, if the person obtains shareholder approval for the acquisition
or if the person acquires less than 3% of the voting power of us in any rolling six-month period. Australian takeovers laws may discourage
takeover offers being made for us or may discourage the acquisition of large numbers of our shares.
Rights as a holder
of ordinary shares are governed by Australian law and the Company’s Constitution (the “Constitution”) and differ from the rights
of shareholders under U.S. law. Holders of our Ordinary Shares may have difficulty in effecting service of process in the United States
or enforcing judgments obtained in the United States.
We are a public company
incorporated under the laws of Australia. Therefore, the rights of holders of our Ordinary Shares are governed by Australian law and our
Constitution. These rights differ from the typical rights of shareholders in U.S. corporations. Circumstances that under U.S. law may
entitle a shareholder in a U.S. company to claim damages may also give rise to a cause of action under Australian law entitling a shareholder
in an Australian company to claim damages. However, this will not always be the case. Holders of our Ordinary Shares may have difficulties
enforcing, in actions brought in courts in jurisdictions located outside the U.S., liabilities under U.S. securities laws. In particular,
if such a holder sought to bring proceedings in Australia based on U.S. securities laws, the Australian court might consider:
| ● | that it did not have jurisdiction;
and/or |
| ● | that it was not an appropriate
forum for such proceedings; and/or |
| ● | that, applying Australian conflict
of laws rule, U.S. law (including U.S. securities laws) did not apply to the relationship between holders of our Ordinary Shares and
us or our directors and officers; and/or |
| ● | that the U.S. securities laws
were of a public or penal nature and should not be enforced by the Australian court. |
Holders of our Ordinary
Shares may also have difficulties enforcing in courts outside the U.S. judgments obtained in the U.S. courts against any of our directors
and executive officers or us, including actions under the civil liability provisions of the U.S. securities laws.
Our operations may
be materially and adversely affected by changes in the economic, political and social conditions of China.
Some of our non-cash
assets are located in, and some of our revenue is sourced from China. The growth of our switchable glass businesses will be derived from
China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by
political, economic and social conditions in China generally and by continued economic growth in China as a whole.
China economy differs from the economies of most
developed countries in many respects, including the extent of government involvement, level of development, growth rate, control of foreign
exchange and allocation of resources. While China economy has experienced significant growth over the past three decades, growth has been
uneven across different regions and among various economic sectors. The Chinese government has implemented various measures to encourage
economic development and guide the allocation of resources. Some of these measures benefit the overall China economy, but may also have
a negative effect on us. For example, our operating results and financial condition may be adversely affected by government control over
capital investments or changes in tax regulations that are applicable to us. We cannot predict the possible impact of any future economic
policies of the Chinese government on our business and operations.
China is facing a continued
slowdown in economic growth. China’s annual gross domestic product growth rate 2021 was 8.1% compared to 2020 was 2.3% , 6.1% in 2019,
and 6.7% in 2018. This slowdown could cause a slowdown or decline in investment in electronic switchable glass, which may result in a
reduction of demand for our products and services and thus materially reduce our revenues and profitability.
Uncertainties in the
interpretation and enforcement of Chinese laws, rules and regulations could limit the legal protections available to you and us.
China legal system is
a civil law system based on written statutes. Unlike common law systems, it is a system in which legal decisions have limited value as
precedents. In 1979, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters
in general. The overall effect of legislation over the past three decades has significantly increased the protections afforded to various
forms of foreign or private-sector investment in China. Our operations in China are foreign-invested enterprise and is subject to laws,
rules and regulations applicable to foreign investment in China as well as laws, rules and regulations applicable to foreign-invested
enterprises. These laws, rules and regulations change frequently, and their interpretation and enforcement involve uncertainties. For
example, we may have to resort to administrative and court proceedings to enforce the legal protections that we enjoy either by law or
contract. However, since China administrative and court authorities have significant discretion in interpreting and implementing statutory
and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal
protection we enjoy than in more developed legal systems. These uncertainties may also impede our ability to enforce the contracts we
have entered into, and materially impair our business and operations.
We may rely on dividends
and other distributions on equity paid by our operating subsidiary to fund cash and financing requirements, and limitations on the ability
of our operating subsidiaries to pay dividends to us could materially restrict our ability to conduct our business.
We, as a holding company,
may rely on dividends and other distributions on equity paid by our operating Korea and China companies for our cash and financing requirements,
including the funds necessary to pay dividends and other cash distributions to the parent company, service any debt we may incur and pay
our operating expenses. If these China subsidiaries incurs debt on their own behalf in the future, the instruments governing the debt
may restrict their ability to pay dividends or make other distributions to us. Furthermore, relevant Chinese laws, rules and regulations
permit payments of dividends by our China subsidiaries only out of their retained earnings, if any, determined in accordance with Chinese
accounting standards and regulations.
Restrictions on currency
exchange may limit our ability to effectively utilize our revenues as well as the ability of our China subsidiaries to obtain debt or
equity financing from financial institutions or investors outside China, including us.
A significant portion
of our future operating revenues may be denominated in Renminbi, Hong Kong dollars and United Sates dollars. The Renminbi is currently
convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions,
but not under the “capital account,” which includes foreign direct investment and loans. Currently, each of our China subsidiaries
may purchase foreign exchange for settlement of “current account transactions,” including purchase of imported components i.e.
display chips and payment of dividends to the overseas parent company, without the approval of the State Administration of Foreign Exchange
(the “SAFE”) by complying with certain procedural requirements. However, the relevant Chinese government authorities may limit
or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a significant amount of
our future revenues will likely be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability
to utilize revenues generated in Renminbi to purchase for example computer display chips from suppliers outside China or fund our business
activities outside China denominated in foreign currencies or pay dividends in foreign currencies to our overseas parent company.
In addition, certain
foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with,
the SAFE (or qualified banks designated by it) and other relevant Chinese government authorities. In particular, any loans to our China
subsidiaries are subject to China regulations and approvals. For example, loans by us to Smart (Zhenjiang) Intelligent Technology Limited
(“Smartglass Zhenjiang”), a foreign-invested enterprise, cannot exceed statutory limits and must be registered with the SAFE
or its local counterpart.
This could affect the
ability of Smartglass Zhenjiang to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions
from us.
The Chinese government
may alter its regulations and policies from time to time which may have direct or indirect impact to our Company operation.
Regulations and policies
may be altered or other new regulations and policies may be implemented by the Chinese government from time to time which may have direct
or indirect impact to our business operations. Some examples of such regulations and policies are:
| ● | media broadcast regulations
over the Internet; |
| ● | foreign media to be distributed
in China; |
| ● | operating permit for mobile
sales and distribution; |
| ● | copyrighted digital media regulations; |
| ● | educational and cultural materials
to be sold, distributed, created or transacted in China by foreign investment entities; and |
| ● | foreign investment entities
to operate business in the educational and media industries. |
These are only some of
the examples that may have indirect impacts to our business. Change of government officials may also affect changes in regulations and
policies, especially within local government. These changes may have impacts to the operating strategies or financial performance of the
Company.
Risks Associated with
Our Technology and Intellectual Property
Potential technological
changes in our field of businesses create considerable uncertainty.
We are no longer conducting
research and development in our products. However, our competitors and other experts in nano-coated plate air filters are continuously
and extensively conducting research in the relevant technologies. New developments in research are expected to continue at a rapid pace
in both industry and academia. Research and discoveries by others may render some or all of our products uncompetitive or obsolete.
If we are unable to
keep pace with technological change or with the advances of our competitors our products may become non-competitive.
The nano-coating technologies
we use in our products are subject to rapid and significant technological change. Our competitors in Hong Kong, China, Korea and Australia
and elsewhere are numerous and include, among others, major technology companies, large electronics companies, universities and other
research institutions. These competitors may develop technologies and products that are more effective, or which would render the technology
in our products such as nano-coated products, obsolete or non-competitive. Many of these competitors have greater financial and technical
resources and manufacturing and marketing capabilities than we do. In addition, many of our competitors have much more experience in marketing,
sales and commercializing new technologies of new or improved display products and nano-plated filter products.
Our nano-coated plate filter’s manufacturing technology
is from a third party, and to the extent that the equipment manufacturer will be able to continuously develop and upgrade the nano-coated
plate filter technology to keep our nano-coated plate products competitive will determine the success of our business. If our equipment
manufacturer is not able to innovate their technology to match our competitors’ technology development, then there is a risk that our
nano-coated products will become uncompetitive in the market place which may have an adverse effect in our nano-coated plate business,
financial condition and results of operations.
Our success depends
upon our ability to protect our intellectual property and our proprietary technology.
Our success will depend
in large part on whether we can:
| ● | Obtain and maintain patents
to protect our own products; |
| ● | Obtain licenses to relevant
patented technologies of third parties; |
| ● | Operate without infringing
on the proprietary rights of third parties; and |
| ● | Protect our trade secrets and
know-how. |
Patent matters in industrial
and consumer electronics are highly uncertain and involve complex legal and factual questions. Accordingly, the availability and breadth
of claims allowed in electronics patents cannot be predicted. Statutory differences in patentable subject matter may limit the protection
we can obtain on some or all of the products we use outside Hong Kong or China or prevent us from obtaining patent protection outside
Hong Kong or China, either of which could have a material adverse effect on our business, financial condition and results of operations.
Moreover, since patent applications in Hong Kong or China are maintained in secrecy until the patent is issued, and since publication
of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we or any of our
licensors were the first creator of inventions covered by pending patent applications or that we or our licensors were the first to file
patent applications for such inventions. Additionally, the enforceability of a patent depends on several factors that may vary amongst
jurisdictions. These factors may include the novelty of the invention, the requirement that the invention not be obvious in light of prior
art (including prior use or publication of the invention), the utility of the invention, and the extent to which the patent clearly describes
the best method of working the invention.
While we intend to seek
patent protection for some of our filter products and technologies that we use which carried forward prior to the disposal of our R&D
unit, we cannot be certain that any of the pending or future patent applications filed by us or on our behalf will be approved. We also
cannot be certain that others will not independently develop similar products or processes, duplicate any of the products or processes
developed by us previously or licensed to us, or design around the patents owned or licensed by us, or that any patents owned or licensed
by us will provide us with competitive advantages. Furthermore, we cannot be certain that patents held by third parties will not prevent
the commercialization of products incorporating the technology developed by us or licensed to us, or that third parties will not challenge
or seek to narrow, invalidate or circumvent any of the issued, pending or future patents owned or licensed by us.
We may have to resort
to litigation to enforce any patents issued or licensed to us or to determine the scope and validity of third party proprietary rights.
We may have to defend the validity of our patents in order to protect or enforce our rights against a third party, or third parties may
in the future assert against us infringement claims regarding proprietary rights belonging to them. Such proceedings could result in the
expenditure of significant financial and managerial resources and could negatively affect our profitability. Adverse determinations in
any such proceedings could prevent us from developing and commercializing our products and could harm our business, financial condition
and results of operations.
Our commercial success
will also depend, in part, on our ability to avoid infringement of patents issued to others. If a court determines that we were infringing
any third-party patents, we could be required to pay damages, alter our products or processes, obtain licenses or cease certain activities.
We cannot be certain that the licenses required under patents held by third parties would be made available on terms acceptable to us
or at all. To the extent that we are unable to obtain such licenses, we could be foreclosed from the development, manufacture or commercialization
of the product requiring such license or encounter delays in product introductions while we attempt to design around such patents, and
any of these circumstances could have a material adverse effect on our business, financial condition and results of operations.
In addition to patent
protection, we rely on unpatented trade secrets and know-how and proprietary technological innovation and expertise that are protected
in part by confidentiality and invention assignment agreements with our employees, advisors and consultants. We cannot make any assurances
that we will have adequate remedies for any breach. In addition, third parties could independently develop the same or similar technologies.
If we are not able
to protect and control unpatented trade secrets, know-how and other technological innovation, we may suffer competitive harm.
In addition to patented intellectual property,
we also rely on unpatented technology, trade secrets, confidential information and know-how to protect our technology and maintain our
competitive position. Trade secrets are difficult to protect. In order to protect proprietary technology and processes, we rely in part
on confidentiality and intellectual property assignment agreements with our employees, consultants and others. These agreements may not
effectively prevent disclosure of confidential information or result in the effective assignment to us of intellectual property, and may
not provide an adequate remedy in the event of unauthorized disclosure of confidential information or other breaches of the agreements.
In addition, others may independently discover trade secrets and proprietary information that have been licensed to us or that we own,
and in such case, we could not assert any trade secret rights against such party. Enforcing a claim that a party illegally obtained and
is using trade secrets that have been licensed to us or that we own is difficult, expensive and time-consuming, and the outcome is unpredictable.
In addition,courts outside the United States and Australia may be less willing to protect trade secrets. Costly and time-consuming litigation
could be necessary to seek to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret
protection could have a material adverse effect on our business.
We do not have patent
protection in certain countries and we may not be able to effectively enforce our intellectual property rights in certain countries, which
could significantly erode the market for our product candidates.
We intend to seek regulatory
approval to market our product candidates in a number of foreign countries. Our product candidates are not protected by patents in certain
countries, which means that competitors may be free to sell products that incorporate the same technology that is used in our products
in those countries. In addition, the laws and practices in some foreign countries may not protect intellectual property rights to the
same extent as in the United States or Australia. We may not be able to effectively obtain, maintain or enforce rights with respect to
the intellectual property relating to our product candidates in those countries. Our lack of patent protection in one or more countries,
or the inability to obtain, maintain or enforce intellectual property rights in one or more countries, could adversely affect our ability
to commercialize our products in those countries and could otherwise have a material adverse effect on our business.
Risks Relating to
Our Securities
In the event that
our Ordinary Shares are delisted from NASDAQ, U.S. broker-dealers may be discouraged from effecting transactions in shares of our Ordinary
Shares because they may be considered penny stocks and thus be subject to the penny stock rules.
The SEC has adopted several
rules to regulate “penny stock” that restrict transactions involving stock which is deemed to be penny stock. Such rules include
Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These rules may have the effect of reducing
the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than US$5.00 per share (other
than securities registered on certain national securities exchanges or quoted on NASDAQ if current price and volume information with respect
to transactions in such securities is provided by the exchange or system). Our Ordinary Shares have in the past constituted, and may again
in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements
imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our Ordinary Shares, which
could severely limit the market liquidity of such Ordinary Shares and impede their sale in the secondary market.
A U.S. broker-dealer
selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net
worth in excess of US$1,000,000 or an annual income exceeding US$200,000, or US$300,000 together with his or her spouse) must make a special
suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless
the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer
to deliver, prior to any transaction involving a “penny stock”, a disclosure schedule prepared in accordance with SEC standards
relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer
is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for
the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect
to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks”.
Shareholders should be
aware that, according to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse.
Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter
or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii)
“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons;
(iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management
is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate
the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical
limitations to prevent the described patterns from being established with respect to our securities.
Our Ordinary Shares
may be considered a “penny stock” under SEC regulations which could adversely affect the willingness of investors to hold our
Shares.
The SEC has adopted regulations which generally
define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions.
During the fiscal year ended December 31, 2021, our Ordinary Shares traded on the NASDAQ at below of US$5.00 per share. The low trading
price of our Ordinary Shares may adversely impact the willingness of investors to invest in our Ordinary Shares in the United States.
Our stock price may
be volatile.
The market price of our
Ordinary Shares is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are
beyond our control, including the following:
| ● | changes in our industry; |
| ● | our ability to work through
a health crisis or pandemic; |
| ● | competitive pricing pressures; |
| ● | our ability to obtain working
capital financing; |
| ● | additions or departures of
key personnel; |
| ● | limited “public float”
in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market
price for our Ordinary Shares; |
| ● | sales of our Ordinary Shares; |
| ● | our ability to execute our
business plan; |
| ● | operating results that fall
below expectations; |
| ● | loss of any strategic relationship; |
| ● | regulatory developments; |
| ● | developments concerning research
and development, manufacturing, and marketing alliances or collaborations by us and our competitors; |
| ● | announcements of technological
innovations or new commercial products by us and our competitors; |
| ● | regulatory actions in respect
of any of our products or the products of any of our competitors; |
| ● | determinations regarding our
patent applications and those of others; |
| ● | market conditions, including
market conditions in the technology and digital media sectors; |
| ● | increases in our costs or decreases
in our revenues due to unfavorable movements in foreign currency exchange rates; |
| ● | development or litigation concerning
patents, licenses and other intellectual property rights; |
| ● | litigation or public concern
about the safety of our potential products; |
| ● | changes in recommendations
or earnings estimates by securities analysts; |
| ● | deviations in our operating
results from the estimates of securities analysts; |
| ● | rumors relating to us or our
competitors; |
| ● | developments concerning current
or future strategic alliances or acquisitions; |
| ● | political, economic and other
external factors such as interest rate or currency fluctuations, war; and |
| ● | period-to-period fluctuations
in our financial results. |
Our Ordinary Shares are
traded on NASDAQ Capital Market. However, trading volumes for our Ordinary Shares have been historically low and volatile. The limited
trading market for our Ordinary Shares may cause fluctuations in the market value of our Ordinary Shares to be exaggerated, leading to
price volatility in excess of that which would occur in a more active trading market for our Ordinary Shares .
In addition, stock markets
have recently experienced extreme price and volume fluctuations due to the effects of COVID-19. These fluctuations have especially affected
the stock market price of many technology and digital media companies and, in many cases, are unrelated to the operating performance of
the particular companies. We believe that these broad market fluctuations may continue to affect the market price of our Ordinary Shares.
We may be deemed a
passive foreign investment company (PFIC) which would subject our U.S. investors to adverse tax rules.
Holders of our Ordinary
Shares who are U.S. residents face income tax risks. There is a substantial risk that if we are deemed a passive foreign investment company,
or PFIC, which could result in a reduction in the after-tax return to a “U.S. Holder” of our Ordinary Shares . For U.S. federal
income tax purposes, we will be classified as a PFIC for any taxable year in which (i) 75% or more of our gross income is passive income,
or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of passive
income. For this purpose, cash is considered to be an asset that produces passive income.
The determination of whether we are a PFIC is
made on an annual basis and depends on the composition of our income and the value of our assets. Therefore, it is possible that we could
be deemed a PFIC in the current year as well as in future years. If we are classified as a PFIC in any year that a U.S. Holder owns Ordinary
Shares , the U.S. Holder will generally continue to be treated as holding Ordinary Shares of a PFIC in all subsequent years, notwithstanding
that we are not classified as a PFIC in a subsequent year. Dividends received by the U.S. Holder and gains realized from the sale of our
Ordinary Shares would be taxed as ordinary income and subject to an interest charge. We urge U.S. investors to consult their own tax advisors
about the application of the PFIC rules and certain elections that may help to minimize adverse U.S. federal income tax consequences in
their particular circumstances.
As a foreign private
issuer whose shares are listed on the NASDAQ Capital Market, we follow certain home country corporate governance practices in lieu of
instead of certain NASDAQ requirements.
As a foreign private
issuer whose shares are listed on the NASDAQ Capital Market, we are permitted to follow certain home country corporate governance practices
instead of certain requirements of The NASDAQ Marketplace Rules. As an Australian company listed on the NASDAQ Capital Market, we follow
home country practice with regard to, among other things, the composition of the board of directors, director nomination process, compensation
of officers and quorum at shareholders’ meetings. In addition, we follow Australian law instead of the NASDAQ Marketplace Rules that require
that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation
plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving
issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. A foreign private
issuer that elects to follow a home country practice instead of NASDAQ requirements, must submit to NASDAQ in advance a written statement
from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s
laws. In addition, a foreign private issuer must disclose in its annual reports filed with the U.S. Securities and Exchange Commission
each such requirement that it does not follow and describe the home country practice followed by the issuer instead of any such requirement.
Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules. Please see
“Item 6. Directors, Senior Management and Employees - C. Board Practices” for further information.
U.S. shareholders
may not be able to enforce civil liabilities against us.
All of our directors
and executive officers are non-residents of the United States, and all or a substantial portion of the assets of such persons are located
outside the United States. As a result, it may not be possible for investors to affect service of process within the United States upon
such persons or to enforce against them judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal
securities laws of the United States. There is doubt as to the enforceability in Australia in original actions, or in actions for enforcement
of judgments of U.S. courts, of civil liabilities to the extent predicated upon the federal securities laws of the United States.
As a foreign private
issuer, we do not have to provide the same information as an issuer of securities based in the U.S.
Given that we are a foreign
private issuer within the meaning of the rules under the Exchange Act, we are exempt from certain provisions of that law that are applicable
to U.S. public companies, including (i) the rules under the Exchange Act requiring the filing with the U.S. Securities and Exchange Commission
(“SEC”) of quarterly reports on Form 10-Q or current reports on Form 8-K; (ii) the sections of the Exchange Act regulating the
solicitation of proxies, consents or authorizations in respect of a registered security; and (iii) the sections of the Exchange Act requiring
insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made
in a short period of time. Thus, investors are not afforded the same information which would be ordinarily available were they investing
in a domestic U.S. public corporation.
In accordance with the
requirements of the Australian Corporations Act 2001, we disclose annual and semi-annual results. Our results are presented in accordance
with International Financial Reporting Standards (IFRS). Our annual results are audited, and our semi-annual results undergo a limited
review by our independent auditors. We file annual audited results presented in accordance with Australian Accounting Standards and IFRS
as issued by International Accounting Standards Board with the SEC on Form 20-F. We are required to provide our semi-annual results and
other material information that we disclose in Australia in the U.S. under the cover of Form 6-K. Nevertheless, this information is not
the same information as would be made available to investors if we were a domestic U.S. public corporation.
We may issue additional
securities in the future, which may result in dilution to our shareholders.
As of April 19, 2022
we have 14,753,331 Ordinary Shares issued and outstanding, which does not include the number of shares to be issued under a warrant that
was issued in January 2022. The total amount of the warrants, if fully exercised, would raise US$8 million. The warrants are for a term
of 2 years to January 2024 and can be exercised at US$3.74 for each share. Under the warrant agreement, the warrant holder cannot exercise
the warrant to subscribe for shares in the Company if such exercise would take the warrant holder over 4.99% shareholding in the Company.
As at the date of this report, all the warrants are outstanding. In this case, to the extent that the warrants are exercised by the warrant
holders, additional Ordinary Shares will be issued and would dilute our shareholders.
In addition, to the extent
that we conduct additional equity offerings, additional Ordinary Shares will be issued, which may result in dilution to our current shareholders.
Sales of substantial numbers of such shares in the public market would also result in further dilution to our shareholders and could adversely
affect the market price of our Ordinary Shares.
We may seek to raise
additional funds, finance acquisitions or develop strategic relationships by issuing securities that would dilute your ownership. Depending
on the terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our Ordinary
Shares.
We have financed our operations, and we expect
to continue to finance our operations, acquisitions, if any, and the development of strategic relationships by issuing equity and/or convertible
securities, which could significantly reduce the percentage ownership of our existing shareholders. Further, any additional financing
that we secure, may require the granting of rights, preferences or privileges senior to, or pari passu with, those holders of our Ordinary
Shares . Any issuances by us of equity securities may be at or below the prevailing market price of our Ordinary Shares and in any event
may have a dilutive impact on your ownership interest, which could cause the market price of our Ordinary Shares to decline. We may also
raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments senior to our Ordinary
Shares . The holders of any securities or instruments we may issue may have rights superior to the rights of our shareholders. If we experience
dilution from the issuance of additional securities and we grant superior rights to new securities over our shareholders, it may negatively
impact the trading price of our Ordinary Shares and you may lose all or part of your investment.
If we fail to comply
with internal controls evaluations and attestation requirements our stock price could be adversely affected.
We are subject to United
States securities laws, including the Sarbanes-Oxley Act of 2002 and the rules and regulations adopted by the SEC pursuant to such Act.
As a foreign private issuer, under Section 404 of the Sarbanes-Oxley Act and the related regulations, we will be required to perform an
evaluation of our internal control over financial reporting, including (1) management’s annual report on its assessment of the effectiveness
of internal control over financial reporting; and (2) our independent registered public accounting firm’s annual audit of the effectiveness
of internal control over financial reporting. In 2010, the enactment of the Dodd Frank Bill resulted in an exemption from Section 404(b)
of the Sarbanes-Oxley Act for fiscal 2010 onwards, meaning that we did not have to comply with point (2) above. For further information,
see “Item 15 - Controls and Procedures - Management’s Annual Report on Internal Control over Financial Reporting.”
The requirements of Section
404(a) of the Sarbanes-Oxley Act are ongoing and also apply to future years. We expect that our internal control over financial reporting
will continue to evolve as our business develops. Although we are committed to continue to improve our internal control processes and
we will continue to diligently and vigorously review our internal control over financial reporting in order to ensure compliance with
the Section 404 requirements, any control system, regardless of how well designed, operated and evaluated, can provide only reasonable,
not absolute, assurance that its objectives will be met. Therefore, we cannot be certain that in the future additional material weaknesses
or significant deficiencies will not exist or otherwise be discovered. If our efforts to remediate weaknesses identified are not successful
or if other deficiencies occur, these weaknesses or deficiencies could result in misstatements of our results of operations, restatements
of our financial statements, a decline in our stock price, or other material effects on our business, reputation, results of operations,
financial conditions or liquidity.
Our Constitution and
other Australian laws and regulations applicable to us may adversely affect our ability to take actions that could be deemed beneficial
to our shareholders.
As an Australian company
we are subject to different corporate requirements than a corporation organized under the laws of the United States. Our constituent document,
or Constitution, as well as the Australian Corporations Act 2001 set forth various rights and obligations that are unique to us as an
Australian company. These requirements may limit or otherwise adversely affect our ability to take actions that could be beneficial to
our shareholders.
We have never paid
a dividend and we do not intend to pay dividends in the foreseeable future which means that holders of shares may not receive any return
on their investment from dividends.
To date, we have not
declared or paid any cash dividends on our Ordinary Shares and currently intend to retain any future earnings for funding growth. We do
not anticipate paying any dividends in the foreseeable future. Dividends may only be paid out of our profits. Payment of cash dividends,
if any, in the future will be at the discretion of the board of directors of the Company (the “Board” or “Board of Directors”).
Our holders of shares may not receive any return on their investment from dividends. The success of your investment will likely depend
entirely upon any future appreciation of the market price of our Ordinary Shares, which is uncertain and unpredictable. There is no guarantee
that our Ordinary Shares will appreciate in value or even maintain the price at which you purchased your Ordinary Shares.
We may not be able
to attract the attention of major brokerage firms.
Securities analysts of
major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our Ordinary
Shares. No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on behalf of our Company.
Risks Related to Doing
Business in China
Uncertainties exist
with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact the viability of our group structure
and business operations.
On March 15, 2019, the
National People’s Congress approved the Foreign Investment Law, which took effect on January 1, 2020 and replaced three existing laws
on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned
Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC
regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative
efforts to unify the corporate legal requirements for both foreign and domestic invested enterprises in China. The Foreign Investment
Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view
of investment protection and fair competition.
According to the Foreign Investment Law, “foreign
investment” refers to investment activities directly or indirectly conducted by one or more natural persons, business entities, or
otherwise organizations of a foreign country (collectively referred to as “foreign investor”) within China, and the investment
activities include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes a
foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other like
rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with other investors, invests
in a new project within China; and (iv) investments in other means as provided by laws, administrative regulations, or the State Council.
According to the Foreign
Investment Law, the State Council will publish or approve to publish the “negative list” for special administrative measures
concerning foreign investment. The Foreign Investment Law grants national treatment to foreign-invested entities (“FIEs”), except
for those FIEs that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list”.
Because the “negative list” has yet to be published, it is unclear whether it will differ from the current Special Administrative
Measures for Market Access of Foreign Investment (Negative List). The Foreign Investment Law provides that FIEs operating in foreign restricted
or prohibited industries will require market entry clearance and other approvals from relevant Chinese governmental authorities. If a
foreign investor is found to invest in any prohibited industry in the “negative list”, such foreign investor could be required
to cease its investment activities, dispose of its equity interests or assets within a prescribed time limit and have its income confiscated.
If the investment activity of a foreign investor is in breach of any special administrative measure for restrictive access provided for
in the “negative list”, the relevant competent department shall order the foreign investor to make corrections and take necessary
measures to meet the requirements of the special administrative measure for restrictive access.
The Chinese government
will establish a foreign investment information reporting system, according to which foreign investors or foreign-invested enterprises
must submit investment information to the competent department for commerce concerned through the enterprise registration system and the
enterprise credit information publicity system, and a security review system under which the security review shall be conducted for foreign
investment affecting or likely affecting the state security.
Furthermore, the Foreign
Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may
maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law.
In addition, the Foreign
Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including
that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital
gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and
income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors; governments
at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations
and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access restrictions and exit
conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances, in which case
statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition
of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.
As such, there is a risk
that our electronic glass business, which is currently operated by Smartglass Zhenjiang, could be designated to on the “negative
list” for special administrative measures concerning foreign investment. And if its business were to on the “negative list”,
we would need to seek permission and approval from the Chinese regulatory to continue to conduct our electronic glass business in the
PRC. If Smartglass Zhenjiang were to be put on the “negative list” and were not successful in obtaining permission or approval,
then its business could be required to close or sold, which could adversely affect our financial position and share price.
The Chinese government
can exert substantial influence over the manner in which companies operate in China.
The Chinese government
has exercised, and may continue to exercise, substantial influence or control over virtually every sector of the Chinese economy through
regulation and state ownership. Our ability to operate in China could be undermined by changes in PRC laws and regulations, including
those relating to taxation, environmental regulations, land use rights, properties and other matters. The central or local governments
could impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts
on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including
any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local
variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions,
and could require the Company to relinquish any interest that we hold in Chinese properties. If our PRC subsidiaries do not receive or
maintain approvals, inadvertently conclude that approvals needed for their business are not required or if there are changes in applicable
laws (including regulations) or interpretations of laws and our PRC subsidiaries are required but unable to obtain approvals in the future,
then such changes or need for approvals (if not obtained) could adversely affect the operations on our PRC subsidiaries and the value
of our shares could significantly decline or become worthless.
As such, our PRC subsidiaries could be subject to various government
and regulatory oversight in the provinces in which they operate. They could be subject to regulation by various political and regulatory
entities, including various local and municipal agencies and government sub-divisions. Our PRC subsidiaries could incur increased costs
necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply.
The Chinese government
could intervene or influence the operations of our subsidiaries based in Hong Kong and the PRC at any time and any such intervention or
influence could result in a material change in our operations and/or the value of our Ordinary Shares.
Given recent statements
by the Chinese government indicating an intent to exert more oversight and control over offers of securities, it is uncertain if or how
the Company (which it is incorporated in Australia but most of its officers or directors are based in Hong Kong or the PRC) could be required
to obtain permission from the PRC government to make an offer of securities in the future, and even if any such permission were obtained,
whether it could be rescinded. Although we are currently not required to obtain permission from the PRC government or any local government
to obtain such permission, our operations could be adversely affected, directly or indirectly, if we had to obtain approvals from the
PRC government to offer securities. and could result in a significant decrease in the value of our Ordinary Shares, or a complete hinderance
of our ability to offer or continue to offer our securities to investors and cause the value of our securities to significantly decline
or be worthless.
Recent regulatory
initiatives implemented by the PRC competent government authorities on cyberspace data security could impact our business operations and
compliance status.
Recently, the General
Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions
on Severely Cracking Down on Illegal Securities Activities According to Law,” or the Opinions, which was made available to the public
on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to
strengthen the supervision over overseas listings by Chinese companies but not Australian companies such as IMTE.
On July 10, 2021, the
Cyberspace Administration of China (“CAC”) issued a revised draft of the Measures for Cybersecurity Review (the “Draft
Measures”) for public comments, which required that, any data processing operators controlling personal information of no less than
one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review, and further elaborated
the factors to be considered when assessing the national security risks of the relevant activities. On January 4, 2022, the Measures for
Cybersecurity Review (the “Measures”) were published and became effective on February 15, 2022.We do not expect to be subject
to cybersecurity review because: (i) our products and services are not offered directly to individual consumers; (ii) we do not possess
a large amount of personal information in our business operations; and (iii) data processed in our business does not have a bearing on
national security and thus may not be classified as core or important data by the authorities.
Although we do not believe
that we will be subject to cybersecurity review as required under the Measures, it is uncertain how soon legislative or administrative
regulation making bodies will respond and what existing or new laws or regulations and interpretations will be modified or promulgated,
if any, and the potential impact they could have on the operations of IMTE’s subsidiaries in the PRC, the ability to accept foreign investments
and the convertibility of foreign exchange.
The trading of our
shares could potentially be adversely impacted by the Holding Foreign Companies Accountable Act (“HFCA Act”) if it is later
determined that the Public Company Accounting Oversight Board (the “PCAOB”) is unable to inspect or investigate our auditor
because of a position taken by the Chinese government, which could cause trading in our shares to be prohibited under HFCA Act and our
shares to be delisted.
On December 16, 2021,
the PCAOB has issued its report notifying the SEC of its determination that it is unable to inspect or investigate completely accounting
firms headquartered in mainland China or Hong Kong. Our auditor, Audit Alliance LLP, is a PCAOB-registered firm based in Singapore is
subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable
professional standards. As of the date of this annual report, under the HFCA Act, the PCAOB is permitted to inspect our independent public
accounting firm. However, there is no guarantee that future audit reports will be prepared by auditors that are subject to complete inspection
by the PCAOB and, in such event, this could result in limitations or restrictions to our access of the U.S. capital markets. Furthermore,
trading in our securities could be prohibited under the HFCA Act if the SEC were to subsequently determine that our audit work is performed
by auditors that the PCAOB is unable to inspect or investigate completely, including as a result of a position taken by an authority in
China or other foreign jurisdiction that prevents the PCAOB from conducting an inspection of our auditor and, as a result, NASDAQ could
determine to delist our Ordinary Shares.
In June 2021, the U.S.
Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the
SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for
two consecutive years (instead of three consecutive years under current law). Furthermore, trading in our securities could be prohibited
under the HFCA Act (as amended by the Accelerating Holding Foreign Companies Accountable Act) if the SEC were to subsequently determine
that our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, including as a result of a
position taken by an authority in China or other foreign jurisdiction that prevents the PCAOB from conducting an inspection of our auditor
and, as a result, NASDAQ could determine to delist our Ordinary Shares.
PRC regulation of
loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of the offerings
to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and
our ability to fund and expand our business.
In utilizing the proceeds from the offerings or any future offerings,
as an offshore holding company of our PRC subsidiary, we may make loans to our PRC subsidiary and controlled PRC affiliate, or we may
make additional capital contributions to our PRC subsidiary. Any loans to our PRC subsidiary or controlled PRC affiliate are subject to
PRC regulations and approvals. For example, loans by us to our PRC subsidiary in China, each of which is a foreign-invested enterprise,
to finance their activities cannot exceed statutory limits and must be registered with a Chinese agency known as SAFE or its local counterpart.
We may also decide to
finance our PRC subsidiary through capital contributions. These capital contributions must be approved by the Ministry of Commerce in
China or its local counterpart. It is possible that we may not be able to obtain these government registrations or approvals on a timely
basis, if at all, with respect to future loans by us to our PRC subsidiary or controlled PRC affiliate or capital contributions by us
to our subsidiaries or any of their respective subsidiaries. If we fail to receive such registrations or approvals, our PRC operations
may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.
In 2015, SAFE promulgated
Circular 19, a notice regulating the conversion by a foreign-invested enterprise of foreign currency into Renminbi by restricting how
the converted Renminbi may be used. Circular 19 requires that Renminbi converted from the foreign currency-denominated capital of a foreign-invested
enterprise may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used
for equity investments within the PRC unless specifically provided for otherwise in its business scope. In addition, SAFE strengthened
its oversight of the flow and use of Renminbi funds converted from the foreign currency-denominated capital of a foreign-invested enterprise.
The use of such Renminbi may not be changed without approval from SAFE and may not be used to repay Renminbi loans if the proceeds of
such loans have not yet been used for purposes within the foreign-invested enterprise’s approved business scope.
We cannot assure you
that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis,
if at all, with respect to future loans by us to our PRC subsidiary or controlled PRC affiliate or with respect to future capital contributions
by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we receive
from the offerings and to capitalize or otherwise fund our PRC operations may be negatively affected, which could adversely and materially
affect our liquidity and our ability to fund and expand our business.
Governmental control
of currency conversion may limit our ability to use our revenues effectively and the ability of our PRC subsidiary to obtain financing.
The PRC government imposes control on the convertibility
of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. For our PRC subsidiaries, we will receive
a majority of our revenues in Renminbi, which currently is not a freely convertible currency. Restrictions on currency conversion imposed
by the PRC government may limit our ability to use revenues generated in Renminbi to fund our expenditures denominated in foreign currencies
or our business activities outside China. Under China’s existing foreign exchange regulations, Renminbi may be freely converted into foreign
currency for payments relating to current account transactions, which include among other things dividend payments and payments for the
import of goods and services, by complying with certain procedural requirements. Our PRC subsidiary is able to pay dividends in foreign
currencies to us without prior approval from SAFE, by complying with certain procedural requirements. Our PRC subsidiary may also retain
foreign currency in their respective current account bank accounts for use in payment of international current account transactions. However,
we cannot assure you that the PRC government will not take measures in the future to restrict access to foreign currencies for current
account transactions.
Conversion of Renminbi into foreign currencies,
and of foreign currencies into Renminbi, for payments relating to capital account transactions, which principally includes investments
and loans, generally requires the approval of SAFE and other relevant PRC governmental authorities. Restrictions on the convertibility
of the Renminbi for capital account transactions could affect the ability of our PRC subsidiary to make investments overseas or to obtain
foreign currency through debt or equity financing, including by means of loans or capital contributions from us.
Additional Risks Related to Doing Business in
China
Systems for the transfers of cash and non-monetary assets
IMTE can freely transfer cash in accordance with
the laws of Australia. The transfer of cash amongst IMTE and its subsidiaries is made through direct bank transfers following internal
fund transfer procedures and controls. During 2021, IMTE transferred approximately US$12.2million to its subsidiaries via cash advances
and contributions to capital of which approximately US$366,000 were further transferred to our PRC subsidiary Smartglass Zhenjiang. IMTE’s
subsidiaries have not distributed cash to IMTE during this period.
IMTE’s intention is to not distribute earnings
from its operating subsidiaries until a subsidiary’s operations has achieved cashflow breakeven and no longer requires investment
capital. However, we are at the initial stage of roll-out and it is not expected that there will be any cash dividends in the near future.
IMTE and its subsidiaries have not distributed
any dividends and non-monetary assets.
None of our subsidiaries operate in a monetary controlled environment
except our PRC-incorporated entities. For PRC entities, IMTE may make loans or capital contributions. Any loans to a PRC subsidiary are
subject to PRC regulations and approvals. Similarly, the flow of funds out of China requires Chinese regulatory approval and can only
be made through the repayment of previously approved loans or through the profits earned by the PRC subsidiary through the capital account.
Further details are set out in the “Risks Related to Doing Business in China” in this “Risk Factors” section.
IMTE currently has only one operating subsidiary
in China, Smartglass Zhenjiang, which as at the date of this Form 20F, has received funds of approximately US$406,000 from its sole shareholder,
Smartglass HK. This transfer of funds was made by Smartglass HK through registered capital injection to Smartglass Zhenjiang to purchase
machinery and equipment and for working capital purposes. Smartgalss Zhenjiang has not paid any funds to its holding company Smartglass
HK since the inception of Smartglass Zhenjiang.
Payment of dividends or distributions
Since the date of incorporation, IMTE has not
received, nor does it expect to receive in the foreseeable future, any dividends or distributions from any of its subsidiaries. IMTE has
not paid, nor does it expect to pay in the foreseeable future, any dividends or distributions to its shareholders. There are no foreign
exchange restrictions on the ability of IMTE to pay dividends or transfer cash to its U.S. shareholders and to U.S. investors.
If IMTE were to pay dividends to US investors,
then they would be subject to taxation under U.S. tax law. Further information is set out in Item 10E starting on page 71 of IMTE’s
annual report on Form 20-F.