Financial Performance - Revenue for the six months ended June 30, 2022, was HKD 482,726,000, an increase of 16.4% compared to HKD 414,663,000 for the same period in 2021[1] - Gross profit for the same period was HKD 70,601,000, representing a gross margin of 14.6%, up from HKD 63,856,000 in 2021[1] - The net loss attributable to the company for the period was HKD 118,458,000, compared to a loss of HKD 103,796,000 in the previous year, indicating a 14.0% increase in losses[1] - Total comprehensive loss for the period was HKD 144,059,000, compared to HKD 125,754,000 in the prior year, reflecting a 14.5% increase[2] - The basic and diluted loss per share for the period was HKD 2.736, compared to HKD 2.563 in the previous year, reflecting a 6.8% increase in loss per share[1] - The company reported a pre-tax loss of HKD 127,264,000 for the six months ended June 30, 2022, compared to a loss of HKD 122,066,000 in the same period of 2021[6] - The total comprehensive income for the period was a loss of HKD 125,754,000, compared to a loss of HKD 108,377,000 in the previous year[5] - The company reported a loss attributable to shareholders of HKD 118,458,000 for the six months ended June 30, 2022, compared to a loss of HKD 103,796,000 in the same period of 2021, representing an increase in loss of approximately 14.3%[38] Assets and Liabilities - Non-current assets as of June 30, 2022, totaled HKD 792,650,000, slightly up from HKD 787,076,000 at the end of 2021[3] - Current liabilities increased to HKD 404,988,000 from HKD 341,369,000, indicating a rise of 18.6%[3] - The company's total equity decreased to HKD 366,775,000 from HKD 510,786,000, a decline of 28.2%[3] - Total assets as of June 30, 2022, amounted to HKD 1,123,694,000, down from HKD 1,200,099,000 as of December 31, 2021[59] - The company’s trade receivables as of June 30, 2022, were HKD 60,346,000, down from HKD 65,000,000[31] - Contract assets increased to HKD 29,290,000 from HKD 24,558,000, indicating a growth of 19.4%[31] - Contract liabilities rose to HKD 103,967,000 from HKD 86,707,000, reflecting an increase of 19.8%[31] Cash Flow - The net cash used in operating activities was HKD 31,148,000, slightly improved from HKD 34,481,000 in the previous year[7] - The company recorded a net cash outflow from investing activities of HKD 25,887,000, compared to HKD 172,200,000 in the prior year[7] - Cash and cash equivalents decreased by HKD 84,965,000, while cash at the beginning of the period was HKD 130,455,000, resulting in a closing balance of HKD 42,560,000[7] - The company’s total cash and bank balance was approximately HKD 160,701,000[120] Segment Performance - The total revenue from customer contracts in the media entertainment segment for the six months ended June 30, 2022, was HKD 482,726,000, an increase of 16.4% from HKD 414,663,000 in 2021[25] - Revenue from visual effects and post-production services was HKD 464,197,000, up from HKD 379,971,000, reflecting a growth of 22.2%[25] - Revenue from virtual human and virtual reality services, along with 360-degree digital capture technology, decreased to HKD 17,527,000 from HKD 31,980,000, a decline of 45.1%[25] - The company reported a loss of HKD 72,747,000 for the media entertainment segment, an improvement from a loss of HKD 81,177,000 in the previous year[26] - Total assets for the media entertainment segment increased to HKD 931,808,000 from HKD 905,319,000, representing a growth of 2.9%[26] - Total liabilities for the media entertainment segment rose to HKD 650,411,000 from HKD 581,029,000, an increase of 11.9%[26] Investments and Acquisitions - The company acquired 248,431 shares of asknet Solutions AG for approximately HKD 34,586,000, representing about 19% of the total issued shares at the time of acquisition[42] - The company also purchased shares of Highlight Event and Entertainment AG for a total of approximately HKD 67,808,000, which accounted for about 3.01% of the total issued shares post-acquisition[43] - The fair value of listed equity securities held by the company decreased from HKD 70,151,000 as of December 31, 2021, to HKD 57,532,000 as of June 30, 2022, indicating a loss of HKD 12,619,000[44] Corporate Governance and Management - The company has complied with the corporate governance code except for the roles of chairman and CEO not being separated[146] - Mr. Jiang Yingchun resigned as a non-executive director effective March 31, 2022, and Mr. Li Weiqiang was appointed as a non-executive director on the same date[148] - The audit committee has reviewed the interim report for the review period[148] - The company is seeking suitable candidates to fill the vacancy of the chairman position[146] Strategic Focus and Future Outlook - The company is strategically focusing resources on visual effects and virtual human core businesses, exploring new projects in competitive markets[126] - The company plans to continue developing new technologies to enhance interaction between virtual humans and various platforms, including customer service and education[126] - The company acknowledges the ongoing economic uncertainties and is adopting a conservative business strategy, including cost control measures[124] - The company continues to seek strategic partnerships and funding opportunities in the virtual human technology sector, expanding its talent pool globally[88]

Financial Performance and Challenges - Digital Domain's revenue in 2021 was significantly impacted by the COVID-19 pandemic, particularly due to the Delta and Omicron variants, which led to global economic disruptions and lockdowns[13] - Revenue from continuing operations increased by 44% to HKD 864,214,000 in 2021 compared to HKD 601,301,000 in 2020[20] - Gross profit from continuing operations rose by 92% to HKD 123,965,000 in 2021 from HKD 64,730,000 in 2020[20] - Total assets decreased to HKD 1,200,099,000 as of December 31, 2021, from HKD 1,497,250,000 in 2020[20] - Loss attributable to shareholders from continuing operations was HKD 722,004,000 in 2021, compared to HKD 584,205,000 in 2020[20] - Media and entertainment division recorded a loss of HKD 398,994,000 in 2021, including impairment losses on goodwill and intangible assets of HKD 232,472,000[22] - EBITDA for the media and entertainment division was a loss of HKD 304,737,000 in 2021, compared to a loss of HKD 432,222,000 in 2020[23] - Impairment losses on goodwill and intangible assets for the media and entertainment division were HKD 232,472,000 in 2021, down from HKD 305,119,000 in 2020[22] - The company anticipates continued challenges in the business environment for 2022, with unpredictable changes expected in the coming months[15] - The company impaired investments in 3Glasses Group and Digital Domain Space by HKD 163.6 million and HKD 37 million respectively, due to poor performance and strategic refocusing[168] - The group's intangible assets amounted to HKD 533.994 million, representing approximately 44% of total assets as of December 31, 2021[172] - The goodwill allocated to the visual effects production cash-generating unit was HKD 208.691 million, with a recoverable amount of HKD 107.731 million[175] - The average growth rate assumption for the visual effects production unit over a five-year budget period is 12.1%, down from 19.3% in the previous year[175] - The pre-tax discount rate for the visual effects production unit increased to 18.6% from 17.6% in the previous year[175] - The 360-degree cash-generating unit's growth prospects are heavily dependent on the recovery of demand in tourism, sports, concerts, and other mass events, which remain severely impacted by pandemic-related restrictions[174] - The company adopted a conservative approach in forecasting cash inflows for cash-generating units, using higher success discounts and reducing projections for credible and possible projects compared to the previous year[174] - The goodwill allocated to the post-production cash-generating unit is approximately HKD 85,186,000 as of December 31, 2021, with a provision of HKD 48,874,000 based on its recoverable amount[177] - The post-production cash-generating unit's key assumptions include a 16.4% average growth rate over a five-year budget period and a pre-tax discount rate of 17.4%[177] - The 360-degree cash-generating unit recorded a total impairment loss of HKD 232,472,000 in 2021, including HKD 16,170,000 for goodwill and HKD 216,302,000 for intangible assets[178] - The 360-degree cash-generating unit's key assumptions include a 4.0% average growth rate over a five-year budget period and a pre-tax discount rate of 17.0%[178] Global Expansion and Strategic Transactions - Digital Domain expanded its global footprint in 2021 with several transactions aimed at entering the European market, marking a significant milestone in its global business strategy[15] - The company formed Digital Domain Capital Partners S.à r.l. (DDCP) in Luxembourg, with an investment of HKD 187,800,000 (approximately EUR 20,000,000) for a 60% stake, while DKF invested HKD 125,200,000 (approximately EUR 13,333,000) for a 40% stake[120] - The company acquired an additional 40% stake in DDCP for EUR 13,333,000 (approximately HKD 123,648,000), making DDCP a wholly-owned subsidiary[121] - DDCP invested EUR 3,709,000 (approximately HKD 34,586,000) to acquire 19% of asknet Solutions AG's ordinary shares, which later diluted to 7.6% due to a capital increase[123] - DDCP invested EUR 7,214,000 (approximately HKD 67,808,000) to acquire 3.01% of Highlight Event and Entertainment AG's bearer shares, which later diluted to 2.8% due to a capital increase[127] - The company's virtual human technology, including the virtual Teresa Teng, is being developed for applications in entertainment, education, and lifelong learning, with potential expansion into the European market[126][129] Virtual Human and Visual Effects Innovations - Digital Domain's visual effects and virtual human technologies have been widely recognized, with its art team winning over 100 international awards, including Oscars and BAFTAs[7] - The company's visual effects team won multiple awards, including a Telly Award for the "A Storm is Coming" trailer for "Ghost of Tsushima"[29] - The virtual human team received a Technical Achievement Award at the 11th Annual Lumiere Awards[34] - The visual effects team delivered 350 shots for the Marvel Studios series "WandaVision," which premiered in January 2021[48] - The team produced nearly 500 shots for two episodes of the series "Loki," which aired in June 2021[48] - The company completed visual effects for the final season of the Netflix series "Lost in Space" Season 3[48] - The team is working on the upcoming Marvel Studios series "Ms. Marvel," set to release in 2022[48] - The company provided visual effects for the Marvel Studios film "Spider-Man: No Way Home," which premiered in December 2021[44] - The team is currently working on the Marvel Studios film "Ant-Man and the Wasp: Quantumania," set to release in 2023[44] - The company delivered visual effects for the Warner Bros. film "The Conjuring: The Devil Made Me Do It"[61] - The team completed 121 final touches for Activision Blizzard's "Call of Duty" series[61] - The company produced visual effects for NBCUniversal's "La Brea" promotional trailer, including one fully CGI shot and three live-action/CGI hybrid shots[61] - The team created an 8-minute "Apex Legends" short film for EA/Respawn, blending design, CGI, 2.5D graphics, and traditional animation[62] - Digital Domain collaborated with 72andSunny and the NFL to recreate Vince Lombardi's virtual human for the Super Bowl LV ad "AS ONE," utilizing their patented Charlatan software and 2D Flame compositing[63] - Digital Domain provided motion capture and animation direction for Arc Games' "Perfect World" trailer and worked with Facebook/Oculus on mixed reality footage for Beatsaber[64] - The company produced 30-second, 15-second, and 6-second ads for Apple's NBA 2K22 and created localized versions of Barkley/AMC's ad[64] - Digital Domain began production on eToro's 2022 Super Bowl ad, simulating crowds flying through the air[64] - Digital Domain China provided visual effects and post-production services for films and series, including "WandaVision," "Hi, Mom" (Dolby Vision), and "Loki" Season 1[71] - The company worked with top brands such as Adidas, BMW, Coca-Cola, Huawei, Mercedes-Benz, and Tencent Games for post-production and production services[77] - Digital Domain China contributed to visual effects for upcoming projects like "Doctor Strange in the Multiverse of Madness" and "Black Adam"[76] - Digital Domain China expanded its services to include virtual reality/360-degree video production and creative services for ads and films[71] - The virtual human business in North America and Greater China has participated in multiple events, including presentations and demonstrations at major industry conferences[91] - The virtual human team has made progress in multiple projects, including collaborations with advertising/gaming and new media teams, and has developed new technologies like Charlatan and Masquerade 2.0[94] - Digital Kingdom is collaborating with a major theme park client to create real-time virtual humans based on a long-standing movie series, with attractions set to open in 2024[94] - The virtual human team has tested Charlatan software for mask replacement during the COVID-19 pandemic and has used it to enhance resolution for Time Magazine and other projects[94] - Digital Kingdom's visual arts and technological innovations have been recognized with recent awards, including a silver award at DAwards2021 and the "Pioneer in Visual Effects" award from New Film Field[87] - The reality show "Future New World" featuring Digital Kingdom's Beijing studio has garnered over 21.532 million views on Tencent Video[86] - Digital Kingdom collaborated with ITEC Entertainment Corporation to create a Pepper's Ghost-like experience at the Billy Graham Library in North Carolina, USA, using virtual human technology including the Charlatan technique[96] - Digital Kingdom produced real-time video content for Studio Wildcard's game "Ark 2," including creating photo-realistic faces for Vin Diesel's character "Santiago" and another female lead[96] - Since 2018, Digital Kingdom has developed multiple proprietary virtual human characters/IPs, including Sandra, EVE, Irene, Sabrina, and M.E., and invested in R&D to enhance interaction between virtual humans and audiences[96] - In February 2021, Digital Kingdom designed a virtual host for Cheng Uei Precision Industry Co.'s online employee recognition event, engaging employees across Greater China, Myanmar, India, and the US[103] - In March 2021, BMW Taiwan featured Digital Kingdom's CEO and virtual human "Elbor" in an ad for "THE NEW 5," utilizing real-time motion capture and rendering technology[103] - In April 2021, virtual human M.E. starred in a 360-degree video game for JJ Paradise's Drifter 360˚ online game[104] - Starting September 2021, Taishin Bank introduced virtual tellers "Miss Rose" and "Mr. Sun" using next-gen Virtual Teller Machines (VTMs) for zero-contact services[105] - Digital Kingdom filed a provisional patent application in the US for a "Method for Tracking Facial Expressions and Neural Network Training Method," enhancing its competitive edge in virtual human technology[105] - In 2021, Digital Kingdom collaborated with an undisclosed AAA game company to produce a high-quality game with over 30 hours of facial and motion capture using its Masquerade 2.0 technology, set for release in 2022[108] - Digital Kingdom partnered with Lucas Foster to produce "Children of the Corn," a film adaptation of Stephen King's novel, shot in Australia during the pandemic and set for global release in 2022[117] - Virtual Teresa Teng's holographic concert in Chongqing's Hongyadong Scenic Area continues to attract audiences with immersive experiences[132] - Virtual Teresa Teng performed at the opening of "AMBI SPACE ONE" using 5G technology for remote interaction with the host and audience[137] - Virtual Teresa Teng collaborated with singer Zhou Shen at Jiangsu TV's New Year's Eve concert, performing 3 songs and creating a significant online buzz[141] - Beijing Xugu, a joint venture of the company, focuses on virtual human projects in mainland China, leveraging digital human technology for live streaming and commercial expansion[143] - Virtual IPs Nonoka and Class Monitor Xiao Ai collaborated with Wanglaoji for a live-streamed "Super Lucky New Year Goods" event, driving significant traffic and sales[145] - Virtual IP Class Monitor Xiao Ai served as the first virtual host at the 8th China Youth Network Spring Festival Gala, achieving real-time interaction with live hosts and guests[149] - Class Monitor Xiao Ai released 6 customized red envelope covers during the Spring Festival, with 1,180 purchased and distributed, achieving over 700,000 exposures and 260,000 red packet openings[150] - The company partnered with Alibaba's DAMO Academy to develop a next-generation intelligent virtual host service, enabling 24-hour live-streamed e-commerce, becoming the first virtual human technology team in mainland China to integrate with DAMO's intelligent platform[150] - Digital Kingdom collaborated with Alibaba DAMO Academy in June 2021 on the "Sign Language Motion Capture Production Project," capturing hundreds of sign language motions and aiming to expand to thousands, with the goal of creating a "visual dictionary" using virtual human motion capture technology[154] - The virtual character "Class Monitor Xiao Ai" appeared at 2021 ChinaJoy in July 2021, showcasing its charm and technical features to thousands of players both on-site and online[154] - "Class Monitor Xiao Ai" partnered with CCTV 10's educational program "Traveling with Books" in August 2021, serving as a "virtual team leader" to guide students through cultural and historical sites[154] - "Class Monitor Xiao Ai" participated in the sixth season of CCTV's classic poetry program "Chinese Poetry Conference" in April 2021, serving as the first "virtual question presenter" and achieving a cumulative exposure of over 15 million[154] - "Class Monitor Xiao Ai" released 392 videos on WeChat Video Channel by December 31, 2021, with a total exposure of 21.96 million, ranking 14th on the New Rank's maternal and child blogger list[154] - Beijing Xugu won the "2021 Belt and Road Cultural and Creative Competition Most Potential Award" in September 2021 for its virtual idol "Class Monitor Xiao Ai" in the education field[157] - "Class Monitor Xiao Ai" performed as the "Special National Style Star Promoter" at the "Yu Meng" 2022 China International Fashion Show in September 2021, showcasing traditional Chinese culture[157] Investments and Financial Transactions - The company invested $25,000,000 (approximately HKD 196,213,000) in Mango International Group Limited in 2018, with the investment classified as "financial assets at fair value through other comprehensive income." By December 31, 2021, the fair value of this investment was zero[118] - The company issued 6,814,760,000 new shares at HKD 0.05 per share, raising HKD 340,738,000 in gross proceeds, representing approximately 20% of the issued share capital before the subscription[180] - The company issued 2,400,000,000 new shares at HKD 0.065 per share, raising HKD 156,000,000 in gross proceeds, representing approximately 5.87% of the issued share capital before the subscription[184] - The company implemented a share consolidation, merging every 10 existing shares into 1 consolidated share, and adjusted the par value from HKD 0.01 to HKD 0.10 per share[185] - The company's total issued shares as of December 31, 2021, were 4,329,027,625 shares with a par value of HKD 0.01 per share[186] - The company granted 980,060,000 share options at an exercise price of HKD 0.098 per share, with 4,657,000 options exercised and 14,076,000 options canceled or lapsed since the grant date[187] - The company granted a total of 78,000,000 share options on May 6, 2015, with an exercise price of HK$1.32 per share[188] - On January 29, 2016, the company granted 379,500,000 share options with an exercise price of HK$0.413 per share[190] - On June 22, 2016, the company granted 100,000,000 share options with an exercise price of HK$0.495 per share[190] - On July 29, 2016, the company granted 50,000,000 share options with an exercise price of HK$0.566 per share[191] - On February 13, 2017, the company granted 300,000,000 share options with an exercise price of HK$0.469 per share[191] - On April 24, 2019, the company granted 130,000,000 share options with an exercise price of HK$0.130 per share[192] - On May 21, 2020, the company granted 478,000,000 share options with an exercise price of HK$0.046 per share, of which 170,000 were exercised and 2,000,000 were canceled or lapsed[192] - The company raised approximately HK$340,538,000 through the issuance of 6,814,760,000 shares, with net proceeds allocated to forming joint ventures (HK$187,800,000), media and entertainment division (HK$103,000,000), and general working capital (HK$49,738,000)[197] - The company raised approximately HK$155,500,000 through the issuance of 2,400,000,000 shares, with net proceeds allocated to restructuring European operations (HK$124,800,000) and general working capital (HK$30,700,000)[197] - As of December 31, 2021, the company had bank financing of US$15,000,000 (approximately HK$116,948,000) from two US banks, with US$14,858,000 (approximately HK$115,841,000) utilized, secured by the company's time deposits[198] Legal and Intellectual Property Issues - The company faced legal disputes over intellectual property rights related to facial image technology, with ongoing litigation and mediation efforts[68][69][70] - The company's U.S. subsidiary adopted alternative technologies following a court ruling on disputed intellectual property rights[68] Virtual Reality and Metaverse Initiatives - 3Glasses Group's self-developed virtual reality device, the 3Glasses X1S smart glasses, won the prestigious "German iF Design Award" in April 2021, becoming the only Chinese VR product to receive this award[165] - 3Glasses Group's 3Link technology successfully connected the X1S to 15 models of 5G phones, enabling multi-device and multi-system connectivity[165] - 3Glasses accumulated over 700,000 fans on Kuaishou, with 10 popular short videos exceeding 10 million views each and a total cumulative view count surpassing 450 million[166] - 3

[Condensed Consolidated Statement of Profit or Loss](index=2&type=section&id=Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss) The company's revenue from continuing operations increased by 25%, leading to a 70% gross profit growth, and a narrowed loss for the period Condensed Consolidated Statement of Profit or Loss (For the six months ended 30 June 2021) | Indicator | 2021 (Thousand HKD) | 2020 (Thousand HKD) | | :--- | :--- | :--- | | Revenue | 414,663 | 332,100 | | Cost of sales and services provided | (350,807) | (294,594) | | Gross profit | 63,856 | 37,506 | | Other income and gains | 55,520 | 82,140 | | Selling and distribution expenses | (2,719) | (639) | | Administrative expenses and other operating expenses, net | (182,560) | (219,145) | | Finance costs | (12,913) | (14,929) | | Impairment loss (recognized)/reversal on trade receivables and contract assets | (5,164) | 3,294 | | Impairment loss on amounts due from associates | (3,949) | – | | Share of loss of associates | (17,743) | (7,721) | | Fair value loss on financial assets at fair value through profit or loss | (16,394) | – | | Loss before tax | (122,066) | (116,695) | | Loss for the period from continuing operations | (121,791) | (116,886) | | Loss for the period from discontinued operations | – | (29,556) | | Loss for the period | (121,791) | (146,442) | | Loss per share from continuing operations attributable to owners of the Company (basic and diluted) | (0.256) HK cents | (0.293) HK cents | - Revenue from continuing operations increased by **25%** year-on-year to **HK$414,663 thousand**, with gross profit growing by **70%** to **HK$63,856 thousand**[2](index=2&type=chunk)[125](index=125&type=chunk) - Loss for the period was **HK$121,791 thousand**, a reduction from **HK$146,442 thousand** in the prior year, primarily due to the exclusion of losses from discontinued operations[2](index=2&type=chunk)[125](index=125&type=chunk) - Basic and diluted loss per share from continuing operations attributable to owners of the Company was **HK$0.256 cents**, an improvement from **HK$0.293 cents** in the prior year[4](index=4&type=chunk)[84](index=84&type=chunk) [Condensed Consolidated Statement of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statement%20of%20Comprehensive%20Income) The total comprehensive loss for the period narrowed to HK$125,754 thousand, indicating an improvement compared to the previous year Condensed Consolidated Statement of Comprehensive Income (For the six months ended 30 June 2021) | Indicator | 2021 (Thousand HKD) | 2020 (Thousand HKD) | | :--- | :--- | :--- | | Loss for the period | (121,791) | (146,442) | | Other comprehensive income (net of tax) | (3,963) | (5,527) | | Total comprehensive income for the period | (125,754) | (151,969) | | Total comprehensive income attributable to owners of the Company | (108,377) | (131,554) | | Total comprehensive income attributable to non-controlling interests | (17,377) | (20,415) | - Total comprehensive loss for the period was **HK$125,754 thousand**, a reduction from **HK$151,969 thousand** in the prior year[8](index=8&type=chunk) [Condensed Consolidated Statement of Financial Position](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Financial%20Position) Total assets increased, net current assets turned positive, and total equity improved, reflecting enhanced liquidity and capital structure Condensed Consolidated Statement of Financial Position (As at 30 June 2021) | Indicator | 30 June 2021 (Thousand HKD) | 31 December 2020 (Thousand HKD) | | :--- | :--- | :--- | | **Non-current assets** | | | | Property, plant and equipment | 77,675 | 75,477 | | Right-of-use assets | 73,429 | 88,415 | | Intangible assets | 760,000 | 737,030 | | Interests in associates | 254,510 | 265,104 | | Financial assets at fair value through profit or loss | 84,435 | – | | Total non-current assets | 1,293,342 | 1,210,892 | | **Current assets** | | | | Trade receivables, other receivables and prepayments | 165,911 | 154,657 | | Contract assets | 25,219 | 17,802 | | Bank balances and cash | 345,746 | 113,899 | | Total current assets | 536,876 | 286,358 | | **Current liabilities** | | | | Trade payables, other payables and accruals | 137,463 | 176,572 | | Borrowings | 59,203 | 154,285 | | Contract liabilities | 110,776 | 44,902 | | Total current liabilities | 349,552 | 418,352 | | Net current assets/(liabilities) | 187,324 | (131,994) | | **Non-current liabilities** | | | | Borrowings | 220,772 | 142,309 | | Lease liabilities | 60,806 | 77,220 | | Deferred tax liabilities | 47,544 | 46,498 | | Total non-current liabilities | 329,122 | 266,027 | | **Total equity** | 1,151,544 | 812,871 | | Equity attributable to owners of the Company | 1,074,724 | 841,431 | | Non-controlling interests | 76,820 | (28,560) | - Total assets increased to **HK$1,830,218 thousand** (31 December 2020: **HK$1,497,250 thousand**), primarily driven by a significant increase in bank balances and cash[10](index=10&type=chunk)[125](index=125&type=chunk) - Net current assets improved from a deficit of **HK$131,994 thousand** as at 31 December 2020 to a surplus of **HK$187,324 thousand**, with the current ratio increasing from **0.7** to **1.5**, indicating significant liquidity improvement[10](index=10&type=chunk)[251](index=251&type=chunk) - Total equity increased to **HK$1,151,544 thousand**, with non-controlling interests turning from negative to positive, reflecting an improved capital structure[10](index=10&type=chunk) [Condensed Consolidated Statement of Changes in Equity](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Equity) Share capital increased due to new share subscriptions, non-controlling interests turned positive from capital injection, and accumulated losses were offset by share premium transfer Condensed Consolidated Statement of Changes in Equity (For the six months ended 30 June 2021) | Indicator | 1 January 2021 (Thousand HKD) | 30 June 2021 (Thousand HKD) | | :--- | :--- | :--- | | Share capital | 340,754 | 408,902 | | Share premium | 1,984,773 | – | | Contributed surplus | 594,690 | 594,690 | | Accumulated losses | (2,072,872) | 80,392 | | Total attributable to owners of the Company | 841,431 | 1,074,724 | | Non-controlling interests | (28,560) | 76,820 | | Total equity | 812,871 | 1,151,544 | - Share capital increased by **HK$68,148 thousand** due to shares issued from subscription[17](index=17&type=chunk) - Non-controlling interests received a capital injection of **HK$122,757 thousand**, turning from a negative to a positive value[17](index=17&type=chunk) - Accumulated losses changed from a deficit of **HK$2,072,872 thousand** to a surplus of **HK$80,392 thousand** by transferring share premium to contributed surplus and offsetting accumulated losses[17](index=17&type=chunk) [Condensed Consolidated Statement of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) Net cash used in operating activities decreased, while net cash from financing activities significantly increased, primarily driven by new share issuance and non-controlling shareholder contributions Condensed Consolidated Statement of Cash Flows (For the six months ended 30 June 2021) | Indicator | 2021 (Thousand HKD) | 2020 (Thousand HKD) | | :--- | :--- | :--- | | Net cash used in operating activities | (34,481) | (60,327) | | Net cash used in investing activities | (172,200) | (127,242) | | Net cash from financing activities | 429,456 | 2,615 | | Net increase/(decrease) in cash and cash equivalents | 222,775 | (184,954) | | Cash and cash equivalents at 30 June | 248,683 | 122,507 | - Cash outflow from operating activities decreased from **HK$60,327 thousand** in 2020 to **HK$34,481 thousand** in 2021[20](index=20&type=chunk) - Cash outflow from investing activities increased, mainly due to the purchase of financial assets at fair value through profit or loss amounting to **HK$102,394 thousand**[24](index=24&type=chunk)[95](index=95&type=chunk) - Net cash inflow from financing activities significantly increased to **HK$429,456 thousand**, primarily from proceeds of **HK$340,435 thousand** from the issuance of ordinary shares and **HK$122,757 thousand** from non-controlling shareholders' capital injection[24](index=24&type=chunk) [Notes to the Unaudited Condensed Consolidated Interim Financial Statements](index=9&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Interim%20Financial%20Statements) This section provides detailed notes on the basis of preparation, accounting policies, changes in standards, key judgments, segment reporting, and specific financial statement line items [1. Basis of Preparation and Accounting Policies](index=9&type=section&id=1.%20Basis%20of%20Preparation%20and%20Accounting%20Policies) The interim financial statements are prepared in accordance with HKAS 34 and Appendix 16 of the Listing Rules, using the historical cost convention, with early adoption of HKFRS 16 amendments - The Group has early adopted the amendments to HKFRS 16 'COVID-19-Related Rent Concessions beyond 30 June 2021'[34](index=34&type=chunk) [2. Changes in Hong Kong Financial Reporting Standards](index=9&type=section&id=2.%20Changes%20in%20Hong%20Kong%20Financial%20Reporting%20Standards) The Group adopted all effective new or revised HKFRSs, including early adoption of HKFRS 16 amendments on COVID-19 rent concessions, simplifying accounting for lease payment reductions - Amendments to HKFRS 16 expanded the practical expedient, allowing lessees to treat rent concessions affecting payments due on or before 30 June 2022 as changes in floating interest rates[38](index=38&type=chunk)[39](index=39&type=chunk) - Amendments to interest rate benchmark reform provide temporary relief to address the financial reporting impact when interbank offered rates are replaced by risk-free rates, including simplified accounting for contract modifications and hedge designations[39](index=39&type=chunk)[40](index=40&type=chunk) [3. Application of Judgements and Estimates](index=11&type=section&id=3.%20Application%20of%20Judgements%20and%20Estimates) Significant management judgments and key sources of estimation uncertainty in preparing the interim financial statements remain consistent with the 2020 annual consolidated financial statements [4. Revenue and Segment Reporting](index=12&type=section&id=4.%20Revenue%20and%20Segment%20Reporting) The Group operates solely in the media entertainment segment, with continuing operations revenue growing 25% year-on-year, driven by strong performance in the US and UK markets - The Group has only one operating and reportable segment: the media entertainment segment, which includes visual effects production, post-production, 360-degree panoramic digital capture technology applications, virtual reality services, and virtual reality content licensing[48](index=48&type=chunk) Revenue Analysis from Continuing Operations (For the six months ended 30 June 2021) | Service Type | 2021 (Thousand HKD) | 2020 (Thousand HKD) | | :--- | :--- | :--- | | Visual effects production services | 371,038 | 304,607 | | Post-production services | 8,933 | 5,299 | | 360-degree panoramic digital capture technology applications and virtual reality services | 31,980 | 22,194 | | Licensing of virtual reality content | 2,712 | – | | **Total** | **414,663** | **332,100** | Revenue from Continuing Operations by Geographical Location (For the six months ended 30 June 2021) | Region | 2021 (Thousand HKD) | 2020 (Thousand HKD) | | :--- | :--- | :--- | | China | 35,596 | 23,407 | | United States | 171,011 | 88,485 | | Canada | 183,824 | 215,559 | | United Kingdom | 20,769 | 2,671 | | Europe | 2,890 | – | | Other countries/regions | 573 | 1,978 | | **Total** | **414,663** | **332,100** | - Trade receivables increased from **HK$40,798 thousand** as at 31 December 2020 to **HK$52,718 thousand** as at 30 June 2021, contract assets increased from **HK$17,802 thousand** to **HK$25,219 thousand**, and contract liabilities increased from **HK$44,902 thousand** to **HK$110,776 thousand**[73](index=73&type=chunk) [5. Finance Costs](index=18&type=section&id=5.%20Finance%20Costs) Finance costs for the period decreased to HK$12,913 thousand from HK$14,929 thousand in the prior year, mainly due to reduced accrued interest on lease liabilities Finance Costs (For the six months ended 30 June 2021) | Item | 2021 (Thousand HKD) | 2020 (Thousand HKD) | | :--- | :--- | :--- | | Accrued interest on lease liabilities | 5,440 | 8,197 | | Interest on bank and other borrowings | 7,473 | 6,574 | | **Total** | **12,913** | **14,929** | [6. Loss Before Tax](index=18&type=section&id=6.%20Loss%20Before%20Tax) Loss before tax for the period narrowed to HK$122,066 thousand from HK$150,235 thousand in the prior year, primarily due to the exclusion of discontinued operations' losses and reduced amortization and depreciation expenses - Loss before tax was **HK$122,066 thousand**, an improvement from **HK$150,235 thousand** in the prior year[61](index=61&type=chunk) - Non-cash outflow expenses recognized included **HK$1,235 thousand** for equity-settled share-based payments (2020: **HK$6,418 thousand**) and **HK$30,248 thousand** for amortization and depreciation expenses (2020: **HK$43,227 thousand**)[125](index=125&type=chunk) - Share of loss of associates was **HK$17,743 thousand** (2020: **HK$7,721 thousand**), and fair value loss on financial assets at fair value through profit or loss was **HK$16,394 thousand**[125](index=125&type=chunk) [7. Taxation](index=20&type=section&id=7.%20Taxation) Taxation for continuing operations resulted in a credit of HK$275 thousand, compared to a charge of HK$191 thousand in the prior year, mainly due to deferred tax impacts Taxation (For the six months ended 30 June 2021) | Item | 2021 (Thousand HKD) | 2020 (Thousand HKD) | | :--- | :--- | :--- | | Current tax for the period from continuing operations – overseas tax | 18 | 459 | | Deferred tax for the period from continuing operations | (293) | (268) | | **Total for continuing operations** | **(275)** | **191** | | Current tax for the period from discontinued operations | – | (3,984) | [8. Loss Per Share](index=20&type=section&id=8.%20Loss%20Per%20Share) Basic and diluted loss per share from continuing operations attributable to owners of the Company improved to HK$0.256 cents from HK$0.293 cents in the prior year, with both being identical due to anti-dilutive share options Loss Per Share Calculation (For the six months ended 30 June 2021) | Item | 2021 (Thousand HKD) | 2020 (Thousand HKD) | | :--- | :--- | :--- | | Loss for the period from continuing operations attributable to owners of the Company for basic loss per share calculation | (103,796) | (107,455) | | Weighted average number of ordinary shares for basic loss per share calculation | 40,490,250,641 | 36,629,352,477 | | Loss per share from continuing operations attributable to owners of the Company (basic and diluted) | (0.256) HK cents | (0.293) HK cents | - Basic and diluted loss per share are identical as outstanding share options had an anti-dilutive effect on basic loss per share[86](index=86&type=chunk)[87](index=87&type=chunk) [9. Intangible Assets](index=21&type=section&id=9.%20Intangible%20Assets) The carrying value of intangible assets increased to HK$760,000 thousand, primarily due to additions of proprietary software and film rights, and exchange adjustments Carrying Value of Intangible Assets (As at 30 June 2021) | Item | 30 June 2021 (Thousand HKD) | 31 December 2020 (Thousand HKD) | | :--- | :--- | :--- | | Goodwill | 309,879 | 310,047 | | Trademarks | 159,217 | 155,270 | | Proprietary software | 90,544 | 95,075 | | Patents | 80,355 | 81,622 | | Film rights | 119,452 | 94,355 | | **Total** | **760,000** | **737,030** | - Additions to intangible assets during the period amounted to **HK$32,479 thousand**, mainly comprising **HK$7,009 thousand** for proprietary software and **HK$24,943 thousand** for film rights[89](index=89&type=chunk) [10. Financial Assets at Fair Value Through Other Comprehensive Income](index=21&type=section&id=10.%20Financial%20Assets%20at%20Fair%20Value%20Through%20Other%20Comprehensive%20Income) The Group holds unlisted equity instruments as strategic investments, with fair value changes recognized in other comprehensive income, resulting in a cumulative fair value adjustment of negative HK$196,213 thousand - The Group acquired unlisted equity instruments in 2018 for **US$25,000,000** (approximately **HK$196,213,000**) and designated them as financial assets at fair value through other comprehensive income[90](index=90&type=chunk) - A cumulative fair value adjustment (downward) of **HK$196,213,000** has been recognized in other comprehensive income since 2019[90](index=90&type=chunk) [11. Financial Assets at Fair Value Through Profit or Loss](index=22&type=section&id=11.%20Financial%20Assets%20at%20Fair%20Value%20Through%20Profit%20or%20Loss) The Group added HK$84,435 thousand in financial assets at fair value through profit or loss during the period, primarily from acquiring listed equity securities in asknet Solutions AG and Highlight Event and Entertainment AG - Approximately **19%** of the ordinary shares of asknet Solutions AG, a German e-commerce company, were acquired on 3 February 2021 for a consideration of approximately **HK$34,586 thousand**[92](index=92&type=chunk) - Approximately **3.01%** of the ordinary shares of Highlight Event and Entertainment AG, a Swiss media and sports marketing company, were acquired on 26 February and 6 May 2021 for a total consideration of approximately **HK$67,808 thousand**[93](index=93&type=chunk)[202](index=202&type=chunk) Movement in Financial Assets at Fair Value Through Profit or Loss (As at 30 June 2021) | Item | Amount (Thousand HKD) | | :--- | :--- | | At 1 January 2021 | – | | Additions during the period | 102,394 | | Fair value loss recognized in profit or loss | (16,394) | | Exchange adjustments | (1,565) | | **At 30 June 2021** | **84,435** | [12. Fair Value](index=23&type=section&id=12.%20Fair%20Value) The carrying amounts of the Group's financial assets and liabilities approximate their fair values, with fair value measurements categorized into three levels, where listed equity investments are Level 1 and unlisted equity investments are Level 3 - The Group considers that the carrying amounts of trade receivables, other receivables and deposits, trade payables, other payables and accruals, bank balances and cash, lease liabilities, and borrowings approximate their fair values[99](index=99&type=chunk) Fair Value Hierarchy (As at 30 June 2021) | Item | Level 1 (Thousand HKD) | Level 2 (Thousand HKD) | Level 3 (Thousand HKD) | Total (Thousand HKD) | | :--- | :--- | :--- | :--- | :--- | | Financial assets at fair value through other comprehensive income — unlisted equity investments | – | – | – | – | | Financial assets at fair value through profit or loss — listed equity investments | 84,435 | – | – | 84,435 | [13. Trade Receivables, Other Receivables and Prepayments](index=24&type=section&id=13.%20Trade%20Receivables%2C%20Other%20Receivables%20and%20Prepayments) The total of the Group's trade receivables, other receivables, and prepayments increased to HK$208,710 thousand, with total trade receivables at HK$52,718 thousand and an average credit period of 30 days Trade Receivables, Other Receivables and Prepayments (As at 30 June 2021) | Item | 30 June 2021 (Thousand HKD) | 31 December 2020 (Thousand HKD) | | :--- | :--- | :--- | | Total trade receivables | 52,718 | 40,798 | | Consideration receivables | 33,942 | 33,648 | | Other receivables | 50,678 | 57,433 | | Prepayments | 25,236 | 20,028 | | **Subtotal current portion** | **165,911** | **154,657** | | Subtotal non-current portion | 42,799 | 44,375 | | **Total** | **208,710** | **199,032** | - The aging analysis of trade receivables shows an increase in amounts outstanding for **91-365 days** and **over 365 days**[106](index=106&type=chunk) [14. Trade Payables, Other Payables and Accruals](index=24&type=section&id=14.%20Trade%20Payables%2C%20Other%20Payables%20and%20Accruals) The Group's total trade payables, other payables, and accruals decreased to HK$137,463 thousand, primarily due to a reduction in other payables Trade Payables, Other Payables and Accruals (As at 30 June 2021) | Item | 30 June 2021 (Thousand HKD) | 31 December 2020 (Thousand HKD) | | :--- | :--- | :--- | | Total trade payables | 28,871 | 37,943 | | Other payables | 30,439 | 66,654 | | Accruals | 78,153 | 71,975 | | **Total** | **137,463** | **176,572** | [15. Share Capital](index=25&type=section&id=15.%20Share%20Capital) The company's issued and fully paid share capital increased by HK$68,148 thousand due to new share subscriptions, totaling 40,890,276,258 shares Movement in Share Capital (As at 30 June 2021) | Item | Number of Ordinary Shares | Amount (Thousand HKD) | | :--- | :--- | :--- | | At 31 December 2020 | 34,075,516,258 | 340,754 | | Shares issued from subscription | 6,814,760,000 | 68,148 | | **At 30 June 2021** | **40,890,276,258** | **408,902** | [16. Share-based Payment Transactions](index=25&type=section&id=16.%20Share-based%20Payment%20Transactions) The Group recognized equity-settled share-based payment expenses of approximately HK$1,235 thousand during the period, a significant decrease from the prior year, with a weighted average exercise price of HK$0.253 per share for outstanding options - For the six months ended 30 June 2021, the Group recognized equity-settled share-based payment expenses of approximately **HK$1,235 thousand** (2020: **HK$6,418 thousand**)[114](index=114&type=chunk) - The weighted average exercise price for outstanding share options was **HK$0.253** per share, with an average remaining contractual life of **5.23 years**[113](index=113&type=chunk) [17. Capital Commitments](index=25&type=section&id=17.%20Capital%20Commitments) The Group had no significant capital commitments at the end of the reporting period - The Group had no significant capital commitments as at 30 June 2021 and 31 December 2020[115](index=115&type=chunk) [Financial and Business Review](index=27&type=section&id=Financial%20and%20Business%20Review) The Group's continuing operations saw a 25% revenue increase and 70% gross profit growth, driven by the media entertainment segment, with ongoing advancements in visual effects, virtual reality, and virtual human businesses, alongside European market expansion and strategic partnerships [Media Entertainment Segment](index=28&type=section&id=Media%20Entertainment%20Segment) Media entertainment segment revenue grew to HK$414,663 thousand, with loss narrowing to HK$81,177 thousand, primarily due to virtual human technology R&D costs, showing significant progress in visual effects, virtual reality, and virtual human businesses globally Media Entertainment Segment Financial Performance (For the six months ended 30 June 2021) | Indicator | 2021 (Thousand HKD) | 2020 (Thousand HKD) | | :--- | :--- | :--- | | Revenue | 414,663 | 332,100 | | Loss | (81,177) | (97,280) | | EBITDA | (36,854) | (56,720) | - Media entertainment segment revenue increased by **25%** year-on-year, with narrowed loss and reduced EBITDA loss, indicating improved operating efficiency[132](index=132&type=chunk) - Loss includes research and development costs and expenses for virtual human technology[132](index=132&type=chunk) [A. Visual Effects Production and Post-Production Business](index=28&type=section&id=A.%20Visual%20Effects%20Production%20and%20Post-Production%20Business) The Group's visual effects and post-production businesses were active in North America, China, and India, serving Hollywood blockbusters, TV series, commercials, and games, earning multiple industry awards and nominations - Digital Domain North America (DDNA) won Telly Awards Gold and Silver for visual effects on 'Ghost of Tsushima' trailer and 'Perfect Dark' game trailer, and an Immersive & Mixed Reality Silver for a Super Bowl commercial[134](index=134&type=chunk) - DD3I artists provided visual effects services for multiple Marvel films, including 'Shang-Chi and the Legend of the Ten Rings', 'Doctor Strange in the Multiverse of Madness', 'Spider-Man: No Way Home', and Warner Bros. film 'Fantastic Beasts: The Secrets of Dumbledore'[140](index=140&type=chunk) - Digital Domain's visual effects team completed work for popular TV and streaming shows 'WandaVision', 'Loki', 'Ms. Marvel', and 'She-Hulk'[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Digital Domain China provided visual effects and color grading for films and series like 'Hi, Mom' and 'Cliff Walkers', and post-production services for top brands including Apple, Coca-Cola, and Huawei[169](index=169&type=chunk)[170](index=170&type=chunk) - Digital Domain India, as part of its global production strategy, passed MPAA, Disney, and Marvel content security audits and completed the annual Trusted Partner Network (TPN) assessment process[171](index=171&type=chunk) [B. Virtual Reality, Augmented Reality, New Media and Experiential Projects](index=34&type=section&id=B.%20Virtual%20Reality%2C%20Augmented%20Reality%2C%20New%20Media%20and%20Experiential%20Projects) The Group offers diverse products and services in the emerging VR market, including VR streaming platforms, interactive toolkits, 360-degree video capture, and real-time VR experiences, providing custom applications and content for brands and game developers - The New Media team collaborated with the Virtual Human Group to produce a virtual human commercial for Vince Lombardi for Super Bowl LV[174](index=174&type=chunk) - Produced a game cinematic for Studio Wildcard's 'ARK 2', creating realistic character appearances, with the trailer already released[174](index=174&type=chunk) - Used 'Charlatan' software to add 30 years of aging to David Beckham's face for the 'Malaria Must Die' project[175](index=175&type=chunk) - Partnered with TIME Magazine and Epic to recreate Martin Luther King Jr.'s 'The March' in the game 'Fortnite'[176](index=176&type=chunk) [C. Virtual Human Business (North America and Greater China)](index=35&type=section&id=C.%20Virtual%20Human%20Business%20%28North%20America%20and%20Greater%20China%29) The Group continues to advance virtual human technology, exploring autonomous virtual humans through machine learning and real-time demonstrations in North America, while developing virtual idols and applications in Greater China, securing patents, and expanding into corporate events, online interviews, and advertising - The North America Virtual Human Group (VHG) shared insights on machine learning in visual effects and autonomous virtual human creation at VFXRio, NVIDIA webinars, and the Real Time Conference[184](index=184&type=chunk) - In Greater China, the Group developed virtual human characters/IPs such as ZEN Sheng Nan, Sandra, STAR, M.E., and Class Monitor Xiao Ai, collaborating with Nicholas Tse, Cheng Wei Group, and Dr. Simon Chang[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) - Successfully filed a US provisional patent application for 'Method for generating facial expression animation and its neural network training method', helping maintain a competitive edge in virtual human technology[190](index=190&type=chunk) - Virtual human 'Elbor' collaborated with BMW Taiwan for a brand advertisement, showcasing real-time capture and rendering technology[191](index=191&type=chunk) [D. Formation of Joint Venture and Investment in Europe](index=37&type=section&id=D.%20Formation%20of%20Joint%20Venture%20and%20Investment%20in%20Europe) The Group is actively expanding into the European market by forming the DDCP joint venture and investing in German e-commerce company asknet Solutions AG and Swiss media and sports marketing company Highlight Event and Entertainment AG, exploring opportunities in education technology and media marketing - Formed a joint venture, Digital Domain Capital Partners S.à r.l. (DDCP), with Digital Knight Finance S.à r.l., with the Company holding a **60%** interest[197](index=197&type=chunk) - DDCP acquired approximately **19%** equity in German e-commerce company asknet Solutions AG, aiming to apply virtual human technology in European education and lifelong learning, and distribute software and hardware products[199](index=199&type=chunk)[200](index=200&type=chunk) - DDCP acquired approximately **3.01%** equity in Highlight Event and Entertainment AG, a Swiss media and sports marketing company engaged in film, sports, and event marketing[202](index=202&type=chunk) [Interests in Associates](index=38&type=section&id=Interests%20in%20Associates) The Group's associates, including 3Glasses Group, Teresa Teng virtual human business, Beijing Xugu Technology, and Digital Domain Space, continue to innovate in VR hardware, virtual human content, and immersive experiences [3Glasses Group](index=38&type=section&id=3Glasses%20Group) 3Glasses Group leads in VR hardware, software development, and solutions, holding 423 core patents, collaborating with Qualcomm and BOE, and achieving market success with its VR headsets and panoramic short films - 3Glasses Group primarily engages in the research, development, and sales of virtual reality hardware, smart wearable devices, virtual reality software development kits, and other related products[203](index=203&type=chunk) - Recognized as the first official certified partner of Qualcomm's XR SIMPLEVIEW program and collaborated with BOE to develop ultra-light and thin VR optical components[204](index=204&type=chunk) - Its X1S smart glasses won the 'German iF Design Award' and successfully connected 15 5G mobile phones directly to the X1S, expanding 5G+VR applications[205](index=205&type=chunk) - As at 30 June 2021, 3Glasses Group had applied for **423** virtual reality core patents[206](index=206&type=chunk) [Teresa Teng Virtual Human Business and Xugu Future Technology (Beijing) Co., Ltd.](index=39&type=section&id=Teresa%20Teng%20Virtual%20Human%20Business%20and%20Xugu%20Future%20Technology%20%28Beijing%29%20Co.%2C%20Ltd.) The Teresa Teng virtual human business utilizes deep learning and real-time rendering for a new virtual Teresa Teng, featured in holographic concerts and memorial halls. Beijing Xugu Technology leverages Digital Domain's virtual human tech for virtual IP live streaming, content marketing, and commercial expansion, collaborating with Alibaba DAMO Academy on smart virtual anchors and sign language motion capture - The new virtual human Teresa Teng applies deep learning, real-time rendering technology, allowing for live control and various performances through the Mystique Live system[212](index=212&type=chunk) - Teresa Teng virtual human holographic concerts have been launched at Digital Domain Haikou Cyberpunk Digital Park and Beijing Heping Guoju, with ongoing performances at Chongqing Hongyadong[213](index=213&type=chunk) - Beijing Xugu Technology creates an immersive live streaming experience with 'real person + virtual human' co-hosting, bringing new opportunities to the live streaming industry[215](index=215&type=chunk) - Collaborated with Wanglaoji and Reign Total Body Fuel for virtual IP product promotion and served as virtual hosts for the China Youth Network Spring Festival Gala[215](index=215&type=chunk)[216](index=216&type=chunk) - Partnered with Alibaba DAMO Academy to develop 'Smart Virtual Anchor' for a new generation of 24-hour live commerce services and collaborated on a 'Sign Language Motion Capture Production Project'[216](index=216&type=chunk)[222](index=222&type=chunk) - Class Monitor Xiao Ai has appeared on CCTV programs multiple times and produces original children's science content across various platforms, expanding brand collaborations in children's apparel and education[217](index=217&type=chunk)[220](index=220&type=chunk)[222](index=222&type=chunk) [Digital Domain Space (VR Cinema and DD Land)](index=41&type=section&id=Digital%20Domain%20Space%20%28VR%20Cinema%20and%20DD%20Land%29) Digital Domain Space develops and executes leading VR experiences, establishing multiple VR cinemas in China and co-building "DD Land" (Cyberpunk Digital Park) with Zhongdi Jiyue, offering holographic and VR cinema digital entertainment services - Digital Domain Space holds a **34.42%** interest, dedicated to developing and executing leading virtual reality experiences, and has established several new virtual reality cinemas in China[223](index=223&type=chunk) - 'DD Land' (Cyberpunk Digital Park), co-built with Zhongdi Jiyue, launched in Haikou in December 2020, offering holographic cinema, VR cinema, and MR future arena services[223](index=223&type=chunk) - Share of loss of this associate and impairment loss on amounts due from associates was **HK$2,227 thousand** (2020: **HK$6,106 thousand**)[223](index=223&type=chunk) [Events After the Reporting Period](index=26&type=section&id=Events%20After%20the%20Reporting%20Period) Post-reporting period, the company raised additional capital through new share subscriptions under a general mandate, proposed a share capital reorganization and change in board lot size, and announced the acquisition of a 40% non-controlling interest in its subsidiary DDCP to increase control [Subscription of New Shares Under General Mandate](index=26&type=section&id=Subscription%20of%20New%20Shares%20Under%20General%20Mandate) On 21 July 2021, the company entered into a subscription agreement with an independent third party to allot and issue 2,400,000,000 new ordinary shares at HK$0.065 per share, raising approximately HK$155,500,000 for general working capital and European business restructuring - On 30 July 2021, the share subscription was completed, raising an additional cash of approximately **HK$155,500,000**[116](index=116&type=chunk) - The proceeds are intended for the Group's general working capital and potential business restructuring in Europe[225](index=225&type=chunk) [Proposed Share Capital Reorganisation and Change in Board Lot Size](index=26&type=section&id=Proposed%20Share%20Capital%20Reorganisation%20and%20Change%20in%20Board%20Lot%20Size) The Board proposed consolidating every 10 existing shares into 1 consolidated share, reducing the par value per share from HK$0.10 to HK$0.01, and changing the board lot size from 10,000 shares to 5,000 adjusted shares - Proposed to consolidate every **10** existing shares into **1** consolidated share, increasing the par value from **HK$0.01** to **HK$0.10**[118](index=118&type=chunk)[226](index=226&type=chunk) - Following the share consolidation, the issued share capital will be reduced, decreasing the par value of each issued consolidated share from **HK$0.10** to **HK$0.01**, with the credit transferred to the contributed surplus account[118](index=118&type=chunk)[226](index=226&type=chunk) - The board lot size will be changed from the current **10,000** existing shares to **5,000** adjusted shares[226](index=226&type=chunk) [Discloseable and Connected Transaction Regarding Acquisition of 40% Non-Controlling Interests in DDCP, a Subsidiary of the Company](index=26&type=section&id=Discloseable%20and%20Connected%20Transaction%20Regarding%20Acquisition%20of%2040%25%20Non-Controlling%20Interests%20in%20DDCP%2C%20a%20Subsidiary%20of%20the%20Company) Digital Domain Broadcasting, a wholly-owned indirect subsidiary, will acquire a 40% equity interest in DDCP for approximately HK$122,267,000 in cash, increasing the company's control over DDCP to 100%, subject to independent shareholders' approval as a discloseable and connected transaction - On 16 August 2021, the Company announced the acquisition of a **40%** equity interest in DDCP for a total cash consideration of approximately **HK$122,267,000**[120](index=120&type=chunk)[231](index=231&type=chunk) - Upon completion of the acquisition, the Company's controlling interest in DDCP will increase from **60%** to **100%**, making DDCP an indirect wholly-owned subsidiary of the Company[120](index=120&type=chunk)[231](index=231&type=chunk) - This transaction constitutes a discloseable and connected transaction, subject to reporting, announcement, and independent shareholders' approval requirements under the Listing Rules[231](index=231&type=chunk)[232](index=232&type=chunk) [Other Important Information](index=27&type=section&id=Other%20Important%20Information) This section covers interim dividend policy, share capital changes, liquidity and financial resources, foreign exchange risk, contingent liabilities, employee and remuneration policies, outlook, share option scheme details, and interests of directors and major shareholders [Interim Dividend](index=27&type=section&id=Interim%20Dividend) The Board resolved not to declare an interim dividend for the six months ended 30 June 2021 - The Directors resolved not to declare an interim dividend for the six months ended 30 June 2021 (2020: nil)[124](index=124&type=chunk) [Share Capital](index=44&type=section&id=Share%20Capital) The total number of issued shares was 40,890,276,258 as at 30 June 2021, increasing to 43,290,276,258 after the completion of Subscription II post-reporting period, with multiple share option schemes granted but no options exercised, cancelled, or lapsed during the review period - On 18 January 2021, the Company completed a subscription, issuing **6,814,760,000** shares to HLEE Finance S.à r.l., raising approximately **HK$340,538,000** for joint venture formation, media entertainment segment, and general working capital[235](index=235&type=chunk) - As at 30 June 2021, the total number of issued shares was **40,890,276,258**; after the completion of Subscription II on 30 July 2021, it increased to **43,290,276,258** shares[236](index=236&type=chunk) - The Company granted multiple tranches of share options to grantees under the share option scheme with varying exercise prices and periods, but no options were exercised, cancelled, or lapsed during the review period[237](index=237&type=chunk)[238](index=238&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk) [Liquidity, Financial Resources, Group Assets Pledged and Gearing Ratio](index=45&type=section&id=Liquidity%2C%20Financial%20Resources%2C%20Group%20Assets%20Pledged%20and%20Gearing%20Ratio) The Group has diverse financing sources, including bank and non-bank loans, with significantly improved liquidity, a current ratio increasing from 0.7 to 1.5, and a gearing ratio decreasing from 49% to 35%, indicating a robust financial position - The Group has bank facilities from banks in the US and Canada, some of which are secured by time deposits or corporate guarantees[246](index=246&type=chunk) - As at 30 June 2021, total cash and bank balances amounted to **HK$345,746,000**[251](index=251&type=chunk) Liquidity and Gearing Ratio (As at 30 June 2021) | Indicator | 30 June 2021 | 31 December 2020 | | :--- | :--- | :--- | | Current assets | HK$536,876,000 | HK$286,358,000 | | Current liabilities | HK$349,552,000 | HK$418,352,000 | | Current ratio | 1.5 | 0.7 | | Gearing ratio | 35% | 49% | [Foreign Exchange Fluctuation Risk and Related Hedging](index=47&type=section&id=Foreign%20Exchange%20Fluctuation%20Risk%20and%20Related%20Hedging) The Group's revenue, expenses, assets, and liabilities are primarily denominated in HKD, USD, CAD, RMB, INR, and EUR; currently, no hedging is planned for exchange rate fluctuations, but the situation is continuously reviewed - The Group's financial activities are primarily denominated in **HKD, USD, CAD, RMB, INR, and EUR**[254](index=254&type=chunk) - Currently, there are no plans to hedge against exchange rate fluctuations in **RMB, CAD, INR, and/or EUR**, but economic conditions and foreign exchange risk exposure are continuously reviewed[254](index=254&type=chunk) [Contingent Liabilities](index=47&type=section&id=Contingent%20Liabilities) Except for disclosures under "Potential Indemnities" in the media entertainment segment, the Group had no significant contingent liabilities at the end of the reporting period - Except for disclosures under 'Potential Indemnities' in the media entertainment segment, the Group had no significant contingent liabilities as at 30 June 2021[255](index=255&type=chunk) [Employees and Remuneration Policies of the Group](index=47&type=section&id=Employees%20and%20Remuneration%20Policies%20of%20the%20Group) The Group employs 1,132 individuals, with a remuneration policy designed to maintain competitiveness and offer benefits such as discretionary bonuses, share option schemes, and pension plans - As at 30 June 2021, the Group had a total of **1,132** employees[256](index=256&type=chunk) - The remuneration policy maintains competitiveness and provides discretionary bonuses, share option schemes, and pension plans[256](index=256&type=chunk) [Outlook](index=47&type=section&id=Outlook) Facing ongoing COVID-19 impacts, the Group maintains a conservative business strategy, continues to explore new projects and opportunities in visual effects, virtual reality, and virtual humans, and increases R&D investment while seeking financing and strategic collaborations for future growth - With the global economy affected by the COVID-19 pandemic, the Group continues to adopt a conservative business strategy, including cost control, business direction, and product portfolio[257](index=257&type=chunk) - In visual effects, despite extended production periods for feature films, opportunities for visual effects work in online games, TV series, and commercials have increased[258](index=258&type=chunk) - Virtual reality business activities have slowed, and efforts are underway to expand non-media entertainment applications (e.g., education market) and broaden the product portfolio[261](index=261&type=chunk) - Continues to explore new business opportunities and products (e.g., Artificial Intelligence (AI)) in the virtual human field with strategic business partners and/or investors, and develop new technologies to enhance interaction[261](index=261&type=chunk) - Will continue to allocate significant financial and human resources to ongoing research and development of innovative technologies, and to recruit and retain suitable talent globally[262](index=262&type=chunk) [Share Option Scheme](index=49&type=section&id=Share%20Option%20Scheme) The company's share option scheme aims to reward directors, employees, and other contributors; as at 30 June 2021, 2,264,653,349 share options remained unexercised, with no options granted, exercised, cancelled, or lapsed during the review period - The share option scheme, adopted on 27 April 2012 and amended on 3 April 2014, aims to grant share options as incentives to directors, employees, and other contributors to the Group[266](index=266&type=chunk) Overview of Share Option Movements (As at 30 June 2021) | Item | At 1 January 2021 | Granted during the review period | Exercised during the review period | Cancelled/Lapsed during the review period | At 30 June 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total | 2,264,653,349 | – | – | – | 2,264,653,349 | [Interests of Directors and Chief Executive](index=52&type=section&id=Interests%20of%20Directors%20and%20Chief%20Executive) As at 30 June 2021, Mr. Xie An, Executive Director and CEO, held a long position interest of approximately 5.16% in the company's issued share capital and 100,000,000 share options Interests and Short Positions of Directors and Chief Executive in Shares and Underlying Shares (As at 30 June 2021) | Director Name | Capacity | Number of Shares Held | Number of Underlying Shares Held | Total Interests (Long/Short Position) | Approximate percentage of issued share capital | | :--- | :--- | :--- | :--- | :--- | :--- | | Xie An | Interest of controlled corporation and beneficial owner | 2,008,531,324 | 100,000,000 | 2,108,531,324 (Long Position) | 5.16% | | | Interest of controlled corporation | 502,134,789 | – | 502,134,789 (Short Position) | 1.23% | - Mr. Xie An holds **100%** equity interest in Global Domain Investments Limited and is therefore deemed to be interested in the shares held by it[276](index=276&type=chunk) - Mr. Xie An holds **100,000,000** share options granted under the share option scheme[277](index=277&type=chunk) [Interests of Substantial Shareholders and Other Persons](index=53&type=section&id=Interests%20of%20Substantial%20Shareholders%20and%20Other%20Persons) As at 30 June 2021, several substantial shareholders and other persons held interests in the company's shares and underlying shares, with Mr. Ng Clive Cheang Neng holding approximately 16.67% and Poly Culture Group Corporation Limited holding approximately 13.02% Interests and Short Positions of Substantial Shareholders and Other Persons in Shares and Underlying Shares (As at 30 June 2021) | Name/Person | Capacity | Number of Shares Held | Number of Underlying Shares Held | Total Interests (Long/Short Position) | Approximate percentage of issued share capital | | :--- | :--- | :--- | :--- | :--- | :--- | | Xie An | Interest of controlled corporation and beneficial owner | 2,008,531,324 | 100,000,000 | 2,108,531,324 (Long Position) | 5.16% | | | Interest of controlled corporation | 502,134,789 | – | 502,134,789 (Short Position) | 1.23% | | Smart Concept Holdings Limited | Person with security interest in shares, beneficial owner and interest of controlled corporation | 2,316,654,789 | – | 2,316,654,789 (Long Position) | 5.67% | | Jia Wei Holdings Limited | Interest of controlled corporation | 2,316,654,789 | – | 2,316,654,789 (Long Position) | 5.67% | | Zhou Jian | Interest of controlled corporation and beneficial owner | 2,381,878,527 | 150,000,000 | 2,531,878,527 (Long Position) | 6.19% | | C Digital Libraries Inc. | Interest of controlled corporation | 6,814,760,000 | – | 6,814,760,000 (Long Position) | 16.67% | | Ng Clive Cheang Neng | Interest of controlled corporation | 6,814,760,000 | – | 6,814,760,000 (Long Position) | 16.67% | | Poly Culture Group Corporation Limited | Beneficiary of trust (excluding discretionary interest) | 5,323,600,000 | – | 5,323,600,000 (Long Position) | 13.02% | | Jetlink Holdings Limited | Beneficial owner | 5,037,200,000 | – | 5,037,200,000 (Long Position) | 12.32% | | Tang Elaine Yilin | Interest of controlled corporation | 5,037,200,000 | – | 5,037,200,000 (Long Position) | 12.32% | | CITIC Limited | Interest of controlled corporation | 2,181,178,182 | – | 2,181,178,182 (Long Position) | 5.33% | | CITIC Group Corporation | Interest of controlled corporation | 2,181,178,182 | – | 2,181,178,182 (Long Position) | 5.33% | | Chan Ka Wing | Interest of controlled corporation and beneficial owner | 2,044,110,000 | – | 2,044,110,000 (Long Position) | 5.00% | | Chou Yung Ming | Interest of controlled corporation | 2,176,041,324 | – | 2,176,041,324 (Long Position) | 5.32% | | | Interest of controlled corporation | 602,561,746 | – | 602,561,746 (Short Position) | 1.47% | - Mr. Ng Clive Cheang Neng holds **6,814,760,000** shares through C Digital Libraries Inc., representing approximately **16.67%** of the issued share capital[280](index=280&type=chunk)[289](index=289&type=chunk) - Poly Culture Group Corporation Limited holds **5,323,600,000** shares, representing approximately **13.02%** of the issued share capital[283](index=283&type=chunk) [Disclosure Pursuant to Rule 13.21 of the Listing Rules](index=56&type=section&id=Disclosure%20Pursuant%20to%20Rule%2013.21%20of%20the%20Listing%20Rules) A discontinued subsidiary previously received bank facilities with specific performance obligations; despite its liquidation, the company and other subsidiaries provided no corporate guarantees for this financing - A Hong Kong bank provided **HK$6,000,000** in bank facilities to a discontinued indirect subsidiary of the Company's entertainment media segment, imposing specific performance obligations requiring the Company to hold no less than **51%** beneficial equity interest in that subsidiary[291](index=291&type=chunk) - The subsidiary was placed into provisional liquidation in July 2012 and into joint and several liquidation in July 2013; the Company and other subsidiaries provided no corporate guarantees for this financing[291](index=291&type=chunk) [Purchase, Sale or Redemption of the Company’s Listed Securities](index=56&type=section&id=Purchase%2C%20Sale%20or%20Redemption%20of%20the%20Company%E2%80%99s%20Listed%20Securities) Neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities during the review period - Neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities during the review period[292](index=292&type=chunk) [Corporate Governance](index=56&type=section&id=Corporate%20Governance) The company generally complied with the Corporate Governance Code during the review period, with exceptions including the unseparated roles of Chairman and CEO, non-executive directors lacking specific appointment terms, and some non-executive directors' absence from the AGM - The Company generally complied with the Code Provisions of the Corporate Governance Code set out in Appendix 14 to the Listing Rules during the review period, with exceptions for the unseparated roles of Chairman and Chief Executive, non-executive directors and independent non-executive directors lacking specific appointment terms, and some non-executive directors' inability to attend the Annual General Meeting[293](index=293&type=chunk) [Changes in Directors' Information](index=57&type=section&id=Changes%20in%20Directors%27%20Information) During the review period, Independent Non-executive Director Mr. Wong Ka Kong passed away, and Mr. Wang Wei Chung resigned as Non-executive Director. Dr. Chang San Cheng was appointed Executive Director, Mr. Brian Thomas McConville as Non-executive Director, and Mr. Hu Jing Heng as Independent Non-executive Director - Independent Non-executive Director Mr. Wong Ka Kong passed away in May 2021[296](index=296&type=chunk) - Mr. Wang Wei Chung resigned as Non-executive Director, effective 25 June 2021[297](index=297&type=chunk) - Dr. Chang San Cheng was appointed Executive Director, Mr. Brian Thomas McConville as Non-executive Director, and Mr. Hu Jing Heng as Independent Non-executive Director, all effective 28 June 2021[298](index=298&type=chunk) [Directors' Securities Transactions](index=57&type=section&id=Directors%20Securities%20Transactions) The company adopted the Model Code for Securities Transactions by Directors of Listed Issuers as its code of conduct for directors' securities transactions, and all directors confirmed compliance during the review period - The Company adopted the Model Code for Securities Transactions by Directors of Listed Issuers as its code of conduct for directors' securities transactions[299](index=299&type=chunk) - All Directors confirmed their compliance with the required standards set out in the Model Code throughout the review period[300](index=300&type=chunk) [Review by Audit Committee](index=57&type=section&id=Review%20by%20Audit%20Committee) The company's Audit Committee reviewed the interim report for the review period - The Company's Audit Committee reviewed the Company's interim report for the review period[301](index=301&type=chunk)

D DIGITAL DOMAIN DIGITAL DOMAIN HOLDINGS LIMITED 數 字 王 國 集 團 有 限 公 司 （ 於百慕達註冊成立之有限公司 ) | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-------|-------|-------|-------|-----------------|-------|-------|-------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ...

[Condensed Consolidated Financial Statements](index=1&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section provides the Group's condensed consolidated financial statements, detailing its financial performance, position, and cash flows [Condensed Consolidated Statement of Profit or Loss](index=1&type=section&id=Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss) During the reporting period, the company's revenue increased by 18% to HK$334,739 thousand, but gross profit significantly decreased by 52% to HK$26,891 thousand, with loss for the period narrowing by 12% to HK$146,442 thousand Key Data from Condensed Consolidated Statement of Profit or Loss | Metric | Six Months Ended June 30, 2020 (HK$ thousands) | Six Months Ended June 30, 2019 (HK$ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 334,739 | 284,429 | 17.69% | | Cost of sales and services provided | (307,848) | (227,832) | 35.12% | | Gross profit | 26,891 | 56,597 | (52.49%) | | Other income and gains | 90,218 | 73,237 | 23.18% | | Selling and distribution expenses | (2,549) | (10,238) | (75.09%) | | Administrative and other operating expenses, net | (242,089) | (245,659) | (1.45%) | | Finance costs | (14,985) | (42,117) | (64.42%) | | Gain on disposal of a subsidiary | – | 99,293 | (100.00%) | | Loss before tax | (150,235) | (167,264) | (10.29%) | | Loss for the period | (146,442) | (165,712) | (11.63%) | | Loss attributable to owners of the Company | (127,224) | (161,625) | (21.30%) | | Basic and diluted loss per share | (0.373) HK cents | (0.556) HK cents | (32.91%) | [Condensed Consolidated Statement of Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statement%20of%20Comprehensive%20Income) During the reporting period, the company's total comprehensive loss significantly narrowed by 30% to HK$151,969 thousand, primarily due to a reduction in loss for the period and a large loss from fair value changes of equity instruments in the prior period Key Data from Condensed Consolidated Statement of Comprehensive Income | Metric | Six Months Ended June 30, 2020 (HK$ thousands) | Six Months Ended June 30, 2019 (HK$ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Loss for the period | (146,442) | (165,712) | (11.63%) | | Exchange differences on translation | (5,615) | 6,897 | (181.40%) | | Fair value changes of equity instruments | – | (57,382) | (100.00%) | | Total comprehensive income for the period | (151,969) | (216,116) | (29.68%) | | Total comprehensive income attributable to owners of the Company | (131,554) | (212,667) | (38.15%) | [Condensed Consolidated Statement of Financial Position](index=4&type=section&id=Condensed%20Consolidated%20Statement%20of%20Financial%20Position) As of June 30, 2020, the company's total assets slightly decreased, with both non-current and current assets declining, while current liabilities increased, leading to a decrease in both net current assets and net assets Key Data from Condensed Consolidated Statement of Financial Position | Metric | June 30, 2020 (HK$ thousands) | December 31, 2019 (HK$ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Non-current assets | 1,586,854 | 1,643,803 | (3.46%) | | Current assets | 456,511 | 531,247 | (14.07%) | | Current liabilities | 323,818 | 299,568 | 8.10% | | Net current assets | 132,693 | 231,679 | (42.73%) | | Total assets less current liabilities | 1,719,547 | 1,875,482 | (8.31%) | | Non-current liabilities | 387,903 | 398,287 | (2.59%) | | Net assets | 1,331,644 | 1,477,195 | (9.85%) | | Share capital | 340,737 | 340,737 | 0.00% | | Reserves | 960,679 | 1,085,815 | (11.52%) | | Equity attributable to owners of the Company | 1,301,416 | 1,426,552 | (8.77%) | | Non-controlling interests | 30,228 | 50,643 | (40.32%) | | Total equity | 1,331,644 | 1,477,195 | (9.85%) | [Condensed Consolidated Statement of Changes in Equity](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Equity) For the six months ended June 30, 2020, the company's total equity decreased from HK$1,477,195 thousand at the beginning of the period to HK$1,331,644 thousand, primarily due to the loss for the period and negative exchange differences on translation Key Data from Condensed Consolidated Statement of Changes in Equity | Metric | January 1, 2020 (HK$ thousands) | June 30, 2020 (HK$ thousands) | Change (HK$ thousands) | | :--- | :--- | :--- | :--- | | Share capital | 340,737 | 340,737 | 0 | | Share premium | 1,984,712 | 1,984,712 | 0 | | Accumulated losses | (1,476,707) | (1,603,931) | (127,224) | | Equity attributable to owners of the Company | 1,426,552 | 1,301,416 | (125,136) | | Non-controlling interests | 50,643 | 30,228 | (20,415) | | Total equity | 1,477,195 | 1,331,644 | (145,551) | [Condensed Consolidated Statement of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) During the reporting period, net cash outflow from operating activities significantly decreased, investing activities shifted from net inflow to net outflow, and net cash inflow from financing activities also declined substantially, resulting in a net decrease of HK$99,698 thousand in cash and cash equivalents Key Data from Condensed Consolidated Statement of Cash Flows | Metric | Six Months Ended June 30, 2020 (HK$ thousands) | Six Months Ended June 30, 2019 (HK$ thousands) | Change (HK$ thousands) | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (60,327) | (201,225) | 140,898 | | Net cash (used in) / generated from investing activities | (41,986) | 115,264 | (157,250) | | Net cash generated from financing activities | 2,615 | 282,565 | (279,950) | | Net (decrease) / increase in cash and cash equivalents | (99,698) | 196,604 | (296,302) | | Cash and cash equivalents at June 30 | 207,763 | 271,603 | (63,840) | [Notes to the Unaudited Condensed Consolidated Interim Financial Statements](index=8&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Interim%20Financial%20Statements) This section details the notes to the unaudited condensed consolidated interim financial statements, covering accounting policies, estimates, and specific financial disclosures [1. Basis of Preparation and Accounting Policies](index=8&type=section&id=1.%20Basis%20of%20Preparation%20and%20Accounting%20Policies) These interim financial statements are prepared in accordance with HKAS 34 and Appendix 16 of the Listing Rules, using the historical cost basis, and adopt the same accounting policies as the 2019 annual financial statements, with the initial adoption of HKFRS 16 Leases - Financial statements are prepared in accordance with **HKAS 34** and **Appendix 16 of the Listing Rules**, using the historical cost basis, and initially adopting **HKFRS 16 Leases**[9](index=9&type=chunk)[10](index=10&type=chunk) [2. Changes in Hong Kong Financial Reporting Standards](index=8&type=section&id=2.%20Changes%20in%20Hong%20Kong%20Financial%20Reporting%20Standards) The Group early adopted amendments to HKFRS 16, allowing for practical expedients for COVID-19-related rent concessions without applying lease modification accounting, with HK$428,000 in reduced lease payments recognized in profit or loss during the period - Early adoption of **HKFRS 16 amendments** allows for not applying lease modification accounting to **COVID-19-related rent concessions**[11](index=11&type=chunk)[13](index=13&type=chunk) - As of June 30, 2020, **HK$428,000** in reduced lease payments due to rent concessions were recognized in profit or loss by derecognizing part of the lease liabilities[13](index=13&type=chunk) [3. Application of Judgements and Estimates](index=9&type=section&id=3.%20Application%20of%20Judgements%20and%20Estimates) The significant management judgements and sources of estimation uncertainty used in preparing these interim financial statements are consistent with those applied in the 2019 annual financial statements - Significant management judgements and sources of estimation uncertainty for interim financial statements are **consistent with 2019 annual financial statements**[14](index=14&type=chunk) [4. Revenue and Segment Reporting](index=9&type=section&id=4.%20Revenue%20and%20Segment%20Reporting) The Group primarily operates in two segments: media entertainment and property investment, with the media entertainment segment generating HK$334,739 thousand in revenue, mainly from visual effects production services, but recording a loss of HK$130,820 thousand, primarily from Canada, the US, and China markets - The Group primarily operates in two segments: **media entertainment** (visual effects, post-production, 360-degree panoramic digital capture, and hardware sales) and **property investment**[15](index=15&type=chunk) [Reportable Segments](index=9&type=section&id=Reportable%20Segments) The Group's operations are divided into two reportable segments, media entertainment and property investment, based on reports reviewed by the chief operating decision maker, with each segment managed independently - Operating segments are determined based on reports reviewed by the chief operating decision maker, categorized into **media entertainment** and **property investment**, each managed independently[15](index=15&type=chunk) [Revenue Analysis](index=9&type=section&id=Revenue%20Analysis) During the reporting period, the media entertainment segment's revenue was HK$334,739 thousand, with visual effects production services being the largest contributor, while property investment revenue was zero Revenue Source Analysis | Revenue Type | 2020 (HK$ thousands) | 2019 (HK$ thousands) | | :--- | :--- | :--- | | Visual effects production services | 304,607 | 211,479 | | Post-production services | 5,299 | 11,506 | | 360-degree panoramic digital capture technology application and sales of hardware and solution services | 24,833 | 61,379 | | Revenue from other sources | 334,739 | 284,364 | | Rental income | – | 65 | | **Total Revenue** | **334,739** | **284,429** | [Disaggregation of Revenue from Contracts with Customers](index=10&type=section&id=Disaggregation%20of%20Revenue%20from%20Contracts%20with%20Customers) Media entertainment segment revenue primarily derived from visual effects production services, with Canada being the largest regional contributor, followed by the US and China, and most revenue is recognized over time Disaggregation of Media Entertainment Segment Revenue from Contracts with Customers (by Type and Geography) | Disaggregation Dimension | 2020 (HK$ thousands) | 2019 (HK$ thousands) | | :--- | :--- | :--- | | **Type of goods or services** | | | | Visual effects production services | 304,607 | 211,479 | | Post-production services | 5,299 | 11,506 | | 360-degree panoramic digital capture technology application and sales of hardware and solution services | 24,833 | 61,379 | | **Geographical markets** | | | | China | 26,046 | 91,897 | | United States | 88,485 | 86,927 | | Canada | 215,559 | 99,251 | | United Kingdom | 2,671 | 2,964 | | Other countries/regions | 1,978 | 3,325 | | **Timing of revenue recognition** | | | | At a point in time | 24,840 | 59,990 | | Over time | 309,899 | 224,374 | [Reconciliation of Reportable Segment Profit or Loss, Assets and Liabilities](index=10&type=section&id=Reconciliation%20of%20Reportable%20Segment%20Profit%20or%20Loss%2C%20Assets%20and%20Liabilities) The media entertainment segment reported a loss of HK$130,820 thousand, with a consolidated loss before tax of HK$150,235 thousand, primarily due to unallocated corporate expenses, finance costs, and share of loss of associates, while total consolidated assets were HK$2,043,365 thousand and total consolidated liabilities were HK$711,721 thousand Reconciliation of Reportable Segment Profit or Loss | Metric | 2020 (HK$ thousands) | 2019 (HK$ thousands) | | :--- | :--- | :--- | | Reportable segment loss | (130,820) | (110,244) | | Finance costs | (14,985) | (42,117) | | Share of loss of associates | (7,721) | (5,787) | | Other unallocated corporate expenses | (40,017) | (44,869) | | **Consolidated loss before tax** | **(150,235)** | **(167,264)** | Reconciliation of Reportable Segment Assets and Liabilities | Metric | June 30, 2020 (HK$ thousands) | December 31, 2019 (HK$ thousands) | | :--- | :--- | :--- | | Reportable segment assets | 1,805,229 | 1,778,058 | | Unallocated bank balances and cash | 105,611 | 212,906 | | Unallocated corporate assets | 132,525 | 184,086 | | **Total consolidated assets** | **2,043,365** | **2,175,050** | | Reportable segment liabilities | 592,427 | 586,028 | | Tax payable | 4,902 | 5,073 | | Deferred tax liabilities | 59,672 | 63,795 | | Unallocated borrowings | 4,909 | 4,909 | | Unallocated corporate liabilities | 49,811 | 38,050 | | **Total consolidated liabilities** | **711,721** | **697,855** | [Geographical Information](index=13&type=section&id=Geographical%20Information) During the reporting period, the Group's revenue primarily originated from Canada (HK$215,559 thousand), the United States (HK$88,485 thousand), and China (HK$26,046 thousand), with a significant year-on-year decrease in China market revenue Revenue by Location of Customers | Region | 2020 (HK$ thousands) | 2019 (HK$ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Hong Kong | – | 65 | (100.00%) | | China | 26,046 | 91,897 | (71.66%) | | United States | 88,485 | 86,927 | 1.79% | | Canada | 215,559 | 99,251 | 117.19% | | United Kingdom | 2,671 | 2,964 | (9.95%) | | Other countries/regions | 1,978 | 3,325 | (40.52%) | | **Total** | **334,739** | **284,429** | **17.69%** | [Trade Receivables, Contract Assets and Contract Liabilities from Contracts with Customers](index=13&type=section&id=Trade%20Receivables%2C%20Contract%20Assets%20and%20Contract%20Liabilities%20from%20Contracts%20with%20Customers) As of June 30, 2020, both trade receivables and contract assets decreased, while contract liabilities also declined, reflecting changes in settlements and prepayments related to customer contracts Trade Receivables, Contract Assets and Contract Liabilities from Contracts with Customers | Metric | June 30, 2020 (HK$ thousands) | December 31, 2019 (HK$ thousands) | Change (HK$ thousands) | | :--- | :--- | :--- | :--- | | Trade receivables | 37,697 | 46,678 | (8,981) | | Contract assets | 3,795 | 13,170 | (9,375) | | Contract liabilities | 52,536 | 66,873 | (14,337) | - Contract assets primarily relate to revenue from visual effects, post-production, and solution services for **work completed but not yet billed**[22](index=22&type=chunk) - Contract liabilities primarily arise from **customer prepayments**[23](index=23&type=chunk) [5. Finance Costs](index=14&type=section&id=5.%20Finance%20Costs) During the reporting period, finance costs significantly decreased by 64.42% to HK$14,985 thousand, primarily due to a substantial reduction in interest on bank and other borrowings and interest on contingent consideration payable Finance Costs Analysis | Type of Cost | 2020 (HK$ thousands) | 2019 (HK$ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Accrued interest: contingent consideration payable | 158 | 1,817 | (91.30%) | | Accrued interest: lease liabilities | 8,253 | 8,447 | (2.29%) | | Interest: bank and other borrowings | 6,574 | 31,164 | (78.92%) | | Interest: secured notes | – | 689 | (100.00%) | | **Total Finance Costs** | **14,985** | **42,117** | **(64.42%)** | [6. Loss Before Tax](index=14&type=section&id=6.%20Loss%20Before%20Tax) During the reporting period, loss before tax was HK$150,235 thousand, primarily influenced by factors such as staff costs, depreciation and amortization expenses, and share of loss of associates Adjustments to Loss Before Tax | Adjustment Item | 2020 (HK$ thousands) | 2019 (HK$ thousands) | | :--- | :--- | :--- | | Interest income | 2,509 | 9,611 | | Reversal of impairment loss on trade receivables and contract assets | 5,971 | – | | Reversal of impairment loss on other receivables | 2,799 | – | | Staff costs (including directors' emoluments) | 351,828 | 268,742 | | Depreciation of property, plant and equipment | 15,108 | 22,712 | | Depreciation of right-of-use assets | 25,306 | 16,545 | | Amortization of intangible assets | 52,792 | 49,871 | [7. Tax](index=15&type=section&id=7.%20Tax) During the reporting period, tax was negative HK$3,793 thousand, primarily due to the negative impact of deferred tax, no provision for Hong Kong profits tax, and a current period provision of HK$458 thousand for overseas tax Tax Components | Type of Tax | 2020 (HK$ thousands) | 2019 (HK$ thousands) | | :--- | :--- | :--- | | Hong Kong profits tax | – | – | | Overseas tax - current period provision | 458 | 1,758 | | Overseas tax - over-provision in prior years | (84) | – | | Deferred tax | (4,167) | (3,310) | | **Total Tax** | **(3,793)** | **(1,552)** | - No provision for **Hong Kong profits tax** as estimated tax losses carried forward are sufficient to offset assessable profits[26](index=26&type=chunk) [8. Loss Per Share](index=15&type=section&id=8.%20Loss%20Per%20Share) During the reporting period, basic and diluted loss per share narrowed to HK$0.373 cents, from HK$0.556 cents in the prior year, primarily due to a reduction in loss attributable to owners of the Company Loss Per Share Calculation Data | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Loss for the period attributable to owners of the Company (HK$ thousands) | (127,224) | (161,625) | | Weighted average number of ordinary shares | 34,073,816,258 | 29,068,472,612 | | **Basic and diluted loss per share (HK cents)** | **(0.373)** | **(0.556)** | - Outstanding share options have an **anti-dilutive effect** on basic loss per share, thus basic and diluted loss per share are the same[28](index=28&type=chunk) [9. Intangible Assets](index=16&type=section&id=9.%20Intangible%20Assets) As of June 30, 2020, the total carrying amount of intangible assets was HK$1,304,989 thousand, a slight decrease from the end of 2019, with goodwill being the largest component, and additions during the period amounted to HK$22,355 thousand, with amortization of HK$52,792 thousand Carrying Amount of Intangible Assets | Type of Intangible Asset | June 30, 2020 (HK$ thousands) | December 31, 2019 (HK$ thousands) | | :--- | :--- | :--- | | Goodwill | 810,768 | 810,533 | | Trademarks | 146,818 | 153,366 | | Proprietary software | 106,200 | 97,239 | | Equity interests | 15,400 | 37,057 | | Patents | 211,713 | 233,183 | | Intellectual property licenses | 1,556 | – | | Other licenses | 12,534 | 13,149 | | **Total** | **1,304,989** | **1,346,042** | - Intangible asset additions during the period amounted to **HK$22,355 thousand**, with amortization of **HK$52,792 thousand**[29](index=29&type=chunk) [10. Financial Assets at Fair Value Through Other Comprehensive Income](index=16&type=section&id=10.%20Financial%20Assets%20at%20Fair%20Value%20Through%20Other%20Comprehensive%20Income) The Group holds unlisted equity investments designated as fair value through other comprehensive income to reflect their long-term strategic investment value, rather than immediate recognition in profit or loss, and as of the end of the reporting period, the carrying amount of these financial assets was zero - The Group holds **unlisted equity investments** designated as **fair value through other comprehensive income** to reflect long-term strategic investment value[30](index=30&type=chunk) - As of June 30, 2020, the carrying amount of these financial assets was **zero**, with cumulative fair value adjustments (downward) of **HK$196,213 thousand** recognized in other comprehensive income[29](index=29&type=chunk) [11. Trade and Other Receivables and Prepayments](index=17&type=section&id=11.%20Trade%20and%20Other%20Receivables%20and%20Prepayments) As of June 30, 2020, total trade receivables amounted to HK$37,697 thousand, with the 0-30 day aging category being the largest, while other receivables and prepayments totaled HK$171,233 thousand, and non-current deposits were HK$12,557 thousand Aging Analysis of Trade Receivables | Aging | June 30, 2020 (HK$ thousands) | December 31, 2019 (HK$ thousands) | | :--- | :--- | :--- | | 0-30 days | 17,855 | 26,347 | | 31-60 days | 3,303 | 2,415 | | 61-90 days | 1,622 | 5,428 | | 91-365 days | 9,333 | 5,159 | | Over 365 days | 5,584 | 7,329 | | **Total Trade Receivables** | **37,697** | **46,678** | Other Receivables and Prepayments | Metric | June 30, 2020 (HK$ thousands) | December 31, 2019 (HK$ thousands) | | :--- | :--- | :--- | | Other receivables | 60,565 | 66,003 | | Deposits | 5,148 | 5,307 | | Prepayments | 110,668 | 51,686 | | **Subtotal Current Portion** | **214,078** | **169,674** | | Non-current portion deposits | 12,557 | 12,857 | | **Total** | **226,635** | **182,531** | [12. Trade and Other Payables and Accruals](index=17&type=section&id=12.%20Trade%20and%20Other%20Payables%20and%20Accruals) As of June 30, 2020, total trade payables amounted to HK$21,103 thousand, with the 91-365 day aging category being the largest, while other payables and accruals totaled HK$117,671 thousand, bringing the total trade and other payables and accruals to HK$138,774 thousand Aging Analysis of Trade Payables | Aging | June 30, 2020 (HK$ thousands) | December 31, 2019 (HK$ thousands) | | :--- | :--- | :--- | | 0-30 days | 5,400 | 7,407 | | 31-60 days | 1,505 | 4,248 | | 61-90 days | 288 | 1,263 | | 91-365 days | 9,355 | 4,373 | | Over 365 days | 4,555 | 10,057 | | **Total Trade Payables** | **21,103** | **27,348** | Other Payables and Accruals | Metric | June 30, 2020 (HK$ thousands) | December 31, 2019 (HK$ thousands) | | :--- | :--- | :--- | | Other payables | 49,226 | 25,347 | | Accruals | 68,445 | 56,126 | | **Total** | **138,774** | **108,821** | [13. Share Capital](index=18&type=section&id=13.%20Share%20Capital) As of June 30, 2020, the company's authorized share capital was HK$750,000 thousand, and issued and fully paid share capital was HK$340,737 thousand, with a total of 34,073,816,258 ordinary shares, consistent with the end of 2019 Share Capital Composition | Metric | Number of Ordinary Shares | Amount (HK$ thousands) | | :--- | :--- | :--- | | Authorized share capital | 75,000,000,000 | 750,000 | | Issued and fully paid share capital | 34,073,816,258 | 340,737 | [14. Share-based Payment Transactions](index=18&type=section&id=14.%20Share-based%20Payment%20Transactions) During the reporting period, the company granted 478,000,000 share options, of which 292,200,000 vested immediately, and as of June 30, 2020, the weighted average exercise price of outstanding options was HK$0.253, with an average remaining contractual life of 6.23 years, and share-based payment expenses of HK$6,418 thousand were recognized - On May 21, 2020, **478,000,000 share options** were granted, with **292,200,000 vesting immediately**, at an exercise price of **HK$0.046 per share**[34](index=34&type=chunk) Share Option Valuation Parameters | Parameter | Value | | :--- | :--- | | Share price at grant date | HK$0.046 | | Exercise price | HK$0.046 | | Expected volatility | 50% | | Option life | 10 years | | Expected dividend yield | 0% | | Risk-free rate | 0.58% | | Forfeiture rate | 5.5% | | Suboptimal exercise behavior multiple | 2.5 | - For the six months ended June 30, 2020, **HK$6,418 thousand** in equity-settled share-based payment expenses were recognized[36](index=36&type=chunk) [15. Related Party Transactions](index=19&type=section&id=15.%20Related%20Party%20Transactions) During the reporting period, the Group had no advertising and promotion expense transactions with associates, compared to HK$1,090 thousand in the prior period Related Party Transactions | Relationship with Related Party | Type of Transaction | 2020 (HK$ thousands) | 2019 (HK$ thousands) | | :--- | :--- | :--- | :--- | | Associates | Advertising and promotion expenses | – | 1,090 | [16. Capital Commitments](index=19&type=section&id=16.%20Capital%20Commitments) As of June 30, 2020, and December 31, 2019, the Group had no significant capital commitments - As of June 30, 2020, the Group had **no significant capital commitments**[38](index=38&type=chunk) [17. Events After the Reporting Period](index=19&type=section&id=17.%20Events%20After%20the%20Reporting%20Period) Subsequent to the reporting period, on July 17, 2020, the Group entered into an agreement to dispose of a 22.29% equity interest in a subsidiary primarily engaged in selling hardware and solution services, with the transaction completed on July 31, resulting in the Company losing control but retaining significant influence - On July 17, 2020, the Group entered into an agreement to dispose of a **22.29% equity interest** in Lead Turbo Limited, with the transaction completed on July 31[39](index=39&type=chunk) - Upon completion of the disposal, the Company lost control over the disposed group but retained **significant influence**, recognizing the retained interest as an **interest in an associate**[39](index=39&type=chunk) [Financial and Business Review](index=20&type=section&id=Financial%20and%20Business%20Review) This section provides a comprehensive review of the Group's financial performance, business operations, and strategic outlook [Overall Financial Performance](index=20&type=section&id=Overall%20Financial%20Performance) During the reporting period, the Group's revenue increased by 18% to HK$334,739 thousand, but gross profit decreased by 52% to HK$26,891 thousand, with both loss for the period and loss attributable to owners of the Company narrowing, and total comprehensive loss for the period decreasing by 30%, primarily driven by non-cash expenses, administrative expenses, and operating losses in the media entertainment segment Financial Performance Overview | Metric | 2020 (HK$ thousands) | 2019 (HK$ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 334,739 | 284,429 | 17.69% | | Gross profit | 26,891 | 56,597 | (52.49%) | | Loss attributable to owners of the Company | 127,224 | 161,625 | (21.30%) | | Loss for the period | 146,442 | 165,712 | (11.63%) | | Total comprehensive loss for the period | 151,969 | 216,116 | (29.68%) | - Loss primarily attributed to **non-cash outflow expenses** including share-based payment expenses for share options, amortization and depreciation of 3Glasses Group, amortization of TV series investments, and other amortization and depreciation[41](index=41&type=chunk) - Administrative and other expenses (including legal and professional fees) and **operating losses in the media entertainment segment** were also major contributors to the loss[41](index=41&type=chunk) [Media Entertainment Segment](index=21&type=section&id=Media%20Entertainment%20Segment) The media entertainment segment generated HK$334,739 thousand in revenue but recorded a loss of HK$130,820 thousand, primarily due to R&D and development costs for VR content and games, 360-degree, and interactive virtual human features, with the segment's EBITDA loss at HK$64,125 thousand Media Entertainment Segment Financial Performance | Metric | 2020 (HK$ thousands) | 2019 (HK$ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 334,739 | 284,364 | 17.72% | | Loss | (130,820) | (110,014) | 18.91% | | EBITDA loss | (64,125) | (44,792) | 43.15% | - Loss includes **R&D and development costs** for virtual reality content and games, 360-degree, and interactive virtual human features[42](index=42&type=chunk) [Visual Effects Production and Post-Production Business](index=21&type=section&id=Visual%20Effects%20Production%20and%20Post-Production%20Business) This segment provides visual effects and post-production services for films, series, commercials, and games, with Digital Domain's North American team receiving Telly Awards and AICP nominations for its virtual human technology and advertising work, and contributing to visual effects for several Hollywood blockbusters, while Digital Domain China and India teams also served local and international clients, with the India team passing MPAA, Disney, and Marvel security audits - Digital Domain's North American team won a **Telly Award Silver** for 'Our Virtual Human, Indistinguishable from Us' and a Bronze for the 'Tom Clancy's The Division 2' online commercial[44](index=44&type=chunk) - Involved in visual effects production for multiple Hollywood films (e.g., *Morbius*, *Free Guy*, *Black Widow*, *Shang-Chi and the Legend of the Ten Rings*) and series (e.g., *The Twilight Zone*, *Perry Mason*, *WandaVision*)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) - Digital Domain China provides **visual effects and post-production services** for commercials, TV series, and feature films, while the India facility passed **MPAA, Disney, and Marvel security audits** and delivered projects on schedule[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - Disclosed a potential indemnification risk involving litigation over a US subsidiary's use of **disputed intellectual property**, with the insurer re-evaluating coverage[52](index=52&type=chunk)[53](index=53&type=chunk) [New Media and Experiential Projects - Virtual Reality/Augmented Reality](index=27&type=section&id=New%20Media%20and%20Experiential%20Projects%20-%20Virtual%20Reality%2FAugmented%20Reality) This segment offers VR/AR technology services using 360-degree digital capture and computer graphics, developing a VR streaming platform and interactive toolset, collaborating with *TIME Magazine* on 'The March' VR experience and participating in future virtual human projects and AAA game production, while 3Glasses Group made progress in VR hardware R&D and sales, launching the ultra-thin VR headset X1S and partnering with China Unicom to promote the 5G+VR industry - Provides **360-degree digital capture** and computer graphics for **VR/AR technology services**, developing a VR streaming platform and interactive toolset[57](index=57&type=chunk) - Collaborated with *TIME Magazine* on **'The March' VR experience** and participated in future virtual human projects and **AAA game production**[57](index=57&type=chunk)[58](index=58&type=chunk) - **3Glasses Group** launched the next-generation consumer ultra-thin **VR headset X1S** and partnered with **China Unicom** as an initial partner for 5G+VR industry solutions[62](index=62&type=chunk) - As of June 30, 2020, 3Glasses Group had applied for **404 proprietary core VR patents** and actively expanded solution services[63](index=63&type=chunk) [Virtual Human Business](index=29&type=section&id=Virtual%20Human%20Business) The Group continues to strengthen virtual human technology and business development, seeking strategic partners and talent, with the North American virtual human team making progress in real-time virtual human technology, showcasing DigiDoug at a TED Talk, and in Greater China, proprietary virtual human IPs like Lydia and STAR were developed, with resources invested to enhance interactive features - Continuously strengthening **virtual human technology and business development**, seeking strategic partners and talent[64](index=64&type=chunk) - North American virtual human team advanced **real-time virtual human technology**, with Dr. Doug ROBLE showcasing **DigiDoug at a TED Talk** and discussing it at the NVIDIA GTC conference[64](index=64&type=chunk) - In Greater China, beyond the Teresa Teng virtual human, proprietary virtual human IPs like **Lydia and STAR** were created, with resources deployed to enhance **interactive features**[65](index=65&type=chunk) [Co-production](index=30&type=section&id=Co-production) The Group generates revenue through co-production of films and TV series, with the film *Ender's Game* continuing to generate non-box office revenue, and the TV series *The Monkey King* contributing HK$39,782 thousand in revenue and incurring HK$21,657 thousand in amortization expenses - The film **'Ender's Game'** continues to generate **non-box office revenue**, with its share of profit recognized under 'Other income and gains'[66](index=66&type=chunk) TV Series Co-production Revenue and Amortization | Metric | 2020 (HK$ thousands) | 2019 (HK$ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue from *The Monkey King* | 39,782 | 57,795 | (31.16%) | | Amortization expenses for TV series investments | 21,657 | 20,256 | 6.92% | [Interests in Associates](index=30&type=section&id=Interests%20in%20Associates) The Group develops virtual human business and VR cinemas through investments in associates, with the Teresa Teng virtual human project expected to commence performances by the end of 2020, and Digital Domain Space having opened VR cinemas in multiple Chinese cities and initiated the construction of 'Digital Domain • Oasis Large-scale Digital Theme Park' - To accelerate virtual human business development, the Group invited strategic investors to invest in Greater China virtual human companies, reclassifying them as **associates from February 1, 2019**[68](index=68&type=chunk) [Teresa Teng Virtual Human Business and Xugu Future Technology](index=30&type=section&id=Teresa%20Teng%20Virtual%20Human%20Business%20and%20Xugu%20Future%20Technology) The Group, through its joint venture DDTT, produces and utilizes holographic projection technology to recreate Ms. Teresa Teng's classic works, with the Handan Meile City Teresa Teng Art Center expected to commence a one-year holographic projection performance by the end of 2020 - Joint venture **DDTT** focuses on producing **Teresa Teng virtual human** series using **holographic projection technology**[68](index=68&type=chunk) - Handan Meile City Teresa Teng Art Center, Teresa Teng virtual human exhibition, and holographic projection performances have completed previews, with a **one-year run expected to start by end of 2020**[69](index=69&type=chunk) [Digital Domain Space (Virtual Reality Cinemas)](index=31&type=section&id=Digital%20Domain%20Space%20%28Virtual%20Reality%20Cinemas%29) Digital Domain Space is dedicated to developing and executing VR experiences, having opened VR cinemas in multiple cities including Beijing, Guangzhou, and Hangzhou, and this associate incurred a loss of approximately HK$6,106 thousand, while also partnering with Ningxiang Cultural Tourism Investment Co., Ltd. to construct the 'Digital Domain • Oasis Large-scale Digital Theme Park' - **Digital Domain Space** has established **VR cinemas** in multiple shopping malls across China, offering professional immersive VR content[70](index=70&type=chunk) - Share of loss from this associate was approximately **HK$6,106 thousand** (2019: HK$5,787 thousand)[70](index=70&type=chunk) - Partnered with Ningxiang Cultural Tourism Investment Co., Ltd. to construct **'Digital Domain • Oasis Large-scale Digital Theme Park'**, featuring holographic theaters and monster prisons[71](index=71&type=chunk) [Post-Reporting Period Events](index=31&type=section&id=Post-Reporting%20Period%20Events) Subsequent to the reporting period, on July 17, 2020, the Group disposed of a 22.29% equity interest in Lead Turbo Limited for a total consideration of HK$102,000 thousand, with the transaction completed on July 31, constituting a discloseable transaction under the Listing Rules - On July 17, 2020, Digital Domain Network Technology Limited entered into a disposal agreement with a buyer to sell a **22.29% equity interest** in Lead Turbo Limited for a total consideration of **HK$102,000 thousand**[72](index=72&type=chunk) - The disposal was completed on **July 31, 2020**, constituting a **discloseable transaction** under the Listing Rules[72](index=72&type=chunk) [Share Capital](index=31&type=section&id=Share%20Capital) As of June 30, 2020, the Company's total issued shares were 34,073,816,258, with net proceeds of HK$205,730 thousand from the July 2019 placing fully utilized for the media entertainment segment and general working capital, and during the reporting period, the company granted 478,000,000 share options, but no options were exercised, cancelled, or lapsed - As of June 30, 2020, the Company's total issued shares were **34,073,816,258**[75](index=75&type=chunk) [Share Placing](index=31&type=section&id=Share%20Placing) The placing completed in July 2019 involved 2,000,000,000 shares at HK$0.104 per share, generating net proceeds of approximately HK$205,730 thousand, fully utilized for the media entertainment segment (approximately HK$90,469 thousand) and general working capital (approximately HK$47,891 thousand) - Placing of **2,000,000,000 shares** completed in July 2019 at **HK$0.104 per share**, generating net proceeds of approximately **HK$205,730 thousand**[73](index=73&type=chunk)[75](index=75&type=chunk) - Proceeds fully utilized for the **media entertainment segment** (approximately **HK$90,469 thousand**) and **general working capital** (approximately **HK$47,891 thousand**)[75](index=75&type=chunk) [Share Options](index=32&type=section&id=Share%20Options) During the reporting period, the company granted 478,000,000 share options on May 21, 2020, with an exercise price of HK$0.046 per share, and no options were exercised, cancelled, or lapsed during the period - On May 21, 2020, **478,000,000 share options** were granted at an exercise price of **HK$0.046 per share**[80](index=80&type=chunk) - No share options were exercised, cancelled, or lapsed during the reporting period[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) [Liquidity, Financial Resources, Group Assets Pledged and Gearing Ratio](index=33&type=section&id=Liquidity%2C%20Financial%20Resources%2C%20Group%20Assets%20Pledged%20and%20Gearing%20Ratio) The Group has diverse funding sources, including internal funds, bank and non-bank borrowings, and shareholder investments, and as of June 30, 2020, total cash and bank balances were approximately HK$207,763 thousand, with a current ratio of 1.4 and a gearing ratio of 34% - The Group has **diverse funding sources**, including internal funds, bank and non-bank borrowings, and investments from shareholders and potential investors[81](index=81&type=chunk) - Secured **US$13,000,000** in bank financing from a Hong Kong bank, partly collateralized by time deposits; **CAD4,500,000** in financing from a Canadian bank, guaranteed by a subsidiary[82](index=82&type=chunk) - As of June 30, 2020, total cash and bank balances were approximately **HK$207,763 thousand**[87](index=87&type=chunk) Liquidity and Gearing Ratio | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Current assets | HK$456,511 thousand | HK$531,247 thousand | | Current liabilities | HK$323,818 thousand | HK$299,568 thousand | | Current ratio | 1.4 | 1.8 | | Gearing ratio | 34% | 31% | [Exchange Rate Fluctuation Risk and Related Hedging](index=35&type=section&id=Exchange%20Rate%20Fluctuation%20Risk%20and%20Related%20Hedging) The Group's revenue, expenses, assets, and liabilities are primarily denominated in HKD, USD, CAD, RMB, and INR, and currently, there are no plans to hedge against exchange rate fluctuations of RMB, CAD, and/or INR, but this will be continuously reviewed, and future hedging measures considered - Primary settlement currencies include **HKD, USD, CAD, RMB, and INR**[88](index=88&type=chunk) - Currently, no hedging is planned for **RMB, CAD, and/or INR exchange rate fluctuations**, but this will be continuously reviewed for future measures[88](index=88&type=chunk) [Contingent Liabilities](index=35&type=section&id=Contingent%20Liabilities) Except for the potential indemnification matter disclosed in the 'Media Entertainment Segment', as of June 30, 2020, the Group had no other significant contingent liabilities - Except for the potential indemnification disclosed in the media entertainment segment, the Group had **no significant contingent liabilities** as of June 30, 2020[89](index=89&type=chunk) [Employees and Remuneration Policy of the Group](index=35&type=section&id=Employees%20and%20Remuneration%20Policy%20of%20the%20Group) As of June 30, 2020, the Group had a total of 1,049 employees, and the remuneration policy is competitive, adjusted based on employee performance, and includes discretionary bonuses, share option schemes, and retirement benefit schemes - As of June 30, 2020, the Group had a total of **1,049 employees**[90](index=90&type=chunk) - Remuneration policy is **competitive**, adjusted based on employee performance, with benefits including **discretionary bonuses, share option schemes, and retirement benefit schemes**[90](index=90&type=chunk) [Outlook](index=35&type=section&id=Outlook) Facing severe challenges from the COVID-19 pandemic, the Group adopted a conservative business strategy, including cost control and product portfolio adjustments, and while traditional visual effects business was affected, new opportunities like online gaming increased, and VR business slowed, but customer and investor confidence remains, with future plans including continued R&D investment, strategic collaborations, productivity enhancement, and VR business strategy evaluation - **COVID-19 pandemic** adversely impacted global economy and media entertainment, leading the Group to adopt a **conservative business strategy** including cost control, business direction, and product portfolio adjustments[91](index=91&type=chunk) - Traditional visual effects business affected by **extended or delayed production schedules**, but opportunities for providing visual effects for **online games** and other products increased[92](index=92&type=chunk) - **Virtual reality business activities slowed**, but customer or investor confidence in business models/hardware products remains, with business opportunities under discussion[93](index=93&type=chunk) - Will continue to invest significant financial and human resources in **ongoing R&D of new technologies**, recruit and retain talent, and seek **financing and strategic cooperation opportunities**[94](index=94&type=chunk) [Other Information](index=37&type=section&id=Other%20Information) This section presents additional disclosures on share options, directors' and substantial shareholders' interests, and corporate governance [Share Option Scheme](index=37&type=section&id=Share%20Option%20Scheme) The Company's share option scheme, adopted on April 27, 2012, and amended on April 3, 2014, aims to reward directors and employees for their contributions to the Group, and during the reporting period, the company granted 478,000,000 share options on May 21, 2020, with an exercise price of HK$0.046, of which 292,200,000 vested immediately - The share option scheme aims to **reward directors and employees** for their contributions to the Group[95](index=95&type=chunk) - On May 21, 2020, **478,000,000 share options** were granted at an exercise price of **HK$0.046**, with **292,200,000 vesting immediately**[95](index=95&type=chunk)[97](index=97&type=chunk) - No share options were exercised, cancelled, or lapsed during the reporting period[95](index=95&type=chunk) [Directors' and Chief Executive's Interests](index=40&type=section&id=Directors'%20and%20Chief%20Executive's%20Interests) As of June 30, 2020, Mr. Sean E. S. Ting, a director, held 2,108,531,324 shares and related shares (long position), representing approximately 6.19% of the issued share capital, and 502,134,789 shares (short position), while Mr. Wang Weizhong held 5,000,000 share options Directors' and Chief Executive's Interests in Shares and Related Shares | Director's Name | Capacity | Total Interests (Long/Short Position) | Approximate Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | Sean E. S. Ting | Interest of controlled corporation and beneficial owner | 2,108,531,324 (Long Position) | 6.19% | | | Interest of controlled corporation | 502,134,789 (Short Position) | 1.47% | | Wang Weizhong | Beneficial owner | 5,000,000 (Long Position) | 0.01% | - Mr. Sean E. S. Ting held **100,000,000 share options**, and Mr. Wang Weizhong held **5,000,000 share options**[99](index=99&type=chunk) [Interests of Substantial Shareholders and Other Persons](index=41&type=section&id=Interests%20of%20Substantial%20Shareholders%20and%20Other%20Persons) As of June 30, 2020, Poly Culture Group Corporation Limited was the largest shareholder, holding 5,323,600,000 shares (15.62%), with other substantial shareholders including Jetlink Holdings Limited (14.78%), Mr. Zhou Jian (7.43%), Smart Concept Holdings Limited (6.80%), CITIC Group Corporation (6.40%), Kingkey Industrial Holdings Limited (6.34%), and Mr. Chou Yung-Ming (6.39%) Interests of Substantial Shareholders and Other Persons in Shares and Related Shares | Name/Person | Capacity | Total Interests (Long/Short Position) | Approximate Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | Global Domain Investments Limited | Beneficial owner and deemed interest | 2,008,531,324 (Long Position) | 5.89% | | | Beneficial owner | 502,134,789 (Short Position) | 1.47% | | Sean E. S. Ting | Interest of controlled corporation and beneficial owner | 2,108,531,324 (Long Position) | 6.19% | | | Interest of controlled corporation | 502,134,789 (Short Position) | 1.47% | | Redmount Ventures Limited | Beneficial owner and deemed interest | 2,008,531,324 (Long Position) | 5.89% | | Smart Concept Holdings Limited | Person with security interest in shares and beneficial owner | 2,316,654,789 (Long Position) | 6.80% | | Jiawei Holdings Limited | Interest of controlled corporation | 2,316,654,789 (Long Position) | 6.80% | | Zhou Jian | Interest of controlled corporation and beneficial owner | 2,531,878,527 (Long Position) | 7.43% | | Poly Culture Group Corporation Limited | Beneficial owner | 5,323,600,000 (Long Position) | 15.62% | | Jetlink Holdings Limited | Beneficial owner | 5,037,200,000 (Long Position) | 14.78% | | Tang Elaine Yilin | Interest of controlled corporation | 5,037,200,000 (Long Position) | 14.78% | | CITIC Limited | Interest of controlled corporation | 2,181,178,182 (Long Position) | 6.40% | | CITIC Group Corporation | Interest of controlled corporation | 2,181,178,182 (Long Position) | 6.40% | | Kingkey Industrial Holdings Limited | Beneficial owner | 2,161,080,000 (Long Position) | 6.34% | | Chan Ka Wing | Interest of controlled corporation and beneficial owner | 2,166,550,000 (Long Position) | 6.36% | | Chan Ka Chun | Interest of controlled corporation | 2,161,080,000 (Long Position) | 6.34% | | Jiabao Limited | Beneficial owner and deemed interest | 2,008,531,324 (Long Position) | 5.89% | | | Beneficial owner | 602,561,746 (Short Position) | 1.77% | | Chou Yung-Ming | Interest of controlled corporation | 2,176,041,324 (Long Position) | 6.39% | | | Interest of controlled corporation | 602,561,746 (Short Position) | 1.77% | [Disclosure Pursuant to Rule 13.21 of the Listing Rules](index=44&type=section&id=Disclosure%20Pursuant%20to%20Rule%2013.21%20of%20the%20Listing%20Rules) A discontinued subsidiary of the Company previously obtained HK$6,000 thousand in bank financing with specific performance obligations, and as of June 30, 2020, the outstanding principal of this financing was approximately HK$4,854 thousand, with the subsidiary having entered liquidation proceedings, but the Company and other subsidiaries did not provide corporate guarantees - A discontinued subsidiary obtained **HK$6,000 thousand in bank financing**, with performance obligations requiring the Company to hold no less than **51% effective equity** in the subsidiary and no less than **100% in its intermediate holding company**[106](index=106&type=chunk) - As of June 30, 2020, the outstanding principal of this financing was approximately **HK$4,854 thousand**[106](index=106&type=chunk) - The subsidiary was appointed provisional liquidators in July 2012, and the Company and other subsidiaries **did not provide corporate guarantees**[106](index=106&type=chunk) [Purchase, Sale or Redemption of the Company's Listed Securities](index=44&type=section&id=Purchase%2C%20Sale%20or%20Redemption%20of%20the%20Company's%20Listed%20Securities) During the reporting period, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities - During the reporting period, neither the Company nor any of its subsidiaries **purchased, sold, or redeemed any of the Company's listed securities**[107](index=107&type=chunk) [Corporate Governance](index=44&type=section&id=Corporate%20Governance) The Company generally complied with the Corporate Governance Code during the reporting period, but deviations included the unsegregated roles of Chairman and Chief Executive, non-executive directors without specific terms of appointment, and some non-executive directors' inability to attend general meetings - During the reporting period, the Company generally complied with the **Corporate Governance Code**, but deviations included **unsegregated roles of Chairman and Chief Executive** (Mr. Sean E. S. Ting serving as Acting Chairman and CEO)[108](index=108&type=chunk) - Non-executive and independent non-executive directors have **no specific terms of appointment** but are subject to retirement by rotation and re-election[108](index=108&type=chunk) - Some non-executive directors were **unable to attend annual general meetings** due to other business activities[108](index=108&type=chunk) [Changes in Directors' Information](index=45&type=section&id=Changes%20in%20Directors'%20Information) During the reporting period, Mr. John Alexander Lagerling resigned as an independent non-executive director, and Mr. Chou Yung-Ming resigned as Chairman of the Board and Executive Director, while Mr. Sean E. S. Ting was appointed Acting Chairman of the Board and Chairman of the Executive Committee, and Dr. Elizabeth Monk Daley was appointed as an independent non-executive director - Mr. John Alexander Lagerling resigned as an **independent non-executive director** (effective May 1, 2020)[109](index=109&type=chunk) - Mr. Chou Yung-Ming resigned as **Chairman of the Board and Executive Director** (effective June 4, 2020)[109](index=109&type=chunk) - Mr. Sean E. S. Ting was appointed **Acting Chairman of the Board and Chairman of the Executive Committee** (effective June 4, 2020)[109](index=109&type=chunk) - Dr. Elizabeth Monk Daley was appointed as an **independent non-executive director** (effective July 20, 2020)[109](index=109&type=chunk) [Directors' Securities Transactions](index=45&type=section&id=Directors'%20Securities%20Transactions) The Company adopted the Model Code set out in Appendix 10 of the Listing Rules as the code of conduct for directors' securities transactions, and all directors confirmed compliance with the Model Code throughout the reporting period - The Company adopted the **Model Code** in Appendix 10 of the Listing Rules as the code of conduct for directors' securities transactions[109](index=109&type=chunk) - All directors confirmed **compliance with the Model Code** during the reporting period[109](index=109&type=chunk) [Review by Audit Committee](index=45&type=section&id=Review%20by%20Audit%20Committee) The Company's Audit Committee has reviewed the Company's interim report for the reporting period - The **Audit Committee** has reviewed the Company's interim report[109](index=109&type=chunk)

D BIGITAN DIGITAL DOMAIN HOLDINGS LIMITED 数 字 王 國 集 團 有 限 公 司 ( 於百慕達註冊成立之有限公司 ) 2019 年報 滙聚 目 錄 行政總裁回顧 主席報告 公司資料 | --- | --- | --- | |------------------|----------------|---------------------| | | | | | 6 | 4 | 2 | | 獨立核數師報告 | 董事會報告 | 企業管治報告 | | 69 | 50 | 38 | | 綜合財務狀況表 | 綜合全面收益表 | 綜合損益表 | | 75 | 74 | 73 | | 綜合財務報表附註 | 綜合現金流量表 | 綜合權益變動表 | | 81 | 79 | 77 五年財務概要 180 | 公司資料 | --- | --- | --- | |--------------------------|-------------------------------------------------|----------------------------------------- ...

[Financial Summary and Performance Overview](index=2&type=section&id=I.%20Financial%20Summary%20and%20Performance%20Overview) The group's financial performance for the six months ended June 30, 2019, showed a narrowed loss despite a revenue decline, driven by improved gross profit and strategic financial adjustments [Condensed Consolidated Statement of Profit or Loss](index=2&type=section&id=Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss) For the six months ended June 30, 2019, group revenue decreased by 17% to HK$284.43 million, but gross profit increased by 38% to HK$56.60 million, narrowing the loss for the period by 28% to HK$165.71 million Condensed Consolidated Statement of Profit or Loss Key Data (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Revenue | 284,429 | 342,405 | -17% | | Cost of sales and services provided | (227,832) | (301,255) | -24.36% | | Gross Profit | 56,597 | 41,150 | +37.54% | | Other income and gains | 73,237 | 13,881 | +427.61% | | Selling and distribution expenses | (10,238) | (12,803) | -19.99% | | Administrative expenses and other net operating expenses | (245,659) | (259,512) | -5.34% | | Finance Costs | (42,117) | (9,403) | +347.91% | | Loss Before Tax | (167,264) | (233,127) | -28.25% | | Loss for the Period | (165,712) | (229,112) | -27.67% | | Loss Attributable to Owners of the Company | (161,625) | (225,620) | -28.37% | [Condensed Consolidated Statement of Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statement%20of%20Comprehensive%20Income) For the six months ended June 30, 2019, the group's total comprehensive loss narrowed by 12.28% to HK$216.12 million, influenced by positive currency translation differences and fair value changes of equity instruments Condensed Consolidated Statement of Comprehensive Income Key Data (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Loss for the Period | (165,712) | (229,112) | -27.67% | | Exchange differences on translation | 6,897 | (4,368) | Turned from negative to positive | | Fair value changes of equity instruments measured at fair value through other comprehensive income | (57,382) | – | New loss | | Total Comprehensive Income for the Period | (216,116) | (246,374) | -12.28% | | Total Comprehensive Income Attributable to Owners of the Company | (212,667) | (241,038) | -11.77% | [Condensed Consolidated Statement of Financial Position](index=4&type=section&id=Condensed%20Consolidated%20Statement%20of%20Financial%20Position) As of June 30, 2019, total group assets increased to HK$1.985 billion, net assets rose to HK$1.651 billion, and net current assets turned positive, indicating an improved financial position Condensed Consolidated Statement of Financial Position Key Data | Indicator | 30 June 2019 (HK$ thousand) | 31 December 2018 (HK$ thousand) | Change | | :--- | :--- | :--- | :--- | | Non-current Assets | 1,818,900 | 1,752,052 | +3.82% | | Current Assets | 586,763 | 264,304 | +122.08% | | Assets of a disposal group classified as held for sale | – | 208,483 | -100% | | Current Liabilities | 420,493 | 556,077 | -24.39% | | Liabilities of a disposal group classified as held for sale | – | 95 | -100% | | Net Current Assets / (Liabilities) | 166,270 | (83,385) | Turned from negative to positive | | Total Assets Less Current Liabilities | 1,985,170 | 1,668,667 | +18.97% | | Non-current Liabilities | 334,308 | 358,711 | -6.79% | | Net Assets | 1,650,862 | 1,309,956 | +25.90% | | Total Equity | 1,650,862 | 1,309,956 | +25.90% | [Condensed Consolidated Statement of Changes in Equity](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Equity) For the six months ended June 30, 2019, total equity attributable to owners increased to HK$1.576 billion, primarily due to a HK$553.56 million capital injection from share subscriptions, despite period losses and fair value changes of financial assets Condensed Consolidated Statement of Changes in Equity Key Data (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Change | | :--- | :--- | :--- | :--- | | Equity attributable to owners of the Company at 1 January (restated) | 1,230,452 | 1,377,473 | -10.79% | | Shares issued on subscription, net of expenses | 553,556 | 409,139 | +35.29% | | Loss for the period | (161,625) | (225,620) | -28.37% | | Fair value changes of equity instruments measured at fair value through other comprehensive income | (57,382) | – | New loss | | Equity attributable to owners of the Company at 30 June | 1,576,173 | 1,551,282 | +1.60% | [Condensed Consolidated Statement of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) For the six months ended June 30, 2019, net cash and cash equivalents increased by HK$196.60 million, driven by net cash inflows from financing (HK$282.57 million) and investing (HK$115.26 million) activities, offsetting operating cash outflows Condensed Consolidated Statement of Cash Flows Key Data (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Change | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (201,225) | (276,194) | Loss narrowed | | Net cash generated from / (used in) investing activities | 115,264 | (356,803) | Turned from negative to positive | | Net cash generated from financing activities | 282,565 | 619,643 | -54.39% | | Net increase / (decrease) in cash and cash equivalents | 196,604 | (13,354) | Turned from negative to positive | | Cash and cash equivalents at 30 June | 271,603 | 203,484 | +33.58% | [Loss Per Share](index=20&type=section&id=Loss%20Per%20Share) For the six months ended June 30, 2019, basic loss per share attributable to owners narrowed to **0.556 HK cents**, with diluted loss per share being the same due to anti-dilutive effects Loss Per Share (For the six months ended 30 June) | Indicator | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Basic loss per share | (0.556) HK cents | (0.874) HK cents | Loss narrowed | | Weighted average number of ordinary shares | 29,068,472,612 | 25,827,980,414 | +12.55% | - Diluted loss per share is identical to basic loss per share due to the anti-dilutive effect of unexercised share options and shares issued to former option holders for subsidiary acquisitions in prior periods[52](index=52&type=chunk) [Changes in Accounting Policies and Standards](index=9&type=section&id=II.%20Changes%20in%20Accounting%20Policies%20and%20Standards) The group's interim financial statements are prepared under HKAS 34, with the first-time adoption of HKFRS 16 Leases significantly impacting accounting policies and requiring adjustments to accumulated losses [Basis of Preparation and Accounting Policies](index=9&type=section&id=Basis%20of%20Preparation%20and%20Accounting%20Policies) These unaudited condensed consolidated interim financial statements are prepared in accordance with HKAS 34 and Listing Rules disclosure requirements, using a historical cost basis and incorporating initial adoption of HKFRS 16 Leases with an adjustment to accumulated losses - These unaudited condensed consolidated interim financial statements are prepared in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants and the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited[13](index=13&type=chunk) - This is the group's first financial statement after adopting Hong Kong Financial Reporting Standard 16 Leases ("HKFRS 16"), with details of accounting policy changes provided in Note 2[14](index=14&type=chunk) [Changes in Hong Kong Financial Reporting Standards](index=9&type=section&id=Changes%20in%20Hong%20Kong%20Financial%20Reporting%20Standards) The group's initial adoption of HKFRS 16 Leases significantly altered financial statements, primarily by recognizing most leases as right-of-use assets and lease liabilities, with an accumulated impact adjustment to the opening balance of accumulated losses without restating comparative data - HKFRS 16 significantly changed lease accounting, primarily for lessees, with most leases now recognized as right-of-use assets and lease liabilities on the statement of financial position[18](index=18&type=chunk) - The group adopted HKFRS 16 using the cumulative effect method, recognizing the full cumulative impact as an adjustment to the opening balance of accumulated losses on the date of initial application[18](index=18&type=chunk) Impact of Adopting HKFRS 16 on the Statement of Financial Position (1 January 2019) | Indicator | Increase / (Decrease) (HK$ thousand) | | :--- | :--- | | Right-of-use assets | 120,337 | | Deferred tax assets | 15,093 | | Other payables | (5,450) | | Lease liabilities (current) | 41,956 | | Lease liabilities (non-current) | 126,145 | | Finance lease obligations (current) | (13,982) | | Finance lease obligations (non-current) | (11,873) | | Accumulated losses | 1,022 | | Non-controlling interests | (344) | [Application of Judgements and Estimates](index=14&type=section&id=Application%20of%20Judgements%20and%20Estimates) Significant management judgments and sources of estimation uncertainty in preparing the interim financial statements remain consistent with the 2018 annual financial statements, except for new significant judgments related to HKFRS 16 application - The key sources of significant judgments and estimation uncertainties made by management in applying the group's accounting policies are the same as those applied in the 2018 annual financial statements, except for new significant judgments related to the application of HKFRS 16 as described in Note 2[35](index=35&type=chunk) [Business Segment Performance](index=14&type=section&id=III.%20Business%20Segment%20Performance) The group operates primarily in media entertainment and property investment, with the former dominating revenue but both segments facing challenges, including overall revenue decline and segment losses [Revenue and Segment Reporting](index=14&type=section&id=Revenue%20and%20Segment%20Reporting) The group primarily operates in media entertainment and property investment, with media entertainment contributing 99% of total revenue as of June 30, 2019, despite an overall 17% revenue decrease and a 97% decline in property investment revenue - The group determines its operating segments based on reports reviewed by the chief operating decision-maker for decision-making and performance assessment, including Media Entertainment (visual effects production, post-production, 360-degree panoramic digital capture technology application, hardware sales, and solutions services) and Property Investment[36](index=36&type=chunk) Group Revenue by Major Business (For the six months ended 30 June) | Business Type | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Visual Effects Production Services | 211,479 | 285,224 | -25.86% | | Post-Production Services | 11,506 | 9,212 | +24.90% | | 360-Degree Panoramic Digital Capture Technology Application, Hardware Sales and Solutions Services | 61,379 | 45,647 | +34.49% | | Rental Income | 65 | 2,322 | -97.20% | | Total Revenue | 284,429 | 342,405 | -16.93% | [Revenue Analysis](index=14&type=section&id=Revenue%20Analysis) Total group revenue decreased by 17% year-on-year to HK$284.43 million, primarily due to a significant decline in visual effects production services, partially offset by growth in post-production and 360-degree panoramic digital capture technology application services Group Revenue by Major Business (For the six months ended 30 June) | Business Type | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Visual Effects Production Services | 211,479 | 285,224 | -25.86% | | Post-Production Services | 11,506 | 9,212 | +24.90% | | 360-Degree Panoramic Digital Capture Technology Application, Hardware Sales and Solutions Services | 61,379 | 45,647 | +34.49% | | Rental Income | 65 | 2,322 | -97.20% | | Total Revenue | 284,429 | 342,405 | -16.93% | [Disaggregation of Revenue from Contracts with Customers](index=15&type=section&id=Disaggregation%20of%20Revenue%20from%20Contracts%20with%20Customers) Media entertainment segment customer contract revenue primarily stems from visual effects production services, with China and Canada as key markets, while US revenue declined, and most revenue is recognized over time Media Entertainment Segment Customer Contract Revenue Disaggregation (For the six months ended 30 June) | Classification | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | **Type of goods or services** | | | | | Visual Effects Production Services | 211,479 | 285,224 | -25.86% | | Post-Production Services | 11,506 | 9,212 | +24.90% | | 360-Degree Panoramic Digital Capture Technology Application, Hardware Sales and Solutions Services | 61,379 | 45,647 | +34.49% | | **Geographical markets** | | | | | China | 91,897 | 69,762 | +31.72% | | United States | 86,927 | 109,748 | -20.80% | | Canada | 99,251 | 130,582 | -24.00% | | United Kingdom | 2,964 | 29,418 | -89.92% | | **Timing of revenue recognition** | | | | | At a point in time | 59,990 | 35,069 | +71.07% | | Over time | 224,374 | 305,014 | -26.44% | [Analysis of Business Segment Revenue, Results, Assets and Liabilities](index=16&type=section&id=Analysis%20of%20Business%20Segment%20Revenue%2C%20Results%2C%20Assets%20and%20Liabilities) The media entertainment segment accounts for most group revenue but remains loss-making, while the property investment segment experienced significant revenue and profit declines, turning from profit to loss, and media entertainment assets and liabilities both increased Business Segment Revenue and Results (For the six months ended 30 June) | Segment | 2019 Revenue (HK$ thousand) | 2018 Revenue (HK$ thousand) | 2019 (Loss) / Profit (HK$ thousand) | 2018 (Loss) / Profit (HK$ thousand) | | :--- | :--- | :--- | :--- | :--- | | Media Entertainment | 284,364 | 340,083 | (110,014) | (131,184) | | Property Investment | 65 | 2,322 | (230) | 1,789 | | Consolidated | 284,429 | 342,405 | (110,244) | (129,395) | Business Segment Assets and Liabilities (As of 30 June) | Segment | 30 June 2019 Assets (HK$ thousand) | 31 December 2018 Assets (HK$ thousand) | 30 June 2019 Liabilities (HK$ thousand) | 31 December 2018 Liabilities (HK$ thousand) | | :--- | :--- | :--- | :--- | :--- | | Media Entertainment | 1,893,018 | 1,659,970 | 653,192 | 589,041 | | Property Investment | 79 | 208,483 | – | 95 | | Consolidated | 1,893,097 | 1,868,453 | 653,192 | 589,136 | [Reconciliation of Reportable Segment Profit/Loss, Assets and Liabilities](index=16&type=section&id=Reconciliation%20of%20Reportable%20Segment%20Profit%2FLoss%2C%20Assets%20and%20Liabilities) The group's consolidated loss before tax was HK$167.26 million, primarily influenced by segment losses, impairment loss on amounts due from associates, finance costs, and unallocated corporate expenses, with both total assets and liabilities increasing Reconciliation of Loss Before Tax (For the six months ended 30 June) | Item | 2019 (HK$ thousand) | 2018 (HK$ thousand) | | :--- | :--- | :--- | | Reportable segment loss | (110,244) | (129,395) | | Impairment loss on amounts due from an associate | (93,289) | – | | Finance Costs | (42,117) | (9,403) | | Gain on disposal of subsidiaries | 99,293 | – | | Consolidated loss before tax | (167,264) | (233,127) | Reconciliation of Assets and Liabilities (As of 30 June) | Item | 30 June 2019 (HK$ thousand) | 31 December 2018 (HK$ thousand) | | :--- | :--- | :--- | | Total consolidated assets | 2,405,663 | 2,224,839 | | Total consolidated liabilities | 754,801 | 914,883 | [Geographical Information](index=17&type=section&id=Geographical%20Information) The group's revenue primarily originates from China, the United States, and Canada, with China experiencing significant growth while revenue from the US, Canada, and UK markets declined Revenue from External Customers by Geographical Area (For the six months ended 30 June) | Region | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Hong Kong | 65 | 2,488 | -97.39% | | China | 91,897 | 69,762 | +31.72% | | United States | 86,927 | 109,748 | -20.80% | | Canada | 99,251 | 130,582 | -24.00% | | United Kingdom | 2,964 | 29,418 | -89.92% | | Other countries / regions | 3,325 | 407 | +716.95% | | Total | 284,429 | 342,405 | -16.93% | [Revenue-Related Assets and Liabilities](index=18&type=section&id=Revenue-Related%20Assets%20and%20Liabilities) As of June 30, 2019, trade receivables and contract liabilities increased, while contract assets decreased, with contract assets primarily relating to completed but unbilled visual effects and post-production services Revenue-Related Assets and Liabilities (HK$ thousand) | Indicator | 30 June 2019 | 1 January 2019 | Change | | :--- | :--- | :--- | :--- | | Trade receivables | 81,528 | 51,679 | +57.79% | | Contract assets | 5,269 | 7,731 | -31.84% | | Contract liabilities | 30,831 | 28,892 | +6.71% | - Contract assets primarily relate to the group's right to consideration for work completed but not yet invoiced as of the reporting date, involving revenue from visual effects production and post-production services[44](index=44&type=chunk) [Media Entertainment Segment](index=28&type=section&id=Media%20Entertainment%20Segment) The Media Entertainment segment, contributing 99% of group revenue, recorded a loss primarily due to R&D costs, actively developing new media, visual effects, virtual humans, and co-production businesses while expanding global markets and technology applications Media Entertainment Segment Financial Performance (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Revenue | 284,364 | 340,083 | -16.38% | | Loss | (110,014) | (131,184) | -16.14% | | Adjusted segment loss (before interest expense and tax) | (59,401) | (82,640) | -28.13% | - The Media Entertainment segment accounted for approximately **99%** of the group's revenue during the review period, with losses including research and development costs recorded for virtual human technology[83](index=83&type=chunk) [New Media and Experiential Projects](index=29&type=section&id=New%20Media%20and%20Experiential%20Projects) Digital Domain offers end-to-end solutions in emerging VR, AR, and new media markets, including VR streaming, interactive toolkits, 360-degree video, and real-time game engine technology, while 3Glasses Group advanced in VR hardware and solutions, increasing market share and launching the new X1 ultra-thin VR glasses - Digital Domain provides customized AR experiences, featuring data visualization and integrated media experiences for the Cubs baseball team and Wrigley Field[88](index=88&type=chunk) - Digital Domain created the real-time character for "POKÉMON Detective Pikachu," capable of being "driven" by live performers[88](index=88&type=chunk) - 3Glasses Group achieved a **13.1% market share** in China during Q1 2019 and globally launched its new generation consumer ultra-thin VR glasses, X1[95](index=95&type=chunk) [Visual Effects Production and Post-Production Business](index=31&type=section&id=Visual%20Effects%20Production%20and%20Post-Production%20Business) Digital Domain has garnered multiple international awards and nominations for its visual effects and post-production work, serving numerous Hollywood films, TV series, and commercials, including the Thanos character in "Avengers 3 & 4," while actively expanding in China and India and facing potential indemnity risks from IP litigation - Digital Domain won the Visual Effects Society Award for "Outstanding Animated Character in a Photoreal Feature" for the character Thanos in "Avengers: Infinity War"[99](index=99&type=chunk) - Digital Domain provided visual effects services for films including "Captain Marvel," "The Curse of La Llorona," "Shazam!," and "Avengers: Endgame"[102](index=102&type=chunk) - A US subsidiary faces potential indemnity liabilities arising from the use of disputed intellectual property, involving multiple lawsuits, and is currently discussing defense cost payments with insurance companies[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) [Virtual Human Business in Greater China](index=36&type=section&id=Virtual%20Human%20Business%20in%20Greater%20China) The group actively develops its virtual human business in Greater China, including the Teresa Teng virtual human project and collaborations with other celebrities and companies, applying virtual human technology in concerts, TV shows, and product endorsements while continuously investing in R&D for enhanced interactive features - The Teresa Teng virtual human appeared on China Central Television's program "Everlasting Classics" and at the China (Yiwu) Cultural Products Trade Fair[115](index=115&type=chunk) - In Mr. JJ Lin's "Sanctuary" world tour, a virtual JJ Lin interacted with the real artist on stage[116](index=116&type=chunk) - Digital Domain collaborated with Tencent Charity and the Yao Foundation to create a virtual Yao Ming, who debuted at the China Internet Philanthropy Summit in Guangzhou[116](index=116&type=chunk) [Co-Production](index=37&type=section&id=Co-Production) The group participated in co-productions for the film "Ender's Game" and TV series "Ten Years Late" and "The Monkey King," recognizing profits through participating interests and providing visual effects and VR content solutions for the TV series - The film "Ender's Game" continues to generate revenue through non-box office channels, with DD3I's share of profit from participating interests recognized under "Other income and gains"[117](index=117&type=chunk) - Digital Domain co-produced the TV series "Ten Years Late" and "The Monkey King" with Talent Television & Film and World Pictures, providing visual effects production and VR content solutions[118](index=118&type=chunk) [Investment in Handy](index=37&type=section&id=Investment%20in%20Handy) The group made a strategic investment in Mango International Group Limited (Handy's parent company) to leverage its hardware-as-a-service model for synergies with the group's VR and virtual human expertise, recording a **HK$57.38 million** fair value loss during the period - The group invested **US$25 million** (approximately **HK$196.21 million**) in Mango International Group Limited (flagship product "handy") to create synergistic benefits[119](index=119&type=chunk) - During the period, the investment recorded a fair value loss of **HK$57.38 million**, reflected in the consolidated statement of other comprehensive income[119](index=119&type=chunk) [Property Investment Segment](index=37&type=section&id=Property%20Investment%20Segment) The group divested its Hong Kong property investment portfolio to realize value and reallocate financial resources to the media entertainment business, resulting in a **97%** revenue decrease to **HK$65 thousand** and a shift from profit to a **HK$230 thousand** loss for the segment - The group sold its two shops and ten parking spaces previously owned on the ground floor of Citicorp Centre in Causeway Bay, Hong Kong, aiming to monetize the investment and reallocate funds to the media entertainment business[120](index=120&type=chunk) Property Investment Segment Financial Performance (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Revenue | 65 | 2,322 | -97.20% | | Loss / (Profit) | (230) | 1,789 | Turned from profit to loss | | Revenue as % of Group Total Revenue | Approximately 1% | - | - | [Interests in Associates](index=38&type=section&id=Interests%20in%20Associates) The group, in partnership with Poly Capital and Hony Capital, established Digital Domain Space (Beijing) Media Technology Co., Ltd. to develop and operate VR cinemas in China, with CITIC Press Group as a strategic investor, and the associate's loss narrowed - Digital Domain, in collaboration with Poly Capital and Hony Capital, established Digital Domain Space (Beijing) Media Technology Co., Ltd., dedicated to developing and executing innovative virtual reality experiences and opening multiple VR cinemas in China[123](index=123&type=chunk) Share of Loss of Associates (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Share of loss of associates | (5,787) | (10,262) | -43.61% | [Financial Position and Liquidity](index=18&type=section&id=IV.%20Financial%20Position%20and%20Liquidity) The group's financial position improved with a better current ratio and reduced gearing, supported by diverse financing sources and strategic asset disposals, despite increased finance costs [Finance Costs](index=18&type=section&id=Finance%20Costs) For the six months ended June 30, 2019, group finance costs surged by **347.91%** to **HK$42.12 million**, primarily due to increased interest on bank and other loans and newly recognized lease liabilities Finance Costs (For the six months ended 30 June) | Item | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Interest accrued: contingent consideration payable | 1,817 | 948 | +91.67% | | Interest accrued: lease liabilities | 8,447 | – | New | | Interest: bank and other loans | 31,164 | 4,592 | +578.65% | | Interest: secured notes | 689 | 1,190 | -42.10% | | Interest: finance leases | – | 2,673 | -100% | | Total | 42,117 | 9,403 | +347.91% | [Loss Before Tax and Taxation](index=19&type=section&id=Loss%20Before%20Tax%20and%20Taxation) For the six months ended June 30, 2019, the group's loss before tax narrowed by **28.25%** to **HK$167.26 million**, with a **HK$1.55 million** deferred tax credit recorded for the period, primarily due to the positive impact of deferred tax Loss Before Tax and Taxation (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Loss Before Tax | (167,264) | (233,127) | -28.25% | | Staff costs (including directors' emoluments) | 268,742 | 342,413 | -21.49% | | Depreciation of property, plant and equipment | 22,712 | 30,418 | -25.33% | | Depreciation of right-of-use assets | 16,545 | – | New | | Amortisation of intangible assets | 49,871 | 41,961 | +18.85% | | Taxation | 1,552 | 4,015 | -61.34% | | Taxation for the period - overseas tax | 1,758 | 1,390 | +26.47% | | Deferred tax | (3,310) | (5,148) | Loss narrowed | - Hong Kong profits tax was not provided as the group's estimated tax losses carried forward are sufficient to offset estimated assessable profits[49](index=49&type=chunk) [Assets and Liabilities of a Disposal Group Classified as Held for Sale](index=20&type=section&id=Assets%20and%20Liabilities%20of%20a%20Disposal%20Group%20Classified%20as%20Held%20for%20Sale) The group disposed of its wholly-owned subsidiary, Sun Innovation HK Properties Holdings Limited, and its subsidiaries, primarily engaged in property investment, thus reclassifying their related assets and liabilities from held for sale - During the period, the Board disposed of 100% equity interest in the group's wholly-owned subsidiary, Sun Innovation HK Properties Holdings Limited, and its subsidiaries (collectively, the "Disposal Group"), which primarily engaged in property investment[53](index=53&type=chunk) Assets and Liabilities of a Disposal Group Held for Sale (31 December 2018) | Item | HK$ thousand | | :--- | :--- | | Investment properties | 208,300 | | Trade receivables, other receivables and prepayments | 79 | | Bank balances and cash | 104 | | Total assets | 208,483 | | Trade payables, other payables and accruals | 95 | [Intangible Assets](index=21&type=section&id=Intangible%20Assets) As of June 30, 2019, the group's intangible assets' carrying value slightly decreased to **HK$1.416 billion**, primarily due to reduced virtual human technology and IP licenses from subsidiary disposals, alongside period amortization Intangible Assets Carrying Value (HK$ thousand) | Item | 30 June 2019 | 31 December 2018 | Change | | :--- | :--- | :--- | :--- | | Goodwill | 854,546 | 854,831 | -0.03% | | Trademarks | 152,716 | 147,739 | +3.37% | | Proprietary software | 84,948 | 68,520 | +23.98% | | Participating interests | 60,768 | 81,913 | -25.81% | | Patents | 244,451 | 259,963 | -5.97% | | Virtual human technology | – | 21,295 | -100% | | Unfulfilled contracts | 6,060 | 10,604 | -42.85% | | Intellectual property licenses | – | 14,876 | -100% | | Other licenses | 12,803 | 1,112 | +1051.35% | | Total | 1,416,292 | 1,460,853 | -3.05% | - The disposal of subsidiaries led to significant reductions in both the cost and accumulated amortization of virtual human technology and intellectual property licenses[57](index=57&type=chunk) [Financial Assets Measured at Fair Value Through Other Comprehensive Income](index=22&type=section&id=Financial%20Assets%20Measured%20at%20Fair%20Value%20Through%20Other%20Comprehensive%20Income) As of June 30, 2019, the fair value of unlisted equity investments decreased to **HK$108.59 million**, with a **HK$57.38 million** fair value loss recognized during the period, reflecting changes in this strategic medium-to-long-term investment Financial Assets Measured at Fair Value Through Other Comprehensive Income (HK$ thousand) | Item | 30 June 2019 | 31 December 2018 | Change | | :--- | :--- | :--- | :--- | | Unlisted equity investments, at fair value | 108,594 | 165,976 | -34.69% | - During the period, a fair value loss of **HK$57.38 million** was recognized in other comprehensive income[59](index=59&type=chunk) - This investment represents unlisted equity instruments held for medium-to-long-term strategic purposes, which the directors believe provides a more meaningful presentation for such strategic investments[59](index=59&type=chunk) [Trade Receivables, Other Receivables and Prepayments](index=23&type=section&id=Trade%20Receivables%2C%20Other%20Receivables%20and%20Prepayments) As of June 30, 2019, the group's total trade receivables, other receivables, and prepayments increased to **HK$303.39 million**, with significant rises in trade receivables and prepayments reflecting increased business activity Trade Receivables, Other Receivables and Prepayments (HK$ thousand) | Item | 30 June 2019 | 31 December 2018 | Change | | :--- | :--- | :--- | :--- | | Total trade receivables | 81,528 | 51,679 | +57.79% | | Other receivables | 138,299 | 67,506 | +104.87% | | Prepayments | 69,417 | 42,207 | +64.47% | | Total | 303,391 | 176,979 | +71.43% | - The group generally grants an average credit period of **30 days** to trade customers[65](index=65&type=chunk) [Trade Payables, Other Payables and Accruals](index=23&type=section&id=Trade%20Payables%2C%20Other%20Payables%20and%20Accruals) As of June 30, 2019, the group's total trade payables, other payables, and accruals decreased to **HK$126.78 million**, primarily driven by a reduction in other payables Trade Payables, Other Payables and Accruals (HK$ thousand) | Item | 30 June 2019 | 31 December 2018 | Change | | :--- | :--- | :--- | :--- | | Total trade payables | 37,040 | 33,692 | +9.93% | | Other payables | 31,141 | 47,715 | -34.73% | | Accruals | 58,600 | 57,034 | +2.75% | | Total | 126,781 | 138,441 | -8.30% | [Disposal of Subsidiaries](index=24&type=section&id=Disposal%20of%20Subsidiaries) During the period, the group completed two subsidiary disposals: a **70%** interest in its Greater China virtual human business, yielding **HK$92.57 million** gain, and a property investment subsidiary, generating **HK$6.72 million** gain, both aimed at monetizing investments and optimizing resource allocation - On January 31, 2019, the group disposed of a **70%** equity interest in its subsidiary engaged in the virtual human business in Greater China, realizing a gain on disposal of **HK$92.57 million**[67](index=67&type=chunk) - On March 19, 2019, the group disposed of a group of subsidiaries engaged in property investment, realizing a gain on disposal of **HK$6.72 million** for a cash consideration of **HK$215.80 million**[69](index=69&type=chunk) - The disposal of the property investment business aimed to monetize the group's investment in the property market and reallocate its financial resources to the media entertainment business[69](index=69&type=chunk) [Share Capital](index=26&type=section&id=Share%20Capital) As of June 30, 2019, the company's total issued shares increased to **32.056 billion**, primarily due to the issuance of **5.324 billion** shares from subscriptions and **1 million** shares from share option exercises Changes in Share Capital (HK$ thousand) | Item | Number of Shares | Amount (HK$ thousand) | | :--- | :--- | :--- | | At 31 December 2018 | 26,731,511,340 | 267,314 | | Shares issued on exercise of share options | 1,000,000 | 10 | | Shares issued on subscription | 5,323,600,000 | 53,237 | | At 30 June 2019 | 32,056,111,340 | 320,561 | [Liquidity, Financial Resources, Group Asset Pledges and Gearing Ratio](index=40&type=section&id=Liquidity%2C%20Financial%20Resources%2C%20Group%20Asset%20Pledges%20and%20Gearing%20Ratio) The group's current ratio improved to **1.4** and gearing ratio decreased to **21%**, indicating enhanced financial health, supported by diverse financing sources including bank facilities, other loans, and equity investments, with several loans repaid and new bank facilities secured during the period Liquidity and Gearing Ratio | Indicator | 30 June 2019 | 31 December 2018 | Change | | :--- | :--- | :--- | :--- | | Current Assets | HK$586,763,000 | - | - | | Current Liabilities | HK$420,493,000 | - | - | | Current Ratio | 1.4 | 0.9 | Improved | | Gearing Ratio | 21% | 47% | Improved | | Total cash and bank balances | HK$271,603,000 | - | - | - The group has diverse funding sources, including internal funds, secured general banking facilities, unsecured non-bank loans, and ad-hoc investments from shareholders and other potential investors[132](index=132&type=chunk) - The company secured a **US$13 million** (approximately **HK$101.55 million**) banking facility from a Hong Kong bank, partially collateralized by time deposits[132](index=132&type=chunk) [Foreign Exchange Fluctuation Risk and Related Hedging](index=41&type=section&id=Foreign%20Exchange%20Fluctuation%20Risk%20and%20Related%20Hedging) The group's revenue, expenses, assets, and liabilities are primarily denominated in HKD, USD, CAD, RMB, and INR; currently, no hedging is planned for RMB, CAD, and/or INR exchange rate fluctuations, but the group will continuously review and consider future hedging measures - The group's revenue, expenses, assets, and liabilities are primarily denominated in Hong Kong Dollars, US Dollars, Canadian Dollars, Renminbi, and Indian Rupees[139](index=139&type=chunk) - Currently, the group does not intend to hedge against exchange rate fluctuations involving Renminbi, Canadian Dollars, and/or Indian Rupees; however, it will regularly review economic conditions, business segment developments, and the overall foreign exchange risk portfolio, considering appropriate hedging measures as needed in the future[139](index=139&type=chunk) [Contingent Liabilities](index=42&type=section&id=Contingent%20Liabilities) As of June 30, 2019, the group had no other significant contingent liabilities apart from those related to intellectual property litigation disclosed under "Potential Indemnification" within the "Media Entertainment Segment" - Except for those disclosed under "Potential Indemnification" in the "Media Entertainment Segment" above, the group had no other significant contingent liabilities as of June 30, 2019[140](index=140&type=chunk) [Corporate Governance and Outlook](index=42&type=section&id=V.%20Corporate%20Governance%20and%20Outlook) The group maintains competitive remuneration policies for its 950 employees, actively pursues growth in media entertainment through R&D and strategic partnerships, and generally adheres to corporate governance codes despite some exceptions [Employees and Remuneration Policy](index=42&type=section&id=Employees%20and%20Remuneration%20Policy) As of June 30, 2019, the group employed **950 people**, with a remuneration policy designed to maintain competitive salaries, adjusted for performance, and offering discretionary bonuses, share option schemes, and pension plans Number of Employees | Indicator | 30 June 2019 | | :--- | :--- | | Total Employees | 950 people | - The group's remuneration policy maintains competitive salary levels for employees, with promotions and salary adjustments based on performance, and other benefits including discretionary bonuses, a share option scheme, and a pension scheme[141](index=141&type=chunk) [Outlook](index=42&type=section&id=Outlook) The group will leverage its VFX expertise to expand visual effects, VR, CG, virtual human, and immersive entertainment businesses in Greater China and India, establishing a Montreal studio to boost production capacity and reduce costs, while continuously investing in R&D, seeking financing and strategic partnerships, and attracting global talent for future growth - The group will continue to explore opportunities to develop visual effects, virtual reality, computer graphics, virtual human, and immersive entertainment businesses in the Greater China and India markets[142](index=142&type=chunk) - In 2019, the group also established a production studio in Montreal, Quebec, Canada, to enhance production capacity and benefit from tax and other preferential treatments[142](index=142&type=chunk) - The group will continue to invest significant financial and human resources in the ongoing research and development of virtual human and virtual reality technologies, and seek financing and collaboration opportunities with strategic partners/investors[144](index=144&type=chunk) [Share Option Scheme](index=43&type=section&id=Share%20Option%20Scheme) The group's share option scheme aims to reward directors and employees for their contributions, with **130 million** options granted by June 30, 2019, most immediately vested, and **1 million** options exercised during the period - The company's share option scheme, adopted on April 27, 2012, and amended on April 3, 2014, aims to grant share options to any directors, employees, and individuals who have contributed or will contribute to the group[146](index=146&type=chunk) Overview of Share Option Movements (For the six months ended 30 June 2019) | Indicator | 1 January 2019 | Granted | Exercised | Cancelled / Lapsed | 30 June 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Share Options | 1,664,353,349 | 130,000,000 | (1,000,000) | – | 1,793,353,349 | - On April 24, 2019, **130,000,000** share options were conditionally granted to the group's employees, with **109,999,999** of these options immediately vested on the grant date[150](index=150&type=chunk) [Directors' and Chief Executive's Interests](index=46&type=section&id=Directors'%20and%20Chief%20Executive's%20Interests) As of June 30, 2019, Mr. Peter Chou and Mr. Anthony Choy held substantial shares through controlled corporations, while Mr. Anthony Choy and Mr. Wang Weizhong also held share options, with all interests disclosed per the SFO and Listing Rules Directors' and Chief Executive's Interests and Short Positions in Shares and Underlying Shares (30 June 2019) | Director Name | Capacity | Total Interests (Long / Short Position) | Approximate % of Issued Share Capital | | :--- | :--- | :--- | :--- | | Peter Chou | Interest of controlled corporation | 2,176,041,324 (Long Position) | 6.79% | | | Interest of controlled corporation | 602,561,746 (Short Position) | 1.88% | | Anthony Choy | Interest of controlled corporation and beneficial owner | 2,108,531,324 (Long Position) | 6.58% | | | Interest of controlled corporation | 502,134,789 (Short Position) | 1.57% | | Wang Weizhong | Beneficial owner | 5,000,000 (Long Position) | 0.02% | - Mr. Anthony Choy holds **100,000,000** share options granted under the share option scheme[153](index=153&type=chunk) - Mr. Wang Weizhong holds **5,000,000** share options granted under the share option scheme[153](index=153&type=chunk) [Major Shareholders' and Other Persons' Interests](index=47&type=section&id=Major%20Shareholders'%20and%20Other%20Persons'%20Interests) As of June 30, 2019, Poly Culture Group Corporation Limited and Jetlink Holdings Limited were major shareholders, holding **16.61%** and **15.71%** of shares respectively, while individuals like Peter Chou, Anthony Choy, Amit Chopra, and Zhou Jian also held significant shares and options directly or through controlled corporations Major Shareholders' and Other Persons' Interests and Short Positions in Shares and Underlying Shares (30 June 2019) | Name | Capacity | Total Interests (Long / Short Position) | Approximate % of Issued Share Capital | | :--- | :--- | :--- | :--- | | Poly Culture Group Corporation Limited | Beneficial owner | 5,323,600,000 (Long Position) | 16.61% | | Jetlink Holdings Limited | Beneficial owner | 5,037,200,000 (Long Position) | 15.71% | | Peter Chou | Interest of controlled corporation | 2,176,041,324 (Long Position) | 6.79% | | Anthony Choy | Interest of controlled corporation and beneficial owner | 2,108,531,324 (Long Position) | 6.58% | | Amit Chopra | Interest of controlled corporation and beneficial owner | 2,171,531,324 (Long Position) | 6.77% | | Zhou Jian | Interest of controlled corporation and beneficial owner | 2,531,878,527 (Long Position) | 7.90% | - Mr. Peter Chou holds **100%** equity interest in Jiabao Limited and Honarn Inc., and is therefore deemed to have an interest in the relevant shares[156](index=156&type=chunk) - Poly Culture Group Corporation Limited acquired **5,323,600,000** shares through a subscription[155](index=155&type=chunk) [Events After Reporting Period](index=38&type=section&id=Events%20After%20Reporting%20Period) Subsequent to the reporting period, the group raised approximately **HK$205.73 million** net proceeds from a placing of new shares and **HK$553.46 million** net proceeds from a subscription, both earmarked for the media entertainment segment and general working capital - On July 25, 2019, the company completed the placing of **2,000,000,000** placing shares, raising net proceeds of approximately **HK$205.73 million**, intended for the media entertainment segment and general working capital[124](index=124&type=chunk) - On April 12, 2019, the company completed the allotment and issuance of **5,323,600,000** shares to Poly Culture Group Corporation Limited, raising net proceeds of approximately **HK$553.46 million**, intended for the media entertainment segment and general working capital[126](index=126&type=chunk) [Disclosure Pursuant to Rule 13.21 of the Listing Rules](index=50&type=section&id=Disclosure%20Pursuant%20to%20Rule%2013.21%20of%20the%20Listing%20Rules) A ceased-operation subsidiary of the group previously obtained bank financing with specific performance obligations; despite the subsidiary being in liquidation and no corporate guarantees from the company or other subsidiaries, the outstanding principal amount of this financing remains - A Hong Kong bank previously provided a banking facility with a principal amount of **HK$6 million** to an indirect subsidiary of the company's entertainment media segment, which ceased operations before the end of December 2010, with specific performance obligations[157](index=157&type=chunk) - As of June 30, 2019, the outstanding principal amount of this financing was approximately **HK$4.85 million**[157](index=157&type=chunk) - Provisional liquidators were appointed for the subsidiary on July 11, 2012, and neither the company nor its other subsidiaries provided any corporate guarantees for this financing to the subsidiary or its intermediate holding company[158](index=158&type=chunk) [Purchase, Sale or Redemption of the Company's Listed Securities](index=50&type=section&id=Purchase%2C%20Sale%20or%20Redemption%20of%20the%20Company's%20Listed%20Securities) Neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities during the review period - Neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities during the review period[159](index=159&type=chunk) [Corporate Governance](index=50&type=section&id=Corporate%20Governance) The company generally complied with the Corporate Governance Code during the review period, with exceptions including the Chairman not being subject to retirement by rotation, non-executive directors lacking specific appointment terms, and some directors' absence from the AGM - The company has generally complied with the code provisions of the Corporate Governance Code set out in Appendix 14 to the Listing Rules during the review period, with certain exceptions[160](index=160&type=chunk) - Mr. Peter Chou, the Chairman of the Board, is not subject to retirement by rotation, and non-executive directors and independent non-executive directors do not have specific terms of appointment[160](index=160&type=chunk) - Some directors were unable to attend the company's Annual General Meeting held on May 29, 2019[160](index=160&type=chunk) [Changes in Directors' Information](index=51&type=section&id=Changes%20in%20Directors'%20Information) During the review period, several director changes occurred, including the resignations of Mr. Wei Ming, Mr. Amit Chopra, and Dr. Song Anlan, and the appointments of Mr. Jiang Yingchun, Mr. Cui Hao, and Mr. Wang Weizhong as non-executive directors, while Mr. Pu Jian was appointed Vice Chairman and authorized representative before resigning all positions - Mr. Wei Ming resigned as Executive Director and Vice Chairman of the Board, Mr. Amit Chopra resigned as Executive Director, Chief Operating Officer, and Authorized Representative, and Dr. Song Anlan resigned as Non-executive Director, all effective May 24, 2019[163](index=163&type=chunk) - Mr. Jiang Yingchun, Mr. Cui Hao, and Mr. Wang Weizhong were appointed as Non-executive Directors, effective May 30, 2019[163](index=163&type=chunk) - Non-executive Director Mr. Pu Jian was appointed Vice Chairman of the Board and Authorized Representative on May 24, 2019, and subsequently resigned from all his positions in the company effective August 2, 2019[163](index=163&type=chunk) [Directors' Securities Transactions](index=51&type=section&id=Directors'%20Securities%20Transactions) The company adopted the Model Code for Securities Transactions by Directors of Listed Issuers, as set out in Appendix 10 of the Listing Rules, and all directors confirmed compliance during the review period - The company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers, as set out in Appendix 10 to the Listing Rules, as its code of conduct for directors' securities transactions[161](index=161&type=chunk) - All directors have confirmed their compliance with the required standards set out in the Model Code throughout the review period[162](index=162&type=chunk) [Review by Audit Committee](index=51&type=section&id=Review%20by%20Audit%20Committee) The company's Audit Committee has reviewed the company's interim report for the review period - The company's Audit Committee has reviewed the company's interim report for the review period[163](index=163&type=chunk)

DIGITAL DOMAIN HOLDINGS LIMITED 数 字 王 國 集 團 有 限 公 司 （ 於百慕逢註冊成立之有限公司 ) ２５ＴＨＡＮＮＩＶＥＲＳＡＲＹ D SOMAIN 2 0 1 8 年 報 数字王國集團有限公司 目 錄 | --- | --- | |---------------------|-------| | | | | ■ 公司资料 . | 2 | | ■ 主席報告 . | 4 | | ■ 行政總裁回顧 . | 6 | | ■ 企業管治報告 . | 36 | | ■ 董事會報告 | 47 | | ■ 獨立核數師報告 | 69 | | ■ 綜合損益表 | 74 | | ■ 綜合全面收益表 | 75 | | ■ 綜合財務狀況表 | 76 | | ■ 綜合權益變動表 | 78 | | ■ 綜合現金流量表 | 80 | | ■ 綜合財務報表 附註 | 82 | | ■ 五年財務概要 . | | | ■ 物業資料 . | | 公司資料 | --- | --- | --- | --- | |--------------------------------------------------- ...