数字王国(00547) - 2020 - 中期财报

Condensed Consolidated Financial Statements 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 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 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 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 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 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 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 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][10] 2. Changes in Hong Kong Financial Reporting Standards 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][13] - 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] 3. Application of Judgements and Estimates 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] 4. Revenue and Segment Reporting 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] Reportable Segments 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] Revenue Analysis 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 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 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 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 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] - Contract liabilities primarily arise from customer prepayments[23] 5. Finance Costs 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 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 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] 8. Loss Per Share 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] 9. Intangible Assets 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] 10. Financial Assets at Fair Value Through Other Comprehensive Income 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] - 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] 11. Trade and Other Receivables and Prepayments 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 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 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 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] 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] 15. Related Party Transactions 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 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] 17. Events After the Reporting Period 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] - 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] Financial and Business Review This section provides a comprehensive review of the Group's financial performance, business operations, and strategic outlook Overall Financial Performance 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] - 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] Media Entertainment Segment 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] Visual Effects Production and Post-Production Business 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] - 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][46][47][48][49] - 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][55][56] - Disclosed a potential indemnification risk involving litigation over a US subsidiary's use of disputed intellectual property, with the insurer re-evaluating coverage[52][53] New Media and Experiential Projects - Virtual Reality/Augmented Reality 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] - Collaborated with TIME Magazine on 'The March' VR experience and participated in future virtual human projects and AAA game production[57][58] - 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] - As of June 30, 2020, 3Glasses Group had applied for 404 proprietary core VR patents and actively expanded solution services[63] Virtual Human Business 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] - 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] - 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] 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$21,657 thousand in amortization expenses - The film 'Ender's Game' continues to generate non-box office revenue, with its share of profit recognized under 'Other income and gains'[66] TV Series Co-production Revenue and Amortization | Metric | 2020 (HK$ 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 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] Teresa Teng Virtual Human Business and Xugu Future Technology 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] - 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] Digital Domain Space (Virtual Reality Cinemas) 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] - Share of loss from this associate was approximately HK$6,106 thousand (2019: HK$5,787 thousand)[70] - 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] Post-Reporting Period Events 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] - The disposal was completed on July 31, 2020, constituting a discloseable transaction under the Listing Rules[72] Share Capital 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] Share Placing 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][75] - Proceeds fully utilized for the media entertainment segment (approximately HK$90,469 thousand) and general working capital (approximately HK$47,891 thousand)[75] Share Options 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] - No share options were exercised, cancelled, or lapsed during the reporting period[76][77][78][79][80] Liquidity, Financial Resources, Group Assets Pledged and Gearing Ratio 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] - 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] - As of June 30, 2020, total cash and bank balances were approximately HK$207,763 thousand[87] 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 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] - Currently, no hedging is planned for RMB, CAD, and/or INR exchange rate fluctuations, but this will be continuously reviewed for future measures[88] Contingent Liabilities 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] Employees and Remuneration Policy of the Group 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] - Remuneration policy is competitive, adjusted based on employee performance, with benefits including discretionary bonuses, share option schemes, and retirement benefit schemes[90] 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] - 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] - Virtual reality business activities slowed, but customer or investor confidence in business models/hardware products remains, with business opportunities under discussion[93] - 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] Other Information This section presents additional disclosures on share options, directors' and substantial shareholders' interests, and corporate governance Share Option Scheme 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] - 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][97] - No share options were exercised, cancelled, or lapsed during the reporting period[95] Directors' and Chief Executive's Interests 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] Interests of Substantial Shareholders and Other Persons 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 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] - As of June 30, 2020, the outstanding principal of this financing was approximately HK$4,854 thousand[106] - The subsidiary was appointed provisional liquidators in July 2012, and the Company and other subsidiaries did not provide corporate guarantees[106] Purchase, Sale or Redemption 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 - During the reporting period, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities[107] Corporate Governance 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] - Non-executive and independent non-executive directors have no specific terms of appointment but are subject to retirement by rotation and re-election[108] - Some non-executive directors were unable to attend annual general meetings due to other business activities[108] Changes in Directors' Information 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] - Mr. Chou Yung-Ming resigned as Chairman of the Board and Executive Director (effective June 4, 2020)[109] - Mr. Sean E. S. Ting was appointed Acting Chairman of the Board and Chairman of the Executive Committee (effective June 4, 2020)[109] - Dr. Elizabeth Monk Daley was appointed as an independent non-executive director (effective July 20, 2020)[109] Directors' Securities Transactions 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] - All directors confirmed compliance with the Model Code during the reporting period[109] Review by Audit Committee 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]