DIGITAL DOMAIN(HK:00547)2022-04-28 10:08Financial 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