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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October, 2023
Commission File Number: 001-41540
Perfect Corp.
14F, No. 98 Minquan Road
Xindian District
New Taipei City 231
Taiwan
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
INCORPORATION BY REFERENCE
Exhibits 99.1, 99.2, and 99.3 to this report on Form 6-K shall be deemed to be incorporated by reference into (1) the registration statement on Form F-3 to be filed by Perfect Corp. (“we,” “us,” “our” and the “Company”) with the Securities and Exchange Commission on or around the date hereof; and (2) the registration statement on Form S-8 (File No. 333-268059) of the Company (including the prospectus forming a part of such registration statement) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.
Exhibit |
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Description of Exhibit |
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99.1 |
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99.2 |
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99.3 |
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101. |
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INS Inline XBRL Instance Document - this instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101. |
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SCH Inline XBRL Taxonomy Extension Schema |
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101. |
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CAL Inline XBRL Taxonomy Extension Calculation Linkbase |
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101. |
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DEF Inline XBRL Taxonomy Extension Definition Linkbase |
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101. |
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LAB Inline XBRL Taxonomy Extension Label Linkbase |
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101. |
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PRE Inline XBRL Taxonomy Extension Presentation Linkbase |
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104 |
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Cover Page Interactive Data File (embedded within the Inline IXBRL document) |
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 6-K may be viewed as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are based on the beliefs and assumptions of our management. Although we believe that our respective plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements may be preceded by, followed by or include the words “believe,” “estimate,” “expect,” “forecast,” “may,” “will,” “should,” “seek,” “plan,” “scheduled,” “anticipate” or “intend” or similar expressions. Forward-looking statements contained in this Form 6-K (including information incorporated by reference herein) include, but are not limited to, statements about:
| ● | our ability to realize the benefits expected from the Business Combination; |
| ● | our ability to maintain the listing of our securities on the NYSE; |
| ● | changes adversely affecting the business in which we are engaged; |
| ● | management of growth; |
| ● | general economic conditions; |
| ● | our business strategy and plans; |
| ● | the result of future financing efforts; |
| ● | our future market position and growth prospects; |
| ● | expected operating results, such as revenue growth, and earnings; |
| ● | the effects of health epidemics, including the COVID-19 pandemic; and |
| ● | the other matters described in this Form 6-K. |
Such forward-looking statements, if any, with respect to our revenues, earnings, performance, strategies, prospects and other aspects of the businesses are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of the business, future plans and strategies, anticipated events and trends, the economy and other future conditions that are subject to risks and uncertainties. These forward-looking statements are not intended to serve as, and must not be relied on as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability regarding future performance, events or circumstances. Many of the factors affecting actual performance, events and circumstances are beyond our control. The risk factors and cautionary language discussed in this Form 6-K (including information incorporated by reference herein) provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements, including among other things:
| ● | the ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, and the ability of the combined company to grow and manage growth profitably, maintain relationships with customers and retain our management and key employees; |
| ● | changes in applicable laws or regulations, including those related to privacy and data protection; |
| ● | our estimates of expenses and profitability; |
| ● | our ability to innovate, develop and provide new products and services or upgrade our existing products and services in a timely and cost-effective manner; |
| ● | our ability to retain and expand sales to existing brands or attract new brands; |
| ● | our ability to compete effectively or maintain market leadership in the markets in which we currently operate or expand into; |
| ● | our ability to meet the challenges presented by our increasingly globalized operations; |
| ● | our ability to maintain and enhance our brand awareness; |
| ● | our need to retain, attract or maintain high-quality personnel; |
| ● | continued and increased consumer engagement with brands in our portfolio and our mobile apps; |
| ● | our ability to enforce, protect and maintain intellectual property rights; and |
| ● | the other matters described in this Form 6-K. |
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those anticipated in these forward-looking statements. There may be additional risks currently considered to be immaterial or which are unknown. It is not possible to predict or identify all such risks.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us, as of the date of this Form 6-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that such party has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 6-K. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date.
All forward-looking statements included herein and in the documents incorporated by reference in this Form 6-K are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this Form 6-K or to reflect the occurrence of unanticipated events. In the event that any forward-looking statement is updated, no inference should be made that we will make additional updates with respect to that statement, related matters, or any other forward-looking statements. Any corrections or revisions and other important assumptions and factors that could cause actual results to differ materially from forward-looking statements, including discussions of additional significant risk factors, may appear in our public filings with the SEC, which are or will be (as appropriate) accessible at www.sec.gov, and which you are advised to consult.
Capitalized terms used herein without definition shall have the meanings assigned to them in the Company’s latest Annual Report on Form 20-F, as filed with the Securities and Exchange Commission (the “Form 20-F”). Please also see the “Risk Factors” section of the Form 20-F.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Perfect Corp. |
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Date: October 3, 2023 |
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By: |
/s/ Alice H. Chang |
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Name: |
Alice H. Chang |
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Title: |
Chief Executive Officer |
Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS
Unaudited Interim Financial Statements: |
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Page(s) |
Unaudited Condensed Interim Consolidated Balance Sheets as of December 31, 2022 And June 30, 2023 |
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F-2 |
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F-4 |
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F-5 |
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F-6 |
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Notes to the Unaudited Condensed Consolidated Financial Statements |
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F-7 |
F-1
PERFECT CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2022 AND JUNE 30, 2023
(Expressed in thousands of United States dollars)
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December 31, 2022 |
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June 30, 2023 |
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Assets |
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Notes |
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Amount |
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Amount |
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Current assets |
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|
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Cash and cash equivalents |
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6(1) |
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$ |
162,616 |
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$ |
37,168 |
Current financial assets at amortized cost |
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6(2) |
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30,000 |
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160,800 |
Current contract assets |
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6(16) |
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3,660 |
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1,512 |
Accounts receivable |
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6(3) |
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7,756 |
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7,641 |
Other receivables |
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314 |
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587 |
Current income tax assets |
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77 |
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124 |
Inventories |
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45 |
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34 |
Other current assets |
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6(4) |
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4,705 |
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4,655 |
Total current assets |
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209,173 |
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212,521 |
Non-current assets |
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Property, plant and equipment |
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6(5) |
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289 |
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345 |
Right-of-use assets |
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6(6) and 7 |
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323 |
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|
850 |
Intangible assets |
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6(7) |
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119 |
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115 |
Deferred income tax assets |
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244 |
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222 |
Guarantee deposits paid |
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125 |
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124 |
Total non-current assets |
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1,100 |
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1,656 |
Total assets |
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$ |
210,273 |
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$ |
214,177 |
The accompanying notes are an integral part of these consolidated financial statements.
F-2
PERFECT CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS (continued)
DECEMBER 31, 2022 AND JUNE 30, 2023
(Expressed in thousands of United States dollars)
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December 31, 2022 |
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June 30, 2023 |
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Liabilities and Equity |
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Notes |
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Amount |
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Amount |
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Current liabilities |
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Current contract liabilities |
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6(16) |
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$ |
13,024 |
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$ |
15,976 |
Other payables |
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6(9) |
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9,308 |
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8,095 |
Other payables – related parties |
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7 |
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63 |
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49 |
Current tax liabilities |
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155 |
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52 |
Current provisions |
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6(10) |
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1,855 |
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2,134 |
Current lease liabilities |
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6(6) and 7 |
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251 |
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|
417 |
Other current liabilities |
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261 |
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|
149 |
Total current liabilities |
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24,917 |
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26,872 |
Non-current liabilities |
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Non-current financial liabilities at fair value through profit or loss |
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6(8) |
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3,207 |
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3,451 |
Non-current lease liabilities |
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6(6) and 7 |
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87 |
|
|
457 |
Net defined benefit liability, non-current |
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6(11) |
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73 |
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|
75 |
Guarantee deposits received |
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25 |
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25 |
Total non-current liabilities |
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3,392 |
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4,008 |
Total liabilities |
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28,309 |
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30,880 |
Equity |
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|
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|
|
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Capital stock |
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6(13) |
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Perfect Class A Ordinary Shares, $0.1 (in dollars) par value |
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10,147 |
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10,147 |
Perfect Class B Ordinary Shares, $0.1 (in dollars) par value |
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|
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1,679 |
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|
1,679 |
Capital surplus |
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6(14) |
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Capital surplus |
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556,429 |
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|
557,870 |
Retained earnings |
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6(15) |
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|
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Accumulated deficit |
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(385,884) |
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(385,395) |
Other equity interest |
|
|
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Other equity interest |
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|
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(407) |
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|
(575) |
Treasury shares |
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6(13) |
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— |
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(429) |
Total equity |
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|
|
|
181,964 |
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|
183,297 |
Total liabilities and equity |
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|
|
$ |
210,273 |
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$ |
214,177 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
PERFECT CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2023
(Expressed in thousands of United States dollars)
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Six months ended June 30 |
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2022 |
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2023 |
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Items |
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Notes |
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Amount |
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Amount |
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Revenue |
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6(16) and 7 |
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$ |
23,379 |
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$ |
24,832 |
Cost of sales and services |
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6(11)(21)(22) |
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(3,282) |
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|
(5,024) |
Gross profit |
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|
|
|
20,097 |
|
|
19,808 |
Operating expenses |
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6(5)(6)(7)(11)(12)(21)(22) and 7 |
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|
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Sales and marketing expenses |
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|
|
|
(12,087) |
|
|
(12,585) |
General and administrative expenses |
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|
|
|
(4,700) |
|
|
(5,427) |
Research and development expenses |
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|
|
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(5,358) |
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|
(5,396) |
Total operating expenses |
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|
|
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(22,145) |
|
|
(23,408) |
Operating loss |
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|
|
|
(2,048) |
|
|
(3,600) |
Non-operating income and expenses |
|
|
|
|
|
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|
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Interest income |
|
6(17) |
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|
178 |
|
|
4,609 |
Other income |
|
6(18) |
|
|
11 |
|
|
7 |
Other gains and losses |
|
6(8)(19) |
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|
28,977 |
|
|
(459) |
Finance costs |
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6(6)(20) and 7 |
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(5) |
|
|
(5) |
Total non-operating income and expenses |
|
|
|
|
29,161 |
|
|
4,152 |
Income before income tax |
|
|
|
|
27,113 |
|
|
552 |
Income tax expense |
|
6(23) |
|
|
(161) |
|
|
(63) |
Net income |
|
|
|
$ |
26,952 |
|
$ |
489 |
Other comprehensive loss |
|
|
|
|
|
|
|
|
Components of other comprehensive loss that will not be reclassified to profit or loss |
|
|
|
|
|
|
|
|
Credit risk changes in financial instrument - Preferred shares |
|
6(8) |
|
$ |
(7) |
|
$ |
— |
Components of other comprehensive loss that will be reclassified to profit or loss |
|
|
|
|
|
|
|
|
Exchange differences arising on translation of foreign operations |
|
|
|
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(1,001) |
|
|
(168) |
Other comprehensive loss, net |
|
|
|
$ |
(1,008) |
|
$ |
(168) |
Total comprehensive income |
|
|
|
$ |
25,944 |
|
$ |
321 |
Net income, attributable to: |
|
|
|
|
|
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|
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Shareholders of the parent |
|
|
|
$ |
26,952 |
|
$ |
489 |
Total comprehensive income attributable to: |
|
|
|
|
|
|
|
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Shareholders of the parent |
|
|
|
$ |
25,944 |
|
$ |
321 |
Earnings (loss) per share (in dollars) |
|
6(24) |
|
|
|
|
|
|
Basic earnings per share of Class A and Class B Ordinary Shares |
|
|
|
$ |
0.469 |
|
$ |
0.004 |
Diluted earnings (loss) per share of Class A and Class B Ordinary Shares |
|
|
|
$ |
(0.014) |
|
$ |
0.004 |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
PERFECT CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2023
(Expressed in thousands of United States dollars)
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|
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Equity attributable on owners of the parent |
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|
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Capital surplus |
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|
|
|
Other equity interest |
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Credit risks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange |
|
changes in |
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||
|
|
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Additional |
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|
|
|
|
|
|
differences arising |
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financial instrument- |
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|
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|||
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|
|
Capital |
|
paid-in |
|
|
|
|
Accumulated |
|
on translation of |
|
Preferred |
|
Treasury |
|
|
|
||||||
|
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Notes |
|
stock |
|
capital |
|
Other |
|
deficit |
|
foreign operations |
|
shares |
|
shares |
|
Total |
||||||||
Year 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2022 |
|
|
|
$ |
30,152 |
|
$ |
308 |
|
$ |
2,563 |
|
$ |
(224,097) |
|
$ |
690 |
|
$ |
(58) |
|
$ |
— |
|
$ |
(190,442) |
Net income for the period |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
26,952 |
|
|
— |
|
|
— |
|
|
— |
|
|
26,952 |
Other comprehensive loss for the period |
|
6(8) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,001) |
|
|
(7) |
|
|
— |
|
|
(1,008) |
Total comprehensive income (loss) |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
26,952 |
|
|
(1,001) |
|
|
(7) |
|
|
— |
|
|
25,944 |
Share-based payment transactions |
|
6(12) |
|
|
— |
|
|
— |
|
|
1,006 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,006 |
Employee stock options exercised |
|
6(12) |
|
|
2,663 |
|
|
5,447 |
|
|
(2,518) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,592 |
Balance at June 30, 2022 |
|
|
|
$ |
32,815 |
|
$ |
5,755 |
|
$ |
1,051 |
|
$ |
(197,145) |
|
$ |
(311) |
|
$ |
(65) |
|
$ |
— |
|
$ |
(157,900) |
Year 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2023 |
|
|
|
$ |
11,826 |
|
$ |
554,209 |
|
$ |
2,220 |
|
$ |
(385,884) |
|
$ |
(407) |
|
$ |
— |
|
$ |
— |
|
$ |
181,964 |
Net income for the period |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
489 |
|
|
— |
|
|
— |
|
|
— |
|
|
489 |
Other comprehensive loss for the period |
|
6(8) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(168) |
|
|
— |
|
|
— |
|
|
(168) |
Total comprehensive income (loss) |
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
489 |
|
|
(168) |
|
|
— |
|
|
— |
|
|
321 |
Share-based payment transactions |
|
6(12) |
|
|
— |
|
|
— |
|
|
1,441 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,441 |
Purchase of treasury shares |
|
6(13) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(429) |
|
|
(429) |
Balance at June 30, 2023 |
|
|
|
$ |
11,826 |
|
$ |
554,209 |
|
$ |
3,661 |
|
$ |
(385,395) |
|
$ |
(575) |
|
$ |
— |
|
$ |
(429) |
|
$ |
183,297 |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PERFECT CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2023
(Expressed in thousands of United States dollars)
|
|
|
|
Six months ended June 30 |
||||
|
|
Notes |
|
2022 |
|
2023 |
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Profit before tax |
|
|
|
$ |
27,113 |
|
$ |
552 |
Adjustments to reconcile profit (loss) |
|
|
|
|
|
|
|
|
Depreciation expense |
|
6(5)(6)(21) |
|
|
357 |
|
|
326 |
Amortization expense |
|
6(7)(21) |
|
|
31 |
|
|
37 |
Interest income |
|
6(17) |
|
|
(178) |
|
|
(4,609) |
Interest expense |
|
6(6)(20) |
|
|
5 |
|
|
5 |
Net (gains) losses on financial liabilities at fair value through profit or loss |
|
6(8)(19) |
|
|
(28,374) |
|
|
244 |
Employees’ stock option cost |
|
6(12) |
|
|
1,006 |
|
|
1,266 |
Directors’ share-based compensation |
|
6(12) |
|
|
— |
|
|
175 |
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
(1,283) |
|
|
87 |
Current contract assets |
|
|
|
|
(2,038) |
|
|
2,130 |
Other receivables |
|
|
|
|
(3) |
|
|
3 |
Other receivables – related parties |
|
|
|
|
(2) |
|
|
— |
Inventories |
|
|
|
|
36 |
|
|
11 |
Other current assets |
|
|
|
|
145 |
|
|
47 |
Current contract liabilities |
|
|
|
|
1,973 |
|
|
3,035 |
Other payables |
|
|
|
|
(137) |
|
|
(1,183) |
Other payables – related parties |
|
|
|
|
(15) |
|
|
(12) |
Current provisions |
|
|
|
|
529 |
|
|
320 |
Other current liabilities |
|
|
|
|
(215) |
|
|
(107) |
Net defined benefit liability, non-current |
|
|
|
|
1 |
|
|
1 |
Cash inflow (outflow) generated from operations |
|
|
|
|
(1,049) |
|
|
2,328 |
Interest received |
|
|
|
|
159 |
|
|
4,331 |
Interest paid |
|
|
|
|
(5) |
|
|
(5) |
Income tax paid |
|
|
|
|
(111) |
|
|
(205) |
Net cash flows from (used in) operating activities |
|
|
|
|
(1,006) |
|
|
6,449 |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Acquisition of financial assets at amortized cost |
|
6(2) |
|
|
— |
|
|
(160,800) |
Proceeds from disposal of financial assets at amortized cost |
|
6(2) |
|
|
— |
|
|
30,000 |
Acquisition of property, plant and equipment |
|
6(5) |
|
|
(137) |
|
|
(170) |
Acquisition of intangible assets |
|
6(7) |
|
|
(46) |
|
|
(33) |
Net cash flows used in investing activities |
|
|
|
|
(183) |
|
|
(131,003) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Repayment of principal portion of lease liabilities |
|
6(6)(25) |
|
|
(255) |
|
|
(203) |
Employee stock options exercised |
|
6(12) |
|
|
5,592 |
|
|
— |
Payments to acquire treasury shares |
|
6(13) |
|
|
— |
|
|
(429) |
Net cash flows from (used in) financing activities |
|
|
|
|
5,337 |
|
|
(632) |
Effects of exchange rates changes on cash and cash equivalents |
|
|
|
|
(1,828) |
|
|
(262) |
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
2,320 |
|
|
(125,448) |
Cash and cash equivalents at beginning of period |
|
|
|
|
80,453 |
|
|
162,616 |
Cash and cash equivalents at end of period |
|
|
|
$ |
82,773 |
|
$ |
37,168 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
PERFECT CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2023
(Expressed in thousands of United States dollars, except as otherwise indicated)
1. |
History and Organization |
Perfect Corp. (the “Company” or “Perfect”), is a Cayman Islands exempted company with limited liability, which incorporated on February 13, 2015 with registered address PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company and its subsidiaries (collectively referred herein as the “Group”) are SaaS technology companies offering AR/AI solution dedicated to the beauty and fashion industry as well as mobile applications to consumers. The principal place of business is at 14F, No. 98 Minquan Road, Xindian District, New Taipei City 231, Taiwan.
On October 28, 2022 (the “Closing Date”), the Company consummated the previously announced merger transaction pursuant to the Business Combination Agreement dated as of March 3, 2022, by and among Perfect, Beauty Corp., a wholly-owned subsidiary of Perfect, Fashion Corp., a wholly-owned subsidiary of Perfect, and Provident Acquisition Corp. (“Provident”).
Pursuant to the Business Combination Agreement, dated as of March 3, 2022, Beauty Corp., a Cayman Islands exempted company with limited liability, merged with and into Provident (the “First Merger”), a special purpose acquisition company incorporated in the Cayman Islands and listed on the Nasdaq Stock Market (“NASDAQ”), with Provident surviving as a wholly-owned subsidiary of Perfect, and then immediately following the First Merger, Provident merged with and into Fashion Corp. (the “Second Merger”), a Cayman Islands exempted company with limited liability, with Fashion Corp. surviving as a wholly-owned subsidiary of Perfect. The consummation of the merger transactions was referred to as the “Closing”, dated as of October 28, 2022.
In connection with the merger, each Perfect original share (consisting of Perfect common share, par value $0.1 (in dollars) per share, and Perfect preferred share, par value $0.1 (in dollars) per share) converted to Perfect Class A or Perfect Class B ordinary share, par value $0.1 (in dollars) per share, based on a conversion ratio 0.17704366. Each Provident share (consisting of Provident Class A ordinary share, par value $0.0001 (in dollars) per share, and Provident Class B ordinary share, par value $0.0001 (in dollars) per share) converted to one Perfect Class A ordinary share.
Upon the consummation of the mergers and the other transactions contemplated by the Business Combination Agreement, the shareholders of Provident became shareholders of Perfect, and the Company became a publicly traded company on the New York Stock Exchange (“NYSE”) on October 31, 2022.
The merger transaction pursuant to the Business Combination Agreement is accounted for as a recapitalization.
2. |
The Date of Authorization for Issuance of the Financial Statements and Procedures for Authorization |
These unaudited condensed interim consolidated financial statements were authorized for issuance by the Board of Directors on September 19, 2023.
F-7
3. |
Application of New Standards, Amendments and Interpretations |
3(1) |
New and amended standards adopted by the Group |
New standards, interpretations and amendments issued by International Accounting Standards Board (the “IASB”) and became effective from 2023 are as follows:
New Standards, Interpretations and Amendments |
|
Effective date by IASB |
Amendments to IAS 1, ‘Disclosure of accounting policies’ |
|
January 1, 2023 |
Amendments to IAS 8, ‘Definition of accounting estimates’ |
|
January 1, 2023 |
Amendments to IAS 12, ‘Deferred tax related to assets and liabilities arising from a single transaction’ |
|
January 1, 2023 |
Amendments to IAS 12, ‘International tax reform - pillar two model rules’ |
|
May 23, 2023 |
The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.
3(2) |
New and revised International Financial Reporting Standards not yet adopted |
New and amendments to IFRSs which have been published but are not mandatory for the financial period ended June 30, 2023 are listed below:
New Standards, Interpretations and Amendments |
|
Effective date by IASB |
Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets between an investor and its associate or joint venture’ |
|
To be determined by IASB |
Amendments to IFRS 16, ‘Lease liability in a sale and leaseback’ |
|
January 1, 2024 |
Amendments to IAS 1, ‘Classification of liabilities as current or non-current’ |
|
January 1, 2024 |
Amendments to IAS 1, ‘Non-current liabilities with covenants’ |
|
January 1, 2024 |
Amendments to IAS 7 and IFRS 7, ‘Supplier finance arrangements’ |
|
January 1, 2024 |
The above standards and interpretations are not expected to have significant impact to the Group’s financial position and financial performance based on the Group’s assessment.
4. |
Summary of Significant Accounting Policies |
The unaudited condensed interim consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair statement of the results of operations for the interim period. All such adjustments to the financial information are of a normal, recurring nature. Accordingly, these unaudited condensed interim consolidated financial statements are to be read in conjunction with the annual financial statements for the year ended December 31, 2022. The principal accounting policies applied in the preparation of these unaudited condensed interim consolidated financial statements are disclosed in financial statements for the year ended December 31, 2022 and have been consistently applied to all the periods presented, except for the adoption of new and amended standards as set out below and Note 3(1).
4(1) |
Compliance statement |
These unaudited condensed interim consolidated financial statements of the Group have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the IASB.
4(2) |
Basis of preparation |
| A. | Except for the following items, the unaudited condensed interim consolidated financial statements have been prepared under the historical cost convention: |
| (a) | Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. |
F-8
| (b) | Defined benefit liabilities recognized based on the net amount of pension fund assets less present value of defined benefit obligation. |
| B. | The preparation of the unaudited condensed interim consolidated financial statements in conformity with IAS 34 Interim Financial Reporting requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the unaudited condensed interim consolidated financial statements are disclosed in Note 5. |
4(3) |
Basis of consolidation |
| A. | Basis for preparation of unaudited condensed interim consolidated financial statements: |
| (a) | All subsidiaries are included in the Group’s unaudited condensed interim consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries. |
| (b) | Inter-company transactions, balances and unrealized gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group. |
| (c) | When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognized in profit or loss. All amounts previously recognized in other comprehensive income in relation to the subsidiary are reclassified to profit or loss on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognized in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of. |
| B. | Subsidiaries included in the unaudited condensed interim consolidated financial statements: |
|
|
|
|
|
|
Ownership (%) |
||
|
|
Name of |
|
Main business |
|
December 31, |
|
June 30, |
Name of investor |
|
subsidiary |
|
activities |
|
2022 |
|
2023 |
The Company |
|
Perfect Mobile Corp. (Taiwan) |
|
Design, development, marketing and sales of AR/AI SaaS solution and mobile applications. |
|
100% |
|
100% |
The Company |
|
Perfect Corp. (USA) |
|
Marketing and sales of AR/AI SaaS solution |
|
100% |
|
100% |
The Company |
|
Perfect Corp. (Japan) |
|
Marketing and sales of AR/AI SaaS solution. |
|
100% |
|
100% |
The Company |
|
Perfect Corp. (Shanghai) |
|
Marketing and sales of AR/AI SaaS solution. |
|
100% |
|
100% |
The Company |
|
Perfect Mobile Corp.(B.V.I.) |
|
Investment activities |
|
100% |
|
100% |
The Company |
|
Fashion Corp. |
|
For business combination purpose via SPAC transaction, please refer to Note 1 for details. |
|
100% |
|
–%(Note ii) |
Perfect Mobile Corp. (Taiwan) |
|
Perfect Corp. (France) |
|
Marketing and Service Center for sales of AR/AI SaaS solution. |
|
100%(Note i) |
|
100% |
Note i. Perfect Corp. (France) was established in 2022 and with no business activity during 2022.
F-9
Note ii. Fashion Corp. was dissolved on April 13, 2023.
| C. | Subsidiaries not included in the unaudited condensed interim consolidated financial statements: |
None.
| D. | Adjustments for subsidiaries with different balance sheet dates: |
None.
| E. | Significant restrictions: |
None.
| F. | Subsidiaries that have non-controlling interests that are material to the Group: |
None.
4(4) |
Foreign currency translation |
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in United States dollars, which is the Company’s functional and the Group’s presentation currency.
| A. | Foreign currency transactions and balances |
| (a) | Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in profit or loss in the period in which they arise. |
| (b) | Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss. |
| (c) | Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions. |
| (d) | All foreign exchange gains and losses are presented in the statement of comprehensive income within ‘other gains and losses’. |
| B. | Translation of foreign operations |
The operating results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
| (a) | Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet; |
F-10
| (b) | Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and |
| (c) | All resulting exchange differences are recognized in other comprehensive income. |
C. |
When there is a change in an entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change. |
5. |
Critical Accounting Judgements, Estimates and Key Sources of Assumption Uncertainty |
There have been no significant changes with regards to critical accounting judgements, estimates and key sources of assumption uncertainty as of June 30, 2023. Please refer to Note 5 in the consolidated financial statements for the year ended December 31, 2022.
6. |
Details of Significant Accounts |
6(1) |
Cash and cash equivalents |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Petty cash |
|
$ |
1 |
|
$ |
1 |
Checking accounts |
|
|
1,279 |
|
|
1,852 |
Demand deposits |
|
|
11,777 |
|
|
9,043 |
Time deposits |
|
|
149,300 |
|
|
26,000 |
Others |
|
|
259 |
|
|
272 |
|
|
$ |
162,616 |
|
$ |
37,168 |
| A. | The Group transacts with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote. |
| B. | The Group has no cash and cash equivalents pledged to others. |
6(2) |
Current financial assets at amortized cost |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Time deposits with maturities over three months |
|
$ |
30,000 |
|
$ |
160,800 |
| A. | The Group has no financial assets at amortized cost pledged to others. |
| B. | The counterparties of the Group’s investments in certificates of deposits are financial institutions with high credit quality, so the Group expects that the probability of counterparty default is remote. |
| C. | Information relating to credit risk of financial assets at amortized cost is provided in Note 12(2). |
6(3) |
Accounts receivable |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Accounts receivable |
|
$ |
7,756 |
|
$ |
7,641 |
F-11
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Not past due |
|
$ |
6,062 |
|
$ |
6,354 |
Up to 30 days |
|
|
851 |
|
|
401 |
31 to 90 days |
|
|
327 |
|
|
619 |
91 to 180 days |
|
|
417 |
|
|
145 |
Over 181 days |
|
|
99 |
|
|
122 |
|
|
$ |
7,756 |
|
$ |
7,641 |
The above ageing analysis was based on days overdue.
6(4) |
Other current assets |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Prepaid expenses |
|
$ |
4,617 |
|
$ |
4,264 |
Others |
|
|
88 |
|
|
391 |
|
|
$ |
4,705 |
|
$ |
4,655 |
6(5) |
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold |
|
|
|
|
Office |
|
|
|
||
|
|
improvements |
|
Machinery |
|
equipment |
|
Total |
||||
At December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
$ |
521 |
|
$ |
602 |
|
$ |
46 |
|
$ |
1,169 |
Accumulated depreciation |
|
|
(470) |
|
|
(382) |
|
|
(28) |
|
|
(880) |
|
|
$ |
51 |
|
$ |
220 |
|
$ |
18 |
|
$ |
289 |
Opening net book amount |
|
$ |
51 |
|
$ |
220 |
|
$ |
18 |
|
$ |
289 |
Additions |
|
|
114 |
|
|
52 |
|
|
4 |
|
|
170 |
Depreciation expense |
|
|
(52) |
|
|
(56) |
|
|
(6) |
|
|
(114) |
Closing net book amount |
|
$ |
113 |
|
$ |
216 |
|
$ |
16 |
|
$ |
345 |
At June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
$ |
635 |
|
$ |
652 |
|
$ |
50 |
|
$ |
1,337 |
Accumulated depreciation |
|
|
(522) |
|
|
(436) |
|
|
(34) |
|
|
(992) |
|
|
$ |
113 |
|
$ |
216 |
|
$ |
16 |
|
$ |
345 |
The Group has no property, plant and equipment pledged to others.
6(6) |
Leasing arrangements — lessee |
| A. | The Group leases various assets including buildings and business vehicles. Rental contracts are typically made for periods of 2 to 3 years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Leased assets cannot be used as collateral for borrowing purposes and are prohibited from being subleased, sold, or lent to others or corporations under any circumstances. |
F-12
| B. | Short-term leases with a lease term of 12 months or less include offices located in United States, Japan, China and France. As of December 31, 2022 and June 30, 2023, lease commitments for short-term leases amounted to $152 and $226, respectively. |
| C. | The movements of right-of-use assets of the Group are as follows: |
|
|
Buildings |
|
Business vehicles |
|
Total |
|||
At December 31, 2022 |
|
|
|
|
|
|
|
|
|
Cost |
|
$ |
809 |
|
$ |
208 |
|
$ |
1,017 |
Accumulated depreciation |
|
|
(557) |
|
|
(137) |
|
|
(694) |
|
|
$ |
252 |
|
$ |
71 |
|
$ |
323 |
Opening net book amount |
|
$ |
252 |
|
$ |
71 |
|
$ |
323 |
Additions |
|
|
584 |
|
|
202 |
|
|
786 |
Cost of derecognition |
|
|
(587) |
|
|
(208) |
|
|
(795) |
Derecognized accumulated depreciation |
|
|
587 |
|
|
161 |
|
|
748 |
Depreciation expense |
|
|
(175) |
|
|
(37) |
|
|
(212) |
Closing net book amount |
|
$ |
661 |
|
$ |
189 |
|
$ |
850 |
At June 30, 2023 |
|
|
|
|
|
|
|
|
|
Cost |
|
$ |
806 |
|
$ |
202 |
|
$ |
1,008 |
Accumulated depreciation |
|
|
(145) |
|
|
(13) |
|
|
(158) |
|
|
$ |
661 |
|
$ |
189 |
|
$ |
850 |
| D. | Lease liabilities relating to lease contracts: |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Total lease liabilities |
|
$ |
338 |
|
$ |
874 |
Less: current portion (shown as ‘current lease liabilities’) |
|
|
(251) |
|
|
(417) |
|
|
$ |
87 |
|
$ |
457 |
| E. | The information on profit and loss accounts relating to lease contracts is as follows: |
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Items affecting profit or loss |
|
|
|
|
|
|
Interest expense on lease liabilities |
|
$ |
5 |
|
$ |
5 |
Expense on short-term lease contracts |
|
|
198 |
|
|
193 |
|
|
$ |
203 |
|
$ |
198 |
| F. | For the six months ended June 30, 2022 and 2023, the Group’s total cash outflow for leases were $458 and $401, respectively, including the interest expense on lease liabilities amounting to $5 and $5, expense on short-term lease contracts amounting to $198 and $193, and repayments of principal portion of lease liabilities amounting to $255 and $203, respectively. |
F-13
6(7) |
Intangible assets |
|
|
2023 |
|||||||
|
|
|
|
|
Other |
|
|
|
|
|
|
Software |
|
intangible assets |
|
Total |
|||
At December 31, 2022 |
|
|
|
|
|
|
|
|
|
Cost |
|
$ |
104 |
|
$ |
89 |
|
$ |
193 |
Accumulated amortization |
|
|
(23) |
|
|
(51) |
|
|
(74) |
|
|
$ |
81 |
|
$ |
38 |
|
$ |
119 |
Opening net book amount |
|
$ |
81 |
|
$ |
38 |
|
$ |
119 |
Additions |
|
|
33 |
|
|
— |
|
|
33 |
Amortization charge |
|
|
(22) |
|
|
(15) |
|
|
(37) |
Closing net book amount |
|
$ |
92 |
|
$ |
23 |
|
$ |
115 |
At June 30, 2023 |
|
|
|
|
|
|
|
|
|
Cost |
|
$ |
137 |
|
$ |
89 |
|
$ |
226 |
Accumulated amortization |
|
|
(45) |
|
|
(66) |
|
|
(111) |
|
|
$ |
92 |
|
$ |
23 |
|
$ |
115 |
Details of amortization on intangible assets are as follows:
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Research and development expenses |
|
$ |
31 |
|
$ |
37 |
6(8) |
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Non-current items: |
|
|
|
|
|
|
Warrant liabilities |
|
$ |
8,431 |
|
$ |
8,431 |
Add: Valuation adjustment |
|
|
(5,224) |
|
|
(4,980) |
|
|
$ |
3,207 |
|
$ |
3,451 |
A. |
Amounts recognized in profit or loss and other comprehensive income in relation to financial liabilities at fair value through profit or loss are as follows: |
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Net gains (losses) recognized in profit or loss |
|
|
|
|
|
|
Warrant liabilities |
|
$ |
— |
|
$ |
(244) |
Financial liabilities designated as at fair value through profit or loss - Preferred share liabilities |
|
|
28,374 |
|
|
— |
|
|
$ |
28,374 |
|
$ |
(244) |
Net losses recognized in other comprehensive income |
|
|
|
|
|
|
Financial liabilities designated as at fair value through profit or loss - Preferred share liabilities |
|
$ |
(7) |
|
$ |
— |
B. |
Warrant liabilities |
(a) |
As part of Business Combination, warrants sold and issued by Provident were automatically converted to Perfect Warrants. Each warrants entitles the holder to purchase one Class A Ordinary Share at a price of $11.50 (in dollars) per share. |
F-14
(b) |
As of June 30, 2023 there were 20,850 thousand warrants outstanding, consisting of 11,500 thousand Public Warrants, 6,600 thousand Private Placement Warrants and 2,750 thousand Forward Purchase Warrants (as defined below). Each warrant is exercisable for one Perfect Class A Ordinary Share, in accordance with its terms. |
Public Warrants
Provident sold an aggregate of 11,500 thousand Public Warrants in the Provident Initial Public Offering.
Private Placement Warrants
Provident privately issued and sold an aggregate of 6,600 thousand Private Warrants to the Sponsor simultaneously with the consummation of the Provident Initial Public Offering on January 7, 2021.
Forward Purchase Warrants
Pursuant to the Forward Purchase Agreements (“FPA”), Provident issued and sold to FPA Investors, an aggregate of 5,500 thousand Forward Purchase Shares and 2,750 thousand Forward Purchase Warrants in consideration for an aggregate purchase price of $55,000, as closed on October 27, 2022.
| (c) | Movements in all kinds of Perfect Warrants are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Placement |
|
Forward Purchase |
|
|
|
|
|
Public Warrants |
|
Warrants |
|
Warrants |
|
Warrant liabilities |
|
|
|
(units in thousands) |
|
(units in thousands) |
|
(units in thousands) |
|
Amount |
|
At December 31, 2022 |
|
11,500 |
|
6,600 |
|
2,750 |
|
$ |
3,207 |
At June 30, 2023 |
|
11,500 |
|
6,600 |
|
2,750 |
|
$ |
3,451 |
(d) |
Redemption of warrants when the price per Perfect Class A Ordinary Shares equal or exceed $18.00 (in dollars). |
Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to Perfect Private Placement Warrants):
(i)in whole and not in part (ii) at a price of $0.01 (in dollars) per warrant (iii)upon not less than 30 days’ prior written notice of redemption to each warrant holder (the “30-day redemption period”) and (iv) if, and only if, the last reported sale price of the Perfect Class A Ordinary Shares for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders (which the Company refers to as the “Reference Value”) equals or exceeds $18.00 (in dollars) per share.
(e) |
Redemption of warrants when the price per Class A Ordinary Share equals or exceeds $10.00 (in dollars). |
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
(i) in whole and not in part (ii) at $0.10 (in dollars) per warrant upon a minimum of 30 days’ prior written notice of redemption (iii) provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the “fair market value” of Perfect Class A Ordinary Shares (iv) if, and only if, the Reference Value equals or exceeds $10.00 (in dollars) per share and (v) if the Reference Value is less than $18.00 (in dollars) per share, Perfect Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Perfect Public Warrants, as described above.
(f) |
Private Placement Warrants |
The Private Placement Warrants are identical to the Public Warrants and Forward Purchase Warrants except that Private Placement Warrants, so long as they are held by Provident Acquisition Holdings Ltd., (the “Sponsor”) or its permitted transferees, (i) will not be redeemable by the Company (ii) may not (including the Class A ordinary shares issuable upon exercise of these Private Placement Warrants), subject to certain limited exceptions, be transferred assigned or sold by the holder until 30 days after the completion of the Company’s initial Business Combination (iii) may be exercised by the holders on a cashless basis and (iv) will be entitled to certain registration rights.
F-15
If the Private Placement Warrants are held by holders other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by the holders on the same basis as Public Warrants and Forward Purchase Warrants.
6(9) |
Other payables |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Employee bonus |
|
$ |
4,038 |
|
$ |
4,385 |
Payroll |
|
|
2,130 |
|
|
1,430 |
Professional service fees |
|
|
1,371 |
|
|
800 |
Promotional fees |
|
|
1,039 |
|
|
589 |
Remuneration to directors |
|
|
53 |
|
|
213 |
Post and telecommunications expenses |
|
|
173 |
|
|
181 |
Sales VAT payables |
|
|
175 |
|
|
164 |
Others |
|
|
329 |
|
|
333 |
|
|
$ |
9,308 |
|
$ |
8,095 |
6(10)Provisions
|
|
Warranty |
|
At December 31, 2022 |
|
$ |
1,855 |
Additional provisions |
|
|
335 |
Used during the period |
|
|
(15) |
Net exchange differences |
|
|
(41) |
At June 30, 2023 |
|
$ |
2,134 |
Analysis of total provisions:
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Current |
|
$ |
1,855 |
|
$ |
2,134 |
The Group enters into the contract with customers with warranties on services provided. The warranties (loss indemnification) provide customers with assurance that the related services will function as agreed by both parties. Provision for warranty is estimated based on historical warranty data, other known events and management’s judgement. The Group recognizes such expenses within ‘Cost of sales and services’ when related services are provided. Any changes in industry circumstances might affect the provisions. Provisions shall be paid when the payment is actually claimed.
6(11)Pensions
| A. | Defined benefit plan |
| (a) | The Group’s subsidiary, Perfect Mobile Corp. (Taiwan), was incorporated in Taiwan, which has a defined benefit pension plan in accordance with the Labor Standards Act, covering all regular foreign employees’ service years. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. Perfect Mobile Corp. (Taiwan) contributes an adequate amount to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, Perfect Mobile Corp. (Taiwan) would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is insufficient |
F-16
| to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, Perfect Mobile Corp. (Taiwan) will make contributions for the deficit by next March. |
| (b) | For the aforementioned pension plan, the Group recognized pension costs of $2 and $2 for the six months ended June 30, 2022 and 2023, respectively. |
| (c) | Expected contributions to the defined benefit pension plans of Perfect Mobile Corp. (Taiwan) for the year ending December 31, 2023 amount to $5. |
| B. | Defined contribution plans |
| (a) | Perfect Mobile Corp. (Taiwan) has established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, Perfect Mobile Corp. (Taiwan) contributes monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment. |
(b) |
The pension costs under defined contribution pension plan of Perfect Mobile Corp. (Taiwan) for the six months ended June 30, 2022 and 2023 were $253, and $ 265, respectively. |
| (c) | The pension costs under local government law of other foreign subsidiaries for the six months ended June 30, 2022 and 2023 were $96, and $ 121, respectively. |
6(12)Share-based payment
| A. | Share Incentive Plan |
On December 13, 2021, the Board approved and adopted the Share Incentive Plan to issue stock option of 30,000 thousand units.Prior to the recapitalization, each unit was eligible to subscribe for one Perfect Common Share.
In connection with the recapitalization, an equitable adjustment has been made to the exercised price, number of shares and class of shares to be issued. After recapitalization, 5.65 units are eligible to subscribe for one Perfect Ordinary Share and the exercised price for stock options issued in 2022 was also changed by the same ratio from $0.7 (in dollars) to $3.95 (in dollars) per share. On October 25, 2022, the Board has approved and adopted an amendment to the Share Incentive Plan in response to the aforementioned recapitalization. Going forward one unit option is eligible for one Perfect Ordinary Share. The maximum number of Perfect Ordinary Shares that can be issued upon exercise of all options under the Share Incentive Plan are 5,311 thousand Shares.
(a)For the six months ended June 30, 2023, the Group’s Share Incentive Plan’s terms and condition were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Type of |
|
|
|
Maximum terms of |
|
|
|
Plan |
|
arrangement |
|
Settled by |
|
option granted |
|
Vesting conditions |
|
Share Incentive Plan |
|
Employee stock options |
|
Equity |
|
Five years |
|
2 years’ service: exercise 50% |
|
|
|
|
|
|
|
|
|
3 years’ service: exercise 75% |
|
|
|
|
|
|
|
|
|
4 years’ service: exercise 100% |
|
F-17
|
|
2022 (Note) |
|
2023 |
||||||
|
|
|
|
Weighted- average |
|
|
|
Weighted- average |
||
|
|
No. of options |
|
exercise price per share |
|
No. of options |
|
exercise price per share |
||
|
|
(units in thousands) |
|
(in dollars) |
|
(units in thousands) |
|
(in dollars) |
||
Options outstanding at January 1 |
|
— |
|
$ |
— |
|
2,063 |
|
$ |
3.95 |
Options granted |
|
2,143 |
|
|
3.95 |
|
2,276 |
|
|
4.94 |
Options forfeited |
|
(43) |
|
|
3.95 |
|
(67) |
|
|
4.04 |
Options outstanding at June 30 |
|
2,100 |
|
|
3.95 |
|
4,272 |
|
|
4.48 |
Options exercisable at June 30 |
|
— |
|
|
|
|
— |
|
|
|
Note: The comparable amounts in above table have been amended to show the number of units based on new subscription ratio for all periods presented.
| (c) | As of December 31, 2022 and June 30, 2023, the range of exercise prices of stock options outstanding were $3.95 and $3.95 ~ $7.2 (in dollars) per share, respectively; the weighted-average remaining contractual period was 4.06 years and 3.56 ~ 4.90 years, respectively. |
| (d) | The fair value of stock options granted on grant date is measured using the Black-Scholes option-pricing model. Relevant information is as follows: |
|
|
|
|
|
|
|
Adjusted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted |
|
exercise |
|
|
|
|
|
|
|
|
|
Adjusted |
|||
|
|
|
|
stock price |
|
price per |
|
Expected |
|
|
|
|
|
Risk-free |
|
fair value |
|||
|
|
Grant |
|
per share |
|
share |
|
price |
|
Expected |
|
Expected |
|
interest |
|
per unit |
|||
Plan |
|
date |
|
(in dollars) |
|
(in dollars) |
|
volatility |
|
option life |
|
dividends |
|
rate |
|
(in dollars) |
|||
Share Incentive Plan |
|
2022.1.21 |
|
$ |
5.39 |
|
$ |
3.95 |
|
53.75 |
% |
3.88 |
|
0.00 |
% |
1.46 |
% |
$ |
2.7637 |
|
|
2023.1.03 |
|
$ |
7.20 |
|
$ |
7.20 |
|
64.85 |
% |
3.87 |
|
0.00 |
% |
4.07 |
% |
$ |
3.7198 |
|
|
2023.5.23 |
|
$ |
4.93 |
|
$ |
4.93 |
|
69.15 |
% |
3.88 |
|
0.00 |
% |
3.90 |
% |
$ |
2.6615 |
Note: Expected price volatility is estimated based on the daily historical stock price fluctuation data of the Company and guideline companies of the last five years before the grant date.
B. |
Incentive Stock Option Plan |
The Board of the Company has established two stock option plans, 2015 Incentive Stock Option Plan and 2018 Incentive Stock Option Plan (“Incentive Stock Option Plan”).
On November 22, 2021, the Company declared a notice pursuant to its Incentive Stock Option Plan. Based on the notice, all the unvested option shares granted by the Company to optionee becomes fully vested on November 22, 2021. The optionee may exercise the vested options within one month after November 22, 2021. Any options that are not exercised within such one month period shall be deemed cancelled and forfeited upon expiration of such period on December 22, 2021.On January 24, 2022, the Company has completed the conversion of 26,629 thousand of option shares to Perfect Common Shares and converted to Perfect Class A or Class B Ordinary Shares in connection with the Recapitalization.
F-18
(a)The following table illustrate the Group’s Incentive Stock Option Plan’s original terms and condition:
|
|
Type of |
|
|
|
Maximum terms of |
|
|
Plan |
|
arrangement |
|
Settled by |
|
option granted |
|
Vesting conditions |
2015 Incentive Stock Option Plan |
|
Employee stock options |
|
Equity |
|
Four years, one month |
|
2 years’ service: exercise 50% |
|
|
|
|
|
|
|
|
3 years’ service: exercise 75% |
|
|
|
|
|
|
|
|
4 years’ service: exercise 100% |
2018 Incentive Stock Option Plan |
|
Employee stock options |
|
Equity |
|
Five years |
|
2 years’ service: exercise 50% |
|
|
|
|
|
|
|
|
3 years’ service: exercise 75% |
|
|
|
|
|
|
|
|
4 years’ service: exercise 100% |
(b)Movements of the Group’s Incentive Stock Option Plan prior to the recapitalization are as follows:
|
|
2022 |
||||
|
|
|
|
Weighted- |
||
|
|
No. of options |
|
average exercise |
||
|
|
(units in |
|
price |
||
|
|
thousands) |
|
(in dollars) |
||
Options outstanding at January 1 |
|
|
26,629 |
|
$ |
0.21 |
Options exercised |
|
|
(26,629) |
|
|
0.21 |
Options outstanding at June 30 |
|
|
— |
|
|
— |
Options exercisable at June 30 |
|
|
— |
|
|
— |
|
|
Range of stock |
|
Exercise |
|
Range of |
|
Expected |
|
|
|
Range of risk |
|
Range of fair |
|||
|
|
price |
|
price |
|
expected price |
|
option |
|
Expected |
|
free interest |
|
value per unit |
|||
Plan |
|
(in dollars) |
|
(in dollars) |
|
volatility |
|
life |
|
dividends |
|
rate |
|
(in dollars) |
|||
2015 Incentive Stock Option Plan |
|
$ |
0.0564~0.1777 |
|
$ |
0.1000 |
|
39.29%~42.25 |
% |
3.42 |
|
0.00 |
% |
0.45%~2.79 |
% |
$ |
0.0080~0.0947 |
2018 Incentive Stock Option Plan |
|
|
0.1689~0.8931 |
|
|
0.3000 |
|
39.16%~53.27 |
% |
3.88 |
|
0.00 |
% |
0.58%~2.29 |
% |
|
0.0228~0.6397 |
Note: |
Expected price volatility rate was estimated by using historical volatility record of similar entities as the stock has no quoted market price. |
C. |
Expenses incurred on share-based payment transactions are shown below: |
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Equity settled |
|
$ |
1,006 |
|
$ |
1,441 |
F-19
| D. | The Group has service agreements with its Board of Directors to grant them awards of the Company’s Ordinary Shares at a fixed monetary value. Expense incurred for the six months ended June 30, 2022 and 2023 was $— and $175, respectively. |
| E. | Shareholder Earnout |
The Company executed additional capitalization by way of the potential issuance of Earnout Shares for Perfect shareholders. In accordance with Shareholder Earnout terms and conditions contemplated by the Business Combination Agreement, 3,000 thousand, 3,000 thousand and 4,000 thousand of the Shareholder Earnout Shares are issuable if over any 20 trading days within any 30-trading-day period during the Earnout Period when the daily volume-weighted average price of the Perfect Class A Ordinary Shares is greater than or equal to $11.50 (in dollars), $13.00 (in dollars) and $14.50 (in dollars), respectively.
Shareholder Earnout Shares are considered a potential contingent payment agreement with Shareholders, based on a market condition without link to service. Fair value of the Shareholder Earnout Shares is already reflected in Provident’s publicly quoted price that has been used to derive the estimated fair value of Perfect Ordinary Shares. It is included in the estimated fair value of the Perfect Ordinary shares as of the date of the recapitalization that was used to compute the listing charge. Accordingly, no separate adjustment to record fair value of the Shareholder Earnout is considered necessary, because the estimated fair value of such shares is already presumed to be reflected in the fair value of the Perfect shares.
| F. | Sponsor Earnout |
In connection with the Business Combination Agreement, the Company entered into a Sponsor Letter Agreement pursuant to which it agreed to issue Earnout shares to the Sponsors. Subject to the terms and conditions contemplated by the Sponsor Letter Agreement, upon the occurrence of specific Sponsor Earnout Event (as defined below) from October 28, 2022 to October 28, 2027 (“Earnout Period”), Perfect will issue Perfect Class A Ordinary Shares of up to 1,175,624 Class A Ordinary Shares(the “Sponsor Earnout Promote Shares”) to Sponsor, with (a) 50% of the Sponsor Earnout Promote Shares issuable if over any 20 trading days within any thirty-trading-day period during the Earnout Period the daily volume-weighted average price of the Perfect Class A Ordinary Shares is greater than or equal to $11.50 (in dollars), and (b) 50% of the Sponsor Earnout Promote Shares issuable if over any twenty (20) trading days within any thirty-trading-day period during the Earnout Period the daily volume-weighted average price of the Perfect Class A Ordinary Shares is greater than or equal to $13.00 (in dollars). None of these conditions had been met in the period up through June 30, 2023.
6(13)Share capital
| A. | As of December 31, 2022 and June 30, 2023, the Company’s authorized capital is $82,000 consisting of 700,000 thousand shares of Class A Ordinary Shares, 90,000 thousand shares of Class B Ordinary Shares, 30,000 thousand shares of classes reserved and may determine by the Board of Directors. The paid-in capital was $11,826, consisting of 101,475 thousand Class A Ordinary Shares and 16,789 thousand Class B Ordinary Shares with a par value of $0.1 (in dollars) per share. All proceeds from shares issued have been collected. |
Perfect Class A Ordinary shares
Perfect Class A Ordinary shares have a par value of $0.1 (in dollars). Amounts received above the par value are recorded as share premium. Each holder of Perfect Class A ordinary shares will be entitled to one vote per share. Class A Ordinary Shares are listed on NYSE under the trading symbol “PERF”.
F-20
Perfect Class B Ordinary shares
Perfect Class B Ordinary shares have a par value of $0.1 (in dollars). Perfect Class B Ordinary Shares have the same rights as Perfect Class A Shares except for voting and conversion rights. Each Perfect Class B Ordinary Shares is entitled to 10 votes and is convertible into Perfect Class A Ordinary Shares at any time by the holder thereof. Each Class B Ordinary Share is convertible into one Class A Ordinary Share at any time at the option of the holder thereof. The right to convert shall be exercisable by the holder of the Class B Ordinary Share delivering a written notice to the Company that such holder elects to convert a specified number of Class B Ordinary Shares into Class A Ordinary Shares. Each Class B Ordinary Share shall, automatically and immediately, without any further action from the holder thereof, convert into one Class A Ordinary Share when it ceases being beneficially owned by any of the Principals. Class A Ordinary Shares are not convertible into Class B Ordinary Shares under any circumstances.
| B. | Movements in the number of the Company’s shares outstanding are as follows: |
|
|
Shares |
|
|
(in thousands) |
At December 31, 2022 |
|
118,264 |
At June 30, 2023 |
|
118,264 |
| C. | Share Repurchase Plan |
On May 4, 2023, the Board of Directors approved a share repurchase plan authorizing the Company may repurchase up to $20,000 of its Class A ordinary shares over the next 12-month period. During the period from May 8, 2023 to June 30, 2023, the Company repurchased 86 thousand of its Class A ordinary shares with a total consideration paid amounted $429. The repurchased shares have been recorded as treasury shares on the Company’s balance sheet.
6(14)Capital surplus
Except as required by the Company’s Articles of Incorporation or Cayman’s law, capital surplus shall not be used for any other purpose but covering accumulated deficit. Capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.
The following tables illustrates the detail of capital surplus:
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Additional paid-in capital |
|
$ |
554,209 |
|
$ |
554,209 |
Other: |
|
|
|
|
|
|
Employees’ stock option cost |
|
|
2,162 |
|
|
3,428 |
Directors’ share-based compensation |
|
|
58 |
|
|
233 |
Subtotal |
|
|
2,220 |
|
|
3,661 |
|
|
$ |
556,429 |
|
$ |
557,870 |
6(15)Accumulated deficits
Under the Company’s Articles of Incorporation, distribution of earnings would be based on the Company’s operating and capital needs.
6(16)Revenue
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Revenue from contracts with customers |
|
$ |
23,379 |
|
$ |
24,832 |
F-21
| (a) | The Group derives revenue from the transfer of goods and services over time and at a point in time in the following geographical regions: |
|
|
United |
|
|
|
|
|
|
|
|
|||||
Six months ended June 30, 2022 |
|
States |
|
Japan |
|
France |
|
Others |
|
Total |
|||||
Revenue from external customer contracts |
|
$ |
11,214 |
|
$ |
2,659 |
|
$ |
1,918 |
|
$ |
7,588 |
|
$ |
23,379 |
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At a point in time |
|
$ |
1,593 |
|
$ |
762 |
|
$ |
569 |
|
$ |
1,290 |
|
$ |
4,214 |
Over time |
|
|
9,621 |
|
|
1,897 |
|
|
1,349 |
|
|
6,298 |
|
|
19,165 |
|
|
$ |
11,214 |
|
$ |
2,659 |
|
$ |
1,918 |
|
$ |
7,588 |
|
$ |
23,379 |
|
|
United |
|
|
|
|
|
|
|
|
|||||
Six months ended June 30, 2023 |
|
States |
|
Japan |
|
France |
|
Others |
|
Total |
|||||
Revenue from external customer contracts |
|
$ |
11,256 |
|
$ |
2,203 |
|
$ |
1,979 |
|
$ |
9,394 |
|
$ |
24,832 |
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At a point in time |
|
$ |
794 |
|
$ |
418 |
|
$ |
328 |
|
$ |
1,353 |
|
$ |
2,893 |
Over time |
|
|
10,462 |
|
|
1,785 |
|
|
1,651 |
|
|
8,041 |
|
|
21,939 |
|
|
$ |
11,256 |
|
$ |
2,203 |
|
$ |
1,979 |
|
$ |
9,394 |
|
$ |
24,832 |
| (b) | Alternatively, the disaggregation of revenue could also be distinct as follows: |
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
AR/AI cloud solutions and Subscription |
|
$ |
18,184 |
|
$ |
21,359 |
Licensing |
|
|
4,119 |
|
|
2,875 |
Advertisement |
|
|
981 |
|
|
580 |
Others (Note) |
|
|
95 |
|
|
18 |
|
|
$ |
23,379 |
|
$ |
24,832 |
Note: Others are immaterial revenue streams to the Group.
| (c) | The revenue generated from AR/AI cloud solutions was $10,373, and $9,622 for the six months ended June 30, 2022 and 2023, respectively. |
| B. | Contract assets and liabilities |
| (a) | The Group has recognized the following revenue-related contract assets mainly arose from unbilled receivables and contract liabilities mainly arose from sales contracts with receipts from customers in advance. Generally, the contract period is one year, the contract liabilities are reclassified as revenue within the following one year after the balance sheet date. |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Contract assets: |
|
|
|
|
|
|
Unbilled revenue |
|
$ |
3,660 |
|
$ |
1,512 |
Contract liabilities: |
|
|
|
|
|
|
Advance sales receipts |
|
$ |
13,024 |
|
$ |
15,976 |
F-22
| (b) | Revenue recognized that was included in the contract liability balance at the beginning of the period |
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Revenue recognized that was included in the contract liability balance at the beginning of the period |
|
|
|
|
|
|
Advance sales receipts |
|
$ |
7,104 |
|
$ |
9,763 |
| (c) | Unsatisfied contracts |
Aggregate amount of the transaction price allocated to contracts that are partially or fully unsatisfied as of December 31, 2022 and June 30, 2023, amounting to $23,653 and $26,470, respectively. The Group expects that 91% of the transaction price allocated to the unsatisfied contracts as of June 30, 2023, are expected to be recognized as revenue less than one year. The remaining 9% is expected to be recognized as revenue from July 2024 to 2028.
6(17)Interest income
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Interest income from bank deposits |
|
$ |
178 |
|
$ |
2,100 |
Interest income from financial assets at amortized cost |
|
|
— |
|
|
2,509 |
|
|
$ |
178 |
|
$ |
4,609 |
The nature of interest income from financial assets at amortized cost was time deposits with maturities over three months.
6(18)Other income
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Others |
|
$ |
11 |
|
$ |
7 |
6(19)Other gains and losses
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Foreign exchange gains (losses) |
|
$ |
603 |
|
$ |
(215) |
Gains (losses) on financial liabilities at fair value through profit or loss |
|
|
28,374 |
|
|
(244) |
|
|
$ |
28,977 |
|
$ |
(459) |
Please refer to Note 6(8) for details of gains (losses) on financial liabilities at fair value through profit or loss.
6(20)Finance costs
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Interest expense – lease liabilities |
|
$ |
5 |
|
$ |
5 |
F-23
6(21)Costs and expenses by nature
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Cost of goods sold |
|
$ |
32 |
|
$ |
2 |
Employee benefit expenses |
|
|
13,949 |
|
|
13,516 |
Promotional fees |
|
|
3,359 |
|
|
4,823 |
Service providing expenses |
|
|
2,347 |
|
|
4,365 |
Professional service fees |
|
|
3,689 |
|
|
2,893 |
Insurance expenses |
|
|
47 |
|
|
1,170 |
Warranty cost |
|
|
529 |
|
|
335 |
Depreciation of right-of-use assets |
|
|
230 |
|
|
212 |
Depreciation of property, plant and equipment |
|
|
127 |
|
|
114 |
Amortization of intangible assets |
|
|
31 |
|
|
37 |
Others |
|
|
1,087 |
|
|
965 |
|
|
$ |
25,427 |
|
$ |
28,432 |
6(22)Employee benefit expenses
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Wages and salaries |
|
$ |
11,341 |
|
$ |
10,425 |
Employee stock options |
|
|
1,006 |
|
|
1,266 |
Employee insurance fees |
|
|
709 |
|
|
685 |
Pension costs |
|
|
351 |
|
|
388 |
Remuneration to directors |
|
|
— |
|
|
335 |
Other personnel expenses |
|
|
542 |
|
|
417 |
|
|
$ |
13,949 |
|
$ |
13,516 |
6(23)Income tax
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Current income tax: |
|
|
|
|
|
|
Current tax expense recognized for the current period |
|
$ |
161 |
|
$ |
63 |
Income tax expense |
|
$ |
161 |
|
$ |
63 |
F-24
6(24)Earnings (loss) per share
|
|
Six months ended June 30, 2022 |
||||||
|
|
|
|
|
Weighted average |
|
|
|
|
|
|
|
|
number of ordinary |
|
Earnings (loss) |
|
|
|
|
|
|
shares outstanding |
|
per share |
|
|
|
Amount after tax |
|
(shares in thousands) |
|
(in dollars) |
||
Basic earnings per share |
|
|
|
|
|
|
|
|
Profit attributable to ordinary shareholders of the parent |
|
$ |
26,952 |
|
57,494 |
|
$ |
0.469 |
Dilutive loss per share |
|
|
|
|
|
|
|
|
Loss attributable to ordinary shareholders of the parent |
|
|
|
|
|
|
|
|
Assumed conversion of all dilutive potential ordinary shares - Convertible preferred shares |
|
|
(28,374) |
|
42,904 |
|
|
(0.661) |
Loss attributable to ordinary shareholders of the Group plus assumed conversion of all dilutive potential ordinary shares |
|
$ |
(1,422) |
|
100,398 |
|
$ |
(0.014) |
|
|
Six months ended June 30, 2023 |
||||||
|
|
|
|
|
Weighted average |
|
|
|
|
|
|
|
|
number of ordinary |
|
Earnings |
|
|
|
|
|
|
shares outstanding |
|
per share |
|
|
|
Amount after tax |
|
(shares in thousands) |
|
(in dollars) |
||
Basic earnings per share |
|
|
|
|
|
|
|
|
Profit attributable to ordinary shareholders of the parent |
|
$ |
489 |
|
118,248 |
|
$ |
0.004 |
Dilutive earnings per share |
|
|
|
|
|
|
|
|
Profit attributable to ordinary shareholders of the Group plus assumed conversion of all dilutive potential ordinary shares |
|
$ |
489 |
|
118,248 |
|
$ |
0.004 |
Note: Employee stock options was excluded from the calculation of diluted earnings per share as it is anti-dilutive for the six months ended June 30, 2023.
6(25)Changes in liabilities from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
at fair value through |
|
Lease liabilities (including |
|
Liabilities from financing |
|||
|
|
profit or loss |
|
current portion) |
|
activities-gross |
|||
At December 31, 2022 |
|
$ |
3,207 |
|
$ |
338 |
|
$ |
3,545 |
Change in fair value through profit and loss |
|
|
244 |
|
|
— |
|
|
244 |
Changes in cash flow from financing activities |
|
|
— |
|
|
(203) |
|
|
(203) |
Changes in other non-cash items – additions |
|
|
— |
|
|
786 |
|
|
786 |
Changes in other non-cash items – lease modification |
|
|
— |
|
|
(47) |
|
|
(47) |
At June 30, 2023 |
|
$ |
3,451 |
|
$ |
874 |
|
$ |
4,325 |
7. |
Related Party Transactions |
7(1) |
Names of related parties and relationship |
Names of related parties |
|
Relationship with the Group |
|
CyberLink Corp. (CyberLink) |
|
Other related party (Significant influence (Note) over the Company) |
|
CyberLink Inc. (CyberLink-Japan) |
|
Other related party (Subsidiary of CyberLink) |
|
Note: CyberLink owns more than 30% of the Company’s issued and outstanding ordinary shares.
F-25
7(2) |
Significant related party transactions |
| A. | Revenue |
|
|
|
|
Six months ended June 30, |
||||
|
|
Description |
|
2022 |
|
2023 |
||
CyberLink |
|
Revenue-others (service revenue) |
|
$ |
14 |
|
$ |
11 |
Sales of services are negotiated with related parties based on agreed-upon agreement and the conditions and payment terms are same as third parties.
| B. | Other payables |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
CyberLink |
|
$ |
38 |
|
$ |
26 |
CyberLink-Japan |
|
|
25 |
|
|
23 |
|
|
$ |
63 |
|
$ |
49 |
Other payables are mainly expenses from professional service, rental and payments on behalf of others.
| C. | Operating expenses |
|
|
|
|
Six months ended June 30, |
||||
|
|
Description |
|
2022 |
|
2023 |
||
CyberLink |
|
Management service fee |
|
$ |
47 |
|
$ |
26 |
CyberLink provides support and assistance in legal services, network infrastructure and equipment maintenance services, marketing activity supports and employee training programs. The service fees are calculated based on the agreed-upon hourly rate. The conditions and payment terms are same as third parties.
| D. | Lease transactions — lessee/rent expense |
| (a) | The Group leases offices from CyberLink and CyberLink-Japan. Rental contracts are typically made for periods of 1~2 years. The rents were paid to CyberLink and CyberLink-Japan at the beginning of next month and each quarter, respectively. |
| (b) | Rent expense |
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
CyberLink-Japan |
|
$ |
48 |
|
$ |
44 |
| (c) | Acquisition of right-of-use assets: |
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
CyberLink |
|
$ |
— |
|
$ |
390 |
F-26
| (d) | Lease liabilities |
| i. | Outstanding balance: |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Total lease liabilities |
|
$ |
145 |
|
$ |
414 |
Less: Current portion (shown as ‘current lease liabilities’) |
|
|
(145) |
|
|
(216) |
|
|
$ |
— |
|
$ |
198 |
| ii. | Interest expense |
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
CyberLink |
|
$ |
3 |
|
$ |
1 |
7(3) |
Key management compensation |
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
Salaries and other short-term employee benefits |
|
$ |
1,111 |
|
$ |
1,153 |
Share-based payment |
|
|
155 |
|
|
386 |
Post-employment benefits |
|
|
6 |
|
|
5 |
|
|
$ |
1,272 |
|
$ |
1,544 |
The unpaid portion of the aforementioned information were $- and $335 as of June 30, 2022 and 2023.
8. |
Pledged Assets |
None.
9. |
Significant Contingent Liabilities and Unrecognized Contract Commitments |
9(1) |
Contingencies |
None.
9(2) |
Commitments |
Except for Notes 6(6), 6(8) and 7(2), there is no other significant commitments.
10. |
Significant Disaster Loss |
None.
11. |
Significant Events After the Balance Sheet Date |
None
F-27
12. |
Others |
12(1)Capital management
The Group’s objectives of capital management are to ensure the Group’s sustainable operation and to maintain an optimal capital structure to reduce the cost of capital and provide returns for shareholders. In order to maintain or adjust to optimal capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total liabilities divided by total equity.
As of December 31, 2022 and June 30, 2023, the Group’s gearing ratios are as follows:
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Total liabilities |
|
$ |
28,309 |
|
$ |
30,880 |
Total equity |
|
$ |
181,964 |
|
$ |
183,297 |
Gearing ratio |
|
|
0.16 |
|
|
0.17 |
12(2)Financial instruments
| A. | Financial instruments by category |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Financial assets |
|
|
|
|
|
|
Financial assets at amortized cost |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
162,616 |
|
$ |
37,168 |
Current financial assets at amortized cost |
|
|
30,000 |
|
|
160,800 |
Accounts receivable |
|
|
7,756 |
|
|
7,641 |
Other receivables |
|
|
314 |
|
|
587 |
Guarantee deposits paid |
|
|
125 |
|
|
124 |
|
|
$ |
200,811 |
|
$ |
206,320 |
|
|
December 31, 2022 |
|
June 30, 2023 |
||
Financial liabilities |
|
|
|
|
|
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
|
Warrant liabilities |
|
$ |
3,207 |
|
$ |
3,451 |
Financial liabilities at amortized cost |
|
|
|
|
|
|
Other payables (including related parties) |
|
$ |
9,371 |
|
$ |
8,144 |
Guarantee deposits received |
|
|
25 |
|
|
25 |
|
|
$ |
9,396 |
|
$ |
8,169 |
Lease liabilities |
|
$ |
338 |
|
$ |
874 |
| B. | Financial risk management policies |
| (a) | The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial position and financial performance. |
| (b) | Risk management is carried out by the Group’s finance department under policies approved by the management team. The Group’s finance department identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. |
F-28
| C. | Significant financial risks and degrees of financial risks |
| (a) | Market risk |
Foreign exchange risk
| i. | The Group operates internationally and is exposed to exchange rate risk arising from the transactions of the Company and its subsidiaries used in various functional currency, primarily with respect to the RMB, JPY and EUR. Exchange rate risk arises from future commercial transactions and recognized assets and liabilities. Notably, the subsidiary in Taiwan, Perfect Mobile Corp. (Taiwan), changed its functional currency from NTD to USD starting from January 1, 2023. This change was made due to the majority of transactions being conducted in USD. |
| ii. | The Group’s business involves some non-functional currency operations (the Company’s and certain subsidiaries’ functional currency: USD; other certain subsidiaries’ functional currency: JPY, RMB and EUR). Sensitivity analysis for significant financial assets and liabilities denominated in foreign currencies illustrate as follows: |
|
|
|
December 31, 2022 |
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity analysis |
|||
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
|
|
|
|
|
Effect on |
||
|
|
amount |
|
Exchange |
|
Functional |
|
Book value |
|
Degree of |
|
profit or |
||||
|
|
(in thousands) |
|
rate |
|
currency |
|
(USD) |
|
variation |
|
loss |
||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD:NTD |
|
$ |
22,660 |
|
30.71 |
|
$ |
695,889 |
|
$ |
22,660 |
|
1 |
% |
$ |
227 |
EUR:NTD |
|
|
833 |
|
32.72 |
|
|
27,256 |
|
|
888 |
|
1 |
% |
|
9 |
JPY:NTD |
|
|
436,755 |
|
0.23 |
|
|
100,454 |
|
|
3,271 |
|
1 |
% |
|
33 |
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD:NTD |
|
|
2,620 |
|
30.71 |
|
|
80,460 |
|
|
2,620 |
|
1 |
% |
|
26 |
USD:JPY |
|
|
221 |
|
132.14 |
|
|
29,203 |
|
|
221 |
|
1 |
% |
|
2 |
USD:RMB |
|
|
65 |
|
6.97 |
|
|
453 |
|
|
65 |
|
1 |
% |
|
1 |
|
|
June 30, 2023 |
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Sensitivity analysis |
||||
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
|
|
|
|
|
Effect on |
||
|
|
amount |
|
Exchange |
|
Functional |
|
Book value |
|
Degree of |
|
profit or |
||||
|
|
(in thousands) |
|
rate |
|
currency |
|
(USD) |
|
variation |
|
loss |
||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NTD:USD |
|
$ |
8,138 |
|
0.0321 |
|
$ |
261 |
|
$ |
261 |
|
1 |
% |
$ |
3 |
EUR:USD |
|
|
698 |
|
1.0858 |
|
|
758 |
|
|
758 |
|
1 |
% |
|
8 |
JPY:USD |
|
|
272,288 |
|
0.0069 |
|
|
1,879 |
|
|
1,879 |
|
1 |
% |
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD:JPY |
|
|
155 |
|
144.84 |
|
|
22,450 |
|
|
155 |
|
1 |
% |
|
2 |
| (b) | Credit risk |
| i. | Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. The main factor is that counterparties could not repay in full the accounts receivable based on the agreed terms, and the financial assets at amortized cost. |
F-29
| ii. | The Group’s credit risk was mainly arising from bank deposits, trade receivables, other financial assets and deposits. The Company adopted a policy of only dealing with creditworthy counterparties and financial institutions to mitigate the risk of financial loss from defaults. |
| iii. | The default occurs when the contract payments are past due over 180 days. |
| iv. | The Group adopts following assumptions under IFRS 9 to assess whether there has been a significant increase in credit risk on that instrument since initial recognition: |
If the contract payments were past due over 30 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition.
| v. | The Group classifies customers’ accounts receivable in accordance with geographic area and credit rating of customer. The Group applies the modified approach to estimate expected credit loss under the provision matrix basis. |
| vi. | The Group used the territory economic forecasts to adjust historical and timely information to assess the default possibility of accounts receivable. |
| vii. | The loss amounts of accounts receivable allowance using simplified method were de minimis, thus, the loss was not recognized as at December 31, 2022 and June 30, 2023. |
| (c) | Liquidity risk |
| i. | Cash flow forecasting is performed in the operating entities of the Group and aggregated by the Group’s finance department. The Group’s finance department monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs. |
| ii. | Surplus cash held by the operating entities over and above balance required for working capital management are managed by the Group’s finance department. The Group’s finance department invests surplus cash in interest bearing current accounts and time deposits, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts. As at December 31, 2022 and June 30, 2023, the Group held money market position of $ 191,077 and $195,843, respectively, which are expected to readily generate cash inflows for managing liquidity risk. |
| iii. | The table below analyses the Group’s non-derivative financial liabilities based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. |
|
|
Less than |
|
Between 2-5 |
|
Over |
|||
Non-derivative financial liabilities: December 31, 2022 |
|
1 year |
|
years |
|
5 years |
|||
Financial liabilities at fair value through profit or loss |
|
$ |
— |
|
$ |
3,207 |
|
$ |
— |
Other payables (including related parties) |
|
|
9,371 |
|
|
— |
|
|
— |
Lease liabilities (Note) |
|
|
255 |
|
|
89 |
|
|
— |
Guarantee deposits received |
|
|
— |
|
|
25 |
|
|
— |
|
|
Less than |
|
Between 2-5 |
|
Over |
|||
Non-derivative financial liabilities: June 30, 2023 |
|
1 year |
|
years |
|
5 years |
|||
Financial liabilities at fair value through profit or loss |
|
$ |
— |
|
$ |
3,451 |
|
$ |
— |
Other payables (including related parties) |
|
|
8,144 |
|
|
— |
|
|
— |
Lease liabilities (Note) |
|
|
433 |
|
|
464 |
|
|
— |
Guarantee deposits received |
|
|
— |
|
|
25 |
|
|
— |
Note: The amount included the interest of estimated future payments.
F-30
12(3)Fair value information
| A. | The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows: |
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability.
| B. | The carrying amounts of the Group’s financial instruments not measured at fair value (including cash and cash equivalents, current financial assets at amortized cost, accounts receivable, other receivables, guarantee deposits paid, accounts payable, other payables (including related parties) and guarantee deposits received) are approximate to their fair values. |
| C. | The related information of financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the liabilities at December 31, 2022 and June 30, 2023 is as follows: |
| (a) | The related information of natures of the liabilities is as follows: |
December 31, 2022 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements |
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
|
|
|
|
|
|
|
Compound instrument: |
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities |
|
$ |
1,769 |
|
$ |
1,438 |
|
$ |
— |
|
$ |
3,207 |
June 30, 2023 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Recurring fair value measurements |
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
|
|
|
|
|
|
|
Compound instrument: |
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities |
|
$ |
1,897 |
|
$ |
1,554 |
|
$ |
— |
|
$ |
3,451 |
| (b) | The methods and assumptions the Group used to measure fair value are as follows: |
| i. | Except those mentioned in point (ii) ~ (iii) below, the carrying amounts of the Group’s financial instruments not measured at fair value (including cash and cash equivalents, accounts receivable, other receivables, notes payable, accounts payable and other payables) approximate to their fair values. |
| ii. | Fair value of the Perfect Public Warrants is determined based on market quotation price. |
| iii. | Fair value of the Perfect Private Placement Warrants and Forward Purchase Warrants are determined based on the Perfect Public Warrants with adjustments to the implied volatility. |
| D. | For the six months ended June 30, 2022 and 2023, there was no transfer between Level 1 and Level 2. |
| E. | For the six months ended June 30, 2022 and 2023, there was no transfer into or out from Level 3. |
F-31
13. |
Segment Information |
13(1)General information
Although the Group has multiple operating segments by geography, the management takes the aggregation criteria outlined in Paragraphs 11 to 14 of IFRS 8 into consideration to decide the reportable operating segments. In light of the qualitative and quantitative criteria, the Group concluded that it has only one reportable operating segment.
13(2)Geographical information
Geographical information for the six months ended June 30, 2022 and 2023 is as follows:
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2023 |
||
|
|
Revenue |
|
Revenue |
||
United States |
|
$ |
11,214 |
|
$ |
11,256 |
Japan |
|
|
2,659 |
|
|
2,203 |
France |
|
|
1,918 |
|
|
1,979 |
Others |
|
|
7,588 |
|
|
9,394 |
|
|
$ |
23,379 |
|
$ |
24,832 |
Geographical information on the revenue shows the location in which sales were generated. Non-current assets amounted to $731 and $1,310 as of December 31, 2022 and June 30, 2023, respectively.
Substantially all of the Group’s non-current assets, including property, plant and equipment, right-of-use assets and intangible assets, are located in Taiwan.
13(3)Major customer information
There is no major customer of the Group (exceed 10% of revenue) for the six months ended June 30, 2022 and 2023.
F-32
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 2023
The following discussion and analysis of financial condition and results of operations (“MD&A”) is dated October 3, 2023 and provides information which the management of Perfect Corp. believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of Perfect Corp. for the six months ended June 30, 2023 and 2022. This MD&A should be read together with Perfect Corp.’s condensed consolidated interim financial statements and related notes for the six months ended June 30, 2023, which are attached as Exhibit 99.1 to our Form 6-K furnished to the SEC on October 3, 2023 (the “Interim Financial Statements” or "our Interim Financial Statements"), and Perfect Corp.’s audited consolidated financial statements and management’s discussion and analysis for the year ended December 31, 2022, which are included in our annual report on Form 20-F for the year ended December 31, 2022 (the "Annual Report"). In addition to historical financial information, this MD&A contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. For more information about forward-looking statements, see the section entitled “Cautionary Note Regarding Forward-Looking Statements”. Actual results and timing of selected events may differ materially from those anticipated by these forward-looking statements as a result of various factors, including those set forth under the section entitled “Key Factors Affecting Our Results of Operations”. Unless the context otherwise requires all references in this section to “Perfect,” the “Company,” “we,” “us” and “our” refer to Perfect Corp. and its consolidated subsidiaries.
Perfect’s annual consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board ("IASB"). Our Interim Financial Statements have been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting”. All amounts are in U.S. dollars except as otherwise indicated. For more information about the basis of presentation of Perfect’s consolidated financial statements, see the section entitled "Basis of Presentation."
Certain figures included in this discussion and analysis, have been rounded for ease of presentation. Percentage figures included in this MD&A have not in all cases been calculated on the basis of the rounded figures but on the basis of the amounts prior to rounding. For this reason, percentage amounts in this MD&A may vary slightly from those obtained by performing the same calculations using the figures in Perfect’s consolidated financial statements or in the associated text. Certain other amounts that appear in this MD&A may similarly not sum due to rounding.
Company Overview
Founded in 2015, we are the leading SaaS technology company offering AR- and AI-powered solutions dedicated to the beauty and fashion industry. Our platform revolutionizes the way brands (as defined in our Annual Report) and consumers interact with each other and opens up new possibilities for connections that were previously unimaginable. With our cutting-edge, hyper-realistic virtual try-on solutions, we are transforming the traditional online and in-store shopping journey by creating instant, seamless and engaging omni-channel shopping experiences. In addition, we provide a versatile AI skincare turnkey solution that is both comprehensive and user-friendly, making it suitable for a wide array of applications. We also offer several consumer mobile apps under the “YouCam” brand which operate on a subscription-based model. These mobile beauty apps supplement and support innovation development of our core SaaS business.
1
As of June 30, 2023, our total enterprise customer base included over 600 brand clients, including global industry leaders such as Estée Lauder Group, LVMH, COTY and Shiseido, with over 655,000 digital stock keeping units (“SKUs”) for makeup, haircare, skincare, watches, eyewear, and jewelry products, and over 10 billion virtual product try-ons annually. We had 163 Key Customers1 as of June 30, 2023, compared with 152 Key Customers as of December 31, 2022. In addition, we had over 770,000 active subscribers of our mobile beauty apps as of June 30, 2023, compared with over 604,000 as of December 31, 2022.
We have achieved significant scale and growth since our inception in 2015. Our total revenue increased from $23.4 million for the six months ended June 30, 2022 to $24.8 million for the six months ended June 30, 2023. Our momentum of acquiring new brands continues to be strong, growing from 509 as of December 31, 2022 to 601 as of June 30, 2023. As we grow and continue to expand our product offerings, we expect to significantly increase our penetration beyond beauty and into other fashion areas as well. Moreover, our ability to draw in and retain mobile users, as well as convert them into active subscribers, has improved significantly. This is attributed to our continuous introduction of supplementary premium features within our apps, the launch of new mobile applications, and the enhancement of marketing campaigns to expand our brand's reach. Our net income decreased from $27.0 million for the six months ended June 30, 2022 to $0.5 million for the six months ended June 30, 2023, mainly due to an adjustment of $28.4 million in non-cash valuation gain on financial liabilities at fair value through profit or loss with respect to our convertible preferred shares in the first half of 2022.
Key Factors Affecting Our Results of Operations
Our results of operations are affected by the following factors:
Overall adoption rate of AR- and AI-technology in beauty and fashion industries
Our results of operations are affected by the overall growth and adoption of AR- and AI-technology in the beauty and fashion industries, which in turn, is affected by customer demand on these technologies and the speed of digital transformation of brands. Changes in any of these general industry conditions and our ability to adapt to such changes could affect our business and results of operation.
Despite the rapid pace of digital transformation in recent years, the estimated adoption of AR- and AI- amongst beauty brands remains low. We see significant opportunities to continue to drive the digitization and proliferation of AR- and AI-solutions in the beauty and fashion industries. We believe that with our unique tech capabilities and extensive collection of training data sets from over 10 billion real-life yearly try-ons, we can continue to solidify our product leadership in the beauty AR- and AI-SaaS industry and drive further adoption by beauty and fashion brands.
Our ability to monetize our services
We offer diverse solutions, such as virtual try-ons for makeup, nail art, hairstyles, beard dye, and fashion accessories including watches, bracelets, rings and eyewear, advanced skin diagnostic technology, a foundation shade finder, and an interactive platform. We also offer omni-channel, cross-platform solutions which can be implemented across multiple platforms, including brand-owned channels such as brands’ official mobile apps, official websites, in-store kiosks, as well as leading third-party platforms, including Alphabet (Google and YouTube), Meta (Instagram), Snap and Alibaba (Taobao and Tmall). In addition, our mobile applications utilize AI to provide a diverse array of premium features. These features are designed to empower users to craft stunning photos and videos, which could enhance their creative output for use in social networking and entertainment contexts.
1Key Customers refers to the Company's brand customers who contributed revenue of more than $50,000 in the trailing 12 months ended on the measurement date.
2
For details of our products and services, see “Business — Our Business” of the Annual Report. For details of revenue recognition of our products and services, see “— Components of Results of Operations — Revenue” of this MD&A section and Note 4 “Summary of Significant Accounting Policies” to our Interim Financial Statements. The following table sets forth a breakdown of our revenue for the periods indicated based on the types of customers:
|
|
Six months ended June 30, |
|
||||||
|
|
2022 |
|
2023 |
|
||||
|
|
|
|
% of |
|
|
|
% of |
|
|
|
|
|
total |
|
|
|
total |
|
|
|
US$’000 |
|
revenue |
|
US$’000 |
|
revenue |
|
Revenue from brands |
|
14,573 |
|
62.3 |
% |
12,503 |
|
50.4 |
% |
Revenue from Key Customers(1) |
|
12,050 |
|
51.5 |
% |
11,912 |
|
48.0 |
% |
Revenue from non-Key Customer brands(2) |
|
2,523 |
|
10.8 |
% |
591 |
|
2.4 |
% |
Revenue from mobile apps subscribers |
|
7,811 |
|
33.4 |
% |
11,737 |
|
47.3 |
% |
Revenue from advertisement network service providers |
|
981 |
|
4.2 |
% |
580 |
|
2.3 |
% |
Others |
|
14 |
|
0.1 |
% |
12 |
|
0.0 |
% |
Total revenue |
|
23,379 |
|
100 |
% |
24,832 |
|
100 |
% |
Notes:
(1) |
Represents 82.7% and 95.3% of our revenue from brands for the six months ended June 30, 2022 and 2023, respectively. |
(2) |
Represents 17.3% and 4.7% of our revenue from brands for the six months ended June 30, 2022 and 2023, respectively. |
Our ability to increase revenue from brand customers depends in part on retaining our existing brands and expanding their use of our services. In managing our business with brands, our management vigilantly assess the efficiency of our sales effort and retention rate of our Key Customers, which can provide reliable guidance for the growth of our business due to the following reasons: (i) revenue from Key Customers accounted for approximately 51.5% and 48.0% of our total revenue for the six months ended June 30, 2022 and 2023, respectively, and our primary strategic focus is to allocate more resources to grow our brand customer base; and (ii) revenue from all brands represented 62.3% and 50.4% of our total revenue for the six months ended June 30, 2022 and 2023, respectively, and Key Customers constitute the core of our brand customers since revenue from Key Customers accounted for 82.7% and 95.3% of the revenue from all brands for the respective period.
As we deepen long-term relationships with existing brands, we aim to increase the average recurring fees per brand through a combination of cross-selling across sister brands, geographies and verticals of beauty and fashion groups, and upselling incremental SKUs, modules and functions to beauty and fashion brands. We believe the stickiness and scalability of our platform well positions us to capture this monetization opportunity.
On the other hand, our ability to increase mobile subscription revenue depends in part on our ability to retain current paying subscribers and transform existing users into paying subscribers. Since 2022, our mobile app business has experienced significant growth due to the adoption of a multifaceted approach. Firstly, we continuously introduced premium features, enticing and retaining users. Secondly, we bolstered our cross-promotion efforts among our suite of mobile apps and executed strategic marketing campaigns such as search engine optimization (SEO) to bolster brand recognition. Thirdly, by introducing new apps, namely YouCam Video and YouCam Enhance, into the market, we expanded our avenues for monetization. Fourthly, we skillfully increased subscription prices while maintaining competitiveness. Lastly, our subscriber base grew as more users opt in. These combined efforts fueled our mobile app business’s impressive growth. We also generated advertisement revenue from advertisement network service providers that display ads in our mobile apps.
3
We closely monitor our mobile apps subscription business through monthly active subscribers, and benchmark product ratings of, and functionalities offered by, our main mobile app competitors. We monitor our advertisement revenue via effective cost per thousand impressions. The following table sets forth our average MAUs and average monthly active subscribers of our mobile apps for the periods indicated:
|
|
Six months ended June 30, |
||
(in millions) |
|
2022 |
|
2023 |
Average MAUs |
|
18.7 |
|
14.4 |
Average monthly active subscribers(1) |
|
0.46 |
|
0.70 |
Note:
(1) |
Monthly active subscribers refer to paying users who subscribe to our mobile apps’ premium functions and maintain an active subscription at the end of the measured month. |
Our current business strategy is to reinforce our market leadership in providing AR- and AI-SaaS solutions to brand customers and mobile apps users. We expect to allocate more resources to support their growth.
Our ability to expand into new verticals and grow our brand base
Our vision is to transform the world with digital tech innovations — through both global beauty groups and indie brands. We see significant growth opportunities amongst these smaller beauty brands. We intend to continue to work on providing a seamless and easy solution for these indie brands, as capturing this brand base is expected to be important to fuel the growth of our business.
Leveraging our deep industry and technology know-how and a wide existing customer network that we have built in the beauty AR- and AI-SaaS space, we also look to expand into synergistic categories and further expand our product portfolio outside of beauty to expand our brand base. We have made inroads into fashion (in areas such as jewelry, rings, watches, bracelet, earrings, eyewear and nail design), and are looking to expand into clothing (such as clothes, hats, scarves, and shoes), and beyond fashion (such as solutions for hair salons, dental and orthodontics services, plastic surgery, live-streaming and video conferencing). Some of these services have already been deployed, and we are in discussions with various brands in these areas as well.
We are in a unique position where our existing industry-leading solutions in facial aesthetics can be used in conjunction with these new categories. For example, with eyewear, we can provide a solution which enables consumers to try on eyewear with virtual makeup applied at the same time. This is something an eyewear AR- and AI-vendor cannot easily do given the complexity of AR- and AI-makeup. Ultimately, our goal is to grow product offerings to drive ubiquity and offer a full suite of products beyond beauty.
4
Our ability to manage and improve operating efficiency
Our results of operations depend on our ability to manage our costs and expenses. Going forward, our increasing scale of business and advancement in technology may lead to lower marginal operating costs and expenses. We expect our customer acquisition efforts to benefit from our strong brand recognition and word- of-mouth referrals as we expand our customer base.
Our continued investment in technology also contributes to the increase of operational efficiency, enabling the same number of employees to deliver higher productivity over time. In addition, we believe that we will continue to benefit from economies of scale as we continue to actively manage the level of our general and administrative expenses. Certain large expenses, such as the professional advisors’ fees in connection with our ongoing reporting obligations as a public company, however, will negatively affect our profitability in the next few years.
Our people and technology
We focus on investing in our people and technology, which are crucial for us to create innovative products and services that cater to what the consumers want, and to further grow our customer base. The success of our broad range of AR- and AI-powered business and consumer solutions is reliant on technology, which offers top-notch accuracy, scalability and performance.
Basis of Presentation
Our Interim Financial Statements have been prepared in accordance with IFRS. All intercompany accounts and transactions have been eliminated on consolidation. For the purposes of presenting the Interim Financial Statements, our assets and liabilities and our foreign operations (including subsidiaries in other countries that use currencies which are different from our functional currency) are translated into U.S. dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.
Components of Results of Operations
Revenue
Our revenue sources include four major components: AR/AI cloud solutions and subscription, licensing, advertisement and others. The first and second components constitute our core SaaS solutions.
(1) |
AR/AI cloud solutions and subscription |
For AR/AI cloud solutions and subscription, we provide online cloud-based services to our customers, primarily including virtual try-on solutions provided to our brand customers and app premium subscription provided to individual customers.
Our typical contract terms with brand customers range from three months to multiple years, among which one-year term is the most common. Our contract terms are decided based on the following considerations: (1) functionality of the subscribed modules (e.g. makeup, skincare, hair, nail, etc.); (2) length of the service; (3) geographical coverage, such as the number of countries/regions to deploy the modules or the number of website domains to integrate our modules; (4) maximum numbers of product SKUs that a brand can utilize at the same time; and (5) additional manpower hours used for conducting the customization, if any.
5
Furthermore, depending on the nature of the services provided, the charges of brand customers could be further divided to one-time fees, recurring fees, or the combination of both. One-time fees are made up of service setup fee, customization fee, and console base fee, which allows brands to create a brand console account on our platform so that they can upload and manage SKUs. Recurring fees are related to granting customers the access to the modules over the contract period. These fees are recurring as the service is time-limited and scope-limited, and subject to renewal upon the expiration of the service term. For brand customers, AR/AI cloud solutions are the major revenue contributor.
In terms of the premium value-added functions in our mobile apps to which individual customers subscribe through Apple App Store and Google Play, we currently offer monthly and yearly subscription plans. The price of such premium functions service varies by country. We recognize revenue from such service based on the fulfilled contract obligation period each month.
(2) |
Licensing |
We collect licensing fees from (1) licensing self-developed technologies, which include offline SDK and AR/AI offline solutions to brand customers and (2) licensing mobile apps designed and created based on customers’ specifications that do not require continuous support from our backend cloud computing infrastructure. For these licensing arrangements, the deliverables are handed over to customers and operated by customers on their own infrastructure without additional services from the Company.
Furthermore, depending on the nature of the license provided, some brand customers need to renew the licensing agreements, as the right to use our intellectual property are only granted to them for a specific period. The renewal of these licensing agreements generate recurring revenue.
(3) |
Advertisement |
Advertisement revenue is generated from the advertisements displayed by advertisement network service providers in our apps. The consideration of such service is determined based on the frequency of click or impression of the advertisement, which should be treated as a variable consideration. The typical contract term is for one month. The numbers of advertisements are delivered and the associated fees are tracked on a daily basis, and we recognize revenue on a monthly basis based on the daily collected information.
(4) |
Others |
Other revenue includes miscellaneous revenue streams such as hardware sales that do not fall under the aforementioned revenue types. Those revenue streams are immaterial to us.
For further details on our revenue recognition, see Note 4 “Summary of Significant Accounting Policies” to our Interim Financial Statements.
Cost of Sales and Services
Our cost of sales and services consists primarily of kiosk hardware cost, certain R&D personnel- related expenses allocated to cost of sales and services which are directly related to revenue and services activities, warranty provision as well as third-party payment processing fees for distribution partners such as Google and Apple. We expect that our cost of sales will increase on an absolute dollar basis in tandem with the growth of our businesses for the foreseeable future as we continue to invest and broaden our offerings and scale up our operations.
6
Sales and Marketing Expenses
Our sales and marketing expenses consists of personnel-related expenses for salaries, employee benefits, and stock-based compensation for employees engaged in sales and marketing, advertising and promotional fees, cloud-hosting fees as well as allocated facilities and information technology costs. We plan to continue to invest in sales and marketing to grow our customer base and increase our brand awareness. As such, we expect sales and marketing expenses to increase in absolute dollars. We also expect our sales and marketing expenses as a percentage of revenue to fluctuate period-over-period in the near term as we invest to accelerate market adoption of our technologies, and to decrease over the long term as we benefit from greater scale.
General and Administrative Expenses
Our general and administrative expenses primarily consist of personnel-related expenses for employees involved in general corporate functions, including administration, legal, human resources, accounting and finance. Personnel-related expenses primarily include salaries, benefits, and share-based compensation. In addition, general and administrative expenses also include allocated facilities costs, such as rent, depreciation expenses, professional services fees and other general corporate expenses.
Furthermore, we have incurred and expect to further incur expenses as a result of becoming a public company since October 2022, including costs for complying with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional services. We expect that our general and administrative expenses will increase in absolute dollars as we scale up our operations.
Research and Development Expenses
Our research and development expenses primarily consist of salaries and benefits, including share- based compensation, for our technology and product development personnel, and depreciation and other associated corporate costs.
We expect our research and development expenses to increase in the future as we expand our team of technology and product development professionals and continue to invest in technology infrastructure and innovative AR- and AI-solutions to enhance and broaden our product offering.
Interest Income
Our interest income primarily consists of interest earned on bank deposits and financial assets at amortized costs.
Other Income
Our other income primarily consists of subsidies from local government and VAT adjustments. We do not expect material subsidies from local government in the foreseeable future.
Other Gains and Losses
Our other gains and losses primarily consist of losses on financial liabilities at fair value through profit or loss (“FVTPL”) and foreign exchange gains and losses. The FVTPL is mainly associated with our convertible redeemable preferred shares and warrants. FVTPL is a non-cash and extraordinary item in which valuation gains and losses of the convertible redeemable preferred shares ceased to recur after our listing on the NYSE since October 31, 2022, as the convertible redeemable preferred shares issued by us have been converted into Ordinary Shares upon such listing.
7
Finance Costs
Our finance costs consist primarily of interest expenses on our lease liabilities.
Income Tax Expense
Our income tax expense primarily consists of current income tax expenses. As a global company, we are subject to income taxes in the jurisdictions where we do business. These foreign jurisdictions have different statutory tax rates. Accordingly, our effective tax rate will vary depending on the relative proportion of income derived in each jurisdiction, use of tax credits, changes in the valuation of our deferred tax assets and liabilities as well as changes in tax laws. Currently, the applicable tax rate in our headquarters in Taiwan is 20% while the tax rate for unappropriated earnings is 5%.
Results of Operations
Our results of operations for the six months ended June 30, 2022 and 2023 are presented below:
|
|
Six months ended June 30, |
||||
($ in thousands) |
|
2022 |
|
2023 |
||
Revenue |
|
$ |
23,379 |
|
$ |
24,832 |
Cost of sales and services |
|
|
(3,282) |
|
|
(5,024) |
Gross profit |
|
|
20,097 |
|
|
19,808 |
Operating expenses |
|
|
|
|
|
|
Sales and marketing expenses |
|
|
(12,087) |
|
|
(12,585) |
General and administrative expenses |
|
|
(4,700) |
|
|
(5,427) |
Research and development expenses |
|
|
(5,358) |
|
|
(5,396) |
Total operating expenses |
|
|
(22,145) |
|
|
(23,408) |
Operating loss |
|
|
(2,048) |
|
|
(3,600) |
Non-operating income and expenses |
|
|
|
|
|
|
Interest income |
|
|
178 |
|
|
4,609 |
Other income |
|
|
11 |
|
|
7 |
Other gains and losses |
|
|
28,977 |
|
|
(459) |
Finance costs |
|
|
(5) |
|
|
(5) |
Total non-operating income and expenses |
|
|
29,161 |
|
|
4,152 |
Income before income tax |
|
|
27,113 |
|
|
552 |
Income tax expense |
|
|
(161) |
|
|
(63) |
Net income |
|
$ |
26,952 |
|
$ |
489 |
Comparison of Six Months Ended June 30, 2022 to Six Months Ended June 30, 2023
Revenue
Total revenue increased by $1.5 million, or 6.2%, from $23.4 million for the six months ended June 30, 2022 to $24.8 million for the six months ended June 30, 2023. The increase was primarily attributable to an increase by 17.5% of our revenue of AR/AI cloud solutions and subscription from $18.2 million for the six months ended June 30, 2022 to $21.4 million for the same period in 2023, which was primarily driven by solid demand for our online virtual product try-on solutions from brand customers and robust growth in our mobile beauty app subscriptions. However, such increase was offset by (i) the decrease by 30.2% of our licensing revenue, which is primarily associated with legacy offline services offering, from $4.1 million for the six months ended June 30, 2022 to $2.9 million for the same period in 2023, which was due to brand customers’ elevated interests in online services instead of in-store offline solutions; and (ii) the decrease of our advertisement revenue from $1.0 million for the six months ended June 30, 2022 to $0.6 million for the same period in 2023 as a result of our strategy of allocating less resources to advertisement services.
8
With respect to geographical contribution, revenue from the United States has increased by 0.4% from $11.2 million for the six months ended June 30, 2022 to $11.3 million for the same period in 2023, revenue from Japan has decreased by 17.1% from $2.7 million for the six months ended June 30, 2022 to $2.2 million for the same period in 2023, and revenue from France has increased by 3.2% from $1.9 million for the six months ended June 30, 2022 to $2.0 million for the same period in 2023. Revenue outside of these three major countries have grown by 23.8% from $7.6 million for the six months ended June 30, 2022 to $9.4 million for the same period in 2023.
Cost of Sales and Services
Cost of sales and services increased by $1.7 million, or 53.1%, from $3.3 million for the six months ended June 30, 2022 to $5.0 million for the six months ended June 30, 2023. The increase was primarily due to the increase in third-party platform payment processing fees paid to distribution partners such as Google PlayStore and Apple AppStore resulting from the increase in our mobile app subscription revenue.
Sales and Marketing Expenses
Sales and marketing expenses increased by $0.5 million, or 4.1%, from $12.1 million for the six months ended June 30, 2022 to $12.6 million for the six months ended June 30, 2023. The increase was primarily due to an increase in advertising and promotion fees.
General and Administrative Expenses
General and administrative expenses increased by $0.7 million, or 15.5%, from $4.7 million for the six months ended June 30, 2022 to $5.4 million for the six months ended June 30, 2023. The increase was primarily due to an increase in fees relating to the compliance and operation of a public company.
Research and Development Expenses
Research and development expenses generally remained at $5.4 million for both the six months ended June 30, 2022 and 2023.
Interest Income
Interest income increased significantly by $4.4 million, or 2489.3%, from $0.2 million for the six months ended June 30, 2022 to $4.6 million for the six months ended June 30, 2023. The increase was primarily driven by our increased cash generated from net proceeds in connection with our business combination with Provident Acquisition Corp. (“Provident”).
Other Gains and Losses
Other gains and losses decreased by $29.4 million for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The significant change was primarily due to (i) a change adjustment of $28.4 million in non-cash valuation gain on financial liabilities at fair value through profit or loss with respect to our convertible preferred shares in the first half year of 2022, and (ii)foreign exchange losses of $1.0 million.
9
Net Income
As a result of the foregoing, our net income for the six months ended June 30, 2023 was $0.5 million, compared to $27.0 million for the six months ended June 30, 2022.
Adjusted Net Income (Non-IFRS)
Our adjusted net income was $2.4 million for the six months ended June 30, 2023, compared to adjusted net income of $1.8 million in the same period of 2022. See “— Use of Non-IFRS Financial Measures” below for more information.
Use of Non-IFRS Financial Measures
In addition to the measures presented in our consolidated financial statements, we use certain non-IFRS financial measures, including adjusted net income, to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Adjusted net income is defined as net income excluding one-off transaction costs (e.g., costs related to the de-SPAC transaction), non-cash equity-based compensation, non-cash valuation (gain)/loss of financial liabilities, and foreign exchange (gain)/loss. The majority of these adjustments relates to items in zero tax jurisdictions. With respect to non-zero tax jurisdictions, any related deferred tax assets do not qualify for recognition because of the cumulative losses. Hence, none of the adjusted net income for the six months ended June 30, 2022 and 2023 was subject to income tax effects. For a reconciliation of adjusted net income to net income, please see the following reconciliation table.
|
|
Six months ended June 30 |
||||
($ in thousands) |
|
2022 |
|
2023 |
||
Net Income |
|
$ |
26,952 |
|
$ |
489 |
One-off Transaction Costs |
|
|
2,825 |
|
|
33 |
Non-Cash Equity-Based Compensation |
|
|
1,006 |
|
|
1,441 |
Non-Cash Valuation (Gain)/Loss of Financial Liabilities |
|
|
(28,374) |
|
|
244 |
Foreign Exchange (Gain)/Loss |
|
|
(603) |
|
|
215 |
Adjusted Net Income |
|
$ |
1,806 |
|
$ |
2,422 |
Non-IFRS financial measures are not defined under IFRS and are not presented in accordance with IFRS. Non-IFRS financial measures have limitations as analytical tools, which possibly do not reflect all items of expense that affect our operations. Share-based compensation expenses have been and may continue to be incurred in our business and are not reflected in the presentation of the non-IFRS financial measures. In addition, the non-IFRS financial measures Perfect uses may differ from the non-IFRS measures used by other companies, including peer companies, and therefore their comparability may be limited. The presentation of these non-IFRS financial measures is not intended to be considered in isolation from or as a substitute for the financial information prepared and presented in accordance with IFRS. The items excluded from our adjusted net income are non-cash expenses or not driven by core results of operations and render comparison of IFRS financial measures with prior periods less meaningful. We believe adjusted net income provide useful information to investors and others in understanding and evaluating our results of operations, as well as providing a useful measure for period-to-period comparisons of our business performance. Moreover, such non-IFRS measures are used by our management internally to make operating decisions, including those related to operating expenses, evaluate performance, and perform strategic planning and annual budgeting.
10
Liquidity and Capital Resources
Historically, we have generated negative cash flows from operations and have financed our operations mainly through equity contributions from our shareholders and payments received from our customers. As of June 30, 2023, we had cash and cash equivalents of $37.2 million, which consisted of petty cash, checking accounts, demand deposits and three-month or less time deposits. In addition, we have six-month and longer time deposits of $160.8 million classified as current financial assets at amortized cost according to IFRS as of the same date. Our net income decreased from $27.0 million for the six months ended June 30, 2022 to $0.5 million for the six months ended June 30, 2023, mainly due to an adjustment of $28.4 million in non-cash valuation gain on financial liabilities at fair value through profit or loss with respect to our convertible preferred shares in the first half year of 2022.
Our cash requirements for the six months ended June 30, 2023 and any subsequent interim period primarily include our capital expenditure, lease obligations, contractual obligations and other commitments. Our capital expenditures are primarily related to office renovation, purchase of certain servers in our ordinary course of business, and ERP system upgrade, which has been immaterial from a dollar amount perspective. From January 1, 2023 through June 30, 2023, we incurred capital expenditure of less than $250,000. Our lease obligations consist of the commitments under the rental agreements for our office premises. Our contractual obligations primarily consist of minimum commitments for marketing activities. From a dollar amount perspective, both lease obligations and contractual obligations have been immaterial. In addition, we will consume cash for additional expenses as a public company for, among other things, D&O liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees. We expect these items to be the primary part of our short-term cash requirements, and we currently do not expect any material capital expenditures in the foreseeable future. Furthermore, as part of our growth strategy, we have plans to further invest in R&D, develop new AR- and AI-solutions, broaden our customer basis in the beauty industry, and expand into synergistic categories like fashion solutions. These new developments and expansions may generate long-term cash requirements. We intend to fund our future material cash requirements with net proceeds in connection with our business combination with Provident, equity contributions from our shareholders and payments received from our customers. We will continue to make cash commitments, including capital expenditures, to support the growth of our business.
On October 28, 2022, we completed the Business Combination (as defined in our Annual Report). In connection with the Business Combination, holders of 21,651,203 Provident Class A Ordinary Shares (as defined in our Annual Report), or 94.14% of the shares with redemption rights, exercised their right to redeem their shares for cash. Given a significant number of Provident shareholders elected to redeem their shares prior to the consummation of the Business Combination, our gross proceeds from the Business Combination accordingly reduced compared to a no redemption scenario. Nevertheless, we raised $105 million from PIPE Investors and FPA Investors, which, together with the proceeds from non-redeeming Provident shareholders, amounted to $119 million in gross proceeds, and added $113 million in net proceeds to our balance sheet.
We believe that our cash and cash equivalents, including the cash we obtained from the Business Combination, and our credit facilities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months from the date of this MD&A and sufficient to fund our operations. As of the date of this MD&A, there has been no material change to our liquidity position since the closing of the Business Combination. To the extent that our current resources are insufficient to satisfy our cash requirements in the future, we may need to seek additional equity or debt financing. If the financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our level of investment in product development or delay, scale back or abandon all or part of our growth strategy, which could have an adverse impact on our business and financial prospects.
11
We would receive the proceeds from any exercise of any outstanding Warrants that are exercised for cash pursuant to their terms. Assuming the exercise for cash of all of the 20,849,975 Warrants, consisting of 11,499,975 Perfect Public Warrants, 6,600,000 Perfect Private Placement Warrants and 2,750,000 Perfect Forward Purchase Warrants, we would receive an aggregate of approximately $239.8 million, but would not receive any proceeds from the resale of Class A Ordinary Shares issuable upon such exercise We will have broad discretion over the use of proceeds from the exercise of these Warrants. To the extent that any of these Warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of these Warrants will decrease. Any proceeds from the exercise of the Warrants would increase our liquidity, but our ability to fund our operations is not dependent upon receipt of cash proceeds from the exercise of the Warrants.
There is no assurance that our Warrants will be in the money prior to their expiration or that the holders of the Warrants will elect to exercise any or all of such Warrants. The likelihood that Warrant holders will exercise their Warrants, and therefore any cash proceeds that we may receive in relation to the exercise of the issued and outstanding Warrants, will be dependent on the trading price of our Class A Ordinary Shares. If the market price for our Class A Ordinary Shares is less than the exercise price of our Warrants, which is $11.50 per share, we believe Warrant holders will be unlikely to exercise their Warrants. As the closing price of our Class A Ordinary Shares was $3.17 as of October 2, 2023, we believe that holders of the Warrants are currently unlikely to exercise their Warrants. Accordingly, we do not expect to rely on the cash exercise of Warrants to fund our operations.
On January 17, 2023, the SEC declared effective a registration statement on Form F-1, under which the selling securityholders identified therein or their permitted transferees may offer and sell, from time to time, up to 38,850,406 Class A Ordinary Shares, 9,350,000 Warrants and 9,350,000 Class A Ordinary Shares underlying such Warrants. Given the substantial number of Class A Ordinary Shares registered for potential resale by the selling securityholders, the sale of shares by the selling securityholders, or the perception in the market that the selling securityholders of a large number of shares intend to sell their shares, could increase the volatility of the market price of our Class A Ordinary Shares or result in a significant decline in the public trading price of our Class A Ordinary Shares. These sales, or the possibility that these sales may occur, and any related volatility or decrease in market price of our Class A Ordinary Shares and Warrants, might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Cash Flows Summary
Presented below is a summary of our operating, investing, and financing cash flows:
|
|
Six months ended June 30, |
||||
($ in thousands) |
|
2022 |
|
2023 |
||
Cash flows from (used in) operating activities |
|
$ |
(1,006) |
|
$ |
6,449 |
Cash flows from (used in) investing activities |
|
|
(183) |
|
|
(131,003) |
Cash flows from (used in) financing activities |
|
|
5,337 |
|
|
(632) |
Effects of exchange rates changes on cash and cash equivalents |
|
|
(1,828) |
|
|
(262) |
Net increase (decrease) in cash and cash equivalents |
|
$ |
2,320 |
|
$ |
(125,448) |
Cash Flows Generated from (Used in) Operating Activities
Cash flows generated from or used in operating activities primarily relate to the collection of accounts receivables, payment of payables, net interest received, and income tax paid.
Net cash generated from operating activities was $6.4 million for the six months ended June 30, 2023, and net cash used in operating activities was $1.0 million for the six months ended June 30, 2022. The change was mainly due to more interests received driven by our increased cash generated from net proceeds in connection with our business combination with Provident.
12
Cash Flows Generated from (Used in) Investing Activities
Cash flows generated from or used in investing activities primarily relates to acquisition of financial assets, proceeds from disposal of financial assets, acquisition of property, plant and equipment, and acquisition of intangible assets.
Net cash used in investing activities was $131.0 million for the six months ended June 30, 2023 and net cash used in investing activities was $0.2 million for the six months ended June 30, 2022. The change was mainly due to the acquisition of six-month and longer time deposits.
Cash Flows Generated from (Used in) Financing Activities
Net cash used in financing activities was $0.6 million for the six months ended June 30, 2023, primarily consisting of $0.4 million in the payments to acquire treasury shares, and $0.2 million in the repayment of the principal portion of lease liabilities.
Net cash from financing activities was $5.3 million for the six months ended June 30, 2022, primarily consisting of cash proceeds of $5.6 million received from employees’ exercising of stock options, offset by $0.3 million in repayment of the principal portion of lease liabilities.
Material Contractual Obligations and Commitments
During the periods presented, we did not have any material contractual obligations and commitments other than the recent renewal of office lease entered into by and between Perfect Mobile Corp., a wholly-owned subsidiary of the Company, and CyberLink Corp. for two years starting from June 1, 2023.
Off-Balance Sheet Arrangements
During the periods presented, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.
Critical Accounting Estimates
Our Interim Financial Statements have been prepared using the significant measurement bases. We believe that the following estimates are those most critical to the judgments used in the preparation of our financial statements.
Convertible Preferred Shares
We recognized the Company’s convertible preference shares under “financial liabilities designated as at fair value through profit or loss on initial recognition” due to their compound instrument feature. The fair value of convertible preference shares is determined considering our recent fund raising activities and technical development status, fair value assessment of other companies of the same type, market conditions and other economic indicators existing on balance sheet date. All historical convertible preferred shares were converted into Ordinary Shares upon the closing of the Business Combination.
Recent Accounting Pronouncements
For a discussion of our new or recently adopted accounting pronouncements, see Note 3 “Application of New Standards, Amendments and Interpretations” to our Interim Financial Statements.
13
Emerging Growth Company Status
As defined in Section 102(b)(1) of the JOBS Act, we are an emerging growth company. As such, we are eligible for and intend to rely on certain exemptions and reduced reporting requirements provided by the JOBS Act, including (a) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, (b) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (c) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
The Company will remain an emerging growth company under the JOBS Act until the earliest of:
(1) |
the last day of the fiscal year (a) following the fifth anniversary of the date on which Class A Ordinary Shares were offered in connection with the Transactions (as defined in our Annual Report), (b) in which it has total annual gross revenues of at least $1.235 billion, or (c) in which it is deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of its ordinary shares that are held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; or |
(2) |
the date on which it has issued more than $1 billion in non-convertible debt during the prior three-year period. |
Foreign Private Issuer Status
We are an exempted company limited by shares incorporated in 2015 under the laws of the Cayman Islands. We are a foreign private issuer within the meaning of the rules under the Exchange Act. Under Rule 405 of the Securities Act, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and accordingly, the next determination will be made with respect to us on June 30, 2024. Even after we no longer qualifies as an emerging growth company, for so long as we qualifies as a foreign private issuer, it will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
· |
the rules requiring domestic filers to issue financial statements prepared under U.S. GAAP; |
· |
the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; |
· |
the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
· |
the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
· |
the selective disclosure rules by issuers of material nonpublic information under Regulation Fair Disclosure, or Regulation FD, which regulates selective disclosure of material non-public information by issuers. |
14
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. Accordingly, our shareholders will receive less or different information about us than a shareholder of a U.S. domestic public company would receive.
We are a non-U.S. company with foreign private issuer status and are listed on the NYSE. NYSE rules permit a foreign private issuer such as us to follow the corporate governance practices of our home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from NYSE corporate governance listing standards. Among other things, we are not required to have:
· |
a majority of the Board consisting of independent directors; |
· |
a compensation committee; |
· |
a nominating committee; or |
· |
regularly scheduled executive sessions with only independent directors each year. |
We intend to rely on the exemptions listed above. As a result, you may not be provided with the benefits of certain corporate governance requirements of the NYSE applicable to U.S. domestic public companies. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the United States or (iii) our business is administered principally in the United States.
Foreign private issuers, similar to emerging growth companies, are also exempt from certain more stringent executive compensation disclosure rules. Thus, even if we are no longer qualified as an emerging growth company but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of public companies that are neither an emerging growth company nor a foreign private issuer.
If at any time we cease to be a foreign private issuer, we will take all action necessary to comply with the applicable rules of the SEC and the NYSE.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various risks in relation to financial instruments. The main types of risks are foreign currency risk and interest rate risk. While we may enter into hedging contracts from time to time, any change in the fair value of the contracts could be offset by changes in the underlying value of the transactions being hedged. Furthermore, we do not have foreign-exchange hedging contracts in place with respect to all currencies in which we do business.
Foreign Currency Risk
We are exposed to foreign exchange risk on transactional foreign currency risk to the extent that there is a mismatch between the currencies in which sales, purchases, receivables and borrowings that are denominated in a currency other than the respective functional currencies of our entities. Our sales are substantially denominated in U.S. dollars, but the functional currencies of our entities also include NT dollars, RMB and Japanese yen. Accordingly, changes in exchange rates are reflected in reported income and loss from our international businesses included in our consolidated statements of operations. A continued strengthening of the U.S. dollar would therefore reduce reported revenue and expenses from our international businesses included in our consolidated statements of operations.
15
Interest on external borrowings is denominated in the currency of the borrowing. Generally, our entities’ external borrowings are denominated in currencies that match the cash flows generated by the underlying operations, which is also the currency of the country in which the entity operates.
For the six months ended June 30, 2023, we had $0.2 million of other comprehensive loss generated from the exchange differences on translation of foreign operations, whereas for the same period in 2022, we had $1.0 million of other comprehensive loss generated from the same.
A hypothetical 10% change in foreign currency exchange rates on our monetary assets and liabilities would not be material to our financial condition or results of operations.
Based on the above, we believe we are not exposed to significant currency transactional foreign currency risk. While we have not engaged in the hedging of our foreign currency transactions to date and do not enter into any hedging contracts for trading or speculative purposes, we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.
Interest Rates Risk
Given that we currently have no indebtedness, the risk arising from the fluctuation of interest rates should only be limited to interest income from interest-bearing assets such as cash and cash-equivalent assets that bear variable interest rates.
Credit Risk
Credit risk refers to the risk of financial loss to us arising from default by the customers or counterparties of financial instruments on the contract obligations. Our main credit risk was that counterparties could not repay in full the accounts receivable based on the agreed terms and the financial assets at amortized cost.
We actively monitor and manage our credit risk by performing credit checks and monitoring credit limits. With respect to banks and financial institutions, we only accept independently rated parties with a minimum rating of “A.” With respect to our customers, our local entities are responsible for managing and analyzing the credit risk for each of their new customers before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by our Board.
Liquidity Risk
We manage liquidity risk by monitoring and maintaining a level of cash deemed adequate to finance our operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants.
Cautionary Note Regarding Forward-Looking Statements
This MD&A includes forward-looking statements regarding, among other things, our plans, strategies and prospects, both business and financial. These statements are based on the beliefs and assumptions of our management. Although we believe that our respective plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements may be preceded by, followed by or include the words “believe,” “estimate,” “expect,” “forecast,” “may,” “will,” “should,” “seek,” “plan,” “scheduled,” “anticipate” or “intend” or similar expressions.
16
Such forward-looking statements, if any, with respect to our revenues, earnings, performance, strategies, prospects and other aspects of the businesses are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of the business, future plans and strategies, anticipated events and trends, the economy and other future conditions that are subject to risks and uncertainties. These forward-looking statements are not intended to serve as, and must not be relied on as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability regarding future performance, events or circumstances. Many of the factors affecting actual performance, events and circumstances are beyond our control. The risk factors and cautionary language discussed in this MD&A and the Annual Report provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements, including among other things:
· |
the ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, and the ability of the combined company to grow and manage growth profitably, maintain relationships with customers and retain our management and key employees; |
· |
changes in applicable laws or regulations, including those related to privacy and data protection; |
· |
our estimates of expenses and profitability; |
· |
our ability to innovate, develop and provide new products and services or upgrade our existing products and services in a timely and cost-effective manner; |
· |
our ability to retain and expand sales to existing brands or attract new brands; |
· |
our ability to compete effectively or maintain market leadership in the markets in which we currently operate or expand into; |
· |
our ability to meet the challenges presented by our increasingly globalized operations; |
· |
our ability to maintain and enhance our brand awareness; |
· |
our need to retain, attract or maintain high-quality personnel; |
· |
continued and increased consumer engagement with brands in our portfolio and our mobile apps; |
· |
our ability to enforce, protect and maintain intellectual property rights; and |
· |
the other matters described in the section entitled “Risk Factors” of the Annual Report. |
17
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those anticipated in these forward-looking statements. There may be additional risks currently considered to be immaterial or which are unknown. It is not possible to predict or identify all such risks.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us, as of the date of this MD&A, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that such party has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this MD&A. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date.
All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this MD&A or to reflect the occurrence of unanticipated events. In the event that any forward-looking statement is updated, no inference should be made that we will make additional updates with respect to that statement, related matters, or any other forward-looking statements. Any corrections or revisions and other important assumptions and factors that could cause actual results to differ materially from forward-looking statements, including discussions of additional significant risk factors, may appear in our public filings with the SEC, which are or will be (as appropriate) accessible at www.sec.gov, and which you are advised to consult.
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Exhibit 99.3
RISK FACTORS
The following risk factors amend and supplement those included in our annual report on Form 20-F for the fiscal year ended December 31, 2022 filed by Perfect Corp. (together with its subsidiaries, “we”, “our”, “us”, “Perfect” or the “Company”) with the U.S. Securities and Exchange Commission on March 30, 2023 (the “Annual Report”). Investing in the Company’s ordinary shares involves a high degree of risk. You should carefully consider the risks described below, and all other information contained in or incorporated by reference in the Annual Report, before making an investment decision regarding the Company’s securities. These risk factors should be read in conjunction with (i) the Annual Report; and (ii) the other exhibits to our Form 6-K, dated October 3, 2023. Defined terms used, but not defined, in these “Risk Factors” have the meaning ascribed to them in the Annual Report.
Issues relating to the responsible use of our technologies, including AI in our offerings, may result in reputational and financial harm and liability.
Concerns relating to the responsible use of new and evolving technologies, such as AI, in our products and services may result in reputational and financial harm and liability, and may cause us to incur costs to resolve such issues. We are increasingly building AI capabilities into many of our products and services. AI poses emerging ethical issues and presents risks and challenges that could affect its adoption, and therefore our business. If we enable or offer solutions that draw controversy due to their perceived or actual impact on society, such as AI solutions that have unintended consequences or are controversial because of their impact on human rights, privacy, employment, or other social, economic or political issues, or if we are unable to develop effective internal policies and frameworks relating to the responsible development and use of AI models and systems offered through our sales channels, we may experience brand or reputational harm, become less competitive or incur legal liability. Compliance with government regulations relating to AI technologies and AI ethics may also increase the cost of related research and development, and changes in AI-related regulations could disproportionately impact and put us at a disadvantage, requiring us to change our business practices and technologies, which may negatively impact our financial results. Our failure to address concerns relating to the responsible use of AI by us or others could undermine public confidence in AI and slow adoption of AI in our products and services or cause financial and reputational harm.
Our business is subject to complex and evolving U.S. and international laws and regulations regarding privacy and data protection. These laws and regulations are subject to change and uncertain interpretation, which could result in claims, changes to our data and other business practices, regulatory investigations, monetary penalties, increased cost of operations, or declines in consumer growth or engagement, or otherwise harm our business.
Regulatory authorities and governments around the world have implemented and are considering further legislative and regulatory proposals regarding privacy and data protection. New laws and regulations governing new areas of data protection or those imposing more stringent requirements may be introduced in various jurisdictions, including the United States, the European Union, the United Kingdom and the PRC, in which we conduct business or where we may expand. In addition, the interpretation and application of consumer privacy and data protection laws in such jurisdictions are often uncertain, complicated and subject to change, including differentiated requirements for different groups of people or different types of data. It is possible that existing or newly introduced laws and regulations, or their interpretation, application or enforcement, could significantly affect the value of the data collected and generated by us during operation, force us to change our data and other business practices and cause us to incur significant compliance costs.
In the United States, various federal and state regulators, including governmental agencies like the Federal Trade Commission (the “FTC”), have adopted, or are considering adopting, laws and regulations concerning privacy and data protection, such as the Biometric Information Privacy Act in Illinois (the “BIPA”), which has restricted the collection and use of biometric identifiers and biometric information. Certain U.S. state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. For instance, several class action lawsuits have been brought under BIPA, as the statute is broad and still being interpreted by the courts. Certain of our customers and we have been named parties in lawsuits that allege violations of the BIPA through deploying our product and technology, including virtual try-on solutions that may be perceived as subject to these laws and regulations. These lawsuits, any future similar legal proceedings and any government enforcement actions we may become subject to under applicable privacy and data protection laws may cause us significant losses in addition to legal costs, which could adversely affect our business, results of operations and financial condition.
Many jurisdictions have established data privacy and cybersecurity legal frameworks with which we may need to comply. For example, the European Union (the “EU”) has adopted the General Data Protection Regulation (the “GDPR”), which requires covered businesses to comply with rules regarding the processing of personal data, including its use, protection and the ability of persons whose personal data is processed to access, to correct or delete personal data about themselves. Failure to meet GDPR requirements could result in penalties of up to 4% of annual worldwide turnover or EUR 20 million (whichever is the greater). Additionally, the U.K. General Data Protection Regulation (the “U.K. GDPR”) (i.e., a version of the GDPR as implemented into U.K. law) went into effect following the withdrawal of the United Kingdom from the EU. While the GDPR and the U.K. GDPR are substantially the same, going forward there is an increasing risk for divergence in application, interpretation and enforcement of the data privacy and cybersecurity laws and regulations as between the EU and the United Kingdom, which may result in greater operational burdens, costs and compliance risks. Additionally, the GDPR and the U.K. GDPR include certain limitations and stringent obligations with respect to the transfer of personal data from the EU and the United Kingdom to third countries, and the mechanisms to comply with such obligations are also in considerable flux and may lead to greater operational burdens, costs and compliance risks.
The collection, process, and use of personal data in Taiwan is primarily subject to the Personal Data Protection Act (the “PDPA”) and the Enforcement Rules as well as other applicable rulings or regulations issued by the relevant competent authorities, in particular the sectoral rules on the security maintenance plans stipulated by the regulator of different industries. The PDPA applies in principle to all of the data collection and processing activities taking place in Taiwan without regard to whether the data subjects are Taiwanese nationals or not. Pursuant to the PDPA, violating PDPA with an intent to make unlawful profit for oneself or a third party or with an intent to damage the interest of another may lead to criminal penalties. In addition, an administrative fine may be imposed for failure to comply with the requirements under the PDPA, such as the collecting or processing of personal data without a statutory ground, using personal data outside of the scope of the specified purpose under which the personal data was collected, or failure to comply with restrictions on the cross-border transfer of personal data. For any failure to comply with the notification requirements, marketing restrictions, information security requirements, or obligations to respond to data subjects’ requests, the authority may order that correction be made by a certain deadline and impose an administrative fine if correction is not made within such deadline.
The PRC regulatory and enforcement regime with regard to privacy and data security is evolving. Over the last decade, China has been putting great emphasis on cybersecurity administration, which is considered an essential part of national security. Various laws, regulations, measures, and standards form the cybersecurity and data protection legislative framework in China. Governmental authorities, including the Cyberspace Administration of China, the Ministry of Public Security and the State Administration for Market Regulation, are putting great focus on the enforcement of data privacy and protection laws and regulations with varying and evolving standards and interpretations. Violations of data protection laws may lead to administrative penalties, including warnings, orders for rectification, suspension or termination of related businesses issued by competent authorities, revocation of business permits or licenses, or monetary fines; civil liabilities including compensation for infringement upon legitimate rights and interests of individuals and public interests litigation by the People’s Procuratorate depending on the severity and impact of the case; and even criminal liabilities in more severe cases.
As we further grow our business and expand into other markets, we will be subject to additional laws and regulations in other jurisdictions where we operate and where our brand partners and users are located.
The laws, rules and regulations of other jurisdictions may be more comprehensive, detailed and nuanced in their scope, and may impose requirements and penalties that conflict with, or are more stringent than, those we encounter in our current markets. In addition, such laws, rules and regulations may restrict the transfer of data across jurisdictions, which could impose additional and substantial operational, administrative and compliance burdens on us, and may also restrict our business activities and expansion plans, as well as impede our data-driven business strategies. Complying with laws and regulations for an increasing number of jurisdictions could require significant resources and costs, including those associated with adapting our products and solutions. Any failure, or perceived failure, by us to comply with the above and other regulatory requirements or privacy and data protection-related laws, rules and regulations could result in reputational damages or proceedings or actions against us by governmental entities, consumers or other parties. Such proceedings or actions could subject us to significant penalties and negative publicity, require us to change our data and other business practices, increase our costs and severely disrupt our business or hinder our global expansion.
If we were deemed an investment company under the Investment Company Act of 1940, applicable restrictions could have a material adverse effect on our business and the price of our Class A Ordinary Shares.
We believe that we are not an “investment company”, and we do not intend to become registered as an “investment company” under the Investment Company Act of 1940, as amended, or the Investment Company Act. Generally, a company is an “investment company” if it is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities or owns or proposes to own investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, unless an exception, exemption or safe harbor applies. We do not hold ourselves out as being primarily engaged, or proposing to engage primarily, in the business of investing, reinvesting or trading in securities. Rather, we are primarily engaged in the business of providing online cloud-based SaaS solutions to clients in the beauty and fashion industry, and offering certain consumer mobile beauty apps to end users. As of October 3, 2023, we believe that we do not hold any investment securities. We intend to continue to conduct our operations so that we will not be deemed an investment company.
If, at any time, we become or are determined to be primarily engaged in the business of investing, reinvesting or trading in investment securities, we could become subject to regulation under the Investment Company Act. If we were to become subject to the Investment Company Act, any violation of the Investment Company Act could subject us to material adverse consequences, including potentially significant regulatory penalties and the possibility that certain of our contracts would be deemed unenforceable. Additionally, as a foreign private issuer, we would not be eligible to register under the Investment Company Act. Accordingly, we would either have to obtain exemptive relief from the SEC, modify our contractual rights or dispose of investments in order to fall outside the definition of an investment company, each of which may have a material adverse effect on us. Furthermore, we may have to forego potential future acquisitions of interests in companies that may be deemed to be investment securities within the meaning of the Investment Company Act. Failure to avoid being deemed an investment company under the Investment Company Act could also make us unable to comply with our reporting obligations as a public company in the United States and lead to our being delisted from New York Stock Exchange, which would have a material adverse effect on the liquidity and value of our Class A Ordinary Shares. We would also be unable to raise capital through the sale of securities in the United States or to conduct business in the United States. In addition, we may be subject to SEC enforcement actions or civil litigation for alleged violations of U.S. securities laws. Defending ourselves against any such enforcement action or lawsuits would require significant attention from our management and divert resources from our existing businesses and could have a material adverse effect on our results of operations and financial condition.
We may become a passive foreign investment company (“PFIC”), which could result in adverse United States federal income tax consequences to United States investors.
We believe that we were not a PFIC in our prior taxable year, and we do not expect to become a PFIC in the current taxable year or the foreseeable future. However, the determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for United States federal income tax purposes if either: (1) 75% or more of our gross income in a taxable year is passive income, or (2) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%. It is therefore possible that we could become a PFIC in a future taxable year. In addition, our PFIC status may depend in part upon the value of our goodwill which is based on the market value for our Shares. Accordingly, we could become a PFIC in our current taxable year or in the future if there is a substantial decline in the value of our active assets, including a decline in the value of our Shares, or if the amount of cash and other passive assets that we hold increases (for example if a substantial number of Warrants are exercised). If we are or were to become a PFIC, such characterization could result in adverse United States federal income tax consequences to a holder of our Class A Ordinary Shares or Warrants if such holder is a United States investor. For example, if we are a PFIC, our United States investors will become subject to increased tax liabilities under United States federal income tax laws and regulations and will become subject to burdensome reporting.