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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2024
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Date of event requiring this shell company report ___________ |
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For the transition period from ___________to ___________ |
Commission file number 001-41540
Perfect Corp.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
14F, No. 98 Minquan Road Xindian District
New Taipei City 231 Taiwan
(Address of principal executive offices)
Iris Chen, Head of Finance and Accounting
Telephone: +886-2-8667-1265
Email: investor_relations@perfectcorp.com
14F, No. 98 Minquan Road Xindian District
New Taipei City 231 Taiwan
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
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| Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
| Class A Ordinary Shares |
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PERF |
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New York Stock Exchange, Inc. |
| Warrants |
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PERF WS |
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New York Stock Exchange, Inc. |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
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As of December 31, 2024: |
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| Class A Ordinary Shares, par value $0.10 per share |
85,059,953 |
| Class B Ordinary Shares, par value $0.10 per share |
16,788,718 |
| Warrants |
20,849,975 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes __ No ü
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes __ No ü
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü No __
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ü No _
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer ___ |
Accelerated filer ü |
Non-accelerated filer ___ |
Emerging growth company ü |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. __
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. __
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. __
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). __
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP __
International Financial Reporting Standards as issued by the International Accounting Standards Board ü
Other __
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 __ Item 18 __
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes __ No ü
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes __ No __
TABLE OF CONTENTS
Forward-Looking Statements
This annual report 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. 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 pursuant to 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 “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “forecast,” “seek,” “schedule,” or similar expressions. Forward-looking statements contained in this annual report include, but are not limited to, statements about our business strategy and plans, future financing efforts, our future market position and growth prospects, expected operating results, our ability to realize the benefits of the Business Combination, and other matters described in “Item 4. Information on the Company” and “Item 5.Operating and Financial Review and Prospects.”
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 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:
•our ability to increase user download and engagement with our mobile apps and webs, including our ability to attract consumers to purchase our subscription plans available on our mobile apps and webs to unlock premium features of our products;
•our ability to innovate, develop and provide market competitive product offerings or upgrade our existing product offerings in response to rapidly-evolving consumer preferences in a timely and cost-effective manner;
•our ability to grow and retain active subscribers’ subscriptions to the premium features of our mobile apps and web services;
•the intensity of competition in the mobile app and web services market, including the development of Generative AI technologies, which may introduce new emerging technologies and competitors for AI photo, AI video use cases;
•the rate of adoption of AI- and AR- virtual try-on technology by consumers, brands, and retailers, and any changes in consumer preferences or shopping habits;
•our ability to retain and expand sales to existing brands or attract new brands;
•the intensity of competition in the enterprise business market, including the emergence of new competitors, the development of competing technologies, and pricing pressures;
•changes in applicable laws or regulations, especially laws and regulations related to privacy and data protection;
•our need to retain, attract or maintain high-quality personnel;
•our ability to enforce, protect and maintain intellectual property rights; and
•our 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;
•the other matters described in “Item 3. Key Information — D. Risk Factors.”
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 annual report, 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 annual report. 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 annual report 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. For additional information, please see “Item 10. Additional Information — H. Documents on Display.”
Certain Terms and Conventions
Unless otherwise indicated or the context otherwise requires, all references in this annual report to “Perfect Corp.” refer to our entity listed on the NYSE, a Cayman Islands exempted company with limited liability, and all references in this annual report to “we,” “us,” “Perfect” or the “Company” refer to Perfect Corp., together with its subsidiaries. All references in this annual report to “Provident” refer to Provident Acquisition Corp., a Cayman Islands exempted company with limited liability, which has ceased to exist on October 28, 2022. In this document:
“AI” means artificial intelligence.
“AR” means artificial reality.
“API” means application programming interface.
“Articles” means the Sixth Amended and Restated Memorandum and Articles of Association of the Company that has been effective since October 28, 2022.
“Assignment, Assumption and Amendment Agreement” means an assignment, assumption and amendment agreement, dated as of October 28, 2022, by and among Provident, the Company and Continental Stock Transfer & Trust Company (“Continental”), pursuant to which Provident assigned to the Company all of its rights, title, interests, and liabilities and obligations in and under the Warrant Agreement, dated as of January 7, 2021, by and between Provident and Continental (the “Warrant Agreement”).
“Active subscribers” means users who have subscribed to the paid premium features of our mobile apps or web services and maintain an active subscription as of the applicable measurement date. This includes users on annual, monthly, or any other subscription plans offered by our mobile apps or web services.
“Board” or “Board of Directors” means the board of directors of the Company.
“brands” or “brand customers” mean the brand customers of the Company, including global beauty group brands, indie brands and retailers for brands, unless otherwise stated or unless the context otherwise requires.
“Business Combination” means the Mergers, and any other transactions contemplated by the Business Combination Agreement.
“Business Combination Agreement” means the Agreement and Plan of Merger, dated as of March 3, 2022, by and among Provident, the Company, Merger Sub 1 and Merger Sub 2, as may be amended and/or restated from time to time, including by the First Amendment to Agreement and Plan of Merger, dated as of September 16, 2022 by and among Provident, the Company, Merger Sub 1 and Merger Sub 2.
“CAGR” means compound annual growth rate.
“CEO” means the chief executive officer of the Company.
“Churn” means a brand customer who does not have any Recurring Contract Revenue in the following year in the calculation of NDRR. For example, a brand customer is Churn in 2024 if the current contract period ended in 2023 and there is no new contract with such customer in 2024.
“Class A Ordinary Shares” means the Class A ordinary shares of the Company, par value $0.10 per share.
“Class B Ordinary Shares” means the Class B ordinary shares of the Company, par value $0.10 per share.
“Closing” means the consummation of the Mergers.
“Closing Date” means October 28, 2022, the date on which the Closing occurred.
“Contract Revenue” means, with respect to a brand customer that enters into a SaaS solutions subscription contract with the Company, the total dollar amount the brand customer agrees to pay for the entire contract period as consideration for certain non-recurring (i.e., one-time) services and certain recurring services (i.e., services that are ongoing during the current contract period and subject to renewal after the end of the current contract period) provided by Perfect.
For the purpose of calculating the total Contract Revenue only, the total dollar amount of the SaaS solutions subscription contract is attributable only to the fiscal year during which such contract was entered into by the particular brand customer. Historically, the Contract Revenue-weighted contract period of all our brands has been approximately 13 months.
“COVID-19” means the novel coronavirus (SARS-CoV-2 or COVID-19), and any evolutions, mutations or variations thereof or any other related or associated public health emergency, epidemics, pandemics or disease outbreaks.
“CyberLink” means CyberLink Corp., a company incorporated in Taiwan and listed on the Taiwan Stock Exchange under the code 5203.
“CyberLink International” means CyberLink International Technology Corp., a British Virgin Islands exempted company.
“Director Equity Incentive Plan” means the 2023 Director Equity Incentive Plan adopted by the Company’s Board on October 23, 2023, as amended.
“DMA” means the Digital Markets Act.
“DSA” means the Digital Services Act.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“First Merger” means the merger of Merger Sub 1 with and into Provident, with Provident surviving such merger.
“First Merger Effective Time” means the effective time of the First Merger, being 9:00 a.m. (Cayman Islands time) on October 28, 2022.
“Forward Purchase Agreements” means (i) that certain Forward Purchase Agreement, dated as of December 14, 2020, by and among Provident, Sponsor and WF Asian Reconnaissance Fund Limited, (ii) that certain Forward Purchase Agreement, dated as of December 15, 2020, between Provident and PT Nugraha Eka Kencana and (iii) that certain Forward Purchase Agreement, dated as of December 15, 2020, between Provident and Aventis Star Investments Limited.
“Forward Purchase Warrants” means the 2,750,000 warrants to purchase Provident Class A Ordinary Shares issued to the FPA Investors pursuant to the Forward Purchase Agreements.
“Founder Parties” means DVDonet.com. Inc., Golden Edge Co., Ltd., World Speed Company Limited and Alice H. Chang, a citizen of Taiwan.
“FPA Investment” means the transaction where the FPA Investors subscribed for and purchased, and Provident issued and sold to such FPA Investors, an aggregate of 5,500,000 Provident Class A Ordinary Shares and 2,750,000 Forward Purchase Warrants in consideration for an aggregate purchase price of $55.0 million, as closed on October 27, 2022.
“FPA Investors” means (i) WF Asian Reconnaissance Fund Limited (“Ward Ferry”), (ii) PT Nugraha Eka Kencana (“Saratoga”), a controlled subsidiary of PT Saratoga Investama Sedaya Tbk, an Indonesia-based investment company, and (iii) Aventis Star Investments Limited, an affiliate of Provident, and each is a party to a Forward Purchase Agreement, including their respective successors and assigns.
“Generative AI” or “GenAI” means AI technology that assists or replaces manual content generation by generating content in response to user-defined keywords or requirements.
“IFRS” refers to International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).
“Japanese yen” and “JPY” mean the legal currency of Japan.
“JOBS Act” means the Jumpstart Our Business Startups Act.
“Key Customers” means the Company’s brand customers who contributed revenue of more than $50,000 in the trailing 12 months ended on the measurement date.
“Merger Sub 1” means Beauty Corp., a Cayman Islands exempted company with limited liability, which has ceased to exist on October 28, 2022.
“Merger Sub 2” means Fashion Corp., a Cayman Islands exempted company with limited liability, which was dissolved on April 13, 2023.
“Mergers” means the First Merger and the Second Merger.
“Nasdaq” means the Nasdaq Capital Market.
“NDRR” means net dollar retention rate, which is a percentage that reflects how our annualized Recurring Contract Revenue has increased or decreased within a defined time period for a specific set of brand customers. NDRR is calculated as (i) the annualized Recurring Contract Revenue for the current fiscal year, divided by (ii) the annualized Recurring Contract Revenue in the prior fiscal year from the same set of brand customers who have subscribed to our SaaS solutions in both fiscal years. NDRR reflects existing brand customers’ renewals, expansion and contraction of subscription to our SaaS solutions, and Churn, but excludes Contract Revenue from new customers.
“New Registration Rights Agreement” means the registration rights agreement entered into by the Company, the Sponsor, and certain shareholders of the Company on the Closing Date in connection with the Business Combination.
“New Taiwan Dollar,” “NT Dollar” and “NTD” mean the legal currency of Taiwan.
“NYSE” means the New York Stock Exchange.
“Ordinary Shares” means collectively, Class A Ordinary Shares, Class B Ordinary Shares, and any other class or series of ordinary shares Perfect Corp. may issue from time to time.
“PBR” or “physically based rendering” means using realistic shading/lighting models along with measured surface values to accurately represent real-world materials.
“PDPA” means the Personal Data Protection Act.
“PDPC” means the Personal Data Protection Commission.
“Perfect Forward Purchase Warrants” means Warrants issued by the Company in exchange for Forward Purchase Warrants.
“Perfect Private Placement Warrants” means Warrants issued by the Company in exchange for Private Placement Warrants.
“Perfect Public Warrants” means Warrants issued in exchange for Public Warrants.
“Perfect Shareholder Lock-Up Agreement” means the Lock-Up Agreement entered into by Provident, the Company and certain shareholders of the Company on the Closing Date.
“Perfect Shareholder Voting Agreement” means the voting agreement, dated as of March 3, 2022, entered into by the shareholders of the Company, the Company and Provident.
“Perfect Taiwan” means Perfect Mobile Corp., a company incorporated in Taiwan.
“PFIC” means passive foreign investment company.
“PIPE” or “PIPE Investment” means the sale of 5,000,000 Provident Class A Ordinary Shares to the PIPE Investors at a purchase price of $10.00 per Provident Class A Ordinary Share.
“PIPE Investors” means those certain investors who are party to the Subscription Agreements in connection with the PIPE Investment, including their respective successors and assigns.
“PRC” means the People’s Republic of China.
“Pre-Recapitalization Shares” means prior to the Closing, (i) the common shares of the Company, par value $0.10 per share, and (ii) (a) the series A preferred shares of the Company, par value $0.10 per share, (b) the series A-1 preferred shares of the Company, par value $0.10 per share, (c) the series B preferred shares of the Company, par value $0.10 per share, (d) the series C-1 preferred shares of the Company, par value $0.10 per share, and (e) the series C-2 preferred shares of the Company, par value $0.10 per share.
“Private Placement Warrants” means the warrants sold by Provident privately to the Sponsor simultaneously with the consummation of the Provident Initial Public Offering (including the underwriters’ partial exercise of their over-allotment option).
“Provident Class A Ordinary Shares” means the Class A ordinary shares of Provident, par value $0.0001 per share.
“Provident Class B Ordinary Shares” means the Class B ordinary shares of Provident, par value $0.0001 per share.
“Provident Initial Public Offering” means the initial public offering of Units of Provident, consummated on January 12, 2021.
“Public Warrants” means the warrants included in the Units sold in the Provident Initial Public Offering (including the underwriters’ partial exercise of their over-allotment option), each of which is exercisable for one Provident Class A Ordinary Share, in accordance with its terms.
“Recapitalization” has the meaning given to that term in the Business Combination Agreement.
“Recurring Contract Revenue” means, with respect to a brand customer that enters into a SaaS solutions subscription contract with the Company, the portion of such brand customer’s Contract Revenue that is attributable to recurring services provided by Perfect. For the purpose of determining which fiscal year has Recurring Contract Revenue and calculating monthly Recurring Contract Revenue, the total dollar amount of Contract Revenue attributable to the recurring services is allocated on a pro rata basis to each month during the contract period. Any fiscal year that covers at least one such month is deemed to have Recurring Contract Revenue. The annualized Recurring Contract Revenue is calculated by multiplying the monthly Recurring Contract Revenue by 12.
“ROI” means return on investment.
“SaaS” means software as a service.
“SDK” means software development kit, a collection of software development tools in one installable package which can facilitate the creation of applications by having a compiler, debugger and sometimes a software framework.
“SEC” means the U.S. Securities and Exchange Commission.
“Second Merger” means the merger of Provident, being the surviving entity of the First Merger, with and into Merger Sub 2, with Merger Sub 2 surviving such as a wholly-owned subsidiary of the Company.
“Second Merger Effective Time” means the effective time of the Second Merger, being 9:05 a.m. (Cayman Islands time) on October 28, 2022.
“Securities Act” means the Securities Act of 1933, as amended.
“Shareholder Earnout Shares” means an aggregate of 10,000,000 Ordinary Shares issuable to the selected shareholders of the Company within five years of the Closing, upon the occurrence of certain milestones.
“Share Incentive Plan” means the 2021 Stock Compensation Plan adopted by the Company’s Board on December 13, 2021, as amended.
“Shares” means shares in the capital of the Company of any class including a fraction of such shares, whether the Class A Ordinary Shares or the Class B Ordinary Shares or others after the Closing and does not include Pre-Recapitalization Shares.
“SKU” means stock keeping unit, which is a scannable bar code printed on product labels.
“Sponsor” means Provident Acquisition Holdings Ltd., a Cayman Islands exempted company with limited liability.
“Sponsor Earnout Promote Shares” has the meaning given to “Earnout Promote Shares” in the Sponsor Letter Agreement.
“Sponsor Letter Agreement” means the sponsor letter agreement, dated as of March 3, 2022, entered into by the Company, Provident and Sponsor, as amended.
“Stable Diffusion” means a Generative AI model that produces unique photorealistic images from text and image prompts, the development of which involved researchers from the CompVis Group at Ludwig Maximilian University of Munich and Runway with a computational donation by Stability AI and training data from non-profit organizations.
“Subscription Agreements” means the subscription agreements, each dated as of March 3, 2022, entered into by Provident, the Company and the PIPE Investors, pursuant to which the PIPE Investors have agreed to purchase an aggregate of 5,000,000 Provident Class A Ordinary Shares one business day before the date of the Closing at a purchase price of $10.00 per share.
“Transactions” means the transactions contemplated by the Business Combination Agreement and the other agreements, instruments and documents expressly contemplated by the Business Combination Agreement.
“Unit(s)” means a unit or the units issued in the Provident Initial Public Offering, each consisting of one Provident Class A Ordinary Share and one-half of one redeemable Public Warrant.
“U.K.” means the United Kingdom.
“U.S.” means the United States of America.
“U.S. dollar,” “US$,” “USD,” “United States Dollar” and “$” mean the legal currency of the United States.
“U.S. GAAP” means United States generally accepted accounting principles.
“Wannaby” means Wannaby Inc., a corporation incorporated in the State of Delaware.
“Warrants” means the warrants that entitle the holder thereof to purchase one Class A Ordinary Share pursuant to the terms of the Warrant Agreement as amended by the Assignment, Assumption and Amendment Agreement, including Perfect Public Warrants, Perfect Private Placement Warrants and Perfect Forward Purchase Warrants.
“Warrant Agreement” means the warrant agreement dated January 7, 2021, entered into by and between Provident and Continental Stock Transfer & Trust Company.
Discrepancies in any table between totals and sums of the amounts listed are due to rounding. Certain amounts and percentages have been rounded; consequently, certain figures may add up to be more or less than the total amount and certain percentages may add up to be more or less than 100% due to rounding. In particular and without limitation, amounts expressed in millions contained in this annual report have been rounded to a single decimal place for the convenience of readers. In addition, period-on-period percentage changes with respect to our IFRS measures and operating metrics have been calculated using actual figures derived from our internal accounting records and not the rounded numbers contained in this annual report, and as a result, such percentages may differ from those calculated based on the numbers contained in this annual report.
PART I
Item 1. Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A.[Reserved]
B.Capitalization and Indebtedness
Not applicable.
C.Reasons for the Offer and Use of Proceeds
Not applicable.
D.Risk Factors
You should carefully consider the risks described below before making an investment decision. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of our securities could decline due to any of these risks, and you may lose all or part of your investment. This annual report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this annual report.
Risks Related to Our Business and Industry
If we fail to grow or retain our mobile app and web service users, or if user engagement declines, our business and operating results may be materially and adversely affected.
The size of our user base and their engagement with our products are critical to the success of our B2C business. As of December 31, 2024, our apps had over 1.1 billion downloads. Our active subscribers have shown strong growth momentum, increasing from approximately 604,000 as of December 31, 2022 to 879,000 as of December 31, 2023, and surpassing one million as of December 31, 2024.
We expect existing paying subscribers to renew or upgrade their subscriptions, and we aim to continuously attract free users on our freemium model to purchase our subscription plans so as to unlock the premium features of our mobile app and web services. However, we cannot guarantee the effectiveness or the sustainability of these efforts.
The continued success of our B2C business depends on user retention, engagement, and conversion. This, in turn, relies on our ability to optimize and enhance our Generative AI solutions, delivering competitive products that meet evolving user preferences. However, the development and integration of advanced AI technologies are complex, costly, and time-consuming.
If we fail to introduce timely and compelling updates or new offerings, or if our offerings fail to meet user expectations compared to our competitors, we risk losing users, engagement, and subscription growth.
Several factors could negatively impact our user growth, retention, and engagement, including:
•Challenges in optimizing or upgrading our AI- and AR-based solutions, particularly Generative AI, leading to less competitive offerings.
•Competitors launching superior or more cost-effective products, drawing users away.
•Prolonged economic downturns, reducing consumer spending on premium features.
•Slower organic growth due to weaker word-of-mouth referrals or in-app cross-promotion, potentially requiring higher marketing and acquisition costs.
•Technical or operational issues that disrupt service reliability or degrade user experience.
•Inadequate responses to user concerns about privacy, data security, and communication.
If we fail to maintain or expand our user base and engagement, the profitability of our B2C business will be directly impacted, potentially harming our overall business, operating results, and long-term monetization potential.
The consumer app market is rapidly evolving, especially with the introduction of Generative AI related functions. If the demand for AI photo and AI video markets stops or slows down, our business will be materially and adversely affected.
Our sustainable development of B2C business was benefited from the rapid growth of the demand and usage of mobile photo and video editing apps in recent years. The popularity of photo and video editing software has been fueled by the rise of the selfie culture, the popularity of social media and the increasing adoption of smartphones with high-definition cameras.
The increasingly growing demand for photo and video editing software driven by the increase and improvement in consumer content creation has prompted software providers to enhance their offerings by integrating into advanced features such as AR effects, AI editing and layer editing, powered by the Generative AI technologies. If the demand for photo and video editing software slows, if we fail to accurately predict consumer demand and preferences for our mobile apps or web services, or if we fail to promptly adapt or introduce new product offerings to meet the evolving preferences and needs of our consumers, our business and operating results may be materially and adversely affected.
In particular, we anticipate encountering inherent risks and challenges in the developing and rapidly evolving consumer app markets, which include our ability to, among other things:
•develop and optimize the Generative AI solutions integrated into our product offerings,
•develop and launch diversified and distinguishable products and premium features catering to consumers’ evolving needs in a timely and cost-effective manner;
•introduce innovative premium features and competitive pricing to entice free users to purchase our subscription plans;
•continuously grow and retain the subscriptions to our premium features available on our YouCam suite of mobile apps and web services; and
•effectively address the emergence of new disruptive technologies, particularly AI-driven competition, to maintain the attractiveness and performance of our product offerings.
We make selective investments in new features and new enhancement to our existing mobile apps and web services which may not be successful and may not achieve expected returns.
Our sustainable growth in our B2C business depends heavily on our ability to continue to evolve our existing product offerings and introduce market-competitive products that effectively address the shifting consumer preferences and demands, so as to grow or retain our existing mobile app and web service users and convert free users into paying subscribers. To achieve this, we make selective investments in developing new products and services or enhancing our current offerings.
Since early 2023, we began developing Generative AI technologies by fully utilizing our in-house technology development capabilities and integrating Generative AI solutions into our product portfolio, enabling our consumers to create and enhance their photos and videos with high-quality and creative outputs via our mobile apps and SaaS services. In 2024, we further upgraded our Generative AI solutions integrated into our product portfolio, powered by our in-house research and development team, to incorporate a significantly broader range of generative features, including, in addition to AI avatar, text-to-photo, AI-driven editing, etc. In response to the rapidly-evolving consumer demands and market conditions, we may introduce significant changes to our existing products and services or develop and introduce new and unproven products and services, including technologies with which we have little or no prior development or operating experience.
However, we may not be equipped with significant experience in these technologies and business areas, which may adversely affect our ability to successfully develop and monetize our product offerings. We may incur substantial costs, and may not be successful in generating profits, in connection with these efforts. In addition, the introduction of new products and services, or changes to existing products and services, may result in new or enhanced governmental or regulatory scrutiny, litigation or other complications that could adversely affect our reputation, business and operating results.
We also aim to continuously create new premium features and content, and innovate and improve on our existing product offerings. Although we believe that these efforts are likely to benefit the aggregate consumer experience and improve our financial performance over the long term, we may experience disruptions or declines in our active subscribers or user activity if new premium features cause technical issues that diminish the performance or attractiveness of our mobile apps and web services. Product innovation is inherently unpredictable and fraught with uncertainty. If our new or enhanced products fail to engage users, advertisers or business partners, or if we fail to grow or retain the existing subscription to the premium features available on our mobile apps or web services, we may fail to generate sustainable revenue, operating margin or other value to justify our investments, or maintain our market leadership in the consumer beauty and AI mobile apps, as well as in the beauty and fashion AI- and AR- industry. Any of these outcomes may seriously harm our business, in the short term, long term or both.
We rely primarily on certain app stores and similar digital platforms, such as the Apple App Store and Google Play, for downloads of YouCam and our other apps, as well as for payment processing, and any interruption or deterioration in our relationship with such entities may negatively impact our business.
We currently rely on third-party digital distribution platforms, primarily Apple App Store and Google Play, as the channels for downloads of our mobile apps, as well as the processing of payments for app subscription. We expect to continue to rely on these services for the continuity of this business segment. Accordingly, we believe that maintaining successful partnerships with Apple and Google is critical to our success.
The operating policies of Apple or Google will affect the accessibility of our products and services. The promotion, distribution and operation of our mobile apps are subject to distribution platforms’ standard terms and policies for apps developers, which are subject to the interpretation of, and frequent changes by, these distribution platforms. If Apple App Store, Google Play or any of the major distribution platforms change their respective standard terms and conditions, application review policy or application enforcement guidelines in a manner that is detrimental to us, suspend our access to the platforms or terminate their existing relationship with us, our business, financial condition and results of operations may be materially and adversely affected. For example, Apple App Store and/or Google Play may adjust the categories of application on their distribution platforms and remove the type(s) of our mobile apps, which would significantly limit or even cut off the distribution of our mobile apps. In addition, our pricing strategy is affected by changes in the payment processing fees charged by Apple or Google. If we are unable to pass along any increases in the payment processing fees charged by Apple or Google to our users on a timely basis, or if the paying user engagement decreases due to a price increase, our net revenue or profit margin may be negatively affected. If we fail to maintain good relationships with Apple or Google, it may adversely impact our ability to continue to offer our products and services or effect payment processing, which in turn could have a material adverse impact on our business.
We operate in relatively new and rapidly evolving markets in beauty and fashion. If the development of the markets stops or slows down, our B2B business will be materially and adversely affected.
The AI- and AR- beauty and fashion technologies and markets are relatively new and rapidly evolving, which subjects our business to uncertainties and challenges relating to the growth and profitability of these markets as a whole. Our global addressable market is mainly driven by the growth in the beauty and fashion markets and the expected marketing and AI- and AR- spending by beauty and fashion brands, which depend on a number of factors, including overall consumer awareness about beauty and fashion products and services, brands’ deployment of digital marketing to create meaningful customer interaction and engagement, brands’ investment in omni-channels to build relationships with their customers, budgetary constraints of brands, regulatory changes and changes in broader economic conditions. If brands do not recognize our value proposition, a viable market may not develop further, or develop more slowly than we expect, and our business and operating results will be materially and adversely affected.
We have a short operating history in developing and rapidly evolving markets for our products and services, which makes it difficult to evaluate our future prospects.
We launched our AR Makeup solution in 2015 and have offered other solutions and products over the recent years. We are still in the process of expanding into new segments of beauty and fashion tech market such as the aesthetic skin tech market. Our limited operating history makes it difficult to effectively assess our future prospects or forecast our future results. In particular, we anticipate encountering inherent risks and challenges in the developing and rapidly evolving beauty and fashion technologies and markets, which include our ability to, among other things:
•maintain and strengthen our competitive edge on our key technologies, including Generative AI technology;
•grow our brand portfolio and enhance the level of consumer engagement with brands;
•develop or implement additional strategic initiatives to further increase monetization of our products and services;
•successfully expand our business operations and enhance the value of our brand globally;
•develop and launch diversified and distinguishable products and premium features to effectively address the needs of brands and consumers;
•maintain a reliable, secure, high-performance and scalable technology infrastructure that can efficiently handle increased usage;
•develop and maintain relationships with brands, digital distribution platforms and other third parties;
•successfully compete with other companies that are currently in, or may in the future enter into, the markets that we operate in, or duplicate the features of our products;
•maintain our innovative company culture and continue to attract, retain and motivate talented employees; and
•defend ourselves against litigation, regulatory interference, claims concerning intellectual property or privacy or other aspects of our business.
Failure to adequately address any of the risks and challenges associated with these dynamic and evolving markets may adversely affect our business, financial condition and results of operations.
If we fail to retain and expand sales to existing brands, attract new brands, or sustain consumer engagement with these brands, our business, financial condition, and operating results may be materially and adversely affected.
Our brand portfolio and consumer engagement with these brands are critical to the success of our B2B business. As of December 31, 2024, we had 732 brands in our cumulative portfolio, serving approximately 90% of the top 20 beauty groups that have adopted AI- and AR-based technologies. However, as the beauty and fashion technology market matures, competitors may introduce more innovative, cost-effective, or user-friendly solutions. If our offerings become less competitive in terms of pricing, quality, or effectiveness, we risk losing existing brand customers, failing to attract new ones, or experiencing a decline in consumer engagement, all of which could negatively impact our financial performance.
We expect our existing brand customers to continue using and expanding their adoption of our products and services. However, we cannot guarantee that they will increase spending, renew their contracts on similar or more favorable terms, or extend their engagements with us.
The success of our B2B business depends on our ability to expand our brand portfolio and enhance consumer engagement. If brands or their target consumers perceive our solutions as less useful, reliable, or effective compared to alternatives, we may struggle to retain customers, drive repeat business, or maintain strong consumer interactions. Several factors could negatively impact brand retention and consumer engagement, including:
•Inability to continuously develop products and services that align with evolving brand and consumer preferences.
•Competitors launching superior or more cost-effective solutions, leading to reduced demand for our offerings.
•Budget cuts or lower spending on AI- and AR-based solutions by brands, particularly amid economic downturns in China.
•Insufficient customer service or weakened brand relationships, resulting in dissatisfaction or disengagement.
•Failure to address consumer concerns about privacy, data security, and information-sharing.
•Technical issues or service disruptions that diminish the reliability or performance of our products.
There is no assurance that we will not experience brand customer attrition or declining consumer engagement. If we fail to maintain or grow our brand portfolio, our business, financial condition, reputation, and operating results could be significantly affected.
Our success is dependent on the continued popularity and perceived quality of our technology solutions.
Our success depends on our ability to continuously offer high-quality products that are attractive to both our B2C and B2B customers, and our ability to effectively adapt to changes in overall consumer demographics, tastes and preferences. Consumer preferences may shift over time due to changes in demographic and social trends, technological developments, economic conditions, and the marketing efforts of our competitors. We intend to continue to implement our data and AI strategy to enhance our platform and provide a broader range of products and services with higher precision, improved true-to-life accuracy, as well as more personalized and individualized recommendations for our consumers. However, there can be no assurance that our existing products will continue to be favored by brands and users of our mobile apps or that we will be able to anticipate or respond to shifts in consumer preferences, technological changes and industry trends in a timely manner.
In addition, as we expand into new countries and regions, we may not be able to launch products that appeal to local consumers due to an insufficient understanding of local cultures and lifestyles. Our failure to anticipate, identify or react to these specific preferences could adversely affect our sales performance and our results of operations.
We may not be successful if we are not able to innovate, develop and provide new products and services or upgrade our existing products and services in a timely and cost-effective manner to address rapidly evolving consumer preferences,
industry trends and technological changes, and any new products and services we develop and provide may expose us to new risks and may not achieve expected returns.
We compete in markets characterized by rapidly changing products and services, evolving consumer preferences, technological advancements, and continual improvements in product performance and features. As a result, our success depends on our ability to anticipate, innovate, develop and provide new products and services or enhance our existing products and services in a timely and cost-effective manner to address evolving consumer preferences and demands, including in areas where we have little or no prior development or operating experience.
As of December 31, 2024, our team of 169 technology professionals, accounting for 49.4% of our employees, is dedicated to the continuous improvement of our platform, development of new features, as well as creation of innovative apps. We provide comprehensive omni-channel solutions to brands and retailers across various industries, including beauty, fashion, skincare, jewelry, watch, and aesthetic skin beauty. Since early 2023, we began developing Generative AI technologies by fully utilizing our in-house technology development capabilities and integrating Generative AI solutions into our product portfolio, enabling consumers to create and enhance their photos and videos with high-quality and creative outputs via our mobile apps and SaaS services. In 2024, we further upgraded our Generative AI solutions integrated into our product portfolio, powered by our in-house research and development team, to incorporate a significantly broader range of generative features, including, in addition to AI avatar, text-to-photo, AI-driven editing, etc. However, we cannot guarantee that we will succeed in developing products and services that achieved widespread adoption, nor that we will be able to release commercially viable products and services in a timely manner. Failure to do so may adversely impact our business, financial condition and results of operations.
Our recent growth may not be indicative of our future growth. Even if we continue to grow, we may not be able to successfully execute our growth strategies.
We have achieved significant scale and steady growth since our inception in 2015. Our total revenue grew from $22.9 million in 2019 to $60.2 million in 2024, at a CAGR of 21.3%.
For B2C business, the number of active subscriber grew from 604 thousands as of December 31, 2022 to over 1 million as of December 31, 2024 at a CAGR of 28.7%. We believe that the continued growth in active subscribers depends on a number of factors, in particular, our ability to:
•attract and convert free users into paying subscribers for our mobile apps and web services;
•expand our subscriber base in emerging markets;
•achieve higher renewal rate for premium feature subscribers;
•increase our market share among target audience groups via online marketing and brand awareness initiatives;
•enhance our AI photo and AI video related offerings with state-of-the-art implementations to improve consumer satisfaction rate; and
•develop and launch new innovative Generative AI functions into our apps and web services in a timely manner.
For B2B business, the number of cumulative brands in our brand portfolio increased from 509 as of December 31, 2022 to 732 as of December 31, 2024 at a CAGR of 19.9%. We expect that our revenue growth rate may moderate or decline as our revenue reaches higher levels in the future. In particular, we believe that the continued revenue growth depends on a number of factors, in particular, our ability to:
•deepen our penetration into the top 20 beauty groups;
•expand our reach among the indie brands, emerging new brands and retailers;
•expand our market penetration into global top luxury and fashion brands;
•increase market share/awareness in med-spa, skincare clinics and aesthetic beauty clinics;
•develop and launch market competitive products and premium features that effectively address brands and consumer demands;
•enhance and optimize AI- and AR- technology solutions to advance product offerings; and
•pursue strategic alliances, joint venture, investments and acquisition opportunities across categories and geographies.
Given our limited operating history and the rapidly evolving nature of AI- and AR- technologies and markets, we may not be able to achieve our objectives as initially projected. Our rapid growth in history has already placed and may continue to place significant demands on our management, operational, and financial resources. As the cumulative number of brands in our portfolio, mobile app users, employee headcount, and data volume supported by our infrastructure continue to grow, we are pressed to enhance our efficiency across operations, finance, and management, as well as improving our reporting systems and procedures. Our rapid growth also presents significant challenges in terms of requiring substantial capital expenditures to fuel our future growth and allocating valuable management resources to support the increasingly complex organizational structures. As we navigate the rapidly evolving AI landscape, we may encounter difficulties in maintaining and strengthening our competitive edge, launch innovative products to address brands and consumer demands, and executing our growth strategies as planned. If we fail to adequately address any of the challenges and manage our growth effectively, our financial performance, business and results of operations may be adversely impacted.
Any businesses we will invest in or acquire may not perform as expected or be successfully integrated.
Although we focused on organic growth in the past, as part of our business strategy, we expect to invest in or acquire companies, form joint ventures, and acquire complementary assets or technologies. Competition within our industry for investments in and acquisitions of businesses, technologies, and assets is intense.
Even if we are able to identify a target for investment or acquisition, we may not be able to complete the transaction on commercially reasonable terms, we may not be able to receive approval under anti-monopoly and competition laws, or the target may choose to enter into a transaction with another party, which could be our competitor.
In addition, businesses we will invest in or acquire may not perform as expected. Failure to effectively manage and successfully integrate acquired businesses and technologies, including addressing any privacy or data security risks associated with such acquisitions, could adversely impact our operating results and expansion prospects. The process of integrating an acquired company, business, technology, or personnel into our Company, as well as the performance of an acquired company, business, technology or personnel, are subject to various risks and challenges, including:
•diverting management time and attention from operating our business;
•disrupting our existing business operations;
•customer acceptance of the acquired company’s offerings;
•establishing or remediating the controls, procedures, and policies of the acquired company;
•integrating the acquired business onto our systems and ensuring the acquired business complies with our financial reporting requirements and timelines;
•retaining and integrating acquired employees, including aligning incentives between acquired employees and existing employees, as well as managing costs associated with eliminating redundancies or transferring employees under mutually agreed terms with minimal business disruption;
•maintaining important business relationships and contracts of the acquired business;
•liability for pre-acquisition activities of the acquired company;
•litigation or other claims or liabilities arising in connection with the acquired company;
•impairment charges associated with goodwill, investments, and other acquired intangible assets; and
•other unforeseen operational difficulties and expenditures.
We cannot predict whether any strategic investment or acquisition will be accretive to the value of our Ordinary Shares. It is also possible that any of our future strategic transactions could be perceived negatively by the press, investors, customers or regulators, or be subject to regulatory inquiries or proceedings, which may adversely affect our reputation, business, financial condition and prospects.
For example, on January 7, 2025, we completed the acquisition of 100% equity interests in Wannaby, a digital immersive experiences expert, from Farfetch US Holdings, Inc., a leading global marketplace for the luxury fashion industry. Wannaby, along with its wholly-owned subsidiary, Wannaby UAB, now become wholly-owned subsidiaries of Perfect. Despite the successful completion of such acquisition, we cannot guarantee that we will be able to achieve the effective integration of Wannaby’s business into our Company within the expected timeframe. There is a risk that the synergies or strategic objectives we expected from the acquisition, such as cost savings, operational efficiencies, and revenue growth, may not materialize as originally planned and our business performance, financial condition, and long-term growth prospects may be adversely impacted.
We may fail to compete effectively or maintain market leadership in the markets in which we currently operate or expand into.
The AI- and AR- technologies and markets are rapidly evolving. Our primary competition currently comes from companies offering products and services that compete with some but not all of the functionality available on our platform, and there may be an increasing number of similar solutions offered by additional competitors in the future. Our current and potential competitors may also develop and market new technologies and products that render our existing or future products less competitive, unmarketable or obsolete. For example, the mobile device manufacturers may enhance the built-in camera apps in their smartphones with AI- and AR- technologies providing similar functionality to our mobile apps, which may render our YouCam apps redundant. Similarly, brands may choose to develop their own in-house AI- and AR- beauty and fashion technology solutions. If an increasing number of products with similar or even superior functionality to our products are introduced to the market, we may need to lower the prices for our products and services in order to remain competitive and, as a result, our margins may be reduced and our operating results may be negatively affected. The introduction of new technologies and the influx of new market entrants may intensify competition in the future, which could adversely impact our business and our ability to increase revenues, maintain or expand our brand portfolio and consumer base, and sustain our pricing.
Our current operations are international in scope, and we plan to further expand globally. If we fail to address the challenges presented by our growing global presence, our business may be materially and adversely affected.
Our business operations are international in scope, with approximately 52.8% of our revenue coming from the Americas, 27.6% from Europe, 16.8% from Asia-Pacific, and 2.8% coming from other remaining countries and/or regions in 2024. We intend to continue to expand our operations internationally, and develop strategies to address new international markets. However, global expansion has required and will continue to require considerable management attention as well as financial and other resources. We expect to face particular challenges in global expansion and operations including:
•increased costs associated with developing solutions and products and providing support in different languages;
•increased costs in marketing and advertising to promote our products effectively in different markets;
•localizing our products, services, content and features to ensure that they are culturally attuned to the different markets;
•increased competition from competitors that have strong positions in particular markets;
•increased costs associated with recruiting and retaining talented and capable employees in foreign countries and maintaining our Company culture across all of our offices;
•greater difficulty in receiving payments from different geographies, including difficulties associated with exchange rate fluctuations, transfer of funds, longer cycles for payment and collecting accounts receivable, especially in emerging markets;
•compliance with applicable foreign laws and regulations, including laws and regulations with respect to economic sanctions and export controls, anti-corruption, anti-bribery and anti-kickback, data privacy, cybersecurity and consumer protection that may conflict with local customs and practices in some jurisdictions in which we operate, and the risk of penalties if our practices are deemed not to be in compliance;
•more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information, particularly in Europe and other jurisdictions;
•limited or insufficient intellectual property protection or difficulties enforcing our rights to intellectual property;
•political, social and economic instability in some countries; and
•exposure to different tax jurisdictions and potential adverse tax consequences.
If we are unable to successfully manage the complexity of our global operations and deal with the related challenges and risks, our business, financial condition and results of operations could be adversely affected.
Our sales cycle for brands and retailers can be long and unpredictable, and our sales efforts require considerable time and expenses.
Due to the length and unpredictability of the sales cycle for brands and retailers, it is difficult to predict the timing of our sales and related revenue recognition. Given that these brands and retailers often view implementation of our solutions as a strategic decision and significant investment, they often require considerable time to evaluate, test and qualify our product offerings prior to entering into or expanding a subscription. During the sales cycle, we often need to spend significant time and resources to better educate and familiarize the potential brands and retailers with the value proposition of our products and services as well as on sales and marketing and contract negotiation activities. Such lengthy sales cycle for the evaluation and implementation of our solutions, in particular for highly customized applications, may cause a delay between increasing operating expenses for such sales efforts and generation of corresponding revenue upon successful sales. Additional factors that may influence the length and variability of our sales cycle to brands and retailers include:
•effectiveness of our sales force, in particular new sales people as we increase the size of our sales force;
•obstacles placed by their procurement process;
•their integration complexity;
•their familiarity with the AI- and AR- technologies; and
•economic conditions and other factors impacting their budgets.
Given these factors, it is difficult to predict whether and when a sale will be completed, and when revenue from a sale will be recognized and reflected in our results of operations.
Given that a small number of business partners contribute to a significant portion of our revenues, our business and results of operations could be materially and adversely affected if we were to lose a significant business partner or a significant portion of our business.
Currently, a limited number of business partners contribute a significant portion of our revenues. Our B2B business partners primarily comprise top global beauty brands. In 2022, 2023 and 2024, our five largest business partners in aggregate contributed approximately 28%, 21% and 15% of our revenues, respectively. Although the revenue concentration from those largest business partners has been diversifying over the past few years, we expect that a limited number of our business partners will continue to contribute a notable portion of our revenues in the near future.
If we lose any of these business partners, or if revenues generated from a significant business partner are substantially reduced due to, for example, increased competition, in-house development, a material change in the business partner’s operations, breach of contract or policy, any deterioration in our relationship with business partners, our business, financial condition and results of operations may be materially and adversely affected.
We depend on the continuing efforts of our founders, senior management team and key personnel, and our business operations may be negatively affected if we lose their services.
We currently depend on the continued services and performance of our founders and other key personnel, including Alice H. Chang, our founder and CEO. Our future success will depend on the continued service of our key personnel who possess significant expertise and knowledge of our industry. In addition, many of our key technologies and products are custom-made for our business by our personnel. The loss of key personnel, including members of management, as well as key engineering, product development, marketing and sales personnel, could disrupt our operations and have an adverse effect on our reputation and business. As we grow, we cannot guarantee that we will continue to attract and retain the personnel needed to maintain our competitive position. In particular, we intend to continue to hire a significant number of technical personnel in the foreseeable future, and we expect to continue to face significant challenges in hiring such personnel. Moreover, if our reputation were to be harmed, whether as a result of media, legislative or regulatory scrutiny or otherwise, it could make it more difficult to attract and retain personnel that are critical to the success of our business.
As we continue to grow and our business matures, or if our stock price declines, the incentives to attract, retain and motivate employees provided by our equity awards or by future arrangements may not be as effective as in the past. Additionally, if we issue significant equity to attract additional employees or to retain our existing employees, we would incur substantial additional share-based compensation expense, and the ownership of our existing shareholders would be further diluted. As a result, it may be difficult for us to continue to retain and motivate certain employees, and this wealth could affect their decision about whether they continue to work for us. If we do not succeed in attracting, hiring and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to grow effectively and our reputation and business could be seriously harmed.
If we are not able to maintain and enhance our brand awareness, our business and operating results may be materially and adversely affected.
We believe that our business brands, including the brands of our mobile apps such as YouCam, have significantly contributed to the success of our business. We also believe that maintaining and enhancing our business brands is critical to expanding our base of mobile app or web service users, brand partners and retailers. Many of the new users of our mobile apps or web services are referred by existing users. Maintaining and enhancing our business brands will depend largely on our ability to continue to provide useful, reliable, trustworthy and innovative products and technologies, which may not always be successful or timely. We may introduce new products or terms of service or policies that users do not like, which may negatively affect our business brands. Additionally, the actions of our developers or advertisers may affect our business brands if consumers do not have a positive experience interacting with third parties, including advertisers and platform distributors, through our products and services. We will also continue to experience media, legislative or regulatory scrutiny of our actions or decisions regarding consumer privacy, data use, encryption, content, advertising, competition, security and other issues. Our business brands may also be negatively affected by attacks from our competitors, by negative publicity about the actions of consumers that are deemed to be hostile, illegal or inappropriate to other consumers, by third-party content providers acting inappropriately, by any regulatory developments designed to address such risks, or due to legal proceedings or investigations. Maintaining and enhancing our business brands may require us to make substantial investments, which may not be successful. If we fail to successfully promote and maintain our brand awareness or if we incur excessive expenses in this effort, our business, financial condition and results of operations may be adversely affected.
User misconduct and misuse of our mobile apps or any non-compliance of third parties that we conduct business with may adversely impact our brand image and reputation, and we may be held liable for information or content displayed on, retrieved from or linked to our products and services, which may materially and adversely affect our business and operating results.
We may face claims relating to information that is published or made available on our products. Our mobile apps, in particular YouCam Makeup and YouCam Perfect, have the attributes of social media and may be misused by individuals or groups of individuals to engage in inappropriate or illegal activities.
We have implemented control procedures, and have an internal team that monitors the content uploaded by users.
While these procedures aim to detect and block illegal, fraudulent, violent, pornographic or other inappropriate content or activities conducted through the misuse of our mobile apps, particularly those that violate applicable laws and regulations, they may not be able to block all such content uploads or activities in real time due to the time lag between content upload and the inspection by our internal team. In addition, as we are developing our live streaming services on our mobile apps, it may become more difficult for our internal team to timely detect and block illegal or inappropriate content or activities in the future.
We may not be well protected from liability for third-party actions in all the jurisdictions in which we operate, as local laws vary, and some of them can be unclear or evolving. For example, in the United States, there have been various congressional and executive branch efforts to remove or restrict the scope of the protections available to online platforms under Section 230 of the Communications Decency Act, and our current protections from liability for third-party content in the United States could decrease or change. We could incur significant costs investigating and defending such claims and, if we are found liable, significant damages or license costs. A number of regulatory initiatives that have been proposed to regulate the operation of online platforms and digital services providers could generate additional operational and technical costs of compliance. Compliance with laws, regulations, and other requirements imposed upon our business may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business.
We could also face fines or orders restricting or blocking our services in particular geographies as a result of content hosted on our services. For example, in June 2020, the Home Ministry in India included our mobile app, YouCam Makeup, on a list of banned applications in the country, which remains in effect, as of the date of this annual report. If any of these events occurs, we may incur significant costs or be required to make significant changes to our products, business practices or operations and our reputation, business and operating results could be seriously harmed.
Certain of our metrics and other estimates are subject to inherent uncertainties in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
We regularly review various operating metrics, including our active subscribers, cumulative number of brands and number of SKUs featured on our platform, to evaluate growth trends, measure our performance, and make strategic decisions. These metrics are calculated using internal company data gathered on an analytics platform that we develop and operate and have not been validated by an independent third party. While we believe these metrics are reasonable estimates of our client base for the applicable period of measurement, there are inherent challenges in measuring how our products are used across large populations globally. For example, there may be individuals who have multiple accounts. Our operating metrics may also be affected by technology on certain mobile devices that automatically runs in the background of our mobile apps when another phone function is used, and this activity can cause our system to miscount the consumer metrics associated with such account.
Errors or inaccuracies in our metrics or data could also result in incorrect business decisions and inefficiencies. For instance, if a significant understatement or overstatement of active users were to occur, we may expend resources to implement unnecessary business measures or fail to take required actions to attract a sufficient number of users to satisfy our growth strategies. We believe that we do not capture all data regarding our active users, which may result in understated metrics. This generally occurs due to technical issues. For example, our systems do not record data from a user’s application or when a user opens our mobile apps and contacts our servers but is not recorded as an active user. We continually seek to address these technical issues and improve our accuracy, but given the complexity of the systems involved and the rapidly changing nature of mobile devices and systems, we expect these issues to continue. If advertisers, partners or investors do not perceive our consumer, geographic, or other demographic metrics to be accurate representations of our consumer base or consumer engagement, or if we discover material inaccuracies in our consumer, geographic or other demographic metrics, our reputation may be seriously harmed, and our advertisers and partners may also be less willing to allocate their budgets or resources to us, which could seriously harm our business.
Our business depends on attracting and retaining high-quality personnel, and failure to attract or maintain such personnel could adversely affect our business.
Our future success depends on our ability to attract, retain, and motivate highly skilled employees, particularly in AI, machine learning, and advanced algorithms. Competition for top talent in our industry is intense, especially in AI and data science.
We anticipate that some of our competitors or other players in the AI- and AR- technology sector may have access to greater resources, allowing them to aggressively pursue top talent. If we are unable to attract or retain such highly skilled personnel, or to maintain our current workforce, our ability to keep up with innovation and technological advancements in our industry could be hindered, potentially harming our business.
We have limited business insurance coverage. Any interruption of our business may result in substantial costs and the diversion of our resources, and cause an adverse impact on our financial condition and results of operations.
We have obtained insurance to cover certain potential risks and liabilities, such as error and omission commercial insurance, personal injury insurance, cybersecurity insurance and director and officer insurance for certain businesses we operate. However, consistent with general industry practice, our business insurance is limited and we may not be able to acquire insurance for all types of risks we face in our operations in all the jurisdictions where we operate. For examples, insurance companies in some of the jurisdictions where we operate offer limited cybersecurity insurance products and/or intellectual property infringement insurance products, if any. We have determined that the costs of insuring for related risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured damage to our systems, disruption of our business operations, litigation or natural disasters could require us to incur substantial costs and divert our resources, which could have an adverse effect on our financial condition and results of operations.
We may require additional capital to support our operations and the growth of our business, and we cannot be certain that financing will be available on reasonable terms when required, or at all.
We may need additional financing from time to time to operate or grow our business. Our ability to obtain additional financing, if and when required, will depend on investor and lender demand, our operating performance, the condition of the capital markets and other factors, and we cannot assure you that additional financing will be available to us on favorable terms, or at all. If we incur additional debt, including drawing on our credit facility, the debt holders would have rights senior to holders of our Ordinary Shares to make claims on our assets. If we raise additional funds through the issuance of equity securities, our existing shareholders will experience dilution and those new securities may have rights, preference or privileges senior to those of our ordinary shares. If adequate financing is not available on terms satisfactory to us when we require it, our ability to continue to support the operation and growth of our business could be significantly impaired and our operating results may be adversely affected.
Risks Related to Our Technology, Data Privacy and Intellectual Property
Issues relating to the responsible use of our technologies, including AI Solutions, 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 liabilities, and may cause us to incur costs to resolve such issues. We are increasingly building AI capabilities into many of our products and services. We have employed GenAI technology in our YouCam suite of mobile apps, empowering users to generate hundreds of personalized digital avatars and AI-edited and -enhanced images. In 2024, we further upgraded our Generative AI solutions integrated into our product portfolio to incorporate a significantly broader range of generative features, including, in addition to AI avatar, text-to-photo, AI-driven editing, etc.
AI presents risks and challenges that could affect our business. AI models, particularly Generative AI models, may produce output or take action that is incorrect, that results in the release of private, confidential or proprietary information, that reflects biases included in the data on which they are trained, that infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity of many AI models makes it challenging to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI model, reducing erroneous output, eliminating bias and complying with regulations that require documentation or explanation of the basis on which decisions are made. Inappropriate or controversial data practices by us or others could impair the acceptance of our AI solutions. The use of GenAI tools may result in copyright and other legal issues and our GenAI related product offerings may not be able to compete against that of our competitors. These deficiencies could undermine the decisions, predictions, or analysis that AI applications produce, subjecting us to legal liability, and brand or reputational harm.
If we offer AI solutions that draw controversy due to their perceived or actual impact on society 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 products, we may experience brand or reputational harm, become less competitive or incur legal liability.
The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the United States and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment and other laws applicable to the use of AI. These evolving laws and regulations may require changes in our implementation of AI technology and increase our compliance costs and non-compliance risks. If we fail to address concerns relating to the responsible use of AI by us or others, public confidence in AI adopted in our products may be undermined and the adoption of AI in our products and services may be delayed or suspended, which may cause financial and reputational harm to us.
Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the usage of any unauthorized training data for their models, and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, which we have limited control over. Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our cybersecurity measures.
AI solutions developed by us may become obsolete due to groundbreaking technological innovations or the entry of competitors with financial and brand power.
In order to maintain our strengths and further grow our AI-driven business and services, we must closely monitor the technological developments and advances as well as the emergence of new competitors in AI and related sectors, and rapidly adopt measures to keep pace with such development and advances. Therefore, the maintenance of strengths and leading position in AI-driven business and services depends largely on our ability to promptly adapt to the fast-paced technological changes in the development and implementation of AI products and services. If we cannot adopt measures to keep pace with the rapid changes in technologies or there is an emergency of groundbreaking technological innovations which we cannot adapt to promptly, our AI solutions may become obsolete and thus less desirable to our customers.
Additionally, the successful entry of competitors into the AI market that have excellent technological innovative capability, financial and brand power, could also cause our share of the market for our AI solutions to drop significantly, thereby negatively affecting our results of business operations and financial performance. We may not be able to compete effectively with competitors that have superior technological innovative capability, more financial resources and brand power than us, and we cannot predict when such new competitors will enter the AI industry causing increased competition and possibly less desire for our AI solutions. There is a risk that these, or other developments, could result in significant disruption to our business model, and that we will be unprepared to compete effectively.
If we are unable to provide advanced AI solutions due to challenges in securing necessary infrastructure, facilities, equipment, or skilled development personnel, it could delay or hinder the development, enhancement, introduction, or implementation of our AI solutions, adversely affecting our business, operations, and financial performance.
To maintain our market position and deliver competitive product offerings, we must continuously update and upgrade the AI solutions integrated into our products. This requires ongoing investments in infrastructure, facilities, and equipment, including high-performance computing resources such as GPUs, which are in high demand and often in short supply. We may not always be able to procure the necessary infrastructure, facilities, or equipment in a timely manner, at commercially reasonable prices, or at all. If we fail to secure these resources, our ability to develop and enhance AI solutions could be compromised, negatively impacting our operations and growth prospects. Even if we successfully obtain these resources, doing so may strain our financial position and divert management’s focus.
Additionally, the development and deployment of AI solutions rely on highly skilled personnel with specialized expertise. The field is knowledge-intensive and requires continuous learning to keep pace with rapid technological advancements. If we fail to attract, hire, or retain AI talent, or if we are unable to train new hires effectively, our ability to innovate and maintain high-quality AI solutions may be severely impacted. Employee departures or a shortage of skilled personnel could diminish the quality and value of our AI solutions, leading to reduced adoption by users and brand customers, ultimately harming our financial and business performance.
The information that our AI solutions learns may include confidential information. In the unlikely event of a leakage of such confidential information, our credibility may be shaken, which may affect our business performance.
Our AI solutions, particularly those used for facial expression analysis, may collect private and sensitive data. This may incur a risk of possible inadvertent leakage of confidential information. In addition, a hack or data breach initiated by unauthorized third parties may also lead to potential noncompliance with data-related laws and a leakage of confidential information. We may also inadvertently leak such confidential information due to a system breakdown or otherwise without any awareness.
Any unauthorized disclosure or leakage of confidential information could harm our reputation, cause disruptions to our business operations and could even result in a violation of applicable laws that govern the maintaining and protection of confidential information. If such confidential information is released, users would lose faith in our AI solutions and we would be unable to draw in as many users and clients. In the event of any unintentional leakage of confidential information, we may need to stop using our AI solutions to put in place more security measures and stop any more leaks of sensitive data, which might be costly and time-consuming and also interrupt our normal business operations. Therefore, it would severely damage our reputation and have a detrimental effect on our business performance, if any kind of sensitive information obtained by our AI solutions was leaked, whether it was due to actions taken by third parties or by us.
Security breaches, improper access to or disclosure of our data or consumer data, other hacking and phishing attacks on our systems, or other cyberattacks may cause our products and solutions to be perceived as not being secure, which could harm our reputation and adversely affect our business.
Mobile malware, viruses, hacking and phishing attacks have become more prevalent and sophisticated in our industry. If our security measures are breached, or if our products and services are subject to attacks or misuse that disrupt or deny the ability of consumers to access our products and services, our products and services may be perceived as not being secure and consumers and advertisers may curtail or stop using our products and services, which could have a material adverse effect on our reputation, business prospects and results of operations.
Our efforts to protect the information that our consumers have shared with us could fail due to the actions of third parties, software bugs or other technical malfunctions, employee error or malfeasance, or other factors. Third parties may attempt to fraudulently induce employees or consumers to disclose information to gain access to our data or our consumers’ data. If any of these events occurs, our or our consumers’ information could be accessed or disclosed improperly. Internally, we have our privacy policy in place that governs how we may use and share the personal information that our consumers have provided us.
However, if third parties such as business partners and advertisers fail to implement adequate data security practices or fail to comply with our terms and policies, our consumers’ data may be improperly accessed or disclosed. Any incidents where our consumers’ information is accessed without authorization, or is improperly used, or incidents that violate our terms of service or policies, could damage our reputation and our brand image and diminish our competitive position.
We are subject to data privacy and protection laws and regulations adopted by governmental agencies.
Data privacy laws restrict our storage, use, processing, disclosure, transfer and protection of non-public personal information provided to us by our consumers. Violating existing or future laws or regulations could subject us to substantial monetary fines and other penalties that could seriously harm our business. While we strive to protect our consumers’ privacy and comply with all applicable data protection laws and regulations, any failure to do so may result in proceedings or actions against us by affected consumers or government authorities, which could be time-consuming and cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices.
In addition, spammers attempt to use our products to send targeted and untargeted spam messages to consumers, which may embarrass or annoy consumers and make our products less consumer-friendly. We cannot be certain that the technologies that we have developed to repel spamming attacks will be able to eliminate all spam messages from our products. Our actions to combat spam may also require diversion of significant time and focus from improving our products. As a result of spamming activities, our consumers may use our products less or stop using them altogether. Maintaining the trust of our consumers is important to sustain our growth, retention, and consumer engagement. Negative incidents or dissatisfaction in relation to our products and services regardless of all our efforts, could deter current and potential consumers from using our products and services, which could have material adverse effects on our reputation, growth and consumer engagement, and could seriously harm our operational cost structure.
Further, we rely on computer systems and network infrastructure throughout our operations. Amazon, Alibaba and Google also provide with us distributed computing infrastructure platforms for business operations. Our operations depend on our ability to protect our computer equipment and systems from damage from physical theft, fire, power outages, telecommunications failures, and other catastrophic events, as well as from internal and external security breaches, viruses, worms, and other destructive problems. Any disruption to our operations due to damage to or failure of our computer systems, network infrastructure or servers could have a material adverse effect on our business and could subject us to regulatory action or litigation. A significant network breach in the security of these systems because of ineffective operation of these systems, maintenance issues, upgrades, or migrations to new platforms, or cyberattacks or other failures to maintain an ongoing and secure cyber network could result in further damage, delays in customer service, and reduced efficiency in our operations. This could include the theft of our intellectual property and trade secrets, improper use of personal information, and other forms of identity theft. While we utilize our own personnel and various hardware and software to monitor our systems, controls, firewalls, and encryption, and intend to maintain and upgrade our security technology and operating procedures to prevent damage, breaches and other disruptions, there is no guarantee that these security measures will be successful. Any such claims, proceedings or actions by regulatory authorities, or adverse publicity resulting from such claims, could adversely affect our business and results of operations.
Our business and operating results may be harmed by any significant service disruptions. If our products and services are subject to attacks or misuse that disrupt or deny the ability of consumers to access our products and services, and we fail to develop enhancements to resolve any defect or other problems or adapt our existing technology and infrastructure, our consumers and partners may curtail or stop using our products and services, which could significantly harm our business.
The success of our broad range of AI- and AR- powered business and consumer solutions is reliant on technology. We currently primarily offer 31 SaaS technology solutions, six mobile apps and one web based editor. Our ability to attract and retain consumers largely depends on our ability to maintain and scale our technical infrastructure. We expect to continue to make significant investments to maintain and improve the capacity, capability and reliability of our infrastructure. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed or continually develop our technology and infrastructure to accommodate actual and anticipated changes in our consumers’ needs, our business, financial condition and results of operations may be harmed.
Our business and operating results, reputation and consumer engagement may be harmed by a disruption in our service due to failures in or changes to our systems, or by our failure to timely and effectively expand and adapt our technology and infrastructure. Our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could seriously harm our business. We may experience service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, hardware failure, capacity constraints due to an overwhelming number of people accessing our products and services simultaneously, computer viruses, denial of service or fraud or security attacks. This would negatively impact our ability to attract consumers, platform partners and advertisers and increase consumer engagement. It is possible that we may fail to effectively scale and grow our technology infrastructure to accommodate increased demands arising from increased consumer traffic. It may also become increasingly difficult to maintain and improve the performance of our products and services, especially during peak usage times, as our products and services become more complex and our consumer traffic increases. In addition, we cannot provide assurance that we will be able to expand our data center infrastructure to meet consumers’ demand in a timely manner, or on favorable economic terms. If any system failure, interruption or downtime occurs, our business, financial condition and results of operations may be materially and adversely affected.
In addition, a substantial portion of our network infrastructure is provided by third parties, including Amazon Web Services (“AWS”), Alibaba Cloud and Google Cloud. Any disruption or failure in the services we receive from these providers could harm our ability to handle existing or increased traffic and could significantly harm our business. Any financial or other difficulties these providers face may also adversely affect our business, and we exercise little control over these providers, which increases our vulnerability to problems with the services they provide. In the event of a significant issue with the third-party network infrastructure supporting our network traffic, some of our products and services may become inaccessible or consumers may experience difficulties accessing our products and services. Any disruption or failure in our infrastructure could hinder our ability to handle existing or increased traffic on our platform, which could significantly harm our business.
Our technical infrastructure is also vulnerable to the risk of damage from natural disasters, such as earthquakes and typhoons, as well as from acts of terrorism or other criminal acts. Our services and products also incorporate software that is highly technical and complex. Our software has contained, and may now or in the future contain, undetected errors, bugs or vulnerabilities. Some errors in our software code may only be discovered after the code has been released. In particular, the operation of some of our new businesses implicates complex technological and operational considerations, including technical or systematic issues that may arise in the ordinary course of business. In order to address such technical difficulties, we may need to make fundamental changes to the configurations or of the underlying systems we use or expend a significant amount of time and resources to obtain the technical skills or expertise needed to adequately address such issues. Any such difficulties could have a material impact on our ability to deliver the products and services we intend to offer, reduce our reliability and harm our reputation.
The successful operation of our business also depends upon the performance and reliability of the Internet infrastructure in China and the safety of our network and infrastructure. If our AWS, Alibaba Cloud or Google Cloud server code comes across some serious bugs that disrupt the service, many of our online services to clients will be affected. The Service-Level Agreement we have signed with most of our clients requires 99.7% to 99.99% service availability. Failure to meet that requirement will result in penalty, i.e., extra credits or refunds, as provided by the agreements. Furthermore, even if our Internet infrastructure is free of bugs, we may encounter unexpected issues solely due to administrative oversight. For example, in April 2019, merely due to our administrative error of missing the filing deadline of our server certificate, our server in China stayed non-functional for about two weeks.
We rely on AWS, Alibaba Cloud and Google Cloud for the vast majority of our computing, storage, bandwidth, and other services. Any service interruption of their operating systems, networks and hardware or other disruptions of or interference with our use of the cloud operation could impair the delivery of our platform and thus negatively affect our operations and harm our business.
Amazon, Alibaba and Google provide distributed computing infrastructure platforms for business operations, or what is commonly referred to as a “cloud” computing service. We currently run the vast majority of our computing on the three platforms, and our systems are not fully reliant on them. We have also built our software and computer systems to use computing, storage capabilities, bandwidth, and other services provided by AWS, Alibaba Cloud and Google Cloud. Any disruption of or interference with our use of AWS, Alibaba Cloud and Google Cloud would negatively affect our operations and seriously harm our business.
First of all, any transition of the cloud services currently provided by any one of AWS, Alibaba Cloud and Google Cloud to the other platform or to another cloud provider would be difficult to implement and will cause us to incur significant time and expense. The level of service provided by AWS, Alibaba Cloud and Google Cloud may also impact our users’, advertisers’, and partners’ usage of and satisfaction with products or services. If our users or partners are not able to access our mobile apps or SaaS or specific features of our products or services, or encounter difficulties in doing so, due to issues or disruptions with AWS, Alibaba Cloud or Google Cloud, or if AWS, Alibaba Cloud or Google Cloud experiences interruptions in service regularly or for a prolonged basis, or other similar issues, we may lose users, partners, or advertising revenue and our business would be seriously harmed.
Secondly, each of Amazon, Alibaba and/or Google may take actions beyond our control that could seriously harm our business, including: (i) discontinuing or limiting our access to its cloud platform; (ii) increasing pricing terms; (iii) terminating or seeking to terminate our contractual relationship altogether; (iv) establishing more favorable relationships or pricing terms with one or more of our competitors; and (v) modifying or interpreting its terms of service or other policies in a manner that impacts our ability to run our business and operations. Amazon, Alibaba and Google each has broad discretion to change and interpret its terms of service and other policies with respect to us. If services and products provided by Amazon, Alibaba and Google are limited, restricted, curtailed or degraded in any way, or become unavailable to us or our consumers for any reason, our business may be materially and adversely affected. They may also alter how we are able to process data on their cloud platforms. If Amazon, Alibaba or Google makes changes or has interpretations that are unfavorable to us, our business could be seriously harmed. Hosting costs also have increased and will continue to increase as our consumer base and consumer engagement grows and may seriously harm our business if we are unable to grow our revenues faster than the cost of utilizing the services of AWS, Alibaba Cloud and Google Cloud.
In addition, we also currently rely on third-party mobile apps distribution channels such as iOS App Store and Android Google Play to distribute most of our mobile apps to users. We expect a substantial number of downloads of our mobile apps will continue to be derived from these distribution channels and we expect that we will continue to rely on Apple App Store for downloads of our mobile apps. Accordingly, we believe that maintaining successful partnerships with Apple is critical to our success.
If major mobile apps distribution channels change their standard terms and conditions in a manner that is detrimental to us, or terminate their existing relationship with us, our business, financial condition and results of operations may be materially and adversely affected. Moreover, the operating policies of Apple may have an impact on the accessibility of our products and services. If we fail to maintain good relationships with Apple, it may adversely impact our ability to continue to offer our products and services, which in turn could have a material adverse impact on our business.
We rely on third-party proprietary and open source software for our products and services. The inability to obtain third-party licenses for such software, obtain them on favorable terms, or adhere to the license terms or any errors or failures caused by such software could harm our business.
Some of our offerings include software or other intellectual property licensed from third parties. It may be necessary in the future to renew licenses relating to various aspects of these applications or to seek new licenses for existing or new applications. Necessary licenses may not be available on acceptable terms or under open source licenses permitting redistribution in commercial offerings, if at all. The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms could result in delays in product releases until equivalent technology can be identified, licensed or developed, if at all, and integrated into our products and services, which could harm our business, results of operations and financial condition.
In addition, third parties may allege that additional licenses are required for our use of their software or intellectual property, which it may be unable to obtain on commercially reasonable terms or at all.
The inclusion in our offerings of software or other intellectual property licensed from third parties on a non-exclusive basis could limit our ability to differentiate our offerings from those of our competitors. Failure to properly adhere to the license terms for software or other intellectual property might have negative effects, such as revocation of the license grant, penalties, added license fees or other liabilities. If a distributor of open source software were to allege that we had not complied with our license, we could be required to incur significant legal expenses. Very few legal precedent governs the interpretation of these licenses; therefore, the potential impact of these terms on our business is unknown and may result in unanticipated obligations regarding our technologies. To the extent that our products and services depend upon the successful operation of third-party software, any undetected errors or defects in such third-party software could also impair the functionality of our products and services, delay new feature introductions, result in a failure of products and services, and injure our reputation.
In addition, we use open source software in our products and solutions, including various open source libraries in our product development, as well as many development tools or libraries from Apple and Google. We expect to incorporate open source software into other offerings or products in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses. If we inappropriately use or incorporate open source software subject to certain types of open source licenses that challenge the proprietary nature of our software products, we may be required to re-engineer our products, discontinue the sale of our products and solutions or take other remedial actions. From time to time, there have also been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our products.
Our business depends upon the interoperability of our platform across devices, operating systems, and third-party applications that we do not control.
Our success depends in part on the interoperability of our products and services with third-party operating systems, applications, data, web browsers and devices, including, but not limited to, mobile-device cameras. We may not be successful in adapting our products and services that operate effectively with these technologies, systems, networks, regulations, or standards and we may not successfully cultivate relationships with key industry participants that operate effectively with these technologies, systems, networks, regulations, or standards. We plan to continue to introduce new products regularly and have experienced that it takes time to optimize such products to function with these operating systems and hardware, impacting the popularity of such products, and we expect this trend to continue. If customers have difficulty accessing and using our products and services (including on mobile devices) or if our products and services cannot connect a broadening range of applications, data and devices, then customer growth and retention may be harmed and our business and operating results could be harmed.
In addition, the owners of those third-party operating systems, such as Google and Apple, each provides consumers with products that compete with ours. Any changes in such operating systems, applications, data, web browsers or devices that degrade the functionality of our products and services or give preferential treatment to competitive services could harm the adoption and usage of our products and services. Our competitors that control the operating systems and related hardware that our mobile apps run on could make interoperability of our products with those mobile operating systems more difficult or display their competitive offerings more prominently than ours.
Moreover, our products require high-bandwidth data capabilities. If the costs of data usage increase, our user growth, retention, and engagement may be seriously harmed. Additionally, to deliver high-quality video and other content over mobile cellular networks, our products must work well with a range of mobile technologies, systems, networks, regulations, and standards that we do not control. In particular, any future changes to the iOS or Android operating systems may impact the accessibility, speed, functionality, and other performance aspects of our products, which issues are likely to occur in the future from time to time.
Because our YouCam apps are used primarily on mobile devices, effective mobile functionality is a part of our long-term development and growth strategy. As our app users download our apps from both iOS and Android operating systems and run our apps on both systems, we must continue to develop and enhance our product functionality on both platforms. Given the growing popularity of mobile photo- and video-editing apps, if we are unable to improve operability of our products on smartphones, our business could be seriously harmed.
We may incur substantial costs in protecting or defending our intellectual property and any failure to protect our intellectual property could impair our competitive position and the value of our brand and other intangible assets may be diminished.
Effective protection of intellectual property rights is expensive and difficult to maintain, both in terms of application and maintenance costs, as well as the costs of defending and enforcing those rights. Although we have taken measures to protect our proprietary rights, the efforts we have taken to protect our intellectual property rights may not be sufficient or effective, and our intellectual property rights will be insufficient to protect against others offering products or services that are substantially similar to ours and compete with our business. If we are unable to protect our proprietary rights or prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished, and competitors may be able to more effectively mimic our service and methods of operations. Any of these events could seriously harm our business.
We aim to protect our confidential proprietary information, in part, by entering into confidentiality agreements and invention assignment agreements with all our employees, consultants, advisors, and any third parties who access or contribute to our proprietary know-how, information, or technology. We also rely on trademark, copyright, patent, trade secret, and domain-name-protection laws to protect our proprietary rights. Our trade secrets, trademarks, copyrights, patents and other intellectual property rights are important assets for us. There can be no assurance that we will be able to protect against the unauthorized use of our brand, trademarks or other assets. There is also a risk that one or more of our trademarks could become generic, which could result in them being declared invalid or unenforceable. We rely on, and expect to continue to rely on, a combination of confidentiality and license agreements with our employees, consultants and third parties with whom we have relationships, as well as trademark, trade dress, domain name, copyright, trade secret and patent laws, to protect our brand and other intellectual property rights.
Significant impairments of our intellectual property rights, and limitations on our ability to assert our intellectual property rights against others, could harm our business and our ability to compete.
If we need to license or acquire new intellectual property, we may incur substantial costs and in some cases, pending trademark, copyright and patent applications may not be approved. We have filed various applications to protect aspects of our intellectual property, and we currently hold a number of issued patents, trademarks and copyrights in multiple jurisdictions. Effective protection of patents, trademarks and copyrights is expensive and difficult to maintain, both in terms of application and registration costs, as well as the costs of defending and enforcing those rights. We may be required to protect our rights in an increasing number of countries, in a process that is expensive and may not be successful, or which we may not pursue in every country in which our products and services are distributed or made available. In the future, we may acquire additional patents or patent portfolios, which could require significant cash expenditures.
Further, the laws of certain foreign countries provide different levels of protection of corporate proprietary information and assets, such as intellectual property, trade secrets, know-how, and records. We may fail to obtain effective intellectual property protection, or effective intellectual property protection may not be available in every country in which our products and services are available.
As a result, we may be exposed to material risks of theft of our proprietary information and other intellectual property, including technical data, manufacturing processes, data sets, or other sensitive information, and we may also encounter significant problems in protecting and defending our intellectual property or proprietary rights abroad. In any of these cases, we may be required to expend significant time and expense to prevent infringement or to enforce our rights.
We may be subject to intellectual property infringement claims or other allegations by third parties, which may cause substantial costs and materially and adversely affect our business operations.
Companies in the mobile, camera, communication, media, Internet, and other technology-related industries own large numbers of patents, copyrights, trademarks, trade secrets, and other intellectual property rights, and frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights. In addition, various “non-practicing entities” that own patents, copyrights, trademarks, trade secrets, and other intellectual property rights often attempt to aggressively assert claims in order to extract payments from technology companies. We may be subject to intellectual property infringement lawsuits that are expensive and time-consuming. If resolved adversely, these lawsuits and claims could result in our payment of substantial damages or license fees, disruption to our product and service offerings and reputational harm.
Furthermore, from time to time we may introduce new products or make other business changes, including in areas where we currently do not compete, which could increase our exposure to patent, copyright, trademark, trade secret, and other intellectual property rights claims from competitors and non-practicing entities. Some of our agreements with advertisers, platform partners and data partners require us to indemnify them for certain intellectual property claims against them, which could require us to incur considerable costs in defending such claims, and may require us to pay significant damages in the event of an adverse ruling. Such advertisers, platform partners and data partners may also discontinue use of our products, services and technologies as a result of injunctions or otherwise, which could result in loss of revenue and adversely impact our business.
We might be subject to claims and legal proceedings from holders of patents, trademarks, copyrights, and other intellectual property rights owners alleging that some of our products or content infringe their rights, as well as from non-practicing entities (NPEs), sometimes referred to as “patent trolls,” who may seek monetary settlements from us or our customers. While we believe we have meritorious defenses to these claims, we may, at times, choose to settle certain disputes. In addition, an unfavorable outcome in these lawsuits could seriously harm our business. If these or other matters continue in the future or we need to enter into licensing arrangements, which may not be available to us or on terms favorable to us, it may increase our costs and decrease the value of our products, and our business could be seriously harmed.
In addition, we may have to seek a license to continue practices found to be in violation of a third party’s rights. If we are required or choose to enter into royalty or licensing arrangements, such arrangements may not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses. As a result, we may also be required to develop or procure alternative non-infringing technology or discontinue use of the technology. The development or procurement of alternative non-infringing technology could require significant effort and expense or may not be feasible.
From time to time, we may become involved in litigation, regulatory investigations, administrative proceedings, or other legal disputes that could have a material and adverse impact on our business.
In the course of our operations, we may face lawsuits, claims, arbitration, or regulatory actions related to intellectual property, contractual disputes, consumer protection, employment matters, data privacy, regulatory compliance, or other legal issues. Defending against such actions can be time-consuming, costly, and disruptive to our business. These proceedings may divert senior management’s attention, consume significant financial and operational resources, and result in substantial legal and settlement expenses.
Even if we successfully defend against legal claims, negative publicity and reputational damage may arise during or after such proceedings, potentially eroding customer trust, investor confidence, and brand value. If an adverse judgment or settlement occurs, we may be required to pay substantial monetary damages, incur significant liabilities, modify business practices, or suspend or terminate certain operations, all of which could materially harm our financial condition, results of operations, and long-term growth prospects.
Given the evolving regulatory landscape and increasing scrutiny on businesses operating in digital services, AI, and technology sectors, the likelihood of legal challenges may increase, further exacerbating legal and compliance risks. While we actively monitor and manage our legal exposure, there is no assurance that we will not face legal actions that could significantly impact our business. As a result, our business, financial condition, results of operations and prospects may be materially and adversely affected.
Risks Related to Our Financial Results
We have incurred operating losses in the past, and our ability to maintain profitability in the future is uncertain.
We have incurred operating losses in 2022, and achieved net income in 2023 and 2024 and our future revenue growth and profitability depend on a variety of factors, many of which are beyond our control. Additionally, there is no guarantee that we will be able to obtain additional capital in a timely manner, or on favorable or acceptable terms, or at all.
We recorded net losses of $161.7 million in 2022, and recorded net income of $5.4 million and $5.0 million, respectively, in 2023 and 2024. Even though our revenues have grown over the years, from $47.3 million in 2022, to $53.5 million in 2023 and to $60.2 million in 2024, our revenue growth rate has slightly slowed in recent years and may continue to slow down in the future due to a variety of factors.
We believe that our future revenue growth will depend on, among other factors, our ability to attract new consumers to download our mobile apps and subscribe for the premium features of our mobile apps and web and in acquiring new brand customers while retaining our existing brand portfolio, and launch market competitive products that effectively address the needs of brands and retailers.
Our ability to sustain profitability is also affected by market and regulatory development related to, among others, AI, mobile apps, and online marketing. In addition, our ability to maintain profitability in the future is uncertain and you should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future revenue growth.
We expect our operating expenses to increase in absolute dollar in future periods as we continue to expend substantial financial resources on: (i) research and development, especially the development and optimization of Generative AI solutions, (ii) infrastructure, facilities and equipment empowering the AI development, (iii) attracting and retaining talented employees, especially top-tier AI talent, (iv) marketing and sales; (v) global expansion; and (vi) strategic opportunities, including operation of newly developed or newly acquired businesses. These investments, while increasing our expenses, may not result in an increase in revenues or growth in our business. If we are unable to achieve adequate revenue growth and to manage our expenses, we may incur significant losses in the future.
We recognize revenue from recurring subscriptions to our products over the terms of these subscriptions. Increases or decreases in new sales may not be immediately reflected in our results of operations and may be difficult to discern.
Due to the nature of our Company, we recognize revenue from recurring subscriptions to our products ratably over the subscription term. Consequently, a portion of the revenue we report in each period is derived from the recognition of deferred revenue relating to subscriptions and contracts entered into during previous quarters. As a result, a decline in new or renewed subscriptions in any single reporting period may have a small impact on the revenue that we recognize for such quarter. However, such a decline will negatively affect our revenue in future quarters. As such, the effect of significant downturns in sales and potential changes in our pricing policies or rate of customer expansion or retention may not be fully reflected in our results of operations until future periods. In addition, our subscription-based revenue model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers or existing customers that increase their use of our products or upgrade to higher-priced products or product tiers must be recognized over the applicable subscription term. Finally, because a significant portion of our costs are expensed as incurred while revenue is recognized over the subscription term, an increase in new mobile app and web service subscribers and brand customers has historically resulted, and may continue to result, in higher upfront costs and lower recognized revenue in the early stages of new subscriptions.
Our financial results are likely to fluctuate from period to period due to seasonality and a variety of other factors, which makes our period-to-period results volatile and difficult to predict.
Our periodic financial results are likely to fluctuate in the future. As a result, you should not rely upon our past periodic financial results as indicators of future performance. You should also take into account the risks and uncertainties frequently encountered by companies in rapidly evolving markets. Our financial results in any given period can be influenced by numerous factors occurring in a particular period, many of which we are unable to predict or are outside of our control, including:
•development and introduction of new products or services by us or our competitors and the market reaction to such new products or services;
•our ability to renew our subscriptions with, and expand sales of our products and solutions to, our existing brand in our portfolio;
•ability of our data service providers to scale effectively and timely to provide the necessary technical infrastructure to offer our services;
•growth and diversification of our revenue sources;
•increases in marketing, sales and other operating expenses that we may incur to grow and expand our operations and to remain competitive;
•changes in budgets of brands and retailers and in the timing of their budget cycles and purchasing decisions, including cost-cutting measures;
•seasonal fluctuations in spending by brands. Historically, the fourth quarter has typically been the quarter with the largest bookings from brands and retailers, which impacts revenue, unbilled revenue, deferred revenue, accounts receivable and amortized commissions in future periods;
•system failures or breaches of security or privacy of our system;
•amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges;
•impact of new accounting pronouncements;
•unforeseen contingencies, such as adverse litigation judgments, settlements or other litigation-related costs;
•fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies;
•changes in laws and regulations that affect our business; and
•changes in business or macroeconomic conditions, including the impact of inflationary pressures and increases in interest rates, and global conflicts.
Changes in subjective assumptions, estimates and judgments by our management related to complex accounting matters or changes in the IFRS may significantly affect our financial condition and results of operations.
IFRS and related pronouncements, implementation guidelines, and interpretations apply to a wide range of matters that will be relevant to our business, including revenue recognition, financial instruments, stock-based compensation, deferred commissions and business combinations. These matters are complex and will involve subjective assumptions, estimates, and judgments by our management. Changes in IFRS, relevant accounting pronouncements or interpretation or changes in underlying assumptions, estimates, or judgments by our management, the International Accounting Standards Board, the SEC and others could significantly change our reported or expected financial performance, which could impact the market price of our securities.
Examinations by relevant tax authorities may result in material changes in reserves for tax positions taken in previously filed tax returns or may impact the valuation of certain deferred income tax assets.
Based on the outcome of examinations by relevant tax authorities, or as a result of the expiration of statutes of limitations for specific jurisdictions, it is possible that the reserves for tax positions taken in previously filed tax returns will materially change from those recorded in our financial statements.
In addition, the outcome of examinations may impact the valuation of certain deferred income tax assets (such as net operating loss carryforward) in future periods. It is not possible to estimate the impact of such changes, if any, to the reserves for uncertain tax positions.
Our costs are growing rapidly and may increase faster than our revenue, which could seriously harm our business or increase our losses.
As our business continues to grow, we expect our expenses to grow in the future. Historically, our costs have increased each year due to several factors, including growth of our brand portfolio and consumer base, an increase in the level of consumer engagement, development and implementation of new product features, enhancement of our technology infrastructure and hiring of additional personnel at a rapid pace to support potential future growth. We expect to continue to incur increasing costs due to these factors to expand our operation and remain competitive. In addition, we expect to continue to invest in our global infrastructure to expand our product offering to a more global consumer base, including in countries where we do not expect significant short-term monetization, if any. Our expenses may be greater than we anticipate, and our investments may outpace monetization efforts. Such increase in our costs without a corresponding growth in our revenue would increase our losses and could seriously harm our business.
Risks Related to Laws and Regulations
Our business is subject to complex and evolving U.S. and international laws and regulations regarding privacy, data protection and AI. 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 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, there are various laws and regulations concerning privacy and data protection, and 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. Federal and state regulators, including the Federal Trade Commission (the “FTC”), have engaged in enforcement actions focused on biometric information. For example, the Biometric Information Privacy Act in Illinois (the “BIPA”), the Capture or Use of Biometric Identifier Act in Texas (the “CUBI”) and the My Health My Data Act in Washington (the “MHMD”) restrict the collection and use of biometric identifiers and biometric information. Several class action lawsuits have been brought under BIPA’s private right of action, and BIPA has generally been broadly 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 and settlement 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 from the preceding financial year 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.
Laws and regulations governing AI, including Generative AI, are rapidly developing. Many jurisdictions are establishing or considering the establishment of AI-specific legal frameworks with which we may need to comply. For example, in February 2024, EU legislators approved the final text of the EU Artificial Intelligence Act (the “EU AI Act”), which was passed by the European Parliament in March 2024. The EU AI Act is a comprehensive legal framework that seeks to regulate the design, development, importation, marketing and use of AI in the EU using a risk-based approach. AI systems deemed an unacceptable risk, such as AI systems that facilitate biometric categorization of natural persons based on biometric data to deduce or infer their race, political opinions, trade union membership, religious or philosophical beliefs, sex life or sexual orientation, may be prohibited from being sold or deployed in the EU altogether, while AI systems deemed a high risk may be subject to stringent regulatory obligations, such as the performance of conformity assessments to demonstrate that the systems comply with mandated requirements. On the lower end of the risk spectrum, AI systems deemed a specific transparency risk may be subject to transparency-related requirements, such as the provision of applicable notices, and AI systems deemed a low or minimal risk may be subject to no additional legal obligations. The obligations of the EU AI Act will apply to actors across the AI value chain, such as providers, importers, distributors and deployers, and providers of certain general purpose AI models with systemic risks may be subject to additional requirements. Failure to comply with provisions of the EU AI Act can result in administrative fines of up to €35 million or 7% annual worldwide turnover from the preceding financial year, whichever is higher.
The collection, process, and use of personal data in Taiwan is primarily subject to the PDPA and the enforcement rules of the PDPA 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 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 the 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. Such administrative fines may range from NTD20,000 to NTD200,000 for each occurrence of a violation, with increased fines ranging from NTD150,000 to NTD15,000,000 available for certain violations of the PDPA.
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.
The regulatory and legal framework on generative AI of mainland China is also evolving rapidly. In recent years, the government authorities of mainland China have released a series of laws and regulations related to generative AI services, including the Administration Provisions on Algorithmic Recommendation of Internet Information Services, the Administrative Provisions on Deep Synthesis of Internet Information Services and the Interim Measures for the Administration of Generative Artificial Intelligence Services. However, these laws and regulations related to generative AI services are relatively new, and the competent government authorities of mainland China may introduce additional or more detailed laws and regulations to oversee the generative AI services. Therefore, we may need to comply with more requirements in the field of Generative AI, which may increase our compliance costs. We also face uncertainties with respect to such evolving laws and regulations as well as their interpretations and our business operations and development may be affected as a result.
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 offering certain consumer mobile apps to end users and providing online cloud-based SaaS solutions to clients in the beauty and fashion industry. As of December 31, 2024, 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.
Any amendments to existing tax regulations or the implementation of any new tax laws in Taiwan, the United States or other jurisdictions in which we operate our business may have an adverse effect on our business and profitability.
While we are subject to tax laws and regulations in various jurisdictions in which we operate or conduct business, our principal operations are in Taiwan, and we are exposed primarily to taxes levied by the Taiwan government. Any unfavorable changes of tax laws and regulations in this jurisdiction could increase our effective tax rate and have an adverse effect on our operating results.
Foreign government initiatives to restrict or ban access to our products in their countries could seriously harm our business.
Foreign governments may censor or restrict access to our YouCam apps in their countries, require data localization, or impose other laws or regulations that would be difficult or even impossible for us to comply with, or would require us to rebuild our products or the infrastructure for our products. For example, our YouCam Makeup App has been banned in India since June 2020. The Indian authorities rejected our several appeals on the basis that YouCam Makeup App caused certain national security concerns under Section 69A of the Information Technology Act, 2000 of India, but they did not provide any detailed explanation for this ban or the subsequent rejections of our appeals. Any restriction on access to YouCam apps due to foreign government actions or initiatives, or any withdrawal by us from certain countries because of such actions or initiatives, would adversely affect our active subscribers, including by giving our competitors an opportunity to penetrate geographic markets that we cannot access. As a result, our consumer growth, retention, and engagement may be seriously harmed, and we may not be able to maintain or grow our revenue as anticipated and our business could be seriously harmed.
Many of our customers deploy our products and solutions globally and we could be held liable in some jurisdictions in which we operate for content posted by our consumers, which could expose us to damages or other legal liability.
Our platform allows our consumers to post content globally. Although relevant laws and regulations such as Section 230 of the Communications Decency Act of the United States provide immunity, subject to certain conditions, to certain online platforms from claims related to third-party content, the law relating to the liability of online service providers for others’ activities on their services may change and our current protections from liability for third-party content in the United States could decrease or change as a result. Claims may be brought against us for defamation, negligence, breach of contract, copyright and trademark infringement, unfair competition, unlawful activity, torts, fraud, or other legal theories based on the nature and content of information available on or via our platform.
We may be subject to claims by virtue of our involvement in hosting, transmitting or providing access to content created by third parties. Defense of any such actions could be costly and involve significant time and attention of our management and other resources, may result in monetary liabilities or penalties, or may require us to change our business in an adverse manner. If the content displayed on our platform is found to be illegal under applicable local law, we may be exposed to fines, civil penalties or consent decrees for such violations of law, which could adversely affect our revenue, reputation and results of operations.
We may be subject to governmental export and import controls that could impair our ability to compete in international markets and subject us to liability if we violate the controls.
Since 2018, there have been political and trade tensions among a number of the world’s major economies. These tensions have resulted in the implementation of tariff and non-tariff trade barriers and sanctions, including the use of export control restrictions and sanctions against certain countries and individual companies. Any increase in the use of export control restrictions and sanctions to target certain countries and entities or any expansion of the extraterritorial jurisdiction of export control laws in relation to AI products could impact our ability to compete globally. In addition, measures adopted by an affected country to counteract impacts of another country’s actions or regulations could lead to significant legal liability to multinational corporations, including our own. For example, due to the military conflicts between Russia and Ukraine, several major economies, including the United States, the United Kingdom and the European Union imposed economic sanctions against Russia and certain Russian persons and entities. In addition, there have been sustained tension between the United States and the PRC over trade policies including tariffs and barriers on imports and exports and government incentives to onshore and/or nearshore production and supply chains to favored jurisdictions. Our current results of operations have not been materially affected by the expanded export control regulations or the novel rules or measures adopted to counteract them. Nevertheless, depending on future developments of global trade tensions, such regulations, rules, or measures may have an adverse impact on our business and operations, and we may incur significant legal liability and financial losses as a result.
Risks Related to Doing Business in Taiwan
Any lack of requisite approvals, licenses, permits or filings or failure to comply with any requirements of Taiwan laws, regulations and policies may materially and adversely affect our daily operations.
In accordance with the relevant Taiwan laws and regulations, our Taiwan subsidiary is required to maintain various approvals, licenses, permits and filings to operate its business. Whether such approvals, licenses, permits and filings are obtained is subject to satisfactory compliance with, among other things, the applicable laws and regulations. If our Taiwan subsidiary is unable to obtain any of such licenses and permits or extend or renew any of its current licenses or permits upon their expirations, or if it is required to incur significant additional costs to obtain or renew these licenses, permits and approvals, our daily operations could be materially and adversely affected.
Cross-Straits relationship imposes macroeconomic risks which could negatively affect our business.
We maintain our principal executive offices and a substantial amount of our assets in Taiwan, and most of our technical and product development expertise is derived from operations in Taiwan. Our business, financial condition and results of operations may be affected by potential economical and/or military issues in Taiwan.
Taiwan has a unique international political status due to historical reasons. Although significant economic and cultural relations have been established during recent years between Taiwan and the PRC, the PRC government has refused to renounce the possibility that it may at some point use force to gain control over Taiwan. Sanctions against Taiwan entities or persons, and military blockage or actions from the PRC, may significantly harm Taiwan’s economy. Cross-Straits relations between Taiwan and the PRC have been strained in recent years for a variety of reasons, including tensions concerning arms sales to Taiwan by the United States government and visits to Taiwan by United States government officials. The financial markets have viewed certain past developments in relations between Taiwan and the PRC as occasions to depress general market prices of the securities of Taiwan companies. Any tension between Taiwan and the PRC, or between the United States and the PRC, could materially and adversely affect our business, financial condition and results of operations.
Our Taiwan subsidiary is subject to certain restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy the liquidity requirements.
As an exempted company with limited liability incorporated under the laws of the Cayman Islands structured as a holding company, we may need dividends and other distributions on equity from our Taiwan subsidiary to satisfy our liquidity requirements. Current Taiwan regulations permit our Taiwan subsidiary to pay dividends to its respective shareholders only out of its accumulated profits, if any, which shall first make up previous losses and set aside at least 10% of its accumulated profits each year. These reserves are not distributable as cash dividends. Furthermore, if our Taiwan subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Any limitation on the ability of our Taiwan subsidiary to distribute dividends or to make payments to us may restrict our ability to satisfy our liquidity requirements. In addition, the dividend payments by our Taiwan subsidiary to us shall be subject to a withholding tax of 21%.
Our Taiwan subsidiary is subject to foreign exchange control imposed by Taiwan authorities, which may affect paying dividends, repatriating the interest or making other payments to us.
Currently Taiwan regulates only those foreign exchange transactions that involve currency conversion from New Taiwan Dollar to foreign currency or from foreign currency to New Taiwan Dollar (collectively, “Regulated Transactions”). In general, Regulated Transactions involving NTD 500,000 or more shall be declared to the Central Bank of Taiwan. Further, for Regulated Transactions involving New Taiwan Dollar equivalent to over USD 1 million, relevant documents shall be verified by banks before such transactions can be processed. In addition, if annual accumulated settlement amount of Regulated Transactions exceeds USD 50 million, such foreign exchange settlement is subject to the approval of the Central Bank of Taiwan. The Taiwan government may impose further foreign exchange restrictions in certain emergency situations, where the Taiwan government experiences extreme difficulty in stabilizing the balance of payments or where there are substantial disturbances in the financial and capital markets in Taiwan. If the dividend payments or other payments by our Taiwan subsidiary to us involves the currency conversion from New Taiwan Dollar to United States Dollar, such conversion would be subject to the foregoing foreign exchange control. See “Item 4. Information on the Company — B. Business Overview — Regulation — Exchange Controls in Taiwan” for additional details.
We may be required to obtain approvals from Taiwan authority for investment in our Taiwan subsidiary if the shareholding of Perfect reaches the threshold for such approval.
Under current Taiwan laws, regulations and policy, Perfect, the sole shareholder of our Taiwan subsidiary, will be required to obtain an approval from the Department of Investment Review, Ministry of Economic Affairs of Taiwan for its investment in its Taiwanese subsidiary if more than 30% of its capital is directly or indirectly owned by, or beneficially owned by any PRC person or it is under control by any PRC person.
As of the date of this annual report, we are not aware of any PRC person who has triggered or would trigger the requirement for such approval. If such approval is needed in the future, failure to obtain it may subject us to relevant Taiwan authority’s monetary penalty of from NTD120,000 to NTD25,000,000, and we may be ordered to rectify within a specific timeline; if Perfect still fails to apply for such approval after receiving the rectification order, the Taiwan authority may order Perfect to withdraw its investment and suspend its operation in Taiwan.
Risks Related to Doing Business in the PRC
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.
The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference, but have limited precedential value. The uncertainty mainly lies in two prongs. On one hand, interpretation of the laws such as the Personal Information Protection Law (“PIPL”) can be debatable, supplemental regulations are partially lacking, and the laws are issued and amended by authorities in a relatively fast fashion. On the other hand, there exist multiple authorities governing cybersecurity and data protection law enforcement simultaneously, and their focus and frequency of enforcement activities may differ, which adds up to the uncertainty. Generally speaking, both legislation and enforcement activities fairly reflect a tightening regulatory trend.
Our mobile apps are available for downloading and use in China. We have one operating subsidiary located in the PRC, and our business operations in the PRC are required to obtain and maintain applicable licenses and approvals from different regulatory authorities in order to provide its current services. Under the current PRC regulatory scheme, a number of regulatory agencies and local governments jointly regulate all major aspects of the Internet industry and AI- and AR- industries. Operators in these industries must obtain various government approvals and licenses for relevant businesses. While we believe that our PRC subsidiary has obtained and maintained all applicable licenses and approvals from the applicable regulatory authorities to provide its current services, we cannot assure you that it will not be found in violation of any law and regulations currently in effect, due to the relevant authorities’ implementation or interpretation of these laws and regulations, or any future laws and regulations. If we fail to complete, obtain or maintain any of the required licenses or approvals or make the necessary filings, or otherwise fail to comply with such laws and regulations, we may be subject to various penalties, such as the imposition of fines and the discontinuation or restriction of its operations in the PRC. Any such penalties, proceedings or actions may disrupt our business operations and materially and adversely affect our reputation, business, financial condition and results of operations and our ability to offer or continue to offer securities to investors, any of which may cause the value of our securities to significantly decline or, in extreme cases, become worthless. From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights.
In addition, the cybersecurity review may be initiated by competent authorities where risks to national security are found, such as risks of Core Data, Important Data (both of which are defined in the Cybersecurity Review measures) and the large scale of personal information being stolen, leaked, damaged, illegally utilized, transferred outside the territory of PRC. The cybersecurity review could last from thirty (30) business days to over six (6) months if such review is initiated, and if we fail the cybersecurity review, our data processing activities in China may be ordered for termination. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have an adverse impact on our business operations. We may not be aware of any violation of these policies and rules until after such violation has occurred, which may result in substantial costs and diversion of resources and management attention. Such unpredictability, including uncertainty as to the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.
Changes and developments in the political and economic policies of the PRC government or the prolonged economic downturn of Chinese economy may materially and adversely affect our business, financial conditions and operating results.
We have operating subsidiaries located in various jurisdictions, including one operating subsidiary located in the PRC. Accordingly, our financial condition and results of operations are affected by economic, political and legal developments in the PRC.
The PRC economy differs from the economies of most developed countries in many respects, including the level of development, growth rate, extent of government involvement, control of foreign exchange and allocation of resources. For example, the PRC government regulates industry development by imposing industrial policies. The PRC government also plays a significant role in China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies. Our financial condition and results of operations could be materially and adversely affected by government control over foreign investments or foreign exchange that are applicable to us. In addition, the PRC government has implemented in the past certain measures, including interest rate increases, to manage the pace of economic growth and prevent the economy from overheating.
The prolonged slowdown in the Chinese economy could lead to reduced consumer confidence and lower discretionary consumer spending, which may result in decreased demand for our products, lower product prices, and negative effects on our business and results of operations. In particular, our luxury brand customers are highly vulnerable to macroeconomic fluctuations, given the sensitivity of the luxury goods industry to such conditions. A sustained economic downturn in China market may materially impact the financial condition and revenue growth of luxury brands and consequently, they may elect to allocate smaller budget or reduce their demands for our products and services. Our mobile app or web service users, facing financial pressures due to the economic downturn, may also choose to cancel or refrain from subscribing for the premium features of our apps or web services. As a result, our business, financial condition and results of operations could be adversely impacted by the above factors.
If we fail to obtain and maintain the requisite licenses and approvals required under the complex regulatory environment applicable to our businesses in the PRC, or if we are required to take actions that are time-consuming or costly, our business, financial condition and results of operations may be materially and adversely affected.
The Internet industry is highly regulated in the PRC. Our business operations in the PRC are required to obtain and maintain applicable licenses and approvals from different regulatory authorities in order to provide our current services. Under the current PRC regulatory scheme, a number of regulatory agencies, including but not limited to the Ministry of Culture, which were consolidated with the National Tourism Administration and have been reformed and become the Ministry of Culture and Tourism, Ministry of Industry and Information Technology, the State Council Information Office, the Cyberspace Administration of China, the Central Cyberspace Affairs Commission, the National Development and Reform Commission, the Ministry of Public Security, the Ministry of State Security, the Ministry of Commerce, the State Administration for Market Regulation, and the National Radio and Television Administration, and local government, jointly regulate all major aspects of the Internet industry and AI- and AR-industries. Operators must obtain various government approvals and licenses for relevant businesses.
Considerable uncertainties exist regarding the interpretation and implementation of existing and future laws and regulations governing our current business activities, including in the PRC, and new industries or businesses we may expand into. While we believe that our PRC subsidiary has obtained and maintained all applicable licenses and approvals from the applicable regulatory authorities to provide its current services, we cannot assure you that we will not be found in violation of any law and regulations currently in effect, due to the relevant authorities’ implementation or interpretation of these laws and regulations, or any future laws and regulations. If we fail to complete, obtain or maintain any of the required licenses or approvals or make the necessary filings such as algorithm filings with Cyberspace Administration of China, or otherwise fails to comply with the laws and regulations, we may be subject to various penalties, such as the imposition of fines and the discontinuation or restriction of our operations, as well as proceedings and actions. Any such penalties, proceedings or actions may disrupt our business operations and materially and adversely affect our reputation, business, financial condition and results of operations.
Risks Related to the Class A Ordinary Shares and Warrants
The price of Class A Ordinary Shares may be volatile, and the value of Class A Ordinary Shares may decline.
We cannot predict the prices at which Class A Ordinary Shares will trade. The price of Class A Ordinary Shares may not bear any relation to any established criteria of the value of our business and prospects. In addition, the trading price of Class A Ordinary Shares is likely to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in Class A Ordinary Shares as you might be unable to sell your shares at or above the price you paid. Factors that could cause fluctuations in the trading price of Class A Ordinary Shares include the following:
•actual or anticipated fluctuations in our financial condition or results of operations;
•variance in our financial performance from expectations of securities analysts;
•changes in the pricing of our solutions;
•changes in laws or regulations applicable to our platform;
•announcements by us or our competitors of significant business developments, acquisitions or new offerings;
•significant data breaches, disruptions to or other incidents involving our platform;
•our involvement in litigation;
•conditions or developments affecting the SaaS industry;
•future sales of Class A Ordinary Shares by us or our shareholders;
•changes in senior management or key personnel;
•the trading volume of our securities;
•changes in the anticipated future size and growth rate of our markets;
•publication of research reports or news stories about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;
•general economic and market conditions; and
•other events or factors, including those resulting from war, incidents of terrorism, global pandemics or responses to these events.
Broad market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may also negatively impact the market price of our Ordinary Shares. In addition, technology stocks have historically experienced high levels of volatility. In the past, companies who have experienced volatility in the market price of their securities may have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention.
Sales of a substantial number of our securities in the public market by our existing securityholders could cause the price of our Class A Ordinary Shares and Warrants to fall.
Sales of a substantial number of Class A Ordinary Shares and/or Warrants in the public market by the existing securityholders, or the perception that those sales might occur, could depress the market price of our Class A Ordinary Shares and Warrants and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Class A Ordinary Shares and Warrants.
Class A Ordinary Shares held by certain of our shareholders are eligible for resale, subject to, in the case of certain shareholders, volume, manner of sale and other limitations under Rule 144. In addition, pursuant to the New Registration Rights Agreement, certain shareholders have the right, subject to certain conditions, to require us to register the sale of their securities under the Securities Act. By exercising their registration rights and selling a large number of our Class A Ordinary Shares, these shareholders could cause the prevailing market price of our Class A Ordinary Shares to decline. On October 18, 2023, the SEC declared effective a registration statement on Form F-3, under which the selling securityholders identified therein or their permitted transferees may offer and sell, from time to time, up to 38,542,254 Class A Ordinary Shares, 9,350,000 Warrants and 9,350,000 Class A Ordinary Shares underlying such Warrants. These factors could also make it more difficult for us to raise additional funds through future offerings of our Class A Ordinary Shares or other securities.
If we do not meet the expectations of equity research analysts, if they do not publish research or reports about our business or if they issue unfavorable commentary or downgrade Class A Ordinary Shares, the price of Class A Ordinary Shares could decline.
The trading market for Class A Ordinary Shares will rely in part on the research and reports that equity research analysts publish about us and our business. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our results of operations are below the estimates or expectations of public market analysts and investors, the price of Class A Ordinary Shares could decline. Moreover, the price of Class A Ordinary Shares could decline if one or more securities analysts downgrade Class A Ordinary Shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
Our issuance of additional share capital in connection with financings, acquisitions, investments, our equity incentive plans or otherwise will dilute all other shareholders.
We expect to issue additional share capital in the future that will result in dilution to all other shareholders. We adopted the Share Incentive Plan, which has reserved for the issuance of 5,311,310 Ordinary Shares, for the purpose of granting share-based compensation awards to our directors, officers, employees and advisors to incentivize their performance and align their interests with ours. We also adopted a Director Equity Incentive Plan for the purpose of granting Awards (as defined below) to the directors selected by the administrator. The maximum aggregate number of the Class A Ordinary Shares that may be subject to Awards (as defined below) under the Director Equity Incentive Plan is 1,000,000 Class A Ordinary Shares. A maximum of 20,849,975 Class A Ordinary Shares would be issuable upon the exercise of 20,849,975 outstanding Warrants. We have also agreed to issue a maximum of 10,000,000 Shareholder Earnout Shares and 1,175,624 Sponsor Earnout Promote Shares if relevant price targets are triggered. In addition, we may raise capital through equity financing in the future. As part of our business strategy, we may make or receive investments in companies, solutions or technologies and issue equity securities to pay for any such acquisitions or investments. Any such issuances of additional share capital may cause shareholders to experience significant dilution of their ownership interests and a decline in the per share value of Class A Ordinary Shares.
The dual-class structure of our Ordinary Shares has the effect of concentrating voting control with our CEO; this will limit or preclude your ability to influence corporate matters and could discourage others from pursuing change of control transactions that our shareholders may view as beneficial.
As of the date of this annual report, Alice H. Chang, our founder and CEO, is able to exercise voting rights with respect to 66.6% of the voting power of our outstanding Ordinary Shares through her direct and indirect holding of 597,256 Class A Ordinary Shares and 16,788,718 Class B Ordinary Shares. Therefore, she is able to control the outcome of matters submitted to our shareholders for approval, including the election of directors and any decisions related to merger, consolidation, or the sale of all or substantially all of our assets. Such control may be further concentrated given that (i) Alice H. Chang has been granted and could be further granted options under the Share Incentive Plan, and upon the vesting and exercise of these options under the Share Incentive Plan, she will be issued with Class B Ordinary Shares; and (ii) Alice H. Chang could be granted Awards (as defined below) under the Director Incentive Plan, and upon the vesting of these Awards (as defined below), she will be issued with Class A Ordinary Shares. See “Item 6. Directors, Senior Management and Employees — B. Compensation — Share Incentive Plan and — Director Equity Incentive Plan” for further details.
This concentrated control may discourage, delay or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that other shareholders support, or conversely, this concentrated control may result in the consummation of such a transaction that our other shareholders do not support.
Moreover, the concentration of voting power could deter potential investors from acquiring Class A Ordinary Shares, which carry one vote per share, compared to Class B Ordinary Shares, which carry ten votes per share, potentially affecting the trading price of Class A Ordinary Shares.
In addition, as our CEO, Ms. Chang has control over the day-to-day management and major strategic investments of our Company, subject to authorization and oversight by our Board. Upon her death, the Ordinary Shares that Ms. Chang owns will be transferred to the persons or entities that she has designated. As a Board member and officer, Ms. Chang owes a fiduciary duty to our shareholders and must act in good faith in a manner she reasonably believes to be in the best interests of our shareholders. As a shareholder, despite being a controlling shareholder, Ms. Chang is entitled to vote her Ordinary Shares in her own interests, which may not always align the interests of our shareholders generally.
Our dual-class structure may render Class A Ordinary Shares ineligible for inclusion in certain stock market indices, and thus adversely affect the trading price and liquidity of Class A Ordinary Shares.
We cannot predict whether our dual-class structure will result in a lower or more volatile market price of Class A Ordinary Shares, negative publicity or other adverse consequences. Certain index providers have announced and implemented restrictions on including companies with multiple-class share structures in certain of their indices. For example, in July 2017, FTSE Russell announced that it would require new constituents of its indices to have more than 5% of the company’s voting rights in the hands of public shareholders, and S&P Dow Jones announced in the same month that it would no longer admit companies with multiple-class share structures to certain of its indices. Affected indices include the Russell 2000, S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together constitute the S&P Composite 1500.
Under the announced policies, our dual-class structure may render our Class A Ordinary Shares ineligible for inclusion in any of these indices, and as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices may not be investing in Class A Ordinary Shares. Therefore, the market price and liquidity of our Class A Ordinary Shares could be materially adversely affected.
We are a “controlled company” within the meaning of the rules of the NYSE and, as a result, can rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
We are a “controlled company” as defined under the rules of the NYSE since Alice H. Chang, our founder and CEO, beneficially owns more than 50% of our total voting power. For so long as we remain a “controlled company” under this definition, we are permitted to elect to rely, and currently we intend to rely, on certain exemptions from corporate governance rules, including the exemption from the rule that a majority of our Board must be independent directors. As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
We currently do not have a fixed dividend policy and, as a result, your ability to achieve a return on your investment may depend on appreciation in the price of our ordinary shares.
We currently do not have a fixed dividend policy. The amount, timing, and whether or not we actually declare or distribute dividends at all is at the discretion of our board of directors and will depend on a variety of factors, including, among others, our general financial condition, results of operations, capital requirements and surplus, contractual restrictions and other factors that our board of directors may deem relevant. We may formulate and adopt a formal dividend policy governing our dividend distribution in the future. Accordingly, you may need to rely on sales of Class A Ordinary Shares after price appreciation, which may never occur, as the only way to realize any future gains on your investment.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make Class A Ordinary Shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
We will remain an emerging growth company until the earliest of: (1) the last day of the fiscal year (a) following the fifth anniversary of October 28, 2022, the date on which our Class A Ordinary Shares were offered in connection with the Transactions, (b) in which we have total annual gross revenues of at least $1.235 billion, or (c) in which we are 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 our Class A 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 we have issued more than $1 billion in non-convertible debt during the prior three-year period.
We cannot predict if investors will find our ordinary shares less attractive if we choose to rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares, and our share price may be more volatile.
We are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
•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 rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant event.
In addition, foreign private issuers are not required to file their annual report on Form 20-F until the end of the fourth month after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. As a result of all of the above, you may not have the same protections afforded to shareholders of a company that is not a foreign private issuer.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange 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, 2025. In the future, we would lose our foreign private issuer status if (1) more than 50% of our outstanding voting securities are owned by U.S. residents and (2) a majority of our directors or executive officers are U.S. citizens or residents, or if we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. If we lose our foreign private issuer status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the listing rules of the NYSE. As a U.S.-listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer.
As we are a “foreign private issuer” and intend to follow certain home country corporate governance practices, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements.
As a foreign private issuer, we have the option to follow certain home country practices, those of the Cayman Islands, for certain governance matters which may differ significantly from corporate governance listing standards for U.S. domestic issuers. Among other things, we are not required to have: (i) a majority of the board of directors consisting of independent directors; (ii) a compensation committee; (iii) a nominating committee; or (iv) regularly scheduled executive sessions with only independent directors each year. We intend to rely on the exemptions listed above. We may in the future elect to follow home country practices with regard to other matters. 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. See “Item 6. Directors, Senior Management and Employees.”
We have incurred and may continue to incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company, which we expect to further increase after we are no longer qualified as an “emerging growth company”. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE, and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel may not be experienced in managing a public company and may be required to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations may increase our legal and financial compliance costs and may make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company, especially when we are no longer qualified as an “emerging growth company” or the specific timing of such costs.
We have identified material weaknesses in our internal control over financial reporting. If our remediation of these material weaknesses is not effective, or if we experience additional material weaknesses or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with the applicable accounting standards, which for us, is IFRS. As a public company in the United States, we are required, pursuant to Section 404, to furnish a report by management, among other things, on the effectiveness of our internal control over financial reporting beginning with our annual report for the fiscal year ended December 31, 2023. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting in our first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company”.
In connection with the preparation of our financial statements for the fiscal year ended December 31, 2022, our management had identified two material weaknesses related to (1) lack of controls and documentations required under Section 404, and (2) lack of sound design and implementation controls over handling complex accounting treatments.
As to the first material weakness, there continues to be an absence of controls and documentations pertaining to risk assessment, process narratives, and descriptions of key controls that we rely upon to establish and maintain an effective internal control over financial reporting. The management has determined that this material weakness remains as of December 31, 2024. In order to address the material weakness identified, we are collaborating with a public accounting firm to develop a comprehensive assessment plan to address the material weakness in relation to the internal control requirements under the Sarbanes-Oxley Act as well as improve our internal control framework in alignment with the criteria established in the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Criteria”). A formal remediation project has been initiated, and we are currently assessing entity level controls, capital management controls, and the controls over financial close and reporting. As part of this initiative, we are also developing the necessary internal control documentation. In the next phase, we have scheduled additional assessments, including interviews, process reviews, and the implementation of control enhancements across various business processes. We have allocated additional personnel in accounting and internal audit departments, to enhance financial reporting and oversight function, and related disclosures in accordance with SEC reporting requirements.
The second material weakness was fully remediated in 2023 and is no longer considered a material weakness as of December 31, 2024.
We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to these material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. We cannot assure you that all of our existing material weaknesses have been identified, or that we will not in the future identify additional material weaknesses. If we fail to maintain the adequacy of our internal control over financial reporting in accordance with the COSO Criteria, as may be modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404.
Our management has concluded and may continue to conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a qualified report if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our remediation efforts may not enable us to avoid material weaknesses in our internal control over financial reporting in the future. In addition, as a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation. As a result, we anticipate investing significant resources to enhance and maintain our financial controls, reporting system and procedures over the coming years.
If we fail to achieve and maintain an effective internal control environment, we may not be able to prepare and disclose, in a timely manner, our financial statements and other required disclosures, or comply with existing or new reporting requirements. Any failure to report our financial results on an accurate and timely basis could result in material misstatements in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our businesses, financial condition, results of operations and prospects, as well as the trading price of our issued securities, including our Ordinary Shares and Warrants, may be materially and adversely affected. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.
We are a holding company with no operations of our own and, as such, we depend on our subsidiaries for cash to fund our operations and expenses, including future dividend payments, if any.
As a holding company, our principal source of cash flow will be distributions or payments from our operating subsidiaries. Therefore, our ability to fund and conduct our business, service our debt and pay dividends, if any, in the future will depend on the ability of our subsidiaries to make upstream cash distributions or payments to us, which may be impacted, for example, by their ability to generate sufficient cash flow or limitations on the ability to repatriate funds whether as a result of currency liquidity restrictions, monetary or exchange controls or otherwise. Our operating subsidiaries are separate legal entities, and although they are directly or indirectly wholly owned and controlled by us, they have no obligation to make any funds available to us, whether in the form of loans, dividends or otherwise. To the extent the ability of any of our subsidiaries to distribute dividends or other payments to us is limited in any way, our ability to fund and conduct our business, service our debt and pay dividends, if any, could be harmed.
We believe that we were a “passive foreign investment company” for U.S. federal income tax purposes in fiscal year 2024.
We believe that we were a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes in fiscal year 2024 and we may be a PFIC in fiscal year 2025 and future years. However, the determination of whether we are a PFIC is a factual determination that is made annually and thus may be subject to change. Assuming that we are a PFIC, U.S. holders of the Class A Ordinary Shares (and possibly U.S. holders of the Warrants) will be subject to special tax rules that could cause U.S. holders to be subject to adverse U.S. federal income tax consequences. See “Taxation—United States Federal Income Tax Considerations.” We do not intend to provide investors with any information to assist them in determining whether we are a PFIC. In addition, the information we are required to disclose by applicable securities laws may not be sufficient to determine whether we are a PFIC. We also do not intend to provide U.S. holders of the Class A Ordinary Shares with the information that is required to make an election to have us treated as a “qualified electing fund” for U.S. federal income tax purposes.
We may issue additional Class A Ordinary Shares upon the exercise of outstanding Warrants, which may increase the number of shares eligible for future resale in the public market and result in dilution to our shareholders.
Our Warrants are exercisable commencing on the 30th day after the completion of the Transactions, and expiring at 5:00 p.m., New York City time, five years after the completion of the Transactions or earlier upon redemption or liquidation. To the extent the Warrants are exercised, additional Class A Ordinary Shares will be issued, which will result in the dilution to our shareholders and increase the number of Class A Ordinary Shares eligible for resale in the public market. The sale of a substantial number of such shares in the public market or the potential exercise of the Warrants, could adversely affect the market price of Class A Ordinary Shares.
The Warrants may never be in the money, and may expire worthless.
The exercise price of the Warrants is $11.50 per share. The likelihood that Warrant holders elect to exercise the Warrants, and consequently, the amount of cash proceeds that we would receive, is dependent upon the trading price of our Class A Ordinary Shares. If the trading price of our Class A Ordinary Shares falls below $11.50 per share, we believe Warrants holders will be unlikely to exercise their Warrants. There is no guarantee that the Warrants will be in the money prior to their expiration of no later than October 28, 2027, and as such, the Warrants may expire worthless, and we may receive no proceeds from the exercise of the Warrants.
We may redeem your unexpired Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
Pursuant to the terms of Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, we will have the ability to redeem outstanding Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the closing price of Class A Ordinary Shares equals or exceeds $18.00 per share for any 20 trading days within a 30-trading-day period ending on the third trading day prior to the date we issue notice of redemption. If and when the Warrants become redeemable by us, we may exercise the redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable federal and state securities laws.
Redemption of the outstanding Warrants could force holders to (i) exercise the Warrants and pay the exercise price therefor at a time when it may be disadvantageous to do so, (ii) sell the Warrants at the then-current market price when the holder might otherwise wish to retain such warrants or (iii) accept the nominal redemption price, which, at the time the outstanding Warrants are called for redemption, is likely to be substantially less than the market value of such warrants. Additionally, if a significant number of Warrant holders exercise their Warrants instead of accepting the nominal redemption price, the issuance of these shares would dilute other equity holders, which could reduce the market price of Class A Ordinary Shares. The trading price of the Class A Ordinary Share may fluctuate following the consumption of the Business Combination, and can vary due to general economic conditions and forecasts, our general business condition, and the release of our financial reports.
In addition, we may redeem Warrants after they become exercisable for cash at a price of $0.10 per warrant or for a number of Class A Ordinary Shares determined based on the redemption date and the fair market value of Class A Ordinary Shares, starting at a trading price of $10.00. Since commencement of trading on October 31, 2022, the price of our Class A Ordinary Shares closed above $10.00 on certain days; however, the track record is not indicative of any future price of our Class A Ordinary Shares.
Any such redemption may have similar consequences to a redemption described above. In addition, such redemption may occur at a time when the Warrants are “out-of-the-money,” in which case holders of Warrants would lose any potential embedded value from a subsequent increase in the value of the Class A Ordinary Shares had such holders’ Warrants remained outstanding.
The warrant agreement relating to the Warrants provided that we agreed that any action, proceeding or claim against us arising out of or relating in any way to such agreement would be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and that we irrevocably submitted to such jurisdiction, which would be the exclusive forum for any such action, proceeding or claim. This exclusive forum provision could limit the ability of holders of the Warrants to obtain what they believe to be a favorable judicial forum for disputes related to such agreement.
In connection with the Business Combination, we entered into an Assignment, Assumption and Amendment Agreement on October 28, 2022, pursuant to which Provident assigned to us all of its rights, title, interests, and liabilities and obligations in and under the Warrant Agreement, dated as of January 7, 2021, by and between Provident and Continental. The Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, provided that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, would be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submitted to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We would waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Notwithstanding the foregoing, these provisions of the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in any of the Warrants shall be deemed to have notice of and to have consented to the forum provisions in our Warrant Agreement. If any action, the subject matter of which is within the scope of the forum provisions of the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of the Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder.
This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us, which may discourage such lawsuits. Alternatively, if a court were to find this provision of the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and Board.
Forum selection provisions in our Articles could limit the ability of holders of Class A Ordinary Shares or other securities to obtain a favorable judicial forum for disputes with us, our directors and officers and potentially others.
Our Articles provide that, unless we consent in writing to the selection of an alternative forum, the United States District Court for the Southern District of New York shall be the exclusive forum (or, if such court lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) for the resolution of any complaint asserting a cause of action arising out of or relating in any way to the Securities Act or the Exchange Act, as amended, regardless of whether such legal suit, action, or proceeding also involves parties other than us. However, the enforceability of similar federal court choice of forum provisions has been challenged in legal proceedings in the United States, and it is possible that a court could find this type of provision to be inapplicable, unenforceable, or inconsistent with other documents that are relevant to the filing of such lawsuits. If a court were to find the federal choice of forum provision contained in our Articles to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. If upheld, the forum selection clause in our Articles may limit a securityholder’s ability to bring a claim against us, our directors and officers and potentially others in his or her preferred judicial forum, and this limitation may discourage such lawsuits. In addition, the Securities Act provides that both federal and state courts have jurisdiction over suits brought to enforce any duty or liability under the Securities Act or the rules and regulations thereunder. Accepting or consenting to this forum selection provision does not constitute a waiver by you of compliance with federal securities laws and the rules and regulations thereunder. You may not waive compliance with federal securities laws and the rules and regulations thereunder.
The exclusive forum provision in our Articles will not operate so as to deprive the courts of the Cayman Islands from having jurisdiction over matters relating to our internal affairs.
If we do not maintain a current and effective prospectus relating to the Class A Ordinary Shares issuable upon exercise of the Perfect Public Warrants, you will only be able to exercise such Warrants on a “cashless basis”.
If we do not maintain a current and effective prospectus relating to the Class A Ordinary Shares issuable upon exercise of the Perfect Public Warrants as part of the Transactions, at the time that holders wish to exercise such Perfect Public Warrants, they will only be able to exercise them on a “cashless basis”. As a result, the number of Class A Ordinary Shares that holders will receive upon exercise of the Perfect Public Warrants will be fewer than it would have been had such holders exercised their Warrants for cash. Under the terms of the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, we will agree to use our commercially reasonable efforts to maintain a current and effective prospectus relating to the Class A Ordinary Shares issuable upon exercise of the Warrants until the expiration of the Warrants. However, we cannot assure you that we will be able to do so.
General Risks
A severe or prolonged global economic downturn or unfavorable industry conditions could materially and adversely impact our business and operating results.
Given our international operations, we are highly sensitive to global economic trends. In 2024, persistent inflation, interest rate fluctuations, geopolitical instability, sustained military conflicts, and broader economic uncertainties have contributed to heightened volatility in international markets. A prolonged economic slowdown could weaken consumer spending power, reducing demand for our products and subscriptions to the premium features of our mobile apps. As a result, our revenue may be disproportionately affected by delayed or reduced AI- and AR-related technology spending by both brands and users.
We cannot accurately predict the timing, severity, or duration of any economic downturn, instability, or recovery, whether at a global level or within our specific industry. If economic conditions deteriorate further, our business, financial condition, and operating results could suffer significant adverse effects. Additionally, ongoing military conflicts could introduce further risks, disrupting supply chains, increasing operational costs, or reducing market confidence, all of which could impact our business prospects.
The potential consequences of both economic downturns and geopolitical instability are unpredictable but could be substantial. Any such disruptions may also amplify other risks described in this annual report, further exacerbating their impact on our operations and financial performance.
Any catastrophe, including natural catastrophes, outbreaks of health pandemics or other extraordinary events, could disrupt our business operations and have a materially adverse impact on our business and results of operations.
Our operations rely heavily on our network infrastructure and information technology systems.
Catastrophic events such as earthquakes, fire, floods, hail, windstorms, environmental accidents, power loss, communications failures, explosions, terrorist attacks or other similar events could cause system interruptions, delays in accessing our service and loss of critical data or could prevent us from providing our products and solutions to our customers.
In addition, our business could be adversely affected by the outbreak of health pandemics. For example, in response to the COVID-19 pandemic, authorities in jurisdictions where we operate, or in which our partners, customers, or others operate, have put in place quarantines, shelter-in-place orders, physical distancing requirements and similar government orders and restrictions in order to control the spread of the disease. These measures have impacted our workforce and operations, the operations and demands of our customers, and those of our respective partners and users. We cannot predict the impact that any future outbreak of viruses or other diseases could have on our business and results of operations. Outbreaks of contagious diseases may restrict the level of economic activity in affected regions, result in sporadic volatility in capital markets, and adversely affect the global economy, all of which may also adversely affect our business. There is no assurance that any future outbreak of such diseases would not have a material adverse effect on our business, financial condition and results of operations.
Some of our customers have experienced, and may continue to experience, financial hardships that could result in delayed or even uncollectible payments in the future. As a result, our business operations may be materially and adversely affected.
Fluctuations in exchange rates could have a material and adverse effect on our results of operations.
Our sales are substantially denominated in U.S. dollars and some of our capital expenditures are denominated in currencies other than U.S. dollars, primarily in NT Dollars, Euros, Japanese yen and RMB. As a result, any significant fluctuations to our disadvantage in the exchange rate of the U.S. dollar against such currencies, in particular 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. In addition, if the U.S. dollar appreciates significantly versus other major currencies, the demand for the products and services of our customers and for our goods and services will likely decrease, which will negatively affect our revenue.
Item 4. Information on the Company
A.History and Development of the Company
Perfect Corp. was incorporated as a Cayman Islands exempted company on February 13, 2015, following a spin-off from CyberLink. We are a leading AI company offering self-developed AI- and AR- powered solutions dedicated to transforming the world with digital tech innovations that make your virtual world beautiful. We run a hybrid business model of direct consumer business (B2C business) and enterprise business (B2B business). For B2C business, we offer six mobile apps under the “YouCam” suite, along with one online editing service tool, YouCam Online Editor, featuring AI- and AR- technologies. For B2B business, we offer AI- and AR-powered solutions tailored for the beauty and fashion industry. At the beginning, we primarily focused on the development of makeup virtual try-on solutions. From 2015 to 2017, we refined our technology based on market feedback and expanded our business into other beauty AI solutions, such as nail virtual try-on and skin diagnosis. Over the 2016 through 2017 period, we grew to a platform with over 300 million users of our mobile apps, which further provided feedback and guidance on consumer tastes and preferences. In 2017, we launched our SaaS business model to further monetize the AI technology and gain further support from large brands and retailers. With more beauty solutions such as AI hair color virtual try-on and skin diagnosis solutions being developed, our goal then moved to becoming a one-stop shop for AI- and AR-beauty, skincare, and fashion solutions. Since early 2019, we introduced beauty tech AI and formed numerous partnerships with e-commerce and social media leaders, including Alphabet (Google and YouTube), Meta (Instagram), and Snap, as well as with Asia tech platforms such as Alibaba (Taobao and Tmall) and Tencent (WeChat). Such partnerships have been critical to our growth as an omni-channel AI/AR service provider. From 2020, we started to monetize our family of YouCam mobile apps via subscriptions directly from our mobile beauty app users. In mid-2021, we expanded our path into the fashion tech area, which includes products such as virtual try-ons for jewelry, watches and eyewear. With innovation at the heart of our values, we seek to continue to expand our product portfolio and strengthen our leadership as provider of AI- and AR- powered solutions dedicated to the beauty and fashion industry.
On October 28, 2022, we consummated the previously announced Business Combination with Provident. On October 31, 2022, our Class A Ordinary Shares and Warrants commenced trading on the NYSE under the symbols “PERF” and “PERF WS”, respectively.
Since early 2023, we began developing Generative AI technologies by fully utilizing our in-house technology development capabilities and integrating Generative AI solutions into our product portfolio, enabling our consumers to create and enhance their photos and videos with high-quality and creative outputs via our mobile apps and SaaS services. We further expanded our strategic partnerships with one of retailer giants, Walmart, to enable AR- virtual try-on experience within its shopping apps. This expansion broadened our services to a larger global audience and perfectly aligned with our strategy of delivering omni-channel virtual try-on solutions to our brand customers.
In 2024, we further upgraded our Generative AI solutions integrated into our product portfolio, powered by our in-house research and development team, to incorporate a significantly broader range of generative features, including, in addition to AI avatar, text-to-photo, AI-driven editing, etc. The Generative AI technologies and AI editing features for photos and videos, integrated into our product offerings, play a pivotal role in converting our mobile app or web service users into paid users, underscoring the critical importance of our AI roadmap to the success of our B2C business.
For details of our principal capital expenditures for the previous three years ended December 31, 2024, see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources.”
Address and Further Information
The mailing address of our principal executive office is 14F, No. 98 Minquan Road, Xindian District, New Taipei City 231, Taiwan, and our telephone number is +886-2-8667-1265. Our website address is www.perfectcorp.com. The information on our website is not a part of this annual report.
The SEC maintains a website at www.sec.gov which contains in electronic form each of the reports and other information that we have filed electronically with the SEC.
Our agent for service of process in the United States is Cogency Global Inc., 122 East 42nd Street, 18th Floor, New York, New York 10168.
B.Business Overview
Our Mission and Vision
Our mission is to make the customer journey more seamless and more fun for both consumers and brands with digital innovations (AI, AR and imaging or video technologies).
Our vision is to transform the world with digital tech innovations that make your virtual world beautiful.
We believe that our YouCam suite of mobile apps and web services plays an integral role in our user’s digital lifestyles, helping consumers create and enhance their visual artwork in selfies, photos and videos.
We believe the global consumer app market for video and photography is on the rise. By leveraging our decades of expertise in mobile app market and Generative AI solutions, we empower consumers to create high-quality photos and videos through an intuitive, automated process, unlocking new possibilities for enhanced content creation.
We believe that our platform transforms how brands and consumers interact and creates opportunities to connect that were not possible before. With our excellent, hyper-realistic virtual try-on solutions, we are disrupting the traditional online and in-store shopping journey by creating instant, seamless and engaging omni-channel shopping experiences from product discovery to personalized recommendation in multiple categories.
We believe there is also significant opportunity to further expand our market penetration in the global top luxury and fashion brands and increase market share/awareness in med-spa, skincare clinics and aesthetic beauty clinics, by continuously developing and optimizing new Generative AI solutions to be integrated into our product offerings.
We are confident that our SaaS API will enable the industry and developers to enhance their products and services by allowing them to concentrate on their core competencies while capitalizing on the innovative AI imaging solutions offered by Perfect.
We also strive to achieve environmental sustainability via beauty AI- and AR-technologies. As we re-imagine the way everyone virtually tries on products, we are reducing the environmental impact of each purchase by decreasing the amount of plastic waste and reducing the carbon footprint traditionally associated with physical testers.
Our Values
Innovative — Innovation, strategic thinking and teamwork are at the heart of everything we do. We strive to be a force for good through our product development philosophy, sustainability, long-term partnerships, creative community development, and inclusive workplace.
Passionate — We take pride in developing outstanding products that empower users to express their digital lifestyles through photos and videos, while helping brands form stronger connections with their audiences. Our in-house algorithms are created by a team of devoted engineers who prioritize inclusivity, ensuring our technologies are accessible and enjoyable for everyone, regardless of gender, age, or ethnicity.
Trust-worthy — We are committed to building trust, excellence and customer satisfaction for all our partners. We seek to develop long-term relationships that allow us to grow together through synergistic partnerships.
Inclusivity — We have built a large inclusive online community, congregating beauty and fashion lovers from all around the world. Through our social media channels and a suite of popular YouCam mobile apps, we inspire young people to be creative, interact with art and photography, and develop appreciation for beauty and fashion, providing them with tools to express their unique personalities online.
Environmentally-Positive — Our solutions aim to make a positive impact on the planet by reducing plastic waste and other related carbon footprint emissions to a large extent.
Committed — We live and breathe our commitment to our business. During our daily life of work, we bear our Company’s mission and goals top of mind. We pour our energy into driving our business forward through dedicated hard work and passionate perseverance. We are relentless in our pursuit of excellence, constantly seeking ways to innovate and optimize our technologies. Moreover, we have an unwavering devotion to our products and services, constantly striving to be industry leaders. This steadfast commitment is the backbone of our success.
Our Company
Founded in 2015, we are a leading AI technology company focused on delivering self-developed AI- and AR-powered solutions to make your virtual world beautiful. Operating with a hybrid model that spans both B2C and B2B segments, we leverage our cutting-edge expertise to transform how users and brands interact with digital experiences.
Our B2C offerings revolve around advanced AI-driven technologies, delivering a seamless user experience for photo and video editing. We offer six mobile apps under the “YouCam” suite,YouCam Makeup, YouCam Perfect, YouCam Video, YouCam Enhance, YouCam AI Pro, and YouCam Nails, along with one web-based editing tool, YouCam Online Editor. Harnessing AI- and AR- technologies, our products provide real-time virtual try-ons, beauty camera or portrait retouching, photo or video enhancement, as well as state-of-the-art Generative AI capabilities such as text-to-photo, avatar creation, and intelligent editing. These innovative features empower users to transform selfies and text prompts into striking personal contents.
As of December 31, 2024, we have surpassed one million active subscribers, up from 879,000 as of December 31, 2023, highlighting the growing demand for our AI-driven apps and web services. In addition to consumer engagement, our B2C segment serves as a dynamic testing ground for new AI- and AR- functionalities, enabling us to fine-tune cutting-edge solutions that we can later be integrated into our B2B offerings.
Capitalizing on our success in B2C business, we deliver hyper-realistic AI-driven virtual try-on solutions for enterprise clients, transforming both online and in-store shopping experiences from product discovery to personalized recommendations. Our subscription-based modules empower beauty, skincare clinics, med spas, jewelers, watchmakers, and fashion retailers to integrate virtual try-on technology across their mobile apps, websites, in-store kiosks, and third-party e-commerce platforms. Our current offerings cover makeup, nail art, hairstyling, eyewear, watch, jewelry try-ons, advanced skin diagnostics and simulation, and foundation shade matching, all powered by a robust recommendation engine for ultra-personalized results. As of December 31, 2024, we covered 90% of the top 20 global beauty groups and had a cumulative brand portfolio of 732 brands, offering over 822,000 digital SKUs and enabling more than 10 billion virtual product try-ons annually. Within this B2B customer base, 151 Key Customers accounted for approximately 32.5% of our revenue in 2024.
Our business operations are global, with solutions deployed by brands across 94 countries. The following table sets forth a geographic breakdown of our revenue for the periods indicated:
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Year ended December 31, |
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2022 |
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2023 |
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2024 |
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(million) |
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% of
Total |
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(million) |
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% of
Total |
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(million) |
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% of
Total |
Americas |
$ |
27.6 |
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|
58.3 |
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|
$ |
29.9 |
|
|
55.9 |
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|
$ |
31.8 |
|
|
52.8 |
|
Europe |
9.2 |
|
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19.4 |
|
|
13.8 |
|
|
25.8 |
|
|
16.6 |
|
|
27.6 |
|
Asia-Pacific |
9.2 |
|
|
19.4 |
|
|
8.6 |
|
|
16.0 |
|
|
10.1 |
|
|
16.8 |
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| Others |
1.3 |
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2.9 |
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1.2 |
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2.3 |
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1.7 |
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2.8 |
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| Total |
$ |
47.3 |
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|
100 |
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$ |
53.5 |
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100 |
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$ |
60.2 |
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100 |
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For the years ended December 31, 2022, December 31, 2023 and December 31, 2024, our revenue generated from the PRC represented less than 3% of our total revenue for the respective periods. For the risks related to operations in the PRC, please see “Risk Factors — Risks Related to Doing Business in the PRC.”
We have achieved significant scale and steady growth since our inception in 2015. Our total revenue increased from $22.9 million in 2019 to $60.2 million in 2024, at a CAGR of 21.3%. We achieved a double-digit revenue growth of 12.5% in 2024, compared to 2023, driven by the robust momentum in the growth of YouCam mobile app and web service subscriptions, stable demand for the Company’s online virtual product try-on solutions from brand customers, and the growing popularity among consumers of Generative AI technologies and AI editing features for photos and videos.
Our B2C business continues to maintain robust growth momentum. As of December 31, 2024, our mobile apps have achieved over 1.1 million downloads globally. The number of active subscribers across our family of YouCam apps, along with our web-based editor, YouCam Online Editor, grew by 13.7% year-over-year, reaching another record high of over one million active subscribers as of December 31, 2024.
In our B2B business, our momentum of acquiring new brands into our brand portfolio continues to be strong, growing from 509 cumulative brands as of December 31, 2022 to 645 cumulative brands and 732 cumulative brands as of December 31, 2023 and 2024, respectively, at a CAGR of 19.9% from 2022 to 2024. As we grow and continue to expand our product offerings, we expect to significantly increase our penetration beyond beauty and fashion and into luxury, skincare, aesthetic skin beauty segments as well.
We have established long-term collaborative relationships with global industry leaders, such as COTY, Estée Lauder Group, LVMH Group, Shiseido Group and Kao Group, and our collaboration with these companies has accelerated industry-wide adoption of our solutions. We were able to benefit from their years of experience as global industry leaders. We also formed strategic partnerships with world-class tech giants, including Alphabet (Google and YouTube), and Snap, as well as Asia tech platforms such as Alibaba (Taobao and Tmall) and Tencent (WeChat), providing us with a wide reach to promote our virtual try-on solutions and continuous technological advancement amongst their platforms. We further expanded our strategic partnerships with one of retailer giant, Walmart, in 2023 to enable AR- virtual try-on experience within its shopping apps. This expansion broadened our services to a larger global audience and perfectly aligned with our strategy of delivering omni-channel virtual try-on solutions to our brand customers.
We recorded net losses of $161.7 million in 2022, and recorded a net income of $5.4 million in 2023 and $5.0 million in 2024. Our sustained profitability in 2023 and 2024 demonstrated the steady growth of our business and the improvement of our overall financial and business situation. In addition, our total operating expenses as a percentage of our revenue decreased from 91.1% in 2023 to 83.2% in 2024, highlighting the continued improvement of our operational efficiency, as the scale of our business grows.
Our Strengths
We believe we have the following competitive strengths that have been instrumental to our leading position as a leading AI company and will continue to fuel our success in the fast-growing AI- and AR-market and beyond, for both B2C and B2B customers.
•Comprehensive Full Range of Photo and Video Consumer Apps We position our strength in offering a comprehensive suite of mobile apps that span the entire spectrum of photo and video creation, editing, and enhancement. By combining user-friendly interfaces with advanced AI- and AR- capabilities, our apps serve both casual users and beauty enthusiasts, enabling everyone to transform their creative vision into high-quality outputs. From quick touch-ups and immersive beauty filters to sophisticated video enhancements and generative imaging, our solutions streamline the entire content production cycle within one cohesive ecosystem. This integrated approach not only simplifies the user journey but also enhances creative possibilities, setting us apart as a leading provider in the photo and video app market.
•Unparalleled Insights Built based on Large Set of Consumer Feedbacks
Our core strength is built on a decade of continuous innovation in the photo and video domain, enriched by extensive knowledge gained from millions of passionate beauty enthusiasts worldwide. By analyzing billions of consumer data points, we have developed unparalleled insights into user preferences, emerging trends, and the unique demands of the beauty industry. This wealth of knowledge drives our ability to create highly intuitive, personalized AI solutions, enabling us to understand users’ needs, deliver exceptional performance, and remain at the cutting edge of photo, video, and beauty technology.
•Wide Distribution of Mobile Apps User Base
The user-friendly interfaces and premium features of our YouCam family apps and web services have attracted a solid base of free users and active subscribers. Building on years of expertise in multimedia technology and AI development, our product offerings have expanded from makeup virtual try-ons and photo editing to more creative features powered by GenAI, as well as more advanced editing, beautification, and enhancement features for photos and videos. While our freemium model attracts a large community of beauty enthusiasts to try our apps and web services, our continuous efforts to introduce new premium features have converted many free users to paying subscribers for our YouCam apps and web-based editing services. In 2024, the Generative AI technologies and AI editing features for photos and videos, integrated into our product offerings, have proven to play a pivotal role in converting our free users into paying subscribers.
•Beauty AI- and AR-SaaS Leadership
We are the leader in the nascent beauty AI- and AR-SaaS industry. As of December 31, 2024, we cover 90% (18 out of 20) of the top 20 beauty groups worldwide, and serve global beauty brands, including Estée Lauder, MAC and e.l.f., covering the broad spectrum of brands and products from luxury to mass markets.
Aside of working directly with global beauty brands, we also work with indie brands, emerging new brands and beauty retailers around the world. These shopping channels and brands have significantly grown in popularity in recent years, primarily fueled by consumers seeking niche brands and products online.
We are a trusted partner for both global and indie brands, and our deep-rooted relationships with beauty groups consist of multi-year contracts and spread across multiple brands, channels and countries. We believe this creates substantial entry barriers for both local and international competitors, providing us with tremendous upselling opportunity and allowing us to remain the market leader in the beauty AI- and AR-SaaS space.
We focus on our in-house technology development capability in AI and AR. Being one of the pioneers in introducing AI-driven solution for beauty technologies since 2015, we continuously devote our research and development resources in creating a wide range of AI-driven solutions for beauty and fashion. This capability of building technology in-house differentiates us among competitors and enables us to offer a direct and fast delivery of our solutions to clients without external third-party dependencies.
•Omni-Channel Presence, Scalable Platform
Our omni-channel, cross-platform coverage significantly enhances consumer engagement with brands’ products. We believe that brands prefer a neutral platform such as ours, which offers deployment capabilities across all sales channels. This approach enables brands to configure a single set of SKUs once and seamlessly deploy them at scale across diverse channels, thereby ensuring a consistent consumer experience in a very cost effective way.
In addition, we are uniquely positioned as the premier global provider of omni-channel beauty AI and AR solutions. Our offerings can be deployed across a variety of channels, including brand-owned websites, in-store kiosks, retailer websites, and official mobile applications, as well as major third-party platforms such as Alphabet (Google and YouTube), Snap, Alibaba (Taobao and Tmall), and Tencent (WeChat).
Through strategic partnerships with these leading technology companies, we empower brands to incorporate beauty AI and AR solutions into social, search, streaming, and e-commerce platforms, thereby ensuring worldwide consumer reach and a unified engagement and shopping experience.
•Compelling Value Proposition to Brands
We have proven to significantly deliver on brands’ ROI, both online and offline. With the true-to-life virtual try-on effects, consumers spending more time on brands’ websites, increasing purchase conversion and increasing online basket size for beauty brands are a few examples of how we assist our brand customers in improving the key operational metrics in online commerce. We also bring positive impact to the environment by helping brands reduce waste of beauty sampling and overconsumption. Many brands have testified the positive experiences we brought to them and have become our active endorsers.
We have a diverse customer base, with Key Customers accounting for approximately 35.2% of our 2024 revenue. Our customer retention rate is robust with an average of 93.3% NDRR for the three years from 2022 to 2024. Brands show recurring demand and high loyalty for our platform and are less likely to switch to other platforms as we provide products and services that are aligned with their value proposition.
•Superior and Proven Technology and Product Capabilities
Our technological capabilities offer highly accuracy, scalability and performance in our AI- and AR- powered business and consumer solutions. We have powerful AI technology that taps into deep and machine learning algorithms built on data from over 10 billion real-life try-ons every year around the world. We are also able to leverage these data collected from virtual try-ons to provide highly accurate and realistic AR makeover experiences, as well as personalized recommendations.
We have developed proprietary AI- and AR-technologies with over 3,900 real-time facial 3D live meshes backed by visual computing, which has enabled us to offer much more true-to-life effects compared to our competitors. Our technology now supports over 89,969 skin tones and 14 makeup textures, covering facial attributes across all ethnicities and ages, and offering a fully inclusive virtual try-on experience, being the most comprehensive in the industry. As of December 31, 2024, we had 35 registered patents and 25 pending patent applications in the beauty tech domain.
In 2024, we continue to follow the four pillars established in 2023 as our primary AI development strategies to serve our brand customers and mobile app users: (1) Beauty AI - a comprehensive suite of solutions focused on color cosmetics virtual applications providing beauty virtual try-ons with high fidelity in color and textures; (2) Skin AI - a complete line of over 15 skin concern diagnostics and simulations with high-definition capability, helping consumers to identify their skin needs; (3) Fashion AI - enabling watch and jewelry brands to offer hyper realistic 3D object virtual product try-on in real time; and (4) Generative AI - leveraging on the AI-diffusion technology to create new series of AI visual enhancement and creation toolkits, helping consumers improve their photos and videos.
•Data-Enabled Product Development Strategy
Based on consumers’ try-on behaviors across our multiple channels, we are able to gain valuable insights into consumers’ behaviors and preferences, as well as popular trends emerging in the industry, which in turn accelerates the product development process to create innovative products and services that cater to what the consumers want.
Big data from over 10 billion real-life try-ons globally every year, combined with our machine learning capabilities enable us to continually refine our platform to provide highly accurate and realistic AI- and AR- powered makeover experiences and personalized recommendations. Our unique tech capabilities and extensive collection of training data sets help us solidify our product leadership in the beauty AI- and AR- industry.
As of December 31, 2024, our team of 169 technology staff, representing 49.4% of our employees, are dedicated to the constant improvement of our platform, development of new features, as well as creation of new apps. With our research and development center placed in Taiwan, we have a significant competitive advantage thanks to the easy access to cost-effective, highly motivated, top-tier tech talent. Our team has designed patented and patent-pending technologies such as AgileHand® AR and foundation shade matching, AI-powered wrist mapping, physically based rendering, and Generative AI applications to help consumer create and enhance their photos and videos in YouCam family apps and web-based editor.
•Seasoned Management Team with Proven Track Record
We are led by a seasoned yet innovative executive team, with an average of over 20 years of experience in the technology industry. The team’s passion, dedication and entrepreneurial spirit have been critical to our successful track record. Under the leadership of our CEO, Alice H. Chang, our management team has been remarkably stable, with 90% of the senior management team being with us since our inception. With a balance of beauty domain experience and technology expertise, as well as innovative, entrepreneurial minds, we are able to build up a digital platform that can transform the world.
Our Strategies
We believe the key strategies below will fuel our continued growth:
•Continue to Nurture and Grow Our YouCam Suite of Mobile Apps
We have grown our YouCam suite of apps rapidly during the past few years, with more than 1 million active subscribers using our app services and over 1.1 billion downloads globally as of December 31, 2024. Leveraging the recent development of AI- and AR- technology, we will continue to invest in technology innovation for more cutting-edge features. We aspire to launch more apps with more different functionalities to solve problems for users in more countries and regions. Furthermore, we will not only focus on bringing new users to our mobile apps, but also cross-promote our different consumer apps in YouCam franchise to existing users. By innovating new AI technologies and nurturing our user base relentlessly, we believe our YouCam offerings will provide a variety of solutions that can facilitate and enhance users’ digital lifestyles and AI journeys.
•Develop innovative Generative AI features for B2C apps subscriptions
We are focused on harnessing the power of Generative AI to deliver engaging new features that is becoming an integral part of the premium subscription offerings for our B2C mobile apps. By integrating state-of-the-art models and algorithms, we aim to create immersive, personalized experiences that transcend beyond traditional functionality, driving user engagement and loyalty. Our strategy involves continuous research and development to refine content-generation capabilities, enabling features such as AI enhancement in photo and video as well as AI creation of personalized image and videos. Through this relentless innovation, coupled with robust user feedback and data analytics, we strive to deliver subscription-based services that offer clear and tangible value, positioning us as a leading provider of advanced image and video Generative AI solutions in the consumer market.
•Expand Our App and Web Portfolio with New Innovative Mobile Apps Powered by Advanced Generative AI Technologies
In parallel with enhancing our existing YouCam offerings, we plan to introduce additional mobile apps that leverage the latest Generative AI technologies to deliver cutting-edge functionalities. These next-generation apps will enable users to create and transform content in ways that go beyond traditional photo and video editing, enlarging our total addressable market and fueling our next phase of growth. By relentlessly pushing the boundaries of AI-driven innovation, we aim to deliver state-of-the-art mobile solutions that meet evolving consumer demands, further strengthening our leadership position in the global photo and video app market.
•Deepen Penetration with Top 20 Beauty Groups
We have deep-rooted relationships with top beauty groups. As of December 31, 2024, we cover 90% of the top 20 beauty groups. We have over 822,000 SKUs in our database, among which approximately 567,000 SKUs are for the top 20 beauty groups. AI- and AR-adoption among beauty groups is still at an early stage, and we believe there is still a significant runway for us to further expand our reach within the groups, specifically through cross-selling to sister brands within each of the beauty groups, upselling more modules and functions to brands and enabling more SKUs in all categories, and expanding to more countries within each brand. We believe we are well-positioned to capture the significant opportunities ahead to expand our reach within these beauty groups.
•Penetration into Global Top Luxury, Fashion Brands and Retailers
We are executing a targeted expansion strategy aimed at increasing our penetration among the world’s leading luxury and fashion brands by leveraging our cutting-edge AI- and AR- technologies. Specifically, we focus on high-end solutions that reflect each brand’s unique identity and standards of excellence, ensuring immersive and engaging consumer experiences aligned with their distinct brand identity. This combined emphasis on technological innovation and brand-centric integration underscores our commitment to becoming a leading provider of advanced AI- and AR- solutions in the global luxury and fashion market.
•Target New Growth Beyond Beauty: Expand into Skin Diagnosis, Hair, Watches, Jewelry and Aesthetic Skin Beauty Industries
Our goal is to transform the world with digital tech innovations through investing in industries beyond beauty. Our business focus has expanded into newer and broader categories, such as skincare specialty retailers, med-spas, beauty clinics, aesthetic skin beauty, and the luxury industry such as watch and jewelry brands and retailers. As a leader in virtual try-on solutions, we are able to leverage our expertise and experience in beauty industry to develop the right technologies for these new fields. We believe that our product and service quality can meet luxury market demand and help more brands to offer new virtual experiences to users. Our convenient self-service platform, offered at competitive rates, can help smaller indie brands and skin clinics easily personalize and customize their platforms to better serve their consumers. Since AI- and AR-adoption among skincare, fashion, and aesthetic skin beauty industries is at its early stage, there is still a large untapped market for us to serve. Furthermore, we will continue to offer a seamless and easy solution for indie brands and skin clinics to enhance their consumer experience, capturing the great potential for growth in the broader long-tail market.
•Pursue Strategic Investments, Acquisition and Partnership Opportunities
We are dedicated to evaluating and selectively pursing strategic alliances, investments and acquisition opportunities across categories and geographies. We intend to consider potential opportunities throughout the AI, beauty and fashion value chains that will enable us to consolidate and extend market leadership, accelerate our expansion into new verticals and geographies, create synergies from our technology integration, and drive revenue growth and margin expansion.
Our Business
We are a leading AI company operating under a hybrid model that spans both B2C and B2B segments. Our mobile app business has become a strong contender in the mobile app market by empowering users’ virtual lifestyles, creating immersive experiences, and making them more beautiful. In the enterprise market, we have emerged as a global leader in delivering advanced solutions for the beauty, fashion, and skincare industries.
For our B2C business, we operate a family of YouCam mobile apps and web-based online editor designed for photo and video beautification, enhancement, and editing, including but not limited to real-time AR makeup application, skin diagnosis, AI photo background removal, AI selfie, AI avatar, and AI text-to-image. Drawing on the latest Generative AI technologies, our apps and web services offer users with real-time, true-to-life, and personalized experiences. The suite of YouCam apps and web services also provide premium features available through paid subscriptions, demonstrating how we monetize our mobile app and web services and generate revenue in addition to our B2B business.
Capitalizing on the premium features powered by our AI- and AR- technologies, our suite of YouCam mobile apps and web services have played a pivotal role in converting a community of free users into paying subscribers and built a solid base of active subscribers. The number of active subscribers grew steadily from around 604,000 and 879,000 as of December 31, 2022 and 2023, respectively, to over one million active subscribers as of December 31, 2024, representing a CAGR of approximately 28.7% from 2022 to 2024. This robust growth momentum underscores our efforts to continuously monetizing our mobile app and web services, driving revenue growth from B2C business.
In addition to the standalone success of our B2C business, the suite of YouCam mobile apps and web services play a pivotal role in driving the Company’s global expansion. Their widespread appeal and the steady rise in active subscribers have established a fast-growing revenue stream that complements our B2B product offerings. By constantly innovating and adapting to emerging market trends, we are able to capture new consumer segments and strengthen our global market presence. By offering a user-friendly platform combining real-time AR capabilities with cutting-edge Generative AI technologies, our YouCam suite of mobile apps and web services address evolving consumer demands in a prompt manner, fueling a surge in global adoption and bolstering our B2C growth trajectory.
This not only accelerates our overall growth trajectory but also reinforces our position as a market leader in delivering advanced AI-driven experiences for photo and video creation.
For our B2B business, we empower beauty, skincare clinics, med spa, jewelry, watch, fashion, aesthetic skin beauty brands and retailers by providing subscription-based tech modules that enable them to offer beauty, skincare and fashion product virtual try-on experiences to their end consumers across multiple channels and product groups. Our current solutions include virtual try-ons for makeup, nail art, hairstyles, watches, eyewear, jewelry, advanced skin diagnostic and simulation, and foundation shade finder. Brands and retailers can deploy these solutions through various channels, including mobile apps, websites, in-store kiosks, and third-party e-commerce platforms. All our solutions are paired with a powerful product recommendation engine that delivers precise and ultra-personalized options tailored to each unique consumer.
Our solutions are nested into a platform, enabling us to easily upsell and expand our offerings to existing brands, providing a swift path to market. As of December 31, 2024, we cover 90% (18 out of 20) of the top 20 global beauty groups. The number of cumulative brands within our brand portfolio increased from 509 brands as of December 31, 2022 to 645 and 732 brands as of December 31, 2023 and 2024, respectively, at a CAGR of 19.9% from 2022 to 2024. Within our customer base, we had 151 Key Customers, which accounted for approximately 32.5% of our revenue in 2024. We also have a well-diversified portfolio. Aside of cooperating with top 20 beauty groups, we also engage with indie brands, emerging new brands and beauty retailers around the world. Our highly scalable business model allows for flexibility to work with both small and medium-sized brands, as well as with the industry giants.
With our extensive range of SaaS solutions, we offer the set of key digital technologies that beauty brands need to achieve a successful digital transformation, as few companies in the market provides such a comprehensive suite of services. Our platform is highly difficult for competitors to replicate and creates a high entry barrier. As a result, we are able to secure multi-year, multi-country contracts with top beauty giants, as well as build a highly engaged consumer base for our platform. The growth of our B2B business is significantly driven by our ability to attract new brands, retain existing brands, and upsell to both new and existing brands in our brand portfolio. By employing the SaaS model, our revenue grows proportionally to the volume of the digital SKUs, regional reach, and type of devices and platforms used by our brand customers. We focus on cultivating synergistic and long-term relationships with our brand customers, helping them achieve sales growth, increase in consumer engagement and build up brand strengths.
•Value Proposition to Consumers
As self-expression and creativity became increasingly important, consumers expect to have more personalized and diverse experiences when using mobile apps. Our family of YouCam apps and web-based editor are able to offer unique and superior digital experiences with the help of our advanced technologies, such as Generative AI technologies. The special features from our apps can empower users to express themselves freely and creatively on social media or other platforms using high-quality and ultra-personalized photos/videos edited or generated by YouCam apps.
A key feature of YouCam family apps and web-based editor that appeals to users lies in the advanced AI- and AR- technologies that can truly solve challenges users encounter in daily life. In addition, our technologies are not only superior, but are also improved and upgraded regularly by our diligent product teams. These offerings allow users to create, edit, and enhance photos and videos, as well as try on makeup and hairstyles virtually. Users can get AI skin analysis in real time. All the functionalities can be accessed easily through mobile devices and in a cost-efficient manner. We believe that as users are satisfied with the quality of our products, they will stick to our platforms and eventually our apps will become an integral part of users’ daily lives.
Our YouCam family apps and web services, powered by AI-driven tools, are substantially lowering the barriers to content creation. Integrated with state-of-the-art Generative AI technologies, our YouCam apps and web-based editor enable users to produce sophisticated visual content—from stylized selfies and animated avatars to high quality photos and videos—without requiring advanced technical skills. This ease of use not only boosts creativity but also empowers people from all walks of life to express themselves authentically. As a result, the democratization of AI-driven content creation is transforming social media aesthetics, amplifying the voice of everyday creators, and opening new avenues for personal expression.
•Value Proposition to Brands
As consumers’ shopping behavior and expectations evolves rapidly, brands need to react and deliver solutions that enhance their consumers’ shopping experience and meet their new expectations. However, due to lack of resources, the vast majority of beauty brands do not have the in-house capability to undergo this kind of digital transformation on their own. We are able to bridge the gap between the brands and their consumers, providing a wide array of omni-channel solutions that are easily implemented and are able to go to market quickly. We believe our broad array of AI- and AR-beauty tech solutions is able to help beauty and fashion brands build strong brand loyalty, increase consumer satisfaction, supercharge sales, and create ultra-personalized experiences that consumers will enjoy.
We work with each brand to bring their shopping experience into the online space, deploying solutions such as virtual try-ons, skin diagnosis, and AI face analysis, paired with ultra-personalized product recommendations. Our solutions can also be deployed in physical stores, enhancing the in-person shopping experience with the latest tech. This allows brands to create the new, seamless, and cohesive shopping experiences that modern shoppers have grown to expect. As of December 31, 2024, 100% of the top 20 beauty groups have incorporated the AI- and AR-technologies into their business model, while 18 of them are our customers.
In addition to bringing value to brands, we believe we bring positive impact to the environment by reducing waste of beauty sampling and overconsumption. Our solutions also promote brands to rethink the way they source products and design packaging, and to reduce the harmful impact on the environment. With our sustainable solutions and zero waste virtual try-on technology, we help beauty brands get closer to achieving their ESG goals, and prove to their consumers that they are worthy of such consumers’ trust. Our AI Skin Tech and AI Hair Tech solutions have been honored with the prestigious Biohackers’ Choice Beauty Awards in the Best Skincare Diagnostic and Best Haircare Diagnostic categories. These awards recognize the products and technologies that are pushing the boundaries of innovation, sustainability, and effectiveness in the beauty and wellness industries.
We deliver our solutions through our intuitive cloud platform, Perfect Console. Brands can seamlessly create virtual product SKUs directly on Perfect Console, where they are stored and can be instantly previewed. Brands can publish the SKUs across multiple channels and regions, including websites, mobile apps, and in-store smart mirrors. Perfect Console can also offer comprehensive product tryout insights, complete brand analysis and customer content management systems, enabling brands to effectively track, analyze, and manage consumer engagement.
•Value Proposition to Developers
Our comprehensive SaaS API business model offers developers a powerful toolkit to seamlessly integrate advanced AI technologies into their applications and platforms. By providing direct access to our proven AI skin diagnosis, AI imaging enhancement and AI content creation, developers can reduce development time and complexity, enabling faster time-to-market for new features and applications. In doing so, we empower developers to create immersive and engaging user experiences that cater to today’s ever-evolving consumer expectations.
In addition to streamlining integration, our APIs incorporate the same cutting-edge capabilities that global beauty and fashion brands rely on, giving developers access to enterprise-level, customizable functionalities. For developers, this not only increases the value they deliver to their own clients but also enhances credibility and trust through alignment with industry-leading solutions already adopted by the top beauty groups.
Moreover, our popular YouCam family of apps provides a unique feedback loop for developers: new features are rigorously tested in our consumer-facing ecosystem, and refinements informed by real user data are made before being rolled out to API clients. This process ensures a high degree of reliability and refinement for every API feature, supported by in-depth guidance and best practices derived from large-scale consumer usage. As a result, developers can be confident that each API integration stands on a firm foundation of user-centric research and continual innovation.
Ultimately, our developer-focused API platform unlocks possibilities for innovation, scalability, and sustainability, allowing developers to offer cutting-edge experiences to their clients while keeping a close pulse on evolving consumer and environmental needs. Through this approach, we position ourselves as a trusted, future-ready partner for developers who seek to build the next generation of AI-powered applications.
•Our Products and Services for Consumers and Enterprises
We provide an AI- and AR-platform that provides true-to-life virtual try-ons across multiple platforms, including brand-owned websites, in-store kiosks, retailer websites, and official mobile applications, as well as major third-party platforms such as Alphabet (Google and YouTube), Snap, Alibaba (Taobao and Tmall), and Tencent (WeChat). Specifically, we provide the following products and services through (i) our iOS and Android mobile apps and cloud platform, or (ii) licensing our customers offline SDK or AI- and AR- offline solutions or mobile apps designed based on customers’ specifications, the revenue of which is recognized in “AR/AI cloud solutions and subscription” and “licensing” components of our revenue, respectively. See “Item 5. Operating and Financial Review and Prospects — A. Operating Results — Components of Results of Operations — Revenue.” We anticipate that the revenue contribution from licensing services in (ii) will become increasingly insignificant as we continue to prioritize enhancing our market leadership in offering AI- and AR-based SaaS subscription solutions for brands and consumers.
YouCam suite of Mobile Apps and Web Services
The suite of YouCam apps and web services primarily consists of six mobile apps and one web-based editor, as described below. We offer freemium model attracting free users to download and explore various freemium features on our mobile apps and web, while at the same time, we continuously introduce and upgrade premium features, enticing free users to purchase our subscription plan so as to unlock these premium features, generating a revenue stream to our B2C business.
YouCam Makeup: an award-winning virtual beauty app that offers a full suite of virtual makeover tools, including real-time AR makeup application, selfie retouch, hair color and style retouch, skin diagnosis, and live selfie backgrounds.
YouCam Perfect: a leading AI-powered photo-editing and beauty camera app. YouCam Perfect offers users a wide selection of photo-editing features, face retouch tools, filters, frames, animated effects, templates, stickers, and more. With an average rating of 4.8 on App Store and 4.4 on Google Play, YouCam Perfect is one of the most popular photo-editing apps on the market.
YouCam Video: a top-tier selfie video editor that enables users to apply makeup and hair colors, retouch videos, personalize and glow up their videos with beauty filters for TikTok, YouTube, Instagram, Snapchat, etc., with just a few taps.
YouCam Enhance: a comprehensive image enhancement app that provides users with a broad range of AI-editing features, including photo enhancement, object removal, background removal, background blur, background change, black-and-white photo colorization, AI avatar and AI image generator.
YouCam AI Pro: an advanced AI-powered app that generates AI images from text and digital AI avatars in various styles. With YouCam AI Pro, users can easily create high-quality pictures for fun or for work and get hundreds of AI avatars to express themselves on social platforms.
YouCam Nails: a unique app that brings users one step closer to the perfect manicure. With YouCam Nails, users can create hundreds of unique designs by applying polish, drawing patterns, and adding cute nail decals.
YouCam Online Editor: a cloud-based photo editing platform that offers a variety of AI-powered tools to enhance and transform images and videos.
AI- and AR-Makeup Virtual Try-On and Foundation Finder
AI- and AR-makeup virtual try-on solution is our first SaaS tech solution for the beauty brands, launched in 2015. It has since then become one of the most popular solutions in our portfolio. We offer AI- and AR-makeup virtual try-on solutions to beauty brands around the world to help enhance consumer experience with virtual makeup try-on. Consumers can try on products in brands’ online and offline stores through our platform. Powered by our proprietary AI- and AR- technology, our solution has ultra-accurate facial mapping capability to conduct a full range of skin tone analysis for instant and realistic results.
Our ultra-realistic effects help color match to real products and provide true-to-life effects to match brands’ product characteristics. It provides realistic makeup textures, including metallic, pearly, shine effects, and many more. In 2024 we enhanced the realism of the makeup textures for newer categories such as eyeliner. Our solution covers a wide range of virtual makeup products, including, but not limited to, foundations, lipsticks, blushes, eyeliners, mascaras, and eyeshadows. In 2024, our lipstick rendering effects now support over 8 types of lip pattern for even higher degree of personalization in beauty. In addition, we are able to combine multiple product try-ons to create instant makeovers of a complete look, allowing consumers to see the full effect of brands’ products instantly.
One of our flagship products under AI- and AR-makeup virtual try-on solution is the AI Foundation Shade Finder. Finding the perfect foundation shade has always been a beauty problem facing consumers and brands alike due to the complexity of identifying the accurate skin tones of individual consumers. Our solution was developed from a deep learning database with over 10 million sample models across all skin tone groups. The AI deep learning algorithm detects the full spectrum of skin tones based on around 89,970 shades with unlimited grades from light to dark and true undertones from warm to cool.
It also supports various types of foundation textures such as matte and glow, and the intensities can also be adjusted to closely mimic the real-life coverage levels. Thus, with our AI foundation shade finder and matcher, consumers can find the perfect foundation shade in a matter of seconds and with high precision.
AI Makeup Transfer
In 2024, we introduced the AI Makeup Transfer solution that empowers customers to instantly recreate any desired makeup look, from social media posts to magazine ads, on their own faces with just a quick selfie upload. The technology precisely extracts and replicates the colors, shades, and textures of the original look, thanks to advanced AI that instantly matches these attributes with the brand’s corresponding SKUs. Shoppers can virtually try an infinite range of looks, see exactly how products will appear on them, and effortlessly add those items to their carts, thereby revolutionizing the makeup selection process and increasing brand loyalty and sales.
AI Makeup Tutorial
The AI Makeup tutorial AR-powered platform allows makeup artists to create and share interactive, step-by-step tutorials that map directly onto a customer’s face. Using a live camera approach in tandem with advanced face tracking technology, the solution accurately guides users through each phase of makeup application—across categories like eyeshadow, eyeliner, blush, lipstick, and more. The makeup tutorials can then be exported and accessed on a brand’s website or through a smart mirror for in-store customers, offering personalized guidance at every step.
In 2024, the solution was further enhanced with auto-tutorial creation, minimizing artist effort in creating the content tedious process. Instead, our algorithm will analyze the patterns and layers of makeup looks, and automatically compose a series of layers and steps to facilitate consumer self-learning of makeup techniques as well as choosing the right application and tools for it.
AI Skin Diagnosis
Our skin diagnosis leverages our cutting-edge technology to detect a full suite of up to 14 different skin concerns. We developed this skincare solution alongside dermatologists based on clinical data. It can instantaneously detect skin conditions, including moisture level, oiliness level, acne, discoloration, dark spots, dryness, uneven skin, redness, wrinkles, texture, dark circles, eye bags, etc., regardless of your skin types and skin tones. We have also enhanced our technology to achieve higher precision in image detection using our HD Skincare feature. This enhancement supports Live Skin Analysis, allowing users to get real-time insights into their skin condition by overlaying specific skin concerns captured by the camera. In addition, our skin diagnosis solutions are not only used by skincare brands, but also adopted by med spa, clinics and dermatologists to provide their patients with highly accurate skin analysis results and give personalized product or treatment recommendations to patients. With the help of our AI technologies, clients can enhance their services to patients and strengthen the relationship with them, thus boosting patient engagement and driving revenue growth.
Our skin analysis was developed using over 70,000 medical grade images to build AI deep learning algorithms and is verified by skincare experts. In addition to detecting skin concerns, our AI engine can also generate visual simulation that tracks gradual improvements directly on a consumer’s face, giving users simulations of the progress they can expect to see over time. It can also give recommendations to consumers that can be tailored to brands’ products and clinical tests. Our skincare solution is proven to be highly accurate against dermatological tests.
AI Aesthetic and Skin Simulator
In 2024, we introduced an advanced, AI-driven facial reshaping solution that enables aesthetics professionals to offer realistic, accurate previews of potential enhancements directly on each patient’s own face. It seamlessly integrates into both online and offline consultation channels, covering a wide range of procedures, including nose reshaping, eyelid adjustments, jaw refinement, lip fillers, cheek fillers, and eyebrow lifts. With full-spectrum customization, such as adjusting nose tip size, jaw shape, or the degree of a brow lift, it helps set clear expectations, reduce uncertainties, and boost confidence in final outcomes.
By delivering true-to-life, adjustable simulations, clinics and med spas can enhance patient communication, streamline the consultation process, and supercharge their marketing efforts. The technology’s intuitive controls enable practitioners to personalize procedures in real-time and offer clients a clear vision of their potential transformations. Ultimately, this AI-powered facial reshaping tool elevates customer satisfaction and trust, making it an invaluable asset for any practice committed to delivering personalized, high-quality aesthetic services.
The AI Skin Simulator delivers an immersive and interactive skincare retail journey by harnessing advanced AI simulation and AR technology. With this cutting-edge approach, shoppers can see detailed, accurate representations of how their skin will look before and after treatment—overlaid directly onto their own faces. By personalizing the simulation to each individual’s unique skin condition and regimen, skincare brands can offer a highly tailored experience that boosts engagement, trust, and customer satisfaction.
This AI-powered solution also gives brands the flexibility to adjust a range of variables, from the severity of skin issues to product strength and treatment duration, ensuring the simulation is both realistic and fully customizable.
AI- and AR-Hair Services
Our AI- and AR-Hair technology allows consumers to try on various hair dye products in real time, giving consumers the ultimate virtual salon experience. Our solution can apply a single hair color, ombre hair color, that simulates two-color combinations, pigment hair color with holographic hair color effects, and hair highlights. In 2024, our AI- and AR- Hair solutions were upgraded with new Generative AI capabilities, allowing users to create new hair styles, extend hair length, create hair bangs, adjust hair volume and experiment with various wavy hair effects.
Our comprehensive AI hair analysis suite combines hair length detection and hair frizz assessment to provide unparalleled personalization in haircare. The AI Hair Length Detection feature categorizes hair into five distinct lengths, from above-the-ear to mid-back, enabling brands to deliver precise product and styling recommendations. By analyzing vast datasets, the solution ensures accurate identification of each user’s hair length for a more personalized recommendation in style and product selection. Meanwhile, the AI Frizzy Hair Analyzer evaluates hair from multiple angles using just three photos, front, left, and right, to classify frizz levels into four categories, from smooth to extremely frizzy. This quick and hassle-free approach eliminates the need for in-person consultations, specialized hardware, or lengthy quizzes.
AI- and AR-Jewelry (Earrings, Rings, and Bracelets)
Our AI- and AR-Jewelry technology was introduced in December 2021 and it currently offers virtual try-on experience for earrings, necklaces, bracelets, and rings.
For earrings, rings, and necklaces, our proprietary AR 3D model with PBR technology supports high-resolution textures, material reflections, and simulated motion physics with head and body movements to present product renderings with incredible accuracy. High-resolution textures and material reflections give virtual jewelries an incredibly realistic appearance. For bracelets and rings, our proprietary AgileHand® technology utilizes PBR 3D hand models to map a full range of hand movements.
In 2024, the jewelry virtual try-on solution was upgraded to support multiple products stacking virtual try-ons and with multi-finger customization support. Consumers can try on different set of rings in multiple fingers at their own preference. The real-time live virtual try-on engine can render multiple 3D objects (eg. rings, bracelets, etc) all together.
3D Authoring Tool
In 2024, we introduced a new cloud-based authoring workflow solution for self-service 3D asset creation, designed to help brand clients construct and configure 3D objects for virtual try-ons, such as jewelry and watches. The 3D authoring tool transforms computer-aided designs into Web 3D viewer and AR virtual try-on experiences.
This solution enables the efficient design of 3D assets with unlimited variations. It supports industry-standard 3D model files (e.g., .gltf, .obj) and allows materials to be easily applied to individual 3D parts in a well-organized manner. It also enables our brand customers to use the built-in material and texture libraries for quick 3D object creation or expand the libraries by uploading custom textures.
AI- and AR- Glasses, Watches and Accessories
Our AI- and AR-accessories technology provides AR effects for watches, eyewear, headbands, hats and other accessory virtual try-ons. For AR watches, we leverage our proprietary AgileHand® technology with up to seven types of material maps effects within our PBR technologies to provide an ultra-realistic AR try-on experience. For eyewear, our 3D mapping technology allows brands to effortlessly create accurate virtual glasses using three still images, and using our auto pupillary distance detection, we can create very precise frame sizes for all.
To simplify 3D file creation for virtual try-ons, we introduced our interactive 2D image-to-virtual try on solution. Brands can effortlessly generate hyper-realistic virtual rings, watches, and accessories using simple 2D product images, bypassing costly and time-consuming 3D modeling. Our advanced algorithms create lifelike accessories and timepieces with intricate lighting effects and accurate motions.
This solution ensures virtual try-on effects akin to those from 3D models, simplifying access and ensuring affordability for accessories and watch brands of all sizes.
AI- and AR-Nails
Our virtual try-ons for nails, a customizable solution that allows try-ons for different polish shades (single and multi-color), as well as a wide array of nail polish textures (e.g., cream, jelly, sheer, matte) and nail art, through our proprietary AgileHand® technology. Nail art brands can deploy the solution both online and in-store, allowing consumers to test out the latest colors and styles seamlessly, elevating the shopping experience for nail polish and nail art products.
AI Studio, AI Avatar, AI Headshot and AI Selfie
Built with our latest Generative AI technology and customized Stable Diffusion models, AI Studio enables users to reproduce fashion magazine photo shoots by simply inputting one single photo of themselves. AI Avatar offers a unique platform for users to upload their selfie images and create more than 25 styles of digital avatars for every occasion. These digital twins allow users to creatively express themselves and stand out on social media and online platforms. For each avatar style, users can enjoy a personalized and dynamic avatar creation journey, showcasing their unique identities in the virtual world. AI Headshot empowers users to transform their everyday photos into professional photos that can be presented in various postures.
By integrating Generative AI technology into development, AI Selfie transforms users’ photos into artworks, offering a wide selection of 20 distinct artistic styles ranging from Watercolor, Graffiti, Anime, Manga to Pop Art, and even styles inspired by Van Gogh. As Generative AI becomes an integral tool for photo editing and beautification, these features allow users to unlock new possibilities for creative expression and artistry, aligning with the evolving trend for more personalized and expressive digital content.
AI Text-to-Image
AI Text-to-Image feature is the highlight of the newly launched mobile app YouCam AI Pro. Capitalizing on the Generative AI technologies, it allows users to easily transform text descriptions into high-resolution digital images. This AI-based tool is capable of generating images in up to 20 artistic styles, including Van Gogh, Pop Art, Anime, Pixel Art, and Cartoon. Users can visualize their ideas without complex design skills. With the help of this feature, users are able to create visual masterpieces in just a moment, both for work and for entertainment.
AI Photo and Video Editing Tools:
AI Remove Background, AI Blur Background, AI Object Removal, AI Image Extender, AI Replacement, and AI Photo/Video Enhancement
We have launched a set of Generative AI-powered tools for photo editing in 2023, including AI Remove Background, AI Blur Background, AI Object Removal, AI Image Extender, AI Replacement, and AI Photo/Video Enhancement, which offers users more powerful tools to enhance, beautify, and upgrade photos. AI Remove Background allows users to not only remove backgrounds in seconds, but also create transparent or colored backgrounds. AI Blur Background enables users to quickly add depth and blur photos to highlight focused subjects. AI Object Removal employs advanced algorithms to provide users with an easy way to erase objects and remove unwanted people, text, and watermarks in just a few clicks. With AI Image Extender, users can expand their photos beyond their original borders, with our advanced AI technology ensuring the expanded areas blend seamlessly with the original photos. AI Replacement is another powerful tool that allows users to replace any object from photos easily and in just a few clicks.
We have also launched a series of AI Photo/Video Enhancement products that can instantly fix blurry photos, upscale and enhance image resolution and sharpness, eliminate noise, colorize black-and-white photos with different color styles, and brighten low-digit images without compromising quality and details.
In 2024, we further upgraded our Generative AI solutions to incorporate a significantly broader range of generative features, including, in addition to AI avatar, text-to-photo, AI-driven editing, etc. The Generative AI technologies and AI editing features for photos and videos, integrated into our product offerings, play a pivotal role in converting our app and web users into paying subscribers, underscoring the critical importance of our AI roadmap to the success of our B2C business. We intend to continue to enhance the functionalities of our AI editing tools to meet users’ needs and solve their problems in photo/video beautification, enhancement, and editing.
AI Remove Background (Sample illustration of effect)
AI Background Generation and Blur (Sample illustration of effect)
AI Object Removal (Sample illustration of effect)
AI Image Extender (Sample illustration of effect)
AI Replacement (Sample illustration of effect)
AI Colorize (Sample illustration of effect)
AI Lighting for Video and Photo (Sample illustration of effect)
AI Denoise for Video (Sample illustration of effect)
AI Photo/Video Enhance (Sample illustration of effect)
AI Face Attributes and AI Product Recommendation
The new AI Face Analyzer offers an all-in-one solution that detects over 70 facial attributes, categorizes personal color palettes, and now evaluates face ratios. By combining advanced image recognition technology with an extensive training set across diverse genders, ages, and ethnicities, the system delivers precise, personalized insights—from face, eye, and nose shape to hair, lip, and skin color. This enables brands and beauty practitioners to provide tailored product recommendations and aesthetic guidance.
In 2024, we introduced a new feature in this family. The new face ratio assessment, the AI Face Analyzer calculates key proportions inspired by the golden ratio, taking into account eye placement, eyebrow arch, nose aspect, lip balance, and more.
These insights help professionals offer personalized styling tips and product suggestions that harmonize a customer’s natural features. Ultimately, the solution streamlines the shopping journey by combining in-depth facial attribute detection, color matching, and proportional analysis with brand-specific product mapping, leading to a high-impact, data-driven consumer experience.
Our Strategic Partners
•Strategic Partners
We not only offer enterprise SaaS solutions to multiple notable beauty or fashion accessory brand owners, but have also formed strategic partnerships with world-class tech giants, including Alphabet (Google and YouTube) and Snap, as well as Asia tech platforms, such as Alibaba (Taobao and Tmall). These partnerships provide us with a wide reach to promote our virtual try-on solutions.
Alibaba: Since 2019, we have natively integrated our makeup AR solutions into Alibaba’s Tmall and Taobao platforms (the largest e-commerce sites in China). Brands that already use our platform are able to utilize the same set of SKUs that is already configured for other channels, and directly “switch on” a similar try-on experience in the brand’s official stores in Tmall and Taobao.
Alphabet: Similarly, our partnership with Alphabet (Google and YouTube) since 2020 allows brands to fully leverage the pre-configured SKU assortment and provide consumers with virtual try-on experience on YouTube (via brands interactive AR advertisements, under brands product videos and interactive AR advertisements) and in Google Search (when a particular brand or product is searched).
Snap: We launched the first phase of our partnership with Snap in late 2020 which incorporated our makeup virtual try-on technology and data within Snapchat, for brands to offer their beauty product virtual try-on to Snapchat lens users.
In all of these partnerships, we are one of the few third parties that are allowed to integrate our codes and modules directly into that of the large tech platforms, which makes the consumer experience via our AI- and AR-engine much more seamless. Our omni-channel, cross-platform coverage significantly increases the brand’s engagement with consumers. We believe beauty and fashion brands naturally prefer a neutral platform such as us which has deployment capabilities across all sales channels and social networks, as it provides brands with the peace of mind that the same set of SKUs only needs to be configured once and can then be flexibly deployed across sales channels for consistent consumer experience.
Research and Development
The success of our broad range of AI- and AR-powered solutions is reliant on our technology. We invested significant time, resources and expense into research and development. Innovation is part of our core values, and we are continuously pushing the frontiers of technology to develop AI- and AR-technology and provide new beauty, skincare, fashion tech products integrated with Generative AI solutions. As of December 31, 2024, we primarily offered 31 SaaS technology solutions, six mobile apps and one online editing tool. We have 186 AI- and AR-specialists who drive the development of our technology.
Our technology highlights include:
•Generating around 3,900 real-time facial 3D live meshes backed by visual computing;
•Supporting over 20 different makeup textures (e.g., matte and metallic);
•Supporting over 20 common skin concerns diagnosis;
•Recognizing nearly 90,000 skin tones;
•Employing over 10 million data sets to train AI deep-learning algorithms for the excellent performance across all ethnicities and skin tones; and
•Protecting our intellectual property with 35 patents and 25 pending patent applications as of December 31, 2024.
Our flagship technologies are:
True-to-life AI- and AR-technology: Our patented AI- and AR-technology employs 3D renderings, skin tone analysis, texture matching, and light balancing to power realistic facial mappings for accurate makeup trials. These hyper-realistic technologies not only ensure lifelike makeup effects but can also be utilized for hair color try-ons, applying photo-realistic hair colors generated by AI to the entire head. Additionally, they enable true-to-life trials of 3D accessories, including jewelry, eyewear, and hairbands.
Highly accurate facial AI- and AR-rendering power: Our AI- and AR-face technology projects around 3,900 3D meshes in real time, which allows high-performance, high-precision and high-definition facial live AR effects. Furthermore, our AI Face technology ensures that makeup effects remain realistic and adapt to the consumer’s facial muscles, regardless of the angle or expression. This results in highly accurate and lifelike trials that closely replicate the experience of using real products. We are able to perform facial makeup effects to a high level of precision, which leads to a fully inclusive virtual try-on experience, encompassing facial attributes across all ethnicities and ages. We have so far accumulated experience in simulating all makeup product categories (e.g., lip, eye, face, and hair) covering all ethnic groups.
Precise hand tracking technology: Our AgileHand® technology employs physically based rendering method and enhanced environmental lighting to illustrate true-to-life live hand AR effects. We simulate real-life physics, including built materials, textures, micro-reflections, and light scattering, together with enhanced environmental lighting developed with proprietary visual computing algorithmic to mimic natural lighting and apply realistic effects on the virtual products. This allows us to illustrate true-to-life live virtual try-on effects for rings, bracelets, watches, nail polish, etc. AgileHand® technology is trained on real-hand models with a complete array of gestures, skin tones, and textures, as well as hand and finger sizes to encompass all unique personal traits. It is able to determine wrist and finger sizes automatically and impose AR objects seamlessly on hands instantly, creating a fully immersive shopping experience.
AI and machine learning capabilities: We leverage cutting-edge deep learning and transformer-based architectures, powered by data from over 10 billion real-life try-ons annually across the globe. This extensive data pool allows us to deliver unparalleled realism in AR makeovers and highly personalized recommendations. For makeup virtual try-on, our advanced AI ensures ultra-precise color matching, giving consumers full confidence that the shade they try on-screen accurately represents the physical product. Meanwhile, our skin-focused offerings utilize sophisticated computer vision, neural networks, and real-time analytics to detect and analyze all aspects of skin health, from texture and wrinkles to spots and dark circles. This approach provides the ability to track changes over time, enabling users to monitor the effectiveness of skincare routines with ease. By integrating the latest advances in AI-driven personalization, we provide an immersive, data-backed experience that stands at the forefront of modern beauty technology.
Generative AI development capabilities: We have made significant progress in advancing our Generative AI technologies by refining engine design and integrating state-of-the-art models like Stable Diffusion and next-generation AI frameworks. Based on these technologies, we have developed numerous new engines that enhance various aspects of AI-generated content, improving efficiency, adaptability, and output quality across multiple applications. Upgrading many of our engines to SDXL (Stable Diffusion XL) has notably improved output quality and resolved various issues. Concurrently, we are actively developing the multi-modal diffusion transformer architecture to push the boundaries of AI-generated content while optimizing engine efficiency for faster rendering speeds and greater adaptability across applications.
In addition, we have expanded our capabilities into Large-Language Model (“LLM”) development, creating an intelligent Beauty Advisor powered by LLM. This AI-driven agent applies LLM technology to beauty consultations and image editing, enhancing user experience through personalized and context-aware recommendations. Our research and development team remains at the forefront of Generative AI advancements, proactively integrating the latest breakthroughs into our product ecosystem.
With a strong focus on real-time deployment and adaptability, we have accelerated our time-to-market strategies, ensuring that our customers benefit from the latest AI-driven enhancements as soon as they become available.
Intellectual Property
Intellectual property is fundamental to us. With some of the most advanced beauty tech AI- and AR- solutions on the market, we make every effort to protect our intellectual property. We rely on a combination of patent, trademark, copyright, unfair competition, and trade secret laws, as well as confidentiality procedures and contractual restrictions to establish, maintain and protect our proprietary rights.
As of December 31, 2024, we have 35 patents registered and 25 applications pending. We intend to continue to regularly assess opportunities for seeking patent protection for our technology, which we believe provides a meaningful competitive advantage.
Regulation
•Data Privacy
Privacy and data protection laws play a significant role in our business, as they restrict our storage, use, processing, disclosure, transfer and protection of personal information provided to us by end consumers. Laws, regulations and industry standards related to the collection of consumers’ data are constantly evolving in various jurisdictions in which we conduct business or where we may expand, including, without limitation, the following:
United States
In the United States, there are various laws and regulations concerning privacy and data protection, and federal and state regulators, including the FTC, have adopted, or are considering adopting, regulations concerning privacy and data protection. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal laws, and such laws may differ from one another. For example, the California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect on January 1, 2020, defines “personal information” broadly enough to include online identifiers provided by individuals’ devices, and imposes more stringent obligations on companies regarding the level of information and control they provide to users about the collection and sharing of their data. Additionally, California passed the California Privacy Rights Act (the “CPRA”), the substantive amendments of which entered into effect on January 1, 2023. The process of implementing regulations for the CPRA is ongoing, with the first set of CPRA regulations being finalized in March 2023. The CPRA significantly modifies the CCPA, including adding new privacy rights relating to the use, collection and disclosure of personal information by covered businesses and creating a new enforcement agency, the California Privacy Protection Agency (the “CPPA”). It remains unclear how various provisions of the CCPA and CPRA will be interpreted and enforced, and we may be required to modify our data practices and policies and incur substantial costs in an effort to comply. Other states have also passed comprehensive privacy laws, such as the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Data Privacy Act, the Utah Consumer Privacy Act, and similar laws have been passed or are being considered in other states as well as at the federal level.
European Union and the United Kingdom
The GDPR, together with national legislation, regulations and guidelines, including the U.K. GDPR and the Data Protection Act 2018, govern the processing of personal data and impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose, transfer and otherwise process personal data in the European Union and the United Kingdom. In particular, the GDPR and the U.K. GDPR include obligations and restrictions concerning the consent and rights of individuals to whom the personal data relates, the transfer of personal data out of the European Economic Area or the United Kingdom, security breach notifications, and the security and confidentiality of personal data. In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements.
On December 15, 2020, the European Commission (“EC”) proposed two legislative initiatives to upgrade rules governing digital services in the EU: the DSA and the DMA.
The DSA entered into force on November 16, 2022, which seeks to update the rules concerning e-commerce, for instance, by providing for enforceable obligations and increased accountability rules for all digital services that connect consumers to goods, services, or content, in relation to, for example, users’ safety and trust, harmful/illegal online content, content moderation and removal, and advertisement targeting. The EC adopted its first designation decisions under the DSA on April 25, 2023, naming very large online platforms and very large online search engines, as defined under certain criteria, which must comply with the DSA within a period of four months. The DMA entered into force on November 1, 2022, which seeks to address market imbalances associated with large online platforms acting as gatekeepers, defined under certain criteria (e.g., Facebook, Google, Apple or Amazon). The United Kingdom has also introduced an analogous new regulatory regime for the digital sector, including the Online Safety Act, which became law on October 26, 2023.
Legal and regulatory frameworks that govern AI may also impose obligations and restrictions with respect to privacy and data protection. For example, the EU AI Act will subject AI systems considered high risk to data governance standards for data that is used to train, validate and test such AI systems. In addition, deployers of AI systems considered a specific transparency risk that uses emotion recognition systems or biometric categorization systems must inform natural persons about the operations of such AI systems and process personal data in accordance with other applicable EU laws.
Taiwan
The collection, processing and use of personal data in Taiwan are primarily subject to the PDPA and the enforcement rules of the PDPA as well as other applicable rules 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. In July 2018, the National Development Council established the Personal Data Protection office in response to the implementation of the GDPR and to ensure a coherent enforcement of the PDPA. Since January 2019, the National Development Council took over the power and function of the Ministry of Justice, and has become the authority that is in charge of interpreting the PDPA and the internal coordination among different government authorities with regard to the relevant matters. The amendments to the PDPA were passed by the Legislative Yuan on May 16, 2023 and came into effect on June 2, 2023. Article 1-1 of the amended PDPA stipulates that the PDPC will act as the competent authority of the PDPA, and integrate central competent authorities, the local government authorities, and the NDC from the date of establishment of the PDPC. The PDPC was subsequently established on December 5, 2023 and is tasked with overseeing the enforcement of the PDPA and carrying out certain regulatory functions in Taiwan. Article 48 of the amended PDPA sets forth that if there are certain violations of the PDPA, such as violations of the PDPA’s data processing requirements or notification requirements following a data breach, the central competent authorities in charge of the relevant industries and local government authorities may impose an administrative fine against a non-government agency in an amount ranging from NTD20,000 to NTD2,000,000, if the non-government agency fails to rectify the violation within a specified time period. Additionally, Paragraphs 2 and 3, Article 48 of the amended PDPA set forth that if the non-government agency fails to rectify certain PDPA violations within such time limit or if the violation is material, the aforesaid administrative fine can be raised to between NTD150,000 and NTD15,000,000.
China
Chinese governmental authorities, in particular the Cybersecurity Administration of China, are putting great focus on data protection enforcement. The Cybersecurity Law of the People’s Republic of China (the “CSL”) forms the backbone of cybersecurity and data privacy protection legislation in the PRC. The Data Security Law of the People’s Republic of China (the “DSL”) is the fundamental law in the data security area that widely covers data security mechanisms, obligations, and liabilities at both state administration and data handler levels. The Personal Information Protection Law of the People’s Republic of China (the “PIPL”) represents a new era of personal information protection as well as corporate compliance in the PRC. The DSL, the PIPL and the CSL constitute the three fundamental pillars of Chinese data protection legislation, and together with various systematic supplemental regulations, measures, and standards, form the cybersecurity and data protection legislative framework in China.
Furthermore, on July 7, 2022, the Cyberspace Administration of China promulgated the Security Assessment Measures for Outbound Data Transfer, effective from September 1, 2022, to regulate outbound data transfer activities, protect the rights and interests of personal information, safeguard national security and social public interests, and promote the cross-border security and free flow of data. Furthermore, on December 8, 2022, the Ministry of Industry and Information Technology of the PRC released the Administrative Measures for Data Security in Industry and Information Technology Sectors (Trial), effective from January l, 2023, which, among other things, impose specific data security management requirements and certain filing and reporting obligations on processors of important data and core data in industry and information technology sectors.
Our Effort of Privacy Protection
We are committed to protecting personal data. For mobile apps, we publish a privacy policy for using our platform through our mobile apps. In countries where applicable data privacy laws are in place, we provide consumers with notice about our collection and use of data, and ask consumers for their consent to the use of data via a separate tick-box with respect to each purpose of using consumer data. For solutions offered to brand consumers and retailers, we do not receive the personal information of consumers in most cases. Still, we cooperate with brands and retailers to comply with relevant laws and protect data privacy, including assessing the effectiveness of privacy protection of brands and retailers before entering into contracts with them, allocating the privacy protection responsibilities through contractual arrangements, and continuously improving our internal data protection mechanisms. We deliver company-wide privacy training regularly, and review and adjust our privacy policies in accordance with the changes of laws and regulations.
Certification and Compliance
Adhering to the highest standards in protecting the data of both the brands that we work with and the end users of our solutions is our core commitment. We design our solutions with safety at the center stage, and take every step necessary in safeguarding sensitive data. Our dedication to this matter is reflected in the number of safety certification and compliance our solutions have received to date and we strive to guarantee best practices when it comes to making sure all of our partners’ and users’ data remain secure at all times.
•Exchange Controls in Taiwan
Under applicable laws and regulations in Taiwan, the inflow and outflow of foreign currency that do not involve the exchange of New Taiwan Dollar is free, while currency conversion between New Taiwan Dollar and foreign currency is subject to exchange transactions declarations pursuant to the Taiwan Foreign Exchange Control Act. Hence, receipts and disbursements involving the currency conversion from New Taiwan Dollar to foreign currency or from foreign currency to New Taiwan Dollar (collectively, “Regulated Transactions”) are subject to declaration obligations imposed by Taiwan authority. In general, Regulated Transactions involving NTD 500,000 or more shall be declared to the Central Bank of Taiwan. Further, for Regulated Transactions involving New Taiwan Dollar equivalent to over USD 1 million, relevant documents shall be verified by banks before such transactions can be processed. In addition, if the annual accumulated settlement amount of Regulated Transactions exceeds USD 50 million, such foreign exchange settlement is subject to the approval of the Central Bank of Taiwan. The Taiwan government may impose further foreign exchange restrictions in certain emergency situations, where the Taiwan government experiences extreme difficulty in stabilizing the balance of payments or where there are substantial disturbances in the financial and capital markets in Taiwan.
For each of the three years ended December 31, 2024, our revenue subject to foreign exchange controls in Taiwan represented less than 1.0% of our total revenue, and our revenue denominated in NTD was fully used for our Taiwan subsidiary’s operation. If our Taiwan subsidiary needs to pay Perfect, for the purpose of dividend distribution or otherwise, we expect the payment to be funded by our Taiwan subsidiary’s revenue denominated in USD, which is generally not subject to foreign exchange control in Taiwan.
Sales and Marketing
•Sales and Marketing for B2B Business
Our fast-expanding team of sales representatives spans across nine cities on three continents and has led us to closing deals with 732 cumulative brands as of December 31, 2024 and servicing 90% of the world’s top 20 beauty groups. By employing the SaaS model, our revenue grows proportionally to the volume of the digital SKUs, regional reach, and type of devices and platforms used by our brand customers. We focus on cultivating synergistic and long-term relationships with our brand customers, helping them achieve sales growth, increase in engagement with consumers, and build up brand strengths.
We employ a wide range of marketing activities to engage with existing and potential business and consumer partners. These include regular press releases, social media campaigns across all major channels, including Facebook, Instagram, X (formerly Twitter), YouTube, and LinkedIn, targeted email marketing, online and offline advertising, and industry event participation.
We drive solution adoption through a comprehensive lead generation system, encompassing both inbound and outbound strategies. Inbound sources include client referrals, digital marketing (search engine optimization (SEO), pay-per-click (PPC)), and online events (webinars and podcasts). Outbound efforts involve networking at trade shows, proactive outreach through various databases, and industry newsletters. After securing leads, our sales team works closely with potential clients, focusing on their needs, recommending suitable services, and ultimately finalizing deals.
•Sales and Marketing for B2C Business
Our marketing efforts for mobile apps and web-based editor business rely on digital marketing, including blogs, search engine optimization (SEO), app store optimization (ASO), social media, and paid advertising. Our marketing team closely monitors the latest market trends on the Internet and captivating blogs or posts that are shared on our website and social media. By refining keywords, optimizing titles, and regularly updating metadata, we ensure that our apps stand out in both Apple App Store and Google Play Store. Simultaneously, we tailor our website and blog content to rank higher on search engines, driving a continuous flow of organic traffic to our offerings. As a result, we achieve stronger brand visibility, attract more potential users, and ultimately increase conversions from free-trial downloads to paid subscribers—solidifying our position as a leader in AI-driven content creation.
Once users are directed to Apple Store or Google Play to download our YouCam apps, or directed to our web-based editor. Our freemium model allows them to choose free-trial to try out different functionalities and premium features. After users have tried our fun and unique features, they are highly likely to pay and become our subscribers upon the end of the free-trial period.
Seasonality
Our B2C business seasonality typically aligns with traditional consumer holiday shopping seasons, as consumers tend to purchase the latest smartphone and upgrade the apps along with their new devices.
Our B2B business is subject to seasonal fluctuations in spending by brands. Historically, the fourth quarter has typically been the quarter with the largest bookings of our solutions from brands and retailers which affects our business, revenue, and operating results. We expect this seasonality trend to continue.
Competition
We have achieved market leadership in the consumer beauty and AI mobile apps as well as in the beauty and fashion AI- and AR- industry. We have solidified our position as the world’s leading global beauty and fashion tech solutions provider, and currently we do not have significant direct competition in the SaaS solution space. Our competitive advantage and leadership position are further supported by strong word-of-month referrals, highly positive testimonials from brand partners, as well as a multitude of industry awards.
With regards to mobile apps that we offer, we directly compete with several market players, including Wonder, Arta, FaceApp, BeautyPlus, AirBrush, Videoleap, Capcut, AI Marvels, FaceTune, Remini, and Davinci. These competing mobile apps focus on Generative AI, photo-editing, beautifying, and retouching features, similar to our YouCam Makeup, YouCam Perfect, YouCam Video, YouCam Enhance, and YouCam AI Pro apps.
With regards to online website that we offer, we directly compete with several market players, including Fotor, Picwish, Cutout, Media.io, Photoroom, Myedit, PromeAI, Pixlr. These competing websites focus on Generative AI, photo-editing and video-editing features, similar to our YouCam Online Editor.
With regards to the SaaS services that we offer, Modiface Inc., Revieve, Holition, and Banuba can be considered our closest competitors, though they are limited with regards to their product offerings. We believe we compete favorably based on the following competitive factors:
•Technology accuracy and platform scalability
•Omni-channel presence
•Product offerings
•Ease of use and reliability
•Research and development talent
Employees and Human Capital
Our global team is spread across four continents. We have 297, 321 and 342 employees globally, as of December 31, 2022, December 31, 2023 and December 31, 2024, respectively. Our research and development center is located in Taiwan, which gives us easy access to a world-class, cost-effective pool of engineering talent, adding to our strong competitive advantage. None of our employees are represented by a labor union.
The following table sets forth the number of our employees categorized by function as of December 31, 2024.
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Number of
Employees |
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Percentage |
| Sales and Marketing |
144 |
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42.1 |
% |
| Research and Development |
169 |
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49.4 |
% |
| General and Administrative |
29 |
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8.5 |
% |
| Total |
342 |
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100.0 |
% |
We have a strong depth of knowledge amongst our technology team. Our team has obtained their education at the top universities from around the world. The vast majority (87%) of our research and development team hold a master’s degree, and 2% hold a doctorate degree. 40% of the team have amassed over 10 years of industry experience, with another 18% being in the business for five to ten years. We are also dedicated to nurturing young talent, with 19% of our team were hired fresh out of university. These talents bring energy, excitement and out-of-the-box ideas that help us keep innovating and staying on top of industry trends.
We respect everyone equally and hire employees based on talent only. Our diverse global team is composed of talented individuals of various ethnic groups and LGBTQ+ identities, of which 54% are men and 46% are women, with 43% of our managers and executives being female, including the CEO.
We have a dedicated, seasoned, and stable senior management team that has worked together for over a decade to grow the Company since the very early stage. Our management team is composed of top industry experts and visionaries, all with over two decades of industry experience. We are a team that is able to be extremely agile and adapt to the dynamically changing market, given our flat hierarchical structure. This also allows us to quickly make decisions, pivot if needed, and accurately execute strategies.
Facilities
Our corporate headquarters, as well as our core research and development team, is based in New Taipei City, Taiwan. We maintain offices in Taiwan, Japan, the United States, France and China to serve our geographically diverse customer base.
We lease all of our offices. For additional information about the lease, see “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Related Party Transactions with CyberLink and Its Affiliates — Rental Agreements.” We do not own any real property. We believe our current facilities are adequate to meet our immediate needs.
Legal Proceedings
From time to time, we are involved in legal proceedings incidental to the conduct of our business. In certain cases, we may choose to settle disputes with brand customers or business partners if the benefits of preserving long-term business relationships outweigh the costs of litigation. Such settlements may involve financial obligations, modifications to contractual terms, or other concessions to maintain strategic partnerships and operational stability.
As of now, we are not a party to any legal proceedings that we believe would have a material adverse impact on our consolidated business prospects, financial condition, liquidity, results of operations, cash flows, or capital levels. However, given the evolving regulatory landscape and the competitive nature of our industry, we cannot rule out the possibility of future legal disputes that could pose financial or reputational risks. We continue to monitor and manage our legal exposure to mitigate potential disruptions to our business. See “Risk Factors — Risks Related to Our Technology, Data Privacy and Intellectual Property — We may be subject to intellectual property infringement claims or other allegations by third parties, which may cause substantial costs and materially and adversely affect our business operations” and “Risk Factors — Risks Related to Our Technology, Data Privacy and Intellectual Property — From time to time, we may become involved in litigation, regulatory investigations, administrative proceedings, or other legal disputes that could have a material and adverse impact on our business.”
C.Organizational Structure
As of the date of this annual report, we own 100% equity interest in the following companies directly:
•Perfect Corp. (Shanghai), a company incorporated in the PRC
•Perfect Corp., a company incorporated in Japan
•Perfect Mobile Corp., a company incorporated in Taiwan
•Perfect Mobile Corp., a company incorporated in the British Virgin Islands
•Perfect Corp., a company incorporated in the State of California, the United States
In addition, Perfect Taiwan directly owns (i) 100% equity interest in Perfect Corp., a company incorporated in France, and (ii) 100% equity interests in Wannaby, a corporation incorporated in the State of Delaware, the United States which directly owns 100% equity interests in Wannaby UAB, a private limited liability company incorporated in Republic of Lithuania.
D.Property, Plants and Equipment
Please refer to “— B. Business Overview — Facilities” for a discussion of our property, plants and equipment.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. This discussion and analysis should be read together with the audited historical consolidated financial statements and related notes that are included elsewhere in this annual report. In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. For more information about forward-looking statements, see “Forward-Looking Statements”. Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information — D. Risk Factors” and elsewhere in this annual report.
A.Operating Results
Company Overview
Founded in 2015, we are a leading AI technology company offering self-developed AI- and AR- powered solutions dedicated to making your virtual world beautiful. We operate a hybrid business model of B2B business and B2C business. Our B2C family of YouCam mobile apps and web-based editing services empower users to create and enhance their personal photo and video with user-friendly interfaces, while driving powerful high quality outputs through Generative AI technologies.
Our B2B platform transforms how brands and consumers interact and create opportunities to connect 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 from product discovery to personalized recommendation in multiple categories.
For our B2C business, we primarily offer six mobile apps under the “YouCam” suite and one web-based editor, featuring AI- and AR- technologies. The flagship mobile apps, YouCam Makeup, YouCam Perfect, YouCam Video, YouCam Enhance, YouCam AI Pro and YouCam Nails, along with online editing tool, YouCam Online Editor, provide users with virtual try-ons, beauty camera and portrait retouching, photo and video enhancement and editing features and Generative AI features for selfies, avatars, generative imaging, text-to-photo, and AI-driven editing. These apps and online services, powered by our AI- and AR- technologies, have attracted a growing number of active subscribers, reaching a record high of over one million active subscribers as of December 31, 2024, up from 879,000 active subscribers as of December 31, 2023.
For our B2B business, we offer AI- and AR- powered SaaS solutions tailored to the beauty and fashion industry. We empower beauty, skincare clinics, med spa, jewelry, fashion brands and retailers by providing subscription-based tech modules that enable them to offer beauty product virtual try-on experiences to their end consumers across multiple channels and product groups. The number of Key Customers remained stable at 151, as of both December 31, 2024 and 2023. As of December 31, 2024, our cumulative brand portfolio includes 732 brands, including global industry leaders such as COTY, Estée Lauder Group, LVMH Group, Shiseido Group and Kao Group, with over 822,000 digital SKUs for makeup, hairstyles, haircare, skincare, eyewear, and jewelry products, and over 10 billion virtual product try-ons annually.
We have achieved significant scale and steady growth since our inception in 2015. Our total revenue grew from $22.9 million in 2019 to $60.2 million in 2024, at a CAGR of 21.3%. We achieved a double-digit revenue growth of 12.5% in 2024, compared to 2023, driven by the robust momentum in the growth of YouCam mobile app and web service subscriptions, stable demand for the Company’s online virtual product try-on solutions from brand customers, and the growing popularity among consumers of Generative AI technologies and AI editing features for photos and videos. Demands for Company’s YouCam mobile app and web-based editor remain robust, with active subscribers growing by 13.7% year-over-year, reaching a new record high of over one million active subscribers as of the end of 2024. Our momentum in acquiring new brands customers into our brand portfolio remains stable, growing to 732 cumulative brands as of December 31, 2024, from 645 cumulative brands as of December 31, 2023. As we grow and continue to expand our product offerings, we expect to provide a comprehensive suite of products integrated into Generative AI solutions that extends beyond the beauty and fashion industries and continuously expand our brand portfolio.
We recorded net losses of $161.7 million in 2022, and recorded a net income of $5.4 million in 2023 and $5.0 million in 2024. Our sustained improvement of operating income in 2023 and 2024 demonstrated the steady growth of our business and the improvement of our overall financial and business situation. In addition, our total operating expenses as a percentage of our revenue decreased from 91.1% in 2023 to 83.2% in 2024, highlighting the continued improvement of our operational efficiency, as the scale of our business grows.
Completion of Business Combination
On October 28, 2022, we completed the Business Combination. On October 31, 2022, our Class A Ordinary Shares and Warrants commenced trading on the NYSE under the symbols “PERF” and “PERF WS”, respectively.
Key Factors Affecting Our Results of Operations
Our results of operations are affected by the following factors:
•Overall adoption rate and our ability to monetize our premium features
Our results of operations are significantly driven by our ability to continuously grow and retain existing subscriptions of our premium features within our YouCam suite of mobile apps and web services. We have observed that as consumers increasingly rely on mobile technology for content creation and self-expression, the demand for advanced, feature-rich apps and web services continues to rise. In particular, we see ample opportunities to boost monetization by regularly rolling out innovative mobile apps and introducing new or upgraded premium features, powered by cutting-edge Generative AI technologies, ranging from skin and body retouch, hairstyle changes, and makeup try-ons to AI-driven content creation. These advancements will assist us in converting free users to paying subscribers, driving higher recurring revenue and increased customer lifetime value.
Furthermore, we anticipate that the integration of the latest Generative AI technologies will unlock an entirely new wave of visual creation capabilities. Generative AI not only enhances personalization for end users but also streamlines the editing and enhancement process for photos, videos, and other digital content creation. This has fueled sustained consumer interest in incorporating paid apps into daily routines, ranging from casual photo touch-ups to more sophisticated content production. Recognizing these trends, we see significant opportunities to expand our footprint in both the mobile app and online web service markets, particularly by leveraging Generative AI’s potentials to elevate consumer experiences and deliver highly engaging, next-level creative features. In response to this trend, we have further upgraded our Generative AI technologies in 2024 to incorporate a significantly broader range of generative features, including, in addition to AI avatar, text-to-photo, AI-driven editing, etc. We expect to further develop our AI- and AR- technologies to introduce more market competitive products and premium features that effectively address consumers demands in the future.
We manage the monetization of our YouCam suite of mobile apps and web services by closely monitoring metrics such as active subscribers as of year-end and average monthly active subscribers, and benchmark against the product ratings and functionalities of the primary competitors of our mobile apps and web services, so as to enabling us to identify which features are key drivers for converting free users into paying subscribers. We observed a robust growth momentum in the number of our active subscribers from approximately 604,000, 879,000 as of December 31, 2022 and 2023, respectively, to over one million as of December 31, 2024, primarily driven by the sustained and robust demand for our YouCam family apps and web-based editor from our users. The increase in the number of active subscribers not only reflected our successful efforts in converting free users to paying subscribers, but also highlights our ability to monetize our mobile apps and online editing services. The following table sets forth our active subscribers as of year-end and average monthly active subscribers of our mobile apps and web services, respectively, for the periods indicated:
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Year ended December 31, |
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2022 |
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2023 |
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2024 |
Active subscribers as of year-end (in thousands)(1)(2) |
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604 |
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879 |
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1,001 |
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Average monthly active subscribers (in thousands)(3) |
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494 |
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774 |
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937 |
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Note:
(1)Since revenue from advertisement network service providers accounted for only 2.2% of total revenue in 2023 and 1.5% in 2024—and this downward trend is expected to continue as our growth shifts toward a premium subscription model—monthly active users (“MAU”) are becoming increasingly immaterial. Historically, MAU has primarily served as a metric for monitoring marketing initiatives on our mobile apps and website. However, given its diminishing relevance, we will no longer disclose average MAU figures moving forward.
(2)Active subscribers as of year-end refer to the total number of active subscribers as of the end of each calendar year.
(3)Average monthly active subscribers is calculated by taking the total number of active subscribers at the end of each calendar month within a given year, summing these values, and dividing the total by 12.
•Our ability to continuously introduce market competitive offerings that drive user interest
Our results of operations rely heavily on our ability to consistently develop and periodically launch new premium features and mobile apps that resonate with users and adapt to evolving market demands. Investments in research and development fuel our steady innovation and product relevance. Expanding our total addressable market by identifying and engaging new target user groups also plays a significant role in maintaining our sustained growth in B2C business and enhancing our market competitiveness. Technological shifts, changes in platform policies, and competition within the marketplace can also affect the financial performance and market adoption of our new product offerings. By closely monitoring these factors and aligning our development efforts with user needs, we aim to maintain the quality and attractiveness of our products while navigating the dynamic industry landscape.
•Overall adoption rate of AI- and AR-technologies in beauty and fashion industries
Our results of operations are affected by the overall growth and adoption of AI- and AR-technologies in the beauty and fashion industries, which are, in turn, affected by customer demand for these technologies and the pace of brands’ digital transformation.
Any changes or innovations in the beauty and fashion industries and our ability to adapt to such changes or innovations promptly could affect our business and results of operation. Despite the rapid pace of digital transformation in recent years, the adoption of AI- and AR- technologies among beauty and fashion brands and retailers remains relatively low. We see significant opportunities to advance the digitization and proliferation of AI- and AR-solutions in the beauty and fashion industries.
•Our ability to expand into new verticals and grow our brand base
Leveraging our extensive industry and technology expertise, along with our broad customer network that we have established in the beauty AI- and AR- SaaS industry, we aim to further expand our product offerings into complementary segments and broaden our product portfolio beyond beauty and fashion industries to further grow our brand base. We have already made inroads into luxury and fashion industries, including jewelry, eyewear, watches, and accessories, and now are exploring opportunities into new segments, such as solutions for hair salons, med-spa, skin clinics and aesthetic non-surgical beauty treatments.
We are uniquely positioned to integrate our industry-leading facial and hand solutions into these new segments. For example, in the jewelry sector, we can provide a solution which enables consumers to virtually try-on earrings, watches, rings and bracelets while simultaneously applying virtual makeups. This capability is challenging for a jewelry AI- and AR- vendor to replicate, given the complexity of combining virtual try-ons with virtual makeup features. Ultimately, our goal is to expand our product offerings, achieve widespread adoption, and provide a comprehensive suite of products that extends beyond the beauty and fashion industries.
•Our ability to monetize our SaaS services
We offer a diverse range of AI- and AR- powered solutions, ranging from virtual try-ons for makeup, nail art, hairstyles, eyewear, watches and jewelry to advanced skin diagnostic technology, foundation shade finder, and aesthetic skin simulations. Our solutions can be deployed across various channels and platforms, including brand-owned channels, including brand-owned websites, in-store kiosks, retailer websites, and official mobile applications, as well as major third-party platforms such as Alphabet (Google and YouTube), Snap, Alibaba (Taobao and Tmall), and Tencent (WeChat).For details of our products and services, see “Item 4. Information on the Company – B. Business — Overview – Our Business”. For details of revenue recognition of our products and services, see “— Components of Results of Operations — Revenue” of the annual report and Note 4 “Summary of Significant Accounting Policies” to our consolidated financial statement. The following table sets forth a breakdown of our revenue for the periods indicated based on the types of customers:
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Year ended December 31, |
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2022 |
|
2023 |
|
2024 |
|
US$’000 |
|
% of
total
revenue |
|
US$’000 |
|
% of
total
revenue |
|
US$’000 |
|
% of
total
revenue |
| Revenue from brands |
29,224 |
|
|
61.8 |
% |
|
25,793 |
|
|
48.2 |
% |
|
22,445 |
|
|
37.3 |
% |
Revenue from Key Customers |
20,580 |
|
|
43.5 |
% |
|
24,271 |
|
|
45.4 |
% |
|
19,565 |
|
|
32.5 |
% |
Revenue from non-Key Customer brands |
8,644 |
|
|
18.3 |
% |
|
1,522 |
|
|
2.8 |
% |
|
2,880 |
|
|
4.8 |
% |
| Revenue from mobile apps subscribers |
16,230 |
|
|
34.3 |
% |
|
26,517 |
|
|
49.5 |
% |
|
36,603 |
|
|
60.8 |
% |
| Others |
1,846 |
|
|
3.9 |
% |
|
1,195 |
|
|
2.3 |
% |
|
1,154 |
|
|
1.9 |
% |
| Total revenue |
47,300 |
|
|
100 |
% |
|
53,505 |
|
|
100 |
% |
|
60,202 |
|
|
100 |
% |
Our ability to sustainably grow our B2B business depends in part on retain.ing our existing brand customers, expanding their use of our services and acquiring new brand customers into our brand portfolio. In managing our B2B business, our management vigilantly monitors the revenue contribution from our Key Customers, as these metric provide reliable insights into the growth of our B2B business, due to the following reasons: (i) revenue from Key Customers accounted for approximately 43.5%, 45.4% and 32.5% of our total revenue in 2022, 2023 and 2024, respectively; and (ii) revenue from Key Customers represented 70.4%, 94.1% and 87.2% of our total revenue from our total brand portfolio in 2022, 2023 and 2024, respectively. Our total revenue from brands was $22.4 million in 2024, compared to $25.8 million in 2023, representing a decrease of $3.3 million. The decrease was primarily due to economic instability and extended sales conversion cycle in the B2B business.
As we strengthen 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 luxury groups, and upselling incremental SKUs, modules and functions to beauty and fashion brands. We believe the high consumer engagement and scalability of our platform positions us well to capitalize on this monetization opportunity.
In addition to the Key Customers, which are major brand customers, we also generate revenue from other long-tail brand customers which is the non-Key Customer brands. In 2022, 2023 and 2024, the total non-Key Customer brands revenue represented 29.6%, 5.9% and 12.8% of our total brand business respectively.
We plan to distribute resources evenly between enhancing our SaaS offering for brand customers and developing our premium mobile apps for individual customers so as to achieve the goal of strengthening our market leadership in the consumer beauty and AI mobile apps as well as in the beauty and fashion AI- and AR- industry.
•Our ability to manage and improve operating efficiency
Our results of operations partly depend on our ability to effectively manage our costs and expenses. We recognized operating expenses of $111.2 million, $48.8 million and $50.1 million in 2022, 2023, and 2024, respectively. As we scale our business and advance our technology, we anticipate that marginal operating costs and expenses may decrease. We expect our customer acquisition efforts to benefit from our strong brand recognition and word-of-mouth referrals as we expand our brand 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 expenses, such as the professional advisors’ fees in connection with our ongoing reporting obligations as a public company, however, may negatively affect our profitability in the next few years.
•Our people and technology
We are committed to investing in our people and technology, as these are essential for delivering innovative solutions and services that meet our customer needs, expanding our customer base, and maintaining our market leadership in the consumer beauty and AI mobile apps as well as in the beauty and fashion AI- and AR- industry.
We have invested considerable resources in our people. We recruit talents from renowned universities and academic institutions across various regions. We have built up a comprehensive talent development program that includes diverse training programs featuring lectures, senior experience sharing, study groups, and participation in conferences and external forums. We also foster a working environment that motivates employees to raise questions and adopts a problem-solving mindset. Our ultimate goal is to retain these talents in the long term and turn them into valuable asset for our business success.
We have also invested a substantial portion of our resources in technology development, recognizing it as the cornerstone of our business success. By collaborating with prestigious universities and research labs, we bring emerging talents and cutting-edge technologies from academic institutions to our Company, bridging the gap between academic research and commercial application. This collaboration offers us unique opportunities to access innovative ideas and latest technology developments at an early stage, allowing us for proactive planning. Additionally, we are committed to continually improving and upgrading our technologies to ensure the highest quality to our customers. We believe these efforts are crucial to our business, as the success of our AI- and AR-powered solutions relies on technology that provides exceptional accuracy, scalability, and performance.
Basis of Presentation
Our consolidated financial statements have been prepared in accordance with IFRS. All intercompany accounts and transactions have been eliminated on consolidation. For the purposes of presenting consolidated 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 two major components: AI- and AR- cloud solutions and subscription and licensing. We would anticipate the revenue contribution from licensing becoming increasingly insignificant, as we progressively allocate fewer resources to this area and instead focus on strengthening our market leadership in the consumer beauty and AI mobile apps as well as in the beauty and fashion AI- and AR- industry.
(1) AI- and AR- cloud solutions and subscription
For AI- and AR- cloud solutions and subscription, we provide online cloud-based solutions to our customers, primarily including premium feature subscriptions for our individual customers and virtual try-on solutions for our brand customers.
In terms of the premium features on our mobile apps and web services to which individual customers subscribe through Apple App Store and Google Play and our web-based editor, we currently offer monthly and annual subscription plans, with subscription price varying by countries and regions. We recognize revenue from such services based on the fulfilled contract obligations for each month.
Our typical contract terms with brand customers range from three months to multiple years, with one-year term being the most common. Our contract consideration is fixed and determined by the following factors: (i) the functionality of the modules (e.g., makeup, skincare, shade finder, jewelry); (ii) the duration of the contract period; (iii) the geographical coverage, such as the number of countries or regions for module deployment or the number of website domains for integration into our modules; (iv) the maximum number of SKUs that a brand can utilize at the same time; and (v) any additional manpower hours required for customization, if any.
Furthermore, depending on the nature of the products and services provided, the charges of brand customers can be further divided to one-time fees, recurring fees, or a combination of both. One-time fees are made up of service setup fee, customization fee, and console base fee, which allow brands to create a brand console account on our platform for uploading and managing SKUs. Recurring fees are related to granting customers access to the modules throughout the contract period. These fees are recurring as the service is time-limited and scope-limited, requiring renewal upon the expiration of the service term.
(2)Licensing
We collect licensing fees from (1) licensing self-developed technologies, which include offline SDK and AI- and AR- offline solutions to brand customers, and (2) licensing customized mobile apps designed and created based on customers’ specifications that do not require continuous support from our backend cloud computing infrastructure. In this scenario, the mobile apps are operated by customers on their own infrastructure, with no additional supporting services required from us after delivery to customers.
Furthermore, depending on the type of the licensing services provided, brand customers may elect to renew licensing agreements with us, as the right to use our intellectual property is only granted to them for a specific period. We collect recurring revenue from the renewal of licensing agreements by customers. We generate recurring revenue from renewals of these licensing agreements by customers.
For further details on our revenue recognition, see Note 4 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this annual report.
Cost of Sales and Services
Our cost of sales and services primarily consists of kiosk hardware cost, certain research and development 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 Play and Apple App Store. We expect that our cost of sales and services will increase in absolute dollars in tandem with the growth of our businesses in the foreseeable future, as we continue to invest and broaden our product offerings and scale up our business operations.
Sales and Marketing Expenses
Our sales and marketing expenses consist 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. In the near term, we anticipate fluctuations in sales and marketing expenses as a percentage of revenue due to our investments in accelerating market adoption of our AI- and AR-technologies.
General and Administrative Expenses
Our general and administrative expenses primarily consist of personnel-related expenses for employees involved in general corporate operations, 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 service 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. In 2024, our general and administrative expenses have decreased primarily due to reduction in corporate insurance premium and reduced external professional service fee. However, we anticipate that these expenses may increase slightly going forward as we invest in more robust internal control systems and pursue potential strategic asset acquisitions.
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 AI- and AR-solutions to enhance and broaden our product offerings.
Interest Income
Our interest income primarily consists of interests 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 primarily associated with our outstanding warrants.
Finance Costs
Our finance costs primarily consist 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 years ended December 31, 2022, 2023 and 2024 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
| ($ in thousands, unless otherwise stated) |
|
2022 |
|
2023 |
|
2024 |
|
2023 %
Change |
|
2024 %
Change |
| Revenue |
|
$ |
47,300 |
|
|
$ |
53,505 |
|
|
$ |
60,202 |
|
|
13.1 |
% |
|
12.5 |
% |
| Cost of sales and services |
|
(7,130) |
|
|
(10,400) |
|
|
(13,258) |
|
|
45.9 |
% |
|
27.5 |
% |
| Gross profit |
|
40,170 |
|
|
43,105 |
|
|
46,944 |
|
|
7.3 |
% |
|
8.9 |
% |
| Operating expenses |
|
|
|
|
|
|
|
|
|
|
| Sales and marketing expenses |
|
(24,544) |
|
|
(25,725) |
|
|
(28,213) |
|
|
4.8 |
% |
|
9.7 |
% |
| General and administrative expenses |
|
(76,219) |
|
|
(11,582) |
|
|
(8,501) |
|
|
(84.8) |
% |
|
(26.6) |
% |
| Research and development expenses |
|
(10,481) |
|
|
(11,458) |
|
|
(12,000) |
|
|
9.3 |
% |
|
4.7 |
% |
| Expected credit losses |
|
— |
|
|
— |
|
|
(1,373) |
|
|
— |
% |
|
(100.0) |
% |
| Total operating expenses |
|
(111,244) |
|
|
(48,765) |
|
|
(50,087) |
|
|
(56.2) |
% |
|
2.7 |
% |
| Operating loss |
|
(71,074) |
|
|
(5,660) |
|
|
(3,143) |
|
|
(92.0) |
% |
|
(44.5) |
% |
| Non-operating income and expenses |
|
|
|
|
|
|
|
|
|
|
| Interest income |
|
2,029 |
|
|
9,498 |
|
|
7,708 |
|
|
368.1 |
% |
|
(18.8) |
% |
| Other income |
|
75 |
|
|
33 |
|
|
55 |
|
|
(56.0) |
% |
|
66.7 |
% |
| Other gains and losses |
|
(92,474) |
|
|
1,675 |
|
|
(316) |
|
|
(101.8) |
% |
|
(118.9) |
% |
| Finance costs |
|
(8) |
|
|
(15) |
|
|
(18) |
|
|
87.5 |
% |
|
20.0 |
% |
| Total non-operating income and expenses |
|
(90,378) |
|
|
11,191 |
|
|
7,429 |
|
|
(112.4) |
% |
|
(33.6) |
% |
| Income (loss) before income tax |
|
(161,452) |
|
|
5,531 |
|
|
4,286 |
|
|
(103.4) |
% |
|
(22.5) |
% |
| Income tax benefit (expense) |
|
(292) |
|
|
(115) |
|
|
735 |
|
|
(60.6) |
% |
|
(739.1) |
% |
| Net income (loss) |
|
$ |
(161,744) |
|
|
$ |
5,416 |
|
|
$ |
5,021 |
|
|
(103.3) |
% |
|
(7.3) |
% |
Comparison of Year Ended December 31, 2023 to Year Ended December 31, 2024
Revenue
Total revenue increased by $6.7 million, or 12.5%, from $53.5 million for the year ended December 31, 2023 to $60.2 million for the year ended December 31, 2024. The double-digit revenue growth is primarily driven by the robust momentum in the growth of YouCam mobile app subscriptions, the growing popularity among consumers of Generative AI technologies and AI editing features for photos and videos, the stable demand for the Company’s online virtual product try-on solutions from brand customers. We expect the licensing revenue and advertisement revenue will become increasingly immaterial, as we continue to focus on strengthening our market leadership in the consumer beauty and AI mobile apps as well as in the beauty and fashion AI- and AR- industry.
With respect to geographical contribution, revenue from the Americas has increased 6.3% from $29.9 million for the year ended December 31, 2023 to $31.8 million for the same period in 2024, revenue from Europe has increased by 20.4% from $13.8 million for the year ended December 31, 2023 to $ 16.6 million for the same period in 2024, and revenue from Asia-Pacific has increased by 18.2% from $8.6 million for the year ended December 31, 2023 to $10.1 million for the same period in 2024. Revenue outside of these three major regions has grown by 36.1% from $1.2 million for the year ended December 31, 2023 to $1.7 million for the same period in 2024.
Cost of Sales and Services
Cost of sales and services increased by $2.9 million, or 27.5%, from $10.4 million for the year ended December 31, 2023 to $13.3 million for the year ended December 31, 2024. The increase was primarily due to the increase in payment processing fees paid to third-party digital distribution platforms such as Apple App Store and Google Play resulting from the increase in our mobile app subscription revenue.
Gross Profit
Gross profit increased by $3.8 million, or 8.9%, from $43.1 million for the year ended December 31, 2023 to $46.9 million for the year ended December 31, 2024. Despite the continuous increase in gross profit, our gross margin slightly decreased by 2.6% from 80.6% for the year ended December 31, 2023 to 78.0% for the year ended December 31, 2024. The slight decrease in gross margin was primarily due to the sustained increase in third-party payment processing fees paid to digital distribution partners such as Google and Apple, due to the steady growth in our mobile app subscription revenue.
Total Operating Expenses
Total operating expenses increased by $1.3 million, or 2.7%, from $48.8 million for the year ended December 31, 2023 to $50.1 million for the year ended December 31, 2024. The increase was primarily associated with the increased sales and marketing expenses and research and development expenses, which were partially offset by a decline in general and administrative expenses.
Sales and Marketing Expenses
Sales and marketing expenses increased by $2.5 million, or 9.7%, from $25.7 million for the year ended December 31, 2023 to $28.2 million for the year ended December 31, 2024. This increase was primarily due to an increase in marketing events and advertising expenses related to our mobile apps and cloud computing.
General and Administrative Expenses
General and administrative expenses significantly decreased by $3.1 million, or 26.6%, from $11.6 million for the year ended December 31, 2023 to $8.5 million for the year ended December 31, 2024. The significant decrease was primarily due to reduced corporate insurance premium and external professional service fees. We anticipate that these expenses may increase slightly going forward as we invest in more robust internal control systems and pursue potential strategic asset acquisitions.
Research and Development Expenses
Research and development expenses increased by $0.5 million, or 4.7%, from $11.5 million for the year ended December 31, 2023 to $12 million for the year ended December 31, 2024. The increase was primarily due to the increase of our research and development headcount and related personnel costs.
Expected credit losses
Expected credit losses were $1.4 million for the year ended December 31, 2024. We did not record expected credit losses for the year ended December 31, 2023. The recognition of expected credit losses includes an increase in provisions due to economic instability, which has led to extended repayment periods for brand customers. It also includes the recognition of actual bad debt expenses for some brand customers who defaulted in payment after the notice period.
Total Non-Operating Income and Expenses
Total non-operating income and expenses decreased by $3.8 million, or 33.6%, from $11.2 million for the year ended December 31, 2023 to $7.4 million for the year ended December 31, 2024. The decrease was primarily due to the decrease of interest income and other gains and losses.
Interest Income
Interest income decreased by $1.8 million, or 18.8%, from $9.5 million for the year ended December 31, 2023 to $7.7 million for the year ended December 31, 2024. The decrease was primarily attributable to reduced balance of time deposits, which were used to purchase the 16,129,010 Class A ordinary shares, at a price of $3.10 per share, that are validly tendered and not properly withdrawn by the shareholders before December 26, 2023, in an aggregate amount of approximately $50.0 million (excluding fees relating to the tender offer), pursuant to the tender offer launched by the Company on November 27, 2023.
Other Income
Other income increased by approximately $22 thousand, or 66.7%, from approximately $33 thousand for the year ended December 31, 2023 to approximately $55 thousand for the year ended December 31, 2024.
Other Gains and Losses
Other gains and losses, primarily consisting of adjustment in non-cash valuation gains (losses) on financial liabilities at fair value through profit or loss, were recorded as losses of $0.2 million for the year ended December 31, 2024, as compared to gains of $1.6 million for the year ended December 31, 2023.
Income tax benefit (expense)
Income tax benefit in 2024 was $0.7 million, compared to an income tax expense of $0.1 million in 2023. This was primarily due to the recognition of deferred tax assets, as the Taiwan subsidiary began generating profits in 2023 and fully utilized all loss carryforwards by 2024. It is expected to remain profitable in the foreseeable future.
Net Income
As a result of the foregoing, our net income in 2024 was $5.0 million, compared to net income of $5.4 million in 2023.
Adjusted Net Income (Loss) (Non-IFRS)
Our adjusted net income in 2024 was $8.3 million, compared to an adjusted net income of $7.0 million in 2023. See “— Use of Non-IFRS Financial Measures” below for more information.
Comparison of Year Ended December 31, 2022 to Year Ended December 31, 2023
For the discussion covering items for the fiscal year ended December 31, 2023 and a comparison between the fiscal year ended December 31, 2023 and 2022, please refer to “Item 5. — Operating and Financial Review and Prospects — A. Operating Results — Results of Operations” of our annual report on Form 20-F for the fiscal year ended December 31, 2023 filed with SEC on March 29, 2024.
Use of Non-IFRS Financial Measures
In addition to the measures presented in our consolidated financial statements, we use certain non-IFRS financial measures, including adjusted net income (loss), as supplemental metrics in reviewing and assessing our operating performance and formulating our business plan. We define these non-IFRS financial measures as follows:
Adjusted net income (loss) is defined as net income (loss) excluding one-off transaction costs, non-cash equity-based compensation, and non-cash valuation (gain)/loss of financial liabilities. Starting from the first quarter of 2024, we no longer exclude foreign exchange gain (loss) from adjusted net income (loss). As we transitioned to using the U.S. dollar as the functional currency for certain subsidiaries in 2023, our foreign exchange gains (losses), which historically have predominantly been unrealized, have not been material since 2023. For a reconciliation of adjusted net income (loss) to net income (loss), please see the reconciliation table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
| ($ in thousands, unless otherwise stated) |
|
2022 |
|
2023 |
|
2024 |
| Net Income (Loss) |
|
$ |
(161,744) |
|
|
$ |
5,416 |
|
|
$ |
5,021 |
|
| One-off Transaction Costs |
|
71,152 |
|
|
33 |
|
|
299 |
|
| Non-Cash Equity-Based Compensation |
|
2,175 |
|
|
3,210 |
|
|
2,774 |
|
| Non-Cash Valuation (Gain)/Loss of financial liabilities |
|
93,777 |
|
|
(1,641) |
|
|
227 |
|
| Foreign Exchange (Gain)/Loss |
|
(1,303) |
|
|
— |
|
|
— |
|
Adjusted Net Income(1) |
|
$ |
4,057 |
|
|
$ |
7,018 |
|
|
$ |
8,321 |
|
Note:
(1) In accordance with the changed definition of “adjusted net income” that is detailed in the “Use of Non-IFRS Financial Measures” section above, we have made a retrospective adjustment to our adjusted net income for the year ended December 31, 2023 not adjusting for “foreign exchange gains” (which amounted to a gain of $34 thousand for the period, as previously disclosed in our Form 6-K furnished to the SEC on February 28, 2024).
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 not driven by core results of operations and render comparison of IFRS financial measures with prior periods less meaningful. We believe adjusted net income provides 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.
B.Liquidity and Capital Resources
Since inception, we have financed our operations mainly through equity contributions from our shareholders and payments received from our customers. As of December 31, 2024, we had cash and cash equivalents of $127.1 million, which primarily consisted of checking accounts, demand deposits and time deposits. Our cash and cash equivalents are primarily denominated in U.S. dollars, and we do not currently enter into any hedging arrangements. In addition, we have 6-month time deposits of $36.0 million classified as current financial assets at amortized cost according to IFRS as of December 31, 2024 and we do not have any loan and bank borrowings as of the same date. Our net income slightly decreased from $5.4 million for the year ended December 31, 2023 to $5.0 million for the year ended December 31, 2024.
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 annual report and sufficient to fund our operations. As of the date of this annual report, there has been no material change to our liquidity position since December 31, 2024. 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.
Our cash requirements for the year ended December 31, 2024 and any subsequent interim period primarily include our capital expenditure, lease obligations, contractual obligations and other commitments. Our capital expenditures are primarily related to 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, 2022 through December 31, 2024, we incurred capital expenditure of less than $0.4 million annually. 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, directors’ and officers’ 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 research and development, develop new AI- and AR-solutions, broaden our customer bases in the beauty and fashion industry, and expand into aesthetic skin beauty segment with a particular focus on med-spa applications. These new developments and expansions may generate long-term cash requirements. We intend to continue to fund our future material cash requirements with net proceeds in connection with our Business Combination, 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. In connection with the Business Combination, holders of 21,651,203 Provident Class A Ordinary Shares, 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 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 $1.68 as of March 27, 2025, we believe that holders of the Warrants are currently unlikely to exercise their Warrants. Accordingly, we do not expect to rely on the cash exercise of Warrants to fund our operations.
On October 18, 2023, the SEC declared effective a registration statement on Form F-3, under which the selling securityholders identified therein or their permitted transferees may offer and sell, from time to time, up to 38,542,254 Class A Ordinary Shares, 9,350,000 Warrants and 9,350,000 Class A Ordinary Shares underlying such Warrants. Given the substantial number of Class A Ordinary Shares registered for potential resale by the selling securityholders, the sale of shares by the selling securityholders, or the perception in the market that the selling securityholders holding a large number of shares intend to sell their shares, could increase the volatility of the market price of our Class A Ordinary Shares or result in a significant decline in the public trading price of our Class A Ordinary Shares. These sales, or the possibility that these sales may occur, and any related volatility or decrease in market price of our Class A Ordinary Shares and Warrants, might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. See “Item 3. Key Information — D. Risk Factors — Risks Related to the Class A Ordinary Shares and Warrants — Sales of a substantial number of our securities in the public market by our existing securityholders could cause the price of our Class A Ordinary Shares and Warrants to fall.”
Cash Flows Summary
Presented below is a summary of cash flows from or used in our operating, investing, and financing activities:
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|
Year ended December 31, |
| ($ in thousands, unless otherwise stated) |
|
2022 |
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2023 |
|
2024 |
| Cash flows from (used in) operating activities |
|
$ |
(3,305) |
|
|
$ |
13,578 |
|
|
$ |
13,003 |
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| Cash flows from (used in) investing activities |
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(30,258) |
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(637) |
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(8,879) |
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| Cash flows from (used in) financing activities |
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118,028 |
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(51,499) |
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(525) |
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| Effects of exchange rates changes on cash and cash equivalents |
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(2,302) |
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(187) |
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(349) |
|
| Net increase (decrease) in cash and cash equivalents |
|
$ |
82,163 |
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|
$ |
(38,745) |
|
|
$ |
3,250 |
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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 provision and payables, net interest received and income tax paid. Our business primarily operates in a prepaid service subscription model, enabling us to collect cash in advance upon the signing of contract and then deliver services pursuant to terms of contract.
Net cash generated from operating activities decreased by $0.6 million, or 4.2%, from $13.6 million for the year ended December 31, 2023 to $13.0 million for the year ended December 31, 2024. This change was primarily due to less interests received compared to 2023.
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, acquisition of intangible assets, and changes in guarantee deposits paid.
Net cash used in investing activities was $8,879 thousand for the year ended December 31, 2024 and net cash used in investing activities was $637 thousand for the year ended December 31, 2023. Net cash used in investing activities was $30.3 million for the year ended December 31, 2022. The substantial decrease of net cash used in investing activities was primarily attributable to the reduced acquisition of six-month time deposits classified as current financial assets at amortized cost according to IFRS, partially offset by proceeds from disposal of financial assets at amortized cost.
Cash Flows Generated from (Used in) Financing Activities
Net cash used in financing activities was $0.5 million for the year ended December 31, 2024, consisting of $0.5 million in the repayment of the principal portion of lease liabilities.
Net cash used in financing activities was $51.5 million in 2023, primarily consisting of $51.1 million representing the payments to repurchase Class A Ordinary Shares through our share repurchase program and tender offer, both launched by us in 2023, and $0.4 million in the repayment of the principal portion of lease liabilities.
Net cash from financing activities was $118.0 million in 2022, primarily consisting of gross proceeds of $112.9 million from the Transactions, and $5.6 million from the proceeds of the exercise of employee stock options, partially offset by $0.5 million in the 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 two office leases entered into by and between Perfect Taiwan and CyberLink for two years starting from June 1, 2023 and December 1, 2023 respectively, and an office lease entered into by and between Perfect Taiwan and ClinJeff Corp., a related party, for two years starting from May 15, 2024.
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.
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 consolidated financial statements included in this annual report.
C.Research and Development
See “Item 4. Information on the Company — B. Business Overview — Research and Development” and “Item 4. Information on the Company — B. Business Overview — Intellectual Property.”
D.Trend Information
The global consumer discretionary industry and consumer spending are expected to continue to face a range of challenges in 2024, such as global high inflation, significant fluctuations in foreign exchange rates, and geopolitical tensions and conflict. Although our enterprise business sales cycle has been elongated in the second half of 2022 and 2023 due to the worsening macroeconomic environment, we saw some early signal of recovery in B2B business opportunities from 2024, which enables us to enter into new deals and expand our customer base. Despite these challenges, we remain confident in the recovery in our sales cycle and our long-term growth prospects, as well as retaining our commitment to iterating our products and services, further enhancing our digital solutions, expanding our customer base, diversifying our revenue streams, and further optimizing operating efficiency.
Other than as disclosed above and elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2024 to December 31, 2024, that are reasonably likely to have a material effect on our net sales or revenue, income from continuing operations, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
E.Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with IFRS. The preparation of our consolidated financial statements requires us to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue, expenses and related disclosures. See Note 5 “Critical Accounting Judgements, Estimates and Key Sources of Assumption Uncertainty” to our consolidated financial statements elsewhere in this annual report for additional information on our critical accounting estimates.
Item 6. Directors, Senior Management and Employees
A.Directors and Senior Management
The following table sets forth certain information relating to our executive officers and directors as of the date of this annual report. Our Board is comprised of six directors.
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| Name |
|
Age |
|
Position(s) |
| Alice H. Chang |
|
63 |
|
CEO and Chairwoman of the Board |
| Michael Aw |
|
49 |
|
Non-executive Director |
| Jau-Hsiung Huang |
|
65 |
|
Non-executive Director |
| Meng-Shiou (Frank) Lee |
|
63 |
|
Independent Non-executive Director |
| Philip Tsao |
|
64 |
|
Independent Non-executive Director |
| Chung-Hui (Christine) Jih |
|
63 |
|
Independent Non-executive Director |
| Pin-Jen (Louis) Chen |
|
46 |
|
Executive Vice President and Chief Strategy Officer |
| Wei-Hsin Tsen (Johnny Tseng) |
|
57 |
|
Senior Vice President and Chief Technology Officer |
| Weichuan (Wayne) Liu |
|
55 |
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Chief Growth Officer and President of Americas |
| Hsiao-Chuan (Iris) Chen |
|
56 |
|
Vice President and Head of Finance and Accounting |
The business address of each director and executive officer is 14F, No. 98 Minquan Road, Xindian District, New Taipei City 231, Taiwan.
Executive Officers
Alice H. Chang is our founder and has served as the CEO and Chairwoman of the Board since our inception in June 2015. Prior to founding the Company, Ms. Chang served as chief executive officer of CyberLink from October 1997 to May 2015, which under her leadership became a publicly listed Taiwan-based multimedia software company with offices globally. Prior to that, Ms. Chang was the chief financial officer and executive vice president of Trend Micro Incorporated (TSE: 4704), where she led the capital markets and fund-raising activities. Prior to that, Ms. Chang held various positions in Citicorp across investment banking functions. Ms. Chang holds an MBA from the University of California, Los Angeles, and a B.Sc. from National Taiwan University.
We believe that Ms. Chang is well qualified to serve as the Chairwoman of our Board based on the unique experiences and perspectives she brings as our founder and CEO since our inception, complemented by her strong passion and extensive operational expertise across the technology and beauty industries.
Pin-Jen (Louis) Chen has served as our Executive Vice President and Chief Strategy Officer since March 2022, where he leads the Company’s corporate development, strategic partnerships and marketing efforts. Mr. Chen joined us at our inception in June 2015 as the Vice President of Business Development and Marketing. Prior to joining us, Mr. Chen spent 12 years at CyberLink, where he served as the Vice President of Business Development and Marketing, Head of Consumer Business, and as a development engineer. Mr. Chen holds an M.Sc. and a B.Sc. in computer science from National Taiwan University.
Wei-Hsin Tsen (Johnny Tseng) has served as our Senior Vice President and Chief Technology Officer since January 2019. Dr. Tseng also served as our director from July 2018 to October 2022. Dr. Tseng joined us at our inception in June 2015 as the Senior Vice President of Research and Development, leading the Company’s engineering efforts. Prior to joining Perfect, Dr. Tseng spent 18 years at CyberLink, where he served as the Senior Vice President of its Research and Development Department, and was a director and manager of its Architecture Department. Dr. Tseng holds a Ph.D. and a B.Sc. in computer science as well as an EMBA from National Taiwan University.
Weichuan (Wayne) Liu has served as our Chief Growth Officer and President of Americas since March 2022. Mr. Liu joined us at our inception in June 2015 as the Vice President of Business Development and Marketing and the General Manager of the Company’s U.S. subsidiary. Prior to joining us, Mr. Liu served as the Associate Vice President of Business Development at CyberLink from October 2009 to May 2015. From January 2003 to September 2009, Mr. Liu worked as a senior engineering manager at NVIDIA Corporation (Nasdaq: NVDA). Mr. Liu holds an MBA from Santa Clara University, an M.Sc.
from Case Western Reserve University, a B.Sc. from National Tsing Hua University, and a Ph.D. degree in electrical engineering from University of Southern California.
Hsiao-Chuan (Iris) Chen has served as our Vice President and Head of Finance and Accounting since January 2022 and oversees corporate finance and accounting activities of the Company. Prior to joining us, Ms. Chen spent 22 years at CyberLink since February 2000, with her last two roles being the special assistant of the CEO since March 2021 and the Head of Finance and Accounting since February 2000. Prior to joining CyberLink, Ms. Chen worked at Deloitte from September 1994 to August 1997. Ms. Chen holds an MBA from National Taiwan University and a B.Sc. in agricultural economics from National Chung-Hsing University.
Directors
Alice H. Chang is our CEO and chairwoman of the Board since our inception in June 2015. For details, please see “— Executive Officers” below.
Michael Aw has served as our non-executive director since October 2022. Mr. Aw served as Provident’s Director, chief executive officer and chief financial officer since its inception on October 28, 2020 and is a founding partner of Provident Growth, a leading growth stage fund focused on technology investments in Southeast Asia. Mr. Aw has over 20 years of investing and investment banking experience. Mr. Aw has served on the board of directors at Pomelo Fashion Company Limited, a technology-driven modern fashion brand in Southeast Asia since October 2017. In addition, Mr. Aw has been a board observer of Traveloka Services Private Limited Company, an online travel agency with a strong presence in Southeast Asia and Australia, and an ESG board advisor of CARRO, a leading Singapore car marketplace. Prior to founding Provident Growth in January 2018, Mr. Aw was the Managing Director at Provident Capital Partners and Managing Director and Head of Technology, Media and Telecommunications, Asia, Investment Banking Division at UBS Group AG. Mr. Aw holds a B.A. in accounting and finance from the University of Manchester and a M.Phil. in management studies from the University of Cambridge. Mr. Aw was also a Cambridge Chevening Scholar.
Jau-Hsiung Huang has served as our non-executive director since July 2019. Dr. Huang founded CyberLink in February 1996 and has served as its chairman of the board of directors since January 2001 and its CEO since September 2015. Dr. Huang has led the product development team to deliver a full suite of software applications, including video and photo-editing, multimedia playback, file conversion as well as various mobile apps. Under his leadership, CyberLink grew from a small start-up to a publicly listed Taiwan-based multimedia software company with offices globally. From August 1988 to July 2005, Dr. Huang was a professor in the computer science department at National Taiwan University and was the co-founder of the Communications and Multimedia Lab at National Taiwan University, from which he subsequently received a series of awards, including the Distinguished Alumni Award and the Electronic Research and Service Organization (“ERSO”) Award. Dr. Huang holds a Ph.D. in computer science from the University of California, Los Angeles, and a B.Sc. in electrical engineering from National Taiwan University.
Meng-Shiou (Frank) Lee has served as our non-executive director since October 28, 2022 and has extensive experience in the accounting and finance industry. Mr. Lee currently serves as the CEO at First Elite CAPs & Co, a Taiwan-based accounting company, and is a Professor-level Part-time Technical Expert of National Taipei University of Business and Vice-Chairman of the Board at Taipei CPA Association. Mr. Lee has served on the board of directors at several publicly listed companies, including Mechema Chemicals International Company Limited (TWSE: 4721) since June 2017, and TOPCO Technologies Corp. (TWSE: 3388) since May 2020. Mr. Lee has been practicing as a Certified Public Accountant since 1988. His accounting experience includes working as a Certified Public Accountant at Deloitte Touche Tohmatsu Limited in its Taiwan office from July 1988 to July 1997 and at First Elite CAPs & Co since July 1997. Mr. Lee holds an M.A. in accounting from National Chengchi University and a B.A. in accounting from National Taiwan University.
Philip Tsao has served as our non-executive director since October 28, 2022. Mr. Tsao has served on the board of directors at several publicly listed companies, including SinoPac Financial Holdings Company Limited (TWSE: 2890) since May 2020 and China Everbright Greentech Limited (SEHK: 1257) since April 2017. He has also been a director of Bank SinoPac since May 2018 and started to serve as the Chairman of Bank SinoPac since July 2022. Mr. Tsao has held various senior positions in global and regional financial institutions, most recently as Consultant to Fubon Bank from April 2016 to March 2017, Managing Director at Barclays Capital Asia Limited from June 2011 to May 2015, Managing Director at Morgan Stanley Asia Limited, Executive Vice President at China Development Financial Holdings (TWSE: 2883), President of China Development Industrial Bank, Managing Director at UBS Asia Limited, and Executive Director at Goldman Sachs (Asia) LLC. Prior to that, Mr. Tsao also worked at Citibank for nine years across various functions. Mr.
Tsao holds an MBA from National Taiwan University and a B.Sc. from Tsinghua University. He is also a Chartered Financial Analyst Charterholder.
Chung-Hui (Christine) Jih has served as our non-executive director since October 28, 2022. Ms. Jih has been serving as an independent director at CTBC Securities Company Limited, a Taiwan-based financial holding company, since May 2020. From January 2007 to August 2019, Ms. Jih was the chairwoman and CEO of BNP Paribas Asset Management Taiwan Company Limited. From July 2003 to January 2007, Ms. Jih served as the General Manager of Fidelity Security Investment Trust Company (Taiwan) Limited and Spokesperson of Fidelity Securities Company (Taiwan) Limited. From September 2002 to July 2003, Ms. Jih was chief financial officer of CyberLink. Prior to that, Ms. Jih also served as a financial consultant at Merrill Lynch Securities (Taiwan) Limited and Vice President and Head of Audit and Compliance at Citibank Taiwan Limited and held various roles at professional bodies, including Governor of the Board and Co-Chair of Asset Management Committee at The American Chamber of Commerce in Taiwan, and Supervisor at Securities Investment Trust & Consulting Association of Taiwan. Ms. Jih holds an MBA from Indiana University and a BBA from National Chengchi University.
Family Relationships
Jau-Hsiung Huang and Alice H. Chang are husband and wife. There are no other familial relationships among our directors and executive officers.
B.Compensation
For the year ended December 31, 2024, we paid an aggregate of $3.1 million in cash and benefits to our executive officers and directors, including $0.5 million in share-based compensation related to previously granted stock options that remain unvested and/or vested stock options that remain unexercised. For the year ended December 31, 2024, (i) no option has been granted to our directors and executive officers under the Share Incentive Plan, and (ii) no Award (as defined below) has been granted under the Director Equity Incentive Plan to our directors. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors
Employment Agreements
Alice H. Chang is a party to a service agreement with us dated September 26, 2019 and as amended on January 24, 2022. Under the service agreement, Ms. Chang agreed to serve as our CEO, until her appointment is terminated by Ms. Chang’s death, disability or a termination by a decision of the Board. The service agreement also includes certain restrictive covenants, which include confidentiality and non-disclosure restrictions and non-competition restrictions that apply during the term and for certain periods following specified terminations of service.
Share Incentive Plan
Our Share Incentive Plan was first approved and adopted by our Board on December 13, 2021, and was amended by our Board on October 25, 2022, to make equitable adjustments to the number and class of shares to be issued thereunder for the purposes of reflecting the Recapitalization in connection with the Business Combination. The Share Incentive Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, to our or our affiliates’ employees, directors, agents, consultants or service providers as selected by the administrator. We have registered an aggregate of 5,311,310 Ordinary Shares available for issuance under the Share Incentive Plan in the registration statement on Form S-8 (File No. 333-268059) filed with the SEC on October 28, 2022.
For the year ended December 31, 2024, options to purchase an aggregate of 50,045 Class A Ordinary Shares were granted to our employees and other eligible grantees under the Share Incentive Plan at exercise prices of $2.13 to $2.22 per Class A Ordinary Share.
The following sets forth a summary of material terms of the Share Incentive Plan, which are qualified in their entirety by the Share Incentive Plan filed as Exhibits 4.14 and 4.15 to this annual report.
Authorized Shares. Subject to the adjustment provisions in the Share Incentive Plan, the maximum aggregate number of the Ordinary Shares that may be issued upon exercise of all options to be granted under the Share Incentive Plan shall be 5,311,310 Ordinary Shares; up to 5,311,310 Ordinary Shares may be issued under the Share Incentive Plan to participants who are citizens of the U.S., residents of the U.S. or are otherwise subject to the federal income tax laws of the U.S. (the “U.S. Taxpayer Participants”). Under the Share Incentive Plan, shares to be issued upon the exercise of options shall be Class B Ordinary Shares if the participant of the Share Incentive Plan is one of the Founder Parties; otherwise, shares to be issued upon exercise of options shall be Class A Ordinary Shares.
If an award of option should expire or become unexercisable for any reason without having been exercised in full, or if the Ordinary Shares issued under the Share Incentive Plan are later forfeited due to the failure to vest, the unissued or forfeited shares shall, unless the Share Incentive Plan shall have been terminated, remain or become available for future issuance pursuant to subsequent awards and grants under the Share Incentive Plan.
Plan Administration. Our Board or any senior officer(s) designated by our Board from time to time will have authority to administer the Share Incentive Plan, and their decision (save as otherwise provided herein) shall be final and binding on all parties. Our Board shall have such powers and authorizations related to the administration of the Share Incentive Plan as are consistent with our Articles and applicable laws. Our Board shall have the full power and authority to take all actions and to make all determinations required or provided for under the Share Incentive Plan, and to amend or terminate the Share Incentive Plan and adopt a new plan, as long as the participants’ economic interests that he or she would be otherwise entitled to are not adversely affected.
If our Board proposes any amendment to the Share Incentive Plan that will have a material adverse effect on the economic interest of the participants, such amendment will take effect after the approval of the option holders representing a majority of then-granted options.
Types of Awards. The Share Incentive Plan permits the awards of options.
Eligibility. Our or our affiliates’ employees, directors, agents, consultants or service providers are eligible to participate in the Share Incentive Plan.
Grant Notices. Awards of options granted under the Share Incentive Plan are evidenced by grant notices that set forth, consistent with the Share Incentive Plan, the terms, conditions and limitations for each award.
Conditions of Awards. The administrator determines the provisions, terms and conditions of each award granted under the Share Incentive Plan, including, but not limited to, the vesting schedule, exercise price, exercise periods and any restriction or limitation regarding the awards.
Vesting Schedule. Subject to exceptions in the event of retirement, death, or permanent injury due to occupational hazards during the employment as provided in the Share Incentive Plan, no options will be vested in the first two years from the grant date; following the end of such two-year period, 50% of the options will be vested; following the end of the third anniversary of the grant date, 75% of the options cumulatively will be vested; and on the date of the fourth anniversary of the grant date, 100% of the options cumulatively will be vested.
Exercise Price. The exercise price will be not less than the par value per share. Notwithstanding the foregoing, the exercise price of options granted to U.S. Taxpayer Participants who own shares representing more than 10% of the voting power of all classes of our shares at the time of grant shall be no less than 110% of the fair market value, as determined pursuant to the Share Incentive Plan on the date of grant. For all other U.S. Taxpayer Participants, the exercise price of options will be no less than 100% of such fair market value on the date of grant.
Exercise Period. The term of each option will be five years from the grant date, subject to exceptions as provided in the Share Incentive Plan. Any options not exercised during the term will be cancelled and forfeited.
Non-Transferability of Awards. Other than by will or the laws of descent and distribution, the participants may not sell, transfer, assign, pledge or otherwise dispose of any option granted under the Share Incentive Plan, unless approved by the CEO or other senior officer(s) designated by the Board.
Dissolution or Liquidation. In the event of our dissolution or liquidation, each award will terminate immediately prior to the consummation of such action, unless otherwise determined by the CEO or other senior officer(s) designated by the Board.
Change in Control. In the event of a change of control as defined in the Share Incentive Plan, each outstanding award (vested or unvested) will be treated as the CEO or other senior officer(s) designated by our Board determines, which determination may be made without the consent of any participant and need not treat all outstanding awards (or portion thereof) in an identical manner. The determination may, without limitation, provide for one or more of the following in the event of a change of control: (i) the termination or continuation of such outstanding awards by us (if Perfect is the surviving corporation); (ii) the assumption of such outstanding awards by the surviving corporation or its parent; or (iii) the substitution by the surviving corporation or its parent of new options or equity awards for such awards. If the award is continued, our Board, CEO or other senior officer(s) designated by our Board may make further adjustments in accordance with the adjustment provisions under the Share Incentive Plan.
Termination. The term for the Share Incentive Plan is ten years, commencing from December 13, 2021, being the date on which the Share Incentive Plan was approved and adopted by our Board. After this period, no further options shall be granted, but the provisions of the Share Incentive Plan shall remain in full force and effect to the extent necessary to give effect to the exercise of any options granted prior to the termination or otherwise as may be required in accordance with the provisions of the Share Incentive Plan.
Director Equity Incentive Plan
Our Director Equity Incentive Plan was approved and adopted by our Board on October 23, 2023, for the purpose of attracting, retaining, and motivating Directors, aligning their interests with stockholders, and promoting the success of the Company. The Director Equity Incentive Plan provides for the grant of restricted share awards, restricted share units and other share-based awards or cash-based awards (“Awards”) in compliance with the requirements of Section 409A of the Internal Revenue Code of 1986 to the directors selected by the administrator. All directors are eligible to participate in this Director Equity Incentive Plan.
For the year ended December 31, 2024, no options to purchase Class A Ordinary Shares were granted to our directors under the Director Equity Incentive Plan.
The following sets forth a summary of material terms of the Director Equity Incentive Plan, which are qualified in their entirety by the Director Equity Incentive Plan filed as Exhibits 4.25 to this annual report.
Authorized Shares. Subject to the adjustment provisions in the Director Equity Incentive Plan, the maximum aggregate number of the Class A Ordinary Shares that may be subject to Awards under the Director Equity Incentive Plan shall be 1,000,000 Class A Ordinary Shares.
If an Award is forfeited, repurchased, expired, or settled in cash, the related Class A Ordinary Shares will be available for future grants or sales under the Director Equity Incentive Plan (unless it has terminated). However, Class A Ordinary Shares that have already been issued will not be returned to the Director Equity Incentive Plan or available for future distribution.
Plan Administration. Our Board, the CEO or any other executive officer(s) designated by our Board from time to time (the “administrator”) will have authority to administer the Director Equity Incentive Plan, and the administrator’s decision (save as otherwise provided herein) shall be final and binding on all parties. The administrator will have authority, in its discretion, to (i) select directors eligible for Awards, (ii) determine the number of shares to be covered by each Award, (iii) approve forms of award agreements or amend any outstanding award agreement, (iv) determine the terms and conditions of the Awards, including vesting and restrictions, (v) construe, interpret the terms of or reconcile any inconsistency in this Director Equity Incentive Plan, and (vi) exercise all powers granted under the Director Equity Incentive Plan, prescribe, amend and rescind rules and regulations relating thereto.
Types of Awards. The Director Equity Incentive Plan permits the grant of the grant of restricted share awards, restricted share units and other share-based awards or cash-based awards.
Eligibility. Only our directors are eligible for the Director Equity Incentive Plan.
Award Agreement. Each Award will be evidenced by an award agreement that will specify the period of restriction (if any), the number of shares granted, and such other terms and conditions as the administrator, in its sole discretion, will determine.
Term of the Plan. The Director Equity Incentive Plan will terminate on the day before the tenth anniversary of October 23, 2023, unless otherwise terminated earlier in accordance with the Director Equity Incentive Plan. The administrator may at any time amend, alter, suspend or terminate this Director Equity Incentive Plan.
Vesting Schedule. Subject to the terms and conditions set forth in the award agreement, the shares covered the Award shall vest in accordance with the vesting schedule set forth on the cover page of the award agreement. The administrator may accelerate vesting of restricted stock awards or restricted stock units.
Non-Transferability of Awards. Unless otherwise determined by the administrator, Awards may not be sold, pledged, assigned, hypothecated, or otherwise transferred in any manner other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, the administrator may permit, under such terms and conditions that it deems appropriate in its sole discretion, a participant to transfer any Award to any person or entity that the administrator so determines.
Change in Control. In the event of a change of control as defined in the Director Equity Incentive Plan, each outstanding Award will be treated as the Administrator determines without a participant’s consent.
Termination. The administrator may at any time amend, alter, suspend or terminate this Director Equity Incentive Plan. No amendment, alteration, suspension or termination of this Director Equity Incentive Plan will materially impair the rights of any participant, unless mutually agreed otherwise between the participant and the administrator, which agreement must be in writing and signed by the participant and the Company. Termination of this Director Equity Incentive Plan will not affect the administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under this Director Equity Incentive Plan prior to the date of such termination.
Insurance and Indemnification
To the extent permitted under Cayman Islands law, we are empowered to indemnify our directors against any liability they incur by reason of their directorship. We have obtained directors’ and officers’ insurance to insure such persons against certain liabilities. Insofar as indemnification of liabilities arising under the Securities Act may be permitted to the Board, executive officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
C.Board Practices
Board of Directors
Our Board consists of six directors as of the date of this annual report. Of these six directors, three are independent. These three independent directors were selected and approved by our current nominating committee through a process that sought to find diversity of experience, expertise and perspectives, as well as deep understandings of different businesses, practices and markets relevant to our operations. A director may vote in respect of any contract or transaction in which he/she is interested provided that the nature of the interest of any director in any such contract or transaction is disclosed at or prior to its consideration and any vote thereon, and such director may be counted in the quorum at any meeting of directors at which any such contract or transaction is considered. A director who is interested in a contract or proposed contract with us must declare the nature of his interest at a meeting of the directors. None of our non-employee directors has a service contract with us that provides for benefits upon termination of service.
Duties of Directors
Under the laws of the Cayman Islands, our directors owe fiduciary duties to our Company, including a duty of loyalty, a duty to act honestly, and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our Company a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our Articles, as amended and restated from time to time, and the class rights vested thereunder in the holders of the shares.
In certain limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.
Our Board has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our Board include, among others:
•convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such meetings;
•declaring dividends and distributions;
•appointing officers and determining the term of office of the officers;
•exercising the borrowing powers of our Company and mortgaging the property of our Company; and
•approving the transfer of shares in our Company, including the registration of such shares in our register of members.
Terms of Directors and Executive Officers
Our Board is divided into three classes: Class I, Class II and Class III. The number of directors in each class shall be as nearly equal as possible. On October 28, 2022, our Board adopted a resolution that Philip Tsao be classified as a Class I Director, each of Michael Aw and Chung-Hui (Christine) Jih be classified as a Class II Director, and each of Alice H. Chang, Jau-Hsiung Huang and Meng-Shiou (Frank) Lee be classified as a Class III Director. The Class I directors shall stand appointed for a term expiring at our first annual general meeting, the Class II directors shall stand appointed for a term expiring at our second annual general meeting, and the Class III directors shall stand appointed for a term expiring at our third annual general meeting. Commencing at our first annual general meeting, and at each annual general meeting thereafter, directors appointed to replace those directors whose terms expire shall be appointed for a term of office to expire at the third succeeding annual general meeting after their appointment. If no replacement directors are appointed, the existing directors shall be automatically re-appointed for a further term of office to expire at the third succeeding annual general meeting after their re-appointment.
Our officers are elected by and serve at the discretion of the Board. Their terms shall be decided by the Board.
Board Committees
Our Board has an audit committee. The audit committee’s members and functions are described below.
Audit Committee
The audit committee consists of three directors, Meng-Shiou (Frank) Lee, Philip Tsao and Chung-Hui (Christine) Jih. Philip Tsao is the chairperson of the audit committee. Mr. Meng-Shiou (Frank) Lee satisfies the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC. Each of the audit committee members satisfies the requirements for an “independent director” within the meaning of the NYSE listing rules and the criteria for independence set forth in Rule 10A-3 of the Exchange Act.
The audit committee oversees our accounting and financial reporting processes. The audit committee is responsible for, among other things:
•the quality and integrity of our financial statements,
•internal control over financial reporting and disclosure controls and procedures,
•our compliance with legal and regulatory requirements,
•our independent registered public accounting firm’s qualifications and independence,
•the performance of our internal audit function, and
•the performance of our independent registered public accounting firm.
Director Nominations
Our Board will consider director candidates recommended for nomination by our shareholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of shareholders (or, if applicable, a special meeting of shareholders). Our shareholders that wish to nominate a director for election to our Board should follow the procedures set forth in our Articles.
In general, in identifying and evaluating nominees for directors, our Board considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, character, and the ability to exercise sound judgement, and relevant skills and experience, including financial literacy, and experience in the context of the needs of our Board.
D.Employees
See “Item 4. Information on the Company — B. Business Overview — Employees and Human Capital.”
E.Share Ownership
Except as specifically noted, the following table sets forth information regarding the beneficial ownership of Ordinary Shares to the extent known to us as of March 20, 2025 by:
•each person who beneficially owns 5.0% or more of the outstanding Ordinary Shares;
•each person who is our executive officer or director; and
•all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to, or the power to receive the economic benefit of ownership of, the securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares that the person has the right to acquire within 60 days are included, including through the exercise of any option or other right or the conversion of any other security. However, these shares are not included in the computation of the percentage ownership of any other person. Each holder of Class A Ordinary Shares is entitled to one vote per share, and each holder of Class B Ordinary Shares is entitled to ten (10) votes per share.
The total number of Ordinary Shares outstanding as of March 20, 2025 is 101,848,671 shares, consisting of 85,059,953 Class A Ordinary Shares and 16,788,718 Class B Ordinary Shares.
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| Beneficial Owners |
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Class A Ordinary
Shares |
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% of
Class† |
|
Class B Ordinary
Shares |
|
% of
Class† |
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% of
voting
power†† |
| Directors and Executive Officers: |
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Alice H. Chang(1) |
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597,256 |
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*% |
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16,788,718 |
|
100 |
% |
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66.6 |
% |
| Wei-Hsin Tsen (Johnny Tseng) |
|
762,330 |
|
*% |
|
— |
|
— |
|
|
*% |
| Weichuan (Wayne) Liu |
|
353,471 |
|
*% |
|
— |
|
— |
|
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*% |
| Pin-Jen (Louis) Chen |
|
118,062 |
|
*% |
|
— |
|
— |
|
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*% |
| Jau-Hsiung Huang |
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148,274 |
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*% |
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— |
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— |
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*% |
| Hsiao-Chuan (Iris) Chen |
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69,932 |
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*% |
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— |
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— |
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*% |
| Michael Aw |
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— |
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— |
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— |
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— |
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— |
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| Meng-Shiou (Frank) Lee |
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— |
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— |
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— |
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— |
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— |
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| Philip Tsao |
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5,311 |
(2) |
*% |
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— |
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— |
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*% |
| Chung-Hui (Christine) Jih |
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— |
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— |
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— |
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— |
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— |
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| All directors and executive officers as a group |
|
2,054,636 |
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2.4 |
% |
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16,788,718 |
|
100 |
% |
|
67.2 |
% |
| Five Percent or More Shareholders: |
|
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| GOLDEN EDGE CO., LTD. |
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— |
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— |
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10,622,620 |
(1) |
63.3 |
% |
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42.0 |
% |
| DVDonet.com. Inc |
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— |
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— |
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4,669,346 |
(1) |
27.8 |
% |
|
18.5 |
% |
| CyberLink International |
|
36,960,961 |
(3) |
43.5 |
% |
|
— |
|
— |
|
|
14.6 |
% |
| Provident Acquisition Holdings Ltd. |
|
14,491,467 |
(4) |
17.0 |
% |
|
— |
|
— |
|
|
5.7 |
% |
Yi-Chen Huang |
|
4,567,425 |
(5) |
5.4 |
% |
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— |
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— |
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1.8 |
% |
________________________________
*Less than 1%.
† For each person or group, percentage of class is calculated by dividing the number of Class A Ordinary Shares or Class B Ordinary Shares beneficially owned by such person or group by the total Class A Ordinary Shares or Class B Ordinary Shares, respectively. The percentages are calculated based on 85,059,953 Class A Ordinary Shares and 16,788,718 Class B Ordinary Shares.
†† For each person or group, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of Class A Ordinary Shares and Class B Ordinary Shares. Each holder of Class A Ordinary Shares is entitled to one vote per share and each holder of Class B Ordinary Shares is entitled to ten votes per share on all matters submitted to them for a vote.
(1)Alice H. Chang beneficially owns (a) 10,622,620 Class B Ordinary Shares held by GOLDEN EDGE CO., LTD., a British Virgin Islands company in which Alice H. Chang has a controlling interest, (b) 4,669,346 Class B Ordinary Shares held by DVDonet.com. Inc., a British Virgin Islands company wholly owned by World Speed Company Limited, which is a British Virgin Islands company wholly owned by Alice H. Chang, (c) 523,008 Class B Ordinary Shares held by World Speed Company Limited, a British Virgin Islands company wholly owned by Alice H. Chang, (d) 973,744 Class B Ordinary Shares held by Alice H. Chang, and (e) 597,256 Class A Ordinary Shares held by Alice H. Chang.
(2)Represents Class A Ordinary Shares indirectly held by Philip Tsao through Perfect AA Corp.
(3)Represents (a) 36,660,961 Class A Ordinary Shares issued to CyberLink International in connection with the Recapitalization before the Closing, and (b) 300,000 Class A Ordinary Shares held by CyberLink International in connection with its PIPE Investment. The above information is based on the Schedule 13D filed by CyberLink, among others, on February 13, 2023.
(4)Represents (i) 4,891,467 Class A Ordinary Shares issued as entitlement shares for the cancellation of 5,327,500 Provident Class B Ordinary Shares previously held by the Sponsor, (ii) 3,000,000 Class A Ordinary Shares consisting of (a) 2,000,000 Class A Ordinary Shares converted from 2,000,000 Provident Class A Ordinary Shares acquired by an affiliate of the Sponsor in connection with the FPA Investment, and (b) 1,000,000 Class A Ordinary Shares issuable upon the exercise of 1,000,000 Perfect Forward Purchase Warrants acquired by an affiliate of the Sponsor in connection with the FPA Investment, and (iii) 6,600,000 Class A Ordinary Shares issuable upon the exercise of 6,600,000 Warrants converted from 6,600,000 Private Placement Warrants previously held by the Sponsor. The number of Class A Ordinary Shares disclosed herein does not include 1,175,624 Sponsor Earnout Promote Shares issuable to the Sponsor upon the occurrence of certain milestones. In accordance with Rule 13d-3(d)(1)(i) under the Exchange Act, Class A Ordinary Shares not outstanding which are subject to Warrants owned by the Sponsor and its affiliate shall be deemed to be outstanding for the purpose of computing their percentage ownership of outstanding Class A Ordinary Shares but shall not be deemed to be outstanding for the purpose of computing the percentage ownership of Class A Ordinary Shares by any other person.
(5)Yi-Chen Huang beneficially owns (a) 4,333,816 Class A Ordinary Shares held by Ideal Max Management Limited, a British Virgin Islands company wholly owned by Mr. Yi-Chen Huang and (b) 233,609 Class A Ordinary Shares held by Yi-Chen Huang. The above information is based on the Schedule 13G filed by Yi-Chen Huang, among others, on February 2, 2024.
To our knowledge, as of March 20, 2025, 41,405,708 Class A Ordinary Shares, or 48.67% of the total outstanding Class A Ordinary Shares, were held by three record holders in the United States (including Cede & Co., the nominee of the Depository Trust Company). Because a portion of these shares are held by brokers or other nominees, we cannot ascertain the exact number of Class A Ordinary Shares ultimately held by holders in the United States. As of March 20, 2025, none of our Class B Ordinary Shares was held by record holders in the United States.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of the Company.
F.Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
There was no erroneously awarded compensation that was required to be recovered pursuant to the Company’s clawback policy during the fiscal year ended December 31, 2024.
Item 7. Major Shareholders and Related Party Transactions
A.Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees — E. Share Ownership.”
B.Related Party Transactions
Agreements Related to the Business Combination
In connection with, and pursuant to, the Business Combination Agreement, certain agreements were entered into between Perfect, Provident and certain related parties following the Business Combination. These agreements include:
Sponsor Letter Agreement
Concurrently with the execution of the Business Combination Agreement on March 3, 2022, Perfect, Provident and the Sponsor entered into the Sponsor Letter Agreement, pursuant to which 1,710,000 Class A Ordinary Shares held by Sponsor as of immediately after the First Merger Effective Time (the “Forfeited Shares”) were forfeited and cancelled for no consideration immediately after the Closing. Subject to the terms and conditions contemplated by the Sponsor Letter Agreement, upon the occurrence of a Sponsor Earnout Event (as defined below) during the period from and after the Closing Date until the fifth anniversary of the Closing Date (the “Earnout Period”), Perfect will issue up to 1,175,624 Class A Ordinary Shares (the “Sponsor Earnout Shares”) to Sponsor, with (i) 50% of the Sponsor Earnout Shares issuable if over any twenty (20) trading days within any 30-trading-day period during the Earnout Period the daily volume-weighted average price of the Class A Ordinary Shares is greater than or equal to $11.50, and (ii) 50% of the Sponsor Earnout Shares issuable if over any 20 trading days within any 30-trading-day period during the Earnout Period the daily volume-weighted average price of the Class A Ordinary Shares is greater than or equal to $13.00 (each, a “Sponsor Earnout Event”).
In the event that, during the Earnout Period, there is a Change of Control (as defined in the Sponsor Letter Agreement) (or a definitive agreement providing for a Change of Control has been entered into prior to the expiration of the Earnout Period and such Change of Control is ultimately consummated) or any liquidation, bankruptcy or similar proceeding of Perfect, then any Sponsor Earnout Shares that have not been previously issued by Perfect (whether or not previously earned) will be deemed earned and will be issued by Perfect to the Sponsor upon such event, unless in the case of a Change of Control, the value of the consideration to be received by the holders of Ordinary Shares in such transaction is less than the share price threshold applicable to the applicable Sponsor Earnout Event.
Pursuant to the Sponsor Letter Agreement, the Sponsor also agreed not to transfer, during a period of 12 months from and after October 28, 2022, any Class A Ordinary Shares and Warrants held by it immediately after the First Merger Effective Time, any Class A Ordinary Shares acquired by the Sponsor upon the exercise of such Warrants, or any Sponsor Earnout Shares issued pursuant to the Sponsor Letter Agreement subject to customary exceptions. The lock-up requirements expired on October 28, 2022.
Perfect Shareholder Lock-Up Agreement
On October 28, 2022, Perfect, Provident and certain Perfect’s shareholders (the “Perfect Lock-Up Shareholders”) entered into a Perfect Shareholder Lock-Up Agreement, pursuant to which, each Perfect Lock-Up Shareholder agreed not to transfer (i) any Ordinary Shares held by such Perfect Lock-Up Shareholder immediately after the Second Merger Effective Time, (ii) any Ordinary Shares issuable upon the exercise of options or warrants to purchase Ordinary Shares held by such Perfect Lock-Up Shareholder immediately after the Second Merger Effective Time (along with such options or warrants themselves), (iii) any Ordinary Shares acquirable upon the conversion, exercise or exchange of any securities convertible into or exercisable or exchangeable for Ordinary Shares held by such Perfect Lock-Up Shareholder immediately after the Second Merger Effective Time (along with such securities themselves), and (iv) any Shareholder Earnout Shares to the extent issued pursuant to the Business Combination Agreement during the applicable lock-up period, subject to customary exceptions.
For each Perfect Lock-Up Shareholder who is not CyberLink International, Founder Parties, Pin-Jen (Louis) Chen or Wei-Hsin Tsen (Johnny Tseng), the applicable lock-up period will be six months from and after October 28, 2022. For each of CyberLink International, Founder Parties, Pin-Jen (Louis) Chen and Wei-Hsin Tsen (Johnny Tseng), the applicable lock-up period will be 12 months from and after October 28, 2022.
Perfect Shareholder Voting Agreement
Concurrently with the execution of the Business Combination Agreement on March 3, 2022, Perfect, Provident and certain shareholders of Perfect (the “Perfect Voting Shareholders”) entered into a Perfect Shareholder Voting Agreement, pursuant to which, each Perfect Voting Shareholder agreed to, among other things, (i) attend any shareholder meeting of Perfect to establish a quorum for the purpose of approving the Business Combination, and (ii) vote the Pre-Recapitalization Shares and any other Perfect securities acquired by such Perfect Voting Shareholders in favor of approving the transactions contemplated by the Business Combination Agreement.
New Registration Rights Agreement
On October 28, 2022, Perfect, the Sponsor and certain shareholders of Perfect entered into a New Registration Rights Agreement containing customary registration rights for the Sponsor and the shareholders of Perfect who are parties thereto.
Subscription Agreements — PIPE Investment
Concurrently with the execution of the Business Combination Agreement on March 3, 2022, Provident, Perfect and the PIPE Investors entered into Subscription Agreements and certain assignment, assumption and consent agreements, pursuant to which, the PIPE Investors subscribed for and purchased Provident Class A Ordinary Shares at $10.00 per share for an aggregate purchase price of $50,000,000 prior to the Closing.
At the First Merger Effective Time, each Provident Class A Ordinary Share issued in the PIPE Investment was cancelled in exchange for one Class A Ordinary Share.
Forward Purchase Agreements — FPA Investment
In connection with the Provident Initial Public Offering, Provident entered into a Forward Purchase Agreements and a joinder agreement with the FPA Investors, pursuant to which, the FPA Investors purchased from Provident an aggregate of 5,500,000 Provident Class A Ordinary Shares and an aggregate of 2,750,000 Forward Purchase Warrants for an aggregate purchase price of $55,000,000 prior to the Closing. At the First Merger Effective Time, each Provident Class A Ordinary Share and Forward Purchase Warrant issued in the FPA Investment was cancelled in exchange for one Class A Ordinary Share and one Warrant, respectively.
Assignment, Assumption and Amendment Agreement
On October 28, 2022, Perfect, Provident, and Continental entered into an Assignment, Assumption and Amendment Agreement, pursuant to which, Provident assigned to Perfect all of its rights, interests, and obligations in and under the Warrant Agreement, and the terms and conditions of such Warrant Agreement were amended to reflect Perfect’s assumption of the Provident Warrants.
Related Party Transactions with CyberLink and Its Affiliates
Licensing Agreements
Cross License Agreement — MakeupDirector
On July 1, 2016, Perfect Corp. entered into a cross license agreement with CyberLink (the “MakeupDirector Cross License Agreement”), pursuant to which, (i) Perfect grants to (a) CyberLink a non-exclusive and non-transferable license to use Perfect’s digital makeover technology, and (b) CyberLink and CyberLink MakeupDirector users non-exclusive access to the contents and features of Beauty Circle, a beauty social platform owned by Perfect; and (ii) CyberLink grants to Perfect a non-exclusive and non-transferable worldwide license to (a) distribute CyberLink’s MakeupDirector software to users of Perfect’s mobile apps, and (b) advertize for certain software applications of Perfect within certain CyberLink’s software and websites as specified under the MakeupDirector Cross License Agreement. No cash consideration is payable under the MakeupDirector Cross License Agreement. Each of Perfect and CyberLink receives its consideration for its license to the other party from the license that the other party grants to it. The term of the MakeupDirector Cross License Agreement is three years, commencing from July 1, 2016 and will automatically renew for an additional three years, unless either party provides written notice of termination to the other party at least one year prior to the expiration of relevant term. The MakeupDirector Cross License Agreement was automatically renewed for an additional three-year term on July 1, 2019 and July 1, 2022, respectively.
Cross License Agreement and Assignment Agreement — PerfectCam
On August 8, 2017, Perfect Corp. entered into a cross license agreement with CyberLink (the “PerfectCam Cross License Agreement”), pursuant to which, (i) Perfect grants to CyberLink a non-exclusive and non-transferable worldwide license to use its AR technology of facial feature detection and makeup generation to be embedded into CyberLink’s PerfectCam software, and CyberLink may sublicense its own developed SDK of PerfectCam software derived from Perfect’s AR technology to its customers and other third parties; and (ii) CyberLink grants to Perfect a non-exclusive and non-transferable worldwide license to use, reproduce, distribute and sell PerfectCam software and the derivative work created and developed by or on behalf of CyberLink based on the AR technology provided by us under the PerfectCam Cross License Agreement. CyberLink shall share 25% of the net revenue from the sales of PerfectCam and 50% of the net revenue from the sublicense of the SDK of PerfectCam software. The term of the PerfectCam Cross License Agreement is three years, commencing from August 8, 2017 and will automatically renew for an additional three years, unless either party provides a written notice of termination to the other party at least one year prior to the expiration of relevant term.
On January 1, 2018, Perfect Corp., Perfect Taiwan, a wholly-owned subsidiary of Perfect, and CyberLink entered into an assignment agreement, pursuant to which, Perfect agreed to assign all its rights and obligations under the PerfectCam Cross License Agreement to Perfect Taiwan, and as a result, Perfect Corp. was released of all liabilities accrued thereunder, and Perfect Taiwan succeeded Perfect Corp. and undertook all the rights and obligations under the PerfectCam Cross License Agreement.
License Agreement — YouCam
On November 30, 2019, Perfect Taiwan entered into a license agreement with CyberLink (the “YouCam License Agreement”), pursuant to which, Perfect Taiwan grants to CyberLink a non-exclusive, non-transferable and non-sublicensable worldwide license to use its AR technology to be embedded into CyberLink’s YouCam software and the SDK thereof. CyberLink shall pay to Perfect Taiwan (i) a royalty calculated based on 12% of net revenue of sales of YouCam and (ii) a royalty fee of $1 for each copy of YouCam software sold. The term of the YouCam License Agreement is three years, commencing from November 30, 2019 and will automatically renew for an additional one year, unless either party provides written notice of termination to the other party at least one year prior to the expiration of relevant term. The YouCam License Agreement was automatically renewed for an addition one-year term on December 1, 2022, December 1, 2023 and December 1, 2024, respectively.
Services Outsourcing Agreement
On January 1, 2019, Perfect Taiwan entered into a services outsourcing agreement with CyberLink, pursuant to which CyberLink agrees to provide support and assistance in legal services, network infrastructure and equipment maintenance services, marketing activity support, and employee training programs to Perfect Taiwan at an hourly rate of NTD1,000, NTD900, NTD750, and NTD700, respectively. The initial term of this services outsourcing agreement is one year commencing from January 1, 2019, and will automatically renew for an additional one year on each anniversary, unless either party provides written notice of termination to the other party at least 30 days prior to the expiration of the relevant term.
Rental Agreements
On June 1, 2017, Perfect Taiwan entered into a property lease agreement with CyberLink, pursuant to which, Perfect Taiwan will lease premises located on the 14th floor of No. 98, No. 98-1, No. 100 and No. 100-1, Minquan Rd., Xindian Dist., New Taipei City 231, Taiwan, at a monthly rent of NTD538,842, for the use as office space. The initial lease term was for two years, commencing from June 1, 2017, with rent paid to CyberLink on a monthly basis. In 2019, 2021 and 2023, Perfect Taiwan renewed this agreement under the same terms as the original agreement.
On November 26, 2021, Perfect Taiwan entered into another property lease agreement with CyberLink, pursuant to which, Perfect Taiwan will lease premises located on 6F-1, No. 98, Minquan Rd., Xindian Dist., New Taipei City 231, Taiwan, at a monthly rent of NTD116,530, for the use as office space. The initial lease term was for two years, commencing from December 1, 2021, with rent paid to CyberLink on a monthly basis. In 2023, Perfect Taiwan renewed this agreement under the same terms as the original agreement.
On May 15, 2024, Perfect Taiwan entered into a property lease agreement with ClinJeff Corp., pursuant to which, Perfect Taiwan will lease premises located on 4F-1, No. 98, Minquan Rd., Xindian Dist., New Taipei City 231, Taiwan, at a monthly rent of NT$ 116,530, for the use as office space. The lease term was for two years, commencing from May 15, 2024 to April 30, 2026, and will not automatically renew, unless both parties negotiate the leasing terms three months prior to the expiration of this agreement, and sign a written lease agreement one month prior to the expiration of this agreement. The rent shall be paid to ClinJeff Corp. on a monthly basis.
On January 1, 2020, Perfect Corp. (Japan), a wholly-owned subsidiary of Perfect, organized and existing under the laws of Japan (“Perfect Japan”), entered into an office sharing agreement, with CyberLink Inc., a wholly-owned subsidiary of CyberLink, organized and existing under the laws of Japan (“CyberLink Japan”), pursuant to which, Perfect Japan will share a portion of CyberLink Japan’s premises at a monthly sharing fee of JPY805,407. The initial term was for one year commencing from January 1, 2020, and will automatically renew for an additional one year on each anniversary, unless either party provides written notice of termination to the other party at least 30 days prior to the expiration of the relevant term. The monthly sharing fee shall be paid to CyberLink Japan on a quarterly basis. On June 1, 2021, Perfect Japan entered into an amendment to this agreement, pursuant to which the monthly sharing fee was adjusted from JPY805,407 to JPY978,128.
Other Related Party Transactions
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees — B. Compensation.”
Share Incentive Plan
See “Item 6. Directors, Senior Management and Employees — B. Compensation — Share Incentive Plan.”
Director Equity Incentive Plan
See “Item 6. Directors, Senior Management and Employees — B. Compensation — Director Equity Incentive Plan.”
Shareholders Agreement
Perfect Corp., certain of its shareholders and Alice H. Chang entered into the Second Amended and Restated Shareholders Agreement on December 18, 2020 (the “SHA”), which was further amended by Amendment No. 1 to the Second Amended and Restated Shareholders Agreement of Perfect Corp. on October 5, 2021. A copy of the SHA and its amendment is filed as Exhibits 10.2 and 10.16 of the Form F-4 filed by us on September 19, 2022, respectively. According to the SHA and its amendment, our Fourth Amended and Restated Memorandum and Articles of Association shall provide that, subject to certain requirements of shareholding percentage, each of (i) Ningbo New Summit Private Equity Fund I L.P., (ii) Taobao China Holdings Limited, (iii) CyberLink International, and (iv) Goldman Sachs (as defined in the SHA, comprising of Goldman Sachs Asia Strategic II Pte. Ltd., StoneBridge 2020, L.P. and StoneBridge 2020 Offshore Holdings II, L.P.) may appoint one (1) director. Such director appointment rights were reflected in our Fourth Amended and Restated Memorandum and Articles of Association as well as our Fifth Amended and Restated Memorandum and Articles of Association. We have adopted the Articles which no longer contains such rights.
Director and Officer Indemnification
We have entered into indemnification agreements with our directors and executive officers. These agreements will require us to indemnify these individuals to the fullest extent permitted by Cayman Islands law against liabilities that may arise by reason of their directorship, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors or executive officers, we have been informed that in the opinion of the SEC such indemnification is against public policy and is therefore unenforceable.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
C.Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A.Consolidated Statements and Other Financial Information
We have appended our consolidated financial statements filed as part of this annual report on Form 20-F.
B.Legal Proceedings
See “Item 4. Information on the Company — B. Business Overview — Legal Proceedings.”
C.Dividend Policy
We have not declared or paid dividends in the past. We may declare and distribute dividends in the future, but we currently do not have a fixed dividend policy. The amount, timing, and whether or not we actually declare or distribute dividends at all is at the discretion of our board of directors and will depend on a variety of factors, including, among others, our general financial condition, results of operations, capital requirements and surplus, contractual restrictions and other factors that our board of directors may deem relevant. We may formulate and adopt a formal dividend policy governing our dividend distribution in the future.
The directors may from time to time declare dividends (including interim dividends) and other distributions on our shares in issue and authorize payment of the same out of our funds lawfully available therefor. In addition, our shareholders may declare dividends by ordinary resolution, but no dividend may exceed the amount recommended by the directors. Under the laws of the Cayman Islands, dividends may be paid out of either profit or share premium account; provided that in no circumstances may a dividend be paid if this would result in us being unable to pay our debts as they fall due in the ordinary course of business.
As an exempted company with limited liability incorporated under the laws of the Cayman Islands structured as a holding company, we may need dividends and other distributions on equity from our Taiwan subsidiary to satisfy our liquidity requirements. Current Taiwan regulations permit our Taiwan subsidiary to pay dividends to its respective shareholders only out of its accumulated profits, if any, which shall first make up previous losses and set aside at least 10% of its accumulated profits each year. These reserves are not distributable as cash dividends. Furthermore, if our Taiwan subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Any limitation on the ability of our Taiwan subsidiary to distribute dividends or to make payments to us may restrict our ability to satisfy our liquidity requirements. In addition, the dividend payments by our Taiwan subsidiary to us shall be subject to a withholding tax of 21%. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in Taiwan — Our Taiwan subsidiary is subject to certain restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy the liquidity requirements.”
D.Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements which is included in this annual report.
Item 9. The Offer and Listing
A.Offering and Listing Details
Since October 31, 2022, our Class A Ordinary Shares and Warrants have been listed on the NYSE under the symbols “PERF” and “PERF WS,” respectively.
B.Plan of Distribution
Not applicable.
C.Markets
Since October 31, 2022, our Class A Ordinary Shares and Warrants have been listed on the NYSE under the symbols “PERF” and “PERF WS,” respectively.
D.Selling Shareholders
Not applicable.
E.Dilution
Not applicable.
F.Expenses of the Issue
Not applicable.
Item 10. Additional Information
A.Share Capital
Not applicable.
B.Memorandum and Articles of Association
By special resolutions passed on October 25, 2022, our shareholders adopted our Articles, effective on and from October 28, 2022. The information called for by this Item is set forth in Exhibit 2.5 to this annual report and incorporated by reference herein. With respect to the powers of our directors, please refer to “Item 6. Directors, Senior Management and Employees — C. Board Practices — Duties of Directors.”
C.Material Contracts
On December 23, 2024, Perfect Taiwan, our wholly-owned subsidiary, entered into an securities purchase agreement with Farfetch US Holdings, Inc. (“Farfetch”), pursuant to which, Perfect Taiwan agreed to acquire 100% of the issued and outstanding equity interests in Wannaby owned by Farfetch, for a consideration in the range of $5.5 million to $6.0 million. On January 7, 2025, we completed the acquisition of Wannaby. Wannaby, along with its wholly-owned subsidiary, Wannaby UAB, now became wholly-owned subsidiaries of Perfect.
Other than the above, for the two years immediately preceding the date of this annual report, we have not entered into any additional material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions” or elsewhere in this annual report.
D.Exchange Controls
Exchange Controls in Cayman Islands
There is no exchange control legislation under Cayman Islands law and accordingly there are no exchange control regulations imposed under Cayman Islands law. There are no exchange controls restrictions on payment of dividends, interest or other payments to shareholders. Cayman law and our Sixth Amended and Restated Memorandum and Articles of Association do not impose any material limitations on the right of non-residents or foreign owners to hold or vote our ordinary shares.
Exchange Controls in Taiwan
See “Item 4. Information on the Company — B. Business Overview — Regulation — Exchange Controls in Taiwan.”
E.Taxation
United States Federal Income Tax Considerations
This section describes the material United States federal income tax consequences to a U.S. holder (as defined below) of owning and disposing of our Class A Ordinary Shares and Warrants (the “Securities”). It applies to you only if you hold your Securities as capital assets for tax purposes. This section addresses only United States federal income taxation and does not discuss all of the tax consequences that may be relevant to you in light of your individual circumstances, including foreign, state or local tax consequences, estate and gift tax consequences, and tax consequences arising under the Medicare contribution tax on net investment income or the alternative minimum tax. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:
•a dealer in securities,
•a trader in securities that elects to use a mark-to-market method of accounting for securities holdings,
•a tax-exempt organization,
•a financial institution,
•an insurance company,
•a person that actually or constructively owns 10% or more of the combined voting power of our voting stock or of the total value of our stock,
•a person that holds Securities as part of a straddle or a hedging or conversion transaction,
•a person that purchases or sells Securities as part of a wash sale for tax purposes, or
•a person whose functional currency is not the U.S. dollar.
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect. These authorities are subject to change, possibly on a retroactive basis. There is currently no comprehensive income tax treaty between the United States and Cayman Islands.
If an entity or arrangement that is treated as a partnership for United States federal income tax purposes holds the Securities, the United States federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the Securities should consult its tax advisor with regard to the United States federal income tax treatment of an investment in the Securities.
You are a U.S. holder if you are a beneficial owner of Securities and you are, for United States federal income tax purposes:
•an individual citizen or resident of the United States,
•a domestic corporation,
•an estate whose income is subject to United States federal income tax regardless of its source, or
•a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.
You should consult your own tax advisor regarding the United States federal, state and local and other tax consequences of owning and disposing of Securities in your particular circumstances.
Tax Treatment of Class A Ordinary Shares
PFIC Classification
The tax consequences of holding and disposing of your Class A Ordinary Shares depends upon whether we are a passive foreign investment company, or PFIC, for United States federal income tax purposes. For the reasons discussed below, we believe that we were a PFIC in fiscal year 2024 and we may be a PFIC in fiscal year 2025 and future years. However, the determination of whether we are a PFIC is a factual determination that is made annually and thus may be subject to change.
In general, we will be a PFIC for a taxable year if, after applying certain look-through rules:
•at least 75% of our gross income for the taxable year is passive income or
•at least 50% of the value, generally determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income.
Passive income generally includes dividends, interest, gains from the sale or exchange of investment property, rents and royalties (other than certain rents and royalties derived in the active conduct of a trade or business) and certain other specified categories of income. In addition, cash and other assets readily convertible into cash are generally considered passive assets. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporation’s income.
Because most of our assets are assets that produce passive income, we believe that we were a PFIC in fiscal year 2024 and we may be a PFIC in fiscal year 2025 and future years. Except as described below under “—Tax Consequences If We Are Not a PFIC,” the discussion below assumes that we are and will continue to be a PFIC, and that your Class A Ordinary Shares will accordingly be subject to the special rules governing stock in a PFIC.
The tax consequences to you of holding and disposing of our Class A Ordinary Shares depends upon whether you make a mark-to-market election with respect to your Class A Ordinary Shares. Accordingly, the discussion below separately addresses the tax consequences if you do not make such an election and the tax consequences if you do make such an election.
Because we do not intend to provide certain required information, you will not be able to make an election to have us treated as a “qualified electing fund” for United States federal income tax purposes.
If you own Class A Ordinary Shares during any year that we are a PFIC with respect to you, you will generally be required to file Internal Revenue Service, or IRS, Form 8621, subject to a de minimis exception.
Tax Consequences If You Do Not Make a Mark-to-Market Election
This section describes the tax consequences if you do not make the mark-to-market election described below under “—Tax Consequences If You Make a Mark-to-Market Election.”
Dividends. The tax treatment of distributions with respect to the Class A Ordinary Shares depends upon whether the distribution is an “excess distribution” under the rules described below. The discussion in this subsection only applies to distributions that are not excess distributions under the rules described below.
The gross amount of any distribution we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation as ordinary dividend income. The dividend is taxable to you when you receive the dividend, actually or constructively, and will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. In addition, the dividend will not be eligible for the preferential tax rates that apply to qualified dividend income received by non-corporate U.S. holders. Dividends will be income from sources outside the United States and will generally be “passive” income for purposes of computing the foreign tax credit allowable to you.
Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of your tax basis in the Class A Ordinary Shares and thereafter as gain from the sale or disposition of the Class A Ordinary Shares. However, we do not maintain calculations of our earnings and profits in accordance with United States federal income tax accounting principles. You should therefore assume that any distribution with respect to our Class A Ordinary Shares will be reported as ordinary dividend income.
Sale or Other Disposition of Class A Ordinary Shares. If you sell or otherwise dispose of your Class A Ordinary Shares, you will generally recognize gain or loss equal to the difference between the U.S. dollar value of the amount you realize and your tax basis, determined in U.S. dollars, in your Class A Ordinary Shares. Any such gain will be subject to the rules with respect to excess distributions described below and thus will be subject to tax at the rates applicable to ordinary income, while any such loss will be a capital loss. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. For purposes of the excess distribution rules described below, you will generally be treated as having disposed of your Class A Ordinary Shares if you pledge your Class A Ordinary Shares as security for a loan, unless you would recognize a loss for United States federal income purposes upon a disposition of your Class A Ordinary Shares.
Excess Distributions. Any distributions to you during a single taxable year (other than any amounts you receive during the first year of your holding period in the Class A Ordinary Shares) that are greater than 125% of the average annual distributions received by you in respect of the Class A Ordinary Shares during the three preceding taxable years or, if shorter, your holding period for the Class A Ordinary Shares that preceded the taxable year in which you receive the distribution, will be treated as excess distributions. This rule will apply irrespective of whether the distribution exceeds our current and accumulated earnings and profits. Additionally, any gain you realize on the sale or other disposition of your Class A Ordinary Shares will be treated as an excess distribution. Excess distributions are subject to the following special rules:
•the excess distribution will be allocated ratably over your holding period for the Class A Ordinary Shares,
•the amount allocated to the taxable year in which you received the excess distribution and any year in which we were not a PFIC with respect to you will be taxed as ordinary income,
•the amount allocated to each other prior year will be taxed at the highest tax rate in effect for that year,
•the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such prior year, and
•special rules apply in determining the foreign tax credit limitation for any foreign taxes that are imposed with respect to any excess distributions that you realize with respect to your Class A Ordinary Shares.
Except to the extent inconsistent with the rules described above, the discussion under “—Dividends” above will apply to distributions that are treated as excess distributions.
If we are a PFIC for any taxable year, to the extent any of our subsidiaries are also PFICs, you will generally be deemed to own shares in such lower-tier PFICs that are directly or indirectly owned by us in the proportion which the value of our shares that you own bears to the value of all of our shares, and you will generally be subject to the tax consequences described above (including the Form 8621 requirement described above) with respect to the shares of such lower-tier PFICs you would be deemed to own. As a result, if we receive a distribution from any lower-tier PFIC or sell shares in a lower-tier PFIC, you will generally be subject to tax under the excess distribution rules described above in the same manner as if you had held your proportionate share of the lower-tier PFIC stock directly, even if we do not distribute such amounts to you. However, if you are treated as receiving an excess distribution in respect of a lower-tier PFIC, you would increase your tax basis in your shares by the amount of such distribution. In addition, if we distribute such amount to you with respect to your shares, you would not include the distribution in income but you would rather reduce your tax basis in your shares by the amount of the distribution. The application of the PFIC rules to your indirect ownership of any lower-tier PFIC that we hold is complex and uncertain, and you should therefore consult your tax advisor regarding the application of such rules to your ownership of our shares.
Tax Consequences If You Make a Mark-to-Market Election
If we are a PFIC and our Class A Ordinary Shares are treated as marketable stock, you may make a mark-to-market election with respect to your Class A Ordinary Shares. Our Class A Ordinary Shares will be treated as marketable stock if regularly traded on a national securities exchange that is registered with the SEC, including the NYSE (on which the Class A Ordinary Shares are listed).
Our Class A Ordinary Shares will be considered regularly traded during any calendar year during which they are traded (other than in de minimis quantities) on at least 15 days during each calendar quarter.
You can make a mark-to-market election with respect to your Class A Ordinary Shares (assuming the requirements described above for making an election are satisfied) by filing an IRS Form 8621 with your federal income tax return for the first taxable year in which you make the election. The election will continue to be in effect for all taxable years in which we are a PFIC and our Class A Ordinary Shares are treated as marketable stock, and you may not revoke the mark-to-market election without the consent of the IRS.
Consequences of Making a Mark-to-Market Election. If you make a mark-to-market election with respect to your Class A Ordinary Shares, distributions and gain from the sale or disposition of Class A Ordinary Shares will generally be treated as described above under “—Tax Consequences If You Do Not Make a Mark-to-Market Election,” except that such distributions and gain will not be subject to the excess distribution rules described above. Instead, in general, you will include as ordinary income in each year that we are a PFIC the excess, if any, of the fair market value of your Class A Ordinary Shares at the end of the taxable year over your adjusted tax basis in your Class A Ordinary Shares. These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. You will also recognize an ordinary loss in each year that we are a PFIC in respect of the excess, if any, of the adjusted tax basis of your Class A Ordinary Shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Your tax basis in the Class A Ordinary Shares will be adjusted to reflect any such income or loss amounts.
In each year that we are a PFIC any gain you recognize on the sale or other disposition of your shares will be treated as ordinary income and any loss will be ordinary loss to the extent of the net amount of previously included income as a result of the mark-to-market-election, and thereafter will be capital loss.
Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs we own, you will continue to be subject to the excess distribution rules with respect to any of our subsidiaries that are PFICs. The interaction of the mark-to-market rules and the rules governing lower-tier PFICs is complex and uncertain, and you should therefore consult your tax advisor regarding the application of such rules to your ownership of our shares.
Tax Consequences If We Are Not a PFIC
If we are not a PFIC in a taxable year, the tax treatment of your Class A Ordinary Shares will depend upon whether the “once a PFIC, always a PFIC” rule applies to your Class A Ordinary Shares. Specifically, under the “once a PFIC, always a PFIC” rule, as long as we were a PFIC at any time during your holding period of the Class A Ordinary Shares, your Class A Ordinary Shares will be treated as stock in a PFIC in a taxable year even if we are not a PFIC in such taxable year, unless (a) you had a valid mark-to-market election in effect during all taxable years in which you held our Class A Ordinary Shares and we were a PFIC or (b) you made a special “purging election” with respect to your Class A Ordinary Shares that effectively removes the PFIC taint from your Class A Ordinary Shares. U.S. holders are urged to consult their tax advisors regarding the application of the “once a PFIC, always a PFIC” rule to their Class A Ordinary Shares and the mechanics and tax consequences of making the purging election described above.
If we are not a PFIC in a taxable year and the “once a PFIC, always a PFIC” rule does not apply to your Class A Ordinary Shares, distributions and gain from the sale or disposition of Class A Ordinary Shares will generally be treated as described above under “—Tax Consequences If You Do Not Make a Mark-to-Market Election,” except that such distributions and gain will not be subject to the excess distribution rules described above. In addition, subject to the following sentence, if you are a non-corporate U.S. holder, dividends will generally be qualified dividend income and will be taxable to you at the preferential rates applicable to long-term capital gains, provided that you hold the Class A Ordinary Shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. However, if we are a PFIC with respect to you in the year prior to the year in which the dividend is paid, the dividend will not be qualified dividend income eligible for the preferential tax rates.
In addition, if you sell or otherwise dispose of Class A Ordinary Shares, the gain you recognize will be capital gain or loss for United States federal income tax purposes. Capital gain of a non-corporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The deductibility of capital losses is subject to limitations.
If we are not a PFIC in a taxable year but the “once a PFIC, always a PFIC” rule applies to your Class A Ordinary Shares in such year, then the rules described above for taxable years in which we are a PFIC will continue to apply to your Class A Ordinary Shares.
Tax Treatment of Warrants
Although not entirely clear, it is likely that under current law the Warrants will not be subject to the PFIC rules even if we are classified as a PFIC. It is possible, however, that the IRS could finalize current proposed regulations with a retroactive effective date that could cause the Warrants to be subject to the PFIC rules for periods prior to the issuance of such regulations if we are classified as a PFIC. In addition, it is possible that the IRS could issue final regulations with a future effective date that could cause the Warrants to be subject to the PFIC rules if we are classified as a PFIC either in the current taxable year or a future taxable year. You should consult your tax advisors regarding the potential application of the PFIC rules to Warrants if we are classified as a PFIC. Except as described below under “—Tax Consequences if the Warrants Are Subject to PFIC Rules,” the remainder of the discussion below assumes that the Warrants will not be subject to any special PFIC rules.
Exercise, Lapse, Redemption or Disposition of a Warrant
Except as discussed below with respect to the cashless exercise of a Warrant, you generally will not recognize gain or loss upon the acquisition of a Class A Ordinary Share on the exercise of a Warrant. Your tax basis in a Class A Ordinary Share received upon exercise of the Warrant generally will be an amount equal to the sum of your tax basis in the Warrant exchanged therefor and the exercise price. It is unclear whether your holding period for the Class A Ordinary Share received will commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant; in either case, the holding period will not include the period during which you held the Warrant. If a Warrant is allowed to lapse unexercised, you generally will recognize a capital loss equal to your tax basis in the Warrant.
The tax consequences of a cashless exercise of a Warrant are not clear under current law. A cashless exercise may not be taxable, either because the exercise is not a realization event or because the exercise is treated as a “recapitalization” for U.S. federal income tax purposes.
In either tax-free situation, your tax basis in the Class A Ordinary Shares received generally would equal your tax basis in the Warrants. If the cashless exercise is not treated as a realization event, it is unclear whether your holding period for the Class A Ordinary Share will commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant. In either case, the holding period will not include the period during which you held the Warrant. If the cashless exercise is treated as a recapitalization, the holding period of the Class A Ordinary Shares would include the holding period of the Warrants.
It is also possible that a cashless exercise may be treated in part as a taxable exchange in which gain or loss would be recognized. In such event, a portion of the Warrants to be exercised on a cashless basis could, for U.S. federal income tax purposes, be deemed to have been surrendered in consideration for the exercise price of the remaining Warrants, which would be deemed to be exercised. For this purpose, you may be deemed to have surrendered a number of Warrants having an aggregate value equal to the exercise price for the total number of Warrants to be deemed exercised. You would recognize capital gain or loss in an amount equal to the difference between the fair market value of the total number of Warrants deemed surrendered and your tax basis in such Warrants. In this case, your aggregate tax basis in Class A Ordinary Shares received would equal the sum of your initial investment in the Warrants deemed exercised and the exercise price of such Warrants. It is unclear whether your holding period for the Class A Ordinary Shares would commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant.
Because of the absence of authority on the U.S. federal income tax treatment of a cashless exercise, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, you should consult your own tax advisor regarding the tax consequences of a cashless exercise.
If we redeem Warrants for cash or purchase Warrants in an open market transaction, such redemption or purchase generally will be treated as a taxable disposition to you. In such an event, or upon an actual sale or other disposition of your Warrants, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the amount that you realize and your tax basis in your Warrants. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.
Possible Constructive Distributions
The terms of each Warrant provide for an adjustment to the number of Class A Ordinary Shares for which the Warrant may be exercised or to the exercise price of the Warrant in certain events. An adjustment which has the effect of preventing dilution generally is not taxable. You would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases your proportionate interests in our assets or earnings and profits (e.g., through an increase in the number of Class A Ordinary Shares that would be obtained upon exercise or through a decrease to the exercise price of a Warrant) as a result of a distribution of cash or other property to the holders of Class A Ordinary Shares which is taxable to the U.S. holders of such Class A Ordinary Shares as described under “Tax Treatment of Class A Ordinary Shares” above. Such constructive distribution would be subject to tax as described under that section in the same manner as if you received a cash distribution from us equal to the fair market value of such increased interest, and would increase your adjusted tax basis in your Warrants to the extent that such distribution is treated as a dividend.
Tax Consequences if the Warrants Are Subject to PFIC Rules
As discussed above, although not entirely clear, it is likely that under current law the Warrants will not be subject to the PFIC rules even if we are classified as a PFIC. If, however, the PFIC rules apply to the Warrants, a U.S. holder may not make a mark-to-market election with respect to its Warrants. As a result, if the PFIC rules apply to the Warrants and a U.S. holder sells or otherwise disposes of such Warrants (other than upon exercise of such Warrants), and we were a PFIC at any time during the U.S. holder’s holding period of such Warrants, any gain recognized generally will be treated as an excess distribution, taxed as described above under “Tax Treatment of Class A Ordinary Shares—Tax Consequences If You Do Not Make a Mark-to-Market Election— Excess Distributions”. In addition, if the PFIC rules apply to the Warrants, the holding period of Class A Ordinary Shares acquired upon exercise of the Warrants would, for purposes of the PFIC rules described above, include the period in which the Warrants were held.
Cayman Islands Tax Considerations
The following summary contains a description of certain Cayman Islands income tax consequences of the acquisition, ownership and disposition of ordinary shares, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase ordinary shares. The summary is based upon the tax laws of Cayman Islands and regulations thereunder as of the date hereof, which are subject to prospective and retroactive change.
The following discussion is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law. Prospective investors should consult their professional advisers on the possible tax consequences of buying, holding or selling any shares under the laws of their country of citizenship, residence or domicile.
Current Cayman Islands Laws
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us or holders of the Class A Ordinary Shares levied by the government of the Cayman Islands, except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of the Class A Ordinary Shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of the Class A Ordinary Shares, nor will gains derived from the disposal of the Class A Ordinary Shares be subject to Cayman Islands income or corporation tax.
We have been incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, have obtained undertakings from the Governor in Cabinet of the Cayman Islands in the following form:
The Tax Concessions Law
Undertaking as to Tax Concessions
In accordance with section 6 of the Tax Concessions Act (As Revised) of the Cayman Islands, the following undertaking is hereby given to Perfect:
(a) that no law which is thereafter enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to Perfect Corp. or its operations; and
(b) in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable:
(i) on or in respect of the shares, debentures or other obligations of Perfect Corp.; or
(ii) by way of the withholding in whole or part, of any relevant payment as defined in Section 6(3) of the Tax Concessions Act (As Revised).
These concessions shall be for a period of 20 years from August 10, 2022.
F.Dividends and Paying Agents
Not applicable.
G.Statement by Experts
Not applicable.
H.Documents on Display
We have filed this annual report, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this annual report, we incorporate by reference certain information we filed with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this annual report.
You may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional offices in New York, New York, and Chicago, Illinois. You can also request copies of this annual report, including the exhibits incorporated by reference in this annual report, upon payment of a duplicating fee, by writing to the SEC’s Public Reference Room for information.
The SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov. The information on that website is not a part of this annual report.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
I.Subsidiary Information
Not applicable.
J.Annual Report to Security Holders
Not applicable.
Item 11. 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, Euros, 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.
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 year ended December 31, 2024, we had $0.2 million of other comprehensive loss generated from the exchange differences arising on translation of foreign operations, whereas for the same period in 2023, we had $0.1 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 have no indebtedness as of the date of this annual report, 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.
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. We have sufficient cash and liquidity to finance our operations.
Item 12. Description of Securities Other Than Equity Securities
A.Debt Securities
Not applicable.
B.Warrants and Rights
For a summary of the material provisions governing the Warrants, please refer to Exhibit 2.5 filed as an exhibit to this annual report.
C.Other Securities
Not applicable.
D.American Depositary Shares
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies Item 14.
None.
Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, an evaluation has been carried out under the supervision and with the participation of our management, including our CEO and head of finance and accounting, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the U.S. Exchange Act. Based on that evaluation, our management has concluded that, due to the outstanding material weakness described below under “— Internal Control over Financial Reporting,” as of December 31, 2024, our disclosure controls and procedures were not effective. We have begun the remedial steps to address the material weakness in our disclosure controls and procedures as set forth below under “Internal Control over Financial Reporting.”
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Our management, with the participation of our CEO and head of finance and accounting, evaluated the effectiveness of our internal control over financial reporting based on the COSO Criteria. Due to the absence of controls and documentations required by COSO Criteria, resulting in a material weakness as described below under “— Internal Control over Financial Reporting,” our management has concluded that our internal control over financial reporting was not effective as of December 31, 2024. Nevertheless, we believe that the consolidated financial statements included in this annual report fairly present our financial position, results of operations and cash flows for the fiscal years covered thereby in all material respects.
Internal Control over Financial Reporting
In connection with the preparation of our financial statements for the fiscal year ended December 31, 2022, our management had identified two material weaknesses related to (1) lack of controls and documentations required under Section 404, and (2) lack of sound design and implementation controls over handling complex accounting treatments.
As to the first material weakness, there continues to be an absence of controls and documentations pertaining to risk assessment, process narratives, and descriptions of key controls that we rely upon to establish and maintain an effective internal control over financial reporting. The management has determined that this material weakness remains as of December 31, 2024. In order to address the material weakness identified, we are collaborating with a public accounting firm to develop a comprehensive assessment plan to address the material weakness in relation to the internal control requirements under the Sarbanes-Oxley Act as well as improve our internal control framework in alignment with the criteria established in the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Criteria”). A formal remediation project has been initiated, and we are currently assessing entity level controls, capital management controls, and the controls over financial close and reporting. As part of this initiative, we are also developing the necessary internal control documentation. In the next phase, we have scheduled additional assessments, including interviews, process reviews, and the implementation of control enhancements across various business processes. We have allocated additional personnel in accounting and internal audit departments, to enhance financial reporting and oversight function, and related disclosures in accordance with SEC reporting requirements.
The second material weakness was remediated in 2023 and is no longer considered a material weakness as of December 31, 2024.
We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to these material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. We cannot assure you that all of our existing material weaknesses have been identified, or that we will not in the future identify additional material weaknesses. If we fail to maintain the adequacy of our internal control over financial reporting in accordance with the COSO Criteria, as may be modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. See “Item 3. Key Information — D. Risk Factors — Risks Related to the Class A Ordinary Shares and Warrants — We have identified material weaknesses in our internal control over financial reporting.
If our remediation of these material weaknesses is not effective, or if we experience additional material weaknesses or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner.”
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our registered public accounting firm. For as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
Our Board has determined that Mr. Meng-Shiou (Frank) Lee, who is an independent non-executive director, satisfies the criteria of an audit committee financial expert as defined in Item 16A of the instruction to Form 20-F. Mr. Meng-Shiou (Frank) Lee satisfies the requirements for an “independent director” within the meaning of the NYSE listing rules and the criteria for independence set forth in Rule 10A-3 of the Exchange Act.
Item 16B. Code of Ethics
We have adopted a code of business conduct on October 28, 2022 that applies to all directors, executive officers and employees which is available on our website at https://ir.perfectcorp.com/corporate-governance/governance/default.aspx. Copies of the code of business conduct will be provided without charge upon request from us and an electronic copy has been posted on our website. We will make any legally required disclosures regarding amendments to, or waivers of, provisions of our code of ethics on our Internet website.
Item 16C. Principal Accountant Fees and Services
PricewaterhouseCoopers, Taiwan served as our independent auditor for the fiscal years ended December 31, 2023 and 2024. A description of the fees billed to us by our principal accountants for professional services in each of the last two fiscal years is set forth below:
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For the Year Ended December 31, |
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2023 |
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2024 |
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(In thousands of US dollars) |
Audit Fees(1) |
$ |
396 |
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$ |
393 |
Tax Fees(2) |
19 |
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19 |
| Total |
$ |
415 |
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$ |
412 |
________________________________
(1)“Audit fee” represents the aggregate fees billed for each of the fiscal years listed for professional services rendered by our independent public accountant for the audit of our annual financial statements and assistance with and review of documents filed with the SEC and other statutory and regulatory filings.
(2)Tax fees include the aggregate fees billed in the fiscal period listed for professional services rendered by our principal external auditors for tax compliance and tax advice.
The policy of our audit committee is to pre-approve all audit and non-audit services provided by PricewaterhouseCoopers, including audit services and non-audit services as described above. Also audit committee adopts appropriate procedures to examine independence of PricewaterhouseCoopers to ensure the whole engagement is in compliance with relevant rules.
Item 16D. Exemptions from the Listing Standards for Audit Committees
None.
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
We are a “foreign private issuer” (as such term is defined in Rule 3b-4 under the Exchange Act), and are listed on the NYSE. Under Section 303A of the New York Stock Exchange Listed Company Manual, or the NYSE Manual, New York Stock Exchange listed companies that are foreign private issuers are permitted to follow home country practice in lieu of the corporate governance provisions specified by the New York Stock Exchange with limited exceptions. The following summarizes some significant ways in which our corporate governance practices differ from those followed by domestic companies under the listing standards of the New York Stock Exchange.
Under the NYSE Manual, U.S. domestic listed companies are required to have a majority of the board consisting of independent directors and have a compensation committee and a nominating/corporate governance committee, each composed entirely of independent directors, which are not required under the Companies Act (Revised) of the Cayman Islands, our home country. Currently, our Board is composed of six members, only three of whom are independent directors. We do not have a compensation committee or nominating and corporate governance committee. In addition, the NYSE Manual requires shareholder approval for certain matters, such as requiring that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions to those plans, which is not required under the Cayman Islands law. We intend to follow the home country practice in determining whether shareholder approval is required.
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 16J. Insider Trading Policies
We have adopted an insider trading policy (the “Insider Trading Policy”) which, among others, governs the purchase, sale, and other dispositions of our securities by our directors, senior management and employees, that are reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and the NYSE listing standards. A copy of our Insider Trading Policy is filed as Exhibit 11.1 to this annual report.
Item 16K. Cybersecurity
We have a cross-departmental approach to addressing cybersecurity risk, including employees and the Board. The Board, Audit Committee, and senior management devote significant resources to cybersecurity and risk management processes, ensuring we adapt to the evolving cybersecurity landscape and respond to emerging threats in a timely and effective manner.
Our information security risk assessment is conducted at least once a year or more frequently upon the occurrence of the following events: (i) there are significant changes to information equipment or services that may impact the Company’s information security; (ii) the development of new technologies may affect the Company’s information security; (iii) changes in relevant laws may affect the Company’s information security; or (iv) there are feedback or requests from regulatory authorities or relevant stakeholders. We regularly assess the threat landscape and take a comprehensive approach to address cybersecurity risks, implementing a layered cybersecurity strategy focused on prevention, detection and mitigation. Our information security team reviews enterprise-level cybersecurity risks annually. In addition, we have a set of company-wide policies and procedures governing cybersecurity matters, including an information security manual as well as other policies that directly or indirectly relate to cybersecurity, such as policies related to encryption standards, antivirus protection, remote access, multifactor authentication, confidential information and the use of the Internet, email and wireless devices. These policies have gone through an internal review process and are approved by appropriate members of management.
The Company’s Chief Technology Officer is responsible for developing and implementing our information security program and reporting on cybersecurity matters to the Board. With over 20 years of experience in cybersecurity oversight, our Chief Technology Officer leads the effort, supported by other members of our information security team who hold relevant cybersecurity experience and certifications. We consider cybersecurity a shared responsibility, and we periodically perform simulations and tabletop exercises at the management level, incorporating external resources and advisors as needed. All employees are required to complete cybersecurity trainings and have access to online courses for continuous cybersecurity trainings. We also require employees in specific roles to complete additional specialized role-based cybersecurity trainings.
We have continued to increase our investments in information security, including the adoption of enhanced end-user training, the implementation of layered defenses, identification and protection of critical assets, improved monitoring and alerting, and the engagement of third-party experts. We regularly test defenses by performing simulations and drills at both a technical level (including penetration tests) and by reviewing our operational policies and procedures with third-party experts. At the management level, our information security team consistently monitors alerts and hold meetings to discuss threat levels, trends and remediation. The team also prepares a risk assessment scorecard, regularly collects data on cybersecurity threats and risk areas and conducts an annual risk assessment. Further, we conduct periodic vulnerability assessment and external penetration tests to assess our processes and procedures and the threat landscape. These tests and assessments are useful tools for maintaining a robust cybersecurity program to protect our investors, customers, employees, vendors, and intellectual property.
Our internal cybersecurity team is required to conduct and document user access reviews on our platform at least annually and obtain from the third-party vendors a System and Organization Controls (“SOC”) 1 or SOC 2 report. If a third-party vendor is unable to provide a SOC 1 or SOC 2 report, we take additional steps to assess their cybersecurity preparedness and evaluate our relationship with the third-party vendor based on this assessment. Our assessment of risks associated with use of third-party vendors is an integral part of our overall cybersecurity risk management framework.
The Audit Committee and the full Board actively engage in discussions with management and among themselves regarding cybersecurity risks. The Audit Committee performs an annual review of the Company’s cybersecurity program, which includes discussions of management’s actions to identify and detect threats, as well as planned actions in the event of a response or recovery situation. The Audit Committee’s annual review also includes review of recent enhancements to the Company’s defenses and management’s progress on its cybersecurity strategic roadmap. In addition, the Board regularly receives cybersecurity reports, which include a review of key performance indicators, test results and related prevention, detection, mitigation and remediation of cybersecurity incidents, such as summaries of recent threats and how the Company is managing those threats.
As of the date of this annual report, no risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition.
PART III
Item 17. Financial Statements
We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.
Item 18. Financial Statements
The audited Consolidated Financial Statements as required under Item 18 are attached hereto starting on page F-1 of this Form 20-F.
Item 19. Exhibits
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Description |
| 1.1 |
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| 2.1 |
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| 2.2 |
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| 2.3 |
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| 2.4 |
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2.5* |
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4.1# |
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| 4.2 |
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| 4.3 |
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4.4# |
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| 4.5 |
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| 4.6 |
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| 4.7 |
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| 4.8 |
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4.9# |
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| Exhibit Number |
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Description |
4.10# |
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4.11# |
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| 4.12 |
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| 4.13 |
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| 4.14 |
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| 4.15 |
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| 4.16 |
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| 4.17 |
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| 4.18 |
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| 4.19 |
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| 4.20 |
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| 4.21 |
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| 4.22 |
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| 4.23 |
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| 4.24 |
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| 4.25 |
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| 4.26 |
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| 4.27 |
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| 4.28* |
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| 4.29*# |
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8.1* |
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| Exhibit Number |
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Description |
| 11.1* |
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| 12.1* |
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| 12.2* |
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| 13.1** |
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| 13.2** |
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15.1* |
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| 97 |
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| 101.INS* |
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Inline XBRL Instance Document—this instance document does not appear in the Interactive Data File because its XBRL tags embedded within the Inline XBRL document. |
| 101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104* |
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Cover Page Interactive Data File (embedded within the Inline XBRL document). |
________________________________
*Filed with this annual report on Form 20-F.
**Furnished with this annual report on Form 20-F.
# Portions of this exhibit have been omitted in accordance with Instruction 4 to Item 19 of Form 20-F.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
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PERFECT CORP. |
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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 |
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Date: March 28, 2025 |
INDEX TO FINANCIAL STATEMENTS
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| Audited Consolidated Financial Statements: |
Page(s) |
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Perfect Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Perfect Corp. and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with IFRS Accounting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers, Taiwan
Taipei, Taiwan
Republic of China
March 28, 2025
We have served as the Company’s auditor since 2015.
PERFECT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2023 AND 2024
(Expressed in thousands of United States dollars)
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December 31, 2023 |
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December 31, 2024 |
| Assets |
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Notes |
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Amount |
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Amount |
| Current assets |
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| Cash and cash equivalents |
|
6(1) |
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$ |
123,871 |
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$ |
127,121 |
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| Current financial assets at fair value through profit or loss |
|
6(2) |
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— |
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2,746 |
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| Current financial assets at amortized cost |
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6(3) |
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30,300 |
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36,000 |
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| Current contract assets |
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6(17) |
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2,770 |
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|
977 |
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| Accounts receivable |
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6(4) |
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6,992 |
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7,902 |
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| Other receivables |
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343 |
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352 |
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| Current income tax assets |
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311 |
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|
271 |
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| Inventories |
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33 |
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|
18 |
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| Other current assets |
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6(5) |
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4,042 |
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2,522 |
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| Total current assets |
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168,662 |
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177,909 |
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| Non-current assets |
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| Property, plant and equipment |
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6(6) |
|
380 |
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554 |
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| Right-of-use assets |
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6(7) and 7 |
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847 |
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485 |
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| Intangible assets |
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6(8) |
|
77 |
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32 |
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| Deferred income tax assets |
|
6(24) |
|
257 |
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2,047 |
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| Guarantee deposits paid |
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|
140 |
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|
146 |
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| Total non-current assets |
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|
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1,701 |
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|
3,264 |
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| Total assets |
|
|
|
$ |
170,363 |
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|
$ |
181,173 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERFECT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
DECEMBER 31, 2023 AND 2024
(Expressed in thousands of United States dollars)
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December 31, 2023 |
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December 31, 2024 |
| Liabilities and Equity |
|
Notes |
|
Amount |
|
Amount |
| Current liabilities |
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| Current contract liabilities |
|
6(17) |
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$ |
15,346 |
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$ |
17,218 |
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| Other payables |
|
6(10) |
|
10,331 |
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11,656 |
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| Other payables – related parties |
|
7 |
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50 |
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46 |
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| Current tax liabilities |
|
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21 |
|
|
649 |
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| Current provisions |
|
6(11) |
|
2,394 |
|
|
1,899 |
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| Current lease liabilities |
|
6(7) and 7 |
|
481 |
|
|
402 |
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| Other current liabilities |
|
|
|
277 |
|
|
341 |
|
| Total current liabilities |
|
|
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28,900 |
|
|
32,211 |
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| Non-current liabilities |
|
|
|
|
|
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| Non-current financial liabilities at fair value through profit or loss |
|
6(9) |
|
1,566 |
|
|
1,793 |
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| Non-current lease liabilities |
|
6(7) and 7 |
|
387 |
|
|
108 |
|
| Net defined benefit liability, non-current |
|
6(12) |
|
79 |
|
|
46 |
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| Guarantee deposits received |
|
|
|
25 |
|
|
— |
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| Total non-current liabilities |
|
|
|
2,057 |
|
|
1,947 |
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| Total liabilities |
|
|
|
30,957 |
|
|
34,158 |
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| Equity |
|
|
|
|
|
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| Capital stock |
|
6(14) |
|
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|
Perfect Class A Ordinary Shares, $0.1 (in dollars) par value |
|
|
|
8,513 |
|
|
8,506 |
|
Perfect Class B Ordinary Shares, $0.1 (in dollars) par value |
|
|
|
1,679 |
|
|
1,679 |
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| Capital surplus |
|
6(15) |
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|
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| Capital surplus |
|
|
|
510,399 |
|
|
512,990 |
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| Retained earnings |
|
6(16) |
|
|
|
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| Accumulated deficit |
|
|
|
(380,472) |
|
|
(375,420) |
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| Other equity interest |
|
|
|
|
|
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| Other equity interest |
|
|
|
(523) |
|
|
(740) |
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| Treasury shares |
|
6(14)(15) |
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(190) |
|
|
— |
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| Total equity |
|
|
|
139,406 |
|
|
147,015 |
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| Total liabilities and equity |
|
|
|
$ |
170,363 |
|
|
$ |
181,173 |
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The accompanying notes are an integral part of these consolidated financial statements.
PERFECT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Expressed in thousands of United States dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 |
|
|
|
|
2022 |
|
2023 |
|
2024 |
| Items |
|
Notes |
|
Amount |
|
Amount |
|
Amount |
| Revenue |
|
6(17) and 7 |
|
$ |
47,300 |
|
|
$ |
53,505 |
|
|
$ |
60,202 |
|
| Cost of sales and services |
|
6(12)(22)(23) |
|
(7,130) |
|
|
(10,400) |
|
|
(13,258) |
|
| Gross profit |
|
|
|
40,170 |
|
|
43,105 |
|
|
46,944 |
|
| Operating expenses |
|
6(4)(6)(7)(8)(12)(22)(23)(27) and 7 |
|
|
|
|
|
|
| Sales and marketing expenses |
|
|
|
(24,544) |
|
|
(25,725) |
|
|
(28,213) |
|
| General and administrative expenses |
|
|
|
(76,219) |
|
|
(11,582) |
|
|
(8,501) |
|
| Research and development expenses |
|
|
|
(10,481) |
|
|
(11,458) |
|
|
(12,000) |
|
| Expected credit losses |
|
12(2) |
|
— |
|
|
— |
|
|
(1,373) |
|
| Total operating expenses |
|
|
|
(111,244) |
|
|
(48,765) |
|
|
(50,087) |
|
| Operating loss |
|
|
|
(71,074) |
|
|
(5,660) |
|
|
(3,143) |
|
| Non-operating income and expenses |
|
|
|
|
|
|
|
|
| Interest income |
|
6(18) |
|
2,029 |
|
|
9,498 |
|
|
7,708 |
|
| Other income |
|
6(19) |
|
75 |
|
|
33 |
|
|
55 |
|
| Other gains and losses |
|
6(9)(20) |
|
(92,474) |
|
|
1,675 |
|
|
(316) |
|
| Finance costs |
|
6(7)(21) and 7 |
|
(8) |
|
|
(15) |
|
|
(18) |
|
| Total non-operating income and expenses |
|
|
|
(90,378) |
|
|
11,191 |
|
|
7,429 |
|
| Income (loss) before income tax |
|
|
|
(161,452) |
|
|
5,531 |
|
|
4,286 |
|
| Income tax benefit (expense) |
|
6(24) |
|
(292) |
|
|
(115) |
|
|
735 |
|
| Net income (loss) |
|
|
|
$ |
(161,744) |
|
|
$ |
5,416 |
|
|
$ |
5,021 |
|
| Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
| Components of other comprehensive income (loss) that will not be reclassified to profit or loss |
|
|
|
|
|
|
|
|
| Actuarial gains (losses) on defined benefit plans |
|
6(12) |
|
$ |
22 |
|
|
$ |
(4) |
|
|
$ |
31 |
|
| Credit risk changes in financial instrument - Preferred shares |
|
6(9) |
|
(7) |
|
|
— |
|
|
— |
|
| Total components of other comprehensive income (loss) that will not be reclassified to profit or loss |
|
|
|
15 |
|
|
(4) |
|
|
31 |
|
| Components of other comprehensive income (loss) that will be reclassified to profit or loss |
|
|
|
|
|
|
|
|
| Exchange differences arising on translation of foreign operations |
|
|
|
(1,097) |
|
|
(116) |
|
|
(217) |
|
| Other comprehensive loss, net |
|
|
|
$ |
(1,082) |
|
|
$ |
(120) |
|
|
$ |
(186) |
|
| Total comprehensive income (loss) |
|
|
|
$ |
(162,826) |
|
|
$ |
5,296 |
|
|
$ |
4,835 |
|
| Net income (loss) attributable to: |
|
|
|
|
|
|
|
|
| Shareholders of the parent |
|
|
|
$ |
(161,744) |
|
|
$ |
5,416 |
|
|
$ |
5,021 |
|
| Total comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
|
| Shareholders of the parent |
|
|
|
$ |
(162,826) |
|
|
$ |
5,296 |
|
|
$ |
4,835 |
|
| Earnings (loss) per share (in dollars) |
|
6(25) |
|
|
|
|
|
|
| Basic earnings (loss) per share of Class A and Class B Ordinary Shares |
|
|
|
$ |
(2.37) |
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
| Diluted earnings (loss) per share of Class A and Class B Ordinary Shares |
|
|
|
$ |
(2.37) |
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERFECT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Expressed in thousands of United States dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable on owners of the parent |
|
|
|
|
|
Capital surplus |
|
|
|
Other equity interest |
|
|
|
|
|
Notes |
|
Capital stock |
|
Additional paid-in capital |
|
Other |
|
Accumulated deficit |
|
Exchange differences arising on translation of foreign operations |
|
Credit risks changes in financial instrument-Preferred shares |
|
Treasury shares |
|
Total |
| Year 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2022 |
|
|
$ |
30,152 |
|
|
$ |
308 |
|
|
$ |
2,563 |
|
|
$ |
(224,097) |
|
|
$ |
690 |
|
|
$ |
(58) |
|
|
$ |
— |
|
|
$ |
(190,442) |
|
| Net loss for 2022 |
|
|
— |
|
|
— |
|
|
— |
|
|
(161,744) |
|
|
— |
|
|
— |
|
|
— |
|
|
(161,744) |
|
| Other comprehensive income (loss) for 2022 |
6(9)(12) |
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
(1,097) |
|
|
(7) |
|
|
— |
|
|
(1,082) |
|
| Total comprehensive loss |
|
|
— |
|
|
— |
|
|
— |
|
|
(161,722) |
|
|
(1,097) |
|
|
(7) |
|
|
— |
|
|
(162,826) |
|
| Share-based payment transactions |
6(13) |
|
— |
|
|
— |
|
|
2,175 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,175 |
|
| Employee stock options exercised |
6(13)(14) |
|
2,663 |
|
|
5,447 |
|
|
(2,518) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,592 |
|
| Issuance of ordinary shares upon Recapitalization, net of issuance costs |
1and 6(14)(15) |
|
1,726 |
|
|
102,237 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
103,963 |
|
| Conversion of Perfect common shares as part of the Recapitalization, including listing expense |
6(14)(15)(27) |
|
(22,715) |
|
|
446,217 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
423,502 |
|
| Reclassification adjustment- Credit risks changes in financial instrument |
|
|
— |
|
|
— |
|
|
— |
|
|
(65) |
|
|
— |
|
|
65 |
|
|
— |
|
|
— |
|
| Balance at December 31, 2022 |
|
|
$ |
11,826 |
|
|
$ |
554,209 |
|
|
$ |
2,220 |
|
|
$ |
(385,884) |
|
|
$ |
(407) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
181,964 |
|
| Year 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2023 |
|
|
$ |
11,826 |
|
|
$ |
554,209 |
|
|
$ |
2,220 |
|
|
$ |
(385,884) |
|
|
$ |
(407) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
181,964 |
|
| Net income for 2023 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,416 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,416 |
|
| Other comprehensive loss for 2023 |
6(12) |
|
— |
|
|
— |
|
|
— |
|
|
(4) |
|
|
(116) |
|
|
— |
|
|
— |
|
|
(120) |
|
| Total comprehensive income (loss) |
|
|
— |
|
|
— |
|
|
— |
|
|
5,412 |
|
|
(116) |
|
|
— |
|
|
— |
|
|
5,296 |
|
| Share-based payment transactions |
6(13) |
|
— |
|
|
— |
|
|
3,210 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,210 |
|
| Shares repurchased and retired |
6(14)(15) |
|
(1,634) |
|
|
(76,475) |
|
|
27,235 |
|
|
— |
|
|
— |
|
|
— |
|
|
(190) |
|
|
(51,064) |
|
| Balance at December 31, 2023 |
|
|
$ |
10,192 |
|
|
$ |
477,734 |
|
|
$ |
32,665 |
|
|
$ |
(380,472) |
|
|
$ |
(523) |
|
|
$ |
— |
|
|
$ |
(190) |
|
|
$ |
139,406 |
|
| Year 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2024 |
|
|
$ |
10,192 |
|
|
$ |
477,734 |
|
|
$ |
32,665 |
|
|
$ |
(380,472) |
|
|
$ |
(523) |
|
|
$ |
— |
|
|
$ |
(190) |
|
|
$ |
139,406 |
|
| Net income for 2024 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,021 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,021 |
|
| Other comprehensive income (loss) for 2024 |
6(12) |
|
— |
|
|
— |
|
|
— |
|
|
31 |
|
|
(217) |
|
|
— |
|
|
— |
|
|
(186) |
|
| Total comprehensive income (loss) |
|
|
— |
|
|
— |
|
|
— |
|
|
5,052 |
|
|
(217) |
|
|
— |
|
|
— |
|
|
4,835 |
|
| Share-based payment transactions |
6(13) |
|
— |
|
|
— |
|
|
2,774 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,774 |
|
| Shares retired |
6(14)(15) |
|
(7) |
|
|
(319) |
|
|
136 |
|
|
— |
|
|
— |
|
|
— |
|
|
190 |
|
|
— |
|
| Balance at December 31, 2024 |
|
|
$ |
10,185 |
|
|
$ |
477,415 |
|
|
$ |
35,575 |
|
|
$ |
(375,420) |
|
|
$ |
(740) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
147,015 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERFECT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(Expressed in thousands of United States dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 |
|
Notes |
|
2022 |
|
2023 |
|
2024 |
| CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
| Profit (loss) before tax |
|
|
$ |
(161,452) |
|
|
$ |
5,531 |
|
|
$ |
4,286 |
|
| Adjustments to reconcile profit (loss) |
|
|
|
|
|
|
|
| Depreciation expense |
6(6)(7)(22) |
|
703 |
|
|
638 |
|
|
747 |
|
| Amortization expense |
6(8)(22) |
|
63 |
|
|
75 |
|
|
51 |
|
| Expected credit losses |
6(4)(22) and 12(2) |
|
— |
|
|
— |
|
|
1,373 |
|
| Interest income |
6(18) |
|
(2,029) |
|
|
(9,498) |
|
|
(7,708) |
|
| Interest expense |
6(7)(21) |
|
8 |
|
|
15 |
|
|
18 |
|
| Net (gains) losses on financial liabilities at fair value through profit or loss |
6(9)(20) |
|
93,777 |
|
|
(1,641) |
|
|
227 |
|
| Share-based payment transactions |
6(13) |
|
2,175 |
|
|
3,210 |
|
|
2,774 |
|
| Recognition of listing expense |
6(27) |
|
65,264 |
|
|
— |
|
|
— |
|
| Changes in operating assets and liabilities |
|
|
|
|
|
|
|
| Accounts receivable |
|
|
(1,479) |
|
|
759 |
|
|
(2,300) |
|
| Current contract assets |
|
|
(3,701) |
|
|
866 |
|
|
1,789 |
|
| Other receivables |
|
|
(3) |
|
|
3 |
|
|
— |
|
| Inventories |
|
|
43 |
|
|
12 |
|
|
15 |
|
| Other current assets |
|
|
(4,418) |
|
|
662 |
|
|
1,514 |
|
| Current contract liabilities |
|
|
4,783 |
|
|
2,366 |
|
|
1,949 |
|
| Other payables |
|
|
772 |
|
|
1,050 |
|
|
1,362 |
|
| Other payables – related parties |
|
|
(2) |
|
|
(12) |
|
|
(2) |
|
| Current provisions |
|
|
897 |
|
|
565 |
|
|
(449) |
|
| Other current liabilities |
|
|
(80) |
|
|
27 |
|
|
80 |
|
| Net defined benefit liability, non-current |
|
|
1 |
|
|
3 |
|
|
3 |
|
| Cash inflow (outflow) generated from operations |
|
|
(4,678) |
|
|
4,631 |
|
|
5,729 |
|
| Interest received |
|
|
1,724 |
|
|
9,464 |
|
|
7,699 |
|
| Interest paid |
|
|
(8) |
|
|
(15) |
|
|
(18) |
|
| Income tax paid |
|
|
(343) |
|
|
(502) |
|
|
(407) |
|
| Net cash flows from (used in) operating activities |
|
|
(3,305) |
|
|
13,578 |
|
|
13,003 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
| Acquisition of financial assets at fair value through profit or loss |
6(2) |
|
— |
|
|
— |
|
|
(2,773) |
|
| Acquisition of financial assets at amortized cost |
6(3) |
|
(30,000) |
|
|
(196,100) |
|
|
(80,574) |
|
| Proceeds from disposal of financial assets at amortized cost |
6(3) |
|
— |
|
|
195,800 |
|
|
74,874 |
|
| Acquisition of property, plant and equipment |
6(6) |
|
(165) |
|
|
(289) |
|
|
(392) |
|
| Acquisition of intangible assets |
6(8) |
|
(93) |
|
|
(33) |
|
|
(6) |
|
| Increase in guarantee deposits paid |
|
|
— |
|
|
(15) |
|
|
(8) |
|
| Net cash flows used in investing activities |
|
|
(30,258) |
|
|
(637) |
|
|
(8,879) |
|
| CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| Repayment of principal portion of lease liabilities |
6(7)(26) |
|
(457) |
|
|
(435) |
|
|
(525) |
|
| Employee stock options exercised |
6(13) |
|
5,592 |
|
|
— |
|
|
— |
|
| Proceed received upon recapitalization |
6(14) |
|
112,893 |
|
|
— |
|
|
— |
|
| Payments to acquire treasury shares |
6(14) |
|
— |
|
|
(51,064) |
|
|
— |
|
| Net cash flows from (used in) financing activities |
|
|
118,028 |
|
|
(51,499) |
|
|
(525) |
|
| Effects of exchange rates changes on cash and cash equivalents |
|
|
(2,302) |
|
|
(187) |
|
|
(349) |
|
| Net increase (decrease) in cash and cash equivalents |
|
|
82,163 |
|
|
(38,745) |
|
|
3,250 |
|
| Cash and cash equivalents at beginning of year |
|
|
80,453 |
|
|
162,616 |
|
|
123,871 |
|
| Cash and cash equivalents at end of year |
|
|
$ |
162,616 |
|
|
$ |
123,871 |
|
|
$ |
127,121 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERFECT CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
(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. Please refer to Note 6(27) “Recapitalization”.
On November 24, 2023, the Board of Directors approved a tender offer to purchase up to 16,129,032 Class A Ordinary Shares at a price of $3.10 (in dollars) per share for an aggregate purchase price of approximately $50,000, subject to certain limitations and legal requirements. The Board of Directors has concluded that the tender offer is a prudent use of our available cash from operations and other financial resources and delivers value to our shareholders. The Board of Directors has also determined that a cash tender offer is an appropriate mechanism to return capital to shareholders that seek liquidity under current market conditions while, at the same time, allowing shareholders who do not participate in the tender offer to share in a higher proportion of our future potential.
In accordance with the terms and conditions of the tender offer, and based on the final results reported by the Depositary, the Company has accepted for purchase 16,129,010 shares, through the tender offer at a price of $3.10 (in dollars) per share, for an aggregate cost of approximately $50,000, excluding fees relating to the tender offer. All the purchased shares were retired on December 29, 2023.
2. The Date of Authorization for Issuance of the Financial Statements and Procedures for Authorization
These consolidated financial statements were authorized for issuance by the Board of Directors on March 28, 2025.
3. Application of New Standards, Amendments and Interpretations
3(1) New and amended International Financial Reporting Standards (“IFRS Accounting Standards”) adopted by the Group
New standards, interpretations and amendments issued by International Accounting Standards Board (the “IASB”) and became effective from 2024 are as follows:
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| New Standards, Interpretations and Amendments |
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Effective date by IASB |
| Amendments to IFRS 16, ‘Lease liability in a sale and leaseback’ |
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January 1, 2024 |
| Amendments to IAS 1, ‘Classification of liabilities as current or non-current’ |
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January 1, 2024 |
| Amendments to IAS 1, ‘Non-current liabilities with covenants’ |
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January 1, 2024 |
| Amendments to IAS 7 and IFRS 7, ‘Supplier finance arrangements’ |
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January 1, 2024 |
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The above standards and interpretations had no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.
3(2) New and amended IFRS Accounting Standards not yet adopted
New standards, interpretations and amendments which have been published by IASB but are not mandatory for the financial period ended December 31, 2024 are listed below:
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| New Standards, Interpretations and Amendments |
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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’ |
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To be determined by IASB |
| Amendments to IAS 21, ‘Lack of exchangeability’ |
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January 1, 2025 |
| Amendments to IFRS 9 and IFRS 7, ‘Amendments to the classification and measurement of financial Instruments’ |
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January 1, 2026 |
| Amendments to IFRS 9 and IFRS 7, ‘Contracts Referencing Nature-dependent Electricity’ |
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January 1, 2026 |
| Annual Improvements to IFRS Accounting Standards—Volume 11 |
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January 1, 2026 |
| IFRS 18, ‘Presentation and disclosure in financial statements’ |
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January 1, 2027 |
| IFRS 19, ‘Subsidiaries without public accountability: disclosures’ |
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January 1, 2027 |
Except for the following, 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.
IFRS 18, ‘Presentation and disclosure in financial statements’
IFRS 18, ‘Presentation and disclosure in financial statements’ replaces IAS 1. The standard introduces a defined structure of the statement of profit or loss, disclosure requirements related to management-defined performance measures, and enhanced principles on aggregation and disaggregation which apply to the primary financial statements and notes. The Company is evaluating the impact on its financial statements.
4. Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.
4(1) Compliance statement
The consolidated financial statements of the Group have been prepared in accordance with IFRS Accounting Standards as issued by the IASB.
4(2) Basis of preparation
A.Except for the following items, the 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.
(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 financial statements in conformity with IFRS Accounting Standards 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 consolidated financial statements are disclosed in Note 5.
4(3) Basis of consolidation
A.Basis for preparation of consolidated financial statements:
(a)All subsidiaries are included in the Group’s 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 consolidated financial statements:
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Ownership (%) |
| Name of investor |
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Name of subsidiary |
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Main business activities |
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December 31,
2023 |
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December 31,
2024 |
| The Company |
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Perfect Mobile Corp. (Taiwan) |
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Design, development, marketing and sales of AR/AI SaaS solution and mobile applications. |
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100% |
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100% |
| The Company |
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Perfect Corp. (USA) |
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Marketing and sales of AR/AI SaaS solution. |
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100% |
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100% |
| The Company |
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Perfect Corp. (Japan) |
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Marketing and sales of AR/AI SaaS solution. |
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100% |
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100% |
| The Company |
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Perfect Corp. (Shanghai) |
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Marketing and sales of AR/AI SaaS solution. |
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100% |
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100% |
| The Company |
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Perfect Mobile Corp.(B.V.I.) |
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Investment activities. |
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100% |
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100% |
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| Perfect Mobile Corp. (Taiwan) |
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Perfect Corp. (France) |
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Marketing and service center for sales of AR/AI SaaS solution. |
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100% |
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100% |
C.Subsidiaries not included in the 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;
(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 accordingly from the date of the change.
4(5) Classification of current and non-current items
A.Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:
(a)Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;
(b)Assets held mainly for trading purposes;
(c)Assets that are expected to be realized within twelve months from the balance sheet date;
(d)Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to settle liabilities more than twelve months after the balance sheet date.
B.Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:
(a)Liabilities that are expected to be settled within the normal operating cycle;
(b)Liabilities arising mainly from trading activities;
(c)Liabilities that are to be settled within twelve months from the balance sheet date;
(d)It does not have the right at the end of the reporting period to defer settlement of the liability at least twelve months after the reporting period.
4(6) Cash equivalents
Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits with a maturity of 3 months or less, meeting the definition above and are held for the purpose of meeting short-term cash commitments in operations, are classified as cash equivalents.
4(7) Financial assets at fair value through profit or loss
A.Financial assets at fair value through profit or loss are financial assets that are not measured at amortized cost or fair value through other comprehensive income.
B.On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognized and derecognized using trade date accounting.
C.At initial recognition, the Group measures the financial assets at fair value and recognizes the transaction costs in profit or loss. The Group subsequently measures the financial assets at fair value, and recognizes the gain or loss in profit or loss.
4(8) Financial assets at amortized cost
A.Financial assets at amortized cost are those that meet all of the following criteria:
(a)The objective of the Group’s business model is achieved by collecting contractual cash flows.
(b)The assets’ contractual cash flows represent solely payments of principal and interest.
B.On a regular way purchase or sale basis, financial assets at amortized cost are recognized and derecognized using trade date accounting.
C.At initial recognition, the Group measures the financial assets at fair value plus transaction costs. Interest income from these financial assets is included in finance income using the effective interest method. A gain or loss is recognized in profit or loss when the asset is derecognized or impaired.
D.The Group’s time deposits which do not fall under cash equivalents are those with a short maturity period and are measured at initial investment amount as the effect of discounting is immaterial.
4(9) Accounts receivable
A.Accounts receivable entitle the Group a legal right to receive consideration in exchange for transferred goods or rendered services.
B.The short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.
4(10) Impairment of financial assets
For financial assets at amortized cost, at each reporting date, the Group recognizes the impairment provision for 12 months expected credit losses if there has not been a significant increase in credit risk since initial recognition or recognizes the impairment provision for the lifetime expected credit losses (ECLs) if such credit risk has increased since initial recognition after taking into consideration all reasonable and verifiable information that includes forecasts. On the other hand, for accounts receivable or contract assets that do not contain a significant financing component, the Group recognizes the impairment provision for lifetime ECLs.
4(11) Derecognition of financial assets
The Group derecognizes a financial asset when the contractual rights to receive the cash flows from the financial asset expire.
4(12) Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted-average method. The item by item approach is used in applying the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale.
4(13) Property, plant and equipment
A.Property, plant and equipment are initially recorded at cost.
B.Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
C.Property, plant and equipment apply cost model and are depreciated using the straight-line method, except that the accelerated depreciation method is used by the US subsidiary, to allocate their cost over their estimated useful lives. Each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately.
D.The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows:
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| Leasehold improvements |
2~3 |
years (or the lesser of the contract period of the lease) |
| Machinery |
3 |
years |
| Office equipment |
5 |
years |
4(14) Leasing arrangements (lessee) — right-of-use assets/ lease liabilities
A.Leases are recognized as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group. For short-term leases or leases of low-value assets, lease payments are recognized as an expense on a straight-line basis over the lease term.
B.Lease liabilities include the net present value of the remaining lease payments at the commencement date, discounted using the incremental borrowing interest rate. Lease payments are comprised of fixed payments, less any lease incentives receivable.
The Group subsequently measures the lease liability at amortized cost using the interest method and recognizes interest expense over the lease term. The lease liability is remeasured and the amount of remeasurement is recognized as an adjustment to the right-of-use asset when there are changes in the lease term or lease payments and such changes do not arise from contract modifications.
C.At the commencement date, the right-of-use asset is stated at cost comprising the amount of the initial measurement of lease liability.
The right-of-use asset is measured subsequently using the cost model and is depreciated from the commencement date to the earlier of the end of the asset’s useful life or the end of the lease term. When the lease liability is remeasured, the amount of remeasurement is recognized as an adjustment to the right-of-use asset.
4(15) Intangible assets
A.Computer software
Computer software is stated at cost and amortized on a straight-line basis over its estimated useful life of 3 years.
B.Other intangible assets, mainly composed of royalties which paid for program source code and intellectual property rights, are amortized on a straight-line basis over their estimated useful lives of 3 years.
4(16) Impairment of non-financial assets
The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortized historical cost would have been if the impairment had not been recognized.
4(17) Accounts payable
A.Accounts payable are liabilities for purchases of goods or services.
B.The short-term accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.
4(18) Financial liabilities at fair value through profit or loss
A.Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorized as financial liabilities held for trading unless they are designated as hedges or financial liabilities at fair value through profit or loss. Financial liabilities that meet one of the following criteria are designated as financial liabilities at fair value through profit or loss on initial recognition:
(a)Hybrid (combined) contracts; or
(b)They eliminate or significantly reduce a measurement or recognition inconsistency; or
(c)They are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management policy.
As part of Business Combination, warrants sold and issued by Provident were automatically converted to Perfect Warrants. These warrants are financial liabilities measured at fair value through profit or loss. The issuances of the preferred shares with the conversion options by the Group, was recognized under ‘financial liabilities designated as at fair value through profit or loss on initial recognition’ due to their compound instrument feature.
B.At initial recognition, the Group measures the financial liabilities at fair value. All related transaction costs are recognized in profit or loss. The Group subsequently measures these financial liabilities at fair value with any gain or loss recognized in profit or loss.
C.If the credit risk results in fair value changes in financial liabilities designated as at fair value through profit or loss, they are recognized in other comprehensive income in the circumstances other than avoiding accounting mismatch or recognizing in profit or loss for loan commitments or financial guarantee contracts.
4(19) Derecognition of financial liabilities
A financial liability is derecognized when the obligation specified in the contract is either discharged or cancelled or expires.
4(20) Provisions
Provisions (warranties) are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the initial estimated amount as the effect of discounting is immaterial.
4(21) Employee benefits
A.Short-term employee benefits
Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognized as expense in that period when the employees render service.
B.Pensions
(a)Defined contribution plans
For defined contribution plans, the contributions are recognized as pension expense when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future payments.
(b)Defined benefit plan
i.Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability; when there is no deep market in high-quality corporate bonds, the Group uses interest rates of government bonds (at the balance sheet date) instead.
ii.Remeasurements arising on defined benefit plans are recognized in other comprehensive income in the period in which they arise and are recorded as retained earnings.
4(22) Employee share-based payment
A.For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognized is based on the number of equity instruments that eventually vest.
B.If the modification occurs during the vesting period, the incremental fair value granted is included in the measurement of the amount recognized for services received over the period from the modification date until the date when the modified equity instruments vest, in addition to the amount based on the grant date fair value of the original equity instruments, which is recognized over the remainder of the original vesting period.
4(23) Income tax
A.The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or items recognized directly in equity, in which cases the tax is recognized in other comprehensive income or equity.
B.The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional tax is levied on the unappropriated retained earnings of the Company’s subsidiary in Taiwan and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.
C.Deferred income tax is recognized, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss and does not give rise to equal taxable and deductible temporary differences. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
D.Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. At each balance sheet date, unrecognized and recognized deferred income tax assets are reassessed.
E.Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax income assets against current income tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realize the asset and settle the liability simultaneously.
4(24) Share capital
A.Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or stock options are shown in equity as a deduction, net of tax, from the proceeds.
B.Where the Company repurchases the Company’s equity share capital that has been issued, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders.
4(25) Revenue recognition
A.The Group has two major revenue streams: (1) Licensing and (2) AR/AI cloud solutions and Subscription which constitute our core SaaS solutions.
B.In terms of Licensing, it could be divided into the following two categories:
(a)Designing and developing apps to brand customers
The Group delivers services based on customers’ requests. Once the customer accepts and the customized apps or licenses have been transferred, no further upgrade or revise service would be made by the Group. The customer receives and consumes the benefits provided by the Group at the point the customized apps or licenses have been transferred to them. Those services are only created for the specific customer without alternative use to the Group, and the right to payment is irrelevant to the performance obligation’s milestone. As a result, revenue is recognized at a point in time.
(b)Granting license of self-developed technologies to brand customers
The Group promises to provide a right to use the Group’s intellectual property as that intellectual property exists at the point in time at which the license is granted to the customer. The licensing includes licensing offline technology SDK (Software Development Kit) and AR/AI offline solutions. The SDK is to implement virtual try-on function to apps of brand customers which allow app users visiting. The AR/AI offline solutions is to implement virtual try-on function to applications which used in retail store. Once the function is implemented, the Group has fulfilled its performance obligation without further update. The brand customer can direct the use of, and obtain substantially all of the remaining benefits from the license at the point in time at which the license transfers.
C.In terms of AR/AI cloud solutions and Subscription, the AR/AI cloud solutions are provided to brand customers, and the Subscription is provided to individual customers. Customers simultaneously receive and consume the benefits provided by the Group’s performance.
(a)For AR/AI cloud solutions:
The AR/AI cloud solutions are to implement virtual try-on function to websites of customers which allow internet users to visit. Internet users are able to use virtual try-on such as makeup, skincare, hair, nail, etc. The AR/AI cloud solutions are consecutively provided by the Group include future updates to its customers throughout the contract period.
The typical contract terms of providing AR/AI cloud solutions to customers range from three months to multi-years, among which one year term is the most, the contract consideration was fixed and determined by the following factors: 1) functionality of the modules (eg. makeup, skincare, shade finder, jewelry, etc); 2) length of the contract period; 3) geographical coverage such as the number of countries/region 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.
Once the contract is agreed by customers and the Group, the performance obligations among the contract is fixed with a stand ready feature. The Group then provides services to customers based on the contract.
The Group applied output methods to recognize revenue on the straight-line basis through the contract period. Those services provided by the Group would be realized evenly during the contract period. The control of the services transfers from the Group to customers through the contract period, the performance obligation satisfied over time. As a result, revenue is recognized over time.
(b)For Subscription:
The Subscription is the Group provides premium functions in apps to customers which allow customers to subscribe through Apple App store and Google Play store. Customers who subscribe the premium functions are allowed to use the complete additional functions in the apps, remove watermarks and ad-free editing, etc. The Group currently offer monthly and yearly subscription plans (price varies by country) for such premium functions service.
Apple App store and Google Play store act as platform providers for the Group to list its apps on their platforms. The Group is considered as a principal on providing premium functions in apps to customers given that the Group is obliged to provide service to its customers and the Group has the right to determine the selling price of the service. Apple App store and Google Play store also charge the Group a commission based on the revenue generated from providing premium functions. The commission expenses are recognized as cost of sales and services.
The control of the services transfers from the Group to customers through the contract period, as the performance obligation satisfied over time. As a result, revenue is recognized over time.
D.In addition to the two major revenue streams mentioned above, the Group generates additional revenue from advertisements displayed in it apps through advertisement network service providers (ad networks). The consideration of such service is determined based on the frequency of click or impression (usage-based) of the advertisement, which is treated as variable consideration. The number of advertisements is delivered and the associated fees are tracked on a daily basis, and the Group recognized revenue on a monthly basis based on the daily collected information.
E.When the Group enters into contracts which contain multiple performance obligations through B to D, the Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling price is the price at which the Group sells a good or service separately to a customer.
4(26) Cost of sales and services
Cost of sales and services primarily consists of costs related to platform commission fees paid to platform owners, payroll costs directly related to sales and services activities, accrued provision and costs of sales for products.
4(27) Government grants
Government grants are recognized at their fair value only when there is reasonable assurance that the Group will comply with any conditions attached to the grants and the grants will be received. Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes expenses for the related costs for which the grants are intended to compensate.
4(28) Business combinations
A.The Group uses the acquisition method to account for business combinations. The consideration transferred for an acquisition is measured as the fair value of the assets transferred, liabilities incurred or assumed and equity instruments issued at the acquisition date, plus the fair value of any assets and liabilities resulting from a contingent consideration arrangement. All acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
B.The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous equity interest in the acquiree over the fair value of the identifiable assets acquired and the liabilities assumed is recorded as goodwill at the acquisition date. If the total of consideration transferred, non-controlling interest in the acquiree recognized and the fair value of previously held equity interest in the acquiree is less than the fair value of the identifiable assets acquired and the liabilities assumed, the difference is recognized directly in profit or loss on the acquisition date.
4(29) Operating segments
Operating segments are reported in a manner consistent with the economic characteristics as well as types of products and services from which each operating segment derives its revenues, and the internal reporting provided to the chief operating decision maker. The Group’s chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the CEO (who is also the chairman of the Board of Directors) that makes strategic decisions.
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 determine the reportable operating segments. The judgements made by management in applying the aggregation criteria are based on the similarity of economic characteristics of these operating segments — (a) the nature of the services: The operating segments grant license of mobile applications or platforms and provide advertising services for their customers; (b) the type or class of customer for their services: The customer types of operating segments are mainly cosmetics companies and social media companies with high similarity in industry; (c) the methods used to provide their services: The services provided are mainly customized software. Perfect Mobile Corp., the Taiwan segment, serves as the core center of research, development, and design, and then all operating segments — including Perfect Mobile Corp. itself — deliver those services to their customers. All operating segments follow the same service providing process. In light of the qualitative and quantitative criteria, the Group concluded that it has only one reportable operating segment.
4(30) Recapitalization
The Recapitalization has been accounted for with Provident being identified as the “acquired” entity for financial reporting purposes. Accordingly, the Recapitalization has been accounted for as the equivalent of the Group issuing shares for the net assets of Provident, accompanied by a recapitalization with third party investors. The net assets of Provident were recognized at their net carrying amounts with no goodwill or other intangible assets.
The acquisition of the net assets of Provident on the Closing Date does not meet the definition of a business combination under IFRS 3—Business Combinations and has therefore been accounted for within the scope of IFRS 2—Share-based Payments, with the former Provident shareholders receiving Perfect Class A Ordinary Shares based on Business Combination Agreement or requested redemption. The excess of fair value of Perfect Ordinary Shares issued over the fair value of Provident’s identifiable net assets acquired represents compensation for the service of a stock exchange listing for its shares and was expensed as incurred.
5. Critical Accounting Judgements, Estimates and Key Sources of Assumption Uncertainty
The preparation of these consolidated financial statements requires management to make critical judgements in applying the Group’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. Such assumptions and estimates have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year; and the related information is addressed below:
5(1) Critical judgements in applying the Group’s accounting policies:
Revenue recognition at a point in time or over time
The Group recognizes the revenue by determining whether the performance obligations are satisfied at a point in time or over time. In terms of Licensing, the Group recognized revenue at the point when customized apps or licenses are transferred to its customers, which customers obtain control over the customized apps or licenses simultaneously with no further maintenance or other services to be provided by the Group. In terms of AR/AI cloud solutions and Subscription, the Group delivers services to its customers and recognized revenue within the contract period on a straight-line basis. The Group grants access of its server or apps to its customers and is obliged to maintain the services operational through the contract period. The access is terminated once the contract expires and no further extension were made by both parties. After termination of the contract, the customers can no longer have access to the server or apps. In terms of advertisement, the Group recognized revenue within the contract period on a usage basis.
As a result, based on the different feature of the services, the Group recognized revenue at a point in time or overtime, respectively.
5(2) Critical accounting estimates and assumptions:
A.Fair value measurement of warrant liabilities
Public Warrants, Private Placement Warrants and Forward Purchase Warrants assumed in connection with the Recapitalization were recognized under financial liabilities at fair value through profit or loss. The fair value of the warrants were measured at fair value using Monte Carlo simulation model on the Closing Date. The fair value of the Public Warrants was subsequently measured based on the listed market price. The fair value of the Private Placement Warrants and Forward Purchase Warrants were subsequently measured using a Monte Carlo simulation model each measurement date.
As of December 31, 2023 and 2024, the carrying amounts of the Group’s warrant liabilities were $1,566 and $1,793, respectively. Please refer to Note 6(9) for the warrant liabilities information and refer to Note 12(3) for the financial instruments fair value information.
B.Fair value measurement of earnout shares
The valuation of the Group’s Sponsor Earnout Promote Shares on the Closing Date requires the use of option pricing models or other valuation techniques. The fair value is determined using a Monte Carlo simulation model for the Sponsor Earnout Promote Shares. Please refer to Note 6(13) for the key assumption used for estimating the fair value of the Sponsor Earnout Promote Shares.
C.Fair value measurement of Perfect Class A Ordinary Shares
For the calculation of the listing expense, the Company issued an aggregate of 6,764 thousand shares to acquire Provident’s net assets on the Closing Date, excluding the impact of PIPE and FPA investors. The fair value used to measure the Company’s Class A Ordinary Shares are based on the opening market price of Provident of $8.35 (in dollars) per share as of October 28, 2022.
Please refer to Note 6(27) “Recapitalization”.
D.Realizability of deferred tax assets
Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. Assessment of the realizability of deferred tax assets involves critical accounting judgements and estimates of the management, including the assumptions of expected future sales revenue growth rate and profit rate, available tax credits, tax planning, etc. Any variations in global economic environment, industrial environment, and laws and regulations might cause material adjustments to deferred tax assets.
As of December 31, 2024, the Group recognized deferred tax assets amounting to $2,047.
6. Details of Significant Accounts
6(1) Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Petty cash |
$ |
1 |
|
|
$ |
— |
|
| Checking accounts |
2,139 |
|
|
3,651 |
|
| Demand deposits |
12,547 |
|
|
17,246 |
|
| Time deposits |
109,000 |
|
|
106,000 |
|
| Others |
184 |
|
|
224 |
|
|
$ |
123,871 |
|
|
$ |
127,121 |
|
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. As of December 31, 2024, the majority of our cash and cash equivalents, 95%, are denominated in U.S. Dollars.
B.The Group has no cash and cash equivalents pledged to others.
6(2) Current financial assets at fair value through profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Current items: |
|
|
|
|
|
| Financial assets mandatorily measured at fair value through profit and loss |
|
|
|
|
|
| Money market funds |
|
|
$ |
— |
|
|
$ |
2,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.The Group has no financial assets at fair value through profit or loss pledged to others.
B.Information relating to credit risk of financial assets at fair value through profit or loss is provided in Note 12(2).
6(3) Current financial assets at amortized cost
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Time deposits with maturities over three months |
$ |
30,300 |
|
|
$ |
36,000 |
|
A.The Group has no financial assets at amortized cost pledged to others.
B.The Group's time deposits are held with financial institutions of high credit quality, and the Group considers the likelihood of counterparty default is remote. As of December 31, 2024, 100% of current financial assets at amortized cost are denominated in U.S. Dollars.
C.Information relating to credit risk of financial assets at amortized cost is provided in Note 12(2).
6(4) Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Accounts receivable |
$ |
6,992 |
|
|
$ |
8,168 |
|
| Less: Allowance for expected credit losses |
— |
|
|
(266) |
|
|
$ |
6,992 |
|
|
$ |
7,902 |
|
A.The ageing analysis of accounts receivable is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Not past due |
$ |
5,791 |
|
|
$ |
7,535 |
|
| Up to 30 days |
594 |
|
|
261 |
|
| 31 to 90 days |
340 |
|
|
213 |
|
| 91 to 180 days |
196 |
|
|
65 |
|
| Over 181 days |
71 |
|
|
94 |
|
| Less: Allowance for expected credit losses |
— |
|
|
(266) |
|
|
$ |
6,992 |
|
|
$ |
7,902 |
|
The above ageing analysis was based on days overdue.
B.As at December 31, 2023 and 2024, accounts receivable were all from contracts with customers. And as at January 1, 2023, the balance of receivables from contracts with customers amounted to $7,756.
C.As at December 31, 2023 and 2024, without taking into account other credit enhancements, the maximum exposure to credit risk in respect of the amount that best represents the Group’s accounts receivable was $6,992 and $7,902, respectively.
D.Information relating to credit risk of accounts receivable is provided in Note 12(2).
E.The Group has no accounts receivable pledged to others.
6(5) Other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Prepaid expenses |
$ |
3,773 |
|
|
$ |
2,433 |
|
| Others |
269 |
|
|
89 |
|
|
$ |
4,042 |
|
|
$ |
2,522 |
|
6(6) Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
Leasehold
improvements |
|
Machinery |
|
Office
equipment |
|
Total |
| At January 1 |
|
|
|
|
|
|
|
| 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 |
154 |
|
|
128 |
|
|
7 |
|
|
289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation expense |
(83) |
|
|
(106) |
|
|
(8) |
|
|
(197) |
|
| Net exchange differences |
— |
|
|
(1) |
|
|
— |
|
|
(1) |
|
| Closing net book amount |
$ |
122 |
|
|
$ |
241 |
|
|
$ |
17 |
|
|
$ |
380 |
|
| At December 31 |
|
|
|
|
|
|
|
| Cost |
$ |
675 |
|
|
$ |
729 |
|
|
$ |
53 |
|
|
$ |
1,457 |
|
| Accumulated depreciation |
(553) |
|
|
(488) |
|
|
(36) |
|
|
(1,077) |
|
|
$ |
122 |
|
|
$ |
241 |
|
|
$ |
17 |
|
|
$ |
380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
Leasehold
improvements |
|
Machinery |
|
Office
equipment |
|
Total |
| At January 1 |
|
|
|
|
|
|
|
| Cost |
$ |
675 |
|
|
$ |
729 |
|
|
$ |
53 |
|
|
$ |
1,457 |
|
| Accumulated depreciation |
(553) |
|
|
(488) |
|
|
(36) |
|
|
(1,077) |
|
|
$ |
122 |
|
|
$ |
241 |
|
|
$ |
17 |
|
|
$ |
380 |
|
| Opening net book amount |
$ |
122 |
|
|
$ |
241 |
|
|
$ |
17 |
|
|
$ |
380 |
|
| Additions |
69 |
|
|
323 |
|
|
— |
|
|
392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation expense |
(70) |
|
|
(142) |
|
|
(6) |
|
|
(218) |
|
| Closing net book amount |
$ |
121 |
|
|
$ |
422 |
|
|
$ |
11 |
|
|
$ |
554 |
|
| At December 31 |
|
|
|
|
|
|
|
| Cost |
$ |
744 |
|
|
$ |
1,052 |
|
|
$ |
53 |
|
|
$ |
1,849 |
|
| Accumulated depreciation |
(623) |
|
|
(630) |
|
|
(42) |
|
|
(1,295) |
|
|
$ |
121 |
|
|
$ |
422 |
|
|
$ |
11 |
|
|
$ |
554 |
|
The Group has no property, plant and equipment pledged to others.
6(7) 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.
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, 2023 and 2024, lease commitments for short-term leases amounted to $152, $136 and $154, respectively.
C.The movements of right-of-use assets of the Group are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
Buildings |
|
Business vehicles |
|
Total |
| At January 1 |
|
|
|
|
|
| Cost |
$ |
809 |
|
|
$ |
208 |
|
|
$ |
1,017 |
|
| Accumulated depreciation |
(557) |
|
|
(137) |
|
|
(694) |
|
|
$ |
252 |
|
|
$ |
71 |
|
|
$ |
323 |
|
| Opening net book amount |
$ |
252 |
|
|
$ |
71 |
|
|
$ |
323 |
|
| Additions |
810 |
|
|
202 |
|
|
1,012 |
|
| Cost of derecognition |
(677) |
|
|
(208) |
|
|
(885) |
|
| Derecognized accumulated depreciation |
677 |
|
|
161 |
|
|
838 |
|
| Depreciation expense |
(357) |
|
|
(84) |
|
|
(441) |
|
|
|
|
|
|
|
| Closing net book amount |
$ |
705 |
|
|
$ |
142 |
|
|
$ |
847 |
|
| At December 31 |
|
|
|
|
|
| Cost |
$ |
942 |
|
|
$ |
202 |
|
|
$ |
1,144 |
|
| Accumulated depreciation |
(237) |
|
|
(60) |
|
|
(297) |
|
|
$ |
705 |
|
|
$ |
142 |
|
|
$ |
847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
Buildings |
|
Business vehicles |
|
Total |
| At January 1 |
|
|
|
|
|
| Cost |
$ |
942 |
|
|
$ |
202 |
|
|
$ |
1,144 |
|
| Accumulated depreciation |
(237) |
|
|
(60) |
|
|
(297) |
|
|
$ |
705 |
|
|
$ |
142 |
|
|
$ |
847 |
|
| Opening net book amount |
$ |
705 |
|
|
$ |
142 |
|
|
$ |
847 |
|
| Additions |
82 |
|
|
85 |
|
|
167 |
|
| Depreciation expense |
(422) |
|
|
(107) |
|
|
(529) |
|
|
|
|
|
|
|
| Closing net book amount |
$ |
365 |
|
|
$ |
120 |
|
|
$ |
485 |
|
| At December 31 |
|
|
|
|
|
| Cost |
$ |
1,024 |
|
|
$ |
287 |
|
|
$ |
1,311 |
|
| Accumulated depreciation |
(659) |
|
|
(167) |
|
|
(826) |
|
|
$ |
365 |
|
|
$ |
120 |
|
|
$ |
485 |
|
D.Lease liabilities relating to lease contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Total lease liabilities |
$ |
868 |
|
|
$ |
510 |
|
| Less: current portion (shown as ‘current lease liabilities’) |
(481) |
|
|
(402) |
|
|
$ |
387 |
|
|
$ |
108 |
|
E.The information on profit and loss accounts relating to lease contracts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Items affecting profit or loss |
|
|
|
|
|
| Interest expense on lease liabilities |
$ |
8 |
|
|
$ |
15 |
|
|
$ |
18 |
|
| Expense on short-term lease contracts |
383 |
|
|
352 |
|
|
348 |
|
|
$ |
391 |
|
|
$ |
367 |
|
|
$ |
366 |
|
F.For the years ended December 31, 2022, 2023 and 2024, the Group’s total cash outflow for leases were $848, $802 and $891, respectively, including the interest expense on lease liabilities amounting to $8, $15 and $18, expense on short-term lease contracts amounting to $383, $352 and $348, and repayments of principal portion of lease liabilities amounting to $457, $435 and $525, respectively.
6(8) Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
Software |
|
Other
intangible assets
|
|
Total |
| At January 1 |
|
|
|
|
|
| Cost |
$ |
104 |
|
|
$ |
89 |
|
|
$ |
193 |
|
| Accumulated amortization |
(23) |
|
|
(51) |
|
|
(74) |
|
|
$ |
81 |
|
|
$ |
38 |
|
|
$ |
119 |
|
| Opening net book amount |
$ |
81 |
|
|
$ |
38 |
|
|
$ |
119 |
|
| Additions |
33 |
|
|
— |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization charge |
(45) |
|
|
(30) |
|
|
(75) |
|
|
|
|
|
|
|
| Closing net book amount |
$ |
69 |
|
|
$ |
8 |
|
|
$ |
77 |
|
| At December 31 |
|
|
|
|
|
| Cost |
$ |
137 |
|
|
$ |
89 |
|
|
$ |
226 |
|
| Accumulated amortization |
(68) |
|
|
(81) |
|
|
(149) |
|
|
$ |
69 |
|
|
$ |
8 |
|
|
$ |
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
Software |
|
Other
intangible assets |
|
Total |
| At January 1 |
|
|
|
|
|
| Cost |
$ |
137 |
|
|
$ |
89 |
|
|
$ |
226 |
|
| Accumulated amortization |
(68) |
|
|
(81) |
|
|
(149) |
|
|
$ |
69 |
|
|
$ |
8 |
|
|
$ |
77 |
|
| Opening net book amount |
$ |
69 |
|
|
$ |
8 |
|
|
$ |
77 |
|
| Additions |
6 |
|
|
— |
|
|
6 |
|
| Cost of disposals |
(29) |
|
|
(74) |
|
|
(103) |
|
| Accumulated amortization on disposals |
29 |
|
|
74 |
|
|
103 |
|
| Amortization charge |
(46) |
|
|
(5) |
|
|
(51) |
|
|
|
|
|
|
|
| Closing net book amount |
$ |
29 |
|
|
$ |
3 |
|
|
$ |
32 |
|
| At December 31 |
|
|
|
|
|
| Cost |
$ |
114 |
|
|
$ |
15 |
|
|
$ |
129 |
|
| Accumulated amortization |
(85) |
|
|
(12) |
|
|
(97) |
|
|
$ |
29 |
|
|
$ |
3 |
|
|
$ |
32 |
|
Details of amortization on intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Research and development expenses |
$ |
63 |
|
|
$ |
75 |
|
|
$ |
51 |
|
6(9) Financial liabilities at fair value through profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Non-current items: |
|
|
|
| Warrant liabilities |
$ |
8,431 |
|
|
$ |
8,431 |
|
| Add: Valuation adjustment |
(6,865) |
|
|
(6,638) |
|
|
$ |
1,566 |
|
|
$ |
1,793 |
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Net gains (losses) recognized in profit or loss |
|
|
|
|
|
| Warrant liabilities |
$ |
5,224 |
|
|
$ |
1,641 |
|
|
$ |
(227) |
|
| Financial liabilities designated as at fair value through profit or loss - Preferred share liabilities |
(99,001) |
|
|
— |
|
|
— |
|
|
$ |
(93,777) |
|
|
$ |
1,641 |
|
|
$ |
(227) |
|
| 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.
(b)As of December 31, 2024 there were 20,850 thousand warrants outstanding, consisting of 20,850 thousand Public Warrants, no Private Placement Warrants and no 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. As of December 31, 2024, 2,750 thousand Forward Purchase Warrants had been converted into 2,750 thousand Public Warrants ,and 6,600 thousand Private Placement Warrants had been converted into 6,600 thousand Public Warrants.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Warrants
(units in thousands) |
|
Private Placement Warrants
(units in thousands) |
|
Forward Purchase Warrants
(units in thousands) |
| At January 1, 2023 |
11,500 |
|
|
6,600 |
|
|
2,750 |
|
| Converted |
1,250 |
|
|
— |
|
|
(1,250) |
|
| At December 31, 2023 |
12,750 |
|
|
6,600 |
|
|
1,500 |
|
| Converted |
8,100 |
|
|
(6,600) |
|
|
(1,500) |
| At December 31, 2024 |
20,850 |
|
|
— |
|
|
— |
|
(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.
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.
C. Financial liabilities designated as at fair value through profit or loss-Preferred share liabilities
The Company has issued a total of 242,331 thousand convertible preferred shares amounting $105,000 with no maturity for five rounds in total. In connection with the Recapitalization, the Company’s convertible preferred shares were canceled in exchange for 0.17704366 Perfect Class A or Class B Ordinary shares on October 28, 2022. Please refer to Note 6(14) “Share capital” for information of the conversion.
6(10) Other payables
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Employee bonus |
$ |
4,662 |
|
|
$ |
4,593 |
|
| Payroll |
2,228 |
|
|
2,441 |
|
| Remuneration to directors |
115 |
|
|
115 |
|
| Promotional fees |
1,090 |
|
|
2,465 |
|
| Professional service fees |
1,415 |
|
|
1,198 |
|
| Sales VAT payables |
126 |
|
|
204 |
|
| Post and telecommunications expenses |
171 |
|
|
271 |
|
| Others |
524 |
|
|
369 |
|
|
$ |
10,331 |
|
|
$ |
11,656 |
|
6(11) Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
2024 |
|
Warranty |
|
Warranty |
| At January 1 |
$ |
1,855 |
|
|
$ |
2,394 |
|
| Additional provisions |
677 |
|
|
581 |
|
| Used during the year |
(112) |
|
|
(1,030) |
|
| Net exchange differences |
(26) |
|
|
(46) |
|
| At December 31 |
$ |
2,394 |
|
|
$ |
1,899 |
|
Analysis of total provisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Current |
$ |
2,394 |
|
|
$ |
1,899 |
|
The Group enters into the contracts with customers that include warranties for the services provided. The warranties (loss indemnification) provide customers with assurance that the related services will function as agreed by both parties. The provision for warranties 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. Changes in industry circumstances might affect the provision estimates. Provisions for warranty claims are recognized when claims are validated, and payments are made accordingly.
6(12) 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 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 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)The amounts recognized in the balance sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Present value of defined benefit obligations |
$ |
(92) |
|
|
$ |
(61) |
|
| Fair value of plan assets |
13 |
|
|
15 |
|
| Net defined benefit liability |
$ |
(79) |
|
|
$ |
(46) |
|
(c)Movements in net defined benefit liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
Present value
of defined benefit
obligations |
|
Fair value of
plan assets |
|
Net defined
benefit liability |
| At January 1 |
$ |
(84) |
|
|
$ |
11 |
|
|
$ |
(73) |
|
| Current service cost |
(4) |
|
|
— |
|
|
(4) |
|
| Interest (expense) income |
(1) |
|
|
— |
|
|
(1) |
|
|
(89) |
|
|
11 |
|
|
(78) |
|
| Remeasurements: |
|
|
|
|
|
|
|
|
|
|
|
| Change in demographic assumptions |
(1) |
|
|
— |
|
|
(1) |
|
|
|
|
|
|
|
| Experience adjustments |
(3) |
|
|
— |
|
|
(3) |
|
|
(4) |
|
|
— |
|
|
(4) |
|
| Pension fund contribution |
— |
|
|
2 |
|
|
2 |
|
| Net exchange differences |
1 |
|
|
— |
|
|
1 |
|
| At December 31 |
$ |
(92) |
|
|
$ |
13 |
|
|
$ |
(79) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
Present value
of defined benefit
obligations |
|
Fair value of
plan assets |
|
Net defined
benefit liability |
| At January 1 |
$ |
(92) |
|
|
$ |
13 |
|
|
$ |
(79) |
|
| Current service cost |
(4) |
|
|
— |
|
|
(4) |
|
| Interest (expense) income |
(1) |
|
|
— |
|
|
(1) |
|
|
(97) |
|
|
13 |
|
|
(84) |
|
| Remeasurements: |
|
|
|
|
|
| Return on plan assets |
— |
|
|
1 |
|
|
1 |
|
| Change in demographic assumptions |
5 |
|
|
— |
|
|
5 |
|
| Change in financial assumptions |
5 |
|
|
— |
|
|
5 |
|
| Experience adjustments |
20 |
|
|
— |
|
|
20 |
|
|
30 |
|
|
1 |
|
|
31 |
|
| Pension fund contribution |
— |
|
|
2 |
|
|
2 |
|
| Net exchange differences |
6 |
|
|
(1) |
|
|
5 |
|
| At December 31 |
$ |
(61) |
|
|
$ |
15 |
|
|
$ |
(46) |
|
(d)The Bank of Taiwan was commissioned to manage the Fund of Perfect Mobile Corp. (Taiwan)’s defined benefit pension plan in accordance with the Fund’s annual investment and utilization plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund” (Article 6: The scope of utilization for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilization of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. Perfect Mobile Corp. (Taiwan) has no right to participate in managing and operating that fund and hence Perfect Mobile Corp. (Taiwan) is unable to disclose the classification of plan assets fair value in, accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2023 and 2024 is given in the Annual Labor Retirement Fund Utilization Report announced by the government.
(e)The principal actuarial assumptions used were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2023 |
|
2024 |
| Discount rate |
1.50 |
% |
|
1.80 |
% |
| Future salary increases |
3.00 |
% |
|
3.00 |
% |
Future mortality rate was estimated based on the 6th Taiwan Standard Ordinary Experience Mortality Table.
Because the main actuarial assumption may change (mainly on discount rate and future salary increase rate), the present value of defined benefit obligation is affected. The analysis was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
Future salary increases |
|
Increase |
|
Decrease |
|
Increase |
|
Decrease |
|
0.25% |
|
0.25% |
|
0.25% |
|
0.25% |
| December 31, 2023 |
|
|
|
|
|
|
|
| Effect on present value of defined benefit obligation |
$ |
(5) |
|
|
$ |
6 |
|
|
$ |
5 |
|
|
$ |
(5) |
|
| December 31, 2024 |
|
|
|
|
|
|
|
| Effect on present value of defined benefit obligation |
$ |
(3) |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
(3) |
|
The sensitivity analysis above is based on one assumption which changed while the other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analyzing sensitivity and the method of calculating net pension liability in the balance sheet are the same.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.
(f)Expected contributions to the defined benefit pension plans of Perfect Mobile Corp. (Taiwan) for the year ending December 31, 2025 amount to $5.
(g)As of December 31, 2024, the weighted average duration of the retirement plan is 23 years. The expected timing of the future pension payment was as follows:
|
|
|
|
|
|
| Within 1 year |
$ |
— |
|
| 1-5 year(s) |
— |
|
| Over 5 years |
93 |
|
|
$ |
93 |
|
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 when employees retire.
(b)The pension costs under defined contribution pension plan of Perfect Mobile Corp. (Taiwan) for the years ended December 31, 2022, 2023 and 2024 were $501, $527, and $567, respectively.
(c)The pension costs under local government law of other foreign subsidiaries for the years ended December 31, 2022, 2023 and 2024 were $172, $175, and $182, respectively.
6(13) Share-based payment
A.Share Incentive Plan
On December 13, 2021, the Board approved and adopted the Share Incentive Plan. On October 25, 2022, the Board has approved and adopted an amendment to the Share Incentive Plan in response to the 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 years ended December 31, 2023 and 2024, the Group’s Share Incentive Plan’s terms and condition are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Plan |
|
Type of arrangement |
|
Settled by |
|
Maximum terms of 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% |
(b)Movements of outstanding options under Share Incentive Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
2024 |
|
No. of options
(units in thousands) |
|
Weighted- average exercise price per share
(in dollars) |
|
No. of options
(units in thousands) |
|
Weighted- average exercise price per share
(in dollars) |
| Options outstanding at January 1 |
2,063 |
|
|
$ |
3.95 |
|
|
4,073 |
|
|
$ |
4.47 |
|
| Options granted |
2,288 |
|
|
4.93 |
|
|
50 |
|
|
2.21 |
|
| Options forfeited |
(278) |
|
|
4.34 |
|
|
(246) |
|
|
4.48 |
|
| Options outstanding at December 31 |
4,073 |
|
|
4.47 |
|
|
3,877 |
|
|
4.44 |
|
| Options exercisable at December 31 |
— |
|
|
|
|
894 |
|
|
3.95 |
|
(c)As of December 31, 2023 and 2024, the range of exercise prices of stock options outstanding were $2.43 ~ $7.20 and $2.13 ~ $7.20 (in dollars) per share, respectively; the weighted-average remaining contractual period was 3.06 ~ 4.84 years and 2.06 ~ 4.98 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Plan |
|
Grant date |
|
Units granted
(in thousands) |
|
Stock price per share
(in dollars) |
|
Exercise price per share
(in dollars) |
|
Expected price volatility (Note ii) |
|
Expected option life |
|
Expected dividends |
|
Risk-free interest rate |
|
Fair value per unit
(in dollars) |
| Share Incentive Plan |
|
2022.01.21 (Note i) |
|
2,143 |
|
$ |
5.39 |
|
$ |
3.95 |
|
53.75% |
|
3.88 |
|
0.00% |
|
1.46% |
|
$ |
2.7637 |
|
|
2023.01.03 |
|
8 |
|
7.20 |
|
7.20 |
|
64.85% |
|
3.87 |
|
0.00% |
|
4.07% |
|
3.7198 |
|
|
2023.05.23 |
|
2,260 |
|
4.93 |
|
4.93 |
|
69.15% |
|
3.88 |
|
0.00% |
|
3.90% |
|
2.6615 |
|
|
2023.08.21 |
|
7 |
|
4.00 |
|
3.916 |
|
70.65% |
|
3.88 |
|
0.00% |
|
4.64% |
|
2.2411 |
|
|
2023.11.02 |
|
5 |
|
2.43 |
|
2.43 |
|
70.37% |
|
3.88 |
|
0.00% |
|
4.77% |
|
1.3487 |
|
|
2024.05.27 |
|
5 |
|
2.13 |
|
2.13 |
|
72.67% |
|
3.88 |
|
0.00% |
|
4.65% |
|
1.2069 |
|
|
2024.12.23 |
|
45 |
|
2.26 |
|
2.22 |
|
74.64% |
|
3.87 |
|
0.00% |
|
4.46% |
|
1.3100 |
Note i: Stock price, exercise price and fair value of stock option granted on January 21, 2022 were adjusted in connection with the recapitalization.
Note ii: 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.Expenses incurred on share-based payment transactions are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Equity settled |
$ |
2,175 |
|
|
$ |
3,268 |
|
|
$ |
2,774 |
|
C.In 2022, 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 years ended December 31, 2022, 2023 and 2024 was $58, $— and $—, respectively. The fixed monetary value of equity awards of director compensation was paid in cash in the first year, resulting in expenses incurred for the year ended December 31, 2022, being paid in cash. In the future, the Group may compensate directors either entirely in cash or partially in cash and partially in equity.
D.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. None of these conditions had been met in the period up through December 31, 2024.
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.
Please refer to Note 6(27) “Recapitalization”.
E.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 30-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 30-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 December 31, 2024.
Sponsor Earnout Promote Shares are considered a potential contingent payment agreement with Sponsor, based on a market condition without link to service. Thus, expense was recorded immediate on the grant date. Expense recorded for the year ended December 31, 2022 was $8,849. Please refer to Note 6(27) “Recapitalization”.
The expense was recognized under fair value and the Monte Carlo Simulation Model was used to estimate the fair value of Sponsor Earnout Promote Shares granted. Assumptions used in calculating the fair value are disclosed as follows:
|
|
|
|
|
|
|
Sponsor Earnout Shares |
| Expected dividend yield (%) |
0.00 |
% |
| Expected volatility |
70.00 |
% |
| Risk free interest rate |
4.19 |
% |
| Expected life (years) |
5 |
6(14) Share capital
A.As of December 31, 2024, 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 Board of Directors. The paid-in capital was $10,185, including 85,060 thousand Class A Ordinary Shares after the retirement of 16,388 thousand treasury shares and 27 thousand shares surrendered by a shareholder, and 16,789 thousand Class B Ordinary Shares. 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”.
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 Ordinary 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 for the Company’s share capital are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
Perfect Class A Ordinary Shares |
|
Perfect Class B Ordinary Shares |
|
Total |
|
|
Note |
|
Shares
(in thousand) |
|
Amount |
|
Shares
(in thousand) |
|
Amount |
|
Shares
(in thousand) |
|
Amount |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At January 1, 2022 |
|
|
|
301,521 |
|
30,152 |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
30,152 |
|
| Employee stock option exercised |
|
|
|
26,629 |
|
2,663 |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
2,663 |
|
| Conversion as part of recapitalization |
|
(b) |
|
(328,150) |
|
(32,815) |
|
|
84,211 |
|
8,421 |
|
|
16,789 |
|
1,679 |
|
|
(22,715) |
|
| Shares Issuance to exchange Provident outstanding shares |
|
(c) |
|
— |
|
— |
|
|
17,264 |
|
1,726 |
|
|
— |
|
— |
|
|
1,726 |
|
| At December 31, 2022 |
|
(a) |
|
— |
|
— |
|
|
101,475 |
|
10,147 |
|
|
16,789 |
|
1,679 |
|
|
11,826 |
|
| Shares retired |
|
(d) |
|
— |
|
— |
|
|
(16,347) |
|
(1,634) |
|
|
— |
|
— |
|
|
(1,634) |
|
| At December 31, 2023 |
|
(a) |
|
— |
|
— |
|
|
85,128 |
|
8,513 |
|
|
16,789 |
|
1,679 |
|
|
10,192 |
|
| Shares retired |
|
(d) |
|
— |
|
— |
|
|
(68) |
|
(7) |
|
|
— |
|
— |
|
|
(7) |
|
| At December 31, 2024 |
|
|
|
— |
|
$ |
— |
|
|
85,060 |
|
$ |
8,506 |
|
|
16,789 |
|
$ |
1,679 |
|
|
$ |
10,185 |
|
(a)As of December 31, 2022, the Company’s authorized capital was $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 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.
As of December 31, 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 Board of Directors. The paid-in capital was $10,192, consisting of 85,128 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.
(b)Pursuant to the Business Combination Agreement, dated as of March 3, 2022, the outstanding Perfect Preferred Shares were automatically converted into Perfect Common Shares, then immediately such shares were canceled in exchange for 0.17704366 Perfect Class A and Class B Ordinary shares on the
Closing Date. The exchange of the Perfect Shares for the Perfect Class A and Class B ordinary shares is reflected in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share type before share combination |
|
Number of shares
(in thousand)
before share combination |
|
Conversion ratio |
|
Share type after share conversion |
|
Number of shares
(in thousand)
after share conversion |
| Common shares |
|
241,650 |
|
0.17704366 |
|
Class A Ordinary Shares |
|
42,782 |
| Preferred share |
|
234,003 |
|
|
|
|
|
41,429 |
| Subtotal |
|
475,653 |
|
|
|
|
|
84,211 |
| Common shares |
|
86,500 |
|
0.17704366 |
|
Class B Ordinary Shares |
|
15,314 |
| Preferred share |
|
8,328 |
|
|
|
|
|
1,475 |
| Subtotal |
|
94,828 |
|
|
|
|
|
16,789 |
| Total |
|
570,481 |
|
|
|
|
|
101,000 |
In connection with the Recapitalization, the excess of the par value of the Perfect Common Shares and fair value of the Perfect Preferred shares on the Closing Date over the par value of the Perfect Class A and Class B Ordinary Shares were recognized as additional paid-in capital.
The following table illustrates the reconciliation of additional paid-in capital due to the conversions of the Perfect Shares and the Perfect Class A and Class B Ordinary Shares:
|
|
|
|
|
|
|
Additional paid-in capital |
| Par value of the Perfect Common Shares |
$ |
32,815 |
|
| Fair value of the Perfect Preferred Shares on the Closing Date |
358,238 |
|
| Par value of the Class A and Class B Ordinary Shares |
(10,100) |
|
| Subtotal |
380,953 |
|
| Listing expense |
65,264 |
|
|
$ |
446,217 |
|
(c)In connection with the closing of the Business Combination, the Company issued (i) 17,264 thousand Perfect Class A Ordinary Share with a par value of $0.1 (in dollars) to former holders of Provident Ordinary Shares, including (a) 1,349 thousand Class A Ordinary Share to Public Shareholders who did not exercise their right to redeem any Provident Public Shares before the Closing, (b) 5,415 thousand Class A Ordinary Shares to the Sponsor and three directors and two advisors of Provident (c) 5,500 thousand Class A Ordinary Shares to FPA Investors and (d) 5,000 thousand Class A Ordinary Shares to PIPE Investors. (ii) 20,850 thousand Warrant to holders of Public Warrants, Private Placement Warrants and Forward Purchase Warrants for a total amount of $112,893.
The excess cash received over the par value of the Class A Ordinary Shares and the fair value of the warrants are accounted under the Company’s additional paid-in capital. The following table illustrates the reconciliation of the additional paid-in capital due to issuance of the Company’s ordinary shares.
|
|
|
|
|
|
|
Additional paid-in capital |
| Proceed received upon recapitalization |
$ |
112,893 |
|
| Par value of the Class A Ordinary Shares |
(1,726) |
|
| Fair value of the warrants at the Closing Date |
(8,430) |
|
| Transactional cost (presented as accrued expense of Provident at Closing) |
(500) |
|
|
$ |
102,237 |
|
Please refer to Note 6(27) “Recapitalization” for Private Placement Investor and Forward Purchase Agreement Investor. Please refer to Note 6(9) “Financial liability at fair value through profit or loss” for Forward Purchase Warrants.
(d)On October 26, 2023, the Company completed the retirement of 191 thousand of Class A Ordinary shares. These retired shares were acquired as part of the share repurchase plan announced on May 4, 2023.
On November 29, 2023, a shareholder surrendered 27 thousand of Class A Ordinary shares for personal reason, and those ordinary shares were canceled.
On December 29, 2023, the Company completed the retirement of 16,129 thousand of Class A Ordinary shares. These retired shares were acquired from the tender offer announced on November 27, 2023.
On February 7, 2024, the Company completed the retirement of 68 thousand of Class A Ordinary shares. These retired shares were acquired as part of the share repurchase plan announced on May 4, 2023.
The reconciliation of the capital surplus due to shares repurchased and retired is provided in Note 6(15).
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 this plan, the Company repurchased 259 thousand of Class A Ordinary shares with a total consideration paid amounted $1,064. The Company retired 191 thousand shares repurchased from this plan in 2023 and retired the remaining of 68 thousand shares in 2024.
D.Tender Offer
On November 24, 2023, the Board of Directors approved a tender offer, which commenced on November 27, 2023, and withdrawal rights expired on December 26, 2023, to purchase up to 16,129 thousand shares of Class A Ordinary at a price of $3.10 (in dollars) per share for an aggregate purchase price of approximately $50,000. The Company completed the repurchase, and all the purchased shares were retired on December 29, 2023.
6(15) 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, 2023 |
|
December 31, 2024 |
| Additional paid-in capital |
$ |
477,734 |
|
|
$ |
477,415 |
|
| Other: |
|
|
|
| Employees’ stock option cost |
5,430 |
|
|
8,204 |
|
| Retirement of treasury shares |
27,235 |
|
|
27,371 |
|
|
|
|
|
| Subtotal |
32,665 |
|
|
35,575 |
|
|
$ |
510,399 |
|
|
$ |
512,990 |
|
The following table illustrates the reconciliation of the capital surplus due to shares repurchased and retired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
Additional paid-in capital |
|
Other |
|
Treasury shares |
|
Total |
| 2023 |
|
|
|
|
|
|
|
|
|
| Share Repurchase Plan: |
|
|
|
|
|
|
|
|
|
| Shares repurchased |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1,064) |
|
|
$ |
(1,064) |
|
| Shares retired |
(19) |
|
|
(893) |
|
|
38 |
|
|
874 |
|
|
$ |
— |
|
| Shares Surrender |
(2) |
|
|
2 |
|
|
— |
|
|
— |
|
|
$ |
— |
|
| Tender Offer |
(1,613) |
|
|
(75,584) |
|
|
27,197 |
|
|
— |
|
|
$ |
(50,000) |
|
|
$ |
(1,634) |
|
|
$ |
(76,475) |
|
|
$ |
27,235 |
|
|
$ |
(190) |
|
|
$ |
(51,064) |
|
|
|
|
|
|
|
|
|
|
|
| 2024 |
|
|
|
|
|
|
|
|
|
| Share Repurchase Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares retired |
(7) |
|
|
(319) |
|
|
136 |
|
|
190 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(7) |
|
|
$ |
(319) |
|
|
$ |
136 |
|
|
$ |
190 |
|
|
$ |
— |
|
6(16) Accumulated deficits
Under the Company’s Articles of Incorporation, distribution of earnings would be based on the Company’s operating and capital needs.
6(17) Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Revenue from contracts with customers |
$ |
47,300 |
|
|
$ |
53,505 |
|
|
$ |
60,202 |
|
A.Disaggregation of revenue from contracts with customers
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2022 |
United States |
|
Americas_ Others |
|
Europe |
|
Asia-Pacific |
|
Others |
|
Total |
| Revenue from external customer contracts |
$ |
24,291 |
|
|
$ |
3,286 |
|
|
$ |
9,172 |
|
|
$ |
9,170 |
|
|
$ |
1,381 |
|
|
$ |
47,300 |
|
| Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
| At a point in time |
$ |
5,126 |
|
|
$ |
— |
|
|
$ |
599 |
|
|
$ |
2,322 |
|
|
$ |
519 |
|
|
$ |
8,566 |
|
| Over time |
19,165 |
|
|
3,286 |
|
|
8,573 |
|
|
6,848 |
|
|
862 |
|
|
38,734 |
|
|
$ |
24,291 |
|
|
$ |
3,286 |
|
|
$ |
9,172 |
|
|
$ |
9,170 |
|
|
$ |
1,381 |
|
|
$ |
47,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2023 |
United States |
|
Americas_ Others |
|
Europe |
|
Asia-Pacific |
|
Others |
|
Total |
| Revenue from external customer contracts |
$ |
24,992 |
|
|
$ |
4,937 |
|
|
$ |
13,777 |
|
|
$ |
8,553 |
|
|
$ |
1,246 |
|
|
$ |
53,505 |
|
| Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
| At a point in time |
$ |
4,380 |
|
|
$ |
1 |
|
|
$ |
1,555 |
|
|
$ |
1,530 |
|
|
$ |
122 |
|
|
$ |
7,588 |
|
| Over time |
20,612 |
|
|
4,936 |
|
|
12,222 |
|
|
7,023 |
|
|
1,124 |
|
|
45,917 |
|
|
$ |
24,992 |
|
|
$ |
4,937 |
|
|
$ |
13,777 |
|
|
$ |
8,553 |
|
|
$ |
1,246 |
|
|
$ |
53,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2024 |
United States |
|
Americas_ Others |
|
Europe |
|
Asia-Pacific |
|
Others |
|
Total |
| Revenue from external customer contracts |
$ |
25,142 |
|
|
$ |
6,669 |
|
|
$ |
16,586 |
|
|
$ |
10,109 |
|
|
$ |
1,696 |
|
|
$ |
60,202 |
|
| Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
| At a point in time |
$ |
2,751 |
|
|
$ |
119 |
|
|
$ |
1,116 |
|
|
$ |
1,858 |
|
|
$ |
273 |
|
|
$ |
6,117 |
|
| Over time |
22,391 |
|
|
6,550 |
|
|
15,470 |
|
|
8,251 |
|
|
1,423 |
|
|
54,085 |
|
|
$ |
25,142 |
|
|
$ |
6,669 |
|
|
$ |
16,586 |
|
|
$ |
10,109 |
|
|
$ |
1,696 |
|
|
$ |
60,202 |
|
Note : “Americas_Others” includes North and South America, excluding the United States.
(b)Alternatively, the disaggregation of revenue could also be distinct as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| AR/AI cloud solutions and Subscription |
$ |
36,915 |
|
|
$ |
44,755 |
|
|
$ |
53,795 |
|
| Licensing |
8,432 |
|
|
7,546 |
|
|
5,220 |
|
|
|
|
|
|
|
| Others (Note) |
1,953 |
|
|
1,204 |
|
|
1,187 |
|
|
$ |
47,300 |
|
|
$ |
53,505 |
|
|
$ |
60,202 |
|
Note: Others primarily comes from advertisement revenue.
(c)The revenue generated from AR/AI cloud solutions was $20,685, $18,238, and $17,192 for the years ended December 31, 2022, 2023 and 2024, 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. The decrease in contract assets – unbilled revenue was primarily resulting from the decrease in revenue from licensing
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Contract assets: |
|
|
|
| Unbilled revenue |
$ |
2,770 |
|
|
$ |
977 |
|
| Contract liabilities: |
|
|
|
| Advance sales receipts |
$ |
15,346 |
|
|
$ |
17,218 |
|
(b)Revenue recognized that was included in the contract liability balance at the beginning of the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Revenue recognized that was included in the contract liability balance at the beginning of the period |
|
|
|
|
|
| Advance sales receipts |
$ |
8,831 |
|
|
$ |
12,738 |
|
|
$ |
15,270 |
|
(c)Unsatisfied contracts
Aggregate amount of the transaction price allocated to contracts that are partially or fully unsatisfied as of December 31, 2023 and 2024, amounting to $ 28,133 and $ 26,675, respectively. The Group expects that 96% of the transaction price allocated to the unsatisfied contracts as of December 31, 2024, are expected to be recognized as revenue less than one year. The remaining 4% is expected to be recognized as revenue from 2026 to 2027.
6(18) Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Interest income from bank deposits |
$ |
1,977 |
|
|
$ |
4,188 |
|
|
$ |
5,799 |
|
| Interest income from financial assets at amortized cost |
52 |
|
|
5,309 |
|
|
1,898 |
|
| Others |
— |
|
|
1 |
|
|
11 |
|
|
$ |
2,029 |
|
|
$ |
9,498 |
|
|
$ |
7,708 |
|
The nature of interest income from financial assets at amortized cost was time deposits with maturities over three months.
6(19) Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Subsidy from government |
$ |
1 |
|
|
$ |
21 |
|
|
$ |
34 |
|
| Others |
74 |
|
|
12 |
|
|
21 |
|
|
$ |
75 |
|
|
$ |
33 |
|
|
$ |
55 |
|
6(20) Other gains and losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
|
|
2022 |
|
2023 |
|
2024 |
|
|
|
|
| Foreign exchange gains (losses) |
$ |
1,303 |
|
|
$ |
34 |
|
|
$ |
(89) |
|
|
|
|
|
| Gains (losses) on financial liabilities at fair value through profit or loss |
(93,777) |
|
|
1,641 |
|
|
(227) |
|
|
|
|
|
|
$ |
(92,474) |
|
|
$ |
1,675 |
|
|
$ |
(316) |
|
|
|
|
|
Please refer to Note 6(9) for details of gains (losses) on financial liabilities at fair value through profit or loss.
6(21) Finance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Interest expense – lease liabilities |
$ |
8 |
|
|
$ |
15 |
|
|
$ |
18 |
|
6(22) Costs and expenses by nature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Cost of goods sold |
$ |
39 |
|
|
$ |
3 |
|
|
$ |
13 |
|
| Employee benefit expenses |
27,300 |
|
|
27,956 |
|
|
28,237 |
|
| Promotional fees |
7,517 |
|
|
9,565 |
|
|
11,531 |
|
| Platform fees |
5,518 |
|
|
8,708 |
|
|
11,671 |
|
| Professional service fees |
8,537 |
|
|
6,888 |
|
|
4,748 |
|
| Insurance expenses |
459 |
|
|
2,102 |
|
|
1,417 |
|
| Expected credit losses |
— |
|
|
— |
|
|
1,373 |
|
| Warranty cost |
897 |
|
|
677 |
|
|
581 |
|
| Depreciation of right-of-use assets |
456 |
|
|
441 |
|
|
529 |
|
| Depreciation of property, plant and equipment |
247 |
|
|
197 |
|
|
218 |
|
| Amortization of intangible assets |
63 |
|
|
75 |
|
|
51 |
|
| Listing expense |
65,264 |
|
|
— |
|
|
— |
|
| Others |
2,077 |
|
|
2,553 |
|
|
2,976 |
|
|
$ |
118,374 |
|
|
$ |
59,165 |
|
|
$ |
63,345 |
|
6(23) Employee benefit expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Wages and salaries |
$ |
22,083 |
|
|
$ |
21,263 |
|
|
$ |
21,814 |
|
| Remuneration to directors |
112 |
|
|
553 |
|
|
600 |
|
| Employee insurance fees |
1,376 |
|
|
1,349 |
|
|
1,409 |
|
| Pension costs |
676 |
|
|
707 |
|
|
754 |
|
| Employee stock options |
2,117 |
|
|
3,268 |
|
|
2,774 |
|
| Other personnel expenses |
936 |
|
|
816 |
|
|
886 |
|
|
$ |
27,300 |
|
|
$ |
27,956 |
|
|
$ |
28,237 |
|
6(24) Income tax
A.Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Current income tax: |
|
|
|
|
|
| Current tax expense recognized for the current period |
$ |
390 |
|
|
$ |
144 |
|
|
$ |
1,076 |
|
| Prior year income tax underestimation |
3 |
|
|
— |
|
|
6 |
|
| Total current tax |
393 |
|
|
144 |
|
|
1,082 |
|
| Deferred income tax: |
|
|
|
|
|
| Origination and reversal of temporary differences |
(101) |
|
|
(29) |
|
|
(1,817) |
|
| Taxable losses |
— |
|
|
— |
|
|
— |
|
| Total deferred income tax |
(101) |
|
|
(29) |
|
|
(1,817) |
|
| Income tax expense (benefit) |
$ |
292 |
|
|
$ |
115 |
|
|
$ |
(735) |
|
B.Reconciliation between income tax expense and accounting loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Tax calculated based on profit (loss) before tax and statutory tax rate (Note i) |
$ |
(368) |
|
|
$ |
(221) |
|
|
$ |
29 |
|
| Effects from items disallowed by tax regulation |
46 |
|
|
18 |
|
|
24 |
|
| Effects from non-deductible offshore income tax |
147 |
|
|
6 |
|
|
6 |
|
|
|
|
|
|
|
| Temporary difference not recognized as deferred income tax assets |
141 |
|
|
702 |
|
|
94 |
|
| Prior year income tax underestimation |
3 |
|
|
— |
|
|
6 |
|
| Taxable loss not recognized as deferred income tax assets |
638 |
|
|
1,732 |
|
|
1,842 |
|
| Effect from investment tax credits (Note iii) |
— |
|
|
— |
|
|
(357) |
|
| Change in assessment of realization of deferred income tax assets |
(301) |
|
|
(2,139)
(Note ii)
|
|
(2,377)
(Note ii)
|
| Effects from other states apart from where United States subsidiary registered |
8 |
|
|
8 |
|
|
8 |
|
|
|
|
|
|
|
| Others |
(22) |
|
|
9 |
|
|
(10) |
|
| Income tax (benefit) expense |
$ |
292 |
|
|
$ |
115 |
|
|
$ |
(735) |
|
Note i: As a Cayman Islands corporation, the Company’s domestic statutory income tax rate is 0.0%. Hence, there was no tax impact to the Company. The difference between the Company’s domestic statutory income tax rate and its income tax expense is due to the effect of the tax rates in the other jurisdictions in which the Company operates. The basis for computing the applicable tax rate are the rates applicable in the respective countries where the Group entities operate.
Note ii: The change in assessment of the realization of deferred income tax assets mainly consists of the use of net operating loss (NOL) and temporary difference. These temporary difference mainly consist of unrealized expenses, including stock-based payments, warranty provisions, and unused paid leave. The Taiwan subsidiary began generating profits in 2023 and fully utilized all loss carryforwards by 2024, and it's expected to remain profitable in the foreseeable future.
Note iii: The Taiwan subsidiary is profitable and has utilized part of the investment tax credits.
The following table illustrates the statutory tax rates for significant jurisdictions that the Company operates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
| Jurisdictions |
|
2022 |
|
2023 |
|
2024 |
| United States (Federal/State) |
|
21%/8.84% |
|
21%/8.84% |
|
21%/8.84% |
| Japan |
|
35.73 |
% |
|
34.60 |
% |
|
36.86 |
% |
| Taiwan |
|
20 |
% |
|
20 |
% |
|
20 |
% |
C.Amounts of deferred income tax assets or liabilities as a result of temporary differences and tax losses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
January 1 |
|
Recognized in
profit or loss
|
|
Net exchange
differences
|
|
December 31 |
| Deferred income tax assets: |
|
|
|
|
|
|
|
| – Temporary differences: |
|
|
|
|
|
|
|
| Unrealized expenses |
$ |
228 |
|
|
$ |
43 |
|
|
$ |
(15) |
|
|
$ |
256 |
|
|
|
|
|
|
|
|
|
| Others |
16 |
|
|
(14) |
|
|
(1) |
|
|
1 |
|
|
$ |
244 |
|
|
$ |
29 |
|
|
$ |
(16) |
|
|
$ |
257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
January 1 |
|
Recognized in
profit or loss
|
|
Net exchange
differences
|
|
December 31 |
| Deferred income tax assets: |
|
|
|
|
|
|
|
| – Temporary differences: |
|
|
|
|
|
|
|
| Unrealized expenses |
$ |
256 |
|
|
$ |
1,820 |
|
|
$ |
(26) |
|
|
$ |
2,050 |
|
| Allowance for bad debts |
— |
|
|
13 |
|
|
— |
|
|
13 |
|
| Unrealized exchange losses |
— |
|
|
(14) |
|
|
— |
|
|
(14) |
|
| Others |
1 |
|
|
(2) |
|
|
(1) |
|
|
(2) |
|
|
$ |
257 |
|
|
$ |
1,817 |
|
|
$ |
(27) |
|
|
$ |
2,047 |
|
D.Expiration dates of unused taxable losses primarily originating from the losses of U.S. subsidiary, and amounts of unrecognized deferred income tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2024 |
| Year incurred |
|
Amount filed/
assessed |
|
Unused amount |
|
Unrecognized deferred
income tax assets |
|
Expiry year |
| 2016 |
|
$ |
4,867 |
|
|
$ |
4,043 |
|
|
$ |
4,043 |
|
|
2036 |
| 2017 |
|
3,601 |
|
|
3,601 |
|
|
3,601 |
|
|
2037 |
| 2018 |
|
1,888 |
|
|
1,888 |
|
|
1,888 |
|
|
no expiration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
|
3,594 |
|
|
3,594 |
|
|
3,594 |
|
|
no expiration |
| 2022 |
|
665 |
|
|
665 |
|
|
665 |
|
|
2027~no expiration |
| 2023 |
|
6,029 |
|
|
6,029 |
|
|
6,029 |
|
|
2028~no expiration |
| 2024 |
|
6,692 |
|
|
6,692 |
|
|
6,692 |
|
|
2029~no expiration |
|
|
$ |
27,336 |
|
|
$ |
26,512 |
|
|
$ |
26,512 |
|
|
|
E.The amounts of deductible temporary difference that are not recognized as deferred income tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Deductible temporary differences |
$ |
3,424 |
|
|
$ |
769 |
|
6(25) Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2022 |
|
Amount after tax |
|
Weighted average number of ordinary shares outstanding
(shares in thousands) |
|
Loss per share (in dollars) |
| Basic loss per share |
|
|
|
|
|
| Loss attributable to ordinary shareholders of the parent |
$ |
(161,744) |
|
|
68,337 |
|
$ |
(2.37) |
|
| Dilutive loss per share |
|
|
|
|
|
| Loss attributable to ordinary shareholders of the Group plus assumed conversion of all dilutive potential ordinary shares |
$ |
(161,744) |
|
|
68,337 |
|
$ |
(2.37) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2023 |
|
Amount after tax |
|
Weighted average number of ordinary shares outstanding
(shares in thousands) |
|
Loss per share
(in dollars) |
| Basic earnings per share |
|
|
|
|
|
| Profit attributable to ordinary shareholders of the parent |
$ |
5,416 |
|
|
118,024 |
|
$ |
0.05 |
|
| Dilutive earnings per share |
|
|
|
|
|
| Profit attributable to ordinary shareholders of the Group plus assumed conversion of all dilutive potential ordinary shares |
$ |
5,416 |
|
|
118,024 |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2024 |
|
Amount after tax |
|
Weighted average number of ordinary shares outstanding
(shares in thousands) |
|
Earnings per share
(in dollars) |
| Basic earnings per share |
|
|
|
|
|
| Profit attributable to ordinary shareholders of the parent |
$ |
5,021 |
|
|
101,849 |
|
$ |
0.05 |
|
| Dilutive earnings per share |
|
|
|
|
|
| Profit attributable to ordinary shareholders of the Group plus assumed conversion of all dilutive potential ordinary shares |
$ |
5,021 |
|
|
101,849 |
|
$ |
0.05 |
|
Note: Warrant liabilities, Employee stock options, Shareholder Earnout and Sponsor Earnout were excluded from the calculation of diluted earnings per share as they are anti-dilutive for the years ended December 31, 2022, 2023 and 2024. As at December 31, 2023 and 2024, the potentially dilutive instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Potentially dilutive instruments (shares in thousands) |
|
|
|
| Warrant liabilities |
20,850 |
|
|
20,850 |
|
| Employee stock options |
4,073 |
|
|
3,877 |
|
| Shareholder Earnout |
10,000 |
|
|
10,000 |
|
| Sponsor Earnout |
1,176 |
|
|
1,176 |
|
|
36,099 |
|
|
35,903 |
|
6(26) Changes in liabilities from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
Financial liabilities
at fair value through
profit or loss |
|
Lease liabilities (including
current portion) |
|
Liabilities from financing
activities-gross |
| At January 1 |
$ |
259,230 |
|
|
$ |
638 |
|
|
$ |
259,868 |
|
| Changes in cash flow from financing activities |
— |
|
|
(457) |
|
|
(457) |
|
| Net exchange differences |
— |
|
|
(56) |
|
|
(56) |
|
| Warrants assumed in connection with the Recapitalization |
8,431 |
|
|
— |
|
|
8,431 |
|
| Exchange of preferred shares |
(358,238) |
|
|
— |
|
|
(358,238) |
|
| Change in fair value through profit and loss |
93,777 |
|
|
— |
|
|
93,777 |
|
| Change in fair value through other comprehensive income |
7 |
|
|
— |
|
|
7 |
|
| Changes in other non-cash items – additions |
— |
|
|
213 |
|
|
213 |
|
| At December 31 |
$ |
3,207 |
|
|
$ |
338 |
|
|
$ |
3,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
Financial liabilities
at fair value through
profit or loss |
|
Lease liabilities (including
current portion) |
|
Liabilities from financing
activities-gross |
| At January 1 |
$ |
3,207 |
|
|
$ |
338 |
|
|
$ |
3,545 |
|
| Changes in cash flow from financing activities |
— |
|
|
(435) |
|
|
(435) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in fair value through profit and loss |
(1,641) |
|
|
— |
|
|
(1,641) |
|
|
|
|
|
|
|
| Changes in other non-cash items – additions |
— |
|
|
1,012 |
|
|
1,012 |
|
| Changes in other non-cash items – lease modification |
— |
|
|
(47) |
|
|
(47) |
|
| At December 31 |
$ |
1,566 |
|
|
$ |
868 |
|
|
$ |
2,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
Financial liabilities
at fair value through
profit or loss |
|
Lease liabilities (including
current portion) |
|
Liabilities from financing
activities-gross |
| At January 1 |
$ |
1,566 |
|
|
$ |
868 |
|
|
$ |
2,434 |
|
| Changes in cash flow from financing activities |
— |
|
|
(525) |
|
|
(525) |
|
| Change in fair value through profit and loss |
227 |
|
|
— |
|
|
227 |
|
| Changes in other non-cash items – additions |
— |
|
|
167 |
|
|
167 |
|
|
|
|
|
|
|
| At December 31 |
$ |
1,793 |
|
|
$ |
510 |
|
|
$ |
2,303 |
|
6(27) Recapitalization
The Recapitalization has been accounted for with Provident being identified as the “acquired” entity for financial reporting purposes. Accordingly, the Recapitalization has been accounted for as the equivalent of Perfect issuing shares for the net assets of Provident, accompanied by a recapitalization by third party investors. The net assets of Provident were recognized at their net carrying amounts with no goodwill or other intangible assets.
Perfect has been determined to be the accounting acquirer based on the evaluation of the following facts and circumstances:
•the former owners of Perfect hold the largest portion of voting rights in the combined company;
•Perfect has the right to appoint a majority of the directors in the combined company;
•Perfect’s existing senior management team comprise a majority of management of the combined company;
•the operations of Perfect represent the ongoing operations of the combined company; and
•Perfect is the larger one of the combining entities based on the fair value, assets, revenues and profit/loss.
The acquisition of the net assets of Provident on the Closing Date does not meet the definition of a business combination under IFRS 3—Business Combinations and has therefore been accounted for within the scope of IFRS 2—Share-based Payments, with the former Provident shareholders receiving Perfect Class A Ordinary Shares based on Business Combination Agreement or requested redemption. The excess of fair value of Perfect Ordinary Shares issued over the fair value of Provident’s identifiable net assets acquired represents compensation for the service of a stock exchange listing for its shares and was expensed as incurred, the summary of which is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Listing expense |
| Net assets of Provident at Closing, excluding the impact of PIPE and FPA investors |
|
|
$ |
63 |
|
| Cash and cash equivalents |
7,893 |
|
|
|
| Accrued expenses |
(500) |
|
|
|
| Warrant liabilities (Note i) |
(7,330) |
|
|
|
| Total value of Perfect shares issued to Provident shareholders, excluding PIPE and FPA Investor (Note ii) |
|
|
(56,478) |
|
| Adjustment to listing expense as result of Sponsor Earnout |
|
|
(8,849) |
|
|
|
|
$ |
(65,264) |
|
Note i : The difference between $7,330 and the warrant liability of $8,431 in Note 6(9) is the value of the FPA warrants.
Note ii : The fair value was based on 6,764 thousand shares issued and the opening market price of Provident of $8.35 (in dollars) per share as of October 28, 2022.
The Recapitalization also involved:
•Provident and certain investors (the “FPA Investors”) entered into certain FPA, pursuant to which the FPA Investors agreed to subscribe for and purchase, and Provident agreed to issue and sell to such FPA Investors, collectively, 5,500 thousand Provident Class A Ordinary Shares and 2,750 thousand warrants to purchase Provident Class A Ordinary Shares in consideration for an aggregate purchase price of $55,000 (the “FPA Investment”).
•Certain investors (the “PIPE Investors”), entered into Subscription Agreements, pursuant to which, the PIPE Investors purchased, concurrently with the closing of the Transaction, in the aggregate, 5,000 thousand Provident Class A Shares for $10.00 (in dollars) per share, for an aggregate purchase price of $50,000 (the “PIPE Investment”).
•Shares to be issued for Perfect shareholders pursuant to Business Combination Agreements and Shares to be issued for Provident pursuant to Sponsor Letter Agreement. Please refer to Note 6(13) “Share-based payment”.
•Professional service expenditures of $1,594 and $5,888 incurred to facilitate listing on the NYSE for the years ended December 31, 2021 and 2022 which, in addition to the $65,264 listing expense described in the table above, has resulted in a total of $1,594 and $71,152 being recognized in profit or loss for the years ended December 31, 2021 and 2022.
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) |
| ClinJeff Corp. (ClinJeff) |
|
Other related party (Major shareholder of CyberLink) |
Note: CyberLink owns more than 36% of the Company’s issued and outstanding ordinary shares.
7(2) Significant related party transactions
A.Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
Description |
|
2022 |
|
2023 |
|
2024 |
| CyberLink |
Revenue-others (service revenue) |
|
$ |
28 |
|
|
$ |
32 |
|
|
$ |
37 |
|
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, 2023 |
|
December 31, 2024 |
| CyberLink |
$ |
26 |
|
|
$ |
22 |
|
| CyberLink-Japan |
24 |
|
|
24 |
|
|
$ |
50 |
|
|
$ |
46 |
|
Other payables are mainly expenses from professional service, rental and payments on behalf of others.
C.Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
Description |
|
2022 |
|
2023 |
|
2024 |
| CyberLink |
Management service fee |
|
$ |
80 |
|
|
$ |
48 |
|
|
$ |
41 |
|
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, ClinJeff and CyberLink-Japan. Rental contracts are typically made for periods of 1~2 years. Rent payments are made to CyberLink and ClinJeff each month and were paid to CyberLink-Japan each quarter.
(b)Rent expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| CyberLink-Japan |
$ |
90 |
|
|
$ |
84 |
|
|
$ |
78 |
|
(c)Acquisition of right-of-use assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| CyberLink |
$ |
— |
|
|
$ |
477 |
|
|
$ |
— |
|
| ClinJeff |
— |
|
|
— |
|
|
82 |
|
|
$ |
— |
|
|
$ |
477 |
|
|
$ |
82 |
|
(d)Lease liabilities
i.Outstanding balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Total lease liabilities |
$ |
381 |
|
|
$ |
202 |
|
| Less: Current portion (shown as ‘current lease liabilities’) |
(238) |
|
|
(189) |
|
|
$ |
143 |
|
|
$ |
13 |
|
ii.Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| CyberLink |
$ |
5 |
|
|
$ |
6 |
|
|
$ |
6 |
|
| ClinJeff |
— |
|
|
— |
|
|
1 |
|
|
$ |
5 |
|
|
$ |
6 |
|
|
$ |
7 |
|
7(3) Key management compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
| Salaries and other short-term employee benefits |
$ |
2,330 |
|
|
$ |
2,484 |
|
|
$ |
2,668 |
|
| Share-based payment |
416 |
|
|
552 |
|
|
467 |
|
| Post-employment benefits |
11 |
|
|
10 |
|
|
10 |
|
|
$ |
2,757 |
|
|
$ |
3,046 |
|
|
$ |
3,145 |
|
The unpaid portion of the aforementioned information were $115 and $115 for December 31, 2023 and 2024.
8. Pledged Assets
None.
9. Significant Contingent Liabilities and Unrecognized Contract Commitments
9(1) Contingencies
None.
9(2) Commitments
Except for Notes 6(7), 6(9) and 7(2), there is no other significant commitments.
10. Significant Disaster Loss
None.
11. Significant Events After the Balance Sheet Date
Acquisition of Wannaby Inc.
On December 23, 2024, the Company entered into a definitive agreement with Farfetch US Holdings, Inc. (the “Seller”) to acquire 100% of Wannaby Inc., a digital company known for its virtual try-on technology and digitalization solutions for the fashion industry. This acquisition enables the Company to expand its offerings into new luxury market segments, including shoes, bags, and apparel.
The acquisition was completed on January 7, 2025 (the “closing date”), with the purchase price amounting to $6,045 paid in cash to the Seller and Citibank N.A. escrow account. The initial purchase price was calculated based on the estimated working capital, the estimated indebtedness of Wannaby outstanding as of immediately prior to the closing, the estimated cash of Wannaby, the estimated unpaid portion of the selling expenses as of immediately prior to the closing, and the estimated non-Seller gross revenues. Within sixty (60) days after the closing date, the Company shall prepare and deliver a final statement to the Seller to calculate the purchase price adjustment based on the final working capital, the final indebtedness, the final cash of Wannaby, the final selling expenses, and the final non-Seller gross revenues. Within thirty (30) days following the Seller’s receipt of the final statement, the Seller shall notify the Company in writing of any disputes regarding the preparation or content of the statement. Subject to the occurrence of the closing and no later than April 30, 2026, the Company shall pay the Seller an earnout based on defined revenue for the year ended December 31, 2025, not exceeding $500. It shall be zero if the defined revenue yields a negative number. As of March 28, 2025, the time of the approval of these financial statements, the Company is currently on the progress of finalizing the adjusted final statements to determine the final purchase price. The Company will provide further updates as necessary in future filings.
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, 2023 and 2024, the Group’s gearing ratios are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Total liabilities |
$ |
30,957 |
|
|
$ |
34,158 |
|
| Total equity |
$ |
139,406 |
|
|
$ |
147,015 |
|
| Gearing ratio |
0.22 |
|
0.23 |
12(2) Financial instruments
A.Financial instruments by category
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Financial assets |
|
|
|
| Financial assets at fair value through profit or loss |
|
|
|
| Financial assets mandatorily measured at fair value through profit or loss |
$ |
— |
|
|
$ |
2,746 |
|
| Financial assets at amortized cost |
|
|
|
| Cash and cash equivalents |
$ |
123,871 |
|
|
$ |
127,121 |
|
| Current financial assets at amortized cost |
30,300 |
|
|
36,000 |
|
| Accounts receivable |
6,992 |
|
|
7,902 |
|
| Other receivables |
343 |
|
|
352 |
|
| Guarantee deposits paid |
140 |
|
|
146 |
|
|
$ |
161,646 |
|
|
$ |
171,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2024 |
| Financial liabilities |
|
|
|
| Financial liabilities at fair value through profit or loss |
|
|
|
| Warrant liabilities |
$ |
1,566 |
|
|
$ |
1,793 |
|
| Financial liabilities at amortized cost |
|
|
|
| Other payables (including related parties) |
$ |
10,381 |
|
|
$ |
11,702 |
|
| Guarantee deposits received |
25 |
|
|
— |
|
|
$ |
10,406 |
|
|
$ |
11,702 |
|
| Lease liabilities |
$ |
868 |
|
|
$ |
510 |
|
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.
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 USD, JPY, RMB 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). The information of and sensitivity analysis for significant financial assets and liabilities denominated in foreign currencies illustrate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
Sensitivity analysis |
|
Foreign currency amount
(in thousands) |
|
Exchange rate |
|
Functional currency |
|
Book value
(USD) |
|
Degree of variation |
|
Effect on profit or loss |
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
| Monetary items |
|
|
|
|
|
|
|
|
|
|
|
| NTD:USD |
$ |
79,097 |
|
|
0.0326 |
|
$ |
2,579 |
|
|
$ |
2,579 |
|
|
1 |
% |
|
$ |
26 |
|
| EUR:USD |
664 |
|
|
1.1064 |
|
735 |
|
|
735 |
|
|
1 |
% |
|
7 |
|
| JPY:USD |
317,217 |
|
|
0.0071 |
|
2,252 |
|
|
2,252 |
|
|
1 |
% |
|
23 |
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
| Monetary items |
|
|
|
|
|
|
|
|
|
|
|
| EUR:USD |
138 |
|
|
1.1064 |
|
153 |
|
|
153 |
|
|
1 |
% |
|
2 |
|
| USD:JPY |
168 |
|
|
141.39 |
|
23,754 |
|
|
168 |
|
|
1 |
% |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2024 |
|
|
|
|
|
|
|
|
|
Sensitivity analysis |
|
Foreign currency amount
(in thousands) |
|
Exchange rate |
|
Functional currency |
|
Book value
(USD) |
|
Degree of variation |
|
Effect on profit or loss |
| Financial assets |
|
|
|
|
|
|
|
|
|
|
|
| Monetary items |
|
|
|
|
|
|
|
|
|
|
|
| NTD:USD |
$ |
103,569 |
|
|
0.0305 |
|
$ |
3,159 |
|
|
$ |
3,159 |
|
|
1 |
% |
|
$ |
32 |
|
| EUR:USD |
298 |
|
|
1.0411 |
|
310 |
|
|
310 |
|
|
1 |
% |
|
3 |
|
| JPY:USD |
201,668 |
|
|
0.0064 |
|
1,291 |
|
|
1,291 |
|
|
1 |
% |
|
13 |
|
| USD:CNY |
320 |
|
|
7.3225 |
|
2,343 |
|
|
320 |
|
|
1 |
% |
|
3 |
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
| Monetary items |
|
|
|
|
|
|
|
|
|
|
|
| EUR:USD |
197 |
|
|
1.0411 |
|
205 |
|
|
205 |
|
|
1 |
% |
|
2 |
|
| USD:JPY |
100 |
|
|
156.22 |
|
15,622 |
|
|
100 |
|
|
1 |
% |
|
1 |
|
iii.The total exchange (loss) gain, including realized and unrealized, arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2022, 2023 and 2024, amounted to $1,303, $34 and $(89), respectively.
(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 contract cash flow of financial assets at amortized cost and at fair value through profit or loss.
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. The majority of cash and cash equivalents as well as current financial assets at amortized cost and at fair value through profit or loss are held with financial institutions with a rating of ‘A’.
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 following indicators are used to determine whether the credit impairment of accounts receivable has occurred:
(i)It becomes probable that the issuer will enter bankruptcy or other financial reorganization due to their financial difficulties;
(ii)Default or delinquency in principal repayments.
vi.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.
vii.The Group wrote-off the financial assets, which cannot be reasonably expected to be recovered, after initiating recourse procedures. However, the Group will continue executing the recourse procedures to secure their rights.
viii.The Group used the territory economic forecasts to adjust historical and timely information to assess the default possibility of accounts receivable.
ix.As of December 31, 2023 and 2024, the provision matrix is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2023 |
|
Not past due |
|
Up to 30 days past due |
|
31~90 days
past due |
|
91~180 days
past due |
|
Over 181 days past due |
|
Total |
| rate |
|
— |
% |
|
— |
% |
|
— |
% |
|
— |
% |
|
— |
% |
|
|
| Total book value |
|
$ |
5,791 |
|
|
$ |
594 |
|
|
$ |
340 |
|
|
$ |
196 |
|
|
$ |
71 |
|
|
$ |
6,992 |
|
| Loss allowance |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2024 |
|
Not past due |
|
Up to 30 days past due |
|
31~60 days past due |
|
61~90 days past due |
|
Over 181 days past due |
|
Total |
| rate |
|
0.11%~0.32% |
|
6.48%~30.86% |
|
8.36%~42.53% |
|
22.69%~97.44% |
|
100 |
% |
|
|
| Total book value |
|
$ |
7,535 |
|
|
$ |
261 |
|
|
$ |
213 |
|
|
$ |
65 |
|
|
$ |
94 |
|
|
$ |
8,168 |
|
| Loss allowance |
|
12 |
|
|
49 |
|
|
76 |
|
|
35 |
|
|
94 |
|
|
266 |
|
x.Movements in relation to the Group applying the modified approach to provide loss allowance for accounts receivable is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
2024 |
|
Accounts receivable |
|
Accounts receivable |
| At January 1 |
$ |
— |
|
|
$ |
— |
|
|
|
|
|
| Provision for impairment |
— |
|
|
1,373 |
|
|
|
|
|
| Write-offs |
— |
|
|
(1,107) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31 |
$ |
— |
|
|
$ |
266 |
|
xi.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 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, 2023 and 2024, the Group held demand deposits, time deposits and money market position of $151,847 and $161,992, respectively. The Group manages liquidity risk by ensuring that these balances are available to meet short-term cash needs. Time deposits withdrawn early receive a lower interest rate through the withdrawal date compared to the stated interest rate applicable on the nominal maturity date. However, there are no significant risk of change in value as a result of an early withdrawal for time deposits classified as cash equivalents.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-derivative financial liabilities: December 31, 2023 |
|
Less than
1 year |
|
Between 1-5
years |
|
Over
5 years |
| Financial liabilities at fair value through profit or loss |
|
$ |
— |
|
|
$ |
1,566 |
|
|
$ |
— |
|
| Other payables (including related parties) |
|
10,381 |
|
|
— |
|
|
— |
|
| Lease liabilities (Note) |
|
496 |
|
|
392 |
|
|
— |
|
| Guarantee deposits received |
|
— |
|
|
25 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-derivative financial liabilities: December 31, 2024 |
|
Less than
1 year |
|
Between 1-5
years |
|
Over
5 years |
| Financial liabilities at fair value through profit or loss |
|
$ |
— |
|
|
$ |
1,793 |
|
|
$ |
— |
|
| Other payables (including related parties) |
|
11,702 |
|
|
— |
|
|
— |
|
| Lease liabilities (Note) |
|
409 |
|
|
109 |
|
|
— |
|
Note: The amount included the interest of estimated future payments.
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. The fair value of the Group’s investment in money market funds is included in Level 1.
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 (including related parties), 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 assets and liabilities at December 31, 2023 and 2024 are as follows:
(a)The related information of natures of the liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 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 |
|
$ |
954 |
|
|
$ |
612 |
|
|
$ |
— |
|
|
$ |
1,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2024 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| Assets |
|
|
|
|
|
|
|
|
| Recurring fair value measurements |
|
|
|
|
|
|
|
|
| Financial assets at fair value through profit or loss |
|
|
|
|
|
|
|
|
| Money market funds |
|
$ |
2,746 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,746 |
|
| Liabilities |
|
|
|
|
|
|
|
|
| Recurring fair value measurements |
|
|
|
|
|
|
|
|
| Financial liabilities at fair value through profit or loss |
|
|
|
|
|
|
|
|
| Compound instrument: |
|
|
|
|
|
|
|
|
| Warrant liabilities |
|
$ |
1,793 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,793 |
|
(b)The methods and assumptions the Group used to measure fair value are as follows:
i.Except those mentioned in point (ii) ~ (iv) 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.The instruments the Group used market quoted price as their fair values (that is, Level 1) are listed below by characteristics:
|
|
|
|
|
|
|
|
|
|
|
|
|
Open-end fund |
|
Perfect Public Warrants |
| Market quoted price |
Net asset value |
|
Closing 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 year ended December 31, 2024, all units of Private Placement Warrants and Forward Purchase Warrants had been converted into Public Warrants. Therefore, the Company transferred the fair value from Level 2 into Level 1.
E.For the year ended December 31, 2023 and 2024, there was no transfer into or out from Level 3.
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 years ended December 31, 2022, 2023 and 2024 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
|
Revenue |
|
Revenue |
|
Revenue |
| United States |
$ |
24,291 |
|
|
$ |
24,992 |
|
|
$ |
25,142 |
|
| Americas_Others |
3,286 |
|
|
4,937 |
|
|
6,669 |
|
| Europe |
9,172 |
|
|
13,777 |
|
|
16,586 |
|
| Asia-Pacific |
9,170 |
|
|
8,553 |
|
|
10,109 |
|
| Others |
1,381 |
|
|
1,246 |
|
|
1,696 |
|
|
$ |
47,300 |
|
|
$ |
53,505 |
|
|
$ |
60,202 |
|
Note : Americas_Others includes in North and South America, excluding the United States.
Geographical information on the revenue shows the location in which sales were generated. Non-current assets amounted to $1,304 and $1,071 as of December 31, 2023 and 2024, 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
Major customer information of the Group (exceed 10% of revenue) for the years ended December 31, 2022, 2023 and 2024 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2022 |
|
2023 |
|
2024 |
|
Revenue |
|
Revenue |
|
Revenue |
| Client A |
$ |
5,195 |
|
|
$ |
4,416 |
|
|
$ |
3,111 |
|
Note: Client A does not exceed 10% of revenue for the years ended December 31, 2023 and 2024.
EX-2.5
2
perf-20241231xexx25xdescri.htm
EX-2.5
Document
Exhibit 2.5
DESCRIPTION OF SECURITIES
Perfect Corp. (the “Company”) has the following securities registered under Section 12 of the Securities Exchange Act of 1934, as amended:
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|
|
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|
|
|
|
|
|
|
|
|
|
|
| Title of each class |
|
Trading Symbol |
|
Name of each exchange on which registered |
| Class A Ordinary Shares |
|
PERF |
|
New York Stock Exchange, Inc. |
| Warrants |
|
PERF WS |
|
New York Stock Exchange, Inc. |
References herein to “we,” “us,” “our,” “Perfect” and the “Company” refer to Perfect Corp. and not to any of its subsidiaries. The following description may not contain all of the information that is important to you, and we therefore refer you to our Sixth Amended and Restated Memorandum and Articles of Association (the “Articles”), a copy of which is filed with the Securities and Exchange Commission (“SEC”) as an exhibit to the Company’s annual report on Form 20-F (“Annual Report”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Annual Report.
We are a Cayman Islands exempted company with limited liability and our affairs are governed by the Company’s Articles, the Companies Act (As Revised) of the Cayman Islands (the “Companies Act”), and the common law of the Cayman Islands.
According to Section 3 of our Sixth Amended and Restated Memorandum of Association (“Memorandum”), subject to other provisions of our Memorandum, the objects for which we are established are unrestricted and we shall have full power and authority to carry out any object not prohibited by the Companies Act or any other law of the Cayman Islands. Our register of shareholders is maintained by Continental Stock Transfer & Trust Company.
The Company’s authorized share capital consists of 820,000,000 Ordinary Shares of a par value of $0.10 each, consisting of 700,000,000 Class A Ordinary Shares, 90,000,000 Class B Ordinary Shares and 30,000,000 blank check shares of the Company as the Company’s board of directors (“Board”) may determine in accordance with Article 5 of the Company’s Articles. All Ordinary Shares issued and outstanding were fully paid and non-assessable.
The following are summaries of the material provisions of the Company’s Articles and the Companies Act insofar as they relate to the material terms of the Ordinary Shares.
Description of Ordinary Shares (Items 10.B.3, 10.B.4, 10.B.5, 10.B.6, 10.B.7, 10.B.8, 10.B.9 and 10.B.10 of Form 20-F)
Dividends
The directors may from time to time declare dividends (including interim dividends) and other distributions on our Shares in issue and authorize payment of the same out of the funds of the Company lawfully available therefor.
In addition, the shareholders of the Company may declare dividends by ordinary resolution, but no dividend may exceed the amount recommended by the directors. Under the laws of the Cayman Islands, dividends may be paid out of either profit or share premium account; provided that in no circumstances may a dividend be paid if this would result in the Company being unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights
Subject to different rules applied to the situation of variations of rights of Shares (as illustrated below), holders of Ordinary Shares shall at all times vote together as one class on all resolutions submitted to a vote by the shareholders. Each Class B Ordinary Share shall entitle the holder thereof to ten votes on all matters subject to vote at general meetings of the Company, and each Class A Ordinary Share shall entitle the holder thereof to one vote on all matters subject to vote at general meetings of the Company.
Notwithstanding the above, when the rights attached to a single class may be materially adversely affected, the holders of the Shares of that class shall vote at a separate meeting to pass an ordinary resolution, or provide the consent in writing.
Our Board is divided into three classes: Class I, Class II and Class III. The number of directors in each class shall be as nearly equal as possible. The Class I directors shall stand appointed for a term expiring at our first annual general meeting, the Class II directors shall stand appointed for a term expiring at our second annual general meeting, and the Class III directors shall stand appointed for a term expiring at our third annual general meeting. Commencing at our first annual general meeting, and at each annual general meeting thereafter, directors appointed to replace those directors whose terms expire shall be appointed for a term of office to expire at the third succeeding annual general meeting after their appointment. If no replacement directors are appointed, the existing directors shall be automatically re-appointed for a further term of office to expire at the third succeeding annual general meeting after their re-appointment.
Conversion Between Class A Ordinary Shares and Class B Ordinary Shares
Each Class B Ordinary Share is convertible into one Class A Ordinary Share at any time at the option of the holder thereof. 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 DVDonet.com. Inc., Golden Edge Co., Ltd., World Speed Company Limited or Alice H. Chang. Class A Ordinary Shares are not convertible into Class B Ordinary Shares under any circumstances.
Liquidation
On a winding-up, holders of Shares will be entitled to participate in any surplus assets in proportion to the capital paid up at the commencement of the winding up on the Shares held by them respectively.
Calls on Shares and Forfeiture of Shares
The directors may from time to time make calls upon the shareholders in respect of any moneys unpaid on their Shares provided that no call shall be payable earlier than one month from the last call. Any Shares that have been called upon and remain unpaid are, after a notice period, subject to forfeiture.
Redemption and Repurchase of Shares
The Company may issue Shares on terms that such Shares are subject to redemption, at its option or at the option of the holders of these Shares, on such terms and in such manner as may be determined, before the issue of such Shares, by our Board. The Company may also repurchase any of its Shares on such terms and in such manner as have been approved by our Board. Under the Companies Act, the redemption or repurchase of any share may be paid out of the Company’s profits or out of the proceeds of a new issue of Shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if the Company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act, no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no Shares outstanding or (c) if the Company has commenced liquidation. In addition, the Company may accept the surrender of any fully paid share for no consideration.
Transfer of Shares
Subject to the Company’s Articles, the NYSE listed company manual (the “NYSE Listed Company Manual”) and any relevant securities laws, any shareholder may transfer all or any Shares by an instrument of transfer in a usual or common form or in a form prescribed by the NYSE or in any other form approved by the directors and may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the Company’s Directors may approve from time to time.
The instrument of transfer of any Share shall be executed by or on behalf of the transferor and transferee, and the transferor shall be deemed to remain a holder of the Share until the name of the transferee is entered in the Register of Members in respect thereof.
Subject to the NYSE Listed Company Manual and to any rights and restrictions for the time being attached to any Share, the directors may, in their absolute discretion and without assigning any reason therefor, decline to register any transfer of Shares to a person of whom they do not approve.
For the avoidance of doubt, the directors may decline to register any transfer of a Share if such transfer would breach or cause a breach of: (i) the NYSE Listed Company Manual; or (ii) applicable law or regulation at such times and for such periods as the directors may from time to time determine.
a)The directors may decline to recognize any instrument of transfer unless (x) a fee not exceeding one dollar is paid to the Company in respect thereof, and (y) the instrument of transfer is accompanied by the certificate of the Shares to which it relates, and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer.
b)If the directors refuse to register a transfer of Shares, they shall, within one month after the date on which the transfer was lodged with the Company, send to the transferee notice of the refusal.
Variations of Rights of Shares
Whenever the capital of the Company is divided into different classes, the rights attached to any such class may, subject to any rights or restrictions for the time being attached to any class, only be materially adversely varied with the consent in writing of the holders of the majority of the issued and outstanding Shares of that class or with the sanction of an ordinary resolution passed at a separate meeting of the holders of the Shares of that class. The directors may treat all the classes or any two or more classes as forming one class if they consider that all such classes would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate classes.
General Meetings of Shareholders
We may (but shall not be obliged to) hold an annual general meeting at such time and place as our board of directors may determine. Seven days’ notice at the least (exclusive of the day on which the notice is served or deemed to be served, but inclusive of the day for which the notice is given) specifying the place, the day and the hour of meeting and, in the case of special business, the general nature of that business shall be given in accordance with the Articles, or in such other manner (if any) as may be prescribed by the Company in general meetings, to such persons as are entitled to vote or may otherwise be entitled under the Articles to receive such notices from the Company.
The directors may whenever they think fit, convene an extraordinary general meeting. If at any time there are not sufficient directors capable of acting to form a quorum, any director or any one or more shareholders holding in the aggregate not less than one-tenth of all votes attaching to all issued and outstanding Shares of the Company may convene an extraordinary general meeting in the same manner as nearly as possible as that in which meetings may be convened by the directors. The directors shall, upon the requisition in writing of one or more shareholders holding in the aggregate not less than one-tenth of all votes attaching to all issued and outstanding Shares of the Company as at the date of the requisition, convene an extraordinary general meeting. Save as otherwise provided in the Articles, one or more shareholders holding in the aggregate not less than one-third of all votes attaching to all issued and outstanding Shares of the Company present in person or by proxy and entitled to vote shall be a quorum.
Anti-Takeover Provisions in the Articles
Some provisions of the Articles may discourage, delay or prevent a change in control of our Company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under the Articles for what they believe in good faith to be in the best interests of our Company.
Liability for Further Capital Calls
There are no provisions in the Articles which obligate holders of Ordinary Shares to make further contributions to our share capital other than the subscribed capital contributions by the shareholders.
Rights of Non-Resident or Foreign Shareholders; Disclosure of Shareholder Ownership
There are no limitations imposed by the Articles or the Companies Act on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our Shares. In addition, there are no provisions in the Articles which require the Company to disclose shareholder ownership above any particular ownership threshold.
Changes in Capital
We may from time to time by ordinary resolution:
•increase the share capital by such sum, to be divided into new Shares of such amount, as the resolution shall prescribe;
•consolidate and divide all or any of our share capital into Shares of a larger amount than existing shares;
•sub-divide its existing Shares or any of them into Shares of a smaller amount than is fixed by the Articles, subject nevertheless to the provisions of section 13 of the Companies Act; and
•cancel any Shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person.
Summary of the Companies Act
The Companies Act permits a company to issue ordinary shares, preference shares, redeemable shares or any combination thereof.
The Companies Act provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the value of the premia on those shares shall be transferred to an account called the “share premium account.” At the option of a company, these provisions may not apply to premia on shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Act provides that the share premium account may be applied by a company, subject to the provisions, if any, of its memorandum and articles of association, in such manner as the company may from time to time determine, including, but without limitation:
•paying distributions or dividends to members;
•paying up unissued shares of the company to be issued to members as fully paid bonus shares;
•in the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Act);
•writing-off the preliminary expenses of the company;
•writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; and
•providing for the premium payable on redemption or purchase of any shares or debentures of the company.
No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course of business.
The Companies Act provides that, subject to any confirmation or consent required by the Companies Act, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorized by its articles of association, by special resolution reduce its share capital in any way.
Subject to the detailed provisions of the Companies Act, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorized by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder. In addition, such a company may, if authorized to do so by its articles of association, purchase its own shares, including any redeemable shares. The manner of such a purchase must be authorized either by the articles of association or by an ordinary resolution of the company. The articles of association may provide that the manner of purchase may be determined by the directors of the company. At no time may a company redeem or purchase its shares unless they are fully paid. A company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any member of the company holding shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.
We are an exempted company with limited liability incorporated under the laws of the Cayman Islands. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company.
The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:
•an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies of the Cayman Islands (the “Registrar of Companies”);
•an exempted company’s register of members is not open to inspection;
•an exempted company does not have to hold an annual general meeting;
•an exempted company may issue no par value shares;
•an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);
•an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
•an exempted company may register as a limited duration company; and
•an exempted company may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Differences in Corporate Law
The Companies Act is modeled after that of England and Wales but does not follow recent statutory enactments in England. In addition, the Companies Act differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements
A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved by the directors of each constituent company and authorization by a special resolution of the members of each constituent company.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose, a subsidiary is a company of which whose issued shares that together represent at least ninety percent (90%) of the votes at a general meeting are owned by the parent company.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation, provided that the dissenting shareholder complies strictly with the procedures set out in the Cayman Companies Act. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must, in addition, represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
•the statutory provisions as to the required majority vote have been met;
•the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class;
•the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
•the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act.
If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits
In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:
•a company acts or proposes to act illegally or ultra vires;
•the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and
•those who control the company are perpetrating a “fraud on the minority.”
Indemnification of Directors and Executive Officers and Limitation of Liability
Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. The Articles permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from willful neglect or default which may attach to such directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our Articles.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties
Under the Delaware General Corporation Law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or her position as director (unless the company permits him to do so) and a duty not to put himself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent
Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. The Articles provide that all resolutions of the shareholders shall be passed at a general meeting of the Company duly convened and held in accordance with the Articles and resolutions of shareholders in writing in lieu of a general meeting shall not be permitted.
Shareholder Proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
The Companies Act provides shareholders with only limited rights to requisition a general meeting. However, these rights may be provided in a company’s articles of association. Under the Articles, the directors shall, upon the requisition in writing of one or more shareholders holding in the aggregate not less than one-tenth of all votes attaching to all issued and outstanding Shares of the Company as at the date of the requisition, convene an extraordinary general meeting. Other than this right to requisition a shareholders’ meeting, our Articles do not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings. As an exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual general meeting.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under Cayman Islands law, but the Articles do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors
Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the issued shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Articles, directors may be removed by special resolution.
Transactions with Interested Shareholders
The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, the directors of the Company are required to comply with fiduciary duties which they owe to the Company under Cayman Islands law, including the duty to ensure that, in their opinion, such transactions must be entered into bona fide in the best interests of the company and for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding Up
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Under the Articles, if the Company shall be wound up, the liquidator may, with the sanction of a special resolution of the Company and any other sanction required by the Companies Act, divide amongst the shareholders in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purpose set such value as such liquidator deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the shareholders or different classes of shareholders.
Variation of Rights of Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under the Articles, whenever the capital of the Company is divided into different classes, the rights attached to any such class may, subject to any rights or restrictions for the time being attached to any class, only be materially adversely varied with the consent in writing of the holders of the majority of the issued and outstanding shares of that class or with the sanction of an ordinary resolution passed at a separate meeting of the holders of the shares of that class.
Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Companies Act, the Articles may only be amended by a special resolution.
Inspection of Books
Under the Delaware General Corporation Law, any shareholder of a corporation may for any proper purpose inspect or make copies of the corporation’s stock ledger, list of shareholders and other books and records.
Holders of our shares have no general right under Cayman Islands law to inspect or obtain copies of our register of members or our corporate records (other than the Articles and any special resolutions passed by us, and our registers of mortgages and charges). Under Cayman Islands law, the names of our current directors can be obtained from a search conducted at the Registrar of Companies.
Description of Warrants (Item 12.B of Form 20-F)
The following provides a summary of the material provisions governing the Warrants.
Perfect Public Warrants and Perfect Forward Purchase Warrants
Each Warrant entitles the registered holder to purchase one Class A Ordinary Share at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing 30 days after October 28, 2022, except as discussed in the immediately succeeding paragraph. Pursuant to the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, a warrant holder may exercise its Warrants only for a whole number of Class A Ordinary Shares. This means only a whole Warrant may be exercised at a given time by a warrant holder. The Warrants will expire five years after October 28, 2022, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any Class A Ordinary Shares pursuant to the exercise of a Warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A Ordinary Shares underlying the Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its registration obligations. No Warrant will be exercisable and the Company will not be obligated to issue a Class A Ordinary Share upon exercise of a Warrant unless such Class A Ordinary Share issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a Warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will the Company be required to net cash settle any Warrant.
The Company has agreed that as soon as practicable, but in no event later than thirty (30) business days after the Closing, the Company will use its reasonable best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A Ordinary Shares issuable upon exercise of the Perfect Forward Purchase Warrants. The Company will use its reasonable best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration or redemption of such Warrants in accordance with the provisions of the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement. If a registration statement covering the Class A Ordinary Shares issuable upon exercise of Warrants is not effective by the sixtieth (60th) business day after the Closing, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption.
Notwithstanding the above, if Class A Ordinary Shares are at the time of any exercise of a Warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Perfect Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act, and in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use its reasonable best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In such event, each holder would pay the exercise price by surrendering each such warrant for that number of Class A Ordinary Shares equal to the lesser of (A) the quotient obtained by dividing (x) the excess of the “fair market value” less the exercise price of such warrant by (y) the fair market value and (B) 0.361. The “fair market value” shall mean the volume weighted average price of the Class A Ordinary Shares for the 10 trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent.
On October 18, 2023, the SEC declared effective a registration statement on Form F-3, under which the selling securityholders or their permitted transferees may offer and sell, from time to time, up to 38,542,254 Class A Ordinary Shares, 9,350,000 Warrants and 9,350,000 Class A Ordinary Shares underlying such Warrants.
Redemptions of Warrants when the price per Class A Ordinary Share equals or exceeds $18.00.
Once the Warrants become exercisable, the Company may redeem the outstanding Warrants (except as described herein with respect to Perfect Private Placement Warrants):
•in whole and not in part;
•at a price of $0.01 per warrant;
•upon not less than 30 days’ prior written notice of redemption to each warrant holder (the “30-day redemption period”); and
•if, and only if, the last reported sale price of the 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 (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for share sub-divisions, share dividends, reorganizations, recapitalizations and the like).
If and when the Warrants become redeemable by the Company, it may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. However, the Company will not redeem the Warrants unless a registration statement under the Securities Act covering the Class A Ordinary Shares issuable upon exercise of the Warrants is effective and a current prospectus relating to those Class A Ordinary Shares is available throughout the 30-day redemption period.
If the foregoing conditions are satisfied and the Company issues a notice of redemption of the Warrants, each warrant holder will be entitled to exercise his, her or its Warrants prior to the scheduled redemption date. Any such exercise would not be done on a “cashless” basis and would require the exercising warrant holder to pay the exercise price for each Warrant being exercised. However, the price of the Class A Ordinary Shares may fall below the $18.00 redemption trigger price (as adjusted for share sub- divisions, share dividends, reorganizations, recapitalizations and the like) as well as the $11.50 (for whole shares) warrant exercise price after the redemption notice is issued.
Redemption of warrants when the price per Class A Ordinary Share equals or exceeds $10.00.
Once the Warrants become exercisable, the Company may redeem the outstanding warrants:
•in whole and not in part;
•at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption; provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of Shares determined by reference to the table below, based on the redemption date and the “fair market value” of Class A Ordinary Shares;
•if, and only if, the Reference Value equals or exceeds $10.00 per share (as adjusted for share sub- divisions, share dividends, reorganizations, recapitalizations and the like); and
•if the Reference Value is less than $18.00 per share (as adjusted for share sub-divisions, share dividends, reorganizations, recapitalizations and the like), Perfect Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Perfect Public Warrants, as described above.
The numbers in the table below represent the number of Class A Ordinary Shares that a warrant holder will receive upon exercise in connection with a redemption by the Company pursuant to this redemption feature, based on the “fair market value” of Class A Ordinary Shares on the corresponding redemption date (assuming holders elect to exercise their Warrants and such Warrants are not redeemed for $0.10 per warrant), determined based on the volume-weighted average price of Class A Ordinary Shares as reported during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of Warrants, and the number of months that the corresponding redemption date precedes the expiration date of the Warrants, each as set forth in the table below. The Company will provide its warrant holders with the final fair market value no later than one business day after the 10-trading-day period described above ends.
The share prices set forth in the column headings of the table below will be adjusted as of any date on which the number of Shares issuable upon exercise of a warrant is adjusted as set forth in the first three paragraphs under the heading “— Anti-dilution Adjustments” below. The adjusted share prices in the column headings will equal the share prices immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the number of Shares deliverable upon exercise of a warrant immediately prior to such adjustment and the denominator of which is the number of Shares deliverable upon exercise of a warrant as so adjusted. The number of Shares in the table below shall be adjusted in the same manner and at the same time as the number of Shares issuable upon exercise of a warrant.
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| Redemption Date |
Fair Market Value of Class A Ordinary Shares |
| (period to expiration of Warrants) |
<$10.00 |
$11.00 |
$12.00 |
$13.00 |
$14.00 |
$15.00 |
$16.00 |
$17.00 |
>$18.00 |
| 60 months |
0.261 |
0.281 |
0.297 |
0.311 |
0.324 |
0.337 |
0.348 |
0.358 |
0.361 |
| 57 months |
0.257 |
0.277 |
0.294 |
0.310 |
0.324 |
0.337 |
0.348 |
0.358 |
0.361 |
| 54 months |
0.252 |
0.272 |
0.291 |
0.307 |
0.322 |
0.335 |
0.347 |
0.357 |
0.361 |
| 51 months |
0.246 |
0.268 |
0.287 |
0.304 |
0.320 |
0.333 |
0.346 |
0.357 |
0.361 |
| 48 months |
0.241 |
0.263 |
0.283 |
0.301 |
0.317 |
0.332 |
0.344 |
0.356 |
0.361 |
| 45 months |
0.235 |
0.258 |
0.279 |
0.298 |
0.315 |
0.330 |
0.343 |
0.356 |
0.361 |
| 42 months |
0.228 |
0.252 |
0.274 |
0.294 |
0.312 |
0.328 |
0.342 |
0.355 |
0.361 |
| 39 months |
0.221 |
0.246 |
0.269 |
0.290 |
0.309 |
0.325 |
0.340 |
0.354 |
0.361 |
| 36 months |
0.213 |
0.239 |
0.263 |
0.285 |
0.305 |
0.323 |
0.339 |
0.353 |
0.361 |
| 33 months |
0.205 |
0.232 |
0.257 |
0.280 |
0.301 |
0.320 |
0.337 |
0.352 |
0.361 |
| 30 months |
0.196 |
0.224 |
0.250 |
0.274 |
0.297 |
0.316 |
0.335 |
0.351 |
0.361 |
| 27 months |
0.185 |
0.214 |
0.242 |
0.268 |
0.291 |
0.313 |
0.332 |
0.350 |
0.361 |
| 24 months |
0.173 |
0.204 |
0.233 |
0.260 |
0.285 |
0.308 |
0.329 |
0.348 |
0.361 |
| 21 months |
0.161 |
0.193 |
0.223 |
0.252 |
0.279 |
0.304 |
0.326 |
0.347 |
0.361 |
| 18 months |
0.146 |
0.179 |
0.211 |
0.242 |
0.271 |
0.298 |
0.322 |
0.345 |
0.361 |
| 15 months |
0.130 |
0.164 |
0.197 |
0.230 |
0.262 |
0.291 |
0.317 |
0.342 |
0.361 |
| 12 months |
0.111 |
0.146 |
0.181 |
0.216 |
0.250 |
0.282 |
0.312 |
0.339 |
0.361 |
| 9 months |
0.090 |
0.125 |
0.162 |
0.199 |
0.237 |
0.272 |
0.305 |
0.336 |
0.361 |
| 6 months |
0.065 |
0.099 |
0.137 |
0.178 |
0.219 |
0.259 |
0.296 |
0.331 |
0.361 |
| 3 months |
0.034 |
0.065 |
0.104 |
0.150 |
0.197 |
0.243 |
0.286 |
0.326 |
0.361 |
| 0 months |
— |
— |
0.042 |
0.115 |
0.179 |
0.233 |
0.281 |
0.323 |
0.361 |
The exact fair market value and redemption date may not be set forth in the table above, in which case, if the fair market value is between two values in the table or the redemption date is between two redemption dates in the table, the number of Class A Ordinary Shares to be issued for each Warrant exercised will be determined by a straight-line interpolation between the number of Shares set forth for the higher and lower fair market values and the earlier and later redemption dates, as applicable, based on a 365- or 366-day year, as applicable. For example, if the volume-weighted average price of Class A Ordinary Shares as reported during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of the Warrants is $11.00 per share, and at such time there are 57 months until the expiration of the Warrants, holders may choose to, in connection with this redemption feature, exercise their Warrants for 0.277 Class A Ordinary Shares for each whole Warrant. For an example where the exact fair market value and redemption date are not as set forth in the table above, if the volume-weighted average price of Class A Ordinary Shares as reported during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of the Warrants is $13.50 per share, and at such time there are 38 months until the expiration of the Warrants, holders may choose to, in connection this redemption feature, exercise their Warrants for 0.298 Class A Ordinary Shares for each whole Warrant. In no event will the Warrants be exercisable in connection with this redemption feature for more than 0.361 Class A Ordinary Shares per Warrant (subject to adjustment).
This redemption feature is structured to allow for all of the outstanding Warrants to be redeemed when the Class A Ordinary Shares are trading at or above $10.00 per share, which may be at a time when the trading price of Class A Ordinary Shares is below the exercise price of the Warrants. This redemption feature was established to provide the Company with the flexibility to redeem the Warrants without the Warrants having to reach the $18.00 per share threshold set forth above under “Description of Securities — Warrants — Redemptions of warrants when the price per Class A Ordinary Share equals or exceeds $18.00.”
As stated above, the Company can redeem the Warrants when the Class A Ordinary Shares are trading at a price starting at $10.00, which is below the exercise price of $11.50, because it will provide certainty with respect to its capital structure and cash position while providing warrant holders with the opportunity to exercise their Warrants on a cashless basis for the applicable number of Shares.
If we choose to redeem the Warrants when the Class A Ordinary Shares are trading at a price below the exercise price of the Warrants, this could result in the warrant holders receiving fewer Class A Ordinary Shares than they would have received if they had chosen to wait to exercise their Warrants for Class A Ordinary Shares if and when such Class A Ordinary Shares were trading at a price higher than the exercise price of $11.50.
Redemption Procedures. In the event the Company elects to redeem the outstanding Warrants, the Company will fix a date for the redemption (the “Warrant Redemption Date”) and provide notice of the redemption to be mailed by first class mail, postage prepaid by the Company not less than thirty days prior to the Warrant Redemption Date to the registered holders of the first class mail (who will, in turn, notify the beneficial holders thereof). A holder of a warrant may notify the Company in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (as specified by the holder) of the Class A Ordinary Shares issued and outstanding immediately after giving effect to such exercise.
Anti-Dilution Adjustments. If the number of outstanding Class A Ordinary Shares is increased by a capitalization or share dividend payable in Class A Ordinary Shares, or by a split-up of Ordinary Shares or other similar event, then, on the effective date of such capitalization or share dividend, split-up or similar event, the number of Class A Ordinary Shares issuable on exercise of each Warrant will be increased in proportion to such increase in the outstanding Class A Ordinary Shares. A rights offering to holders of Ordinary Shares entitling holders to purchase Class A Ordinary Shares at a price less than the “historical fair market value” (as defined below) will be deemed a share dividend of a number of Class A Ordinary Shares equal to the product of (i) the number of Class A Ordinary Shares actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Class A Ordinary Shares) and (ii) one minus the quotient of (x) the price per Class A Ordinary Share paid in such rights offering and (y) the historical fair market value. For these purposes, (i) if the rights offering is for securities convertible into or exercisable for Class A Ordinary Shares, in determining the price payable for Class A Ordinary Shares, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) “historical fair market value” means the volume-weighted average price of Class A Ordinary Shares as reported during the 10 trading day period ending on the trading day prior to the first date on which the Class A Ordinary Shares trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if the Company, at any time while the Warrants are outstanding and unexpired, pays a dividend or makes a distribution in cash, securities or other assets to the holders of Class A Ordinary Shares on account of such Class A Ordinary Shares (or other securities into which the Warrants are convertible), other than (a) as described above, or (b) any cash dividends or cash distributions which, when combined on a per share basis with all other cash dividends and cash distributions paid on the Class A Ordinary Shares during the 365-day period ending on the date of declaration of such dividend or distribution does not exceed $0.50 (as adjusted to appropriately reflect any other adjustments and excluding cash dividends or cash distributions that resulted in an adjustment to the exercise price or to the number of Class A Ordinary Shares issuable on exercise of each Warrant) but only with respect to the amount of the aggregate cash dividends or cash distributions equal to or less than $0.50 per share, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each Class A Ordinary Share in respect of such event.
If the number of outstanding Class A Ordinary Shares is decreased by a consolidation, combination, reverse share sub-division or reclassification of Class A Ordinary Shares or other similar event, then, on the effective date of such consolidation, combination, reverse share sub-division, reclassification or similar event, the number of Class A Ordinary Shares issuable on exercise of each Warrant will be decreased in proportion to such decrease in outstanding Class A Ordinary Shares.
Whenever the number of Class A Ordinary Shares purchasable upon the exercise of the Warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of Class A Ordinary Shares purchasable upon the exercise of the Warrants immediately prior to such adjustment and (y) the denominator of which will be the number of Class A Ordinary Shares so purchasable immediately thereafter.
In case of any reclassification or reorganization of the outstanding Class A Ordinary Shares (other than those described above or that solely affects the par value of such Class A Ordinary Shares), or in the case of any merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of its issued and outstanding Class A Ordinary Shares), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the holders of the Warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Warrants and in lieu of the Class A Ordinary Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of Class A Ordinary Shares or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the Warrants would have received if such holder had exercised their Warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of Class A Ordinary Shares in such a transaction is payable in the form of Class A Ordinary Shares in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the Warrants properly exercises the Warrants within 30 days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, based on the Black-Scholes value (as defined in the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement) of the Warrants. The purpose of such exercise price reduction is to provide additional value to holders of the Warrants when an extraordinary transaction occurs during the exercise period of the Warrants pursuant to which the holders of the Warrants otherwise do not receive the full potential value of the Warrants.
The Warrants will be issued in registered form under the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement. The Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement provides that the terms of the Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then-outstanding Perfect Public Warrants and Perfect Forward Purchase Warrants to make any change that adversely affects the interests of the registered holders.
The Warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to the Company, for the number of Warrants being exercised. The warrant holders do not have the rights or privileges of holders of Class A Ordinary Shares and any voting rights until they exercise their Warrants and receive Class A Ordinary Shares. After the issuance of Class A Ordinary Shares upon exercise of the Warrants, each holder will be entitled to one vote for each Class A Ordinary Share held of record on all matters to be voted on by shareholders.
Exclusive Forum.
Notwithstanding the general forum selection clause in the Company’s Articles, the Company will agree that, subject to applicable law, any action, proceeding or claim against the Company arising out of or relating in any way to the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and the Company will irrevocably submit to such jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim. This contractual provision of the Warrant Agreement does not apply to claims under the Exchange Act or any claim for which the federal district courts of the United States of America are the sole and exclusive forum.
Perfect Private Placement Warrants
Except as described below, Perfect Private Placement Warrants will have terms and provisions that are identical to those of Perfect Public Warrants and Perfect Forward Purchase Warrants.
•Perfect Private Placement Warrants (including the Class A Ordinary Shares issuable upon exercise of Perfect Private Placement Warrants) will not be transferable, assignable or salable until 30 days after October 28, 2022 (except, among other limited exceptions, to Provident officers and directors and other persons or entities affiliated with the Sponsor) and they will not be redeemable by the Company so long as they are held by the Sponsor or any of its permitted transferees. Pursuant to the Sponsor Letter Agreement, the Sponsor also agreed not to transfer, during a period of 12 months from and after October 28, 2022, any Warrants held by it immediately after the First Merger Effective Time subject to customary exceptions. The lock-up requirements expired on October 28, 2023.
•The Sponsor or its permitted transferees will have the option to exercise the Perfect Private Placement Warrants on a cashless basis. If Perfect Private Placement Warrants are held by holders other than the Sponsor or its permitted transferees, such Warrants will be redeemable by the Company and exercisable by the holders on the same basis as Perfect Public Warrants and Perfect Forward Purchase Warrants.
•After the Second Merger Effective Time, if holders of these Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering his, her or its Warrants for that number of Class A Ordinary Shares equal to the quotient obtained by dividing (x) the product of the number of Class A Ordinary Shares underlying the Warrants, multiplied by the excess of the “fair market value” (defined below) of the Class A Ordinary Shares over the exercise price of the Warrants by (y) the fair market value. The “fair market value” will mean the volume weighted average price of the Class A Ordinary Shares for the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent.
For a more complete description of the terms and conditions applicable to the Warrants, please review the Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, which are filed as exhibits to the Annual Report.
EX-4.28
3
perf-20241231xexx428xprope.htm
EX-4.28
Document
Exhibit 4.28
[English translation of]
Property Lease Agreement
This Property Lease Agreement (the "Agreement") is entered into by and between:
ClinJeff Corp. (the "Landlord"); and
Perfect Mobile Corp. (the "Tenant").
In consideration of the mutual covenants regarding the leasing of the premises, the parties hereby agree as follows:
Article 1 Leased Premises
(1)The Landlord agrees to lease to the Tenant the offices located on 4F-1, No. 98, Minquan Rd., Xindian Dist., New Taipei City 231, Taiwan, with an area of 116.53 ping1 (including one parking space numbered 58 located on B4), along with various equipment such as air-conditioning and fire-fighting facilities. The Tenant's scope of use includes the leased floor of the building and all related public facilities.
Article 2 Term of Lease
(1)The term of this Agreement is two years commencing from May 15, 2024 to April 30, 2026.
(2)If both parties intend to continue the leasing relationship after the expiration of the term, both parties shall negotiate the leasing terms three months prior to the expiration of this Agreement, and sign a written lease agreement one month prior to the expiration of this Agreement; otherwise, the Agreement would be deemed terminated without renewal. Upon expiration of the Agreement, the Landlord agrees that the Tenant has the right of first of refusal.
Article 3 Rent
(1)Agreed amount: the monthly rent for the offices is NT$ 116,530 (tax excluded). If the rental period is less than a full month, both parties agree to calculate and charge the rent on a pro-rata basis according to the actual number of rental days.
(2)Payment terms: during the term of the Agreement, the Tenant shall pay the monthly rent to the Landlord before the 1st day of each month. The Tenant cannot claim to apply the security deposit toward the rent. Any deferral payment of the rent would be deemed in breach of the Agreement.
(3)In the event the Tenant delays the rent for more than one month, the Tenant is subject to a late penalty of 1% of the monthly rent for every overdue day from the first day of the delay.
Article 4 Security Deposit
(1)Agreed amount: NT$ 233,060 (without tax).
(2)Payment schedule: the Tenant shall pay the security deposit to the Landlord at the time of execution of this Agreement, and the Landlord shall sign a receipt as a reference.
(3)Return of the security deposit: within 7 working days after the termination of the leasing relationship, the Landlord shall refund the security deposit without interest to the Tenant, provided that the Tenant does not have any underpayment, penalty or other payment obligations.
(4)Interest: the Landlord shall issue an invoice on a monthly basis to the Tenant for the interest income of the security deposit calculated based on the floating rate of 1-year time deposit announced by Chunghwa Post.
Article 5 Taxes, Insurances, Administration Fees and Other Relevant Charges
(1)The rent income tax, house tax, land value tax, construction benefit fee of the premises shall be paid by the Landlord.
1 116.53 ping equals 4147.30 square feet
(2)The Landlord shall apply and pay for the fire insurance for the building structure of the leased premises of this Agreement; the Tenant shall apply and pay for the insurance for the interior decoration and furniture of the leased premises of this Agreement.
(3)Repair and renovation obligations of the leased premises and its interior equipment:
(i)For the original building structure (including the floor) of the leased premises, the Landlord shall be responsible for repairing damages caused by act of god such as typhoons or earthquakes, and by other force majeure events; and the Tenant shall be responsible for the damages caused by all other reasons, as well as routine maintenance. Any damage shall be repaired and restored to its original status by the Tenant prior to termination or expiration of the Agreement.
(ii)The Tenant shall be responsible for all routine maintenance matters related to the interior installment of the leased premises.
(iii)In the event the air-conditioning equipment in the leased premises is damaged or in need of repairs, and is attributable to the Tenant, the Tenant shall be responsible for such repairs. If the damage is caused by normal usage, the Landlord shall be responsible for such repairs.
(iv)The water charges, electricity charges, cleaning charges, gas charges, administration fees and other routine management and maintenance expenses shall be paid by the Tenant.
Article 6 Use of the Leased Premises and its Restrictions
The leased premises are only provided for the Tenant to use within its legally registered business scope (the Tenant shall complete the move-out procedures, such as for its business registration certificate, prior to the termination or expiration of the Agreement). Except as otherwise permitted by the Landlord in a written consent, the leased premises cannot be used for other purposes, or even used as a residence, a hotel or other purposes that would hinder health, safety, tranquility, public order and good customs, or government decrees. Any of such behavior would be deemed in breach of the Agreement.
(1)Except for the Tenant and its affiliate companies, the Tenant shall not sublease, share, assign or otherwise lend the leased premises in whole or in part to other person or legal entities. The Tenant shall not set the leased premises as a mortgage guarantee, otherwise the Landlord can immediately terminate this Agreement.
(2)The Tenant cannot bring in, store or install flammable, dangerous or prohibited items other than necessities for business operations.
(3)There is a unified signboard located on the first floor of the building for placing the name of the Tenant. Any other places, including exterior walls, building foyer, stairwells, passages and public areas, shall not make any arrangements, advertisements, additional installments or storage spaces without obtaining the consent from the Landlord. Further, it is prohibited to obstruct public use or passage.
(4)The Tenant shall not violate the building management regulations, resident rules and regulations set by the building management committee.
(5)In the event the Tenant changes its company name or company representative, the Tenant shall notify the Landlord in writing within 2 months after such change, and novate the agreement accordingly.
Article 7 Interior Design of the Leased Premises and its Restrictions
(1)The Tenant may handle the interior decoration, partition or addition of equipment of the leased premises at its own expense. However, when it is involved with changing of the original building structure, the Tenant must provide the design drawings in advance, obtain a written consent from the Landlord, and obtain a permit issued by the relevant competent authority before it can be processed, otherwise the Tenant shall be liable for damages.
(2)After the termination of the leasing relationship, the Tenant shall restore the property to its original status before returning to the Landlord without any argument. The Landlord may treat all removable items left by the Tenant in the leased premises as being abandoned by the Tenant, and may freely dispose such items at the Landlord's discretion. The Tenant shall neither object nor demand any compensation for such items. The Landlord may request for the costs required for disposing those items left behind from the Tenant.
Article 8 Termination of the Agreement
After the Agreement becomes in effect, the Landlord may terminate this Agreement anytime if the Tenant falls under any of the following circumstances:
(1)The Tenant delays the monthly rent for more than two months without an excuse, and the Tenant still fails to pay the monthly rent within a reasonable period of time specified by the Landlord by means of a reminder notice.
(2)The Tenant violates the provisions of Article 6 "Use of the Leased Premises and its Restrictions".
(3)The Tenant is closed down (including precautionary measure and compulsory sealing) or stops its business.
(4)The Tenant, its employees or its customers damage the leased premises or its attachments and the Tenant fails to compensate accordingly.
(5)The Tenant changes its company name or business scope, changes its company representative or adopts other approaches to sublease, share or assign the leased premises to others (or legal entities), or provides the leased premises to a third party in other manners.
After the Agreement becomes in effect, the Tenant may terminate this Agreement if the leased premises are damaged by typhoons or earthquakes to the extent that the leased premises are no longer usable.
Article 9 Indemnification and Penalty
(1)The Tenant shall keep the leased premises and the ancillary equipment with the care of a good administrator. In the event of any damage or loss, the Tenant shall be liable for compensation no matter whether the damage or loss is caused by the Tenant, its employees or its customers.
(2)Upon the termination or expiration of the Agreement, the Tenant shall restore the leased premises into their original status pursuant to Article 7(2) of the Agreement and return them to the Landlord; otherwise, the Landlord may request the Tenant to pay for a penalty equal to two times of the monthly rent on a monthly basis (the monthly rent may be converted into a daily rent for calculating the penalty according to the actual number of delayed days), starting from the next day of the termination or expiration of the Agreement to the completion of moving out.
(3)After the Agreement becomes in effect, except as otherwise specified in the Agreement, if either party wishes to terminate the Agreement before it expires, such party shall give a three-month prior written notice and compensate the other party by providing two month's monthly rent as a penalty.
(4)In the event of a breach of contract by both parties, which causes damage to the other party and thus results in a conviction affirmed by the court, the losing party shall be liable for compensation according to the scope of compensation determined by the court.
Article 10
Any matters not covered in this Agreement will be handled fairly in accordance with related laws and regulations of Taiwan and the principle of good faith.
Article 11
In the event of any disputes arising from this Agreement, the Taipei District Court in Taiwan shall be the court of competent jurisdiction for the first instance.
Article 12
This Agreement is made in two copies, the Landlord and the Tenant each keeps one copy.
Agreed to and Accepted by:
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[The Landlord]
ClinJeff Corp.
Tax ID number: 16775177
Representative: Sun, Liang-Chu
Address: 2F., No. 21, Ln. 85, Sec. 1, Baoyuan Rd., Xindian Dist., New Taipei City 231, Taiwan
Tel: (02) 8667-1298
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[The Tenant]
Perfect Mobile Corp.
Tax ID number: 24725102
CEO: Clinton Huang
Address: 14F., No. 98, Minquan Rd., Xindian Dist., New Taipei City 231, Taiwan
Tel: (02) 8667-1265
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EX-4.29
4
perf-20241231xexx429xsecur.htm
EX-4.29
Document
Exhibit 4.29
EXECUTION VERSION
THE TEXTUAL MARKER “[REDACTED]” DENOTES PLACES WHERE CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL, AND (II) IS THE TYPE THAT THE COMPANY TREATS AS PRIVATE OR CONFIDENTIAL.
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SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
PERFECT MOBILE CORP.
AND
FARFETCH US HOLDINGS, INC.
December 23, 2024
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TABLE OF CONTENTS
Page
ARTICLE 2 PURCHASE AND SALE
13
2.1 Purchase and Sale of the Purchased Securities
13
2.2 Purchase Price; Payment
13
2.4 Purchase Price Adjustment
15
ARTICLE 3 CLOSING AND DELIVERIES
17
3.2 Deliveries by the Seller
18
3.3 Deliveries by the Buyer
19
ARTICLE 4 REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLER
19
4.1 Validity and Enforceability
19
4.2 Title to Purchased Securities
20
ARTICLE 5 REPRESENTATIONS AND WARRANTIES RELATING TO THE GROUP COMPANIES
20
5.1 Existence and Good Standing
20
5.3 Capitalization of the Company and the Subsidiary
21
5.5 Financial Statements
22
5.6 Operating in Ordinary Course of Business
23
5.10 Intellectual Property
26
5.11 Material Contracts
28
5.12 Necessary Property
29
5.14 Litigation and Orders
30
5.15 Compliance with Laws
30
5.18 Employee Benefit Plans
32
5.19 Undisclosed Liabilities
33
5.20 Customers and Suppliers
33
5.21 Related Party Transactions
34
5.23 International Trade; Anti-Corruption
34
5.24 Books and Records
34
5.26 No Other Representations and Warranties
35
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE BUYER
35
6.1 Existence and Good Standing
35
6.3 Validity and Enforceability
35
6.6 Financial Capacity
36
6.7 Investment Intention
36
ARTICLE 7 COVENANTS AND AGREEMENTS
36
7.1 Interim Operations of the Group Companies
36
7.2 Access to Information
38
7.4 Reasonable Best Efforts; Cooperation
39
7.5 Further Assurances
40
7.6 Public Announcements
40
7.7 Non-Competition; Non-Solicitation
40
7.9 Post-Closing Employee Retention Bonus Pool
42
ARTICLE 8 CONDITIONS TO CLOSING
42
8.1 Conditions to the Obligations of the Seller
42
8.2 Conditions to Obligations of Buyer
42
8.3 Frustration of Closing Conditions
43
ARTICLE 9 TERMINATION OF AGREEMENT
43
9.2 Effect of Termination
45
ARTICLE 10 TAX MATTERS
45
10.1 Straddle Period; Tax Returns
45
10.3 Cooperation; Audits
47
10.4 Certain Controversies
47
10.5 Tax Sharing Agreements
47
10.6 Certain Tax Elections
47
10.7 Post-Closing Actions
48
11.1 General Indemnification Obligation
48
11.2 Notice; Opportunity to Defend; Liability Claim Procedures
50
11.3 Survivability; Limitations; Right to Assert Claims
51
11.4 Manner of Payment
53
11.5 Contribution and Waiver
53
11.6 Specific Performance
54
11.7 Adjustment to Purchase Price
54
11.9 No Duplication of Recovery
54
ARTICLE 12 MISCELLANEOUS
54
12.3 No Assignment; Successors and Assigns; Third Party Beneficiaries
55
12.5 Integration, Modification and Waiver
55
12.9 Governing Law; Jurisdiction
57
12.11 Waiver of Jury Trial
58
Annexes
Annex A Part 1 Accounting Methodology
Part 2 Estimated Closing Statement
Annex B List of individuals who have executed separation agreements
Annex C Consolidated Financial Statements
Exhibits
Exhibit A Form of Escrow Agreement
Exhibit B Form of TSA
Exhibit C Form of Non-Compete
SECURITIES PURCHASE AGREEMENT
Exhibit D Form of Employment Side Letter THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of this 23rd day of December, 2024, is entered into by and between Perfect Mobile Corp., a company limited by shares incorporated under the laws of Taiwan (the “Buyer”), and Farfetch US Holdings, Inc., a Delaware corporation (the “Seller”). Unless the context otherwise requires, terms used in this Agreement that are capitalized and not otherwise defined in context have the meanings set forth or cross-referenced in Article 1.
RECITALS
A.The Seller is the registered and beneficial owner of all of the issued and outstanding Equity Interests of Wannaby Inc., a Delaware corporation (the “Company”).
B.The Company owns one hundred percent (100%) of the issued and outstanding Equity Interests of Wannaby UAB, a Republic of Lithuania private limited liability company (the “Subsidiary”, together with the Company, are referred to collectively as the “Group Companies” and, each individually as, a “Group Company”).
C.At the Closing, the Seller desires to sell to the Buyer, and the Buyer desires to purchase from the Seller, all of the issued and outstanding Equity Interests of the Company (being 11,593,990 shares of common stock and 1,421,287 shares of preferred stock as of the date hereof, the “Purchased Securities”), subject to the terms and on the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows:
Article 1
DEFINITIONS
For purposes of this Agreement:
“Accounts Date” means 31 December 2023.
“Accounting Firm” means one of Deloitte & Touche, Ernst & Young, KPMG or PricewaterhouseCoopers or, if no such firm will act, a neutral, nationally-recognized accounting firm selected by mutual agreement of the Buyer and the Seller.
“Accounting Methodology” means, in each case as set forth in Annex A, (i) the specific accounting principles, methods and practices, (ii) the specific accounting principles, methods and practices that were used in preparation of the Financial Statements as at the Accounts Date and (iii) IFRS, in accordance with the pro-forma Final Statement and example calculation of Net Working Capital, each as set forth in Annex A attached hereto.
“Accrued Income Taxes” means, without duplication, the amount (which amount, after taking into account income Tax refund receivables, may be less than zero) equal to the aggregate liability for unpaid entity-level income Taxes of the Group Companies attributable to any Taxable period that ends on or prior to the Closing Date or the portion of any Straddle Period which includes (but does not end on) the Closing Date up to and including the Closing Date, in each case, for which a Tax Return is first due (including applicable extensions of time to file) after the Closing or that were shown as due on any Tax Return filed by the Group Companies prior to the Closing Date to the extent such Taxes have not been paid in full prior to the Measurement Time. The calculation of Accrued Income Taxes shall (i) exclude any non-Tax, accounting concepts of deferred Tax liabilities or deferred Tax assets, (ii) be computed in accordance with the past practice (including reporting positions, elections and accounting methods) of the Group Companies in preparing Tax Returns and solely for jurisdictions in which the Group Companies have historically filed Tax Returns, (iii) take into account estimated (or other prepaid) Tax payments and any income Tax refunds (or credits in lieu thereof) with respect to any Tax period ending on or before the Closing Date and the pre-Closing portion of any Straddle Period, (iv) take into account any transaction-related Tax deductions to the extent such deductions are deductible by the Group Companies at least at a “more likely than not” level of confidence (taking into account any safe harbors that may apply to success-based fees), (v) for any Straddle Period, (A) income Tax liability shall be apportioned to the portion of such Taxable period ending on the Closing Date based on an interim closing of the books of the Group Companies as of the end of the day on the Closing Date (and assuming, for this purpose, that the Taxable period of any “controlled foreign corporation” or partnership, in each case as determined for federal income Tax purposes, owned by the Group Companies ends on the Closing Date), (vi) be computed by excluding any Taxes attributable to any action taken by Buyer or the Group Companies after Closing outside the Ordinary Course of Business or in violation of Section 10.3 and (vii) for the avoidance of doubt, exclude any Tax assets or Tax liabilities attributable to an affiliated, consolidated, combined or unitary group the common parent of which is not a Group Company.
“Affiliate” means, with respect to any Person, a Person that directly or indirectly controls, controlling, is controlled by, or is under common control with, any such Person. The term “control” (including the terms “controlled by” or “under common control with”) means, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through ownership of voting Equity Interests, by contract or otherwise.
“APLA” means the Asset Purchase and Licence Agreement made on February 2022 between the Company and Voir.
“Agreement” has the meaning set forth in the preamble.
“Annualized FF Revenues” means $106,000.00 for the calendar year ended on December 31, 2025, being the annualized contract value of the FF Renewal Contract.
“Anti-Corruption Laws” means all Laws relating to the prevention of corruption and bribery including the U.S. Foreign Corrupt Practices Act of 1977, as amended, and any other applicable “anti-corruption” or “anti-bribery” Laws of any other jurisdiction.
“Balance Sheet Date” has the meaning set forth in Section 5.5(a).
“Books and Records” has the meaning set forth in Section 7.3.
“Business Day” means any day other than a Saturday, a Sunday on which banking institutions located in New York, New York or London, England are permitted or required by Law to remain closed.
“Buyer” has the meaning set forth in the preamble.
“Buyer Indemnitee” has the meaning set forth in Section 11.1(a).
“Cash” means the aggregate amount, as of the Measurement Time, and in each case, on a consolidated basis, of (a) the Group Companies’ actual cash (bank) balances (net of any bank overdrafts), as adjusted for any deposits, transfers or payments in transit, any outstanding checks, and any other proper reconciling items, plus (b) cash equivalents (including marketable securities and short-term investments) of the Group Companies, plus (c) any prepayments in respect of amounts paid by the Group Companies as of the Measurement Time in relation to goods and services to be supplied to the Group Companies after the Measurement Time; provided, that “Cash” shall not include any amounts to the extent included in Final Working Capital, as finally determined.
“Claim” has the meaning set forth in Section 12.1.
“Claim Notice” has the meaning set forth in Section 11.2(a).
“Claim Objection Notice” has the meaning set forth in Section 11.2(d).
“Closing” has the meaning set forth in Section 3.1.
“Closing Date” has the meaning set forth in Section 3.1.
“Code” means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
“Collar Amount” shall be equal to $10,000.
“Combined Returns” means any and all affiliated, consolidated, combined or unitary Tax Returns (a) with respect to which Seller or any of its Affiliates (other than the Group Companies) is the common parent and (b) that includes (or historically has included) any of the Group Companies or any of their predecessors.
“Company” has the meaning set forth in the preamble.
“Competing Business” means any business that engages in the manufacture, design, development, distribution, marketing or sale of products or services which are competitive with any Products and Services and which are directly or indirectly marketed, sold, provided or performed in the Territory.
“Confidential Information” means any confidential, technical, non-public and/or proprietary information concerning the business or affairs of either party or any of its respective Affiliates (including (from and after Closing), in the case of the Buyer, the Group Companies), including information relating to (a) customers, clients, suppliers, vendors, distributors, investors, lenders, consultants, independent contractors or employees, price lists and pricing policies, financial statements and information, budgets and projections, business plans, production costs, market research, marketing, sales and distribution strategies, manufacturing techniques, processes and business methods, technical information, pending projects and proposals, new business plans and initiatives, research and development projects, inventions, discoveries, ideas, technologies, Trade Secrets, Trademarks, Patents, Copyrights and any other information and materials relating to the business or affairs of such party or any of its Affiliates which such Person has provided in a manner which reasonably indicates the confidentiality or proprietary nature of such information or (b) any provisions of, or the negotiations relating to, any Transaction Document.
“Consent” means any consent, novation, approval, authorization, qualification, waiver, registration or notification required to be obtained from, filed with or delivered to a Governmental Authority or any other Person.
“Consolidated Financial Statements” has the meaning set forth in Section 2.4(g).
“Contracts” means all legally binding contracts, agreements, leases (whether real or personal property), licenses, commitments, arrangements, instruments, guarantees, bids, statements of work, purchase orders, quotes, invoices and proposals, in each case, oral or written.
“Controlled Group” means any trade or business (whether or not incorporated) (a) under common control within the meaning of Section 4001(b)(1) of ERISA with the Group Companies or (b) that together with the Group Companies is treated as a single employer under Section 414(t) of the Code.
“Copyrights” means all: (a) works of authorship, whether in published or unpublished works, databases, data collections and rights therein, mask work rights, software, web site content, or any other copyrightable work; (b) rights to compilations, collective works and derivative works of any of the foregoing and moral rights in any of the foregoing; (c) registrations and applications for registration for any of the foregoing and any renewals or extensions thereof; and (d) benefits of contractual waivers of moral rights and economic rights of others in any of the foregoing.
“COVID-19” means SARS-CoV-2 and/or the novel coronavirus disease 2019 (COVID-19) public health emergency, epidemic, pandemic and outbreak occurring on and prior to the Closing Date, and any evolutions or mutations thereof or related or associated epidemics, pandemic or disease outbreaks.
“Disclosing Party” has the meaning set forth in Section 7.8(a).
“Disclosure Schedules” means the series of schedules corresponding to the sections contained in Article 4 and Article 5 and containing the information required to be disclosed pursuant to, and certain exceptions to, the representations and warranties in Article 4 and Article 5, which are delivered by the Seller concurrently with the execution and delivery of this Agreement and incorporated herein.
“Disputed Items” has the meaning set forth in Section 2.4(c).
“Domain Names” means internet electronic addresses, uniform resource locators and alphanumeric designations associated therewith registered with or assigned by any domain name registrar, domain name registry or other domain name registration authority as part of an electronic address on the internet and all applications for any of the foregoing.
“Earnout” means the amount payable by the Buyer to the Seller pursuant to Section 2.3;
“Eligible Employees” means specific employees of the Company, as notified in writing (including by email) by the Buyer to the Seller on the date hereof, which may further be revised the Buyer and the Seller in writing (including by email).
“Employee Plans” means: (a) all material “employee benefit plans”, as defined in Section 3(3) of ERISA whether or not subject to ERISA; (b) all other material employment, severance pay, salary continuation, bonus, incentive, stock option, equity-based, retirement, pension, profit sharing or deferred compensation plans, contracts, programs, funds, or arrangements of any kind; and (c) all other employee benefit plans, in respect of any present or former employees, directors, consultants or independent contractors of a Group Company or any other member of the Controlled Group that are sponsored or maintained by a Group Company or any other member of the Controlled Group or with respect to which a Group Company or any other member of the Controlled Group has made or is required to make payments, transfers or contributions or with respect to which a Group Company or any other member of the Controlled Group has or could have any liability.
“Employment Agreements” has the meaning set forth in Section 3.2(a)(vii).
“Equity Interest” means, with respect to any Person (other than a natural Person), (a) any capital stock, limited liability company interest, partnership interest, trust interest or any other equity security or interest, (b) any security directly or indirectly convertible into, exchangeable for or evidencing the right to subscribe for any capital stock, limited liability company interest, partnership interest, trust interest other equity security, or security containing any profit participation features or otherwise linked to the value of any equity security or interest, (c) any warrant, option, call, or other right, directly or indirectly, to subscribe for, acquire, receive or purchase any capital stock, limited liability company interest, partnership interest, trust interest or other equity security or security containing any profit participation features or otherwise linked to the value of any equity security or interest, (d) any equity appreciation rights, phantom equity rights (including any profits interest), derivative of an equity security or interest or other similar rights, or (e) any bonds, indentures, notes or other indebtedness providing for the right to vote (or any convertible securities that have the right to vote) on any matters on which equityholders may vote.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.
“Escrow Agent” means Citibank N.A.
“Escrow Agreement” has the meaning set forth in Section 3.2(a)(viii).
“Escrow Amount” means an aggregate amount equal to one million dollars ($1,000,000.00), to be released in installments in accordance with the Escrow Agreement and Section 11.10 of this Agreement.
“Escrow Funds” means, as of any date of determination, the excess (if any) of the Escrow Amount (including any interest accrued on the Escrow Amount, if any) minus the sum of all distributions and other payments to any Person from the Escrow Amount paid pursuant to the terms of this Agreement and the Escrow Agreement on or prior to such date of determination.
“Estimated Cash” has the meaning set forth in Section 2.4(a),
“Estimated Closing Statement” has the meaning set forth in Section 2.4(a).
“Estimated Indebtedness” has the meaning set forth in Section 2.4(a).
“Estimated Non-FF Gross Revenues” has the meaning set forth in Section 2.4(a).
“Estimated Selling Expenses” has the meaning set forth in Section 2.4(a).
“Estimated Working Capital” has the meaning set forth in Section 2.4(a).
“Expiration Date” has the meaning set forth in Section 11.3(a).
“FF Renewal Contract” means an amendment to a services agreement to be entered into on or before the Closing Date, by and between the Company and Farfetch UK Limited which (i) provides a term valid through December 31, 2025, and (ii) provides payment obligations of Farfetch UK Limited to the Company of no less than $106,000.00 per calendar year for 2025.
“Final Cash” has the meaning set forth in Section 2.4(b).
“Final Indebtedness” has the meaning set forth in Section 2.4(b).
“Final Non-FF Gross Revenues” has the meaning set forth in Section 2.4(b).
“Final Selling Expenses” has the meaning set forth in Section 2.4(b).
“Final Statement” has the meaning set forth in Section 2.4(b).
“Final Working Capital” has the meaning set forth in Section 2.4(b).
“Financial Statements” has the meaning set forth in Section 5.5(a).
“Fundamental Representations” means the representations and warranties set forth in Section 4.1 (Validity and Enforceability), Section 4.2 (Title to Purchased Securities), Section 4.5 (Brokers), Section 5.1 (Existence and Good Standing), Section 5.2 (Power), Section 5.3 (Capitalization of the Company and the Subsidiary) and Section 5.25 (Brokers).
“General Enforceability Exceptions” has the meaning set forth in Section 4.1.
“Governing Documents” means, with respect to any Person that is not an individual, the agreements and instruments, including any amendments thereto, by which such Person establishes its legal existence or governs its internal affairs, including such Person’s (a) certificate or articles of incorporation or formation, as amended; (b) bylaws or operating or limited liability company agreement, as amended; and (c) any and all other similar and/or related documents, as amended.
“Governmental Authority” means any government or political subdivision or regulatory authority, whether federal, state, local, foreign or territorial, or any agency, commission, bureau, department, authority, court, arbitration tribunal or instrumentality of any such government or political subdivision or regulatory authority, or any court, mediator or arbitrator.
“Gross Revenues” means, the audited consolidated total revenues of the Group Companies, calculated in accordance with the Accounting Methodology.
“Group Companies” has the meaning set forth in the preamble.
“Gucci” has the meaning set forth in Section 11.1(a)(vii).
“IFRS” means International Accounting Standards or International Financial Reporting Standards issued or adopted by the International Accounting Standards Board (or a predecessor body) and interpretations issued by IFRS Interpretations Committee (or a predecessor body), each as and to the extent adopted from time to time by the European Union in accordance with EU Regulation No. 1606/2002.
“Indebtedness” of any Person means: either (a) any liability of such Person (i) for borrowed money (including the current portion thereof), (ii) under any reimbursement obligation relating to a letter of credit, bankers’ acceptance, note purchase facility or similar instruments, (iii) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation), (iv) for the payment of money relating to leases that should be classified as a capitalized lease obligation in accordance with IFRS, (v) for all or any part of the deferred purchase price of property or services (other than trade payables incurred in the Ordinary Course of Business and included in Net Working Capital, as finally determined), including any “earnout” or similar payments or any non-compete payments, (vi) under interest rate swap, hedging or similar agreements, (vii) for any and all amounts owed by the Group Companies to any of its Affiliates or the Seller or any of its respective Affiliates, including unpaid dividends or distributions declared or payable by such Group Company, (viii) for obligations of the Group Companies for deferred compensation, post-retirement welfare benefits, unfunded or underfunded pensions and severance obligations and similar liabilities arising prior to the Closing with respect to the termination of any current or former employee, (ix) for Accrued Income Taxes, and (x) any liability for deferred revenue in respect of amounts received by the Group Companies prior to the Measurement Time in relation to services to be supplied to customers of the Group Companies after the Measurement Time, or (b) any liability of others described in the preceding clause (a) that such Person has guaranteed, that is recourse to such Person or any of its assets or that is otherwise its legal liability or that is secured in whole or in part by the assets of such Person. For purposes of this Agreement, Indebtedness includes any and all accrued interest, success fees, prepayment premiums, make-whole premiums or penalties and fees or expenses (including attorneys’ fees) associated with the prepayment of any Indebtedness.
“Indemnified Party” has the meaning set forth in Section 11.2(a).
“Indemnifying Party” has the meaning set forth in Section 11.2(a).
“Information Systems” means all computer hardware, databases and data storage systems, computer, data, database and communications networks (other than the internet), architecture interfaces and firewalls (whether for data, voice, video or other media access, transmission or reception) and other apparatus used to create, store, transmit, exchange or receive information in any form.
“Initial Purchase Price” has the meaning set forth in Section 2.2(a).
“Intellectual Property” means any and all of the following in any jurisdiction throughout the world, by whatever name or term known or designated, tangible or intangible, whether arising by operation of Law, Contract, or otherwise: (a) Copyrights; (b) Domain Names; (c) Patents; (d) Software, (e) Trademarks; (f) Trade Secrets; (g) rights of publicity, and (h) claims and rights in and to all income, royalties, damages, claims, and payments now or hereafter due or payable with respect to any of the foregoing, and in and to all causes of action, either in law or in equity, for past, present or future infringement, misappropriation, violation, dilution, unfair competition or other unauthorized use or conduct in derogation or violation of or based on any of the foregoing rights, and the right to receive all proceeds and damages therefrom, unless not permitted by this Agreement.
“Interim Financial Statements” has the meaning set forth in Section 5.5(a).
“Intra-Group Financing Payables” means all liabilities payable to the Seller or its Affiliates by any Group Company as at the Measurement Time, other than in respect of the intercompany trading activities in the ordinary course of trading.
“Intra-Group Financing Receivables” means all receivables from the Seller or its Affiliates by any Group Company as at the Measurement Time other than in respect of the intercompany trading activities in the ordinary course of trading.
“Investment” means any Equity Interest (including any convertible debt, options, warrants and similar instruments), of record or beneficially, directly or indirectly, in any Person.
“IRS” means the Internal Revenue Service.
“Key Employees” means specific employees of the Company as agreed in writing (including by email) between the Buyer and the Seller on the date hereof, which may further be revised the Buyer and the Seller in writing (including by email).
“Knowledge of the Seller” or “Seller’s Knowledge” means the actual knowledge of Dmitry Nosach, Anastasiya Sushchevich, and Alexander Bykov, in each case, obtained after reasonable inquiry of their respective direct reports and reasonably be expected to obtain in performing his or her duties for the Company.
“Law” means any applicable federal, state, local, foreign or other law, statute, code, ordinance, rule, regulation, common law, regulatory or administrative guidance, constitution, treaty, principle of common law or other requirement of any Governmental Authority.
“Leased Real Property” has the meaning set forth in Section 5.8(b).
“Liability Claim” has the meaning set forth in Section 11.2(a).
“Liens” means any mortgage, pledge, hypothecation, deed of trust, lease, rights of others, right of first refusal, claim, security interest, encumbrance, easement, servitude, proxy, title defect, title retention agreement, voting trust agreement, transfer restriction, community property interest, option, lien, charge or similar restrictions or limitations.
“Litigation Conditions” has the meaning set forth in Section 11.2(c).
“Losses” has the meaning set forth in Section 11.1(a).
“Material Adverse Effect” means any change, event, circumstance, effect or occurrence (any such item, an “Effect”) which, individually or in the aggregate, has had or is reasonably likely to have a material adverse effect on the business, operations, condition (financial or otherwise), results of operations, assets or liabilities of the Group Companies, taken as a whole, or the ability of the Seller to perform its obligations hereunder or to consummate the transactions; provided, however, that in no event shall any of the following Effects, alone or in combination, be deemed to constitute or be taken into account in determining whether there has been a Material Adverse Effect: (a) any changes in the economy or financial or capital markets (including interest rates) or political conditions of a Territory; (b) any changes that generally affect any of the industries in which the Group Companies operate or participate; (c) any failure by the Company to meet internal or other estimates, predictions, projections or forecasts (provided, that the facts giving rise or contributing to any such failure may be deemed to constitute, or be taken into account in determining whether there has been, a Material Adverse Effect); (d) any change in IFRS or any change in Law (or, in each case, the interpretations thereof), in each case after the date hereof; (e) war, hostilities, terrorism or natural disasters, (f) any epidemic, pandemic or disease outbreak; (g) the announcement or pendency of the transactions contemplated by this Agreement; or (h) compliance by the Company with the terms of this Agreement or the Transaction Documents, except, for purposes of clauses (a), (b), (d) and
(e), if such Effects have a materially disproportionate negative effect on the Group Companies as compared to the other Persons engaged in the same industry as the Group Companies.
“Material Contracts” has the meanings set forth in Section 5.11(a).
“Material Customers” has the meaning set forth in Section 5.20(a).
“Material Suppliers” has the meaning set forth in Section 5.20(b).
“Measurement Time” means 12:01 a.m. Eastern Time on the Closing Date.
“Non-FF Gross Revenues” means the audited consolidated total revenues for the fiscal year ended December 31, 2024 of the Group Companies, excluding all revenues and receipts of every kind derived by the Group Companies on a consolidated basis for the year ended December 31, 2024 resulting from the Contracts made between the Group Companies, on the one hand, and the Seller or its Affiliates (excluding, for this definition, the Group Companies), on the other hand.
“Net Working Capital” means, as of the Measurement Time, (a) those specific categories of current assets of the Group Companies set forth on Annex A minus (b) those specific categories of current liabilities of the Group Companies set forth on Annex A; provided, Net Working Capital shall not include (x) any income Tax assets or income Tax liabilities or deferred Tax assets or deferred Tax liabilities or (y) any Tax assets or Tax liabilities attributable to an affiliated, consolidated, combined or unitary group the common parent of which is not a Group Company. For the sake of clarity, an example of the Net Working Capital calculation, calculated in accordance with the Accounting Methodology, is set forth on Annex A attached hereto.
“Non-Required Action” means, with respect to either party, any action that would cause such party hereto or its Affiliates to incur any liability (contingent or otherwise), pay any consideration or otherwise expend any out of pocket expenses (other than reasonable internal costs and reasonable costs of legal advisors), commence a Proceeding or offer or grant any material accommodation to any other Person; in each case, with respect solely to the Seller and its Affiliates, except for incurrence of liabilities and payment of amounts that (a) are solely obligations of the Group Companies that would not become payable until after the Closing and (b) would not reduce the Purchase Price.
“Objection Notice” has the meaning set forth in Section 2.4(c).
“Order” means any order, writ, injunction, judgment, directive, award, ruling, decree or similar determination of any Governmental Authority and any stipulation, settlement agreement, conciliation agreement or compliance agreement made or entered into in connection with any Proceeding.
“Ordinary Course of Business” means the ordinary and usual course of the business of the Group Companies consistent with their past custom and practice.
“Owned Intellectual Property” means all Intellectual Property, material to the operation of the Group Companies’ business as carried on immediately prior to the date of this Agreement, owned or purported to be owned (in whole or in part) by a Group Company.
“Patents” means all patents, industrial and utility models, industrial designs, petty patents, patents of importation, patents of addition, certificates of invention, design patents, patent applications, patent disclosures and any other indicia of invention ownership issued or granted by any Governmental Authority, including all provisional applications, priority and other applications, divisionals, continuations (in whole or in part), extensions, reissues, re-examinations or equivalents or counterparts of any of the foregoing; and moral and economic rights of inventors in any of the foregoing.
“Permit” means any permit, registration, license, approval, certificate, qualification, consent, accreditation, authorization or similar document or authority granted or issued by a Governmental Authority or other certification or accreditation body.
“Permitted Liens” means (a) statutory Liens for current Taxes, assessments, fees and other charges by Governmental Authorities that are not due and payable as of the Closing Date or the amount or validity of which is being contested in good faith by (if then appropriate) appropriate proceedings, (b) mechanics’, carriers’, workers’, and repairers’ Liens arising or incurred in the Ordinary Course of Business or imposed by Law that are not material to the business, operations and financial condition of the Group Companies’ property so encumbered and that are not resulting from a breach, default or violation by a Group Company of any Contract or Law, and (c) any recorded easement, covenant, zoning or other restriction on the Leased Real Property that, together with all other Permitted Liens, does not materially prohibit or impair the current use, occupancy, value, or marketability of title of the property subject thereto.
“Person” means any individual, sole proprietorship, partnership, corporation, limited liability company, unincorporated society or association, trust or other entity.
“Personal Information” means personally identifiable information or other confidential customer information and includes information that: (a) can be used to identify, contact, or locate a specific individual, (b) can be used in conjunction with other personal or identifying information to identify or locate a specific individual, or (c) is defined as “personal information” by applicable laws relating to the collection, use, storage, and/or disclosure of information about an identifiable individual.
“Post-Closing Bonus Program Payments” has the meaning set forth in Section 7.9.
“Post-Closing Straddle Period” has the meaning set forth in Section 10.1(a).
“Pre-Closing Straddle Period” has the meaning set forth in Section 10.1(a).
“Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date.
“Privilege Period” has the meaning set forth in Section 10.1(a).
“Proceeding” means any demand, charge, complaint, action, suit, proceeding, arbitration, hearing, audit, interference, opposition, reexamination, concurrent use, cancellation, investigation or claim of any kind (whether civil, criminal, administrative, investigative, informal or other, at law or in equity) commenced, filed, brought, conducted or heard by, against, to, of or before or otherwise involving, any Governmental Authority.
“Products and Services” means any product or service marketed, sold, provided or performed by any Group Company as of the Closing Date.
“Prohibited Transaction” means any transaction prohibited by either Section 4975 of the Code or Section 406 of ERISA which is not exempted by either Section 4975 of the Code or Section 408 of ERISA.
“Proprietary Software” means any Software developed by, or specifically for, a Group Company and material to the operation of the Group Companies’ business as carried on immediately prior to the date of this Agreement.
“Purchase Price” has the meaning set forth in Section 2.2(a).
“Purchased Securities” has the meaning set forth in the recitals.
“Real Property” means any and all real property and interests in real property of the Group Companies (together with all buildings, structures, fixtures and improvements thereon), including the Leased Real Property.
“Real Property Lease” has the meaning set forth in Section 5.8(b).
“Receiving Party” has the meaning set forth in Section 7.8(a).
“Redundancy Process” means the process pursuant to which the Group Companies shall terminate certain employment and consultant contracts prior to the Closing Date.
“Release Documents” means that certain lien and guarantee release, an officer’s certificate and a UCC-3 in favor of Wilmington Trust.
“Released Party” has the meaning set forth in Section 12.1.
“Releasing Party” has the meaning set forth in Section 12.1.
“Repaid Indebtedness” has the meaning set forth in Section 2.2(b)(ii).
“Sanctioned Country” means a country or territory that is subject or target of comprehensive Sanctions which currently comprise Cuba, Iran, North Korea, Syria, the Crimea/Sevastopol region of Ukraine, the so-called Donetsk People’s Republic and the so-called Luhansk People’s Republic.
“Sanctioned Person” means: (i) any Person designated on the lists of Specially Designated Nationals and Blocked Persons or “Foreign Sanctions Evaders” maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the Consolidated Financial Sanctions List maintained by the European Commission or the Consolidated List of Asset Freeze Targets maintained by the Office of Financial Sanctions Implementation within the UK’s HM Treasury, or any equivalent list maintained by the competent sanctions authority of any member state of the EU; (ii) any Person that is part of, a government of a Sanctioned Country or organized or residing in a Sanctioned Country; or (iii) any entity that is, in the aggregate, 50% or greater owned directly or indirectly, or otherwise controlled by a person or persons described in clause (i) of this definition.
“Sanctions” means all applicable economic or financial sanctions and trade embargoes imposed by the United States, the United Nations Security Council, the European Union or the United Kingdom.
“Securities Act” means the Securities Act of 1933, as amended, including the rules and regulations promulgated thereunder.
“Seller” has the meaning set forth in the preamble.
“Seller Bank Account” means the following bank account of the Seller:
Account Name: Farfetch US Holdings Inc.
Account Number: [REDACTED]
Bank: Citibank N.A. London Branch
IBAN Number: [REDACTED]
Swift Code: [REDACTED]
“Selling Expenses” means, without duplication, any and all (a) unpaid costs, fees and expenses of outside advisors incurred by a Group Company or the Seller and for which a Group Company has agreed to pay relating to the process of selling the Group Companies or its assets or businesses, whether incurred in connection with this Agreement or otherwise, including all legal fees, accounting, tax, investment banking fees and expenses, (b) change-of-control, transaction, sale or similar bonuses or payments payable to employees, agents and consultants of or to a Group Company in connection with the transactions contemplated by this Agreement and unpaid by such Group Company as of the Closing Date (including the employer portion of any payroll, social security, unemployment or similar Taxes), (c) severance obligations, retention bonuses and “stay” bonuses owed by a Group Company to employees, agents and consultants of or to such Group Company triggered prior to or in connection with the transactions contemplated by this Agreement excluding any Post-Closing Bonus Program Payments (including the employer portion of any payroll, social security, unemployment or similar Taxes), and (d) 50% of the fees to the Escrow Agent pursuant to the Escrow Agreement.
“Software” means all computer software and code, including assemblers, applets, compilers, source code, object code, development tools, design tools, user interfaces and data, in any form or format, however fixed, such as, but not limited to, databases and data collections.
“Straddle Period” has the meaning set forth in Section 10.1(a).
“Subsidiary” has the meaning set forth in the preamble.
“Taiwan” means the Republic of China (Taiwan).
“Target Net Working Capital” means $0.
“Tax” means any foreign, United States federal, state or local net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, capital stock, net worth, privilege, intangible, value added, transfer, franchise, profits, license, withholding, payroll, employment, unemployment, excise, severance, stamp, occupation, premium, real property, personal property, environmental or windfall profit tax, custom, duty or other tax, together with any interest, penalty, addition to tax or additional amount imposed by any Taxing Authority with respect thereto, in each case, whether disputed or not. “Taxable” has a correlative meaning thereto.
“Tax Matter” has the meaning set forth in Section 10.4.
“Tax Returns” means all Tax returns, statements, reports, elections, schedules, claims for refund, and forms (including estimated Tax or information returns and reports) required to be supplied to any Taxing Authority with respect to Taxes, including any supplement or attachment thereto and any amendment thereof.
“Taxing Authority” means any Governmental Authority responsible for the determination, enforcement, assessment, collection, administration or the imposition of any Tax.
“Termination Date” has the meaning set forth in Section 9.1(b).
“Territory” means any state in the United States, the United Kingdom, the European Union and Taiwan, in each case in which Seller marketed, sold, provided or performed any Products and Services as of the Closing Date.
“Trade Secrets” means anything that would constitute a “trade secret” under applicable law, and all other inventions (whether patentable or not), discoveries, improvements, ideas, designs, models, formulae, patterns, drawings, blueprints, methods, techniques, processes, know-how, confidential information, proprietary information, customer lists, software and technical information; and moral and economic rights of authors and inventors in any of the foregoing.
“Trademarks” means trademarks, service marks, fictional business names, trade names, commercial names, certification marks, collective marks, Domain Names and other proprietary rights to any words, names, slogans, symbols, logos, devices or combinations thereof used to identify, distinguish and indicate the source or origin of goods or services; registrations, renewals, applications for registration, equivalents and counterparts of the foregoing; and the goodwill of the business associated with each of the foregoing.
“Transaction Documents” means the Employment Agreements, the Escrow Agreement and each agreement, document, instrument or certificate contemplated by this Agreement or to be executed by the Buyer, the Seller or a Group Company in connection with the consummation of the transactions contemplated by this Agreement, in each case only as applicable to the relevant party or parties to such Transaction Document, as indicated by the context in which such term is used.
“Transfer Taxes” has the meaning set forth in Section 10.2.
“TSA” means the transition services agreement to be entered into between the Buyer and the Seller at Closing substantially in the form attached hereto as Exhibit B.
“Voir” means Voir Inc., a company incorporated in Delaware, with registered number 6102510.
“Voir Licence” has the meaning set forth in the APLA.
Article 2
PURCHASE AND SALE
2.1Purchase and Sale of the Purchased Securities. At the Closing, upon the terms and subject to the conditions of this Agreement, the Seller hereby sells, transfers, assigns, conveys and delivers to the Buyer, free and clear of any Liens (other than those imposed under applicable securities Law), and the Buyer hereby purchases from the Seller, all of the Purchased Securities.
2.2Purchase Price; Payment.
(a)Subject to the adjustments set forth in Section 2.4, the aggregate consideration to be paid by the Buyer for the purchase and sale of the Purchased Securities is an amount equal to the sum of (i) 3.25 multiplied by the Non-FF Gross Revenues, plus (ii) if FF Renewal Contract has been executed on or before the date hereof, the amount equal to the Annualized FF Revenues (the sum of (i) and, if applicable, (ii) shall be subject to a minimum of $5,500,000.00 and a maximum of $6,000,000.00, and for the purpose of calculating the Initial Purchase Price at Closing only, the parties agree that the estimated sum is $5,500,000.00), plus (iii) the amount, if any, by which (A) the Estimated Working Capital exceeds (B) the Target Net Working Capital plus the Collar Amount, minus (iv) the amount, if any, by which (A) the Estimated Working Capital is less than (B) the Target Net Working Capital minus the Collar Amount, minus (v) the Estimated Indebtedness, minus (vi) the Estimated Selling Expenses, and plus (vii) the Estimated Cash (such amount, the “Initial Purchase Price” and as adjusted pursuant to Section 2.4, the “Purchase Price”). For the avoidance of doubt, if the difference (positive or negative) between the Net Working Capital and the Target Net Working Capital is less than the Collar Amount, the adjustments contemplated in Section 2.2(a)(iii) and Section 2.2(a)(iv) shall be $0.
(b)Subject to the terms and conditions of this Agreement, at the Closing, the Buyer shall by wire transfer of immediately available funds:
(i)deposit, or cause to be deposited, with the Escrow Agent the Escrow Amount in accordance with the terms of the Escrow Agreement, to a single bank account designated in writing by the Escrow Agent;
(ii)on behalf of the Group Companies, cause the Indebtedness set forth on Section 2.2(b)(ii) of the Disclosure Schedules (the “Repaid Indebtedness”) that is outstanding immediately prior to the Closing as set forth on the Estimated Closing Statement to be repaid in full to the Persons entitled thereto pursuant to the Payoff Letters in respect of such Repaid Indebtedness delivered by the Seller to the Buyer not less than five (5) Business Days prior to the Closing Date;
(iii)on behalf of the Seller, or the Group Companies, pay, or cause to be paid, the Estimated Selling Expenses, as set forth on the Estimated Closing Statement, to the Persons entitled thereto pursuant to the instructions delivered by the Seller to the Buyer not less than five (5) Business Days prior to the Closing Date; and
(iv)pay, or cause to be paid, to the Seller an amount equal to the Initial Purchase Price, less the Escrow Amount, to the Seller Bank Account or such other single bank account as may be designated in writing by the Seller at least two (2) Business Days prior to the Closing Date.
(c)Following the Closing through December 31, 2024, the Buyer (and its respective successors or assigns) and their Affiliates shall not take any action that the purpose of which is to prevent payment of, or reduces the amount of, the Final Revenues Multiple, and shall (i) use its commercially reasonable efforts to promote the use and delivery of services provided by the Group Companies and (ii) collect and invoice all required monies owed to the Group Companies by its customers in the Ordinary Course of Business.
2.3Earnout.
(a)Subject to the occurrence of the Closing and no later than April 30, 2026, the Buyer shall pay to the Seller Bank Account by wire transfer of immediately available funds an amount equal to the lesser of:
(i)$500,000.00; and
(ii)1.75 multiplied by the amount equal to (x) the Gross Revenues for the fiscal year ended December 31, 2025, minus (y) the Gross Revenues for the fiscal year ended December 31, 2024. If (x) minus (y) yields a negative number, then such amount shall be treated as zero. For the purpose of this Section 2.3, the Gross Revenues under (x) and (y) shall exclude:
(A)the revenues generated from the Buyer’s original customers pertained before the Closing Date; and
(B) revenues generated from any Intellectual Property (excluding Intellectual Property that can be applied on or related to shoes and bags) developed by the Group Companies after the Closing Date.
(b)During the period following the Closing through to December 31, 2025, the Buyer (and its respective successors or assigns) and their Affiliates shall not take any action that the purpose of which is to prevent payment of, or reduces the amount of, the Earnout, and shall (i) use its commercially reasonable efforts to promote the use and delivery of services provided by the Group Companies and (ii) collect and invoice all required monies owed to the Group Companies by its customers in accordance with the agreements with them. The Buyer shall not permit any intra-group transactions to be undertaken by the Group Companies at a rate or value that is less than the reasonable arm’s length commercial rate or value of such transaction, and/or transfer, divert or redirect any business trading or revenue from the Group Companies to any member of the Buyer’s Group, the purpose or intended effect of which is to distort or reduce the Earnout.
(c)For the purposes of determining the Gross Revenues and amounts set forth in Section 2.3(a)(ii), the Buyer will provide an auditor’s report on special purpose financial information for the consolidated revenues of the Group Companies for the fiscal year ended December 31, 2024 and 2025.
(d)The payment made in accordance with Section 2.3 is part of the Purchase Price.
2.4Purchase Price Adjustment.
(a)The Seller has delivered to the Buyer a statement (the “Estimated Closing Statement”), which is attached hereto as Part 2 of Annex A, setting forth the Group Companies’ reasonable good faith estimates of (i) the Net Working Capital as of the Measurement Time (such estimate, the “Estimated Working Capital”), as determined in accordance with the Accounting Methodology and Annex A, (ii) the Indebtedness of the Group Companies outstanding as of immediately prior to the Closing (such estimate, the “Estimated Indebtedness”), (iii) the Cash of the Group Companies as of the Measurement Time (such estimate, the “Estimated Cash”), (iv) the unpaid portion of the Selling Expenses as of immediately prior to the Closing (such estimate, the “Estimated Selling Expenses”), and (v) the Non-FF Gross Revenues (the “Estimated Non-FF Gross Revenues”), which statement contains reasonable supporting calculations with respect to each of the amounts and components set forth in the Estimated Closing Statement.
(b)Within sixty (60) days after the Closing Date, the Buyer shall prepare and deliver, or cause to be prepared and delivered, to the Seller, a statement prepared in accordance with Annex A (the “Final Statement”), setting forth its calculations of (i) the Net Working Capital as of the Measurement Time (the “Final Working Capital”) as determined in accordance with the Accounting Methodology, (ii) the Indebtedness of the Group Companies outstanding as of immediately prior to the Closing (the “Final Indebtedness”), (iii) the Cash of the Group Companies as of the Measurement Time (the “Final Cash”), (iv) the unpaid portion of the Selling Expenses as of immediately prior to the Closing (the “Final Selling Expenses”), and (v) the Non-FF Gross Revenues (the “Final Non-FF Gross Revenues”).
(c)Within thirty (30) days following receipt by the Seller of the Final Statement, the Seller shall deliver written notice (an “Objection Notice”) to the Buyer of any dispute it has with respect to the preparation or content of such statement. An Objection Notice must describe in reasonable detail the items contained in the Final Statement that the Seller disputes and the basis for any such disputes. Any items not disputed in the Objection Notice will be deemed to have been accepted by the Seller. Furthermore, if the Seller does not deliver an Objection Notice with respect to the Final Statement within such thirty (30)-day period, such statement will be final, conclusive and binding on the parties. If the Seller delivers a timely Objection Notice, the Buyer and the Seller shall negotiate in good faith to resolve the disputes set forth therein. If the Buyer and the Seller, notwithstanding such good faith effort, fail to resolve such disputes within thirty (30) days after the Seller delivers an Objection Notice, then the Buyer and the Seller, jointly, shall engage the Accounting Firm to resolve only the items then remaining in dispute (the “Disputed Items”) in accordance with the standards set forth in Section 2.4(d).
(d)As promptly as practicable thereafter (and, in any event, within thirty (30) days after the Accounting Firm’s engagement), the Buyer and the Seller shall each prepare and submit a presentation to the Accounting Firm. In resolving such Disputed Items, the Accounting Firm shall consider only the Disputed Items. As soon as practicable thereafter, the Accounting Firm shall (i) make any calculations in accordance with the Accounting Methodology, (ii) shall review and determine only those items remaining in dispute between the Buyer and the Seller, and (iii) shall only be permitted or authorized to determine an amount with respect to any such disputed item that is either, or within the numerical range between, the amount of Disputed Items as proposed by Buyer in the Final Statement or the amount of such disputed item as proposed by the Seller in the Objection Notice. The Accounting Firm shall act as an expert and not an arbitrator. Save for manifest error or fraud, all determinations made by the Accounting Firm will be final, conclusive and binding on the parties. All fees and expenses relating to the work, if any, to be performed by the Accounting Firm will be allocated between the Buyer, on the one hand, and the Seller, on the other hand, in the same proportion as the differences between the aggregate amount of the Disputed Items so submitted to the Accounting Firm that is unsuccessfully disputed by each such party (as finally determined by the Accounting Firm) and the final total determined amount of such items so submitted.
(e)For purposes of complying with the terms set forth in this Section 2.4, each party hereto shall cooperate with and make available to the other party and its representatives all information, records, data and working papers and shall permit access to its facilities and personnel, as may be reasonably required in connection with the preparation and analysis of the Final Statement and the resolution of any disputes under the Final Statement; provided, however, that (i) the provision of any information or access pursuant to this Section 2.4(e) will be subject to appropriate confidentiality undertakings and, if applicable, execution of customary release letters in favor of the auditors as requested by the auditors in connection with the sharing of work papers and (ii) nothing in this Section 2.4(e) will require any party to disclose information that is subject to attorney-client privilege
(f)Within ten (10) Business Days after the date on which the Final Working Capital, the Final Indebtedness, the Final Cash, the Final Selling Expenses, the Final Non-FF Gross Revenues, and the Purchase Price resulting therefrom are finally determined pursuant to Section 2.4(d):
(i)If the Purchase Price as finally determined pursuant to Section 2.4(c) exceeds the Initial Purchase Price, the Buyer will pay to the Seller, by wire transfer of immediately available funds to the Seller Bank Account or such other single bank account as may be designated in writing by the Seller at least two (2) Business Days prior to the date of such payment, the amount of such excess.
(ii)If the Initial Purchase Price exceeds the Purchase Price as finally determined pursuant to Section 2.4(c), the Buyer and the Seller will jointly instruct the Escrow Agent in accordance with the terms of the Escrow Agreement to pay to the Buyer out of the Escrow Funds, by wire transfer of immediately available funds to the bank account designated in writing by the Buyer at least two (2) Business Days prior to the date of such payment, the amount of such deficit.
(iii)Any payments made (or deemed to have been made) pursuant to this Section 2.4(f) shall constitute an adjustment to the Purchase Price for Tax purposes and shall be treated as such by the parties on their respective Tax Returns and in any communications with any Taxing Authorities, unless otherwise required by applicable Law.
(g)The Seller has delivered to the Buyer the unaudited consolidated balance sheets of the Group Companies as of November 30, 2024 and the unaudited statements of income and statement of cash flows for the eleven (11)-month period ended on November 30, 2024, attached hereto as Annex C (the “Consolidated Financial Statements”).
2.5Tax Withholding. Notwithstanding anything in this Agreement to the contrary, the Buyer, its Affiliates and the Group Companies shall be entitled to withhold and deduct from amounts otherwise payable pursuant to this Agreement such amounts as the Buyer, any of its Affiliates or a Group Company is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or non-U.S. Tax Law. If the Buyer determines that any deduction or withholding is required in respect of a payment pursuant to this Agreement, the Buyer shall provide written notice to the Seller no less than fifteen (15) days prior to the date on which such deduction or withholding is to be made with a written explanation substantiating the requirement to deduct or withhold, and the parties shall use commercially reasonable efforts to cooperate to mitigate any such requirement to the maximum extent permitted by Law. The Buyer shall promptly remit all deducted or withheld amounts to the applicable Governmental Authority in accordance with applicable Law and shall promptly provide the Seller with a receipt issued by the Governmental Authority or other reasonable evidence of such remittance. To the extent that amounts are so deducted or withheld by the Buyer, any of its Affiliates or the Group Companies, as applicable, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding were made.
Article 3
CLOSING AND DELIVERIES
3.1Closing. The closing of the transactions contemplated hereby (the “Closing”) will take place remotely via the electronic exchange of documents and signatures on January 7, 2025 following the satisfaction or waiver of each of the conditions set forth in Article 8 (other than those conditions that are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), or on such other date or at such other time and place as the parties hereto mutually agree in writing (including via email) (the “Closing Date”).
All proceedings to be taken and all documents to be executed and delivered by all parties at the Closing will be deemed to have been taken and executed simultaneously and no proceedings will be deemed to have been taken nor documents executed or delivered until all have been taken, executed and delivered. Solely for accounting purposes, the effective time of the Closing will be deemed to be the Measurement Time.
3.2Deliveries by the Seller. At the Closing, the Seller shall:
(a) deliver, or cause to be delivered, to the Buyer the following items:
(i)duly executed equity powers and executed copies of the Release Documents;
(ii)a certificate from an officer of the Seller, dated as of the Closing Date, given by him or her on behalf of the Seller, and not in his or her individual capacity, to the effect that, the conditions set forth in Section 8.2(a), Section 8.2(b), Section 8.2(d), and Section 8.2(f) have been satisfied;
(iii)a certificate of good standing in respect of the Company issued less than three months prior to the Closing Date;
(iv)written resignations, in form and substance reasonably acceptable to the Buyer, of each director and/or officer of each Group Company listed on Disclosure Schedule 3.2(a)(iv);
(v)an IRS Form W-9 duly completed and executed by the Seller;
(vi)evidence reasonably satisfactory to the Buyer that the agreements set forth on Disclosure Schedule 3.2(a)(vi) have been terminated;
(vii)in relation to the Key Employees:
(A)for the Key Employees based in the UK and Portugal, a non-compete letter, substantially in the form attached hereto as Exhibit C, duly executed by such Key Employees; and
(B)for the Key Employees based in Lithuania, a side letter to their current employment agreement, substantially in the form attached hereto as Exhibit D, duly executed by such Key Employees
(C)(together, the “Employment Agreements”);
(viii)an escrow agreement, duly executed by the Seller and the Escrow Agent, substantially in the form attached hereto as Exhibit A (the “Escrow Agreement”);
(ix)separation agreements, duly executed by the individuals listed in Annex B;
(x)a copy of the TSA executed by the Seller; and
(xi)the Group Companies shall have provided the Buyer with the access to and control over the following:
(A) all Proprietary Software of the Group Companies, which shall have been stored in GitHub, and is accessible by at least one Key Employee and, with effect from the Closing, one Person of the Buyer, each of whom have been designated in writing by the Buyer not less than five (5) Business Days prior to the Closing Date;
(B)the Group Companies’ material IT infrastructure for all material services, app and web modules;
(C)all relevant technical documentation controlled by or under the possession of the Group Companies for the source codes, including all SDK and API documents and architecture design transfer; and
(xii)use its best endeavours to deliver, or cause to be delivered, to the Buyer written consent by The Glimpse Group, Inc. under the Software and Hardware Development Agreement dated 24 November 2023 between Glimpse and the Company in connection with this Agreement.
3.3Deliveries by the Buyer. At the Closing, the Buyer shall deliver, or cause to be delivered, to the Seller, the following items:
(a)a certificate from an officer of the Buyer, dated as of the Closing Date, given by him or her on behalf of the Buyer, and not in his or her individual capacity, to the effect that, the conditions set forth in Section 8.1(a), Section 8.1(b), and Section 8.1(d) have been satisfied;
(b)the Employment Agreements, duly executed by a post-Closing officer of the applicable Group Company;
(c)the Escrow Agreement, duly executed by the Buyer and the Escrow Agent; and
(d)a copy of the TSA executed by the Buyer.
Article 4
REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLER
Except to the extent set forth in or qualified by the Disclosure Schedules, the Seller represents and warrants to the Buyer, that the statements contained in this Article 4 are true, correct and complete as of the date hereof and as of the Closing Date:
4.1Validity and Enforceability. The Seller has the capacity or the requisite power and authority, as the case may be, to execute, deliver and perform his, her or its obligations under this Agreement and the Transaction Documents to which it is a party. The Seller is duly organized, validly existing and in good standing under the Laws of the Seller’s jurisdiction of organization. The execution, delivery and performance of this Agreement and each of the Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, has been duly authorized and approved by all required action on the part of the Seller. This Agreement and each of the Transaction Documents have been duly executed and delivered by the Seller and, assuming due authorization, execution and delivery by the Buyer, represent the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent conveyance and other similar Laws and principles of equity affecting creditors’ rights and remedies generally (the “General Enforceability Exceptions”).
4.2Title to Purchased Securities. The Seller owns of record and beneficially, and has good and marketable title to, the Purchased Securities, free and clear of any Liens. The Seller is not a party to (a) any option, warrant, purchase right, subscription right, right of first refusal, call, put or other Contract (other than this Agreement) that could require the Seller to sell, transfer or otherwise dispose of such Purchased Securities or (b) any voting trust, proxy or other Contract relating to the voting of such Purchased Securities. Upon the consummation of the transactions contemplated by this Agreement, the Buyer will acquire good and valid title to the Seller’s Purchased Securities, free and clear of all Liens.
4.3No Conflict. Neither the execution of this Agreement or the Transaction Documents, nor the performance by the Seller of its obligations hereunder or thereunder will (a) violate or conflict with (i) the Governing Documents of a Group Company, (ii) the Governing Documents of the Seller or (iii) any Law or Order applicable to the Seller, a Group Company, or by which any of its properties or assets are bound, (b) violate, conflict with or result in a breach or termination of, or otherwise give any Person additional rights or compensation under, or the right to terminate or accelerate, or the loss of a material benefit under, or constitute (with notice or lapse of time, or both) a default under the terms of any Contract to which the Seller or a Group Company is a party or by which any of the assets or the properties of the Seller or a Group Company are bound or (c) result in the creation or imposition of any Lien with respect to, or otherwise have an adverse effect upon, the Purchased Securities owned by the Seller or the properties or assets of a Group Company.
4.4Litigation. There is no Order and no Proceeding pending, or to the Knowledge of the Seller, threatened or anticipated against or by the Seller or any of its Affiliates or any of the Seller’s properties, rights, assets (including the Seller’s Purchased Securities) or businesses relating to or affecting the transactions contemplated by this Agreement, or that would give any Person the right to enjoin or rescind the transactions contemplated by this Agreement or otherwise prevent the Seller from complying in all respects with the terms and provisions of this Agreement.
4.5Brokers. No Person has acted directly or indirectly as a broker, finder or financial advisor for the Seller in connection with the negotiations relating to the transactions contemplated by this Agreement, and no Person is entitled to any fee or commission or like payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of the Seller.
Article 5
REPRESENTATIONS AND WARRANTIES RELATING TO THE GROUP COMPANIES
Except to the extent set forth in or qualified by the Disclosure Schedules, the Seller represents and warrants to the Buyer that the statements contained in this Article 5 are true, correct and complete as of the date hereof and as of the Closing Date:
5.1Existence and Good Standing. Each Group Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and save where such failure would have a Material Adverse Effect, is duly authorized, qualified or licensed to do business as a foreign entity and in good standing in each of the jurisdictions set forth next to such Group Company’s name on Disclosure Schedule 5.1, which are the only jurisdictions in which such Group Company is required to be so qualified.
The Seller has delivered to the Buyer true, complete and correct copies of the Governing Documents of each Group Company, each as in effect as of the date hereof. Such Governing Documents are in full force and effect, and each Group Company is not in violation in any material respect of any provision thereof. Disclosure Schedule 5.1 sets forth a true and correct list of each director, manager and officer of each Group Company.
5.2Power. Each Group Company has all necessary corporate power and authority to (a) own, operate and lease its properties and assets as and where currently owned, operated and leased, and (b) carry on its business as currently conducted.
5.3Capitalization of the Company and the Subsidiary. The authorized, issued and outstanding Equity Interests of each Group Company are set forth on Disclosure Schedule 5.3, and all of which (i) have been duly authorized and are validly issued and are fully paid and non-assessable, (ii) were offered, sold, issued and granted in compliance with applicable Law, including federal and state securities Laws and all requirements set forth in its Governing Documents and any applicable Contracts governing the issuance of such Equity Interests, and (iii) were not issued in violation of preemptive rights, purchase rights, puts, calls, rights of first refusal, subscription rights or similar rights of any Person. The Purchased Securities represent the only issued and outstanding Equity Interests of the Company. No shares of capital stock are held by a Group Company as treasury stock. There are no outstanding or authorized securities convertible or exchangeable for Equity Interests of a Group Company or any options, warrants, purchase rights, subscription rights, preemptive rights, conversion rights, exchange rights, call rights, put rights, rights of first refusal, anti-dilution rights or other rights, Contracts that could require a Group Company to issue, sell, transfer or otherwise cause to become outstanding or to acquire, repurchase or redeem any Equity Interests of such Group Company or obligate such Group Company to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such security, right or Contract. There is no obligation, contingent or otherwise, of a Group Company to provide funds to, or make any investment in (in the form of a loan, capital contribution or otherwise), or provide any guarantee with respect to the obligations of any other Person. There are no outstanding or authorized Equity Interest appreciation, phantom Equity Interests, profit participation or similar rights with respect to a Group Company. No Group Company has repurchased any Equity Interest of such Group Company or any instrument or right exercisable or exchangeable for or convertible into any Equity Interests of such Group Company. No former direct or indirect holder of Equity Interests of a Group Company has any claim or right against such Group Company that remains unresolved. Except with respect to the Subsidiary, the Company does not own or control (directly or indirectly) and has no right or obligation to acquire (directly or indirectly), any Equity Interests of any other Person or any direct or indirect equity ownership interest in any other business. The Subsidiary does not own or control (directly or indirectly), nor does it have any right or obligation to acquire (directly or indirectly), any Equity Interests of any other Person or any direct or indirect equity ownership interest in any other business.
5.4No Conflicts.
(a)Neither the execution and delivery of this Agreement or any Transaction Document nor the consummation of the transactions contemplated hereby and thereby will, directly or indirectly, with or without notice or lapse of time or both: (i) violate any Law or Order to which a Group Company or any asset, right or property owned, leased, operated or used by such Group Company is subject; (ii) violate any material Permit of a Group Company or give any Governmental Authority the right to terminate, revoke, suspend or modify any material Permit of a Group Company; (iii) violate any Governing Document of a Group Company; (iv) violate, conflict with, result in a breach of, constitute a default under, result in the acceleration of or give any Person the right to accelerate the maturity or performance of, or to cancel, terminate, modify or exercise any remedy under, or require any notice to, consent of or waiver by any Person under, any Contract to which a Group Company is a party or by which a Group Company is bound or to which any asset or property of a Group Company is subject or under which a Group Company has any rights or the performance of which is guaranteed by a Group Company; or (v) result in the imposition of any Lien upon any asset or property owned, leased, operated or used by a Group Company; except, in each case, for any such violations, conflicts, breaches, defaults or other occurrences that would not have a Material Adverse Effect.
(b)Except as set forth on Disclosure Schedule 5.4 no Consent of any Person or Governmental Authority is required in connection with the execution and delivery by the Seller or a Group Company of this Agreement or any Transaction Document, or the consummation of the transactions contemplated hereby or thereby.
5.5Financial Statements.
(a)Disclosure Schedule 5.5(a) sets forth true and complete copies of (i) the unaudited balance sheets of each Group Company as of December 31, 2023 and December 31, 2022, and the related unaudited statements of income for the fiscal years then ended (collectively, the “Financial Statements”) and (ii) the unaudited balance sheet of the each Group Company as of November 30, 2024 (the “Balance Sheet Date”), and the related unaudited statements of income for the eleven (11)-month period then ended (the “Interim Financial Statements”).
(b)The Financial Statements have been prepared in accordance with IFRS and present with reasonably accuracy the financial condition and results of operations of each Group Company as of and for their respective dates. The Interim Financial Statements and Consolidated Financial Statements have been prepared in accordance with IFRS and present with reasonably accuracy the financial condition and results of operations of each Group Company as of and for their respective dates; provided, however, that the Interim Financial Statements and Consolidated Financial Statements are subject to normal, recurring year-end adjustments (which will not be, individually or in the aggregate, material to the Group Companies) and lack notes (which, if presented, would not differ materially from the notes accompanying the Financial Statements). Each Group Company’s internal controls and procedures are designed to provide reasonable assurance that the Financial Statements, Interim Financial Statements, and Consolidated Financial Statements prepared by the Company are materially accurate. The Financial Statements, Interim Financial Statements, and Consolidated Financial Statements were derived from the Books and Records of each Group Company. To the Knowledge of the Seller, there has been no, and there does not currently exist, any fraud, nor the existence of or allegation of financial improprieties that involves management of a Group Company.
(c)All accounts and notes receivable of each Group Company represent sales actually made in the Ordinary Course of Business or valid claims as to which full performance has been rendered by each Group Company. There are no disputes with respect to any of the accounts receivable reflected on the balance sheet included in the Interim Financial Statements or Consolidated Financial Statements that have not been reserved for in the Interim Financial Statements or Consolidated Financial Statements, as the case may be. No Group Company has, in any material respects, agreed to any deduction, free goods, discount or other deferred price or quantity adjustment with respect to any of its accounts receivables. All of the accounts and notes receivable of each
Group Company relate solely to sales of goods or services to customers of such Group Company, none of whom are Seller or Affiliates of such Group Company or the Seller.
5.6Operating in Ordinary Course of Business. Except as contemplated by this Agreement or the Transaction Documents, since the Balance Sheet Date:
(a)each Group Company has been operating in the Ordinary Course of Business;
(b)to the Seller’s Knowledge, no event, occurrence or development has occurred that has had, individually or in the aggregate, a Material Adverse Effect; and
(c)neither a Group Company nor the Seller (on behalf of a Group Company) has taken, caused to have been taken or permitted any of the actions, events or occurrences to be taken which are prohibited by Section 7.1.
5.7Taxes. Except as set forth on Disclosure Schedule 5.7:
(a)All material Tax Returns required to be filed by each Group Company have been timely filed with the appropriate Taxing Authority when due in accordance with all applicable Laws. All such Tax Returns are true, correct and complete in all material respects. All material Taxes owed by a Group Company (whether or not shown as due and payable on any Tax Return) have been timely paid to the appropriate Taxing Authority.
(b)Each Group Company has or has caused to be correctly and timely withheld or collected, and remitted to the appropriate Taxing Authority, all material Taxes required to have been withheld or collected and remitted, and has complied in all material respects with all information reporting and back-up withholding requirements, in connection with amounts paid or owing to any current or former employee, independent contractor, creditor, stockholder or other Person for all periods under applicable Law.
(c)Except for extension of time to file Tax Returns obtained in the Ordinary Course of Business, no Group Company has granted or has had granted on its behalf any extension or waiver of the statute of limitations period applicable to any Tax Return, which period (after giving effect to such extension or waiver) has not yet expired.
(d)There is no Proceeding now pending or, to the Knowledge of the Seller, threatened in writing against or with respect to any material Taxes or Tax Returns of a Group Company in respect of any Tax. There are no Liens for any material amount of Taxes upon the assets or properties of a Group Company, except for Permitted Liens.
(e)Except for any affiliated, consolidated, combined or unitary group of which Seller or any of its Affiliates (other than the Group Companies) is the common parent, no Group Company has been a member of an affiliated, consolidated, combined or unitary group other than a group of which a Group Company was the parent. Except for Taxes of any affiliated, consolidated, combined or unitary group of which Seller or any of its Affiliates (other than the Group Companies) is the common parent, no Group Company has any liability for the Taxes of any Person (other than the Group Companies) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law), or as a transferee or successor.
(f)Within the past two (2) years, neither a Group Company nor the Seller has received notice of any claim by a Governmental Authority in a jurisdiction where a Group Company does not file Tax Returns that such Group Company is or may be required to file Tax Returns in that jurisdiction or is otherwise subject to taxation by that Governmental Authority that has not since been resolved.
(g)No Group Company will be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any period or portion thereof ending after the Closing Date (i) under Section 481 of the Code (or any similar provision of state, local or foreign Law) as a result of a change in method of accounting for a Pre-Closing Tax Period made prior to the Closing, (ii) pursuant a “closing agreement” as defined in Section 7121 of the Code (or any similar provision of state, local or foreign Law) executed prior to the Closing, (iii) as a result of the installment method of accounting, the completed contract method of accounting or the cash method of accounting with respect to a transaction that occurred prior to the Closing Date, (iv) as a result of any prepaid amount received on or prior to the Closing Date outside the ordinary course of business, or (v) as a result of the use of any impermissible method of accounting on or before the Closing Date.
(h)No Group Company is a party to, or bound by, any Tax indemnity, allocation or sharing agreement, arrangement or similar Contract (other than any Contract the primary purpose of which does not relate to Taxes).
(i)Within the past two (2) years, no Group Company has distributed the stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code (or any similar provision of state, local or foreign Law). No Group Company has participated in any “listed transaction” as defined in Section 6707A of the Code or Treasury Regulation Section 1.6011-4 (or any predecessor provision).
(j)No Group Company has had a permanent establishment in any foreign country other than the country in which a Group Company is organized and does not and has not engaged in a trade or business in any foreign country other than the country in which a Group Company is organized.
(k)For U.S. federal (and all applicable state and local) income Tax purposes, the Company is classified as a “C” corporation.
(l)Each Group Company is in compliance in all material respects with all applicable transfer pricing Laws and regulations.
(m)Notwithstanding anything to the contrary in this Agreement, the representations and warranties in this Section 5.7 and the representations and warranties contained in Section 5.18 to the extent specifically addressing Taxes shall be the only representations or warranties of Seller or the Group Companies in this Agreement with respect to Tax matters and may only be relied upon for purposes of liability for taxable periods (or portions thereof) ending on or prior to the Closing Date. Nothing in this Section 5.7 or otherwise in this Agreement shall be construed as a representation or warranty with respect to (i) the amount or availability in a taxable period (or portion thereof) beginning after the Closing Date of any net operating loss, capital loss, Tax credit carryover or other Tax asset generated or arising in or in respect of a taxable period (or portion thereof) ending on or before the Closing Date, (ii) Taxes or Tax matters relating to any Combined Return or (iii) any Tax positions that Buyer or any of its Affiliates (including the Group Companies) may take in or in respect of a Tax period (or portion thereof) beginning after the Closing Date.
5.8Real Property.
(a)Owned Real Property. None of the Group Companies owns or purports to own any Real Property.
(b)Leased Real Property. Disclosure Schedule 5.8(b) sets forth a true and complete description of all Real Property leased or licensed to each Group Company as of the date hereof (the “Leased Real Property”), including the address thereof, the annual fixed rent, the expiration of the term, any extension options and any security deposits. A true, correct and complete copy of each such lease, license or occupancy agreement, and any amendments thereto, with respect to the Leased Real Property (collectively, the “Real Property Leases”) has been made available to the Buyer. All of the Leased Real Property is used or occupied by a Group Company pursuant to a Real Property Lease. With respect to each Real Property Lease: (i) all rents, deposits and additional rents due pursuant to such Real Property Lease have been paid in full and no security deposit or portion thereof has been applied in respect of a breach or default under such Real Property Lease that has not been redeposited in full, and (ii) a Group Company has not received any written notice that it is in default under any Real Property Lease and, to the Seller’s Knowledge, no event has occurred that (with notice or lapse of time, or both) could reasonably be expected to constitute a breach or default under any of the Real Property Leases by any Person or give any Person the right to terminate, accelerate or modify any Real Property Lease. Other than the Leased Real Property and except as set forth on Disclosure Schedule 5.8(b), no real property is used or occupied by a Group Company.
(c)Absence of Violations. Except as set forth on Disclosure Schedule 5.8(c), (i) the leasing, occupancy or use of the Real Property by the Group Companies is not in material violation of any Law and (ii) the condition and use of the Real Property by the Group Companies conforms to the applicable the Real Property Lease.
(d)Assessments. To the Knowledge of the Seller, there is not now pending nor contemplated any reassessment of any parcel included in the Real Property that could result in a material change in the rent or other material sums and material charges payable by a Group Company under any agreement relating to the Real Property. To the Knowledge of the Seller, there are no public improvements in progress or proposed that will result in special assessments against or otherwise adversely affect any of the Real Property in a material manner.
(e)Condition of Property. There are no material defects in, mechanical failure of, or damage to the Real Property. No Group Company has experienced any material disruptions to its operations arising out of any recurring loss of electrical power, flooding, limitations to access to public sewer and water or restrictions on septic service. The Real Property is (i) in good condition and repair (subject to normal wear and tear) and (ii) sufficient for the operation of the business of a Group Company as it is currently conducted and as presently proposed to be conducted. No Group Company has subleased, licensed or otherwise granted any Person the right to use or occupy any of the Real Property.
5.9Personal Property. Each Group Company has good and marketable title to, or a valid and enforceable leasehold interest in, all of its material tangible personal property and assets free and clear of all Liens other than Permitted Liens. The material tangible personal property and assets of each Group Company are free from defects and in good operating condition and repair (subject to normal wear and tear consistent with the age of the assets and properties).
5.10Intellectual Property.
(a)No Group Company owns any Patents or registered Copyrights or any applications therefor.
(b)Disclosure Schedule 5.10(b) sets forth (A) with owner, countries, registration and application numbers and dates indicated, as applicable, a materially complete and correct list identifying details of all: (i) registered Trademarks, and applications for registration of Trademarks; (ii) Proprietary Software; and (iii) Domain Name registrations and applications therefor, in each of (i) to (iii), to the extent that such Trademarks, Software and Domain Names constitute Owned Intellectual Property; (B) information on unregistered Owned Intellectual Property; (C) a list of the agreements under which rights in any Owned Intellectual Property are licensed to a third party or under which a Group Company’s right to use Owned Intellectual Property is restricted (“Material Outbound IP Agreements”); and (D) a list of the agreements under which rights in Owned Intellectual Property are assigned to a Group Company or under which a Group Company is granted a license to use third-party-owned Intellectual Property Rights the use of which is material to the operation of the Group Companies’ business as carried on immediately prior to the date of this Agreement (“Material Inbound IP Agreements”), save that licenses for off-the-shelf Software with an annual value of less than $15,000 and non-exclusive licenses granted by or to a Group Company that pass with the purchase and sale of goods in the Ordinary Course of Business shall not be included for the purposes in this Disclosure Schedule 5.10(b).
(c)All fees associated with maintaining any registered Owned Intellectual Property required to have been set forth on Disclosure Schedule 5.10(b)(A) have been paid in full in a timely manner to the proper Governmental Authority and, except as set forth on Disclosure Schedule 5.10(b)(A), no such fees are due within the three (3) month period after the Closing Date. Except as set forth on Disclosure Schedule 5.10(b)(A), all of the Owned Intellectual Property required to be listed thereon has been duly registered with, filed in or issued by, as the case may be, the United States Patent and Trademark Office, the United States Copyright Office or other applicable filing office(s), domestic or foreign, to the extent necessary or desirable to ensure full protection under any applicable Intellectual Property Law, and such registrations, filings, issuances and other actions remain in full force and effect. All of the registered or issued Owned Intellectual Property required to have been set forth on Disclosure Schedule 5.10(b) are valid and enforceable.
(d)Except pursuant to a Material Outbound IP Agreement or a Material Inbound IP Agreement set forth on Disclosure Schedule 5.10(b) or as otherwise set forth on Disclosure Schedule 5.10(b)(B) and 5.10(d), all of the Owned Intellectual Property is owned solely by a Group Company and such Group Company has the exclusive right to use and possess such Intellectual Property free from (i) any Liens (except for Permitted Liens) and (ii) any requirement of any past, present or future royalty payments, license fees, charges or other payments or conditions or restrictions whatsoever. Except pursuant to a Material Outbound IP Agreement or a Material Inbound IP Agreement set forth on Disclosure Schedule 5.10(b), a Group Company has not licensed or otherwise granted any right to any Person under any Owned Intellectual Property or has otherwise agreed not to assert any such Owned Intellectual Property against any Person, save that licenses for off-the-shelf Software with an annual value of less than $15,000 and non-exclusive licenses granted by or to a Group Company that pass with the purchase and sale of goods in the Ordinary Course of Business shall not be included for the purposes in this Disclosure Schedule 5.10(d).
(e)Any Owned Intellectual Property developed by former and current employees, consultants or contractors to a Group Company was developed by them in the course of their performing services for such Group Company. No director, manager, officer, shareholder, employee, consultant, contractor, agent or other representative of a Group Company owns or claims any rights in (nor has any of them made application for) any Owned Intellectual Property owned or used by such Group Company.
(f)Other than the Material Outbound IP Agreements and Material Inbound IP Agreements that have been completed or terminated in accordance with their respective terms, each Material Outbound IP Agreements and Material Inbound IP Agreements is in full force and effect and binding on the parties to it. The terms of each Material Outbound IP Agreement and Material Inbound IP Agreement have been complied with by the relevant Group Company in all material respects. No written notice of termination or material default (which is current and outstanding) of any Material Outbound IP Agreement or Material Inbound IP Agreement has been received or served by a Group Company and, to the Knowledge of the Seller, there are no reasonable grounds on which any Material Outbound IP Agreement or Material Inbound IP Agreement might be terminated.
(g)Each Group Company has entered into confidentiality and nondisclosure agreements with all of the directors, shareholders, officers, employees, consultants, contractors and agents and other Persons with access to the Trade Secrets of such Group Company, and there has not been any material breach by any of the foregoing of any such agreement. Each Group Company uses reasonable measures to maintain the secrecy of all Trade Secrets of such Group Company.
(h)No Group Company has received written notice (which is current and outstanding) alleging that any Group Company is infringing or misappropriating any third party Intellectual Property and the operation of a Group Company’s business any part thereof, in the twelve (12) months prior to the date of this Agreement including the possession, use, disclosure, copying or distribution of any information, data, products or other tangible or intangible property in the possession of a Group Company, and the possession or use of the Owned Intellectual Property has not, to the Knowledge of the Seller, infringed, misappropriated, diluted, violated or otherwise conflicted with any Intellectual Property right of any other Person.
(i)No Group Company has given written notice (which is current and outstanding) to any third party alleging that the third party is infringing or misappropriating any Owned Intellectual Property and, to the Knowledge of the Seller, none of the Owned Intellectual Property is being or has, in the twelve (12) months prior to the date of this Agreement, been infringed or otherwise used or available for use by any Person other than a Group Company, except pursuant to a Material Outbound IP Agreement or a Material Inbound IP Agreement set forth on Disclosure Schedule 5.10(b) or a Material Contract listed on Disclosure Schedule 5.11.
(j)No Proceeding is pending or, to the Knowledge of the Seller, threatened, that (i) asserts any Group Company is (except as set forth in a Material Contract listed on Disclosure Schedule 5.11) required to pay any royalty, license fee, charge or other amount with regard to any Owned Intellectual Property or (ii) claims that any default exists under any Material Contract set forth or required to be set forth on Disclosure Schedule 5.11. Except as set forth on Disclosure Schedule 5.10, none of the Owned Intellectual Property is or has been subject to any Order, and no Group Company has been subject to any Order in respect of any other Person’s Intellectual Property.
(k)Each Group Company uses reasonable means, consistent with state of the art generally available to the public, to protect the security and integrity of all Information Systems used by such Group Company. Each Group Company has taken commercially reasonable steps to provide for archival, back-up, recovery and restoration of its material business data. To the Knowledge of the Seller, no Person has breached, gained unauthorized access or made any unauthorized use of a Group Company’s Information Systems.
(l)Each Group Company has a written privacy policy regarding the collection and use of Personal Information, and such Group Company is and has at all times been, in material compliance with such policies and all applicable Laws, including those regarding the collection, use, dissemination, storage and protection of Personal Information. To the Knowledge of the Seller, no Person has gained unauthorized access or made any unauthorized use of any Personal Information collected, maintained or used by such Group Company. To the extent required by applicable Law, each Group Company has commercially reasonable measures in place to protect Personal Information stored in its computer systems from unlawful or unauthorized access or use by its own personnel and any third party. No Proceeding is pending, or to the Knowledge of the Seller, threatened against a Group Company relating to the use, dissemination, storage and protection of Personal Information, and no facts or circumstances exist that might give rise to such a Proceeding insofar as the same relate to such Group Company. No Person has claimed any compensation from a Group Company for the loss of or unauthorized disclosure or transfer of personal data, and no facts or circumstances exist that might give rise to such a claim insofar as the same relate to a Group Company.
(m)There are no known material problems or defects in the Software owned by a Group Company or used in the conduct of its business that prevent such Software from operating substantially as described in its related documentation or specifications and otherwise in fulfillment of its intended purpose.
(n)The Group Companies have not utilized Voir Licence to generate revenues in 2024, and have no plan to utilized Voir Licence including, without limitation, in provision of services contemplated by the FF Renewal Contract.
5.11Material Contracts.
(a)Disclosure Schedule 5.11 sets forth, by reference to the applicable subsection of this Section 5.11, each Contract (and in the case of an oral Contract, the material terms of such Contract) to which a Group Company is a party to:
(i)governing the borrowing of money or the guarantee or the repayment of Indebtedness or granting of Liens on any property or asset of a Group Company;
(ii)concerning the ownership, use of or restricting the use of any Owned Intellectual Property (in each case, other than licenses for off-the-shelf Software with an annual value of less than $5,000 and non-exclusive licenses that pass with the purchase and sale of goods in the Ordinary Course of Business);
(iii)with any Seller, Affiliate, director, manager, officer or employee of a Group Company or Affiliates of the Seller (other than employment agreements executed by a Group Company in the Ordinary Course of Business);
(iv)granting to any Person a first-refusal, first-offer or similar preferential right to purchase or acquire any right, asset or property of a Group Company;
(v)which is a Real Property Lease;
(vi)involving a joint venture or partnership or involving the sharing of profits, losses, costs or liability by a Group Company with any other Person;
(vii)involving the acquisition of any material assets or material interest of any Person which has ongoing obligations on a Group Company;
(viii)granting a power of attorney to any Person;
(ix)with any Material Customer or Material Supplier;
(x)with any labor union or involving collective bargaining arrangements or any other side agreements or written agreements with any labor organization;
(xi)with any (A) Governmental Authority or (B) prime contractor of a Governmental Authority in its capacity as a prime contractor; or
(xii)any other Contract (excluding with any supplier or customer of the Group Companies) under which a Group Company is obligated to or would reasonably be expected to make payments or incur costs in excess of $75,000 in any calendar year or $150,000 over the term of the Contract and which is not otherwise described in clauses (i)–(vii) (the Contracts described in clauses (i)-(vii) are each, a “Material Contract” and collectively, the “Material Contracts”).
(b)Each Group Company has provided to the Buyer true and complete copies of each Material Contract, as amended through the date hereof. Other than Material Contracts that have been completed or terminated in accordance with their respective terms, each Material Contract is to the Knowledge of the Seller, in effect, binding and enforceable on the relevant Group Company and, to the Knowledge of the Seller, the other parties thereto subject to the General Enforceability Exceptions. No Material Contract may be lawfully terminated in accordance with its terms as a result of the consummation of the transactions contemplated by this Agreement. No Material Contract contains covenants limiting the freedom of a Group Company to compete in any line of business or with any Person or in any geographic area or market or not to solicit or hire any Person. No Material Contract contains a “most favored nation” pricing agreement. With respect to the Material Contracts listed on Disclosure Schedule 5.11 (or required to be listed on Disclosure Schedule 5.11): (i) neither a Group Company nor, to the Knowledge of the Seller, any other party thereto, is in material default under or in material violation of any Material Contract; (ii) to the Knowledge of the Seller, no event has occurred that, with notice or lapse of time or both, would constitute such a material default or material violation; (iii) no Group Company has released any of its rights under any Material Contract and (iv) no party to a Material Contract has repudiated any of the terms thereof or, to the Knowledge of the Seller, threatened to terminate, cancel or not renew any Material Contract.
5.12Necessary Property. The Group Companies are the only entities or operations through which each Group Company’s business is conducted, and the assets and properties, tangible and intangible, currently owned, leased or licensed by the Group Companies constitute all of the assets and properties reasonably necessary for the continued conduct of the Group Companies’ business after the Closing in the same manner as conducted immediately prior to the Closing.
5.13Insurance. Disclosure Schedule 5.13 sets forth a true and complete list and brief description (including all applicable premiums and deductibles) of all insurance policies to which a Group Company is a party, named insured or otherwise the beneficiary of coverage, or under which a Group Company or any director, manager or officer of a Group Company is a party, an insured or otherwise the beneficiary of coverage as of the date hereof. With respect to each such policy: (i) the policy is valid and enforceable and in full force and effect, (ii) each Group Company has paid all premiums due by it and has otherwise performed all of its obligations under such policy and (iii) no Group Company, and to the Seller’s Knowledge, no other party to the policy has repudiated any provision thereof. No written notice of cancellation, termination or non-renewal has been received with respect to any such policy.
5.14Litigation and Orders.
(a)Except as set forth on Disclosure Schedule 5.14(a), there are no Proceedings pending or, to the Knowledge of the Seller, threatened against, related to or affecting a Group Company or its business, operations or assets. To the Knowledge of the Seller, no event has occurred or circumstances exist that could give rise to or serve as a basis for the commencement of any Proceeding against, related to or affecting a Group Company or its business, operations or assets. Disclosure Schedule 5.14(a) lists all Proceedings to which a Group Company was a party during the past two (2) years (whether or not settled). None of the items set forth on Disclosure Schedule 5.14(a), if adversely determined, could reasonably be expected to have a Material Adverse Effect.
(b)To the Seller’s Knowledge, except as set forth on Disclosure Schedule 5.14(b), (i) there is no Order to which a Group Company, or any of the assets owned by a Group Company, is subject, (ii) the Seller is not subject to any Order that relates to the business of, or any of the assets owned by, a Group Company, and (iii) no officer, director, agent, consultant or employee of a Group Company is subject to any Order that prohibits such officer, director, agent, consultant or employee from engaging in or continuing any conduct, activity or practice relating to the business of a Group Company.
5.15Compliance with Laws. Each Group Company is now, and for the last two (2) years has been, in compliance in all material respects with all applicable Laws and Orders. To the Knowledge of the Seller, there is no proposed Law or Order that would be applicable to a Group Company and that would have a Material Adverse Effect. No Group Company has received any written notice from any Governmental Authority or any other Person regarding (a) any actual, alleged, possible or potential violation of, or failure to comply with, or liability under any applicable Law, or (b) any actual, alleged, possible or potential obligation or liability of a Group Company.
5.16Permits. Disclosure Schedule 5.16 sets forth a true and complete list and description of all Permits held by each Group Company and used by it in the conduct of its business as of the date hereof. Each Group Company is in compliance with the terms of such Permits and there is no pending or, to the Knowledge of the Seller, threatened termination, expiration, suspension, withdrawal or revocation of any of such Permits. Except for the Permits set forth on Disclosure Schedule 5.16, there are no Permits necessary or required for the conduct of the business of a Group Company. Each Permit held by a Group Company is valid and in full force and effect, and none of such Permits will lapse, terminate, expire or otherwise be impaired as a result of the performance of this Agreement by the Seller or the consummation of the transactions contemplated hereby.
5.17Labor Matters.
(a)Union and Employee Contracts. (i) Except as disclosed on Disclosure Schedule 5.17(a), no Group Company is a party to or bound by any union contract, collective bargaining agreement or other similar type of contract with any labor organization, (ii) no Group Company has agreed to recognize any union or other collective bargaining unit, (iii) no union or collective bargaining unit has been certified as representing the employees of a Group Company, (iv) no organizational attempt has been made or threatened by or on behalf of any labor union or collective bargaining unit with respect to any employees of a Group Company and (v) there are no material grievances pending under any collective bargaining agreement between a Group Company and any labor organization. No Group Company has experienced any labor strike, dispute, slowdown or stoppage or any other material labor difficulty during the past two (2) years. There are no material unfair labor practice charges, grievances or complaints pending, or to the Knowledge of the Seller, threatened by or on behalf of any employee or group of employees of a Group Company.
(b)List of Employees, Etc.
(i)Disclosure Schedule 5.17(b)(i) lists, to the extent applicable, as of the date hereof, for each employee, consultant, independent contractor and director of each Group Company or any other individual who provides services to a Group Company, his or her: name; title; employer; location; employment status (i.e., whether full-time, temporary, leased, etc.); active or inactive status (including type of leave, if any); and current annual base salary or hourly wage rate (or other compensation).
(ii)Except as set forth on Disclosure Schedule 5.17(b)(ii), none of the employees of each Group Company are “at will”.
(c)Unemployment, Social Security and Other Benefits. No Group Company is liable for any payment to any trust or other fund or to any Governmental Authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the Ordinary Course of Business and consistent with past practice).
(d)Manuals, Handbooks, Policies, etc. To the extent they exist in written form, true and complete copies have been provided to the Buyer of the material written personnel manuals, handbooks, policies, rules or procedures applicable to any employee of each Group Company.
(e)Compliance and Investigations. Except as set forth on Disclosure Schedule 5.17(e), to the Knowledge of the Seller, each Group Company is, and for the past two (2) years has been, in compliance in all material respects with all applicable Laws respecting labor, employment and employment practices, including all Laws respecting terms and conditions of employment, health and safety, wages and hours (including the classification of independent contractors), employment harassment, discrimination or retaliation, whistleblowing, disability rights or benefits, equal opportunity, employee trainings and notices, workers’ compensation, labor relations, employee leave issues, affirmative action and unemployment insurance. No Group Company, has received within the past two (2) years any written notice of intent by any Governmental Authority responsible for the enforcement of labor or employment laws to conduct an investigation relating to a Group Company and, to the Knowledge of the Seller, no such investigation is in progress.
(f)Redundancy Process. No Group Company is liable to make any payment to any employees after the Closing Date, with respect to compensations, benefits or obligations for employees stipulated in any separation agreements in connection with the Redundancy Process.
5.18Employee Benefit Plans.
(a)Disclosure Schedule 5.18(a) sets forth a complete list of all Employee Plans. No Group Company has any liability with respect to any plan, arrangement or practice of the type described in the preceding sentence other than the Employee Plans.
(b)Each Employee Plan is maintained, operated and administered in compliance with its terms and any related documents or agreements and in compliance with all applicable Laws. Neither the execution and delivery of this Agreement or the Transaction Documents nor the consummation of the transactions contemplated hereby or thereby will constitute a Prohibited Transaction or adversely affect the tax qualification of any Employee Plan.
(c)There is no pending or threatened Proceeding of any kind before any Governmental Authority with respect to any Employee Plan (other than routine claims for benefits), nor, to the Knowledge of the Seller, is there any basis for one.
(d)All (i) insurance premiums required to be paid with respect to, (ii) benefits, expenses and other amounts due and payable under, and (iii) contributions, transfers or payments required to be made to, any Employee Plan prior to the Closing Date will have been paid, made or accrued on or before the Closing Date.
(e)Neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated by this Agreement could reasonably be expected to, either alone or in conjunction with any other event (whether contingent or otherwise), (i) constitute a stated triggering event under any Employee Plan that will result in any payment (whether of severance pay or otherwise) becoming due from a Group Company to any current or former officer, employee, director or consultant (or dependents of such Persons) or (ii) accelerate the time of payment, vesting or funding of any benefit or compensation, or increase the amount or value of any benefit or compensation due or required to be provided to, any current or former officer, employee, director or consultant (or dependents of such Persons) of a Group Company.
(f)In the two (2) years prior to the date hereof, no Group Company has agreed or committed to institute any plan, program, arrangement or agreement for the benefit of employees or former employees of a Group Company other than the Employee Plans, or to make any amendments to any of the Employee Plans.
(g)No Employee Plan provides benefits to any Person who is not a current or former employee of a Group Company, or the dependents or other beneficiaries of any such current or former employee.
(h)All employees of a Group Company are in active service and no employees or former employees of a Group Company are receiving salary continuation, short-term disability or long-term disability benefits under any Employee Plan.
5.19Undisclosed Liabilities. No Group Company has any liabilities (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due, whether known or unknown, regardless of when asserted) arising out of transactions or events entered into prior to the Closing Date that would be required under IFRS to be reflected or reserved against in a balance sheet of the Company, except (a) liabilities reflected in the Interim Financial Statements, (b) liabilities that have arisen after the date of the Interim Financial Statements in the Ordinary Course of Business (none of which relates to breach of Contract, breach of warranty, tort, infringement or violation of Law), (c) liabilities that are the subject matter of other representations or warranties in this Article 5, (d) liabilities incurred in connection with the transaction contemplated hereby, (e) liabilities as would not be material to the Group Companies taken as a whole or (f) as otherwise set forth on Disclosure Schedule 5.19.
5.20Customers and Suppliers.
(a)Disclosure Schedule 5.20(a) sets forth a true, correct and complete list of the ten (10) largest customers of the Group Companies (each, a “Material Customer”), as measured by the dollar amount of sales to such customers during the fiscal year ended December 31, 2023, showing the approximate total sales by the Group Companies, to each such customer, during such period. Except as set forth on Disclosure Schedule 5.20(a), (i) all Material Customers continue to be customers of the Group Companies and none of such Material Customers has materially reduced its business with a Group Company from the levels achieved during the year ended December 31, 2023, and, to the Knowledge of the Seller, there is no reason to believe that any such reduction will occur; (ii) no Material Customer has terminated its relationship with a Group Company, nor has any Group Company received any written notice, nor, to the Knowledge of the Seller, is there any other reason to believe, that any Material Customer intends to do so or to materially alter the terms of its relationship with a Group Company; (iii) no Group Company is involved in any material claim, dispute, controversy or other Proceeding with any Material Customer; (iv) no Material Customer, in the twelve (12) months prior to the date of this Agreement, has materially reduced or has requested in writing or, to the Knowledge of the Seller, orally to materially reduce, in either case, in the aggregate, the pricing of any good or service it purchases from a Group Company, or, to the Knowledge of the Seller, is there any other reason to believe that any Material Customer intends to do so; and (v) to the Knowledge of the Seller, no grounds exists upon which a Material Customer of a Group Company could terminate its relationship with such Group Company as a result of the consummation of the transactions contemplated by this Agreement, including as a result of any change in ownership of a Group Company or loss by a Group Company of any set-aside status or eligibility of a Group Company for any set-aside program.
(b)Disclosure Schedule 5.20(b) sets forth a true, correct and complete list of the ten (10) largest suppliers of the Group Companies (each, a “Material Supplier”), as measured by the dollar amount of purchases from such suppliers during the fiscal year ended December 31, 2023 showing the approximate total purchases by the Group Companies, from each such supplier, during such period. Except as set forth on Schedule 5.20(b), (i) all Material Suppliers continue to be suppliers to a Group Company and none of such Material Suppliers has reduced materially its business with such Group Company from the levels achieved during the year ended December 31, 2023, and, to the Knowledge of the Seller, there is no reason to believe that any such reduction will occur; (ii) no Material Supplier has terminated its relationship with a Group Company, nor has a Group Company received any written notice, nor, to the Knowledge of the Seller, is there any other reason to believe, that any Material Supplier intends to do so; (iii) no Group Company is involved in any material claim, dispute, controversy or other Proceeding with any Material Supplier; (iv) no Material Supplier has, in the twelve (12) months prior
to the date of this Agreement, materially increased or requested in writing or, to the Knowledge of the Seller, orally to materially increase, in either case, in the aggregate, the pricing of any good or service it sells to a Group Company, or, to the Knowledge of the Seller, is there any other reason to believe that any Material Supplier intends to do so; and (v) no Group Company has received, in the twelve (12) months prior to the date of this Agreement, any written notice, nor to the Knowledge of the Seller, is there any other reason to believe, that any Material Supplier intends to change its business practices or policies in a manner that could be adverse to a Group Company.
5.21Related Party Transactions. Except as set forth on Disclosure Schedule 5.21 and excluding employment agreements entered into in the Ordinary Course of Business, none of the Group Companies, the Seller nor any of their respective Affiliates, nor any current or former director, manager, officer or employee of a Group Company: (a) has or during the last two (2) years has had any direct or indirect interest (i) in, or is or during the last two (2) years was, a director, officer or employee of, any Person that is a client, customer, supplier, lessor, lessee, debtor, creditor or competitor of a Group Company or (ii) in any material property, asset or right that is owned or used by a Group Company in the conduct of its business; or (b) is, or during the last two (2) years has been, a party to any agreement or transaction with a Group Company. Except as set forth in Disclosure Schedule 5.21, (x) there is no outstanding Indebtedness owed to or by a Group Company with any current or former director, manager, officer, employee or consultant of a Group Company or the Seller or any of its Affiliates and (y) no Affiliate of the Seller is employed by, or otherwise provides services to, a Group Company.
5.22Bank Accounts. Disclosure Schedule 5.22 sets forth a true and complete list of (a) the name and address of each bank with which each Group Company has an account or safe deposit box, (b) the name of each Person authorized to draw thereon or have access thereto and (c) the account number for each bank account of each Group Company.
5.23International Trade; Anti-Corruption. Neither a Group Company nor, to the Seller’s Knowledge, a Group Company’s officers, directors, managers, or employees, is or has in the past two (2) years been (a) a Sanctioned Person, (b) engaging in any transactions or business dealings with any Sanctioned Person in violation of Sanctions, or (c) engaging in any transactions or business dealings in or with any Sanctioned Country in violation of Sanctions. No Group Company is currently in violation in any material respect of applicable Sanctions. Neither a Group Company or, to the Seller’s Knowledge, a Group Company’s officers, directors, managers, employees, independent contractors, agents, or other Persons acting for or on behalf of a Group Company has at any time taken any action that would cause a Group Company to be in violation of any applicable Anti-Corruption Laws. No Group Company has received any internal or external allegation, or any written notice or inquiry from any Governmental Authority, concerning any actual or potential violation or wrongdoing related to Anti-Corruption Laws.
5.24Books and Records. All books and records of each Group Company are maintained in all material respects in accordance with good business practice and all applicable Laws. The Books and Records of each Group Company previously delivered to the Buyer are, in all material respects, true, correct and complete and accurately reflect all corporate (or equivalent) actions taken by such Group Company.
5.25Brokers. No Person has acted directly or indirectly as a broker, finder or financial advisor for a Group Company or the Seller in connection with the negotiations relating to the transactions contemplated by this Agreement, and no Person is entitled to any fee or commission or like payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of a Group Company or the Seller.
5.26No Other Representations and Warranties. Except as expressly set forth in Article 5, neither the Seller nor any of the Seller’s agents, employees or Representatives have made, nor are any of them making any representation or warranty, written or oral, express or implied, in respect of the Group Companies or their businesses, including any representations and warranties about the accuracy or completeness of any information or documents previously provided, and any such other representations or warranties are hereby expressly disclaimed. The Buyer expressly acknowledges and agrees that none of the Seller or any of its agents, employees or Representatives is relying on any other representation or warranty of the Seller or any of its agents, employees or Representatives, including regarding the accuracy or completeness of any such other representations and warranties, whether express or implied. Notwithstanding the foregoing, the Seller hereby acknowledges that during the course of the due diligence investigation of the Company conducted by or on behalf of the Buyer in connection with the Buyer’s consideration of the transactions contemplated hereby, the Seller and the Company provided information and made statements to the Buyer and its Representatives regarding the Company and its business, operations, financial condition and other matters. The Buyer understands and hereby acknowledges and agrees that neither the Buyer nor any other Indemnified Party shall have any right to file, bring or make (and hereby expressly waives to the fullest extent allowable under Law the right to file, bring or make) any lawsuit or other claims against any Indemnifying Party under this Agreement or otherwise as a result of any inaccuracies in any such information or statements unless and solely to the extent that such information or statements (i) are the subject of an express representation and warranty set forth in this Article 5 or (ii) the Buyer can demonstrate the commission of fraud by or on behalf of the Company when such information or such statements were provided or otherwise made; provided, however, that notwithstanding the foregoing, the Buyer understands and hereby acknowledges and agrees that neither the Buyer nor any other Indemnified Party shall have any right to bring (and hereby expressly waives to the fullest extent allowable under applicable Law the right to file, bring or make) any lawsuit or other claims against any Indemnifying Party under this Agreement or otherwise arising out of any forward looking, predictive or prospective information or statements.
Article 6
REPRESENTATIONS AND WARRANTIES OF THE BUYER
Except to the extent set forth in or qualified by the Disclosure Schedules, the Buyer represents and warrants to the Seller that the statements contained in this Article 6 are true, correct and complete as of the date hereof and as of the Closing Date:
6.1Existence and Good Standing. The Buyer is a company limited by shares, duly organized, validly existing and in good standing under the laws of Taiwan. The Buyer has all requisite power and authority to own, lease and operate its assets and properties and to carry on its business as currently being conducted, except as would not reasonably be expected to have material adverse effect on the Buyer’s ability to consummate the transactions contemplated by this Agreement.
6.2Power. The Buyer has the requisite power and authority to execute, deliver and perform fully its obligations under this Agreement and the Transaction Documents. No additional actions on the part of the Buyer are necessary to authorize the execution and delivery of this Agreement and the Transaction Documents and the consummation by the Buyer of the transactions contemplated hereby and thereby.
6.3Validity and Enforceability. This Agreement and each of the Transaction Documents have been duly authorized, executed and delivered by the Buyer and, assuming due authorization, execution and delivery by the Seller, represent the legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with their respective terms, subject to the General Enforceability Exceptions.
6.4No Conflict. Neither the execution of this Agreement or the Transaction Documents, nor the performance by the Buyer of its obligations hereunder or thereunder, will violate or conflict with the Buyer’s Governing Documents, any Law or Order applicable to the Buyer or any material Contract to which the Buyer is a party or by which any of its properties or assets are bound.
6.5Consents. No consent, approval or authorization of any Person or Governmental Authority is required in connection with the execution and delivery by the Buyer of this Agreement or the Transaction Documents or the consummation of the transactions contemplated hereby or thereby.
6.6Financial Capacity. The Buyer has, and will between (and including) the date hereof and the Closing, sufficient funds to pay in cash the Purchase Price and the Earnout in accordance with the terms of Article 2 to consummate the transactions contemplated in this Agreement and the other Transaction Documents and perform its obligations hereunder and thereunder. The Buyer acknowledges that receipt or availability of funds or financing by the Buyer or any of its Affiliates shall not be a condition to the Buyer’s obligations hereunder. No funds to be paid to the Seller have been derived from or will have been derived from, or constitute, either directly or indirectly, the proceeds of any criminal activity under the anti-money laundering Laws of the United States.
6.7Investment Intention. The Buyer is acquiring the Purchased Securities for its own account, for investment purposes only and not with a view to the distribution of such Purchased Securities. The Buyer understands that the Purchased Securities have not been registered under the Securities Act, and cannot be sold unless subsequently registered under the Securities Act, or an exemption from such registration is available.
6.8Solvency. Assuming (a) compliance by the Seller with its obligations hereunder and (b) that the representations and warranties of the Seller contained in this Agreement (disregarding references to Material Adverse Effect and other materiality qualifiers) are true and correct in all material respects following the Closing, and after giving effect to the consummation of the transactions contemplated by this Agreement, the Buyer and the Group Companies will not (a) be insolvent, or (b) unable to pay its debts as they fall due.
6.9Brokers. No Person has acted directly or indirectly as a broker, finder or financial advisor for the Buyer in connection with the negotiations relating to the transactions contemplated by this Agreement, and no Person is entitled to any fee or commission or like payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of the Buyer.
Article 7
COVENANTS AND AGREEMENTS
7.1Interim Operations of the Group Companies. From and after the date hereof until the Closing or the earlier termination of this Agreement, except as otherwise expressly contemplated or permitted by this Agreement or as consented to in writing by the Buyer (which consent will not be unreasonably withheld, conditioned or delayed), the Seller shall cause each Group Company not to:
(a)create, incur, assume, suffer to exist or otherwise become liable with respect to any Indebtedness;
(b)(i) make any material change in any method of Tax accounting; (ii) enter into any closing agreement or settle or compromise any Tax claim, audit or assessment; (iii) make (other than in the Ordinary Course of Business), change, revoke or rescind any Tax election; (iv) surrender any right to claim a material Tax refund; (v) consent to any extension or waiver of the limitation period applicable to any claim, audit or assessment in respect of material Taxes or (vi) file any Tax Return that was not prepared in accordance with the past practices of each Group Company; or (vii) file any material amendment to any Tax Return, in each case, except (A) as required by applicable Law or (B) with respect to any Combined Return or Taxes with respect thereto;
(c)(i) increase the salary, wages or other compensation rates of any officer, employee, director, manager or consultant, (ii) make or grant any increase in benefits or rights under any Employee Plan, or amend or terminate any existing Employee Plan, or adopt any new Employee Plan other than as required by Law or an existing Contract or (iii) make any commitment or incur any liability to any labor organization;
(d)sell, assign, transfer (including transfers to any employees, Seller or Affiliates), license, abandon or subject to any Lien any tangible or intangible assets or properties, other than sales of inventory in the Ordinary Course of Business;
(e)authorize or make any capital expenditures or commitments therefor in excess of $10,000 individually or $50,000 in the aggregate;
(f)adopt or propose any change to, or amend or otherwise alter its Governing Documents;
(g)other than with respect to Tax distributions to the Seller consistent in all respects with the Ordinary Course of Business, declare or pay any dividends or other distributions with respect to any Equity Interests or redeem or purchase, directly or indirectly, any Equity Interests;
(h)adjust, split, combine or reclassify any Equity Interests or enter into any agreement or plan to effect a merger, consolidation, share exchange, reorganization, dissolution or liquidation;
(i)(A) acquire (by merger, consolidation, acquisition of stock or assets or otherwise), directly or indirectly, any Equity Interests, assets, properties or businesses, other than materials, supplies and equipment in the Ordinary Course of Business, or (B) acquire any Real Property;
(j)settle or compromise, or offer or propose to settle or compromise, any Proceeding (other than as part of or in connection of the Redundancy Process);
(k)enter into any material amendment, material modification, termination (partial or complete) or grant any waiver under or give any consent with respect to any Material Contract;
(l)sell, assign, transfer, lease, sublease, license, sublicense or otherwise transfer or dispose of, or abandon or permit to lapse, fail to take any action necessary to maintain, review, enforce, or protect, or create or incur any Liens (other than Permitted Liens) on, any Intellectual Property or Owned Intellectual Property, other than in the Ordinary Course of Business (A) pursuant to non-exclusive licenses granted to customers or (B) for the purpose of disposing of obsolete or worthless assets;
(m)make any loans, advances or capital contributions to, or investments in, any other Person;
(n)make any changes in its methods, practices or policies of financial accounting, working capital and/or cash management practices or change its policies, practices or procedures with respect to collection of accounts receivable, establishment of reserves for uncollectable amounts, accrual of accounts receivable, prepayment of expenses, payment of accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits (in each case, including the timing thereof), in each case, except as may be required under applicable Law or IFRS; or
(o)agree or commit to do any of the foregoing.
7.2Access to Information.
(a)Subject to Section 7.2(c), from the date hereof until the Closing and for seven (7) years after the Closing Date, the Seller shall afford Buyer and its Affiliates reasonable access, during normal business hours upon reasonable advance notice, to the Books and Records of each Group Company and of the Seller (solely to the extent related to the Group Companies for the periods prior to the Closing Date) in their possession and solely prior to the Closing, to the senior management of each Group Company and its agents and auditors, in each case, to the extent reasonably required by Buyer to ensure an orderly and efficient transition of each Group Company to Buyer, to prepare for the Closing and to facilitate the satisfaction of the conditions to the Closing under Article 8. Notwithstanding anything to the contrary herein, neither the Seller nor any of its Affiliates shall be required to disclose to Buyer or any Affiliate of Buyer any consolidated, combined, affiliated or unitary Tax Return which includes the Seller or any of its Affiliates or any Tax-related work papers. Buyer agrees and acknowledges that all information made available to Buyer and its Affiliates hereunder prior to the Closing and all information made available to Buyer at any time in connection with this Agreement relating to the Seller and Affiliate (other than the Group Companies) shall be Confidential Information and shall be subject to the obligations set forth in Section 7.8.
(b)Subject to Section 7.2(c), for seven (7) years after the Closing Date, Buyer shall afford (and shall cause the Group Companies and any Affiliate operating the Group Companies after the Closing to afford) to the Seller and its Affiliates reasonable access, during normal business hours upon reasonable advance notice to the Books and Records of each Group Company, and of the Buyer and its Affiliates (solely to the extent related to a Group Company) and to senior management supporting each Group Company and its agents and audits, in each case of the foregoing, to the extent reasonably required by the Seller for any requirement of Law or under this Agreement including to comply with any applicable Tax, financial reporting or regulatory requirement of the Seller or its Affiliates or the terms of any Transaction Document, any applicable Law or request of any Governmental Authority, with or to defend or prosecute any judicial, arbitral or regulatory Proceeding to which the Seller or any of its Affiliates are a party. Notwithstanding anything to the contrary contained herein, neither the Buyer nor any of its Affiliates shall be required to disclose to the Seller or any Affiliate of the Seller any consolidated, combined or unitary Tax Return which includes the Buyer or any of its Affiliates or any Tax-related work papers. The Seller agrees and acknowledges that all information made available to the Seller and its Affiliates under this Section 7.2(b) shall be deemed to be Confidential Information and shall be subject to the obligations set forth in Section 7.8.
(c)Notwithstanding the foregoing, neither the Seller nor Buyer shall be required to provide any access to any Books and Records to the extent that such access would (i) be prohibited by applicable Law or the terms of any Contract to which such applicable party or its Affiliates is a party, (ii) be materially disruptive the operation of the business of such party or its Affiliates, or (iii) in such party’s reasonable determination, the disclosure of which would reasonably expected to affect any legal privilege of such party or its Affiliates or result in disclosure of trade secrets; provided that in each case of the foregoing, such party shall use commercially reasonable efforts to either obtain any Consents required to share such requested information (without being required to take any Non-Required Action) or provide alternative information or access that would permit the requesting party to achieve the same goals. Each of the parties hereto agree that access to information generated by third parties (including auditors and independent accountants of the disclosing party) does not have to be made available to any Person unless and until such Person has entered into reasonable and customary third-party access, release and confidentiality agreements in form and substance acceptable to such third parties. To the extent any party requires or requests copies of any Books and Records, such copies shall be made at such party’s expense and shall be subject to this Section 7.2(c) and Section 7.8. For the avoidance of doubt, none of the parties shall be entitled to rely on this Section 7.2(c) for access to information or personnel if such access is required solely in connection with a Proceeding resulting from this Agreement where the Seller and Buyer are adverse parties.
7.3Books and Records.
(a)Subject to Section 7.8, the Seller and its Affiliates shall have the right to retain copies of all books, data, files, information, records, documents, correspondence and other materials (“Books and Records”) in any media (including, for the avoidance of doubt, Tax Returns and other information and documents relating to Tax matters) of each Group Company, including all Books and Records (i) relating to information (including employment and medical records) regarding the employees of each Group Company, (ii) required to be retained under any applicable Law or regulatory request, or (iii) that are reasonably necessary for the Seller and its Affiliates to perform their respective obligations pursuant to the Transaction Documents or any other agreements between the Seller, on the one hand, and each Group Company, on the other hand, that will remain in effect after the Closing, in each case, subject to compliance with all applicable Laws and Section 7.8. The Seller agrees and acknowledges that all information made available to the Seller and its Affiliates under this Section 7.3(a) shall be deemed to be Confidential Information and shall be subject to the obligations set forth in Section 7.8.
(b)With respect to all Books and Records of each Group Company existing as of the Closing Date, Buyer shall, and shall cause each Group Company to, (i) comply in all material respects with all applicable Laws, including the Code, relating to the preservation and retention of records, (ii) apply preservation and retention policies that are no less stringent than those generally applied by Buyer and its Affiliates with respect to their respective other businesses and (iii) for seven (7) years after the Closing Date, preserve and retain all such Books and Records.
7.4Reasonable Best Efforts; Cooperation.
Upon the terms and subject to the conditions set forth in this Agreement, prior to the Closing, the Seller, on the one hand, and Buyer, on the other hand, agree to use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party hereto in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable (and in any event prior to the Termination Date), the Closing and to obtain satisfaction or waiver of the conditions precedent to the consummation of the transactions contemplated hereby, including: (a) obtaining all of the necessary Consents from third parties and the taking of all steps as may be necessary to obtain such Consents and to avoid a Proceeding by any Governmental Authority; (b) the defending of any Proceeding, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Authority vacated or reversed; and (c) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement, provided, that, none of the parties hereto shall be required to take any Non-Required Action in order to obtain any Consents or clearances from any third parties.
7.5Further Assurances. Subject to the terms and conditions of this Agreement and Law, from and after the Closing Date, the parties shall execute and deliver or cause to be executed and delivered to the requesting party such other agreements or instruments, in addition to those required by this Agreement, and shall take such further action, in each case, as the other party may reasonably request, in order to implement, carry out or effectuate the transactions contemplated by and the purposes of this Agreement.
7.6Public Announcements. Except as otherwise required by Law, press releases or other public announcements concerning the transactions contemplated by this Agreement shall be made only with the prior approval of the other party (not to be unreasonably withheld, conditioned or delayed).
7.7Non-Competition; Non-Solicitation.
(a)During the eighteen (18)-month period immediately following the Closing Date, the Seller will not, directly or indirectly, (i) engage in any Competing Business or (ii) own, manage, operate or control (or participate in the ownership, management, operation or control of), be employed by, provide financing to, consult with or otherwise render services to any Person who is engaged in any Competing Business, or attempt to do so; provided that nothing in this Section 7.7(a) shall prevent the purchase or ownership by the Seller or its Affiliates of equity securities of a Competing Business that constitute less than 5% of the outstanding equity securities of such Competing Business.
(b)The Seller covenants and agrees that during the six (6)-month period immediately following the Closing Date, the Seller will not assist any other Person to, in each case, directly or indirectly, (i) hire or engage in any capacity any employee of any Group Company that was an employee of any Group Company at any time within the immediately preceding twelve (12) months of the Closing Date, or (ii) solicit, entice or induce any employee of any Group Company to terminate his or her employment with any Group Company; provided, that the foregoing will not be violated by general employment solicitations that are not specifically directed at employees of the Group Companies.
(c)Each of the Seller and the Buyer agree that, from and after the Closing Date, it will not, in any way, either directly or indirectly, intentionally disparage the other party, any of the other party’s Affiliates or any of their respective businesses, products, services, management, business practices, officers, directors, managers, employees or agents in any way that could adversely affect the goodwill, reputation or business relationships of the other party or any of the other party’s Affiliates; provided, however, that the forgoing will not restrict any Person’s truthful cooperation or testimony in connection with any investigation or inquiry by a Governmental Authority.
(d)The Seller acknowledges the highly competitive nature of the Group Companies and acknowledges that the duration, geographical scope and subject matter of the restrictions contained in this Section 7.7 are reasonable and necessary to protect the goodwill, business relationships, legitimate business interests and Confidential Information of the Group Companies. The parties recognize that the Laws and public policies of various jurisdictions may differ as to the validity and enforceability of covenants similar to those set forth in this Section 7.7. If at the time of enforcement of any provision of this Section 7.7 a court of competent jurisdiction holds that the restrictions set forth herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographic area permitted by the applicable Laws of such jurisdiction will be substituted for the stated period, scope or geographical area and that such court will be allowed to, and is hereby requested to, revise the restrictions contained herein to cover the maximum period, scope and geographical area permitted by Law; provided, that if any such restriction cannot be, or is not, so revised, then such restriction will be ineffective in such jurisdiction to the minimum extent necessary to make the remainder of this Section 7.7 enforceable in such jurisdiction and such will not affect any other provision of this Agreement.
7.8Confidentiality.
(a)Subject to Section 7.8(b) and Section 7.6, from and after the Closing Date, each party that receives or obtains Confidential Information, or whose Representatives receive or obtain Confidential Information (collectively, the “Receiving Party”), from or on behalf of the other Party or any of its Affiliates or Representatives (collectively, the “Disclosing Party”) as a result of entering into this Agreement (or any agreement entered into pursuant to this Agreement) shall treat such Confidential Information as confidential and shall not disclose or use any such Confidential Information except as provided herein.
(b)Section 7.8(a) shall not prohibit disclosure or use of any Confidential Information if and to the extent: (i) the disclosure or use is required by Law or any recognized stock exchange on which the Equity Interests of the Receiving Party or its Affiliates are listed (provided that, to the extent permitted by Law, prior to such disclosure or use the Receiving Party shall (A) promptly notify the Disclosing Party of such requirement and provide the Disclosing Party with a list of Confidential Information to be disclosed and (B) reasonably cooperate, at the Disclosing Party’s sole cost and expense, in obtaining a protective order covering, or confidential treatment for, such Confidential Information), (ii) disclosed to any Governmental Authority with jurisdiction over the Receiving Party or its Affiliates (provided that, to the extent permitted by Law, prior to such disclosure the Receiving Party shall (A) promptly notify the Disclosing Party of such requirement and provide the Disclosing Party with a list of Confidential Information to be disclosed and (B) reasonably cooperate, at the Disclosing Party’s sole cost and expense, in obtaining a protective order covering, or confidential treatment for, such Confidential Information), (iii) the disclosure or use is required for the purpose of any administrative or judicial Proceedings arising out of this Agreement or any other agreement entered into under or pursuant to this Agreement or the disclosure is made in connection with the Tax affairs of the Disclosing Party, (iv) the disclosure is made to the Receiving Party’s Representatives on a need-to-know basis (with the understanding that the Receiving Party shall be responsible for any breach by its Representatives of this Section 7.8), (v) the Confidential Information is or becomes generally available to the public (other than as a result of a disclosure, directly or indirectly, by the Receiving Party or its Representatives), (vi) except with respect to Confidential Information that concerns the Group Companies, the Confidential Information is already in the Receiving Party’s possession prior to receipt from the Disclosing Party (provided that such Confidential Information is not known by the Receiving Party to be subject to another confidentiality obligation), (vii) the Confidential Information is or becomes available to the Receiving Party on a non-confidential basis from a source other than the Disclosing Party (provided that such sources are not known by the Receiving Party to be subject to another confidentiality obligation), (viii) in the case of disclosure or use by the Buyer and its Affiliates, the Confidential Information relates exclusively to the Group Companies or is independently developed after the Closing, or (ix) the disclosure or use of such Confidential Information is made with the Disclosing Party’s prior written approval. For the avoidance of doubt, Section 7.8(a) shall not prohibit sharing of Confidential Information between the Seller and its Affiliates or the Buyer and its Affiliates.
(c)The parties hereto agree that the Non-Disclosure Agreement between the Buyer and the Seller dated October 24, 2023 will terminate upon the Closing and be of no further force or effect.
7.9Post-Closing Employee Retention Bonus Pool. Effective as of the Closing, the Buyer shall have approved an employee retention bonus for the Eligible Employees of not less than one million dollars ($1,000,000) in the aggregate. Such a program will contain a portion of the bonus to be paid in accordance with the retention periods following the Closing, and a portion of the bonus to be paid pursuant to the achievement of key performance factors of the Eligible Employees as determined by the Buyer it its sole discretion following the Closing (the “Post-Closing Bonus Program Payments”) to the Eligible Employees in accordance with the terms of letters in the form reasonably agreed with the Seller prior to the Closing and delivered to the Eligible Employees from the Buyer within ninety (90) Business Days of the Closing Date.
Article 8
CONDITIONS TO CLOSING
8.1Conditions to the Obligations of the Seller. The obligations of the Seller to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver (if permitted by applicable Law) at or prior to the Closing of each of the following conditions:
(a)The representations and warranties of Buyer set forth in this Agreement must be true and correct in all respects (without giving effect to any materiality or material adverse effect qualifications contained therein) as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case, as of such date).
(b)Buyer must have performed or complied with, as applicable, in all material respects all covenants, obligations and agreements required to be performed or complied with, as applicable, by it under this Agreement prior to the Closing.
(c)Buyer must have delivered or caused to be delivered to the Seller the items required by Section 3.3.
(d)No Proceeding initiated by any third party, the express purpose of which is to prevent or impair the Closing, is pending before a court of applicable jurisdiction.
(e)None of the parties hereto will be subject to any Order of a court of competent jurisdiction and no applicable Law shall have been promulgated or enacted, in each case, that prohibits the consummation of the transactions contemplated by this Agreement.
8.2Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver (if permitted by applicable Law) at or prior to the Closing of each of the following conditions:
(a)(i) The Fundamental Representations must be true and correct in all respects, other than de minimis inaccuracies as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case, as of such date); and (ii) the representations and warranties of the Seller set forth in Article 4 and Article 5 (other than the Fundamental Representations) must be true and correct in all respects (without giving effect to any materiality or material adverse effect qualifications contained therein) as of date hereof and as of the Closing Date as though made on and as of such date (except to the extent expressly made as of an earlier date, in which case, as of the such date), except in the case of this clause (ii) where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, have a Material Adverse Effect on the Group Companies;
(b)The Seller must have performed or complied with in all material respects all covenants, obligations and agreements required to be performed or complied with by the Seller under this Agreement prior to the Closing;
(c)The Subsidiary shall have approved the annual financial statements in accordance with the applicable Laws;
(d)From and after the date of this Agreement, no Material Adverse Effect shall have occurred and is continuing as of the Closing Date;
(e)The Seller must have delivered or caused to be delivered to Buyer the items required by Section 3.2;
(f)No Proceeding initiated by any third party, the express purpose of which is to prevent or impair the Closing, is pending before a court of applicable jurisdiction;
(g)None of the parties hereto will be subject to any Order of a court of competent jurisdiction and no applicable Law shall have been promulgated or enacted, in each case, that prohibits the consummation of the transactions contemplated by this Agreement; and
(h)No later than one Business Day prior to the Closing, the Seller shall have made capital injection of $400,000 to the Company, and capitalized the intercompany loans extended by the Seller as set forth on Section 8.2(h) of the Disclosure Schedules and provided the Buyer with evidence of the transfer of immediately available funds.
8.3Frustration of Closing Conditions. No party hereto may rely on the failure of any condition set forth in this Article 8 to be satisfied if such failure was caused by such party’s failure to comply with its obligations to consummate the transactions contemplated by this Agreement.
Article 9
TERMINATION OF AGREEMENT
9.1Termination. Notwithstanding any other provision of this Agreement, this Agreement may be terminated at any time prior to the Closing:
(a)by the mutual written consent of Buyer and the Seller;
(b)by Buyer, on the one hand, or the Seller, on the other hand, upon written notice to the other party, if the transactions contemplated by this Agreement have not been consummated on or prior to the date falling six (6) months after the date hereof, or such later date, if any, as Buyer and the Seller agree upon in writing (the “Termination Date”); except, that, the right to terminate this Agreement pursuant to this Section 9.1(b) is not available to any party hereto whose breach of any provision of this Agreement primarily resulted in or primarily caused the failure of the transactions contemplated by this Agreement to be consummated by such time;
(c)by Buyer, on the one hand, or the Seller, on the other hand, upon written notice to the other party, if (i) a Governmental Authority of competent jurisdiction and residing in a Territory has issued an Order or any other action permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement, and such Order has become final and non-appealable or (ii) there shall be in effect any Law prohibiting or making illegal the transactions contemplated by this Agreement; except, that, the right to terminate this Agreement pursuant to this Section 9.1(c) is not available to any party hereto whose breach of any provision of this Agreement primarily resulted in or primarily caused such Order or other action;
(d)by the Seller, upon written notice to Buyer, if: (i) Buyer has breached or failed to perform any of its covenants contained in this Agreement to be complied with by Buyer such that the closing condition set forth in Section 8.1(b) or Section 8.1(c) would not be satisfied; or (ii) there exists a breach of any representation or warranty of Buyer contained in this Agreement such that the closing condition set forth in Section 8.1(a) would not be satisfied, and, in the case of clauses (i) and (ii) of this Section 9.1(d), such breach or failure to perform is not cured within thirty (30) days after receipt of written notice thereof or is incapable of being cured by Buyer by the Termination Date; provided, however, that this right of termination under this Section 9.1(d) shall not be available to the Seller if the Seller is in breach of any representation, warranty, covenant, agreement or obligation contained in this Agreement such that the conditions in Section 8.2(a), Section 8.2(b) or Section 8.2(d) would not be satisfied if the Closing was scheduled to occur at such time;
(e)by Buyer, upon written notice to the Seller, if: (i) the Seller has breached or failed to perform any of its covenants contained in this Agreement to be complied with by it such that the closing condition set forth in Section 8.2(b), Section 8.2(d) or Section 8.2(e) would not be satisfied; or (ii) there exists a breach of any representation or warranty of the Seller contained in this Agreement such that the closing condition set forth in Section 8.2(a) would not be satisfied, and, in the case of clauses (i) and (ii) of this Section 9.1(e), such breach or failure to perform is not cured within thirty (30) days after receipt of written notice thereof or is incapable of being cured by the Seller by the Termination Date; provided, however, that this right of termination under this Section 9.1(e) shall not be available to the Buyer if the Buyer is in breach of any of its representations, warranties, covenants, agreement or obligations contained in this Agreement such that the conditions in Section 8.1(a) or Section 8.1(b) would not be satisfied if the Closing was scheduled to occur at such time; or
(f)by the Seller after the second (2nd) Business Day following the date on which the Closing should have occurred pursuant to Section 3.1 if (i) all of the conditions set forth in Section 8.2 have been satisfied or waived (other than conditions that by their nature are to be satisfied at the Closing), (ii) the Seller confirms to Buyer at least one (1) Business Day prior to such termination that all of the conditions set forth in Section 8.1 have been satisfied or waived (or would be satisfied or waived if Closing were to occur), (iii) Buyer fails to consummate the transactions contemplated by this Agreement within two (2) Business Days following the date on which the Closing should have occurred pursuant to Section 3.1 and (iv) the Seller stood ready and willing to consummate the
transactions contemplated by this Agreement on such date and through the end of such two Business Day period.
9.2Effect of Termination. In the event of termination of this Agreement pursuant to Section 9.1 by either Buyer, on the one hand, or the Seller, on the other hand, this Agreement will become void and have no effect, without any liability or obligation on the part of Buyer or the Seller or their respective officers, directors, equityholders or Affiliates, other than the provisions of Section 7.6, Section 7.8, this Section 9.2 and Article 12 and the defined terms set forth in Article 1 utilized in such provisions (in each case, to the extent related to or required to give effect to any of the foregoing surviving provisions), which will survive any termination of this Agreement; provided, however, that nothing herein will relieve any party hereto from any liability for fraud or any pre-termination willful and material breach by such party of its covenants set forth in this Agreement (including specifically any party’s failure to consummate the transactions contemplated by this Agreement when such party is so obligated), and in the event of any such fraud or breach the parties hereto shall be entitled to exercise any and all remedies available under law or equity.
Article 10
TAX MATTERS
10.1Straddle Period; Tax Returns.
(a)For purposes of this Agreement, the portion of Tax, with respect to the income, property or operations of a Group Company that are attributable to any Tax period that begins on or before the Closing Date and ends after the Closing Date (a “Straddle Period”) will be apportioned between the period of the Straddle Period that extends before the Closing Date through and including the Closing Date (the “Pre-Closing Straddle Period”) and the period of the Straddle Period that extends from the day after the Closing Date to the end of the Straddle Period (the “Post-Closing Straddle Period”) in accordance with this Section 10.1(a). The portion of such Tax attributable to the Pre-Closing Straddle Period will (i) in the case of any Taxes other than sales or use taxes, value-added taxes, employment taxes, withholding taxes, and any Tax based on or measured by income, receipts or profits earned during a Straddle Period, be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction, the numerator of which is the number of days in the Pre-Closing Straddle Period and denominator of which is the number of days in the Straddle Period, and (ii) in the case of any sales or use taxes, value-added taxes, employment taxes, withholding taxes, and any Tax based on or measured by income, receipts or profits earned during a Straddle Period, be deemed equal to the amount that would be payable if the Straddle Period ended on and included the Closing Date. The portion of a Tax attributable to a Post-Closing Straddle Period shall be calculated in a corresponding manner. In the case of a Tax that is (i) paid for the privilege of doing business during a period (a “Privilege Period”) and (ii) computed based on business activity occurring during an accounting period ending prior to such Privilege Period, any reference to a “Tax period,” a “tax period,” or a “taxable period” shall mean such accounting period and not such Privilege Period.
(b)The Seller shall prepare, or cause to be prepared, at Seller’s expense all Tax Returns of the Group Companies that are due after the Closing Date with respect to any Pre-Closing Tax Period. All such Tax Returns shall be prepared in accordance with the past practices of the Group Companies, unless otherwise required by applicable Law. The Seller shall provide such Tax Returns to the Buyer at least 30 days (or in the case of any non-income Tax Return, as soon as reasonably practicable) before the due date (including applicable extensions) for filing of any such Tax Returns for its review and comment. The Buyer shall provide any written comments to the Seller not later than ten days after receiving any such Tax Return and, if the Buyer does not provide any written comments within ten days, the Buyer shall be deemed to have accepted such Tax Return. The Seller and the Buyer shall attempt in good faith to resolve any dispute with respect to such Tax Return. If the Seller and the Buyer are unable to resolve any such dispute at least ten days before the due date (including applicable extensions) for any such Tax Return, the dispute shall be referred to the Accounting Firm for resolution and the fees shall be shared one-half by the Seller and one-half by the Buyer. If the Accounting Firm is unable to resolve any such dispute before the due date (including applicable extensions) for any such Tax Return, such Tax Return shall be filed as originally prepared by the Seller, subject to amendment, if necessary, to reflect the resolution of the dispute by the Accounting Firm. The Buyer shall timely pay or cause to be timely paid all Taxes imposed on a Group Company shown as due and owing on such Tax Returns subject to reimbursement by the Seller to the extent Seller is liable for such Taxes pursuant to Section 11.1 hereof. Notwithstanding the foregoing, this Section 10.1(b) and Section 10.1(c) shall not apply to any Combined Returns, which shall be prepared and filed by Seller in its sole discretion.
(c)The Buyer shall prepare and timely file, or cause to be prepared and timely filed, all Tax Returns of the Group Companies with respect to any Straddle Period. All such Tax Returns shall be prepared in accordance with the past practices of the Group Companies, unless otherwise required by applicable Law. The Buyer shall provide such Tax Returns to the Seller at least 30 days (or in the case of any non-income Tax Return, as soon as reasonably practicable) before the due date (including applicable extensions) for filing of any such Tax Returns for its review and comment. The Seller shall provide any written comments to the Buyer not later than ten days after receiving any such Tax Return and, if the Seller does not provide any written comments within ten days, the Seller shall be deemed to have accepted such Tax Return. The Seller and the Buyer shall attempt in good faith to resolve any dispute with respect to such Tax Return. If the Seller and the Buyer are unable to resolve any such dispute at least ten days before the due date (including applicable extensions) for any such Tax Return, the dispute shall be referred to the Accounting Firm for resolution and the fees shall be shared one-half by the Seller and one-half by the Buyer. If the Accounting Firm is unable to resolve any such dispute before the due date (including applicable extensions) for any such Tax Return, such Tax Return shall be filed reflecting the comments of the Seller, subject to amendment, if necessary, to reflect the resolution of the dispute by the Accounting Firm. The Buyer shall timely pay or cause to be timely paid all Taxes imposed on a Group Company shown as due and owing on such Tax Returns subject to reimbursement by the Seller to the extent Seller is liable for such Taxes pursuant to Section 11.1 hereof.
(d)For purposes of preparing all relevant Tax Returns, the parties agree: (i) any compensation deductions and other transaction costs of the Group Companies arising in connection with the transactions contemplated by this Agreement shall be allocable to the Pre-Closing Tax Period or Pre-Closing Straddle Period to the extent deductible at a “more likely than not” or higher level of confidence in such period; (ii) neither Buyer nor any Group Company or any of their respective Affiliates shall make a ratable allocation election under Treasury Regulations Section 1.1502-76(b)(2) or any analogous provision of state, local or non-U.S. Law; and (iii) in accordance with Treasury Regulations Section 1.1502-76 and any analogous provision of state, local or non-U.S. Law, any Taxes arising out of, relating to, or resulting from any transactions or actions engaged in by any Group Company not in the Ordinary Course of Business or taken by or at the direction of Buyer or any Affiliate thereof that occur on the Closing Date but after the Closing shall be allocable to the taxable period (or portion thereof) beginning after the Closing Date.
10.2Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) relating to real property imposed on the Buyer or a Group Company in connection with this Agreement and the Transaction Documents (“Transfer Taxes”) will be borne and paid fifty percent (50%) by the Seller and fifty percent (50%) by the Buyer when due. The party responsible under applicable Law shall file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes and the parties shall reasonably cooperate in duly and properly preparing, executing, and filing any certificates or other documents that may reduce or eliminate any such Transfer Taxes and any such Tax Returns and other documentation required to be filed in connection with such Transfer Taxes. The Party responsible for filing any such Tax Returns shall provide to the other Party evidence of timely filing and payment of all such Transfer Taxes.
10.3Cooperation; Audits. In connection with the preparation of Tax Returns, audit examinations, and any administrative or judicial proceedings relating to the Tax liabilities imposed on a Group Company, the Buyer and such Group Company, on the one hand, and the Seller, on the other hand, shall cooperate fully with each other, including the furnishing or making available during normal business hours of records, personnel (as reasonably required), books of account, powers of attorney or other materials necessary or helpful for the preparation of such Tax Returns, the conduct of audit examinations or the defense of claims by Taxing Authorities as to the imposition of Taxes.
10.4Certain Controversies. This Section 10.4 and not Section 11.2 will control any Tax Matter. The Seller shall have the right to represent or cause to be represented the interests of the Group Companies before the relevant Governmental Authority with respect to any audit, inquiry, assessment, Proceeding or other similar event relating to any Pre-Closing Tax Period or Pre-Closing Straddle Period or otherwise to Taxes for which Seller or its Affiliates could reasonably be expected to be liable (including pursuant to Article 11) (a “Tax Matter”) and shall have the right to control the defense, compromise or other resolution of any such Tax Matter, including responding to inquiries, filing Tax Returns and contesting, defending against and resolving any assessment for additional Taxes or notice of Tax deficiency or other adjustment of Taxes of, or relating to, such Tax Matter. The Buyer shall have the right to control any Tax Matter that Seller is entitled to, but does not choose to, control pursuant to this Section 10.4; provided, (a) the Seller shall have the right (but not the duty) to participate in the defense of such Tax Matter and to employ counsel, at Seller’s expense, separate from counsel employed by the Buyer and (b) the Buyer shall not enter into any settlement of or otherwise compromise any such Tax Matter to the extent that it could result in an indemnity claim pursuant to Section 11.1 without the prior written consent of the Seller, which consent shall not be unreasonably conditioned, withheld or delayed. The Buyer shall notify the Seller of receipt by the Buyer or any of its Affiliates (including, after the Closing, the Group Companies) of notice of any pending or threatened Tax Matter within twenty (20) days after receipt thereof. Notwithstanding the foregoing, this Section 10.4 shall not apply to any Tax Matter relating to any Combined Returns, which shall be solely controlled by the Seller in its sole discretion.
10.5Tax Sharing Agreements. All Tax sharing or allocation agreements, arrangements or similar Contracts, except for this Agreement, between any Group Company, on the one hand, and the Seller or any of its Affiliates (other than the Group Companies), on the other hand, will be terminated as of the Closing Date to the extent they relate to the Group Companies and, after the Closing Date, the Group Companies will not be bound thereby or have any liability thereunder.
10.6Certain Tax Elections. Upon request of the Seller and subject to the prior written consent of the Buyer (which consent shall not be unreasonably conditioned, withheld or delayed), the Parties shall cooperate to make any available election under Section 338 (including Section 338(h)(10)) or Section 336(e) of the Code or any election under Treasury Regulations Section 1.245A-5(e)(3) (or, in each case, any comparable provision of state, local or foreign Law) with respect to the transactions contemplated by this Agreement.
The Parties shall, and shall cause their Affiliates (including, for the avoidance of doubt and after the Closing, each Group Company) to, make any such election as requested by the Seller (acting reasonably) and consented to by the Buyer (acting reasonably) and take any other reasonably requested actions requested by either Party in connection therewith.
10.7Post-Closing Actions. The Buyer shall not, and it shall cause its Affiliates (including, after the Closing, the Group Companies) not to, (i) amend, modify, or refile any Tax Return of any Group Company that covers a Pre-Closing Tax Period or Pre-Closing Straddle Period, (ii) make (if inconsistent with past practice of the Group Company), change or revoke any Tax election or accounting method or practice election that affects any Pre-Closing Tax Period or Pre-Closing Straddle Period, (iii) file Tax Returns for a Pre-Closing Tax Period or Pre-Closing Straddle Period in a manner inconsistent with past practice or in a jurisdiction where the Group Companies have not historically filed Tax Returns, (iv) file any notice or request any documentation pursuant to Treasury Regulations Section 1.1502-77(f)(3) (or any comparable state, local or foreign Law), (v) initiate discussions or examinations with any Governmental Authority regarding Taxes of the Group Companies with respect to any Pre-Closing Tax Period or Pre-Closing Straddle Period or make any voluntary disclosures with respect to Taxes of the Group Companies for any Pre-Closing Tax Period or Pre-Closing Straddle Period, (vi) extend or waive the statute of limitations for the assessment or collection of any Taxes relating to any Pre-Closing Tax Period or Pre-Closing Straddle Period or (vii) effect or engage in any transactions or other actions relating to any Group Company out of the Ordinary Course of Business after the Closing on the Closing Date, in each case without the Seller’s written consent (not to be unreasonably withheld, conditioned or delayed). Additionally, neither the Buyer nor any Affiliate of the Buyer shall make, or cause any Group Company to make, any election to change the classification of any Group Company for U.S. federal income tax purposes effective on or before the Closing Date.
10.8Tax Refunds. Except to the extent included as a current asset in Final Working Capital or Final Indebtedness, as applicable, the Buyer shall pay, or cause to be paid to, the Seller any refund (or credit in lieu of a refund) of Taxes (and interest thereon) that is (a) attributable to a Pre-Closing Tax Period or Pre-Closing Straddle Period of any Group Company or (b) otherwise attributable to any other Taxes paid, indemnified or otherwise borne by the Seller (including, for this purpose, any Taxes included as a current liability in Final Working Capital, Final Indebtedness or Final Selling Expenses) or any predecessor or Affiliate of Seller (including, for taxable periods or portions thereof ending on or prior to the Closing Date, the Group Companies). The Buyer shall use its reasonable best efforts to promptly claim and receive any such refund to which the Seller would be entitled pursuant to this Section 10.8, including by taking any action reasonably requested by Seller to obtain any such refund promptly, and shall pay any refund no later than ten (10) days following receipt thereof. Any Tax liabilities taken into account in Final Working Capital, Final Indebtedness or Final Selling Expenses in excess of the amount of such Taxes actually paid for the relevant tax period, shall be treated as a Tax refund to which the Seller is entitled pursuant to this Section 10.8. Any payments made pursuant to this Section 10.8 shall be treated as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by applicable Law.
Article 11
REMEDIES
11.1General Indemnification Obligation.
(a)Indemnification by the Seller. The Seller shall indemnify and hold harmless the Buyer and the Group Companies and their respective officers, directors, and managers (each, a “Buyer Indemnitee”) from and against any and all losses, liabilities, claims, demands, damages, penalties, fines, judgments, awards, assessments, settlements, costs, fees, expenses (including reasonable attorneys’ fees) and disbursements, including punitive damages (but only to the extent such punitive damages are awarded to a third party in connection with a Liability Claim) and excluding incidental, consequential, special or indirect damages (collectively “Losses”) based upon, arising out of or otherwise in respect of:
(i) any misrepresentation of, inaccuracy in or breach of any representation or warranty of the Seller in Article 4 or Article 5 of this Agreement (including any Schedule attached hereto and any certificates delivered pursuant hereto);
(ii)any breach of or failure to perform or comply with any covenant or agreement of the Seller in this Agreement;
(iii)any Indebtedness of a Group Company or Selling Expenses not fully paid on the Closing Date or not taken into account in the calculation of the Purchase Price;
(iv)(A) any Taxes (or the nonpayment thereof) of the Group Companies for any Pre-Closing Tax Period and any Pre-Closing Straddle Period; (B) any Taxes of any member of an affiliated, combined or unitary group of which a Group Company is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation Section 1.1502-6 or any analogous or similar state, local or foreign Law; or (C) any Taxes of any Person imposed on a Group Company as a transferee or successor, which Taxes relate to an event or transaction occurring on or before the Closing Date;
(v)any non-compliance with local employment Laws by a Group Company that existed or liabilities incurred prior to the Closing Date in connection with the Redundancy Process and is not undertaken at the direction of the Buyer;
(vi)any non-compliance with local Laws by a Group Company that existed in the two (2) years prior to the Closing Date in connection with the registration of any updates to the ultimate beneficial owner register with the local competent authorities; and
(vii)any claims Guccio Gucci, S.p.A (“Gucci”) may bring against the Company under Section 11 of the Software License Agreement made between the Company and Gucci, effective July 1, 2021 in connection with the complaint filed on December 16, 2021 by Lennon Image Technologies, LLC against Gucci America, Inc.
(b)Materiality. For purposes of Section 11.1(a), all references in this Agreement and the Schedules attached hereto to “material”, “material respects”, “material adverse effect” and similar qualifications or words of similar import shall be disregarded (except as used in the defined terms Material Contract, Material Customer or Material Supplier, or as used in the first sentence of Section 5.6) for purposes of calculating the amount of any Losses that are subject to indemnification under this Agreement.
11.2Notice; Opportunity to Defend; Liability Claim Procedures.
(a)Notice of Asserted Liability by Third Parties. As soon as is reasonably practicable after a Buyer Indemnitee becomes aware of any direct or third-party claim that such party has under Section 11.1 that may result in a Loss (a “Liability Claim”), such party (the “Indemnified Party”) shall give notice of such Liability Claim (a “Claim Notice”) to the other party (the “Indemnifying Party”). A Claim Notice must (i) describe the Liability Claim in reasonable detail the individual items of such Losses, the date each such item was paid, incurred, suffered or sustained, (ii) indicate the amount (estimated, if necessary and to the extent feasible) of the Loss that has been or may be suffered by the Indemnified Party and (iii) include the relevant provisions of this Agreement to which such Losses are related. No delay in or failure to give a Claim Notice by the Indemnified Party to the Indemnifying Party pursuant to this Section 11.2(a) will adversely affect any of the other rights or remedies that the Indemnified Party has under this Agreement or alter or relieve the Indemnifying Party of its obligation to indemnify the Indemnified Party, except to the extent that such delay or failure has materially prejudiced the Indemnifying Party.
(b)Following the delivery of an Claim Notice, the Indemnified Party shall provide the Indemnifying Party and its Representatives with such documents and records as the Indemnifying Party or its Representatives may reasonably require, and reasonable access to such personnel or representatives of the Indemnified Party (including but not limited to the individuals responsible for the matters that are subject of the Claim Notice) as they may reasonably require, for the purposes of investigating or resolving any disputes or responding to any matters or inquiries raised in the Claim Notice.
(c)Opportunity to Defend. The Indemnifying Party has the right, exercisable by written notice to the Indemnified Party within thirty (30) days after receipt of a Claim Notice from the Indemnified Party of the commencement or assertion of any Liability Claim in respect of which indemnity may be sought under this Article 11, to assume and conduct the defense of such Liability Claim in accordance with the limits set forth in this Agreement with counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnified Party; provided, however, that the (i) defense of such Liability Claim by the Indemnifying Party will not, in the reasonable judgment of the Indemnified Party, have a material adverse effect on the Indemnified Party; (ii) Indemnifying Party has sufficient financial resources, in the reasonable judgment of the Indemnified Party, to satisfy the amount of any adverse monetary judgment that is reasonably likely to result; (iii) Liability Claim solely seeks (and continues to seek) monetary damages; (iv) the Liability Claim does not, based upon the remedy sought, have the potential to result in criminal liability of, or equitable remedies against, the Indemnified Party; (v) the Liability Claim does not involve or relate to any employee or contractor of a Group Company or any Material Customer or Material Supplier; and (vi) Indemnifying Party expressly agrees in writing to be fully responsible for all Losses relating to such Liability Claim (the conditions set forth in clauses (i) through (vi) are, collectively, the “Litigation Conditions”). If the Indemnifying Party does not assume, in accordance with this Section 11.2(c), the defense of a Liability Claim which meets the Litigation Conditions, the Indemnified Party may continue to defend the Liability Claim. If the Indemnifying Party has assumed the defense of a Liability Claim as provided in this Section 11.2(c), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defense of the Liability Claim; provided, however, that if (i) any of the Litigation Conditions ceases to be met or (ii) the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Liability Claim, the Indemnified Party may assume its own defense, and the Indemnifying Party will be liable for all reasonable third party costs or expenses paid or incurred in connection with such defense. The Indemnifying Party or the Indemnified Party, as the case may be, has the right to participate in (but not control), at its own expense, the defense of any Liability Claim that the other is defending as provided in this Agreement. The Indemnifying Party, if it has assumed the defense of any Liability Claim as provided in this Agreement, may not, without the prior written consent of the Indemnified Party, consent to a settlement of, or the entry of any judgment arising from, any such Liability Claim that (A) does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a complete release from all liability in respect of such Liability Claim, (B) grants any injunctive or equitable relief or (C) may reasonably be expected to have an adverse effect on the affected business of the Indemnified Party. The Indemnified Party has the right to settle any Liability Claim that meets the Litigation Conditions but the defense of which has not been assumed by the Indemnifying Party provided, however, that such settlement amount shall not be more than the amount specified in the Claim Notice unless agreed to in writing by the Indemnifying Party.
(d)If the Indemnifying Party shall not object in writing within the forty-five (45) day period after receipt of an Claim Notice by delivery of a written notice of objection containing a reasonably detailed description of the facts and circumstances supporting an objection to the applicable indemnification claim (a “Claim Objection Notice”), such failure to so object shall be an irrevocable acknowledgment by the Indemnifying Party that the Indemnified Party is entitled to the full amount of the claim for Losses set forth in such Claim Notice. In such event, the Buyer and the Seller shall jointly instruct the Escrow Agent to promptly release from the Escrow Funds an amount equal to the Losses set forth in such Claim Notice.
(e)In the event that the Indemnifying Party shall deliver a Claim Objection Notice in accordance with Section 11.2(d) within forty-five (45) days after delivery of such Claim Notice, the Indemnifying Party and the Indemnified Party shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Indemnifying Party and the Indemnified Party should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and, in the case of an indemnification claim to be recovered from the Escrow Funds, shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and make distributions of Escrow Funds in accordance with the terms thereof. In such event, the Escrow Agent shall promptly release from the Escrow Funds the amount set forth in such memorandum. Should the amount of the Escrow Funds, if any, be insufficient to satisfy in whole the amount owed to an Indemnified Party in accordance with such memorandum and this Agreement (including the limitations set forth in this Article 11), the Indemnifying Party shall, subject to the limitations set forth in this Article 11, within ten (10) Business Days following release of the Escrow Funds, pay an amount of cash to the Indemnified Party equal to such shortfall.
(f)Notwithstanding the foregoing, Section 10.4 and not this Section 11.2 shall govern the conduct of any Tax Matter
11.3Survivability; Limitations; Right to Assert Claims.
(a)Survivability. The representations and warranties of the Seller and the Buyer contained in this Agreement, and the right to make an indemnification claim in respect thereof under this Agreement, will survive until 11:59 pm New York time on the twelve (12) month anniversary of the Closing Date (the “Expiration Date”); provided, however, that (i) there will be no Expiration Date for any Liability Claim relating to fraud or intentional misrepresentation; (ii) the Expiration Date for any Liability Claim relating to a misrepresentation or breach of or inaccuracy in the Fundamental Representations or the representations and warranties set forth in Section 5.7 will be the date that is seven (7) years after the Closing Date. The matters set forth in Sections 11.1(a)(iii) and 11.1(a)(iv), and the right to make an indemnification claim in respect thereof under this Agreement, will survive the Closing until the expiration of the applicable statute of limitations. Notwithstanding the foregoing, if any Liability Claim pending on any Expiration Date for which a Claim Notice has been given in accordance with Section 11.2 on or before such Expiration Date may continue to be asserted and indemnified against until such claim is finally resolved. All of the covenants and agreements of the Seller and the Buyer contained in this Agreement will survive after the Closing Date until fully performed in accordance with their respective terms. It is the express intent of the parties that, if an applicable survival period as contemplated by this Section 11.3(a) is shorter (or longer) than the statute of limitations that would otherwise apply, then, by contract, the applicable statute of limitations shall be reduced to (or increased to) the survival period contemplated hereby. The parties further acknowledge and agree that the time periods set forth in this Section 11.3(a) for the assertion of claims under this Agreement are the result of arms’-length negotiation among the parties and that they intend for the time periods to be enforced as agreed by the parties.
(b)Certain Limitations.
(i)Notwithstanding anything to the contrary contained in this Agreement:
(A)the Seller will not have any liability for indemnification pursuant to Section 11.1(a)(i) or Section 11.1(a)(ii) (other than for fraud, intentional misrepresentation, the Fundamental Representations, for which the following limitation will not apply) until the aggregate amount of all such Losses sustained by the Buyer Indemnitees exceeds an amount equal to $55,000, in which case the Seller will be liable for all such Losses exceeding such amount provided, however, that no Losses may be claimed by any Indemnified Party or shall be reimbursable by the Seller or shall be included in calculating the aggregate Losses for purposes of this clause (A) other than Losses in excess of $7,500 resulting from any single claim or aggregated claims arising out of the same facts, events or circumstances;
(B)the Seller will have no liability for indemnification pursuant to Section 11.1(a)(i) or Section 11.1(a)(ii) (other than for fraud, intentional misrepresentation, the Fundamental Representations, for which the following limitation will not apply) in excess of an amount equal to 30% of the Initial Purchase Price;
(C)the Seller will have no liability for indemnification pursuant to Section 11.1(a)(v) in excess of an amount equal to 30% of the Initial Purchase Price;
(D)the Seller will have no liability for indemnification pursuant to this Article 11 in excess of the Purchase Price actually received by the Seller, except in the case of fraud or intentional misrepresentation;
(E)the Seller shall not be obligated to indemnify any Indemnified Party with respect to any Loss to the extent that a specific accrual or reserve for the amount of such Loss was reflected on the Interim Financial Statements, the Financial Statements or the notes thereto;
(F)no Buyer Indemnitee shall be entitled to indemnification for Losses with respect to (i) Taxes that arise from any breach of a covenant or agreement made or to be performed by the Buyer or its Affiliates (including, from and after the Closing, the Group Companies) pursuant to this Agreement, (ii) Taxes that arise from any action taken by the Buyer or its subsidiaries (including, from and after the Closing, the Group Companies) on the Closing Date following the Closing outside the ordinary course of business, (iii) the amount of any net operating loss, Tax basis, Tax credit or other Tax attribute (or the loss, unavailability or reduction thereof), except to the extent resulting directly in additional cash Tax liability of the Group Companies for a Pre-Closing Tax Period or any Pre-Closing Straddle Period that otherwise would not have been imposed, (iv) any Transfer Taxes that are the responsibility of the Buyer under Section 10.2 or (v) any Taxes to the extent taken into account as a liability in Final Working Capital, Final Indebtedness or Final Selling Expenses.
(ii)The amount of Losses for which a Buyer Indemnitee claims indemnification under this Agreement shall be reduced to take account of any net Tax benefits actually realised by any Buyer Indemnitee with respect to such Losses. For the purposes of this Agreement, a Buyer Indemnitee shall be deemed to have “actually realized” a net Tax benefit to the extent, and at such time as, the amount of Taxes required to be paid by the Buyer Indemnitee is reduced below the amount of Taxes that it would have been required to pay but for deductibility of such Losses, in each case: (i) during the immediately succeeding year in which the relevant Losses occurred; and (ii) calculated so that the items related to the Indemnifying Party’s indemnification obligations are the last to be recognized. The amount of any reduction hereunder shall be adjusted to reflect any final determination with respect to the Buyer Indemnitee’s liability for Taxes, consistent with the foregoing.
(iii)The amount of any and all Losses under this Article 11 shall be determined net of any insurance, indemnity, reimbursement arrangement, contract or other recovery actually received by the Indemnified Party or its Affiliates (net of costs for recovery) in connection with the facts giving rise to the right of indemnification. In the event that any insurance or other recovery is made by an Indemnified Party or its Affiliates with respect to any Losses for which an Indemnified Party has been indemnified hereunder, then a refund equal to the net aggregate amount of the recovery shall be made promptly to the Indemnifying Parties.
11.4Manner of Payment. With respect to any Losses for which any Buyer Indemnitee is entitled to indemnification under Section 11.1(a), subject to the limitations set forth in Section 11.3(b), such Losses shall be satisfied, and the Buyer shall be entitled to recover the amount of such Losses, as follows: (a) first, from the Escrow Funds in accordance with Sections 11.2(d) and 11.2(e) (as applicable), until the Escrow Funds have been exhausted or otherwise (or otherwise set aside by the Escrow Agent); and (b) second, by seeking payment for such Losses (less any amounts satisfied and recovered under clause (a)) directly from the Seller.
11.5Contribution and Waiver. From and after the Closing, the Seller shall not seek indemnification or contribution from the Group Companies for any breaches or in respect of any other payments required to be made by the Seller pursuant to this Agreement or the Transaction Documents.
11.6Specific Performance. Each party’s obligations under this Agreement are unique. If any party should breach its covenants under this Agreement, then the parties acknowledge that it would be extremely impracticable to measure the resulting damages; accordingly, the non-breaching party or parties, in addition to any other available rights or remedies, may sue in equity for specific performance, and each party expressly waives the defense that a remedy in damages will be adequate.
11.7Adjustment to Purchase Price. Any indemnification payments made pursuant to this Article 9 will be treated as adjustments to the Purchase Price, unless otherwise required by Law.
11.8Exclusive Remedy
. Subject to Section 11.6, and without limiting any party’s rights (a) under any other Transaction Document or any other agreement entered into in connection with this Agreement, or (b) with respect to claims for fraud, the parties hereto acknowledge and agree that, from and after the Closing, the indemnification provisions in this Article 11 shall be the sole and exclusive monetary remedy of any Indemnified Party with respect to Losses arising under this Agreement.
11.9No Duplication of Recovery. The Buyer shall not be entitled to recover damages or obtain payment, reimbursement, restitution or indemnity more than once in respect of the same Loss, regardless of whether more than one claim arises in respect of it under this Agreement, and for this purpose recovery by the Buyer or any Group Company shall be deemed to be a recovery by each of them.
11.10Escrow Release. In accordance with the Escrow Agreement, no later than the fifth (5th) Business Day following the date which is:
(a)six months after the Closing Date, the Buyer and the Seller shall submit joint written instructions promptly to the Escrow Agent instructing the Escrow Agent to distribute to the Seller the lesser of: (i) five hundred thousand dollars ($500,000) and (ii) the Escrow Funds; and
(b)twelve (12) months after the Closing Date, the Buyer and the Seller shall submit joint written instructions promptly to the Escrow Agent instructing the Escrow Agent to distribute to the Seller the Escrow Funds.
Article 12
MISCELLANEOUS
12.1General Release. Effective as of the Closing, the Seller, on its own behalf and on behalf of its Affiliates (together with such Seller, the “Releasing Party”), voluntarily, unconditionally, fully, finally, completely, knowingly and irrevocably releases and forever discharges the Group Companies and its officers, directors, managers and employees, individually and collectively (the “Released Parties”) from, against and with respect to any and all actions, agreements, amounts, claims, damages, expenses, Losses, accounts, causes of action, complaints, charges, covenants, contracts, costs, demands, debts, defenses, duties, executions, fees, injuries, interest, judgments, liabilities, obligations, penalties, promises, reimbursements, remedies, suits, sums of money, torts of whatever kind or character, and obligations of every kind, nature or description, known or unknown, arising or existing prior to the Closing whether in law, equity or otherwise, direct or indirect, fixed or contingent, foreseeable or unforeseeable, liquidated or unliquidated, known or unknown, matured or unmatured, absolute or contingent, determined or determinable, that such Releasing Party ever had, now has, or may hereafter have or acquire, against such Released Party that arises out of or in any way relates, directly or indirectly, to any matter, cause or thing, act or failure to act whatsoever occurring at any time on or prior to the Closing (collectively, a “Claim”), except for any Claims arising under or in connection with this Agreement, the Transaction Documents or the transactions contemplated hereby or thereby.
Each Releasing Party irrevocably covenants that such Releasing Party shall not, directly or indirectly, sue, commence any proceeding against, or make any demand upon any Released Party in respect of any of the Claims released and discharged pursuant to this Section 12.1. Each Releasing Party is aware that such Releasing Party may hereafter discover claims or facts in addition to or different from those such Releasing Party now knows or believes to be true with respect to the matters related in this Section 12.1. Nevertheless, it is each Releasing Party’s intention to fully, finally, and forever settle and release all Claims released and discharged pursuant to this Section 12.1, which now exist, heretofore have existed, or arise in the future. In furtherance of such intention, the releases given in this Section 12.1 will remain in effect as full and complete releases of all such Claims notwithstanding the discovery or existence of any additional or different claims or facts related thereto. Each Releasing Party hereby represents to the Released Parties that such Releasing Party has not voluntarily or involuntarily assigned or transferred or purported to assign or transfer to any Person any Claims and that no Person other than such Releasing Party has any interest in any Claims by Law or Contract by virtue of any action or inaction by such Releasing Party. The invalidity or unenforceability of any part of this Section 12.1 shall not affect the validity or enforceability of the remainder of this Section 12.1 which shall remain in full force and effect.
12.2Expenses. Except as otherwise expressly provided in this Agreement, each of the parties shall bear their respective expenses incurred or to be incurred in connection with the execution and delivery of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby and thereby.
12.3No Assignment; Successors and Assigns; Third Party Beneficiaries. No party hereto may assign its rights and obligations under this Agreement without the prior written consent of the other party. Notwithstanding the foregoing, the Buyer may, without the consent of or notice to the Seller, assign its rights under this Agreement (a) to any Affiliate of the Buyer, (b) to any lender of the Buyer or any of its Affiliates for collateral security purposes or (c) to a purchaser of all or substantially all of the assets of the Buyer, such Affiliate or a Group Company; provided, the Buyer shall not be entitled to assign rights hereunder to the extent such assignment could result in any Tax or other expense for Seller. This Agreement is binding upon and inures to the benefit of the parties hereto and their respective successors and permitted assigns. The Eligible Employees shall be able to enforce Section 7.9 against the Buyer. Except as expressly contemplated by Article 9, each party hereto intends that this Agreement does not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto.
12.4Headings. The headings contained in this Agreement are included for purposes of convenience only, and do not affect the meaning or interpretation of this Agreement.
12.5Integration, Modification and Waiver. This Agreement, together with the Transaction Documents, Disclosure Schedules, exhibits, schedules and certificates or other instruments delivered under this Agreement, constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior understandings of the parties. No supplement, modification or amendment of this Agreement will be binding unless executed in writing by the Buyer and the Seller. No waiver of any of the provisions of this Agreement will be deemed to be or will constitute a continuing waiver.
No waiver will be binding unless executed in writing by the party making the waiver.
12.6Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if drafted jointly by the parties and no presumption or burden of proof must arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Unless otherwise indicated to the contrary herein by the context or use thereof: (a) all references to the preamble, recitals, Sections, Articles or Schedules are to the preamble, recitals, Sections, Articles or Schedules of or to this Agreement; (b) the words “herein”, “hereto”, “hereof” and words of similar import refer to this Agreement as a whole and not to any particular section or paragraph hereof; (c) references to one gender include any other gender; (d) words importing the singular shall also include the plural, and vice versa; (e) the words “include”, “including” and “or” shall mean without limitation by reason of enumeration; (f) all references to “$” or dollar amounts are to lawful currency of the United States of America; (g) any reference to any federal, state, local or foreign Law will be deemed also to refer to all rules and regulations promulgated thereunder; and (h) the phrase “made available” or words of similar import shall mean that such documents or materials were present in the electronic data room provided for the transactions contemplated by this Agreement at least one (1) Business Day prior to the date hereof, unless otherwise specified in this Agreement.
12.7Severability. Any term or provision of this Agreement that is adjudged invalid or unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is adjudged so broad as to be unenforceable, such provision will be interpreted to be only as broad as is enforceable.
12.8Notices. All notices and other communications required or permitted under this Agreement must be in writing and will be deemed to have been duly given (a) when delivered in person, (b) when sent by electronic mail (upon confirmation of successful electronic transmission), (c) one (1) business day after having been dispatched by a nationally recognized overnight courier service or (d) five (5) business days after being sent by registered or certified mail, return receipt requested, postage prepaid, to the appropriate party at the address or email address specified below:
If to the Seller:
Farfetch US Holdings, Inc.
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, 19801 Delaware
United States of America
Attention: Group Legal
Email:[REDACTED] and [REDACTED]
with a copy (which shall not constitute notice) to:
Latham & Watkins LLP
1271 Avenue of the Americas
New York, NY 10020
United States of America
Attention: Eli Curi and Hector Sants
Email: [REDACTED] and [REDACTED]
If to the Buyer:
Perfect Mobile Corp.
14F., No. 98, Minquan Rd.
Xindian Dist., New Taipei City, Taiwan
Attention: Alice Chang and Louis Chen
E-mail: [REDACTED] and [REDACTED]
with a copy (which shall not constitute notice) to:
K&L Gates
30F., No.95, Dunhua S. Road, Section 2
Taipei 106046, Taiwan
Attention: Jacqueline Fu and Joseph Tseng
Email: [REDACTED] and [REDACTED]
Any party may change its address or email address for the purposes of this Section 12.8 by giving notice as provided in this Agreement.
12.9Governing Law; Jurisdiction. This Agreement and any dispute or controversy related to this Agreement or the transactions contemplated hereby are to be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its principles of conflict of laws.
12.10Arbitration. Except as specifically set forth in Section 2.4(c), any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, will be exclusively and finally settled by binding, confidential arbitration. The arbitration will be conducted under the auspices of the Singapore International Arbitration Centre in accordance with its rules in effect at the time of the arbitration, except as they may be modified herein or by mutual written agreement of the parties. The arbitration tribunal will be composed of one (1) arbitrator as appointed in accordance with the rules of the International Chamber of Commerce. The seat of the arbitration will be Singapore, and the arbitral proceedings will be conducted in the English language. The parties hereby acknowledge and agree that the arbitration award granted in accordance with this Section 12.10 will be final, binding and conclusive upon the parties. The fees and expenses of the arbitration and the arbitrators shall be advanced in equal shares by Seller, on the one hand, and Buyer, on the other hand, and advanced by them from time to time as required; provided that, at the conclusion of the arbitration, the arbitrators shall award costs and expenses (including the costs of the arbitration previously advanced and the reasonable fees and expenses of attorneys, accountants and other experts) to the prevailing party or parties.
Each party irrevocably consents to service of process in the manner provided for by applicable Law. Nothing in this Agreement will affect the right of any party to serve process in any other manner permitted by applicable Law.
12.11Waiver of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR OTHERWISE IN RESPECT OF THIS AGREEMENT OR THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
12.12Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Delivery of an executed signature page to this Agreement by facsimile or other electronic transmission (including documents in Adobe PDF format) will be effective as delivery of a manually executed counterpart to this Agreement.
[Signatures on the Following Page]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above.
BUYER:
Perfect Mobile Corp.
By: /s/ Alice H. Chang
Name: Alice H. Chang
Title: Authorized Representative
SELLER:
Farfetch US Holdings, Inc.
By: /s/ Jonathan Lee
Name: Jonathan Lee
Title: VP, Finance
[Signature Page to Securities Purchase Agreement]||
EX-8.1
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perf-20241231xexx81xlistof.htm
EX-8.1
Document
Exhibit 8.1
SUBSIDIARIES OF PERFECT CORP.
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| Name of Subsidiary |
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Jurisdiction of Incorporation |
| Perfect Corp. (Shanghai) |
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China |
| Perfect Corp. |
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Japan |
| Perfect Mobile Corp. |
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Taiwan |
| Perfect Mobile Corp. |
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British Virgin Islands |
| Perfect Corp. |
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United States |
| Perfect Corp. |
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France |
EX-11.1
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perf-20241231xexx111xinsid.htm
EX-11.1
Document
Exhibit 11.1
PERFECT CORP.
INSIDER TRADING POLICY
The U.S. federal securities laws prohibit the sale or purchase of securities while in possession of material nonpublic information (“Material Nonpublic Information”). This type of trading is referred to as “Insider Trading” and violations are strictly enforced. In order to take an active role in the prevention of insider trading violations by its employees and officers, the employees and officers of its subsidiaries, the members of its management board and supervisory board, as well as other designated individuals, Perfect Corp. (the “Company”) has adopted this Insider Trading Policy (the “Policy”). This policy is applicable to the Company and all of its subsidiaries.
The Company opposes the unauthorized disclosure of any nonpublic information acquired in the workplace and the misuse of Material Nonpublic Information in securities trading. Any such actions will be deemed violations of the Policy.
A copy of this Policy is to be delivered to all current and new directors, employees and consultants upon the commencement of their relationships with Perfect.
A.Definitions
All defined terms shall have the meanings set forth in the Annex A.
B.Inquiries
Please direct your questions as to any of the matters discussed in this Policy
to Daniel Lee, the General Counsel of the Company.
C.Regulatory Background
Pursuant to United States federal and state securities laws, a Covered Person may be subject to civil and criminal penalties for engaging in transactions in the Company’s securities at a time when he or she has knowledge of Material Nonpublic Information regarding the Company or its subsidiaries including, but not limited to criminal and civil fines, injunctions preventing service as an officer or director of any public company and imprisonment.
An Insider may also be liable for improper transactions by any person (commonly referred to as a “tippee”) to whom he or she has disclosed Material Nonpublic Information regarding the Company or its subsidiaries or to whom he or she has made recommendations or expressed opinions on the basis of such information as to trading in the Company’s securities. The SEC has imposed large penalties even when the disclosing person did not profit from the trading. The SEC, the stock exchanges and the Financial Industry Regulatory Authority (“FINRA”) use sophisticated electronic surveillance techniques to uncover insider trading.
D.Persons to Whom the Policy Applies
The Policy applies to all employees, officers, and members of the board of directors of the Company and its subsidiaries, members of the households or immediate family (spouse and minor children) of such persons and other unrelated persons who live with or are supported by such persons, and such other persons identified by the General Counsel or a delegate of the General Counsel from time to time and who have been notified that they have been so identified.
These persons are called “Covered Persons”.
Certain parts of this policy impose additional trading restrictions on the following sub-set of Covered Persons: members of the board of directors and executive officers of the Company; employees of the Company or its subsidiaries who are likely to have access to Material Nonpublic Information and are identified in a list held by the Company and notified in writing from time to time that they are identified in such a list. These persons, together with members of the households or immediate family (spouse and minor children) of such persons and other unrelated persons who live with or are supported by such persons, are called “Insiders”, provided, that such term shall also include such other persons identified by the General Counsel or a delegate of the General Counsel from time to time and who have been notified that they have been so identified.
From time to time, other persons may be subject to the Policy, in each case where such persons have or may have access to Material Nonpublic Information.
Any person who is aware of or possesses Material Nonpublic Information regarding the Company or its subsidiaries is a Covered Person for so long as the information is not publicly known.
E.Transactions to Which the Policy Applies
This Policy applies to all transactions in the Company’s securities, including ordinary shares, options for ordinary shares and any other securities the Company may issue from time to time, such as debt securities, preferred shares, warrants and convertible debentures, as well as to derivative securities relating to the Company’s shares, whether or not issued by the Company, such as exchange-traded options.
The Policy requires that:
•no Covered Person may engage in Insider Trading;
•all Insiders shall be prohibited from trading any securities of the Company except during an open trading window (the “Trading Window”) that will commence at the open of market on the second Trading Day following the date of public disclosure of the Company’s financial results for a particular fiscal quarter or year and will close at the close of market on the day that is two full weeks prior to the end of the next fiscal quarter;
•all Insiders shall either trade pursuant to an approved Trading Plan (defined below) or pre-clear any trading in securities of the Company;
•an Insider may be subject to a special Black-Out Period during which he or she will be prohibited from trading any securities of the Company, even though the Trading Window would otherwise be open;
•no Covered Person may purchase, hold or trade derivatives of the Company’s securities, which includes, but is not limited to, trading in put or call options or collars related to Company securities, whether or not such derivatives are settled in Company securities or cash; and
•no Covered Person may place Company securities in margin accounts or pledge Company securities.
More specifically, the Company has adopted the following policies:
1.Prohibition on Trading on Material Nonpublic Information (“Insider Trading”).
(a)No Covered Person may engage in any transaction involving a purchase or sale of the Company’s securities, including any offer to purchase or offer to sell, during any period commencing with the date that he or she is aware of or possesses Material Nonpublic Information concerning the Company or its subsidiaries, and ending at the open of the market on the second Trading Day following the date of public disclosure of that information, or at such time as such nonpublic information is no longer material.
(b)No Covered Person shall disclose (“tip”) Material Nonpublic Information to any other person (including family members) where such information may be used by such person to profit by trading in the securities of companies to which such information relates, nor shall any Covered Person or related person make recommendations or express opinions on the basis of Material Nonpublic Information as to trading in the Company’s securities.
2.Trading Window and Black-Out Periods. The period outside of the Trading Window (referred to as the “Black-Out Period”) is a particularly sensitive period of time for transactions in the Company’s securities from the perspective of compliance with applicable securities laws. This sensitivity is due to the fact that certain Insiders will, during that period, often be aware of or possess or at the very least be presumed to possess Material Nonpublic Information about the expected financial results for the quarter during that period.
(a)Trading Window. To ensure compliance with this Policy and applicable federal and state securities laws, the Company requires that all Insiders refrain from conducting transactions involving the purchase or sale of the Company’s securities other than during the Trading Window. The prohibition against trading during the Black-Out Period encompasses the fulfillment of “limit orders” by any broker for any person subject to this Policy, and the broker with whom the limit order is placed should be so instructed when the order is placed.
(b)Special Black-Out Periods. From time to time, the Company may also prohibit some or all Insiders from trading securities of the Company because of material developments known to the Company and not yet disclosed to the public. The General Counsel (or his or her designee(s)) will notify all Insiders subject to a special Black-Out Period. In such event, the applicable Insiders may not engage in any transaction involving the purchase or sale of the Company’s securities and should not disclose to others the fact of such suspension of trading. The Company will re-open the Trading Window at the beginning of the second Trading Day following the date of public disclosure of the information, or at such time as the information is no longer material.
(c)No Trading on Material Nonpublic Information at Any Time. Even during an “open” Trading Window, any Covered Person who is aware of or possesses Material Nonpublic Information concerning the Company or its subsidiaries, whether or not subject to the Black-Out Period and Trading Window, may not engage in any transactions in the Company’s securities until the second Trading Day following the public disclosure of such information, whether or not the Company has imposed a Black-Out Period. Trading in the Company’s securities during the Trading Window should not be considered a “safe harbor,” and all Covered Persons must use good judgment in determining whether to purchase or sell the Company’s securities at all times.
(d)Certain Exceptions. This Policy’s trading restrictions do not apply to an Insider’s exercise of stock options granted under the Company’s stock option plans if the exercise price is paid in cash (but the Policy would apply to the (i) sale of any shares issued upon such exercise or (ii) any cashless exercise as this is accomplished by the sale of a portion of the shares issued upon exercise of the option). Transactions may also be exempt from the Policy if made pursuant to an approved trading plan that complies with certain requirements of the Company and with Rule 10b5-1, which is discussed in more detail below.
1.Short Sales and Other Derivatives. NO COVERED PERSON MAY ENGAGE IN A SHORT SALE OF THE COMPANY’S STOCK. A short sale is a sale of securities not owned by the seller or, if owned, not delivered against such sale within 20 days thereafter. Transactions in certain put and call options for the Company’s securities may in some instances constitute a short sale. To ensure compliance with this Policy and applicable federal and state securities laws, the Company requires that all Covered Persons refrain from investing in or selling other derivatives of the Company’s securities, such as puts or call options, at any time. In particular, other than pursuant to a Company benefit plan, no Covered Person may acquire, write or otherwise enter into an instrument that has a value determined by reference to Company securities, whether or not the instrument is issued by the Company. Short sales and investing in or selling other derivatives of the Company’s securities are prohibited by this Policy even when the Trading Window is open.
In addition, the Company notes that Section 16 of the Exchange Act, which requires certain Insiders to disgorge profits on any purchases and sales made within 6 months, is not applicable to the Company. The Company asks all Covered Persons to carefully consider whether any purchases and sales within less than 6 months are appropriate. When in doubt, Covered Persons should wait at least 6 months from the last purchase before the make a sale and vice versa.
2.Margin Accounts. No Covered Person may place Company securities in margin accounts or pledge Company securities.
3.Gifts. For purposes of this Policy, gifts of Company securities will be treated as sales of Company securities. For Insiders, the making of gifts of Company securities shall occur only during the Trading Window, except, subject to the restrictions set forth in Section 2(c), for bona fide year-end gifts to tax qualified charitable institutions that are not controlled by the Insider and for which the Insider (or members of their household or immediate family) does not act as a director, trustee or executive officer.
3.Definition of Material Nonpublic Information. Nonpublic information is information that is not generally known or available to the public. Information becomes public when disclosed to achieve broad, non-exclusionary distribution to the investing public generally, without favoring any person or group. Nonpublic information relating to the Company or its subsidiaries is the property of the Company and the unauthorized disclosure of such information is strictly forbidden. In the event any Covered Person receives any inquiry from outside the Company, such as a stock analyst or other securities market professional, for information (particularly financial results and/or projections), the inquiry should be referred to the Company’s investor relations department, which is responsible for coordinating and overseeing the release of such information to the investing public, analysts, and others in compliance with applicable laws and regulations.
It is not possible to define all categories of material information. Information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, hold or sell the Company stock. Any information that could reasonably be expected to affect the price of the Company stock is material for these purposes. In this regard, potential market reaction or sensitivity to the information is a key consideration. Moreover, although multiple pieces of information may not be material individually, if the aggregate effect of those pieces, when they become public, would alter the “total mix” of available information and result in a reevaluation of an investment decision with respect to the Company’s stock, then such pieces of information are considered material.
Material information can be positive or negative. Examples of potentially material information include:
•Financial results
•Known but unannounced future earnings or losses, management guidance as to future financial results or significant events and milestones and likelihood of achieving or not achieving that guidance
•Execution or termination of significant financing, management or customer agreements or other contracts with business entities
•Information relating to a pending or proposed merger or other acquisition or divestiture
•Information relating to the acquisition or divestiture of significant assets
•Changes in financial liquidity and other information related to financial condition
•Significant developments involving corporate relationships, including relationships with Business Partners
•Changes in dividend policy
•Stock dividends or splits or other corporate reorganization or restructuring events
•Securities offerings (potentially including securities offerings by management or significant stockholders) and other financing or capital raising transactions
•Developments (whether positive or negative) in pending significant litigation or regulatory investigation
•Significant litigation exposure due to actual or threatened litigation
•Changes in senior management
•Product development milestones, such as significant new contracts, partnerships, approvals or technological developments
•Strategic initiatives or changes, such as entry into a new line of business, announcement of new product offerings and entry into management or customer agreements or other contracts with business entities
Given the early stage of the Company’s business operations, certain categories of information may be especially material, such as new product announcements, achievement or failure to achieve development milestones, significant sales and key strategic or commercial relationships.
This Policy and the guidelines described herein also apply to Material Nonpublic Information relating to other companies, including the Company’s Business Partners, when that information is obtained in the course of employment with, or other services performed on behalf of, the Company. Civil and criminal penalties, and termination of employment, may result from trading on inside information regarding the Company’s Business Partners. All Covered Persons should treat Material Nonpublic Information about the Company’s Business Partners with the same care required with respect to information related directly to the Company.
4.Individual Responsibility. Every Covered Person has the individual responsibility to comply with this Policy against Insider Trading. A Covered Person may, from time to time, have to forego a proposed transaction in the Company’s securities even if he or she planned to make the transaction before learning of the Material Nonpublic Information and even though the Covered Person believes he or she may suffer an economic loss or forego anticipated profit by waiting.
F.Violations of the Policy.
Any person subject to the Policy who violates this Policy also shall be subject to disciplinary action by the Company, up to and including termination of employment. In order to avoid violations of this Policy, persons subject to this Policy may elect to either trade pursuant to a 10b5-1 trading plan as described below under G or after having obtained a “pre-clearance” as described below under H. All Insiders must refrain from trading in the Company’s securities other than pursuant to a Trading Plan or without first complying with the Company’s “pre-clearance” process.
G.Trading Plans in Compliance with SEC Rule 10b5-l.
Insiders may elect to trade in the Company’s securities (i.e., effect purchases or sales) pursuant to a written plan or set of instructions to his or her stock broker (a “Trading Plan”) that complies with Rule 10b5-1 and that meets the other conditions set forth below. Trades made pursuant to a Trading Plan that complies with Rule 10b5-1 and the minimum conditions set forth below may occur during a Black-Out Period as described above and/or while the Insider is otherwise in possession of Material Nonpublic Information. In addition, trades made pursuant to any such Trading Plan will not be subject to the pre-clearance procedures. The Company strongly encourages the adoption of a Trading Plan by all directors and officers who intend to sell shares.
All Trading Plans must be approved in advance by the General Counsel (or his or her designee(s)). In addition, all Trading Plans must be filed with the Company’s General Counsel with an executed certificate stating that the Trading Plan (i) is a bona fide Trading Plan that complies with Rule 10b5-1 and (ii) meets the following minimum conditions:
•The Trading Plan is in writing and signed by the person adopting the Trading Plan.
•The person adopting the Trading Plan is not aware of any Material Nonpublic Information as of the date of the adoption of the Trading Plan, and is entering into the Trading Plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1.
•The Trading Plan may be adopted, amended or terminated only during an open Trading Window.
•The Trading Plan specifies a fixed number of shares to be purchased or sold, or specifies or sets a formula for the amount of stock to be purchased or sold, the dates on which the stock is to be purchased or sold, and the prices at which the stock is to be purchased or sold.
•The Trading Plan provides for a waiting period between the effective date of the Trading Plan and the date of the first trade under the Trading Plan. The applicable waiting period for persons subject to this policy (excluding directors and executive officers) is 30 days. The waiting period for directors and executive officers is the longer of (i) 90 days following the adoption of the Trading Plan, or (ii) two business days following disclosure of the Company’s financial results in a Form 20-F or Form 6-K (but in no event later than 120 days after the adoption of the Trading Plan). Any change to the amount, price or timing of the purchase or sale of the securities under the Trading Plan is deemed to be a termination of the existing Trading Plan and adoption of a new Trading Plan, and triggers a new cooling-off period.
•Unless approved by the General Counsel, the Trading Plan must be for a term of at least six months or such lesser period of time as may be necessary to execute all transactions under the Trading Plan.
•The Trading Plan must provide for the suspension of all transactions under such plan in the event that the Company, in its sole discretion, deems such suspension necessary and advisable, including suspensions necessary to comply with trading restrictions imposed in connection with any lockup agreement required in connection with a securities issuance transaction or other similar events.
The Company strongly recommends that any person seeking to adopt a Trading Plan consult with his or her own legal counsel prior to the adoption of a Trading Plan.
Each individual adopting the Trading Plan is solely responsible for compliance with Rule 10b5-1 and ensuring that the Trading Plan meets the other conditions set forth above. Insiders also remain individually responsible for compliance with all applicable laws, rules and regulations on insider trading and remain subject to disciplinary action for any violations of this Policy, regardless of whether a Trading Plan has been adopted. Notwithstanding the conditions set forth above, the Company does not undertake any obligation to ensure that a Trading Plan filed with the Company complies with Rule 10b5-1.
A.Pre-Clearance of Trades.
The Company has determined that all Insiders must refrain from trading in the Company’s securities (i.e., effecting purchases or sales) other than pursuant to a Trading Plan, even during the Trading Window, without first complying with the Company’s “pre-clearance” process. Any other person subject to the Policy who is not trading pursuant to a Trading Plan and is in doubt whether a trade is permissible, should also seek pre-clearance through the “pre-clearance” process. Each such person should contact the General Counsel (or his or her designee(s)) prior to commencing any trade in the Company’s securities. The General Counsel (or his or her designee(s)) will consult as necessary with other officers of the Company or counsel before clearing any proposed trade.
Annex A: Defined Terms
“Black-Out Period” shall have the meaning set forth in Section E(2).
“Business Partners” shall mean the Company’s customers, suppliers, distributors, dealers, resellers or vendors.
“Company” shall have the meaning set forth in the introduction to this Policy.
“Covered Person” shall have the meaning set forth in Section D.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“executive officers” shall mean the Company’s president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the issuer in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function or any other person who performs similar policy-making functions for the issuer. Officers of the Company’s subsidiaries shall be deemed executive officers of the Company if they perform such policy-making functions for the Company.
“FINRA” shall have the meaning set forth in Section C.
“General Counsel” shall mean the Company’s chief legal officer.
“Insider Trading” shall have the meaning set forth in the introduction to this policy.
“Insiders” shall have the meaning set forth in Section D.
“Material Nonpublic Information” shall have the meaning set forth in the introduction to this Policy.
“Policy” shall mean this Insider Trading Policy.
“Restricted Persons” shall have the meaning set forth in Section E.
“Rule 10b5-1” shall mean Rule 10b5-1 promulgated under the Exchange Act.
“SEC” shall mean the United States Securities and Exchange Commission.
“tip” whether or not capitalized, shall have the meaning set forth in Section E(1)(b).
“tippee” whether or not capitalized, shall have the meaning set forth in Section C.
“Trading Day” shall mean a day on which the New York Stock Exchange is open for trading. A Trading Day begins at the time trading begins on such day.
“Trading Plan” shall have the meaning set forth in Section G.
“Trading Window” shall have the meaning set forth in Section E.
EX-12.1
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EX-12.1
Document
Exhibit 12.1
Certification by the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Alice H. Chang, certify that:
1.I have reviewed this annual report on Form 20-F of Perfect Corp. (the “Company”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial re- porting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
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Date: March 28, 2025 |
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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 |
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EX-12.2
8
perf-20241231xexx122.htm
EX-12.2
Document
Exhibit 12.2
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Hsiao-Chuan Chen, certify that:
1.I have reviewed this annual report on Form 20-F of Perfect Corp. (the “Company”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial re- porting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
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Date: March 28, 2025 |
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| By: |
/s/ Hsiao-Chuan Chen |
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| Name: |
Hsiao-Chuan Chen |
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| Title: |
Vice President and Head of Finance and Accounting
(Principal Financial Officer and Principal Accounting Officer) |
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EX-13.1
9
perf-20241231xexx131.htm
EX-13.1
Document
Exhibit 13.1
Certification by the Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report of Perfect Corp. (the “Company”) on Form 20-F for the year ended December 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alice H. Chang, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: March 28, 2025 |
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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 |
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EX-13.2
10
perf-20241231xexx132.htm
EX-13.2
Document
Exhibit 13.2
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report of Perfect Corp. (the “Company”) on Form 20-F for the year ended December 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Hsiao-Chuan Chen, Principal Financial Officer and Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: March 28, 2025 |
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| By: |
/s/ Hsiao-Chuan Chen |
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| Name: |
Hsiao-Chuan Chen |
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| Title: |
Vice President and Head of Finance and Accounting
(Principal Financial Officer and Principal Accounting Officer) |
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EX-15.1
11
perf-20241231xexx151xconse.htm
EX-15.1
Document
Exhibit 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (File No. 333-274835) and Form S-8 (File No. 333-268059) of Perfect Corp. of our report dated March 28, 2025 relating to the financial statements, which appears in this Form 20-F.
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| /s/ PricewaterhouseCoopers, Taiwan |
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| Taipei, Taiwan |
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March 28, 2025 |
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