Pursuant to this prospectus
supplement and the accompanying prospectus, we are offering up to 8,739,351 ordinary shares, par value $0.003 per share (the “Ordinary
Shares”) at a price of $1.15 per share directly to selected investors. The sales of our Ordinary Shares will be made in accordance
with that certain securities purchase agreement, dated as of April 6, 2022 (the “Securities Purchase Agreement”), by and among
us and the investors named therein.
Our Ordinary Shares and
warrants are both listed on the Nasdaq Capital Market under the symbol “GFAI” and “GFAIW”, respectively. The last
reported sale price of our Ordinary Shares and warrants on the Nasdaq Capital Market on April 5, 2022 was $1.69 and $0.4001, respectively.
As of the date of this prospectus supplement, the aggregate market value of our outstanding Ordinary Shares held by non-affiliates is
approximately $31.12 million, based on 32,629,836 Ordinary Shares issued and outstanding, of which approximately 17,985,742 Ordinary Shares
are held by non-affiliates, and a per share price of $1.73 based on the closing price of our Ordinary Shares on April 1, 2022, which is
the highest closing sale price of our Ordinary Shares on The Nasdaq Capital Market within the prior 60 days.
During the 12 calendar months prior to and including
the date of this Prospectus Supplement, we have not sold our Ordinary Shares pursuant to General Instruction I.B.5 of Form F-3. Pursuant
to General Instruction I.B.5 of Form F-3, in no event will we sell securities registered in a public primary offering with a value exceeding
more than one-third of our public float in any 12 calendar month period so long as our public float remains below $75.0 million.
We have retained EF Hutton,
division of Benchmark Investments, LLC as exclusive placement agent in connection with this offering to use its “reasonable best
efforts” to solicit offers to purchase our Ordinary Shares. The placement agent has no obligation to buy any of the securities from
us or to arrange for the purchase or sale of any specific number or dollar amount of securities. We will pay the placement agent a fee
equal to the sum of 7.5% of the aggregate purchase price paid by investors placed by the placement agent and an additional cash fee equal
to 0.5% of the gross proceeds raised by the Company in the offering for non-accountable expenses. See “Plan of Distribution”
beginning on page S-29 of this prospectus supplement for more information regarding these arrangements.
We expect that delivery of the Ordinary Shares
offered pursuant to this prospectus supplement and the accompanying prospectus will be made on or about April 8, 2022, subject to customary
closing conditions.
Secure Logistics Business
We are a market leader with nearly 40 years of
experience in the cash logistics business in Thailand. Our services include cash-in-transit, dedicated vehicles to banks, ATM management,
cash center operations, cash processing, coin processing, cheque center, and cash deposit machine solutions (cash deposit management and
express cash service). Our customers include local commercial banks, chain retailers, coin manufacturing mints, and government authorities.
Our five major customers are Government Savings
Bank, Bank of Ayudhya, TTB Bank Public Company (Thanachart Bank Public Company was one of our five major customers in fiscal year 2020
which had merged with TMB Bank Public Company in June 2021 to become TTB Bank Public Company), CP All Public Company and Big C Super Center
Public Company. A few global customers also retain our services under temporary contract. As of the date of this prospectus supplement,
we employed 1,738 staff located in GF Cash (CIT) and had 473 vehicles.
Our operating subsidiary, GF Cash (CIT), was founded
in 1982 (the Company was formerly named Securicor (Thailand) Limited) and was renamed G4S Cash Service (Thailand) Limited in 2005. The
Company was renamed again as Guardforce Cash Solution (Thailand) Limited in 2016 and the name was further changed to Guardforce Cash Solution
Security (Thailand) Company Limited in 2017. The principal office of GF Cash (CIT) is located in Bangkok, Thailand.
Substantially all of our revenues are derived from GF Cash (CIT)’s
secure logistic business and gross revenue for our secure logistic business for the years ended December 31, 2021, 2020 and 2019 was approximately
$34.3 million, $37.4 million and $38.6 million, respectively.
In 2020, in addition to our secure cash logistics
business, we strategically began to develop other non-cash related solutions and services in an effort to diversify our revenue streams.
In view of the pace of global robotics development and in response to the more automated requirements, driven in part by the COVID-19
pandemic, we have begun to rollout robotic solutions for our customers in Thailand and across the Asia Pacific region. As of December
31, 2021, we had generated approximately $0.4 million in revenue from our robotics solutions business.
In addition, we acquired Handshake on March 25,
2021, which contributed approximately $0.5 million to our consolidated revenue for the year ended December 31, 2021.
Our Products and Services of Secure Logistics
Business
As of the date of this prospectus supplement,
the large majority of our revenues are derived from our principal business, which is Secure Logistics Solutions. This primarily includes:
(i) Cash-In-Transit – Non-Dedicated Vehicle (Non-DV); (ii) Cash-In-Transit – Dedicated Vehicle (DV); (iii) ATM management;
(iv) Cash Processing (CPC); (v) Cash Center Operations (CCT); (vi) Consolidate Cash Center Operations (CCC); (vii) Cheque Center Service
(CDC); (viii) Express Cash; (ix) Coin Processing Service; (x) Cash Deposit Management Solutions (GDM).
Secure Logistics Solutions collects cash from
its customers’ main business operations, then delivers the collected cash to its cash processing centers for counting, checking
and packing in bundles, after which the cash is transported to the customers’ designated depository banks and deposited into the
customers’ bank accounts. We enter into contracts with our customers to establish pricing and other terms of service. We charge
customers based on activities (service performed) as well as based on the value of the consignment.
Core Services
Our Core Services include CIT (Non-DV), CIT (DV),
ATM Management, CPC, CCT, CCC, CDC and GDM. For the year ended December 31, 2021, Core Services represented 97.6% of our total revenues.
The charts below show the breakdown of our core
secure logistics business services by sector for the fiscal years ended December 31, 2021, 2020 and 2019. These business sectors are discussed
below.
Revenue by Services (For the year ended December
31, 2021):
Revenue by Services (For the year ended December
31, 2020):
Revenue by Services (For the year ended December
31, 2019):
Cash-In-Transit – Non-Dedicated Vehicles
(Non-DV)
CIT (Non-DV) includes the secure transportation
of cash and other valuables between commercial banks and the Bank of Thailand, Thailand’s central bank. CIT (Non-DV) also includes
the transportation of coins between the commercial banks, the Thai Royal Mints and the Bank of Thailand. As such, the main customers for
this service are the local commercial banks. Charges to the customers are dependent on the value of the consignment; condition of the
cash being collected (for example, seal bag collection, piece count collection, bulk count collection, or loose cash collection); and
the volume of the transaction. Vehicles used for the delivery of this service are not dedicated to the specific customers.
For the years ended December 31, 2021, 2020 and
2019, CIT (Non-DV) revenues were approximately $11.2 million (31.9%), $12.0 million (32.0%) and $12.1 million (31.2%), respectively.
Cash-In-Transit - Dedicated Vehicle to Banks
(DV)
CIT (DV) includes the secure transportation of
cash and other valuables between commercial banks. As part of this service, dedicated vehicles are assigned specifically to the contracted
customer for their dedicated use between the contracted designated bank branches. As this is a dedicated vehicle service, customers will
submit direct schedules to our CIT teams for the daily operational arrangements and planning. Charges to the customers are on a per vehicle
per month basis.
For the years ended December 31, 2021, 2020 and
2019, CIT (DV) revenues were approximately $4.6 million (13.0%), $4.8 million (12.8%) and $5.0 million (12.9%), respectively.
ATM Management
ATM management includes cash replenishment services
and first and second line of maintenance services for the ATM machines. First line of maintenance services (FLM) includes rectification
of issues related to jammed notes, dispenser failures and transaction record print-out issues. Second line of maintenance services (SLM)
includes all other issues that cannot be rectified under the FLM. SLM includes complete machine failure, damage to hardware and software,
among other things.
For the years ended December 31, 2021, 2020 and
2019, ATM Management revenues were approximately $10.8 million (30.7%), $12.5 million (33.3%) and $14.0 million (36.4%), respectively.
Cash Processing (CPC)
Cash processing (CPC) services include counting,
sorting, counterfeit detection and vaulting services. We provide these services to commercial banks in Thailand.
For the years ended December 31, 2021, 2020 and
2019, CPC revenues were approximately $3.0 million (8.6%), $2.8 million (7.5%) and $2.3 million (5.9%), respectively.
Cash Center Operations (CCT)
Cash Center Operations (CCT) is an outsourced
cash center management service. We operate the cash center on behalf of the customer, which includes note counting, sorting, storage,
inventory management and secured transportation of the notes and coins to the various commercial banks in Thailand.
For the years ended December 31, 2021, 2020 and
2019, CCT revenues were approximately $2.8 million (8.0%), $3.3 million (8.6%) and $3.7 million (9.5%), respectively.
Consolidate Cash Center (CCC)
Consolidate Cash Center (CCC) is a new business
commencing in 2021 to provide an outsourced cash center management service. We operate the cash center which includes note counting, sorting,
storage, inventory management and secured transportation of the notes and coins on behalf of for Bank of Thailand (BOT).
For the years ended December 31, 2021, CCC revenues
were approximately $0,2 million (0.5%).
Cheque Center Service (CDC)
Cheque Center Service (CDC) includes secured cheque
pickup and delivery service.
For the year ended December 31, 2021, 2020 and
2019, CDC revenues were approximately $0.05 million (0.1%), $0.1 million (0.2%) and $0.4 million (1%), respectively.
Express Cash
The express cash service is an expansion of our
Guardforce Digital Machine, or GDM, solution. We work with commercial banks to have a mobile GDM installed in our CIT vehicles to collect
cash from retail customers at the retailers’ sites. The cash is immediately processed inside the CIT vehicle and the cash counting
results are immediately transmitted to GF Cash (CIT) headquarters and to the commercial bank. That bank will then credit the counted amount
to its customers’ bank accounts. We launched the Express Cash service in 2019.
For the years ended December 31, 2021, 2020 and
2019, express cash service revenues were $nil (nil %), $0.1 million (0.3%) and $nil (nil %), respectively.
Coin Processing Service
The Coin Processing Service includes the secure
collection of coins from retail businesses and banks. The coins are stored and then delivered to the Royal Thai Mint, a sub-division of
the Thai Treasury Department, Ministry of Finance. We deploy manpower to work at the Royal Thai Mint as cashier services. Additionally,
we use our existing vehicle fleet to deliver coins from the Royal Thai Mint to bank branches, and vice versa.
For the years ended December 31, 2021, 2020 and
2019, coin processing service revenues were $nil, $0.3 million (0.8%) and $0.04 million (0.1%), respectively.
International Shipment
International shipment provides secured delivery
service that we receive and deliver high valued items such as diamonds and jewelries on behalf of our customers. We receive the consignment
by air and delivers to local customers in Thailand or vice versa.
For the years ended December 31, 2021, 2020 and
2019, international shipment revenues were $0.05 million (0.1%), $0.06 million (0.0%) and $nil (nil %), respectively.
Cash Deposit Management Solutions (GDM)
Cash Deposit Management Solutions are currently
delivered by our Guardforce Digital Machine (GDM). The GDM product is deployed at customer sites to provide secured retail cash deposit
services. Customers use our GDM product to deposit daily cash receipts. We then collect the daily receipts from our GDM in accordance
to the agreed schedules.
All cash receipts are then securely collected
and delivered to our cash processing center for further handling and processing.
For the years ended December 31, 2021, 2020 and
2019, GDM revenues were approximately $1.6 million (4.7%), $1.5 million (3.9%) and $1.2 million (3%), respectively.
Our Fee Structure for the Secure Logistics
Business
We have several fee models based on the services
provided. Our fees for dedicated vehicles service are based on the allocation of cost of manpower deployment, vehicle and consumable items.
Fees for fixed collections or on-call services are based on a pre-agreed amount per delivery, which varies by such factors as collection
time, pick-up and delivery locations and the processing time.
Our Fleet of Vehicles for the Secured Logistics
Business
We operate a fleet of 473 vehicles. Our fleet
includes armored vehicles – pickup, armored vehicles – van, armored vehicles – truck 6 wheels, maintenance soft skin
vehicles – pickup, coin trucks soft skin – pickup, security patrol soft skin – pickup trucks and administrative vehicles.
Our vehicles are maintained to the highest commercial
standards to ensure our quality of service. We operate dedicated garages for the repair and maintenance of our vehicles, staffed with
a team of in-house auto mechanics. Our vehicle repair facilities are located at our head office location in Laksi and at other major branch
locations. We also have a well-established logistics department which monitors the operations of our garages and the maintenance of our
vehicle operations standards.
Robotic Solutions Business
Our Robotics Solutions business was established
in 2020 as part of our revenue diversification efforts. We do not manufacture the robots, but we operate on a Robots as a Service (RaaS)
business model and purchase the robots from equipment manufacturers. We integrate various value add applications and offer these as a
recurring revenue service. As part of our market penetration strategy, we have adopted a mass adoption strategy by providing the robots
on a trial basis with an option to purchase or rent. In February 2022, we announced that the Company had reached a strategic milestone
deploying more than 1,400 robots in the Asia Pacific region. The majority of these robots are still on a free trial basis with our key
consideration being the collection of usage patterns and market intelligence allowing us to further develop applications and features
that are suitable to our customers. In October 2021, we announced the launch of our Intelligent Cloud Platform (ICP) to help better manage
the remotely deployed robots and to facilitate the development of additional features and applications. We plan to provide access to the
ICP to all our clients through a browser-based interface that allows clients real-time data access. We are working continuously to improve
and upgrade the robots and the ICP and their precise specifications may change over time.
We currently have 3 robotics products:
[1] Reception Robot (T - Series) for indoor stationary
applications.
[2] Disinfection Robots (S - Series) for indoor
applications.
[3] Delivery Robot (D - Series) for indoor applications.
Reception Robot (T – Series)
The T – Series robot is designed for indoor
deployment at ingress/egress points for access control management. The T – Series robots are used primarily at shopping malls, residential
buildings, educational institutions, corporate buildings, hospitals, supermarkets, transportation stations, hotels and entertainment venues.
The T – Series features include:
|
● |
Contactless temperature screening; |
|
● |
Interactive touch screen; and |
|
● |
Large frontal display screen for remote public announcement and advertising. |
The specifications of the T-Series are as follows:
Disinfection Robots (S – Series)
The S – Series robot is designed to be deployed
indoors with disinfection capabilities and is used primarily at shopping malls, residential buildings, educational institutions, corporate
buildings, hospitals, supermarkets, transportation stations, hotels and entertainment venues. The S – Series current features include:
|
● |
Effective mist disinfection for areal sanitization; |
|
● |
Autonomous navigation using Simultaneous Localization and Mapping (SLAM) and Light detection and ranging (LiDar) technologies; and |
|
● |
Autonomous “home return” to port feature for charging when power is running below 20%. |
The specifications for the S – Series are
as follows:
|
● |
Height = 1195 - 1430 mm; and |
Delivery Robot (D – Series)
The D – Series robot is designed for indoor
applications for autonomous delivery capabilities and is used primarily at hotels, hospitals, restaurants and office environments. The
current D – Series features include:
|
● |
Interactive touch screen; |
|
● |
Autonomous navigation using Simultaneous Localization and Mapping (SLAM) and Light detection and ranging (LiDar) technologies; and |
|
● |
Autonomous “home return” to port feature for charging when power is running below 20%. |
The specifications for the D – Series are
as follows:
In addition, all of our robots include several
communications features - the units can transfer data over both 4G LTE networks and Wi-Fi and will be able to incorporate future 5G capabilities.
For the year ended December 31, 2021, robotics
solutions revenues were approximately $0.37 million or approximately 1.0% of the company’s total revenues.
Our Fee Structure for the Robotics Solutions
Business
Our Robotics Solution Business has two fee structures:
|
● |
Sale of Robots: One-off purchase by customers of the robots; and |
|
● |
Rental of Robots: Customers lease the robots as part of our Robots as a Service (RaaS) model. |
Information Security Business
We acquired a majority stake in Handshake
Networking (Handshake) on March 25, 2021, in furtherance of our strategy to diversify into information security as part of our
portfolio of services. The purpose of this acquisition was to provide us with the experience, expertise and creditability to
capitalize on the growing information security market. The Asia Pacific market for cybersecurity is expected to grow to
approximately $51.42 billion by 2026. https://www.mordorintelligence.com/industry-reports/asia-pacific-cyber-security-market.
Handshake has been providing professional information
security consultancy services since 2004 within the Asia Pacific region.
Handshake is the only certified and approved scanning
vendor in Hong Kong by the PCI Security Standard Council (PCI ASV).
The services offered under our Information Security
business include:
|
● |
External and Internal Penetration Testing; |
|
● |
Wireless Network Testing; |
|
● |
Web Application Testing; |
|
● |
Hospitality Services Testing; |
|
● |
Consulting Services, Training; |
For the year ended December 31, 2021, Information
Security revenues were approximately $0.48 million, or 1.4% of the company’s total revenues.
Our Fee Structure for the Information Security
Business
Our Information Security Business has three fee
structures:
|
● |
Penetration Test: one-off fees based upon the successful delivery of the test report; |
|
● |
PCI ASV Scan: one-off fees based upon a successful scan result report; and |
|
● |
Reseller: one-off fees based upon the resale and installation of third
party information security solutions. We are currently a reseller of Rapid7 security software solutions. |
Performance obligations for each of our service
types are as follows:
|
|
|
|
|
Fixed Fees |
Service Type |
|
|
Performance Obligations |
|
Per delivery / order |
|
Per month |
Cash-In-Transit (CIT) – Non Dedicated Vehicles (Non-DV) |
(a) |
|
Delivery from point A to point B per customer request. Service obligation was generally completed within same day. |
|
√ |
|
|
Cash-In-Transit (CIT) – Dedicated Vehicles to Banks (DV) |
(a) |
|
Delivery from point A to point B per customer request. Service obligation was generally completed within same day. |
|
√ |
|
|
ATM Management |
(a) |
|
Includes replenishment of ATM machines and first level maintenance services. Service obligation was generally completed within the same day. |
|
√ |
|
|
Cash Processing (CPC) |
(b) |
|
Cash counting, sorting and vaulting services for customers in the retail industry. |
|
|
|
√ |
Cash Center Operations (CCT) |
(b) |
|
Cash counting, sorting and depositing for local commercial banks on behalf of Bank of Thailand (BOT). |
|
|
|
√ |
Consolidate Cash Center (CCC) |
(b) |
|
Cash counting, sorting and depositing for Bank of Thailand (BOT). |
|
|
|
√ |
Cheque Center Service (CDC) |
(b) |
|
Handles cheque consolidation and distribution on behalf of local commercial bank. |
|
|
|
√ |
Express Cash |
(a) |
|
Armored trucks (with onboard GDM) and crew teams are assigned to collect cash on behalf of local commercial banks. Service obligation was generally completed within the same day. |
|
√ |
|
|
Coin Processing Service |
(a) |
|
Armored vehicles and crew teams are assigned to collect/deliver coins to/from customer sites. Service obligation was generally completed within the same day. |
|
√ |
|
|
Cash Deposit Management Solutions |
(b) |
|
Cash deposit machine (Guardforce Digital Machine – GDM) are installed at the customers’ sites for the collection of cash. |
|
|
|
√ |
Robotics AI Solutions – Sale of Robots |
(a) |
|
Delivery of robots and inspection completed at customer site. |
|
√ |
|
|
Robotics AI Solutions – Rental of Robots |
(b) |
|
Robots are leased out for a fixed term |
|
|
|
√ |
Penetration Test |
(a) |
|
Production of the test report |
|
√ |
|
|
PCI ASV Scan |
(a) |
|
Submission of the scan result |
|
√ |
|
|
Rapid7 Sales |
(b) |
|
Provision of information security service based on the sale and installation of Rapid7 software |
|
|
|
√ |
Disaggregation information of revenue by service
type is as follows:
| |
For the years ended December 31, | |
Service Type | |
2021 | | |
Percentage of Total Revenue | | |
2020 | | |
Percentage of Total Revenue | | |
2019 | | |
Percentage of Total Revenue | |
Cash-In-Transit – Non-Dedicated Vehicles (CIT Non-DV) | |
$ | 11,205,580 | | |
| 31.9 | % | |
$ | 12,045,914 | | |
| 32.0 | % | |
$ | 12,052,738 | | |
| 31.2 | % |
Cash-In-Transit – Dedicated Vehicle to Banks (CIT DV) | |
| 4,556,538 | | |
| 13.0 | % | |
| 4,822,354 | | |
| 12.8 | % | |
| 4,958,139 | | |
| 12.9 | % |
ATM Management | |
| 10,809,497 | | |
| 30.7 | % | |
| 12,542,613 | | |
| 33.3 | % | |
| 14,024,291 | | |
| 36.4 | % |
Cash Processing (CPC) | |
| 3,034,360 | | |
| 8.6 | % | |
| 2,842,209 | | |
| 7.5 | % | |
| 2,283,835 | | |
| 5.9 | % |
Cash Center Operations (CCT) | |
| 2,802,171 | | |
| 8.0 | % | |
| 3,256,423 | | |
| 8.6 | % | |
| 3,661,135 | | |
| 9.5 | % |
Consolidate Cash Center (CCC) | |
| 182,263 | | |
| 0.5 | % | |
| - | | |
| - | % | |
| - | | |
| - | % |
Cheque Center Service (CDC) | |
| 59,923 | | |
| 0.2 | % | |
| 61,197 | | |
| 0.2 | % | |
| 394,290 | | |
| 1.0 | % |
Others ** | |
| 5,270 | | |
| 0.0 | % | |
| 399,978 | | |
| 1.1 | % | |
| 38,570 | | |
| 0.1 | % |
Cash Deposit Management Solutions (GDM) | |
| 1,644,611 | | |
| 4.7 | % | |
| 1,457,307 | | |
| 3.9 | % | |
| 1,158,082 | | |
| 3.0 | % |
Robotic AI Solutions | |
| 368,659 | | |
| 1.0 | % | |
| 220,787 | | |
| 0.6 | % | |
| - | | |
| - | % |
Information Security | |
| 484,318 | | |
| 1.4 | % | |
| - | | |
| - | % | |
| - | | |
| - | % |
Total | |
$ | 35,153,190 | | |
| 100.0 | % | |
$ | 37,648,782 | | |
| 100.0 | % | |
$ | 38,571,080 | | |
| 100.0 | % |
| ** | Others include primarily revenue
from express cash, coin processing services and international shipment. |
Sales and Marketing
Secure Logistics Business Sales &
Marketing
During the 2022 fiscal year, for our secure logistics
business we will endeavor to ensure that all of our existing customer contracts will be renewed, to protect our major sources of existing
income. In addition, we plan to undertake the following activities to promote our businesses:
|
● |
To continue to work closely with local Thailand commercial banks to attract more retail chain customers to our secure logistic solutions such as outsourced cash management services; |
|
● |
To work closely with existing customers to extend our secure logistics solutions throughout Thailand and other industries and |
|
● |
To explore upgrading the cash processing system to include AI related functions and capabilities. |
Secure Logistics Customers
Since 2008, the major customer of our secure logistics
business has been the Government Savings Bank, a state-owned Thai bank located in Bangkok.
For the year ended December 31, 2021, the revenue
derived from the Government Savings Bank was approximately $9.6 million, which accounted for approximately 27.3% of our revenue.
For the year ended December 31, 2021, our next
four largest customers were the Bank of Ayudhya Public Company, CP All Public Company, TTB Bank Public Company (Thanachart Bank Public
Company was one of our five major customers in fiscal year 2020 which had merged with TMB Bank Public Company in June 2021 to become TTB
Bank Public Company) and Big C Super Center Public Company. The total revenue derived from these four customers was approximately $15.7
million or 44.6% of our revenue. Our top five customers combined accounted for approximately 71.9% of our revenue. We have four customers
that accounted for 10% or more of our revenue for the years ended December 31, 2021, 2020 and 2019 (See Note 23 “Concentrations”
in our audited consolidated financial statements for details).
For the year ended December 31, 2021, substantially
all of our revenues were derived from secure logistic customers of approximately $35.15 million. 64% of our revenue was generated from
bank customers, while retail customers and others such as hospitality, corporate and logistics sectors accounted for 36% of these revenues.
We are now starting to diversify our customer
portfolio by acquiring more retail customers and entering other new service sectors in order to balance our portfolio and better protect
our business.
Our business development and customer service
teams actively participate in all contract renewal processes in order to retain the contracts that are up for renewal and to establish
and maintain good relationships with our customers.
Secure Logistics Competition
Our principal business is secure logistics. The
chart below references GF Cash (CIT) as “GFCTH” and names GF Cash (CIT)’s competitors showing relative market share
in 2021.
THAILAND MARKET SHARE 2021
Source: Thailand Revenue Department
The secure logistics industry in Thailand is subject
to significant competition and pricing pressure. The main competitors are the international companies such as Brinks, and there are also
many local CIT competitors in Thailand having very good relationships with their customers. We expect our secure logistics competition
to increase and this could affect our pricing strategies in the future.
Additionally, several banks have their own CIT
subsidiaries which serve these banks exclusively.
We also face potential competition from certain
commercial banks that market their own cash management solutions to their customers and hire CIT companies as their CIT suppliers.
Across the CIT industry, most CIT companies want
to have a footprint in the retail sector and they use lower pricing as a competitive strategy.
Despite the high competition in the CIT industry
in Thailand, we believe that we have significant competitive advantages, including:
|
● |
Full coverage in the entire country with 21 branches; |
|
● |
Flexible and reliable operations; |
|
● |
Continuity of our management team; |
|
● |
The authorization by the BOT of GF Cash (CIT) to run 10 Cash Centers in Thailand to support Cash Center operations to the BOT; |
|
● |
Long term relationship with local commercial banks; |
|
● |
40 years of experience among the staff/management team in the cash logistics solutions business in Thailand; and |
|
● |
In 2021, the award by the BOT of GF Cash as Consolidated Cash Centre operator in Khon Kean & Hadyai. |
Robotics Solutions Business Sales &
Marketing
During the 2022 fiscal year, we plan to undertake
the following activities to promote our Robotics Solutions business:
|
● |
To continue to offer our robots on a free trial basis and to provide rental and purchase options to drive market penetration and coverage; |
|
● |
To use our existing nationwide infrastructure in Thailand to promote and introduce our robotic solutions as the country begins to recover from the COVID lockdown, in particular, to hotels, airports, transportation hubs, hospitals and shopping centers; |
|
● |
To work closely with partners globally in the region to promote and introduce our robotic solutions, in particular, in Singapore, Hong Kong, Malaysia, Macau and other Asia Pacific regions and the US; and |
|
● |
To continue to develop and integrate the ICP to facilitate future additional revenue streams from AI related applications and features that includes but not limited to a customer user friendly dashboard that allows clients to remotely monitor and analyze the data sensed from the robots deployed within their premises. |
Robotics Solutions Customers
Since the inception of our Robotics Solutions
business, the deployment of our robots (free trial, service fee basis and sales) has primarily been at hospitals, educational institutions,
entertainment venues, government buildings, and shopping malls in Thailand, Hong Kong, Singapore, Malaysia, Macau and other markets across
Asia.
Robotics Solutions Competition
The robotics industry globally is still in its
infancy. Competition is high as most competitors are engaged in selling robots as a stand-alone product. The majority of our competitors
are Chinese and Japanese robotics manufacturers. At present, there is no clear market leader.
Despite the highly competitive environment, we
believe we have the following competitive advantages:
|
● |
Existing distribution network via our secure logistics business particularly in Thailand; |
|
● |
40 years of business experience in delivering services to customers; and |
|
● |
Development of the Intelligent Cloud Platform that will enhance the customer experience and value. |
Information Security Business (Sales &
Marketing)
During the 2022 fiscal year, we plan to undertake
the following activities to promote our Information Security business:
|
● |
Work with customers to extend testing services within their organizations and to their customers; |
|
● |
Continue to explore overseas expansion via existing business networks in Thailand and Hong Kong; and |
|
● |
Develop automated penetration testing applications to facilitate the Software as a Service (SaaS) business model. |
Information Security Customers
Our customers in the Information Security business
are primarily within the financial, logistics, retail, hospitality, and corporate services segments. Our business managers are in constant
contact with customers to ensure that all service requests are delivered on a timely basis. The majority of service requests are based
on annual penetration test requirements by the customers.
Information Security Competition
The information security industry globally is
extremely fragmented with numerous start-ups targeting niche segments of the information security market. We expect that with the growing
transformation of existing business to online platforms, the demand for various Information Security solutions will grow significantly.
Competition is high as existing dominant players in the US and Europe try to gain market share within the Asia Pacific region. However,
we believe that there will be a merging of physical security and Information Security as customers will require not only physical security
but also the Information Security solutions.
Despite the high competition, we believe that
we have significant advantages in our information security solutions, including;
|
● |
Existing distribution network via our secure logistics business particularly in Thailand; |
|
● |
40 years of business experience in delivering services to customers; and |
|
● |
The only PCI ASV approved scanning vendor in Hong Kong. |
THE OFFERING
Ordinary Shares Offered by Us |
|
8,739,351 shares |
|
|
|
Offering Price Per Share |
|
$1.15 |
|
|
|
Ordinary Shares Outstanding Immediately Before the Offering |
|
32,629,836 shares |
|
|
|
Ordinary Shares to be Outstanding Immediately After the Offering |
|
41,369,187 shares |
|
|
|
Market for the Ordinary Shares |
|
Our Ordinary Shares are traded on the Nasdaq Capital Market under the symbol “GFAI.” |
|
|
|
Use of Proceeds |
|
We intend to use the net proceeds from this offering for acquisitions and partnerships, investments
in technology and expanding corporate infrastructure, expansion of its sales team and marketing efforts and for general working capital
purposes. See “Use of Proceeds” on page S-22 of this prospectus supplement. |
|
|
|
Risk Factors |
|
Investing in our securities involves a high degree of risk. For a discussion of factors you should
consider carefully before deciding to invest in our Ordinary Shares. See “Risk Factors” beginning on page S-18 of this
prospectus supplement and on page 6 of the accompanying prospectus and other information included or incorporated by reference in
this prospectus supplement and the accompanying prospectus. |
|
|
|
Transfer Agent and Registrar |
|
VStock Transfer, LLC |
The number of our Ordinary Shares to be outstanding
after this offering is based on 32,629,836 Ordinary Shares issued and outstanding on April 6, 2022.
The number of shares of our Ordinary Shares outstanding
immediately before and immediately after this offering excludes:
|
● |
2,920,000 Ordinary Shares reserved for future issuance under our Guardforce AI Co., Limited 2022 Equity Incentive Plan; |
|
● |
11,879,993 Ordinary Shares issuable upon exercise of the private placement warrants, at an initial exercise price of $1.15 per share with the expiration date of January 20, 2027; |
|
● |
3,515,326 Ordinary Shares issuable upon exercise
of the publicly listed warrants, at an initial exercise price of $1.15 per share with the expiration date of September 28, 2026; and |
|
|
|
|
● |
180,723 Ordinary Shares issuable upon exercise of the warrants, that were issued to the assignee of the representative of the underwriters in our initial public offering. |
RISK FACTORS
Any investment in our securities involves a
high degree of risk. You should consider carefully the risks described below as well as the risks described in the section captioned “Risk
Factors” in our annual report on Form 20-F for the year ended December 31, 2021, and as updated by any document that we subsequently
file with the SEC that is incorporated by reference in this prospectus supplement or the accompanying prospectus, together with other
information in this prospectus supplement, the accompanying prospectus and the information and documents incorporated by reference in
this prospectus supplement and the accompanying prospectus before you make a decision to invest in our securities. If any of such risks
actually occur, our business, operating results, prospects or financial condition could be materially and adversely affected. This could
cause the trading price of our Ordinary Shares to decline and you may lose all or part of your investment. The risks described below are
not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business
operations. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those
discussed in these forward-looking statements. See “Forward-Looking Information.”
RISKS RELATED TO THIS OFFERING
We will have broad discretion as to the
use of the proceeds from this offering, and we may not use the proceeds effectively.
We have considerable discretion in the application
of the net proceeds of this offering. You will not have the opportunity, as part of your investment decision, to assess whether the net
proceeds are being used in a manner agreeable to you. You must rely on our judgment regarding the application of the net proceeds of this
offering. The net proceeds may be used for corporate purposes that do not improve our profitability or increase the price of our shares.
The net proceeds may also be placed in investments that do not produce income or that lose value. The failure to use such funds by us
effectively could have a material adverse effect on our business, financial condition, operating results and cash flow.
A large number of shares may be sold in
the market following this offering, which may significantly depress the market price of our Ordinary Share.
The Ordinary Shares sold in the offering will
be freely tradable without restriction or further registration under the Securities Act. As a result, a substantial number of our Ordinary
Shares may be sold in the public market following this offering. If there are significantly more ordinary shares offered for sale than
buyers are willing to purchase, then the market price of our Ordinary Shares may decline to a market price at which buyers are willing
to purchase the offered Ordinary Shares and sellers remain willing to sell the Ordinary Shares.
If we fail to maintain compliance with the
continued listing requirements of Nasdaq, we would face possible delisting, which would result in a limited public market for trading
our shares and make obtaining future debt or equity financing more difficult for us.
On March 9, 2022, we received
a written notification from the Nasdaq Listing Qualifications Department (the “Notification Letter”) of the Nasdaq Stock Market
LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the closing bid price for the Company’s
Ordinary Share has been below the minimum $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq
Listing Rule 5550(a)(2).
Nasdaq
Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of US$1.00 per share, and Listing Rule 5810(c)(3)(A)
provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business
days. Based on the closing bid price of the Company’s Ordinary Shares for the 30 consecutive business days from January
25, 2022 to March 8, 2022, the Company no longer meets the minimum bid price requirement. The Ordinary Shares may be delisted if we fail
to maintain certain Nasdaq listing requirements.
In accordance with Nasdaq
Listing Rule 5810(c)(3)(A), the Company was given 180 calendar days, or until September 6, 2022 to regain compliance with Rule 5550(a)(2). To
regain compliance, the Company’s ordinary shares must have a closing bid price of at least US$1.00 for a minimum of 10
consecutive business days. If the Company does not regain compliance during such 180-day period, the Company may be eligible for an additional
180 calendar days, provided that the Company meets the continued listing requirement for market value of publicly held shares and all
other initial listing standards for Nasdaq except for Nasdaq Listing Rule 5550(a)(2), and provide a written notice of its intention to
cure this deficiency during the second compliance period, by effecting a reverse stock split, if necessary.
We cannot assure you that the Company will continue
to comply with the requirements for continued listing on the Nasdaq Capital Market in the future. If our Ordinary Share loses its status
on the Nasdaq Capital Market, our Ordinary Shares would likely trade in the over-the-counter market. If our shares were to trade on the
over-the-counter market, selling our Ordinary Shares could be more difficult because smaller quantities of shares would likely be bought
and sold, transactions could be delayed, and security analysts’ coverage of us may be reduced. In addition, in the event our Ordinary
Share is delisted, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting
transactions in our Ordinary Share, further limiting the liquidity of our Ordinary Share. These factors could result in lower prices and
larger spreads in the bid and ask prices for our Ordinary Share. Such delisting from the Nasdaq Capital Market and continued or further
declines in our share price could also greatly impair our ability to raise additional necessary capital through equity or debt financing
and could significantly increase the ownership dilution to shareholders caused by our issuing equity in financing or other transactions.
If our ordinary shares were delisted from
Nasdaq, we may become subject to the trading complications experienced by “Penny Stocks” in the over-the-counter market.
Delisting from Nasdaq may cause our Ordinary Share
to become subject to the SEC’s “penny stock” rules. The SEC generally defines a penny stock as an equity security that
has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. One
such exemption is to be listed on Nasdaq. Therefore, were we to be delisted from Nasdaq, our Ordinary Share may become subject to the
SEC’s “penny stock” rules. These rules require, among other things, that any broker engaging in a purchase or sale of
our securities provide its customers with: (i) a risk disclosure document, (ii) disclosure of market quotations, if any, (iii) disclosure
of the compensation of the broker and its salespersons in the transaction, and (iv) monthly account statements showing the market values
of our securities held in the customer’s accounts. A broker would be required to provide the bid and offer quotations and compensation
information before effecting the transaction. This information must be contained on the customer’s confirmation. Generally, brokers
are less willing to effect transactions in penny stocks due to these additional delivery requirements. These requirements may make it
more difficult for shareholders to purchase or sell our Ordinary Share. Because the broker, not us, prepares this information, we would
not be able to assure that such information is accurate, complete or current.
The market price of our Ordinary Share has
been volatile, leading to the possibility that its value may be depressed at a time when you want to sell your holdings.
The market price of our Ordinary Share has been
volatile, and this volatility may continue. From September 29, 2021 through April 6, 2022, the closing price of our Ordinary Share on
the Nasdaq Capital Market has ranged from a high of $3.96 to a low of $0.36. Numerous factors, many of which are beyond our
control, may cause the market price of our Ordinary Share to fluctuate significantly. These factors include, among others:
|
● |
actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors; |
|
● |
changes in financial estimates by us or by any securities analysts who might cover our share; |
|
● |
speculation about our business in the press or the investment community; |
|
● |
significant developments relating to our relationships with our customers or suppliers; |
|
● |
stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry; |
|
● |
customer demand for our services and products; |
|
● |
investor perceptions of our industry in general and our company in particular; |
|
● |
the operating and share performance of comparable companies; |
|
● |
general economic conditions and trends; |
|
● |
major catastrophic events; |
|
● |
announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures; |
|
● |
loss of external funding sources; and |
|
● |
sales of our Ordinary Share, including sales by our directors, officers or significant shareholders; |
Any of these factors may result in large and sudden
changes in the volume and price at which our Ordinary Share will trade. We cannot give any assurance that these factors will not occur
in the future again. In addition, the securities market has, from time to time, experienced significant price and volume fluctuations
that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse
effect on the market price of our Ordinary Share. In the past, following periods of volatility in the market price of their stock, many
companies have been the subject of securities class action litigation. If we become involved in similar securities class action litigation
in the future, it could result in substantial costs and diversion of our management’s attention and resources and could harm our
stock price, business, prospects, financial condition and results of operations.
The effect of the coronavirus disease
2019 or the perception of its effects, on our operations and the operations of our customers and suppliers could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
We have been closely monitoring the coronavirus
disease 2019, or COVID-19, pandemic that has been spreading all over the world, including to Thailand. The duration and extent of the coronavirus pandemic
and related government actions may impact many aspects of our business, including creating workforce limitations, travel restrictions
and impacting our customers and suppliers. If a significant percentage of our workforce is unable to work, either because of illness or
travel or government restrictions in connection with the coronavirus outbreak, our operations may be negatively impacted. The
Company’s response strategy in areas of high impact may result in a temporary reduced workforce as a result of self-isolation or
other government or Company imposed measures to quarantine impacted employees and prevent infections at the workplace.
In addition, the coronavirus may result
in a widespread health crisis that could adversely affect the economies and financial markets of many countries, including Thailand, resulting
in an economic downturn that could affect demand for our products and services. Imposed government regulations could adversely impact
the Company’s results of operations, business, financial condition, or prospects derived from its operations in Thailand or other
affected areas. Further, the outbreak of the coronavirus may negatively impact our customers and related service providers,
which would likely impact our revenues and operating results. Any of these events could have a material adverse effect on the Company’s
business, financial condition, results of operations and cash flows.
Given the ongoing and dynamic nature of the
circumstances surrounding COVID-19, it is difficult to predict how COVID-19, including any responses to it, will impact the global
economy and our business or for how long any disruptions are likely to continue. The extent of such impact will depend on future
developments, which are uncertain, evolving and difficult to predict, including, but not limited to, new information which may
emerge concerning, additional variants of COVID-19 that may be able to circumvent the protections afforded by existing vaccines
and/or may be more transmissible (like the Omicron variant) or result in more severe sickness (like the Delta variant), additional
actions which may be taken to contain COVID-19 or treat its impact, such as re-imposing previously lifted measures or putting in
place additional restrictions, and the availability, pace of distribution and social acceptance of effective vaccines and of
government efforts to slow the spread of COVID-19.
We are currently operating in a period of
economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing
military conflict between Russia and Ukraine. Our business, financial condition and results of operations may be materially adversely
affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical
tensions.
U.S. and global markets are experiencing volatility
and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On
February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing
military conflict is highly unpredictable, and although we currently have no operations or sales in either Russia or Ukraine, the conflict
in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets. We are
continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.
Governments in the United States and many other
countries, or the Sanctioning Bodies, have imposed economic sanctions on certain Russian individuals, including politicians, and Russian
corporate and banking entities. The Sanctioning Bodies, or others, could also institute broader sanctions on Russia, including banning
Russia from global payments systems that facilitate cross-border payments. These sanctions, or even the threat of further sanctions, may
result in the decline of the value and liquidity of Russian securities, a weakening of the ruble or other adverse consequences to the
global economy.
The current war in Ukraine, and geopolitical events
stemming from such conflicts, could cause consumer confidence and spending to decrease or result in increased volatility in the United
States and worldwide financial markets and economy. The extent and duration of the military action, resulting sanctions and resulting
future market disruptions in the region are impossible to predict, but could be significant and have a severe adverse effect worldwide
financial markets and economy.
Any of the abovementioned factors could affect
our ability to search for a target and consummate a business combination. The extent and duration of the military action, sanctions and
resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of
other risks described in this prospectus supplement.
USE OF PROCEEDS
We estimate that the net proceeds from this offering
will be approximately $8.99 million, after deducting placement agent fees and other estimated expenses of this registered direct offering
payable by us.
We intend to use the net proceeds from this offering
for acquisitions and partnerships, investments in technology and expanding corporate infrastructure, expansion of the Company’s
sales team, and marketing efforts, and general working capital. Pursuant to the Securities Purchase Agreement we have entered into with
the investors in this offering, we have, subject to certain exceptions, agreed not to use the proceeds of this offering (a) for the satisfaction
of any portion of our Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business
and prior practices), (b) for the redemption of any Ordinary Shares or Ordinary Share equivalents, (c) for the settlement of any outstanding
litigation or (d) in violation of FCPA or OFAC regulations. We may segregate a small portion of the proceeds from this offering for the
purpose of indemnification of the Placement Agent.
The amounts and timing of our use of proceeds
will vary depending on a number of factors, including the amount of cash generated or used by our operations, and the rate of growth,
if any, of our business. Depending on future events and others changes in the business climate, we may determine at a later time to use
the net proceeds for different purposes.
DILUTION
Investors of our Ordinary Shares offered by this
prospectus supplement and the accompanying prospectus will experience an immediate dilution in the net tangible book value of their Ordinary
Shares from the offering price of the Ordinary Shares. The net tangible book value of our Ordinary Shares as of December 31, 2021 was
approximately $4,395,491 or $0.21 per share. Net tangible book value per share of our Ordinary Shares is equal to our net tangible assets
(tangible assets less total liabilities) divided by the number of Ordinary Shares issued and outstanding as of December 31, 2021.
After reflecting the sale of 8,739,351 Ordinary
Shares offered by us at the public offering price of $1.15 per share, less placement agent fee and estimated offering expenses, our adjusted
net tangible book value per our Ordinary Shares as of December 31, 2021 would have been $0.45 per share. The change represents an immediate
increase in net tangible book value per our Ordinary Share of $0.42 per share to existing shareholders and an immediate dilution of $0.52
per share to new investors purchasing Ordinary Shares in this offering.
The following table illustrates this per share
dilution:
| |
Per Common Share | |
Offering price per share | |
$ | 1.15 | |
Net tangible book value per share as of December 31, 2021 | |
| 0.21 | |
Increase per share attributable to existing investors | |
| 0.45 | |
Adjusted net tangible book value per share after giving effect to this offering | |
$ | 0.42 | |
Dilution per share to new investors | |
$ | 0.52 | |
The information above is based on 21,201,842 Ordinary
Shares issued and outstanding as of December 31, 2021 and the proforma is excluding the following:
|
● |
2,920,000 Ordinary Shares reserved for future issuance under our Guardforce AI Co., Limited 2022 Equity Incentive Plan; |
|
● |
4,156,626 Ordinary Shares issuable upon exercise of the publicly listed warrants, at an initial exercise price of $1.15 per share with the expiration date of September 28, 2026; and |
|
● |
11,879,993 Ordinary Shares issuable upon exercise of the publicly listed warrants, at an initial exercise price of $1.30 per share with the expiration date of January 20, 2027; |
|
● |
180,723 Ordinary Shares issuable upon exercise of the warrants, that were issued to the assignee of the representative of the underwriters in our initial public offering. |
|
● |
260,000 restricted Ordinary Shares granted on January 25, 2022 under our Guardforce AI Co., Limited 2022 Equity Incentive Plan; |
|
● |
7,919,997 Ordinary Shares issued in a private placement consummated on January 20, 2022; |
|
● |
10,000 restricted Ordinary Shares issued for the investor relations services provided by a third party vendor; and |
|
● |
2,142,852 Ordinary Shares issued in connection with our business acquisitions of Shenzhen GFAI and Guangzhou GFAI on March 22, 2022. |
CAPITALIZATION AND INDEBTEDNESS
The table below sets forth our capitalization
and indebtedness as of December 31, 2021:
|
● |
on an actual basis; and |
|
● |
on an as adjusted basis to give effect to the issuance and sale of 8,739,351 Ordinary Shares at the offering price of $1.15 per share, after deducting placement agent fees and expenses and estimated offering expenses payable by us. |
| |
As of December 31, 2021 | |
| |
Actual | | |
Pro Forma | |
Cash and cash equivalents and restricted cash | |
$ | 15,853,811 | | |
$ | 24,845,619 | |
Total current liabilities | |
$ | 22,495,748 | | |
$ | 22,495,748 | |
Shareholder’ equity (deficit) | |
$ | | | |
$ | | |
Ordinary Share, $0.003 par value; 300,000,000 authorized; 21,201,842 issued and outstanding as of December 31, 2021 | |
| 63,606 | | |
| 89,824 | |
Subscription receivable | |
| (50,000 | ) | |
| (50,000 | ) |
Additional paid-in capital | |
| 15,379,595 | | |
| 24,345,185 | |
Legal reserve | |
| 223,500 | | |
| 223,500 | |
Warrants reserve | |
| 251,036 | | |
| 251,036 | |
Retained earnings (Deficit) | |
| (10,204,220 | ) | |
| (10,204,220 | ) |
Accumulated other comprehensive income | |
| 821,527 | | |
| 821,527 | |
Non-controlling interests | |
$ | 39,935 | | |
| 39,935 | |
Total capitalization | |
$ | 6,524,979 | | |
| 15,516,787 | |
The information above is based on 21,201,842 Ordinary
Shares issued and outstanding as of December 31, 2021, and the proforma is excluding the following:
|
● |
2,920,000 Ordinary Shares reserved for future issuance under our Guardforce AI Co., Limited 2022 Equity Incentive Plan; |
|
● |
4,156,626 Ordinary Shares issuable upon exercise of the publicly listed warrants, at an initial exercise price of $1.30 per share with the expiration date of September 28, 2026; |
|
● |
11,879,993 Ordinary Shares issuable upon exercise of the publicly listed warrants, at an initial exercise price of $1.30 per share with the expiration date of January 20, 2027; |
|
● |
180,723 Ordinary Shares issuable upon exercise of the warrants, that were issued to the assignee of the representative of the underwriters in our initial public offering; |
|
● |
260,000 restricted Ordinary Shares granted on January 25, 2022 under our Guardforce AI Co., Limited 2022 Equity Incentive Plan; |
|
● |
7,919,997 Ordinary Shares issued in a private placement consummated on January 20, 2022; |
|
● |
10,000 restricted Ordinary Shares issued for the investor relations services provided by a third party vendor; and |
|
● |
2,142,852 Ordinary Shares issued in connection with our business acquisitions of Shenzhen GFAI and Guangzhou GFAI on March 22, 2022. |
DESCRIPTION OF ORDINARY SHARES WE ARE OFFERING
We are a Cayman Islands exempted company with
limited liability and our affairs are governed by our Memorandum of Association and Articles of Association and the Companies Act. We
were incorporated in the Cayman Islands on April 20, 2018 under the Companies Act. Following completion of the 3:1 share consolidation
and increase in authorized share capital, we have an authorized share capital of $900,000 divided into 300,000,000 Ordinary Shares, $0.003
par value per share, which may be issued from time to time at the discretion of the Board of Directors without shareholder approval.
In this offering, we are offering 8,739,351 Ordinary
Shares pursuant to this prospectus supplement and the accompanying prospectus. The following is a summary of the rights of the Company’s
Ordinary Shares. This summary is not complete. For more detailed information, please refer to the Company’s Amended and Restated
Memorandum and Articles of Association, a copy of which was furnished as Exhibit 99.1 to the Report of Foreign Private Issuer on Form
6-K filed on August 25, 2021 and is incorporated by reference into this prospectus supplement. Our shareholders adopted our Amended and
Restated Memorandum of Association by a special resolution on February 5, 2020 and the Articles of Association was adopted at incorporation.
As of April 6, 2022, there were 32,629,836 Ordinary
Shares issued and outstanding. In addition, we currently have 15,576,042 warrants issued and outstanding, which include: (i) warrants
to purchase 3,515,326 ordinary shares and these warrants are exercisable at an exercise price of $1.15 per share with the expiration date
of September 28, 2026; (ii) warrants to purchase 11,879,993 ordinary shares, at an initial exercise price of $1.15 per share with
the expiration date of January 20, 2027; and (iii) 180,723 warrants that were issued to the assignee of the representative of the underwriters
in our initial public offering..
The following are summaries of material provisions
of our Memorandum and Articles of Association and the Companies Act insofar as they relate to the material terms of our Ordinary Shares.
Ordinary Shares
General
All of our issued and
outstanding ordinary shares are fully paid and non-assessable. Our ordinary shares are issued in registered form and are issued when registered
in our register of members. We may not issue shares to bearer. Our shareholders, who are non-residents of the Cayman Islands, may freely
hold and vote their ordinary shares.
Dividends
The holders of our ordinary
shares are entitled to receive such dividends as may be declared by our board of directors subject to our Memorandum and Articles of Association
and the Companies Act. Under Cayman Islands law, our company may pay a dividend out of either profits or share premium account in accordance
with the Companies Act, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay
its debts as they fall due in the ordinary course of business.
Register of Members
Under Cayman Islands
law, we must keep a register of members and there must be entered therein:
|
● |
the names and addresses of the members, a statement of the number and category of shares held by each member, in certain cases distinguishing each share by its number, and of the amount paid or agreed to be considered as paid, on the shares of each member and whether each relevant category of shares held by a member carries voting rights, and if so, whether such voting rights are conditional; |
|
● |
the date on which the name of any person was entered on the register as a member; and |
|
● |
the date on which any person ceased to be a member. |
Under Cayman Islands
law, the register of members of our company is prima facie evidence of any matters directed or authorized by the Companies Act
to be inserted therein (i.e. the register of members will raise a presumption of fact on the matters referred to above unless rebutted)
and a member registered in the register of members will be deemed as a matter of Cayman Islands law to have legal title to the shares
as set against its name in the register of members.
If the name of any person
is, without sufficient cause, entered in or omitted from the register of members, or if default is made or unnecessary delay takes place
in entering on the register the fact of any person having ceased to be a member, the person or member aggrieved or any member or our company
itself may apply to the Cayman Islands Grand Court for an order that the register be rectified, and the Court may either refuse such application
or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
Voting Rights
Holders of our ordinary
shares have the right to receive notice of, attend, speak and vote at general meetings of our Company. At any general meeting a resolution
put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the
show of hands) demanded by the chairman or one or more shareholders present in person or by proxy entitled to vote and who together hold
not less than 10% of all voting power of our paid up share capital in issue and entitled to vote. An ordinary resolution to be passed
by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast in a general
meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares
cast in a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed
by all the shareholders of our company, as permitted by the Companies Act and our Memorandum and Articles of Association. A special resolution
will be required for important matters such as a change of name or making changes to our Memorandum and Articles of Association.
General Meetings and Shareholder Proposals
As a Cayman Islands exempted
company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our Memorandum and Articles of Association
provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting, and the annual general
meeting will be held at such time and place as may be determined by our directors.
Shareholders’ general
meetings may be convened by our board of directors. The Companies Act provides shareholders with only limited rights to requisition a
general meeting and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may
be provided in a company’s articles of association. Our Articles of Association allow one or more shareholders holding in aggregate,
at the date of such requisition, not less than ten percent of the paid up voting share capital to requisition a general meeting of the
shareholders, in which case our board is obliged to convene a general meeting and to put the resolutions so requisitioned to a vote at
such meeting not later than 21 days from the date of deposit of the requisition. However, our Articles of Association do not provide our
shareholders with any right to put any proposals before annual general meetings or general meetings not called by such shareholders.
A quorum required for
any general meeting of shareholders consists of one or more shareholders present in person or by proxy holding at least a majority of
the paid up voting share capital of the Company. If the Company has only one shareholder, that only shareholder present in person or by
proxy shall be a quorum for all purposes. Advance notice of at least seven clear calendar days is required for the convening of any general
meeting of our shareholders.
Transfer of Ordinary Shares
Subject to the restrictions
in our Memorandum and Articles of Association as set out below, any of our shareholders may transfer all or any of his or her ordinary
shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors
may, in its absolute discretion, decline to register any transfer of any ordinary share.
If our directors refuse to register a transfer
they are obligated to, within two months after the date on which the instrument of transfer was lodged, send to the transferor and transferee
notice of such refusal.
The transferor of any ordinary shares shall be
deemed to remain the holder of that share until the name of the transferee is entered in the register of members.
For the purpose of determining members entitled
to notice of, or to vote at any meeting of members or any adjournment thereof, or members entitled to receive payment of any dividend
or other distributions, or in order to make a determination of members for any other purpose, our board of directors may provide that
the register of members shall be closed for transfers for a stated period which shall not in any case exceed forty (40) days.
Liquidation
On the winding up of
our Company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the
capital paid-up at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the
capital paid up at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due,
of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay
all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the capital
paid-up. We are an exempted company with “limited liability” incorporated under the Companies Act, and under the Companies
Act, the liability of our members is limited to the amount, if any, unpaid on the shares respectively held by them. Our Memorandum of
Association contains a declaration that the liability of our members is so limited.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares
Our board of directors
may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders
at least fourteen days prior to the specified time and place of payment. The ordinary shares that have been called upon and remain unpaid
on the specified time are subject to forfeiture.
Redemption, Repurchase and Surrender of Ordinary Shares
We may issue shares on
terms that such shares are subject to redemption at our option. Our Company may also repurchase any of our ordinary shares provided that
the manner and terms of such purchase have been approved by our board of directors and agreed with the relevant member. Under the Companies
Act, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a fresh issue
of shares made for the purpose of such redemption or repurchase, or out of the share premium account in accordance with the Companies
Act. Redemption or repurchase of any share may also be paid out of capital 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 other than treasury
shares, or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for
no consideration.
Variations of Rights of Shares
If at any time our share capital is divided into
different classes of shares, the rights attached to any class of shares may, unless otherwise provided by the terms of issue of the shares
of that class, be varied with the written consent of the holders of two-thirds of the issued shares of that class or with the sanction
of a resolution passed by a majority of not less than two thirds majority of the holders of shares of the class present in person or by
proxy at a separate general meeting of the holders of the shares of that class.
Inspection of Books and Records
Holders of our ordinary shares will have no general
right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide
our shareholders with annual audited financial statements. See “Where You Can Find More Information.”
Changes in Capital
Our shareholders may from time to time by ordinary
resolution:
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increase our share capital by such sum, to be divided into shares of such classes and amount, as the resolution prescribes; |
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consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares; |
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sub-divide our existing shares, or any of them into shares of a smaller amount than that fixed by our Memorandum of Association; |
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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 and diminish the amount of our share capital by the amount of the shares so cancelled; or |
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convert all or any of our paid-up shares into stock and reconvert that stock into paid up shares of any denomination. |
Our shareholders may by special resolution, subject
to confirmation by the Grand Court of the Cayman Islands on an application by our company for an order confirming such reduction, reduce
our share capital or any capital redemption reserve in any manner permitted by law.
Exempted Company
We are an exempted company with limited liability
under the Companies Act of the Cayman Islands. The Companies Act in the Cayman Islands 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:
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an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies; |
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an exempted company’s register of members is not open to inspection; |
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an exempted company does not have to hold an annual general meeting; |
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an exempted company may issue shares with no par value; |
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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); |
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an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
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an exempted company may register as a limited duration company; |
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an exempted company may register as a segregated portfolio company; and |
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may apply to be registered as a special economic zone 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. We are subject to reporting
and other informational requirements of the Exchange Act, as applicable to foreign private issuers. As a foreign private issuer, we may
from time to time elect to follow home country practice in lieu of the Nasdaq Marketplace Rules.
PLAN OF DISTRIBUTION
EF Hutton, division of Benchmark Investments,
LLC, which we refer to as the placement agent, has agreed to act as the exclusive placement agent in connection with this offering subject
to the terms and conditions of a placement agency agreement, dated April 6, 2022. The placement agent is not purchasing or selling any
Ordinary Shares offered by this prospectus supplement, nor is the placement agent required to arrange the purchase or sale of any specific
number or dollar amount of Ordinary Shares, but has agreed to use its best efforts to arrange for the sale of all of the Ordinary Shares
offered hereby. We have entered into a securities purchase agreement with the investors pursuant to which we will sell to the investors
8,739,351 Ordinary Shares in this takedown from our shelf registration statement. We negotiated the price for the securities offered in
this offering with the investors. The factors considered in determining the price included the recent market price of our Ordinary Shares,
the general condition of the securities market at the time of this offering, the history of, and the prospects, for the industry in which
we compete, our past and present operations, and our prospects for future revenues.
Under the securities purchase agreement, we will
be precluded from engaging in subsequent equity or equity-linked securities offerings, or from filing with the SEC any registration statement,
or amendment or supplement thereto, except with respect to this offering, for a period of 45 days from the closing of the offering, subject
to certain exceptions.
In addition, we also agreed with the investors
that from the date of this prospectus supplement until February 9, 2023, and subject to certain additional restrictions thereafter, we
will not effect or enter into an agreement to effect a “Variable Rate Transaction,” which means a transaction in which we:
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issue or sell any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional Ordinary Shares either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the Ordinary Shares at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Ordinary Shares; or |
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enter into, or effect a transaction under, any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. |
We also agreed to indemnify the investors against
certain losses resulting from our breach of any of our representations, warranties, or covenants under agreements with the investors as
well as under certain other circumstances described in the securities purchase agreement.
Fees and Expenses
We have agreed to pay
the placement agent a total cash fee equal to 7.5% of the gross proceeds of this offering and an additional cash fee equal to 0.5% of
the gross proceeds raised by the Company in the offering for non-accountable expenses. We have agreed to reimburse the placement agent
for all travel and other out-of-pocket expenses, including the reasonable fees, costs and disbursements of its legal fees which shall
be limited to, in the aggregate, $70,000. We estimate our total expenses associated with the offering, excluding placement agent fees
and expenses, will be approximately $135,405.
The following table shows per share and total
cash placement agent’s fees we will pay to the placement agent in connection with the sale of our Ordinary Shares pursuant to this
prospectus supplement and the accompanying prospectus assuming the purchase of all of the Ordinary Shares offered hereby:
| |
Per Ordinary Share | | |
Total | |
Offering Price | |
$ | 1.15 | | |
$ | 10,050,253.65 | |
Placement Agent Fees (1) | |
$ | 0.092 | | |
$ | 804,020.29 | |
Proceeds, before expenses, to us | |
$ | 1.058 | | |
$ | 9,246,233.36 | |
(1) |
In addition, we have agreed to reimburse the placement agent for certain offering-related expenses up to an aggregate of $70,000. See “Plan of Distribution.” |
After deducting certain fees and expenses due
to the placement agent and our estimated offering expenses, we expect the net proceeds from this offering to be approximately $8.99 million.
The placement agent may be deemed to be an underwriter
within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended, or the Securities Act, and any fees or commissions received
by it and any profit realized on the resale of securities sold by it while acting as principal might be deemed to be underwriting discounts
or commissions under the Securities Act. As an underwriter, the placement agent would be required to comply with the requirements of the
Securities Act and the Exchange Act, including, without limitation, Rule 415(a)(4) under the Securities Act and Rule 10b-5 and Regulation
M under the Exchange Act. Under these rules and regulations, the placement agent may not: (i) engage in any stabilization activity in
connection with our securities; and (ii) bid for or purchase any of our securities or attempt to induce any person to purchase any of
our securities, other than as permitted under the Exchange Act, until it has completed its participation in the distribution.
The foregoing does not purport to be a complete
statement of the terms and conditions of the Placement Agency Agreement and the Securities Purchase Agreement. Copies of the each have
previously been included, or will be included, as exhibits to our reports on Form 6-K that have been or will be furnished to the SEC and
incorporated by reference into the Registration Statement of which this prospectus supplement forms a part.
No action has been or
will be taken in any jurisdiction (except in the United States) that would permit a public offering of the securities offered by this
prospectus supplement and accompanying prospectus, or the possession, circulation or distribution of this prospectus supplement and accompanying
prospectus or any other material relating to us or the securities offered hereby in any jurisdiction where action for that purpose is
required. Accordingly, the securities offered hereby may not be offered or sold, directly or indirectly, and neither of this prospectus
supplement and accompanying prospectus nor any other offering material or advertisements in connection with the securities offered hereby
may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations
of any such country or jurisdiction. The placement agent may arrange to sell securities offered by this prospectus supplement and accompanying
prospectus in certain jurisdictions outside the United States, either directly or through affiliates, where they are permitted to do so.
Relationships
The placement agent and its affiliates may provide
from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us in the ordinary
course of their business, for which they may receive customary fees and commissions. In addition, from time to time, the placement agent
and its affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their
customers, long or short positions in our debt or equity securities or loans, and may do so in the future. However, except as disclosed
in this prospectus supplement, we have no present arrangements with the placement agent for any further services.
Transfer Agent and Registrar
The transfer agent and registrar for our Ordinary
Shares is Vstock Transfer, LLC. The address for VStock Transfer, LLC is 18 Lafayette Place, Woodmere, New York, 11598, and the telephone
number is 212 828-8436.
Listing
Our Ordinary Shares and warrants are both listed
on the Nasdaq Capital Market under the symbol “GFAI” and “GFAIW”, respectively.
EXPENSES
The following table sets forth the estimated costs
and expenses (not including placement agent’s fees and commissions, accountable expenses and non-accountable expenses) payable by
us in connection with the offering of the securities being registered. All the amounts shown are estimates.
SEC registration fee | |
$ | 13,905.00 | |
FINRA fee | |
$ | 23,000.00 | |
Legal fees and expenses | |
$ | 37,500.00 | |
Accounting fees and expenses | |
$ | 51,000.00 | |
Printing fees and expenses | |
$ | 5,000.00 | |
Miscellaneous | |
$ | 5,000.00 | |
Total | |
$ | 135,405.00 | |
LEGAL MATTERS
The validity of the issuance of the securities
offered hereby will be passed upon for us by Conyers Dill & Pearman, Cayman Islands counsel. Certain other legal matters will be
passed upon for us by Bevilacqua PLLC. Bevilacqua PLLC may rely upon Conyers Dill & Pearman with respect to matters governed by Cayman
Islands law and Watson Farley & Williams (Thailand) Limited with respect to matters governed by Kingdom of Thailand law. Hunter Taubman
Fischer & Li LLC is representing the placement agent in this offering.
EXPERTS
The consolidated financial statements of our Company
as of December 31, 2021 have been incorporated by reference in this prospectus supplement and the accompanying prospectus have been audited
by the accounting firm of PKF Littlejohn LLP, an independent registered public accounting firm, as indicated in their report thereon dated
March 31, 2022, which is incorporated by reference herein in reliance upon such firm’s authority as experts in auditing and accounting.
The consolidated financial statements of our Company
as of December 31, 2020 and 2019 have been incorporated by reference in this prospectus supplement and the accompanying prospectus have
been audited by the accounting firm of Wei, Wei & Co. LLP, an independent registered public accounting firm, as indicated in their
report thereon dated April 29, 2021, except for Notes 2, 17, 18, 21 and 24 which are dated September
14, 2021, which is incorporated by reference herein in reliance upon such firm’s authority as experts in auditing and accounting.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We are “incorporating by reference”
specified documents that we file with the SEC, which means that we can disclose important information to you by referring you to those
documents that are considered part of this prospectus. Later information that we file with the SEC will automatically update and supersede
this information. We incorporate by reference into this prospectus supplement the documents listed below and any future filings made with
the SEC (other than any portion of such filings that are furnished under applicable SEC rules rather than filed) under Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act, including filings made on or after the date hereof and until termination of the offering to which
this prospectus supplement relates. Unless otherwise noted, all of the documents listed below have the SEC file number 001-40848:
| ● | the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2021, filed with
the SEC on March 31, 2022; and |
| ● | the description of the Company’s Ordinary Shares contained in the Company’s Registration Statement
on Form 8-A12B (File No. 001-40848) filed with the SEC on September 28, 2021, pursuant to Section 12(b) of the Exchange Act, including
any amendment or report filed for the purpose of updating such description. |
Any statement contained in a document incorporated
or deemed to be incorporated by reference into this prospectus supplement will be deemed to be modified or superseded for purposes of
this prospectus supplement to the extent that a statement contained in this prospectus supplement or any other subsequently filed document
that is deemed to be incorporated by reference into this prospectus supplement modifies or supersedes the statement. Any statement so
modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus supplement.
Our filings with the SEC, including our Annual
Report on Form 20-F, Reports of Foreign Private Issuer on Form 6-K and amendments to those reports and you may also obtain a copy of these
filings at no cost by writing or telephoning us at the following address:
Guardforce AI Co., Limited,
10 Anson Road, #28-01 International Plaza,
Singapore 079903
+66 (0) 2973 6011
Attention: Investor
Relations
Except for the documents incorporated by reference
as noted above, we do not incorporate into this prospectus supplement any of the information included in our website.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC
a registration statement on Form F-3 under the Securities Act with respect to our Ordinary Shares offered by this prospectus supplement.
This prospectus supplement does not contain all of the information set forth in the registration statement and the exhibits to the registration
statement. For further information regarding us and the Ordinary Shares offered hereby, please refer to the registration statement and
the exhibits filed as part of the registration statement.
This registration statement,
including exhibits thereto, and all of our reports may be reviewed on the SEC’s website, at the address: http://www.sec.gov, which
provides on-line access to reports and other information regarding registrants that file electronically with the SEC.
PROSPECTUS
GUARDFORCE AI CO.,
LIMITED
$150,000,000
Ordinary Shares
Debt Securities
Warrants
Rights
Units
We may offer, issue and
sell from time to time our ordinary shares, par value $0.003 per share (“Ordinary Shares”), debt securities, warrants, rights
or units up to $150,000,000 or its equivalent in any other currency, currency units, or composite currency or currencies in one or more
issuances. We may sell any combination of these securities in one or more offerings.
This prospectus describes
some of the general terms that may apply to these securities and the general manner in which they may be offered. The specific terms of
any securities to be offered, and the specific manner in which they may be offered, will be described in a supplement to this prospectus
or incorporated into this prospectus by reference. You should read this prospectus and any supplement carefully before you invest. Each
prospectus supplement will indicate if the securities offered thereby will be listed or quoted on a securities exchange or quotation system.
The information contained
or incorporated in this prospectus or in any prospectus supplement is accurate only as of the date of this prospectus, or such prospectus
supplement, as applicable, regardless of the time of delivery of this prospectus or any sale of our securities.
Our Ordinary Shares are listed on the Nasdaq Capital
Market under the symbol “GFAI” and our warrants are listed on the Nasdaq Capital Market under the symbol “GFAIW”.
On December 22, 2021, the closing sale price of our Ordinary Shares and warrants, as reported on the Nasdaq Capital Market, was $1.16
and $0.51, respectively.
We will provide the specific terms of the securities,
and the manner in which they will be offered, in one or more supplements to this prospectus. Any supplement may also add, update or change
information contained, or incorporated by reference, in this prospectus. You should read carefully both this prospectus and the applicable
prospectus supplement, together with the additional information described under the headings “Where You Can Find More Information”
and “Incorporation of Certain Information by Reference,” before you invest in our securities. The amount and price of the
offered securities will be determined at the time of the offering.
The securities may be offered and sold in the
same offering or in separate offerings, to or through underwriting syndicates managed or co-managed by one or more underwriters, through
agents, or directly to purchasers. The names of any underwriters, dealers or agents involved in the sale of our securities, their compensation
and any option to purchase additional securities held by them will be described in the applicable prospectus supplement. For general information
about the distribution of securities offered, please see “Plan of Distribution” in this prospectus.
Investing in our securities involves risks.
You should carefully consider the risk factors beginning on page 6 of this prospectus, in any accompanying prospectus supplement and in
any related free writing prospectus, and in the documents incorporated by reference into this prospectus, any accompanying prospectus
supplement and any related free writing prospectus before making any decision to invest in our securities.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus is January 5,
2022
ABOUT THIS PROSPECTUS
This prospectus is part
of a registration statement that we filed with the Securities and Exchange Commission, or the SEC, using a “shelf” registration
process. Under this shelf registration process, we may sell our securities described in this prospectus in one or more offerings up to
a total dollar amount of $150,000,000 (or its equivalent in foreign or composite currencies).
This prospectus provides
you with a general description of the securities that may be offered. Each time we offer our securities, we will provide you with a supplement
to this prospectus that will describe the specific amounts, prices and terms of the securities we offer. The prospectus supplement may
also add, update or change information contained in this prospectus. This prospectus, together with applicable prospectus supplements
and the documents incorporated by reference in this prospectus and any prospectus supplements, includes all material information relating
to this offering. Please read carefully both this prospectus and any prospectus supplement together with additional information described
below under “Where You Can Find More Information.”
You should rely only
on the information contained in or incorporated by reference in this prospectus and any applicable prospectus supplement. We have not
authorized anyone to provide you with different or additional information. If anyone provides you with different or inconsistent information,
you should not rely on it. We take no responsibility for, and can provide no assurance as to the reliability of, any other information
that others may give you. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or any sale of securities described in this prospectus. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
You should not assume
that the information contained in this prospectus and the accompanying prospectus supplement is accurate on any date subsequent to the
date set forth on the front of the document or that any information that we have incorporated by reference is correct on any date subsequent
to the date of the document incorporated by reference. Our business, financial condition, results of operations and prospects may have
changed since those dates.
PROSPECTUS SUMMARY
This summary highlights
selected information that is presented in greater detail elsewhere, or incorporated by reference, in this prospectus. It does not contain
all of the information that may be important to you and your investment decision. Before investing in our securities, you should carefully
read this entire prospectus, including the matters set forth under the section of this prospectus captioned “Risk Factors”
and the financial statements and related notes and other information that we incorporate by reference herein, including, but not limited
to, our Annual Report on Form 20-F and our other periodic reports. Unless the context otherwise requires, the terms “we,”
“our,” “us,” “our company,” and the “Company” in this prospectus each refer to Guardforce
AI Co., Limited and its consolidated subsidiaries.
Company Overview
The information contained
in or incorporated by reference into this prospectus summarizes certain information about our company. It may not contain all of the information
that is important to you. To understand this offering fully, you should read carefully the entire prospectus and the other information
incorporated by reference into this prospectus.
We are a market leader with almost 40 years of
experience in the cash logistics business in Thailand and our services include cash-in-transit, dedicated vehicles to banks, ATM management,
cash center operations, cash processing, coin processing, cheque center, and cash deposit machine solutions (cash deposit management and
express cash service). Our customers include local commercial banks, chain retailers, coin manufacturing mints, and government authorities.
Our five major customers are Government Savings Bank, Bank of Ayudhya, TMB Bank, Thanachart Bank and CP All Public Company. A few global
customers also retain our services under temporary contract. As of the date of this prospectus, we employed 1,805 staff, including 30
staff located in Hong Kong office and 1,775 staff located in Thailand’s office and 21 branches of GF Cash (CIT) and had 478 vehicles.
We were founded in 2018 to acquire our operating
subsidiary GF Cash (CIT). The principal executive office of our Company has been changed to Singapore from Bangkok, Thailand since November
2021.
Our operating subsidiary, GF Cash (CIT), was founded
in 1982 (the Company was formerly named Securicor (Thailand) Limited) and was renamed G4S Cash Service (Thailand) Limited in 2005. The
Company was renamed again as Guardforce Cash Solution (Thailand) Limited in 2016 and the name was further changed to Guardforce Cash Solution
Security (Thailand) Company Limited in 2018. The principal office of GF Cash (CIT) is located in Bangkok, Thailand.
Substantially all of our revenues are derived
from GF Cash (CIT)’s secure logistic business and gross revenue for the years ended December 31, 2020 and 2019 was approximately
$37.65 million and $38.57 million, respectively.
In 2020, in addition to our secure cash logistics
business, we began to develop other non-cash related solutions and services. In view of the pace of global robotics development and in
response to the more automated requirements, driven in part by the COVID-19 pandemic, we have begun to rollout robotic solutions for our
customers in Thailand and the rest of the Asia Pacific region. As of December 31, 2020, we had generated approximately $0.2 million in
revenue from our robotic solutions business.
In March 2021, we acquired, majority owned subsidiary,
Handshake Networking Limited (“Handshake”), has been providing professional penetration testing and forensics analysis in
Hong Kong and the Asia Pacific region since 2004. Our acquisition of a majority stake in this business has provided us with the experience,
expertise and creditability to capitalize on the growing cybersecurity market.
Corporate Information
Our corporate address is 10 Anson Road, #28-01
International Plaza, Singapore 079903. Our company email address is info@guardforceai.com.
Our agent for service of process in the United
States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168.
Our
website can be found at https://www.guardforceai.com. The information contained on our website is not a part of this prospectus, nor
is such content incorporated by reference herein, and should not be relied upon in determining whether to make an investment in our Securities.
Recent Development
Enter Into Transfer Agreements
On November 1, 2021, the Company entered into
a Transfer Agreement (the “Singapore Agreement”) to acquire 100% of the equity interests in Guardforce AI Singapore Pte. Ltd.,
a company incorporated in Singapore (“Guardforce AI Singapore”). Pursuant to the Agreement, Guardforce AI Singapore bacame
a wholly owned subsidiary of the Company.
On November 18, 2021, the Company entered into
a Transfer Agreement (the “Macau Agreement”) to acquire 100% of the equity interests in Macau GF Robotics Limited, a
company incorporated in Macau (“Macau GF”). Pursuant to the Macau Agreement and upon the closing of the acquision, Macau GF
will become a wholly owned subsidiary of the Company.
On the same day, the Company entered into another
Transfer Agreement (the “Malaysia Agreement”) to acquire 100% of the equity interests in GF Robotics Malaysia Sdn.
Bhd., a company incorporated in Malaysia (“Malaysia GF”). Pursuant to the Malaysia Agreement and upon the closing of the
acquisition, Malaysia GF will become a wholly owned subsidiary of the Company.
Changes in Company’s Certifying Accountant
Previous Independent Registered Public Accounting
Firm
On October 25, 2021, the Company dismissed its
independent registered public accounting firm, Wei, Wei & Co., LLP (“Wei, Wei & Co.”), effective immediately.
The audit
reports of Wei, Wei & Co. on the Company’s financial statements as of and for the fiscal years ended December 31, 2020 and 2019
contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting
principles.
The decision
to change the independent registered public accounting firm was recommended and approved by the Audit Committee and Board of Directors
of the Company.
During the
Company’s two most recent fiscal years ended December 31, 2020 and 2019, and for the subsequent interim period through October 25,
2021, the Company had no “disagreements” (as described in Item 304(a)(1)(iv) of Regulation S-K) with Wei, Wei & Co. on
any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of Wei, Wei & Co., would have caused it to make reference in connection with its opinion to the
subject matter of the disagreements.
During the Company’s two most recent fiscal
years ended December 31, 2020 and 2019, and for the subsequent interim period through October
25, 2021, there was no “reportable event,” as that term is defined in Item 304(a)(1)(v) of Regulation S-K and the instructions
related thereto.
New Independent Registered Public Accounting
Firm
On October 19, 2021, the Audit Committee and the
Board of Directors of the Company appointed PKF Littlejohn LLP (“PKF”) as its new independent registered public accounting
firm to audit and review the Company’s financial statements.
During the Company’s two most recent fiscal
years ended December 31, 2020 and 2019, and for the subsequent interim period through the date hereof prior to the engagement of PKF,
neither the Company nor anyone on its behalf consulted PKF regarding (i) the application of accounting principles to a specified transaction,
either completed or proposed; or on the type of audit opinion that might be rendered on the consolidated financial statements of the Company,
and neither a written report nor oral advice was provided to the Company that PKF concluded was an important factor considered by the
Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject
of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation
S-K.
Risk factors summary
There are a number of risks that you should consider
and understand before making an investment decision regarding securities that we are offering. You should carefully consider all of the
information set forth in this prospectus and, in particular, should evaluate the specific factors set forth or incorporated by reference
in the section titled “Risk Factors” and before deciding whether to invest in our securities. These risks include, but are
not limited to:
Risks Related to Our Business and Industry
Risks and uncertainties related to our business
and industry include, but are not limited to, the following:
| ● | The effect of the coronavirus, or the perception of its effects, on our operations and the operations
of our customers and suppliers could have a material adverse effect on our business, financial condition, results of operations and cash
flows; |
| ● | Our negative operating profits may raise substantial doubt regarding our ability to continue as a going
concern; |
| ● | We operate in highly competitive industries; |
| ● | We currently report our financial results under IFRS; |
| ● | We have substantial customer concentration, with a limited number of customers accounting for a substantial
portion of our recent revenues; |
| ● | Changes to legislation in Thailand may negatively affect our business; |
| ● | Unexpected increases in minimum wages in Thailand would reduce our net profits; |
| ● | Increases in fuel cost would negatively impact our cost of operations; |
| ● | We might not have sufficient cash to fully execute our growth strategy; |
| ● | We might not have sufficient cash to repay a related party loan obligation; |
| ● | Our business success depends on retaining our leadership team and attracting and retaining qualified personnel; |
| ● | In the future we may not be able to use the Guardforce trademark, which could have a negative impact on
our business; |
| ● | We may be subject to service quality or liability claims, which may cause us to incur litigation expenses
and to devote significant management time to defending such claims, and if such claims are determined adversely to us we may be required
to pay significant damage awards; |
| ● | Decreasing use of cash could have a negative impact on our business; |
| ● | Implementation of our robotics solution has required, and may continue to require, significant capital
and other expenditures, which we may not recoup; |
| ● | We may fail to successfully integrate our acquisition of Handshake Networking Ltd. and may fail to realize
the anticipated benefits; |
| ● | We may not be able to obtain the necessary funding for our future capital or refinancing needs; |
| ● | Any compromise of the cybersecurity of our platform could materially and adversely affect our business,
operations and reputation; and |
| ● | Our transfer pricing decisions may result in uncertain tax exposures for our group. |
Risks Relating to Our Corporate Structure
Risks and uncertainties related to our corporate
structure include, but are not limited to, the following:
| ● | We rely upon structural arrangements to establish control over certain entities and government authorities
may determine that these arrangements do not comply with existing laws and regulations. |
Risks Relating to Doing Business in Thailand
Risks and uncertainties related to doing business
in Thailand include, but are not limited to, the following:
| ● | A severe or prolonged downturn in the global economy or the markets that we primarily operate in could
materially and adversely affect our revenues and results of operations; |
| ● | We are vulnerable to foreign currency exchange risk exposure; and |
| ● | The ability of our subsidiaries to distribute dividends to us may be subject to restrictions under the
laws of their respective jurisdictions. |
Risks Related to Our Securities
Risks and uncertainties related to our securities
include, but are not limited to, the following:
| ● | You may experience difficulties in effecting service of legal process, enforcing foreign judgments or
bringing actions against us or our management named in the prospectus based on foreign laws; |
| ● | We are a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and as such we are exempt from certain provisions applicable to U.S. domestic public companies; |
| ● | As a foreign private issuer, we are permitted to rely on exemptions from certain Nasdaq corporate governance
standards applicable to domestic U.S. issuers. This may afford less protection to holders of our shares; and |
| ● | One shareholder currently owns a majority of our outstanding ordinary shares. As a result, such shareholder
will have the ability to approve all matters submitted to our shareholders for approval. |
RISK FACTORS
An investment in our
securities involves a high degree of risk. We operate in a highly competitive environment in which there are numerous factors which can
influence our business, financial position or results of operations and which can also cause the market value of our Ordinary Shares to
decline. Many of these factors are beyond our control and therefore, are difficult to predict. Prior to making a decision about investing
in our securities, you should carefully consider the risk factors discussed in the sections entitled “Risk Factors” contained
in our most recent Annual Report on Form 20-F filed with the SEC, and in any applicable prospectus supplement and our other filings with
the SEC and incorporated by reference in this prospectus or any applicable prospectus supplement, together with all of the other information
contained in this prospectus or any applicable prospectus supplement. If any of the risks or uncertainties described in our SEC filings
or any prospectus supplement or any additional risks and uncertainties actually occur, our business, financial condition and results of
operations could be materially and adversely affected. In that case, the trading price of our securities could decline and you might lose
all or part of your investment.
The following disclosure
is intended to highlight, update or supplement previously disclosed risk factors facing the Company set forth in the Company’s public
filings. These risk factors should be carefully considered along with any other risk factors identified in the Company's other filings
with the SEC.
Risks Relating
to our Corporate Structure
We rely upon structural
arrangements to establish control over certain entities and government authorities may determine that these arrangements do not comply
with existing laws and regulations.
The laws and regulations
in Thailand place restrictions on foreign investment in and ownership of entities engaged in a number of business activities. The Thai
Foreign Business Act B.E. 2542 (1999), or FBA, requires foreigners to obtain approval under the FBA in order to engage in most service
businesses. A company registered in Thailand will be considered a foreigner under the FBA if foreigners hold 50% or more of the shares
in the company. The Security Guard Business Act B.E. 2558 (2015), or SGBA, also requires that companies applying for approval to engage
in the business of providing security guard services by providing licensed security guards to protect people or personal property must
have more than half of its shares owned by shareholders of Thai nationality and must have more than half of its directors being of Thai
nationality.
We conduct our business
activities in Thailand using a tiered shareholding structure in which direct foreign ownership in each Thai entity is less than 50%. The
FBA considers the immediate level of shareholding of a company to determine the number of shares held by foreigners in that company for
the purposes of determining whether the company is a foreigner within the meaning of the FBA, and will have regard to the shareholdings
of a corporate shareholder which holds shares in that company to determine whether that corporate shareholder is a foreigner, however
no cumulative calculation is applied to determine the foreign ownership status of a company when it has several levels of foreign shareholding.
Such shareholding structure has allowed us to consolidate our Thai operating entities as our subsidiaries.
We have engaged legal
counsel Watson Farley & Williams (Thailand) Limited in Thailand, and they are of the opinion that the shareholding structure of GF
Cash (CIT) does not result in GF Cash (CIT) being a foreigner within the meaning of the FBA or failing to comply with the nationality
requirements imposed by the SGBA. However, the local or national authorities or regulatory agencies in Thailand may reach a different
conclusion, which could lead to an action being brought against us by administrative orders or in local courts. The FBA prohibits Thai
nationals and non-foreigner companies from assisting, aiding and abetting or participating in the operation of a foreigner’s business
if the foreigner would require approval under the FBA to engage in that business, or to act as a nominee in holding shares in a company
to enable a foreigner to operate a business in contravention of the FBA. The FBA does not provide detailed guidance on what degree of
assistance contravenes the FBA, however Thai shareholders are likely to be regarded as nominees under the FBA if they do not have sufficient
funds to acquire their shares or did not pay for their shares, or if they have agreed to not to be paid the dividends to which they would
be entitled under the company’s articles of association.
Documentation filed with
the Ministry of Commerce includes supporting evidence that the Thai nationals holding shares in AI Thailand had sufficient financial resources
to acquire their shares and confirms that AI Thailand has received the amount payable for those shares. If the authorities in Thailand
find that our arrangements do not comply with their prohibition or restrictions on foreign investment in our lines of business, or if
the relevant government entity otherwise finds that we or any of our subsidiaries is in violation of the relevant laws or regulations
or lack the necessary registrations, permits or licenses to operate our businesses in Thailand, they would have broad discretion in dealing
with such violations or failures, including:
| ● | revoking the business licenses and/or operating licenses of such entities; |
| ● | imposing penalties of up to THB 1 million and imprisonment of up to three years plus penalties of THB
50,000 (approximately $1,560) for every day of a continuing offence; |
| ● | ordering the cessation of any aiding or abetting contrary to the FBA; |
| ● | discontinuing or placing restrictions or onerous conditions on the operations of our Thai subsidiaries,
or on our operations through any transactions between our Company or our Cayman Islands or BVI subsidiaries on the one hand and our Thai
subsidiaries on the other hand; |
| ● | confiscating income from us, our BVI subsidiaries, or Thai subsidiaries, or imposing other requirements
with which such entities may not be able to comply; |
| ● | imposing criminal penalties, including fines and imprisonment on our Thai subsidiaries, their shareholders
or directors; |
| ● | requiring us to restructure our ownership structure or operations, including the sale of shares in GF
Cash (CIT), which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over our
Thai subsidiaries; or |
| ● | restricting or prohibiting our use of the proceeds of any public offering we may conduct to finance our
business and operations in Thailand. |
Any of these actions
could cause significant disruption to our business operations and severely damage our reputation, which would in turn materially and adversely
affect our business, financial condition and results of operations. If any of these occurrences results in our inability to direct the
activities of our Thai subsidiaries that most significantly impact their economic performance, or prevent us from receiving the economic
benefits or absorbing losses from these entities, we may not be able to consolidate these entities in our consolidated financial statements
in accordance with IFRS.
Risks Relating
to Doing Business in Thailand
A severe or prolonged
downturn in the global economy or the markets that we primarily operate in could materially and adversely affect our revenues and results
of operations.
We primarily operate
in Thailand. Weak economic conditions as a result of a global economic downturn and decreased demand and prices due to the increased popularity
of digital cash across the world may have a negative impact on our business. Decreased demand and prices would reduce our income and weaken
our business. There are still great uncertainties regarding economic conditions and the demand for cash processing services. Any turbulence
in global economies and prolonged declines in demand and prices in Thailand may adversely affect our business, revenues and results of
operations. Apart from the above, the following factors may also affect our business: (1) the threat of terrorism is high within Thailand;
(2) the political situation is not stable especially under the military rule and governance; (3) currency exchange rates; (4) bribery
and corruption; (5) high tax rates; and (6) unstable energy prices.
We are vulnerable
to foreign currency exchange risk exposure.
The value of the U.S.
dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions.
Our consolidated financial
statements are expressed in U.S. dollars, which is our reporting currency. Most of the revenues and expenses of GF Cash (CIT) are denominated
in the THB. Meanwhile, our functional currency of our various other subsidiaries, is the U.S. dollar. To the extent that we need to convert
THB into U.S. dollars for our operations, appreciation of the U.S. dollar against the THB would adversely affect the U.S. dollar amounts
we recognize from the conversion. Fluctuations in the exchange rate will also affect the relative value of the U.S. dollar-denominated
loan that we have borrowed from a related party.
The ability of
our subsidiaries to distribute dividends to us may be subject to restrictions under the laws of their respective jurisdictions.
We are a holding company,
and our main operating subsidiary is located in Thailand. Part of our primary internal sources of funds to meet our cash needs is our
share of the dividends, if any, paid by our subsidiaries. The distribution of dividends to us from the subsidiaries in these markets as
well as other markets where we operate is subject to restrictions imposed by the applicable laws and regulations in these markets. Companies
remitting payments to recipients outside of Thailand must obtain approval from the Bank of Thailand at the time of the remittance if the
remittance exceeds the equivalent of $50,000. In practice, this approval is managed by the Bank of Thailand and is typically granted if
copies of the supporting documentation showing the need for the transaction can be provided. In addition, although there are currently
no foreign exchange control regulations which restrict the ability of our subsidiaries in Thailand to distribute dividends to us, the
relevant regulations may be changed and the ability of these subsidiaries to distribute dividends to us may be restricted in the future.
FORWARD-LOOKING STATEMENTS
This prospectus
contains or incorporates forward-looking statements within the meaning of section 27A of the Securities Act and section 21E of the
Exchange Act. These forward-looking statements are management’s beliefs and assumptions. In addition, other written or oral
statements that constitute forward-looking statements are based on current expectations, estimates and projections about the
industry and markets in which we operate and statements may be made by or on our behalf. Words such as “should,”
“could,” “may,” “expect,” “anticipate,” “intend,” “plan,”
“believe,” “seek,” “estimate,” variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. There are a number of important factors that could cause our actual
results to differ materially from those indicated by such forward-looking statements.
We describe material
risks, uncertainties and assumptions that could affect our business, including our financial condition and results of operations, under
“Risk Factors” and may update our descriptions of such risks, uncertainties and assumptions in any prospectus supplement.
We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management
at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied
or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Reference
is made in particular to forward-looking statements regarding growth strategies, financial results, product and service development, competitive
strengths, intellectual property rights, litigation, mergers and acquisitions, market acceptance or continued acceptance of our services,
accounting estimates, financing activities, ongoing contractual obligations and sales efforts. Except as required under the federal securities
laws, the rules and regulations of the SEC, stock exchange rules, and other applicable laws, regulations and rules, we do not have any
intention or obligation to update publicly any forward-looking statements after the distribution of this prospectus, whether as a result
of new information, future events, changes in assumptions, or otherwise.
USE OF PROCEEDS
Except as described in any prospectus supplement
and any free writing prospectus in connection with a specific offering, we currently intend to use the net proceeds from the sale of the
securities offered by us under this prospectus to fund the growth of our business, primarily working capital, and for general corporate
purposes.
We may also use a portion
of the net proceeds for business acquisitions, acquire or invest in technologies and general working capital that we believe will enhance
the value of our Company. Depending on future events and others changes in the business climate, we may determine at a later time to use
the net proceeds for different purposes. As a result, our management will have broad discretion in the allocation of the net proceeds
and investors will be relying on the judgment of our management regarding the application of the proceeds of any sale of the securities.
Additional information on the use of net proceeds from the sale of securities covered by this prospectus may be set forth in the prospectus
supplement relating to the specific offering.
CAPITALIZATION AND INDEBTEDNESS
Our capitalization and indebtedness will be set
forth in a prospectus supplement to this prospectus or in a report of foreign private issuer on Form 6-K subsequently furnished to the
SEC and specifically incorporated herein by reference.
DESCRIPTION OF SHARE CAPITAL
We are a Cayman Islands exempted company with
limited liability and our affairs are governed by our Memorandum of Association and Articles of Association and the Companies Act.
We were incorporated in the Cayman Islands on
April 20, 2018 under the Companies Act. Following completion of the 3:1 share consolidation and increase in authorized share capital,
we have an authorized share capital of $900,000 divided into 300,000,000 Ordinary Shares, $0.003 par value per share, which may be issued
from time to time at the discretion of the Board of Directors without shareholder approval.
As of December 23, 2021, there were 21,201,845
Ordinary Shares issued and outstanding. In addition, the Company currently has warrants to purchase 3,795,181 Ordinary Shares issued and
outstanding and these warrants are exercisable at an exercise price of $5.1875 per share with the expiration date of September 28, 2026.
The following are summaries of material provisions
of our Memorandum and Articles of Association and the Companies Act insofar as they relate to the material terms of our Ordinary Shares.
Exempted Company
We are an exempted
company incorporated with limited liability under the Companies Act. 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
resident 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; |
| ● | an exempted company is not required to open its register of members to the general public for 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. |
Share Capital
General
All of our issued and
outstanding Ordinary Shares are fully paid and non-assessable. Our Ordinary Shares are issued in registered form and are issued when registered
in our register of members. We may not issue shares to bearer. Our shareholders, who are non-residents of the Cayman Islands, may freely
hold and vote their ordinary shares.
Dividends
The holders of our ordinary
shares are entitled to receive such dividends as may be declared by our board of directors subject to our Memorandum and Articles of Association
and the Companies Act. Under Cayman Islands law, our company may pay a dividend out of either profits or share premium account, provided
that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in
the ordinary course of business.
Register of Members
Under Cayman Islands
law, we must keep a register of members and there must be entered therein:
| ● | the names and addresses of the members, a statement of the shares held by each member, in certain cases
distinguishing each share by its number, and of the amount paid or agreed to be considered as paid, on the shares of each member and whether
each relevant category of shares held by a member carries voting rights, and if so, whether such voting rights are conditional; |
| ● | the date on which the name of any person was entered on the register as a member; and |
| ● | the date on which any person ceased to be a member. |
Under Cayman Islands
law, the register of members of our company is prima facie evidence of any matters directed or authorized by the Companies Act
to be inserted therein (i.e. the register of members will raise a presumption of fact on the matters referred to above unless rebutted)
and a member registered in the register of members will be deemed as a matter of Cayman Islands law to have legal title to the shares
as set against its name in the register of members.
If the name of any person
is, without sufficient cause, entered in or omitted from the register of members, or if default is made or unnecessary delay takes place
in entering on the register the fact of any person having ceased to be a member, the person or member aggrieved or any member or our company
itself may apply to the Cayman Islands Grand Court for an order that the register be rectified, and the Court may either refuse such application
or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
Voting Rights
Holders of our ordinary
shares have the right to receive notice of, attend, speak and vote at general meetings of our Company. At any general meeting a resolution
put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the
show of hands) demanded by the chairman or one or more shareholders present in person or by proxy entitled to vote and who together hold
not less than 10% of all voting power of our paid up share capital in issue and entitled to vote. An ordinary resolution to be passed
by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast in a general
meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares
cast in a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed
by all the shareholders of our company, as permitted by the Companies Act and our Memorandum and Articles of Association. A special resolution
will be required for important matters such as a change of name or making changes to our Memorandum and Articles of Association.
General Meetings and Shareholder Proposals
As a Cayman Islands exempted
company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our Memorandum and Articles of Association
provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we will specify
the meeting as such in the notices calling it, and the annual general meeting will be held at such time and place as may be determined
by our directors.
Shareholders’ general
meetings may be convened by our board of directors. The Companies Act provides shareholders with only limited rights to requisition a
general meeting and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may
be provided in a company’s articles of association. Our Memorandum and Articles of Association allow one or more shareholders holding
in aggregate, at the date of such requisition, not less than ten percent of the paid up voting share capital to requisition a general
meeting of the shareholders, in which case our board is obliged to convene a general meeting and to put the resolutions so requisitioned
to a vote at such meeting not later than 21 days from the date of deposit of the requisition. However, our Memorandum and Articles of
Association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general
meetings not called by such shareholders.
A quorum required for
any general meeting of shareholders consists of one or more shareholders present in person or by proxy holding at least a majority of
the paid up voting share capital of the Company. If the Company has only one shareholder, that only shareholder present in person or by
proxy shall be a quorum for all purposes. Advance notice of at least seven clear calendar days is required for the convening of any general
meeting of our shareholders.
Transfer of Ordinary Shares
Subject to the restrictions
in our Memorandum and Articles of Association as set out below, any of our shareholders may transfer all or any of his or her ordinary
shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors
may, in its absolute discretion, decline to register any transfer of any ordinary share.
If our directors refuse to register a transfer
they are obligated to, within two months after the date on which the instrument of transfer was lodged, send to the transferee notice
of such refusal.
The transferor of any ordinary shares shall be
deemed to remain the holder of that share until the name of the transferee is entered in the register of members.
For the purpose of determining members entitled
to notice of, or to vote at any meeting of members or any adjournment thereof, or members entitled to receive payment of any dividend
or other distributions, or in order to make a determination of members for any other purpose, our board of directors may provide that
the register of members shall be closed for transfers for a stated period which shall not in any case exceed forty (40) days.
Liquidation
On the winding up of
our Company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the
capital paid-up at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the
capital paid up at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due,
of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay
all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the capital
paid-up. We are an exempted company with “limited liability” incorporated under the Companies Act, and under the Companies
Act, the liability of our members is limited to the amount, if any, unpaid on the shares respectively held by them. Our Memorandum of
Association contains a declaration that the liability of our members is so limited.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares
Our board of directors
may from time to time make calls upon shareholders for any amounts unpaid on their Ordinary Shares in a notice served to such shareholders
at least fourteen days prior to the specified time and place of payment. The ordinary shares that have been called upon and remain unpaid
on the specified time are subject to forfeiture.
Redemption, Repurchase and Surrender of Ordinary Shares
We may issue shares on
terms that such shares are subject to redemption, at our option or at the option of the holders thereof. Our Company may also repurchase
any of our ordinary shares provided that the manner and terms of such purchase have been approved by our board of directors and agreed
with the relevant member. Under the Companies Act, the redemption or repurchase of any share may be paid out of our company’s profits
or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or out of the share premium account.
Redemption or repurchase of any share may also be paid out of capital 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 other than treasury
shares, or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for
no consideration.
Variations of Rights of Shares
If at any time our share capital is divided into
different classes of shares, the rights attached to any class of shares may, unless otherwise provided by the terms of issue of the shares
of that class, be varied with the written consent of the holders of two-thirds of the issued shares of that class or with the sanction
of a resolution passed by a majority of not less than two thirds of the votes cast at a separate general meeting of the holders of the
shares of that class.
Inspection of Books and Records
Holders of our Ordinary Shares will have no general
right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide
our shareholders with annual audited financial statements. See “Where You Can Find More Information.”
Changes in Capital
Our shareholders may from time to time by ordinary
resolution:
| ● | increase our share capital by such sum, to be divided into shares of such classes and amount, as the resolution
prescribes; |
| ● | consolidate and divide all or any of our share capital into shares of a larger amount than our existing
shares; |
| ● | sub-divide our existing shares, or any of them into shares of a smaller amount than that fixed by our
Memorandum of Association; |
| ● | 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 and diminish the amount of our share capital by the amount of the shares so cancelled; or |
| ● | convert all or any of our paid up shares into stock and reconvert that stock into paid up shares of any
denomination. |
Our shareholders may by special resolution, subject
to confirmation by the Grand Court of the Cayman Islands on an application by our company for an order confirming such reduction, reduce
our share capital or any capital redemption reserve in any manner permitted by law.
DESCRIPTION OF DEBT SECURITIES
The following is a summary of the general terms
of the debt securities that we may issue and is not intended to be complete. If debt securities are issued, we will describe in the applicable
prospectus supplement the particular terms and provisions of any series of the debt securities and a description of how the general terms
and provisions described below may apply to that series of the debt securities. The terms presented here, together with the terms in a
related prospectus supplement, will be a description of the material terms of the debt securities. You should also read the indenture
under which the debt securities are to be issued. We have filed a form of indenture governing different types of debt securities with
the SEC as an exhibit to the registration statement of which this prospectus is a part. All capitalized terms have the meanings specified
in the indenture.
We may issue, from time to time, debt securities,
in one or more series, that will consist of senior debt, senior subordinated debt or subordinated debt. We refer to the subordinated debt
securities and the senior subordinated debt securities together as the subordinated securities. The debt securities that we may offer
will be issued under an indenture between us and an entity, identified in the applicable prospectus supplement, as trustee. Debt securities,
whether senior, senior subordinated or subordinated, may be issued as convertible debt securities or exchangeable debt securities. The
following is a summary of the material provisions of the indenture filed as an exhibit to the registration statement of which this prospectus
is a part.
As you read this section, please remember that
for each series of debt securities, the specific terms of your debt security as described in the applicable prospectus supplement will
supplement and, if applicable, may modify or replace the general terms described in the summary below. The statement we make in this section
may not apply to your debt security. Prospective investors should rely on information in the applicable prospectus supplement and not
on the following information to the extent that the information in such prospectus supplement is different from the following information.
General Terms of the Indenture
The indenture does not limit the amount of debt
securities that we may issue. It provides that we may issue debt securities up to the principal amount that we may authorize and may be
in any currency or currency unit that we may designate. We may, without the consent of the holders of any series, increase the principal
amount of securities in that series in the future, on the same terms and conditions and with the same CUSIP numbers as that series.
Except for the limitations on consolidation, merger and sale of all or substantially all of our assets contained in the indenture, the
terms of the indenture do not contain any covenants or other provisions designed to give holders of any debt securities protection
against changes in our operations, financial condition or transactions involving us.
We may issue the debt securities issued under
the indenture as “discount securities,” which means they may be sold at a discount below their stated principal amount. These
debt securities, as well as other debt securities that are not issued at a discount, may be issued with “original issue discount”,
or OID, for U.S. federal income tax purposes because of interest payment and other characteristics. Material U.S. federal income tax considerations
applicable to debt securities issued with original issue discount will be described in more detail in any applicable prospectus supplement.
The applicable prospectus supplement for a series
of debt securities that we issue will describe, among other things, the following terms of the offered debt securities:
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the title and authorized denominations of the series of debt securities; |
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any limit on the aggregate principal amount of the series of debt securities; |
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whether such debt securities will be issued in fully registered form without coupons or in a form registered as to principal only with coupons or in bearer form with coupons; |
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whether issued in the form of one or more global securities and whether all or a portion of the principal amount of the debt securities is represented thereby; |
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the price or prices at which the debt securities will be issued; |
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the date or dates on which principal is payable; |
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the place or places where and the manner in which principal, premium or interest, if any, will be payable and the place or places where the debt securities may be presented for transfer and, if applicable, conversion or exchange; |
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interest rates, and the dates from which interest, if any, will accrue, and the dates when interest is payable and the maturity; |
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the right, if any, to extend the interest payment periods and the duration of the extensions; |
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our rights or obligations to redeem or purchase the debt securities; |
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any sinking fund or other provisions that would obligate us to repurchase or otherwise redeem some or all of the debt securities; |
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conversion or exchange provisions, if any, including conversion or exchange prices or rates and adjustments thereto; |
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the currency or currencies of payment of principal or interest; |
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the terms applicable to any debt securities issued at a discount from their stated principal amount; |
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the terms, if any, under which any debt securities will rank junior to any of our other debt; |
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whether and upon what terms the debt securities may be defeased, if different from the provisions set forth in the indenture; |
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if the amount of payments of principal or interest is to be determined by reference to an index or formula, or based on a coin or currency other than that in which the debt securities are stated to be payable, the manner in which these amounts are determined and the calculation agent, if any, with respect thereto; |
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the provisions, if any, relating to any collateral provided for the debt securities; |
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if other than the entire principal amount of the debt securities when issued, the portion of the principal amount payable upon acceleration of maturity as a result of a default on our obligations; |
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the events of default and covenants relating to the debt securities that are in addition to, modify or delete those described in this prospectus; |
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the nature and terms of any security for any secured debt securities; and |
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any other specific terms of any debt securities. |
The applicable prospectus supplement will present
material U.S. federal income tax considerations for holders of any debt securities and the securities exchange or quotation system on
which any debt securities are to be listed or quoted.
Senior Debt Securities
Payment of the principal of, premium and interest,
if any, on senior debt securities will rank on a parity with all of our other secured/unsecured and unsubordinated debt.
Senior Subordinated Debt Securities
Payment of the principal of, premium and interest,
if any, on senior subordinated debt securities will be junior in right of payment to the prior payment in full of all of our unsubordinated
debt, including senior debt securities and any credit facility. We will state in the applicable prospectus supplement relating to any
senior subordinated debt securities the subordination terms of the securities as well as the aggregate amount of outstanding debt, as
of the most recent practicable date, that by its terms would be senior to the senior subordinated debt securities. We will also state
in such prospectus supplement limitations, if any, on issuance of additional senior debt.
Subordinated Debt Securities
Payment of the principal of, premium and interest,
if any, on subordinated debt securities will be subordinated and junior in right of payment to the prior payment in full of all of our
senior debt, including our senior debt securities and senior subordinated debt securities. We will state in the applicable prospectus
supplement relating to any subordinated debt securities the subordination terms of the securities as well as the aggregate amount of outstanding
indebtedness, as of the most recent practicable date, that by its terms would be senior to the subordinated debt securities. We will also
state in such prospectus supplement limitations, if any, on issuance of additional senior indebtedness.
Conversion or Exchange Rights
Debt securities may be convertible into or exchangeable
for other securities being registered in this registration statement, including, for example, shares of our equity securities. The terms
and conditions of conversion or exchange will be stated in the applicable prospectus supplement. The terms will include, among others,
the following:
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the conversion or exchange price; |
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the conversion or exchange period; |
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provisions regarding the ability of us or the holder to convert or exchange the debt securities; |
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events requiring adjustment to the conversion or exchange price; and |
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provisions affecting conversion or exchange in the event of our redemption of the debt securities. |
Consolidation, Merger or Sale
We cannot consolidate or merge with or into, or
transfer or lease all or substantially all of our assets to, any person, and we cannot permit any other person to consolidate with or
merge into us, unless (1) we will be the continuing corporation or (2) the successor corporation or person to which our assets are transferred
or leased is a corporation organized under the laws of the United States, any state of the United States or the District of Columbia and
it expressly assumes our obligations under the debt securities and the indenture. In addition, we cannot complete such a transaction unless
immediately after completing the transaction, no event of default under the indenture, and no event which, after notice or lapse of time
or both, would become an event of default under the indenture, shall have occurred and be continuing. When the person to whom our assets
are transferred or leased has assumed our obligations under the debt securities and the indenture, we shall be discharged from all our
obligations under the debt securities and the indenture except in limited circumstances.
This covenant would not apply to any recapitalization
transaction, a change of control of us or a highly leveraged transaction, unless the transaction or change of control were structured
to include a merger or consolidation or transfer or lease of all or substantially all of our assets.
Events of Default
The term “Event of Default,” when
used in the indenture, unless otherwise indicated, means any of the following:
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failure to pay interest for 30 days after the date payment is due and payable; |
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failure to pay principal or premium, if any, on any debt security when due, either at maturity, upon any redemption, by declaration or otherwise; |
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failure to make sinking fund payments when due; |
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failure to perform other covenants for 60 days after notice that performance was required; |
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events in bankruptcy, insolvency or reorganization relating to us; or |
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any other Event of Default provided in the applicable officer’s certificate, resolution of our board of directors or the supplemental indenture under which we issue a series of debt securities. |
An Event of Default for a particular series of
debt securities does not necessarily constitute an Event of Default for any other series of debt securities issued under the indenture.
If an Event of Default with respect to any series
of senior debt securities occurs and is continuing, then either the trustee for such series or the holders of a majority in aggregate
principal amount of the outstanding debt securities of such series, by notice in writing, may declare the principal amount of and interest
on all of the debt securities of such series to be due and payable immediately; provided, however, unless otherwise provided in the applicable
prospectus supplement, if such an Event of Default occurs and is continuing with respect to more than one series of senior debt securities
under the indenture, the trustee for such series or the holders of a majority in aggregate principal amount of the outstanding debt securities
of all such series of senior debt securities of equal ranking (or, if any of such senior debt securities are discount securities, such
portion of the principal amount as may be specified in the terms of that series), voting as one class, may make such declaration of acceleration
as to all series of such equal ranking and not the holders of the debt securities of any one of such series of senior debt securities.
If an Event of Default with respect to any
series of subordinated securities occurs and is continuing, then either the trustee for such series or the holders of a majority in
aggregate principal amount of the outstanding debt securities of such series, by notice in writing, may declare the principal amount
of and interest on all of the debt securities of such series to be due and payable immediately; provided, however, unless otherwise
provided in the applicable prospectus supplement, if such an Event of Default occurs and is continuing with respect to more than one
series of subordinated securities under the indenture, the trustee for such series or the holders of a majority in aggregate
principal amount of the outstanding debt securities of all such series of subordinated securities of equal ranking (or, if any of
such subordinated securities are discount securities, such portion of the principal amount as may be specified in the terms of that
series), voting as one class, may make such declaration of acceleration as to all series of equal ranking and not the holders of the
debt securities of any one of such series of subordinated securities. The holders of not less than a majority in aggregate principal
amount of the debt securities of all affected series of equal ranking may, after satisfying certain conditions, rescind and annul
any of the above-described declarations and consequences involving such series.
If an Event of Default relating to events in bankruptcy,
insolvency or reorganization of us occurs and is continuing, then the principal amount of all of the debt securities outstanding, and
any accrued interest, will automatically become due and payable immediately, without any declaration or other act by the trustee or any
holder.
The indenture imposes limitations on suits brought
by holders of debt securities against us. Except for actions for payment of overdue principal or interest, no holder of debt securities
of any series may institute any action against us under the indenture unless:
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the holder has previously given to the trustee written notice of default and continuance of such default; |
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the holders of not less than a majority in principal amount of the outstanding debt securities of the affected series of equal ranking have requested that the trustee institute the action; |
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the requesting holders have offered the trustee reasonable indemnity for expenses and liabilities that may be incurred by bringing the action; |
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the trustee has not instituted the action within 60 days of the request; and |
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the trustee has not received inconsistent direction by the holders of a majority in principal amount of the outstanding debt securities of the affected series of equal ranking. |
We will be required to file annually with the
trustee a certificate, signed by one of our officers, stating whether or not the officer knows of any default by us in the performance,
observance or fulfillment of any condition or covenant of the indenture.
Registered Global Securities and Book Entry
System
The debt securities of a series may be issued
in whole or in part in book-entry form and may be represented by one or more fully registered global securities or in unregistered form
with or without coupons. We will deposit any registered global securities with a depositary or with a nominee for a depositary identified
in the applicable prospectus supplement and registered in the name of such depositary or nominee. In such case, we will issue one or more
registered global securities denominated in an amount equal to the aggregate principal amount of all of the debt securities of the series
to be issued and represented by such registered global security or securities. This means that we will not issue certificates to each
holder.
Unless and until it is exchanged in whole or in
part for debt securities in definitive registered form, a registered global security may not be transferred except as a whole:
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by the depositary for such registered global security to its nominee; |
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by a nominee of the depositary to the depositary or another nominee of the depositary; or |
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by the depositary or its nominee to a successor of the depositary or a nominee of the successor. |
The prospectus supplement relating to a series
of debt securities will describe the specific terms of the depositary arrangement involving any portion of the series represented by a
registered global security. We anticipate that the following provisions will apply to all depositary arrangements for registered debt
securities:
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ownership of beneficial interests in a registered global security will be limited to persons that have accounts with the depositary for such registered global security, these persons being referred to as “participants,” or persons that may hold interests through participants; |
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upon the issuance of a registered global security, the depositary for the registered global security will credit, on its book-entry registration and transfer system, the participants’ accounts with the respective principal amounts of the debt securities represented by the registered global security beneficially owned by the participants; |
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any dealers, underwriters, or agents participating in the distribution of the debt securities represented by a registered global security will designate the accounts to be credited; and |
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ownership of beneficial interest in such registered global security will be shown on, and the transfer of such ownership interest will be effected only through, records maintained by the depositary for such registered global security for interests of participants, and on the records of participants for interests of persons holding through participants. |
The laws of some states may require that specified
purchasers of securities take physical delivery of the securities in definitive form. These laws may limit the ability of those persons
to own, transfer or pledge beneficial interests in registered global securities.
So long as the depositary for a registered global
security, or its nominee, is the registered owner of such registered global security, the depositary or such nominee, as the case may
be, will be considered the sole owner or holder of the debt securities represented by the registered global security for all purposes
under the indenture. Except as stated below, owners of beneficial interests in a registered global security:
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will not be entitled to have the debt securities represented by a registered global security registered in their names; |
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will not receive or be entitled to receive physical delivery of the debt securities in the definitive form; and |
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will not be considered the owners or holders of the debt securities under the relevant indenture. |
Accordingly, each person owning a beneficial interest
in a registered global security must rely on the procedures of the depositary for the registered global security and, if the person is
not a participant, on the procedures of a participant through which the person owns its interest, to exercise any rights of a holder under
the indenture.
We understand that under existing industry practices,
if we request any action of holders or if an owner of a beneficial interest in a registered global security desires to give or take any
action that a holder is entitled to give or take under the indenture, the depositary for the registered global security would authorize
the participants holding the relevant beneficial interests to give or take the action, and the participants would authorize beneficial
owners owning through the participants to give or take the action or would otherwise act upon the instructions of beneficial owners holding
through them.
We will make payments of principal and premium,
if any, and interest, if any, on debt securities represented by a registered global security registered in the name of a depositary or
its nominee to the depositary or its nominee, as the case may be, as the registered owners of the registered global security. None of
us, the trustee or any other agent of ours or the trustee will be responsible or liable for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the registered global security or for maintaining, supervising or reviewing
any records relating to the beneficial ownership interests.
We expect that the depositary for any debt securities
represented by a registered global security, upon receipt of any payments of principal and premium, if any, and interest, if any, in respect
of the registered global security, will immediately credit participants’ accounts with payments in amounts proportionate to their
respective beneficial interests in the registered global security as shown on the records of the depositary. We also expect that standing
customer instructions and customary practices will govern payments by participants to owners of beneficial interests in the registered
global security held through the participants, as is now the case with the securities held for the accounts of customers in bearer form
or registered in “street name.” We also expect that any of these payments will be the responsibility of the participants.
If the depositary for any debt securities represented
by a registered global security is at any time unwilling or unable to continue as depositary or stops being a clearing agency registered
under the Exchange Act, we will appoint an eligible successor depositary. If we fail to appoint an eligible successor depositary within
90 days, we will issue the debt securities in definitive form in exchange for the registered global security. In addition, we may at any
time and in our sole discretion decide not to have any of the debt securities of a series represented by one or more registered global
securities. In that event, we will issue debt securities of the series in a definitive form in exchange for all of the registered global
securities representing the debt securities. The trustee will register any debt securities issued in definitive form in exchange for a
registered global security in the name or names as the depositary, based upon instructions from its participants, who shall instruct the
trustee.
We may also issue bearer debt securities of a
series in the form of one or more global securities, referred to as “bearer global securities.” The prospectus supplement
relating to a series of debt securities represented by a bearer global security will describe the applicable terms and procedures. These
will include the specific terms of the depositary arrangement and any specific procedures for the issuance of debt securities in definitive
form in exchange for a bearer global security, in proportion to the series represented by a bearer global security.
Discharge, Defeasance and Covenant Defeasance
We can discharge or decrease our obligations under
the indenture as stated below.
We may discharge obligations to holders of any
series of debt securities that have not already been delivered to the trustee for cancellation and that have either become due and payable
or are by their terms to become due and payable, or are scheduled for redemption, within sixty (60) days. We may effect a discharge
by irrevocably depositing with the trustee cash or U.S. government obligations, as trust funds, in an amount certified to be enough to
pay when due, whether at maturity, upon redemption or otherwise, the principal of, premium and interest, if any, on the debt securities
and any mandatory sinking fund payments.
Unless otherwise provided in the applicable prospectus
supplement, we may also discharge any and all of our obligations to holders of any series of debt securities at any time, which we refer
to as defeasance. We may also be released from the obligations imposed by any covenants of any outstanding series of debt securities and
provisions of the indenture, and we may omit to comply with those covenants without creating an event of default under the trust declaration,
which we refer to as covenant defeasance. We may effect defeasance and covenant defeasance only if, among other things:
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we irrevocably deposit with the trustee cash or U.S. government obligations, as trust funds, in an amount certified to be enough to pay at maturity, or upon redemption, the principal, premium and interest, if any, on all outstanding debt securities of the series; |
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we deliver to the trustee an opinion of counsel from a nationally recognized law firm to the effect that the holders of the series of debt securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the defeasance or covenant defeasance and that defeasance or covenant defeasance will not otherwise alter the holders’ U.S. federal income tax treatment of principal, premium and interest, if any, payments on the series of debt securities; and |
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in the case of subordinated debt securities, no event or condition shall exist that, based on the subordination provisions applicable to the series, would prevent us from making payments of principal of, premium and interest, if any, on any of the applicable subordinated debt securities at the date of the irrevocable deposit referred to above or at any time during the period ending on the 91st day after the deposit date. |
In the case of a defeasance by us, the opinion
we deliver must be based on a ruling of the Internal Revenue Service issued, or a change in U.S. federal income tax law occurring, after
the date of the indenture, since such a result would not occur under the U.S. federal income tax laws in effect on such date.
Although we may discharge or decrease our
obligations under the indenture as described in the two preceding paragraphs, we may not avoid, among other things, our duty to
register the transfer or exchange of any series of debt securities, to replace any temporary, mutilated, destroyed, lost or stolen
series of debt securities or to maintain an office or agency in respect of any series of debt securities.
Modification of the Indenture
The indenture provides that we and the trustee
may enter into supplemental indentures without the consent of the holders of debt securities to:
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secure any debt securities and provide the terms and conditions for the release or substitution of the security; |
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evidence the assumption by a successor corporation of our obligations; |
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add covenants for the protection of the holders of debt securities; |
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add any additional events of default; |
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cure any ambiguity or correct any inconsistency or defect in the indenture; |
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add to, change or eliminate any of the provisions of the indenture in a manner that will become effective only when there is no outstanding debt security which is entitled to the benefit of the provision as to which the modification would apply; |
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establish the forms or terms of debt securities of any series; |
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eliminate any conflict between the terms of the indenture and the Trust Indenture Act of 1939; |
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evidence and provide for the acceptance of appointment by a successor trustee and add to or change any of the provisions of the indenture as is necessary for the administration of the trusts by more than one trustee; and |
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make any other provisions with respect to matters or questions arising under the indenture that will not be inconsistent with any provision of the indenture as long as the new provisions do not adversely affect the interests of the holders of any outstanding debt securities of any series created prior to the modification. |
The indenture also provides that we and the trustee
may, with the consent of the holders of not less than a majority in aggregate principal amount of debt securities of all series of senior
debt securities or of Subordinated Securities of equal ranking, as the case may be, then outstanding and affected, voting as one class,
add any provisions to, or change in any manner, eliminate or modify in any way the provisions of, the indenture or modify in any manner
the rights of the holders of the debt securities. We and the trustee may not, however, without the consent of the holder of each outstanding
debt security affected thereby:
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extend the final maturity of any debt security; |
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reduce the principal amount or premium, if any; |
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reduce the rate or extend the time of payment of interest; |
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reduce any amount payable on redemption or impair or affect any right of redemption at the option of the holder of the debt security; |
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change the currency in which the principal, premium or interest, if any, is payable; |
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reduce the amount of the principal of any debt security issued with an original issue discount that is payable upon acceleration or provable in bankruptcy; |
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alter provisions of the relevant indenture relating to the debt securities not denominated in U.S. dollars; |
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impair the right to institute suit for the enforcement of any payment on any debt security when due; |
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if applicable, adversely affect the right of a holder to convert or exchange a debt security; or |
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reduce the percentage of holders of debt securities of any series whose consent is required for any modification of the indenture. |
The indenture provides that the holders of not
less than a majority in aggregate principal amount of the then outstanding debt securities of any and all affected series of equal ranking,
by notice to the relevant trustee, may on behalf of the holders of the debt securities of any and all such series of equal ranking waive
any default and its consequences under the indenture except:
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a continuing default in the payment of interest on, premium, if any, or principal of, any such debt security held by a non-consenting holder; or |
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a default in respect of a covenant or provision of the indenture that cannot be modified or amended without the consent of the holder of each outstanding debt security of each series affected. |
Concerning the Trustee
The indenture provides that there may be more
than one trustee under the indenture, each for one or more series of debt securities. If there are different trustees for different series
of debt securities, each trustee will be a trustee of a trust under the indenture separate and apart from the trust administered by any
other trustee under that indenture.
Except as otherwise indicated in this prospectus
or any prospectus supplement, any action permitted to be taken by a trustee may be taken by such trustee only on the one or more series
of debt securities for which it is the trustee under the indenture. Any trustee under the indenture may resign or be removed from one
or more series of debt securities. All payments of principal of, premium and interest, if any, on, and all registration, transfer, exchange,
authentication and delivery of, the debt securities of a series will be effected by the trustee for that series at an office designated
by the trustee.
If the trustee becomes a creditor of ours, the
indenture places limitations on the right of the trustee to obtain payment of claims or to realize on property received in respect of
any such claim as security or otherwise. The trustee may engage in other transactions. If it acquires any conflicting interest relating
to any duties concerning the debt securities, however, it must eliminate the conflict or resign as trustee.
The holders of a majority in aggregate principal
amount of any and all affected series of debt securities of equal ranking then outstanding will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to the trustee concerning the applicable series of debt securities,
provided that the direction:
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would not conflict with any rule of law or with the relevant indenture; |
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would not be unduly prejudicial to the rights of another holder of the debt securities; and |
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would not involve any trustee in personal liability. |
The indenture provides that in case an Event of
Default shall occur, not be cured and be known to any trustee, the trustee must use the same degree of care as a prudent person would
use in the conduct of his or her own affairs in the exercise of the trustee’s power. The trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any of the holders of the debt securities, unless they shall
have offered to the trustee security and indemnity satisfactory to the trustee.
No Individual Liability of Incorporators, Stockholders,
Officers or Directors
No recourse under or upon any obligation, covenant
or agreement of this Indenture, or of any debt security thereunder, or for any claim based thereon or otherwise in respect thereof, shall
be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement
of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are
solely corporate obligations of the Company, and that no such personal liability whatever shall attach to, or is or shall be incurred
by, the incorporators, stockholders, officers or directors, as such, of the Company or of any successor corporation, or any of them.
Governing Law
The indenture and the debt securities will be
governed by, and construed in accordance with, the laws of the State of New York.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of our
Ordinary Shares and/or debt securities in one or more series. We may issue warrants independently or together with our Ordinary Shares
and/or debt securities, and the warrants may be attached to or traded separate and apart from these securities. Each series of warrants
will be issued under a warrant agreement all as set forth in the prospectus supplement. The applicable prospectus supplement or term sheet
will describe the terms of the warrants offered thereby, any warrant agreement relating to such warrants and the warrant certificates,
including but not limited to the following:
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the title of the warrants; |
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the offering price or prices of the warrants, if any; |
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the minimum or maximum amount of the warrants which may be exercised at any one time; |
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the currency or currency units in which the offering price, if any, and the exercise price are payable; |
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the number of securities, if any, with which such warrants are being offered and the number of such warrants being offered with each security; |
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the date, if any, on and after which such warrants and the related securities, if any, will be transferable separately; |
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the amount of securities purchasable upon exercise of each warrant and the price at which the securities may be purchased upon such exercise, and events or conditions under which the amount of securities may be subject to adjustment; |
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the date on which the right to exercise such warrants shall commence and the date on which such right shall expire; |
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the circumstances, if any, which will cause the warrants to be deemed to be automatically exercised; |
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any material risk factors, if any, relating to such warrants; |
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the identity of any warrant agent; and |
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any other material terms of the warrants. |
Prior to the exercise of any warrants,
holders of such warrants will not have any rights of holders of the securities purchasable upon such exercise, including the right
to receive payments of dividends or the right to vote such underlying securities. Prospective purchasers of warrants should be aware
that material U.S. federal income tax, accounting and other considerations may be applicable to instruments such as warrants.
DESCRIPTION OF RIGHTS
We may issue rights to purchase our Ordinary Shares,
debt securities or other securities. Rights may be issued independently or together with any other offered security and may or may not
be transferable by the person purchasing or receiving the rights. In connection with any rights offering, we may enter into a standby
underwriting or other arrangement with one or more underwriters or other persons pursuant to which such underwriters or other persons
would purchase any offered securities remaining unsubscribed for after such rights offering. Each series of rights will be issued under
a separate rights agent agreement to be entered into between us and one or more banks, trust companies, or other financial institutions,
as rights agent, that we will name in the applicable prospectus supplement. The rights agent will act solely as our agent in connection
with the rights and will not assume any obligation or relationship of agency or trust for or with any holders of rights certificates or
beneficial owners of rights.
The prospectus supplement relating to any rights
that we offer will include specific terms relating to the offering, including, among other matters:
| ● | the date of determining the security holders entitled to the rights distribution; |
| ● | the aggregate number of rights issued and the aggregate amount of securities purchasable upon exercise
of the rights; |
| ● | the exercise price for the rights; |
| ● | the conditions to completion of the rights offering; |
| ● | the date on which the right to exercise the rights will commence and the date on which the right will
expire; |
| ● | the extent to which such subscription rights are transferable; |
| ● | if applicable, a discussion of the material Cayman Islands or United States federal income tax considerations
applicable to the issuance or exercise of such subscription rights; |
| ● | any other terms of the rights, including terms, procedures and limitations relating to the exchange and
exercise of the rights; |
| ● | the extent to which the rights include an over-subscription privilege with respect to unsubscribed securities;
and |
| ● | the material terms of any standby underwriting agreement or other arrangement entered into by us in connection
with the rights offering. |
Each right would entitle the holder of the rights
to purchase for cash the principal amount of securities at the exercise price set forth in the applicable prospectus supplement. Rights
may be exercised at any time up to the close of business on the expiration date for the rights provided in the applicable prospectus supplement.
After the close of business on the expiration date, all unexercised rights will become void.
If less than all of the rights issued in any rights
offering are exercised, we may offer any unsubscribed securities directly to persons other than our security holders, to or through agents,
underwriters, or dealers, or through a combination of such methods, including pursuant to standby arrangements, as described in the applicable
prospectus supplement.
DESCRIPTION OF UNITS
We may issue units comprised of one or more of
the other securities described in this prospectus in any combination. Each unit will be issued so that the holder of the unit is also
the holder of each security included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder of each
included security. The unit agreement under which a unit is issued may provide that the securities included in the unit may not be held
or transferred separately, at any time or at any time before a specified date.
The applicable prospectus supplement may describe:
|
● |
the designation and terms of the units and of the securities comprising the units, including whether and under what circumstances those securities may be held or transferred separately; |
|
● |
any provisions for the issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units; and |
|
● |
any additional terms of the governing unit agreement. |
The applicable prospectus supplement will describe
the terms of any units. The preceding description and any description of units in the applicable prospectus supplement does not purport
to be complete and is subject to and is qualified in its entirety by reference to the unit agreement and, if applicable, collateral arrangements
and depositary arrangements relating to such units.
TAXATION
Our most recent Annual Report on Form 20-F provides
a discussion of certain tax considerations that may be relevant to prospective investors in our securities. The applicable prospectus
supplement may also contain information about certain material tax considerations relating to the securities covered by such prospectus
supplement. You should consult your own tax advisors prior to acquiring any of our securities.
PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus
in any one or more of the following ways (or in any combination) from time to time:
|
● |
directly to investors, including through privately negotiated transactions, a specific bidding, auction or other process; |
|
● |
to investors through agents; |
|
● |
to or through underwriters or dealers; |
|
● |
in “at the market” offerings, within the meaning of the Rule 415(a)(4) of the Securities Act, to or through a market maker or into an existing trading market on an exchange or otherwise; |
|
● |
through a combination of any such methods of sale; or |
|
● |
through any other method permitted by applicable law and described in the applicable prospectus supplement. |
The accompanying prospectus supplement will set
forth the terms of the offering and the method of distribution and will identify any firms acting as underwriters, dealers or agents in
connection with the offering, including:
|
● |
the names and addresses of any underwriters, dealers or agents; |
|
● |
the purchase price of the securities and the proceeds to us from the sale, if any; |
|
● |
any over-allotment options under which underwriters may purchase additional securities from us; |
|
● |
any underwriting discounts and other items constituting compensation to underwriters, dealers or agents; |
|
● |
any public offering price, any discounts or concessions allowed or reallowed or paid to dealers; and |
|
● |
any securities exchange or market on which the securities offered in the prospectus supplement may be listed. |
If underwriters are used in the sale, the underwriters
will acquire the offered securities for their own account and may resell them from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The offered securities
may be offered either to the public through underwriting syndicates represented by one or more managing underwriters or by one or more
underwriters without a syndicate. Unless otherwise set forth in a prospectus supplement, the obligations of the underwriters to purchase
any series of securities will be subject to certain conditions precedent and the underwriters will be obligated to purchase all of such
series of securities if any are purchased. Only those underwriters identified in such prospectus supplement are deemed to be underwriters
in connection with the securities offered in the prospectus supplement. Any underwritten offering may be on a best efforts or a firm commitment
basis.
In connection with the sale of our securities,
underwriters or agents may receive compensation (in the form of discounts, concessions or commissions) from us, or from purchasers of
securities for whom they may act as agents. Underwriters may sell securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act
as agents. Underwriters, dealers and agents that participate in the distribution of our securities may be deemed to be “underwriters”
as that term is defined in the Securities Act, and any discounts allowed or commissions paid, and any profit on the resale of the securities
they realize may be deemed to be underwriting discounts and commissions under the Securities Act. Any person who may be deemed to be an
underwriter will be identified, and the compensation received from us will be described, in the prospectus supplement. Maximum compensation
to any underwriters, dealers or agents will not exceed any applicable Financial Industry Regulatory Authority limitations.
Underwriters and agents may be entitled to indemnification
by us against some civil liabilities, including liabilities under the Securities Act, or to contributions with respect to payments which
the underwriters or agents may be required to make relating to these liabilities. Underwriters and agents may be customers of, engage
in transactions with, or perform services for us in the ordinary course of business.
Unless otherwise specified in the related prospectus
supplement, each series of securities will be a new issue with no established trading market, other than our Ordinary Shares, which are
listed on the Nasdaq Capital Market. Any Ordinary Shares sold pursuant to a prospectus supplement will be listed on the Nasdaq Capital
Market, subject to official notice of issuance. We may elect to list any series of debt securities on an exchange, but we are not obligated
to do so. It is possible that one or more underwriters may make a market in the securities, but such underwriters will not be obligated
to do so and may discontinue any market making at any time without notice. No assurance can be given as to the liquidity of, or the trading
market for, any offered securities.
The aggregate proceeds to us from the sale of
our Ordinary Shares will be the purchase price of our Ordinary Shares less discounts or commissions, if any. We reserve the right to accept
and, together with our agents from time to time, to reject, in whole or in part, any proposed purchase of our Ordinary Shares to be made
directly or through agents.
To facilitate the offering of the Ordinary Shares
offered by us, certain persons participating in the offering may engage in transactions that stabilize, maintain or otherwise affect the
price of our Ordinary Shares. This may include over-allotments or short sales, which involve the sale by persons participating in the
offering of more shares than were sold to them. In these circumstances, these persons would cover such over-allotments or short positions
by making purchases in the open market or by exercising their over-allotment option, if any. In addition, these persons may stabilize
or maintain the price of our Ordinary Shares by bidding for or purchasing shares in the open market or by imposing penalty bids, whereby
selling concessions allowed to dealers participating in the offering may be reclaimed if shares sold by them are repurchased in connection
with stabilization transactions. The effect of these transactions may be to stabilize or maintain the market price of our Ordinary Shares
at a level above that which might otherwise prevail in the open market. These transactions may be discontinued at any time.
EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets
forth the various expenses in connection with the sale and distribution of the securities being registered. We will bear all of the expenses
shown below.
Securities and Exchange Commission registration fee | |
$ | 13,905 | |
Printing expenses | |
| * | |
Legal fees and expenses | |
| * | |
Accounting fees and expenses | |
| * | |
Transfer agent fees and expenses | |
| * | |
Miscellaneous | |
| * | |
Total | |
$ | * | |
*The amount of securities and number of offerings
are indeterminable, and the expenses cannot be estimated at this time. The applicable prospectus supplement will set forth the estimated
aggregate amount of expenses payable in respect of any offering of securities.
LEGAL MATTERS
Except as otherwise set forth in the applicable
prospectus supplement, the validity of any securities offered pursuant to this prospectus will be passed upon by Conyers Dill & Pearman.
Certain other legal matters relating to U.S. federal law and the laws of the State of New York will be passed upon for us by Bevilacqua
PLLC. Legal matters as to Thailand law will be passed upon for us by Watson Farley & Williams (Thailand) Limited. Bevilacqua PLLC
may rely upon Conyers Dill & Pearman with respect to matters governed by Cayman Islands law and Watson Farley & Williams (Thailand)
Limited with respect to matters governed by Thailand law.
If legal matters in connection with offerings
made pursuant to this prospectus are passed upon by counsel to underwriters, dealers or agents, such counsel will be named in the applicable
prospectus supplement relating to any such offering.
EXPERTS
Our consolidated financial statements as of December
31, 2020 and 2019 and for the years then ended included in this registration statement have been audited by Wei, Wei & Co., LLP, an
independent registered public accounting firm, as stated in their report appearing herein. Such financial statements are included in reliance
upon the report of such firm given upon their authority as experts in accounting and auditing.
The offices of Wei, Wei & Co., LLP are located
at 133-10 39th Avenue, Flushing, New York 11354.
INDEMNIFICATION
Insofar
as indemnification by us for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling
the company pursuant to provisions of our amended and restated memorandum and articles of association,
or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us
in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection
with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such issue.
ENFORCEMENT OF CIVIL LIABILITIES
We are incorporated under the laws of the
Cayman Islands as an exempted company with limited liability. We are incorporated in the Cayman Islands because of certain benefits
associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable
tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support
services. However, the Cayman Islands has a less developed body of securities laws as compared to the United States and
provides less protection for investors. In addition, Cayman Islands companies may not have standing to sue before the federal courts
of the United States.
Our constitutional documents do not contain provisions
requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors
and shareholders, be subject to arbitration.
Substantially all of our assets are located outside
the United States. In addition, most of our directors and executive officers are nationals or residents of jurisdictions other than
the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may
be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce judgments
obtained in U.S. courts against us or them, including judgments predicated upon the civil liability provisions of the securities
laws of the United States or any state in the United States. It may also be difficult for you to enforce judgments obtained
in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors.
Conyers Dill & Pearman, our counsel as to
Cayman Islands law, has advised us that there is uncertainty as to whether the courts of the Cayman Islands would (i) recognize or
enforce judgments of U.S. courts obtained against us or our directors or officers that are predicated upon the civil liability provisions
of the securities laws of the United States or any state in the United States, or (ii) entertain original actions brought
in the Cayman Islands against us or our directors or officers that are predicated upon the securities laws of the United States or
any state in the United States.
Conyers Dill & Pearman has informed us that
although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States
(and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), the courts
of the Cayman Islands would recognize as a valid judgment, a final and conclusive judgment in personam obtained in the
foreign courts against our company under which a sum of money is payable (other than a sum of money payable in respect of multiple damages,
taxes or other charges of a like nature or in respect of a fine or other penalty) or, in certain circumstances, an in personam judgment
for non-monetary relief, and would give a judgment based thereon provided that (a) such courts had proper jurisdiction over the parties
subject to such judgment, (b) such courts did not contravene the rules of natural justice of the Cayman Islands, (c) such judgment was
not obtained by fraud, (d) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands, (e) no new
admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands, and
(f) there is due compliance with the correct procedures under the laws of the Cayman Islands.
We have appointed Cogency Global Inc., 122 East 42nd Street, 18th Floor,
New York, NY 10168, as our agent upon whom process may be served in any action brought against us under the securities laws of the United
States.
MATERIAL CHANGES
Except for the unaudited condensed consolidated
financial statements for the six months ended June 30, 2021 and 2020 incorporated by reference and as otherwise disclosed in this prospectus,
there have been no reportable material changes that have occurred since December 31, 2020, and that have not been described in a
report on Form 6-K furnished under the Exchange Act and incorporated by reference into this prospectus.
FINANCIAL STATEMENTS
GUARDFORCE AI CO., LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Shareholders of Guardforce AI Co., Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated
statements of financial position of Guardforce AI Co., Limited and subsidiaries (the “Company”) as of December 31, 2020 and
2019, and the related consolidated statements of profit or loss, comprehensive income (loss), changes in equity, and cash flows for each
of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2020 and 2019, and the results of their operations and their cash flows for each of the two years in the period ended December 31,
2020, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 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 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 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Wei, Wei & Co., LLP
Flushing, New York
April 29, 2021, except for Notes 2, 17, 18, 21 and 24 which are dated
September 14, 2021
We have served as the Company’s auditor since 2019. |
Guardforce AI Co., Limited and Subsidiaries
Consolidated Statements of Financial Position
(Expressed in U.S. Dollars)
| |
| |
December 31, | |
| |
Note | |
2020 | | |
2019 | |
| |
| |
| | |
| |
Assets | |
| |
| | | |
| | |
Current assets: | |
| |
| | | |
| | |
Cash and cash equivalents | |
3 | |
$ | 8,414,044 | | |
$ | 6,078,691 | |
Accounts receivable, net | |
5 | |
| 5,468,911 | | |
| 5,564,630 | |
Withholding taxes receivables | |
6 | |
| 690,487 | | |
| - | |
Other current assets | |
7 | |
| 1,584,884 | | |
| 1,653,469 | |
Inventory | |
4 | |
| 495,081 | | |
| - | |
Amount due from related parties | |
21 | |
| 373,268 | | |
| 105,744 | |
Total current assets | |
| |
| 17,026,675 | | |
| 13,402,534 | |
| |
| |
| | | |
| | |
Restricted cash | |
3 | |
| 1,715,866 | | |
| 1,609,030 | |
Long-term loan to related party | |
21 | |
| - | | |
| 315,173 | |
Fixed assets, net | |
8 | |
| 7,884,354 | | |
| 9,129,976 | |
Right-of-use assets | |
9 | |
| 4,190,351 | | |
| 6,173,590 | |
Intangible assets, net | |
10 | |
| 223,408 | | |
| 253,452 | |
Withholding taxes receivable, net | |
6 | |
| 3,534,552 | | |
| 6,865,971 | |
Deferred tax assets, net | |
15 | |
| 1,038,346 | | |
| 1,008,520 | |
Other non-current assets | |
7 | |
| 361,275 | | |
| 532,074 | |
Total Assets | |
| |
$ | 35,974,827 | | |
$ | 39,290,320 | |
| |
| |
| | | |
| | |
Liabilities and (Deficit) Equity | |
| |
| | | |
| | |
Current liabilities: | |
| |
| | | |
| | |
Trade and other payables | |
11 | |
$ | 1,540,411 | | |
$ | 1,465,938 | |
Short-term borrowings from financial institutions | |
12 | |
| 494,994 | | |
| 1,969,666 | |
Short-term borrowings from related parties | |
21 | |
| - | | |
| 2,937,301 | |
Short-term borrowings from third party | |
13 | |
| - | | |
| 14,303,359 | |
Current portion of operating lease liabilities | |
9 | |
| 2,211,984 | | |
| 3,177,473 | |
Current portion of finance lease liabilities, net | |
14 | |
| 632,105 | | |
| 591,997 | |
Other current liabilities | |
11 | |
| 1,249,106 | | |
| 1,895,113 | |
Income tax payables | |
| |
| 284,627 | | |
| - | |
Amount due to related parties | |
21 | |
| 1,670,469 | | |
| 299,384 | |
Total current liabilities | |
| |
| 8,083,696 | | |
| 26,640,231 | |
| |
| |
| | | |
| | |
Long-term borrowings from financial institutions | |
12 | |
| 993,869 | | |
| 199,447 | |
Operating lease liabilities | |
9 | |
| 2,106,429 | | |
| 3,025,844 | |
Long-term borrowings from related parties | |
21 | |
| 19,085,812 | | |
| - | |
Finance lease liabilities, net | |
14 | |
| 1,023,366 | | |
| 1,658,096 | |
Provision for employee benefits | |
16 | |
| 6,841,673 | | |
| 6,439,795 | |
Total liabilities | |
| |
| 38,134,845 | | |
| 37,963,413 | |
| |
| |
| | | |
| | |
Commitments and Contingencies | |
22 | |
| | | |
| | |
| |
| |
| | | |
| | |
(Deficit) Equity | |
| |
| | | |
| | |
Ordinary shares* – par value $0.003 authorized 100,000,000 shares, issued and outstanding 17,356,090 shares at December 31, 2020; par value $0.003 authorized 16,666,663 shares, issued and outstanding 16,666,663 shares at December 31, 2019 | |
17 | |
| 52,069 | | |
| 50,000 | |
Subscription receivable | |
| |
| (50,000 | ) | |
| (50,000 | ) |
Additional paid in capital | |
| |
| 2,082,795 | | |
| 2,360,204 | |
Legal reserve | |
20 | |
| 223,500 | | |
| 223,500 | |
Deficit | |
| |
| (4,722,294 | ) | |
| (1,596,270 | ) |
Accumulated other comprehensive income | |
| |
| 204,249 | | |
| 273,579 | |
Total (deficit) equity attributable to equity holders of the Company | |
| |
| (2,209,681 | ) | |
| 1,261,013 | |
Total equity attributable to non-controlling interests | |
| |
| 49,663 | | |
| 65,894 | |
Total (deficit) equity | |
| |
| (2,160,018 | ) | |
| 1,326,907 | |
Total Liabilities and (Deficit) Equity | |
| |
$ | 35,974,827 | | |
$ | 39,290,320 | |
| * | Giving retroactive effect to the
reverse split on August 20, 2021. |
The accompanying notes are an integral part
of these consolidated financial statements.
Guardforce AI Co., Limited and Subsidiaries
Consolidated Statements of Profit or Loss
(Expressed in U.S. Dollars)
| |
| |
For the years ended December 31, | |
| |
Note | |
2020 | | |
2019 | |
| |
| |
| | |
| |
Revenue | |
| |
$ | 37,648,782 | | |
$ | 38,571,080 | |
Cost of revenue | |
| |
| (31,374,098 | ) | |
| (33,928,496 | ) |
Gross margin | |
| |
| 6,274,684 | | |
| 4,642,584 | |
| |
| |
| | | |
| | |
Provision for and write off of withholding taxes receivable | |
6 | |
| (1,722,762 | ) | |
| - | |
Administrative expenses | |
19 | |
| (6,674,472 | ) | |
| (4,753,566 | ) |
(Loss) from operations | |
| |
| (2,122,550 | ) | |
| (110,982 | ) |
| |
| |
| | | |
| | |
Other income, net | |
| |
| 52,956 | | |
| 160,168 | |
Foreign exchange gains, net | |
| |
| 68,924 | | |
| 985,829 | |
Finance costs | |
| |
| (898,748 | ) | |
| (886,465 | ) |
(Loss) profit before provision for income taxes | |
| |
| (2,899,418 | ) | |
| 148,550 | |
| |
| |
| | | |
| | |
Provision for income taxes | |
15 | |
| (242,837 | ) | |
| (88,473 | ) |
Net (loss) profit for the year | |
| |
| (3,142,255 | ) | |
| 60,077 | |
Less: net loss (profit) attributable to non-controlling interests | |
| |
| 16,231 | | |
| (6,042 | ) |
Net (loss) profit attributable to equity holders of the Company | |
| |
$ | (3,126,024 | ) | |
$ | 54,035 | |
| |
| |
| | | |
| | |
(Loss) earnings per share | |
| |
| | | |
| | |
Basic and diluted (loss) profit for the year attributable to ordinary equity holders of the Company* | |
17 | |
$ | (0.18 | ) | |
$ | 0.00 | |
| |
| |
| | | |
| | |
Weighted average number of shares used in computation: | |
| |
| | | |
| | |
Basic and diluted* | |
17 | |
| 17,224,232 | | |
| 16,666,663 | |
| * | Giving retroactive effect to the reverse split on August 20,
2021. |
The accompanying notes are an integral part
of these consolidated financial statements.
Guardforce AI Co., Limited and Subsidiaries
Consolidated Statements of Comprehensive Income
(Loss)
(Expressed in U.S. Dollars)
| |
| |
For the years ended December 31, | |
| |
Note | |
2020 | | |
2019 | |
| |
| |
| | |
| |
Net (loss) profit for the year | |
| |
$ | (3,142,255 | ) | |
$ | 60,077 | |
Currency translation differences | |
2.6 | |
| (60,558 | ) | |
| 226,031 | |
Remeasurements of defined benefit plan | |
| |
| (8,772 | ) | |
| (131,713 | ) |
Total comprehensive income (loss) for the year | |
| |
$ | (3,211,585 | ) | |
$ | 154,395 | |
| |
| |
| | | |
| | |
Attributable to: | |
| |
| | | |
| | |
Equity holders of the Company | |
| |
$ | (3,181,717 | ) | |
$ | 152,954 | |
Non-controlling interests | |
| |
| (29,868 | ) | |
| 1,441 | |
| |
| |
$ | (3,211,585 | ) | |
$ | 154,395 | |
The accompanying notes are an integral part
of these consolidated financial statements.
Guardforce AI Co., Limited and Subsidiaries
Consolidated Statements of Changes in Equity
(Deficit)
(Expressed in U.S. Dollars)
| |
Number
of Shares* | | |
Amount
($0.003 par*) | | |
Subscription
Receivable | | |
Addition
Paid-in Capital | | |
Legal
Reserve | | |
Accumulated
Other Comprehensive Income | | |
Deficit | | |
Non-
controlling Interests | | |
Total | |
Balance
as at December 31, 2018 | |
| 16,666,663 | | |
$ | 50,000 | | |
$ | (50,000 | ) | |
$ | 2,360,204 | | |
$ | 223,500 | | |
$ | 179,261 | | |
$ | (1,650,305 | ) | |
$ | 59,852 | | |
$ | 1,172,512 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Currency
translation adjustments | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 226,031 | | |
| - | | |
| - | | |
| 226,031 | |
Remeasurements
of defined benefit plan | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (131,713 | ) | |
| - | | |
| - | | |
| (131,713 | ) |
Net
profit for the year | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 54,035 | | |
| 6,042 | | |
| 60,077 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
as at December 31, 2019 | |
| 16,666,663 | | |
| 50,000 | | |
| (50,000 | ) | |
| 2,360,204 | | |
| 223,500 | | |
| 273,579 | | |
| (1,596,270 | ) | |
| 65,894 | | |
| 1,326,907 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Currency
translation adjustments | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (60,558 | ) | |
| | | |
| | | |
| (60,558 | ) |
Capital
distribution | |
| | | |
| | | |
| | | |
| (376,276 | ) | |
| | | |
| | | |
| | | |
| | | |
| (376,276 | ) |
Stock-based
compensation expenses | |
| 689,427 | | |
| 2,069 | | |
| | | |
| 98,867 | | |
| | | |
| | | |
| | | |
| | | |
| 100,936 | |
Remeasurements
of defined benefit plan | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (8,772 | ) | |
| | | |
| | | |
| (8,772 | ) |
Net
loss for the year | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (3,126,024 | ) | |
| (16,231 | ) | |
| (3,142,255 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
as at December 31, 2020 | |
| 17,356,090 | | |
$ | 52,069 | | |
$ | (50,000 | ) | |
$ | 2,082,795 | | |
$ | 223,500 | | |
$ | 204,249 | | |
$ | (4,722,294 | ) | |
$ | 49,663 | | |
$ | (2,160,018 | ) |
* Giving retroactive effect to the reverse split on August 20, 2021.
The accompanying notes are an integral
part of these consolidated financial statements
Guardforce AI Co., Limited and Subsidiaries
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
| |
For the years ended December 31, | |
| |
2020 | | |
2019 | |
Operating activities | |
| | | |
| | |
Net (loss) profit | |
$ | (3,142,255 | ) | |
$ | 60,077 | |
Adjustments to reconcile net (loss) profit to net cash provided by operating activities: | |
| | | |
| | |
Depreciation | |
| 4,979,274 | | |
| 5,246,912 | |
Amortization of intangible assets | |
| 54,745 | | |
| 43,129 | |
Interest income | |
| - | | |
| (8,728 | ) |
Stock-based compensation | |
| 100,936 | | |
| - | |
Interest expense | |
| 650,492 | | |
| 515,846 | |
Deferred tax | |
| (30,135 | ) | |
| 55,545 | |
Recovery of doubtful accounts, net | |
| (2,872 | ) | |
| (19,554 | ) |
Provision for withholding taxes receivable | |
| 1,012,543 | | |
| - | |
Write off of withholding taxes receivable | |
| 710,219 | | |
| - | |
Gain from fixed assets disposal | |
| (431 | ) | |
| (27,504 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts and other receivables | |
| 389,320 | | |
| 858,205 | |
Other current assets | |
| 123,764 | | |
| 122,371 | |
Inventory | |
| (484,745 | ) | |
| - | |
Amount due from related parties | |
| (373,003 | ) | |
| (12,930 | ) |
Other non-current assets | |
| 162,998 | | |
| (196,184 | ) |
Trade and other payables | |
| (561,769 | ) | |
| (446,040 | ) |
Other current liabilities | |
| (670,072 | ) | |
| (177,789 | ) |
Income tax payables | |
| 272,972 | | |
| - | |
Amount due to related parties | |
| 529,489 | | |
| (381,737 | ) |
Withholding taxes receivable | |
| 799,606 | | |
| (960,497 | ) |
Provision for employee benefits | |
| 386,425 | | |
| 321,489 | |
Net cash provided by operating activities | |
| 4,907,501 | | |
| 4,992,611 | |
| |
| | | |
| | |
Investing activities | |
| | | |
| | |
Purchase of property and equipment | |
| (1,405,190 | ) | |
| (433,513 | ) |
Proceeds from disposal of property and equipment | |
| - | | |
| 29,164 | |
Purchase of intangible assets | |
| (26,316 | ) | |
| (47,163 | ) |
Net cash used in investing activities | |
| (1,431,506 | ) | |
| (451,512 | ) |
| |
| | | |
| | |
Financing activities | |
| | | |
| | |
Proceeds from borrowings | |
| 7,363,163 | | |
| 3,122,656 | |
Repayment of borrowings | |
| (5,371,766 | ) | |
| (1,072,216 | ) |
Interest paid | |
| (248,047 | ) | |
| (260,179 | ) |
Lease payments | |
| (2,876,314 | ) | |
| (3,519,282 | ) |
Net cash used in financing activities | |
| (1,132,964 | ) | |
| (1,729,021 | ) |
| |
| | | |
| | |
Effect of exchange rate changes on cash | |
| 99,158 | | |
| (585,922 | ) |
Net increase in cash and cash equivalents, and restricted cash | |
| 2,442,189 | | |
| 2,226,156 | |
Cash and cash equivalents, and restricted cash at beginning of year | |
| 7,687,721 | | |
| 5,461,565 | |
Cash and cash equivalents, and restricted cash at end of year | |
$ | 10,129,910 | | |
$ | 7,687,721 | |
| |
| | | |
| | |
Non-cash investing and financing activities | |
| | | |
| | |
Leasehold improvements through finance leases | |
$ | - | | |
$ | 62,295 | |
The accompanying notes are an integral
part of these consolidated financial statements.
Guardforce AI Co., Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(Expressed in U.S. Dollars)
Guardforce AI Co., Limited (“Guardforce”)
is a company incorporated and domiciled in the Cayman Islands under the Companies Act on April 20, 2018. The address of its registered
office is 96 Vibhavadi Rangsit Road, Talad Bangkhen, Laksi, Bangkok 10210, Thailand. Guardforce is controlled by Guardforce AI Technology
Limited (“AI Technology”).
Guardforce AI Holding Limited (“AI
Holdings”) was incorporated in the British Virgin Islands under the BVI Business Companies Act, 2004, on May 22, 2018. AI Holdings
is a 100% owned subsidiary of Guardforce. AI Holdings’ registered office is located in British Virgin Islands.
Guardforce AI Robots Limited (“AI
Robots”) was incorporated in the British Virgin Islands under the BVI Business Companies Act, 2004, on May 22, 2018. AI Robots is
a 100% owned subsidiary of Guardforce.
Guardforce AI (Hong Kong) Co., Limited
(“AI Hong Kong”) was incorporated in Hong Kong under the Hong Kong Companies’ Ordinance (Chapter 622), on May 30, 2018.
AI Hong Kong is a 100% owned subsidiary of Guardforce. Beginning March 2020, AI Hong Kong commenced robotic AI solution business of selling
robots.
Southern Ambition Limited (“Southern
Ambition”) was incorporated in the British Virgin Islands under the BVI Business Companies Act, 2004, on August 3, 2018. Southern
Ambition is a 100% owned subsidiary of AI Robots.
Horizon Dragon Limited (“Horizon
Dragon”) was incorporated in the British Virgin Islands under the BVI Business Companies Act, 2004, on July 3, 2018. Horizon Dragon
is a 100% owned subsidiary of AI Holdings.
Guardforce AI Group Co., Limited (“AI
Thailand”) was incorporated in Thailand under the Civil and Commercial Code at the Registry of partnerships and Companies, Bangkok
Metropolis, Thailand, on September 21, 2018 and has 100,000 ordinary plus preferred shares outstanding. 48,999 of the shares in AI Thailand
are owned by Southern Ambition Limited, with one share being held by Horizon Dragon Limited, for an aggregate of 49,000 ordinary shares,
or 49%, and 51,000 cumulative preferred shares are owned by two individuals of Thailand. The 49,000 ordinary shares with a value of approximately
$16,000 and the value of the cumulative preferred shares of approximately $17,000 has not been received as of December 31, 2018. The cumulative
preferred shares are entitled to dividends of $0.03 per share when declared. The cumulative unpaid dividends of the preferred shares as
of December 31, 2020 is approximately $1,700. Pursuant to article of associates of AI Thailand, the holder of an ordinary share may cast
one vote per share at a general meeting of shareholders, the holder of preferred shares may cast one vote for every 20 preferred shares
held at a general meeting of shareholders. Southern Ambition is entitled to cast more than 95% of the votes at a general meeting of shareholders.
No dividends were declared during the years ended December 31, 2020, and 2019.
Guardforce Cash Solutions Security
Thailand Co., Limited (“GF Cash (CIT)”) was incorporated in Thailand under the Civil and Commercial Code at the Registry
of partnerships and Companies, Bangkok Metropolis, Thailand, on July 27, 1982 and has 3,857,144 outstanding shares. 3,799,544 ordinary
shares and 21,599 preferred shares of the outstanding shares in GF Cash (CIT) (approximately 99.07% of the shares in GF Cash (CIT)) are
owned by AI Thailand with one share being held by Southern Ambition and 33,600 ordinary shares and 2,400 preferred shares (approximately
0.933% of the shares in GF Cash (CIT)) being held by Bangkok Bank Public Company Limited. Pursuant to the articles of associates a shareholder
may cast one vote per one share at a general meeting of shareholders. AI Thailand is entitled to cast 99.07% of the votes at a general
meeting of shareholders. GF Cash (CIT)’s head office is located at No. 96 Vibhavadi-Rangsit Road, Talad Bang Khen Sub-District,
Laksi District, Bangkok, Thailand. Beginning March 2020, GF Cash (CIT) commenced robotic AI solution business of selling and leasing
of robots. No dividends were declared during the years ended December 31, 2020 and 2019.
97% of the shares of GF Cash (CIT) are
owned by AI Thailand and Southern Ambition, which were previously held by Guardforce TH Group Co., Ltd and Guardforce 3 Limited, with
the same majority shareholder.
The reorganization of Guardforce and
its subsidiaries (collectively referred to as the “Company) was completed on December 31, 2018. Pursuant to the reorganization,
Guardforce became the holding company of the companies, which were under the common control of the controlling shareholder before and
after the reorganization. Accordingly, the Company’s financial statements have been prepared on a consolidated basis by applying
the predecessor value method as if the reorganization had been completed at the beginning of the earliest reporting period. The Company
engages principally in providing cash management and handling services located in Thailand.
The following diagram illustrates the
Company’s legal entity ownership structure as of December 31, 2020:
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant
accounting policies used in the preparation of these consolidated financial statements.
The financial statements were approved
by the board of directors and authorized for issuance on April 29, 2021.
The consolidated financial statements
of Guardforce and subsidiaries have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”). All amounts are presented in United States dollars (“USD”)
and have been rounded to the nearest USD. Certain prior year balances have been reclassified to conform to current year’s presentation.
On August 20, 2021, the shareholders
of the Company approved a 1 for 3 reverse split of the Company’s authorized and issued ordinary shares whereby every three shares
were consolidated into one share (the “Reverse Split”). In addition, the par value of each ordinary share increased from $0.001
to $0.003. The financial statements and all share and per share amounts have been retroactively restated to reflect the Reverse Split.
In addition, the accompanying financial
statements are presented on the basis that the Company is a going concern. The going concern assumption contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The Company incurred a net loss of approximately
$3.1 million during the year ended December 31, 2020. As of December 31, 2020, the Company had a deficit of approximately $2.2 million
and cash and cash equivalents and restricted cash of approximately $10.1 million. The Company’s ability to continue as a going concern
is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing to meet its
obligations and repay its liabilities arising from normal business operations when they become due. These consolidated financial statements
do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
The Company expects to finance operations
primarily through cash flow from operations and borrowings from financial institutions and related parties. In the event that the Company
requires additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve
our strategic objectives, the related parties indicated the intent and ability to provide additional equity financing.
These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on
the Company’s ability to meet obligations as they become due and to obtain additional equity or alternative financing required to
fund operations until sufficient sources of recurring revenues can be generated. While there can be no assurance that the Company will
be successful in its plans described above or in attracting equity or alternative financing on acceptable terms, management of the Company
believes that, based on consideration of its most recent projections for year 20201, the Company has the ability to meet its working capital
requirements over the next 12 months.
| 2.2 | Basis of consolidation |
The consolidated statements of profit
or loss and other comprehensive (loss) income, changes in equity (deficit) and cash flows of the Company for the relevant periods include
the results and cash flows of all companies now comprising the Company from the earliest date presented or since the date when the subsidiaries
and/or businesses first came under the common control of the controlling shareholders, wherever the period is shorter.
The consolidated statements of financial
position of the Company as at December 31, 2020 and 2019 have been prepared to present the assets and liabilities of the subsidiaries
using the existing book values from the controlling shareholders’ perspective.
Equity interests in subsidiaries held
by parties other than the controlling shareholders are presented as non-controlling interests in equity.
All intra-group and inter-company transactions
and balances have been eliminated on consolidation.
| 2.3 | Business combinations under common
control |
IFRS 3 Business combinations does
not include specific measurement guidance for transfers of businesses or subsidiaries between entities under common control. Accordingly,
the Company has accounted for such transactions taking into consideration other guidance in the IFRS framework and pronouncements of other
standard-setting bodies. The Company recorded assets and liabilities recognized as a result of transactions between entities under common
control at the carrying value on the transferor’s financial statements, and to have the consolidated statements of financial position,
profit or loss, comprehensive income, changes in equity and cash flows reflect the results of combining entities for all periods presented
for which the entities were under the transferor’s common control, irrespective of when the combination takes place.
| 2.4 | Non-controlling interest |
The non-controlling interest represents
the portion of the equity (net assets) in the subsidiary not directly or indirectly attributable to the Company. Non-controlling interests
are presented as a separate component of equity on the consolidated statements of financial position, profit or loss, comprehensive income
and changes in equity attributed to controlling and non-controlling interests.
The preparation of the consolidated
financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates during
the years ended December 31, 2020 and 2019 include the provision for sales returns, allowance for withholding tax receivables, allowance
for doubtful accounts, useful life of fixed assets, and valuation of deferred tax assets. The estimated the amount for sales warranty
on the sale of robots during December 31, 2020 was $nil.
| 2.6 | Foreign currency translation |
The reporting
currency of the Company is the U.S. dollar (“USD”). The functional currency of Guardforce, AI Holdings, AI Robots, Horizon
Dragon, Southern Ambition, is the USD. The functional currency of AI Hong Kong is the Hong Kong dollar. The functional currency of AI
Thailand and GF Cash (CIT) to the Thai Baht (“Baht” or “THB”).
The currency exchange rates that impact
our business are shown in the following table:
| |
Period End Rate | | |
Average Rate | |
| |
As of December 31, | | |
For the Year Ended | |
| |
2020 | | |
2019 | | |
2020 | | |
2019 | |
Thai Baht | |
| 0.0333 | | |
| 0.0334 | | |
| 0.0320 | | |
| 0.0324 | |
Hong Kong Dollar | |
| 0.1282 | | |
| 0.1280 | | |
| 0.1282 | | |
| 0.1280 | |
| 2.7 | Financial risk management |
| 2.7.1 | Financial risk factors |
The Company’s activities expose
it to a variety of financial risks: foreign exchange risk, interest rate risk and liquidity risk. The Company’s overall risk management
program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial
performance.
The Company is exposed to foreign exchange
risk arising from various currency exposures, primarily with respect to the THB, Hong Kong Dollar and the USD. Foreign exchange risk arises
when future commercial transactions or recognized assets and liabilities are denominated in a currency that is not the respective reporting
currency of the Company’s subsidiaries. The functional currency of the Company and majority of its overseas subsidiaries is the
USD whereas the functional currency of the subsidiaries which operate in Thailand is the THB. The Company currently does not hedge transactions
undertaken in foreign currencies but manages its foreign exchange risk by performing regular reviews of the Company’s net foreign
exchange exposures.
If the THB had strengthened/weakened
by 1.56% against the USD (the average monthly variance during the 2-year period ended December 31, 2020 with all other variables held
constant, the post-tax profit would have been approximately $210,000 higher/lower and $193,000 higher/lower, for the years ended December
31, 2020 and 2019, respectively, as a result of net foreign exchange gains/losses on translation of net monetary assets denominated in
the THB/USD which is not the functional currency of the respective Company’s entities.
The Company’s exposure to changes
in interest rates are mainly attributable to its borrowings and loans. At the reporting date, if interest rates on borrowings had been
100 basis points higher/lower with all other variables held constant, the Company’s post-tax results for the year would have been
approximately $12,000 and $132,000 lower/higher for the years ended December 31, 2020 and 2019, respectively, mainly as a result of higher/lower
interest expense on floating rate borrowings.
Prudent liquidity management implies
maintaining sufficient cash and cash equivalents and the availability of funding through an adequate amount of committed credit facilities.
The Company’s primary cash requirements
are for operating expenses and purchases of fixed assets. The Company mainly finances its working capital requirements from cash generated
from operation and proceeds from bank borrowings and finance leases.
The Company’s policy is to regularly
monitor current and expected liquidity requirements to ensure it maintains sufficient cash and cash equivalents and an adequate amount
of committed credit facilities to meet its liquidity requirements in the short and long term.
At the reporting date, the contractual
undiscounted cash flows of the Company’s current financial liabilities approximate their respective carrying amounts due to their
short maturities.
The table below analyses the Company’s
non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual
maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, including interest if applicable.
Year ended December 31, 2020 | |
Due
Within 1 year | | |
1 to 5 years | | |
>5 years | | |
Total | |
|
Trade and other payables | |
$ | 1,540,411 | | |
$ | - | | |
$ | - | | |
$ | 1,540,411 | |
Borrowings from financial institutions | |
| 494,994 | | |
| 993,869 | | |
| - | | |
| 1,488,863 | |
Borrowings from related parties | |
| - | | |
| 19,085,812 | | |
| - | | |
| 19,085,812 | |
Amount due to related parties | |
| 1,670,469 | | |
| - | | |
| | | |
| 1,670,469 | |
Other current liabilities | |
| 1,249,106 | | |
| - | | |
| - | | |
| 1,249,106 | |
Income tax payables | |
| 284,627 | | |
| - | | |
| - | | |
| 284,627 | |
Lease liabilities | |
| 2,211,984 | | |
| 2,106,429 | | |
| - | | |
| 4,318,413 | |
Finance lease liabilities | |
| 701,796 | | |
| 1,074,047 | | |
| - | | |
| 1,775,843 | |
Provision for employee benefits | |
| 479,261 | | |
| 1,478,194 | | |
| 36,040,019 | | |
| 37,997,474 | |
| |
$ | 8,632,648 | | |
$ | 24,738,351 | | |
$ | 36,040,019 | | |
$ | 69,411,018 | |
Year ended December 31, 2019 | |
Due Within 1 year | | |
1 to 5 years | | |
>5 years | | |
Total | |
|
Trade and other payables | |
$ | 1,765,322 | | |
$ | - | | |
$ | - | | |
$ | 1,765,322 | |
Borrowings from financial institutions | |
| 1,969,666 | | |
| 199,447 | | |
| - | | |
| 2,169,113 | |
Borrowings from third party | |
| 14,303,359 | | |
| - | | |
| - | | |
| 14,303,359 | |
Borrowings from related party | |
| 1,499,998 | | |
| 1,437,303 | | |
| - | | |
| 2,937,301 | |
Other current liabilities | |
| 1,895,113 | | |
| - | | |
| - | | |
| 1,895,113 | |
Lease liabilities | |
| 3,354,144 | | |
| 3,058,601 | | |
| 76,007 | | |
| 6,488,752 | |
Finance lease liabilities | |
| 617,178 | | |
| 1,885,872 | | |
| - | | |
| 2,473,050 | |
Provision for employee benefits | |
| 463,787 | | |
| 1,239,353 | | |
| 41,217,320 | | |
| 42,920,460 | |
| |
$ | 25,868,567 | | |
$ | 7,790,576 | | |
$ | 41,293,327 | | |
$ | 74,952,470 | |
| 2.7.2 | Capital risk management |
The Company’s objectives on managing
capital are to safeguard the Company’s ability to continue as a going concern and support the sustainable growth of the Company
in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to enhance
shareholders’ value in the long term.
In order to maintain or adjust the capital
structure, the Company may adjust the amount of dividends paid to shareholders, return of capital to shareholders, issue new shares or
sell assets to reduce debt.
In the opinion of the directors of the
Company, the Company’s capital risk is low.
The Coronavirus Disease (COVID-19) outbreak
and the measures taken to contain the spread of the pandemic have created a high level of uncertainty to global economic prospects and
this has impacted the Company’s operations and its financial performance in year 2020. As COVID-19 continues to evolve with significant
level of uncertainty, management of the Company is unable to reasonably estimate the full financial impact of COVID-19 on the Company’s
financial results in year 2021. The Company is monitoring the situation closely and to mitigate the financial impact, it is conscientiously
managing its cost by adopting an operating cost reduction strategy and conserving liquidity by working with major creditors to align repayment
obligations with receivable collections. Based on the Company’s most recent projections for year 2021 and with over $8 million in
cash and cash equivalents, management of the Company believes that the Company will be able to continue to operate as a going concern
in the foreseeable future for at least the next 12 months.
| 2.8 | Fair value measurements |
Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
When determining the fair value measurement for assets and liabilities required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would
use when pricing the asset or liability.
Accounting guidance establishes a fair
value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level input that is
significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:
Level 1—Observable inputs
that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Include other inputs
that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs
which are supported by little or no market activity.
Accounting guidance also describes three
main approaches to measuring the fair value of assets and liabilities: the (1) market approach, (2) income approach and (3) cost
approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable
assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement
is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that
would currently be required to replace an asset.
Financial assets and liabilities of
the Company mainly consist of cash and cash equivalents, restricted cash, trade and other receivables, amounts due from related parties,
and other current assets, trade payables, amounts due to related parties, accruals and other liabilities. As of December 31, 2020 and
2019, the carrying values of cash and cash equivalents, restricted cash, trade receivables, amounts due from related parties, prepayments
and other current assets, trade payables, amounts due to related parties, accruals and other liabilities approximate their fair values
due to the short-term maturity of these instruments.
| 2.9 | Cash and cash equivalents and
restricted cash |
Cash and cash equivalents include highly
liquid investments with original maturities of three months or less.
Restricted cash represents cash pledged
with a local bank as collateral for bank guarantees issued by those banks in respect of project performance and for electricity usage.
The restricted cash for projects that are expected to be completed within one year are classified as a current asset.
| 2.10 | Accounts receivable, net and other
receivables |
Accounts and other receivables are recorded
at net realizable value consisting of the carrying amount less an allowance for doubtful accounts as needed. The allowance for doubtful
accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts and other
receivables and accounts receivable from related parties. The Company determines the allowance for its accounts receivable from contracted
customers based on aging data, historical collection experience, customer specific facts and economic conditions. The Company writes off
accounts receivable when amounts are deemed uncollectible. The Company extends unsecured credit to its customers in the ordinary course
of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts.
In determining the amount of the allowance
for doubtful accounts, prior to January 1, 2020, the Company applied the following percentages: 5% to receivables from 61 to 90 days;
30% to receivables from 91 to 180 days and 60% to receivables from 181 to 365 days. Account balances older than one year were charged
off against the allowance after all means of collection of been exhausted (both legally and commercially speaking) and the potential
for recovery was considered remote. No allowance was established for the Company’s due from related parties and other receivables
as the amounts were deemed fully collectible. During the year ended December 31, 2020, the Company revised its allowance methodology
to a specific provision basis in that an allowance for doubtful accounts is established and recorded based on management’s assessment
of the credit history of its customers and current relationships with them. This revision in the allowance methodology did not have any
material effect on the Company’s net accounts receivable as of December 31, 2019.
The Company did not have any write offs
during the years ended December 31, 2020 and 2019. The Company recognized a recovery of its bad debt expense of $2,872 and $19,554 during
the years ended December 31, 2020 and 2019, respectively.
Inventory solely consists of robots
and are stated at the lower of cost, determined on a weighted average basis, or 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.
When inventory is sold, their carrying amount is charged to expense in the period in which the revenue is recognized. Write-downs for
declines in net realizable value or for losses of inventories are recognized as an expense in the period the impairment or loss occurs.
No allowance for slow moving or obsolete inventory was recorded for the year ended December 31, 2020.
During the year ended December 31, 2020,
all inventory was purchased from a related party.
| 2.12 | Withholding taxes receivable |
Withholding tax is a deduction from
payments made to suppliers who provide services. The withholding tax rates can vary depending on the type of income and the tax status
of the recipient. Based on tax rules currently in effect, the withholding tax rate is 3% for commercial contracts and 1% for governmental
contracts in Thailand, which amounts are refundable. The Company generally files its request for a withholding tax refund by the end of
May of the following year for withholding tax deducted in the previous year. Once the request for withholding tax refund is submitted
to the Thai Revenue Department, the request will be subject to audit and review. Since it is difficult to predict the time required by
the Thai Revenue Department to complete its audit and approve the relevant refund, except for known amount to be collected within the
next 12 months, the Company has reflected its withholding tax receivable as a non-current asset in its statements of financial position
for amounts due from the Revenue Department.
Withholding tax receivable is recorded
net of related provision for amount that could be challenged by the taxing authority. Such provision represents the Company’s best
estimate based on recent collection history. Loans to related party
| 2.13 | Loans to related party |
The Company recognizes the contractual
right to receive money on demand or on fixed or determinable dates as loans receivable. For those that the contractual maturity date is
less than one year, the Company records as short-term loans receivable.
The Company recognizes interest income
on an accrual basis using the straight-line method over the fixed or determinable dates.
Fixed assets are stated at cost less
accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing
use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties
are capitalized.
Depreciation is calculated using the
straight-line method over the following estimated useful lives:
|
|
Estimated |
|
|
useful life |
Leasehold improvements |
|
Lesser of useful life or remaining lease term |
Tools and equipment |
|
5 years |
Furniture, fixtures and office equipment |
|
5 years |
Vehicles |
|
5,10 years |
GDM machines |
|
5 years |
Robots |
|
5 years |
| 2.15 | Assets under construction |
Assets under construction are stated
at cost less impairment losses, if any. Cost comprises direct costs of construction as well as interest expense and exchange differences
capitalized during the periods of construction and installation. Capitalization of these costs ceases and the related assets under construction
are transferred to property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended
use are completed. No depreciation is provided for assets under construction until they are completed and ready for intended use.
| 2.16 | Intangible assets, net |
Intangible assets represent computer
software. The intangible assets are recorded at historic acquisition costs, and amortized on a straight-line basis over their estimated
useful lives.
Costs associated with maintaining computer
software programs are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing
of identifiable and unique software products controlled by the Company will be recognized as intangible assets when the criteria of intangible
assets are met.
Intangible assets are not amortized
where their useful lives are assessed to be indefinite. The useful life of an intangible asset that is not being amortized is reviewed
annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. Otherwise,
the change in useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance
with the policy for amortization of intangible assets with finite lives as set out above.
| 2.17 | Impairment of long-lived assets |
At the end of each reporting period,
the Company reviews the carrying amounts of its long-lived assets to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company
estimates the recoverable amount of the cash-generating unit to which the asset belongs. The Company did not incur any impairment loss
during the years ended December 31, 2020 and 2019.
| 2.18 | Trade and other payables |
Trade and other payables are recognized
at fair value.
| 2.19 | Interest-bearing borrowings |
Interest-bearing borrowings are recognized
initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated
at amortized cost with any difference between the amount initially recognized and redemption value being recognized in profit or loss
over the period of the borrowings, together with any interest and fees payable, using the effective interest method.
| 2.20 | Revenue from contracts with customers |
The Company generates its revenue primarily
from rendering the following services: (i) Cash-In-Transit - Non Dedicated Vehicle (Non-DV); (ii) Cash-In-Transit - Dedicated Vehicle
(DV); (iii) ATM management; (iv) Cash Processing (CPC); (v) Cash Center Operations (CCT); (vi) Cheque Center Service (CDC); (vii) Express
Cash; (viii) Coin Processing Service; (ix) Cash Deposit Management Solutions and (x) Robotics AI Solutions.
The Company recognizes revenue when
it has transferred to its customer control over the service rendered. Control refers to the ability of the customer to direct and obtain
substantially all the transferred service’s benefits. Also, it implies that the customer has the ability to prevent a third-party
from directing the use and obtaining substantially all the benefits of the transferred service. The Company’s management applies
the following considerations to analyze the moment in which the control of the service is transferred to the customer.
| ● | Identify the contract or quotation
with the agreed service price. |
| ● | Evaluate the services engaged
in the customer’s contract and identify the related performance obligations. |
|
● |
Consider the contract terms and commonly accepted practices in the business to determine the transaction price. The transaction price is the consideration that the Company expects to be entitled for delivering the services engaged with the customer. The consideration engaged in a customer’s contract is generally a fixed amount. |
|
● |
Allocate the transaction price, if necessary, to each performance obligation (to each good or service that is different) for an amount that represents the part of the benefit that the Company expects to receive in exchange for the right of delivering the services engaged with the customer. |
|
● |
Recognize revenue when the Company satisfied the performance obligation through the rendering of services engaged. |
All of the conditions mentioned above
are accomplished normally when the services are rendered to the customer and revenue is recognized when the Company satisfied the performance
obligation over time or point in time depending on the service type as described in the following table. The reported revenue reflects
services delivered at the contract or agreed-upon price.
Revenue is recognized when the related
performance obligation is satisfied.
|
|
|
|
|
|
|
|
Fixed Fees |
Service Type |
|
|
|
|
|
Performance Obligations |
|
Per
delivery /
order |
|
Per
month |
Cash-In-Transit (CIT) – Non Dedicated Vehicles (Non-DV) |
|
|
(a) |
|
|
Delivery from point A to point B per customer request. Service obligation is generally completed within same day. |
|
√ |
|
|
Cash-In-Transit (CIT) – Dedicated Vehicles to Banks (DV) |
|
|
(a) |
|
|
Delivery from point A to point B per customer request. Service obligation is generally completed within same day. |
|
√ |
|
|
ATM Management |
|
|
(a) |
|
|
Includes replenishment of ATM machines and first level maintenance services. Service obligation is generally completed within the same day. |
|
√ |
|
|
Cash Processing (CPC) |
|
|
(b) |
|
|
Cash counting, sorting and vaulting services for customers in the retail industry. |
|
|
|
√ |
Cash Center Operations (CCT) |
|
|
(b) |
|
|
Cash counting, sorting and depositing for local commercial banks on behalf of Bank of Thailand (BOT). |
|
|
|
√ |
Cheque Center Service (CDC) |
|
|
(b) |
|
|
Handles cheque consolidation and distribution on behalf of local commercial bank. |
|
|
|
√ |
Express Cash |
|
|
|
|
|
Armored trucks (with onboard GDM) and crew teams are assigned to collect cash on behalf of local commercial banks. Service obligation is generally completed within the same day. |
|
√ |
|
|
Coin Processing Service |
|
|
|
|
|
Armored vehicles and crew teams are assigned to collect/deliver coins to/from customer sites. Service obligation is generally completed within the same day. |
|
√ |
|
|
Cash Deposit Management Solutions |
|
|
(b) |
|
|
Cash deposit machine (Guardforce Digital Machine – GDM) are installed at the customers’ sites for the collection of cash. |
|
|
|
√ |
Robotics AI Solutions – sale of robots |
|
|
(a) |
|
|
Sale transaction deemed completed upon customer’s acknowledgment of receipt of robot |
|
√ |
|
|
Robotics AI Solutions – rental of robots |
|
|
(b) |
|
|
Robots are placed at the customer’s site and they are leased out for a fixed term |
|
|
|
√ |
The Company does not offer promotional
payments, customer coupons, rebates or other cash redemption offers to its customers. Except for the sale of robots, customer’s
billing is generally prepared on a monthly basis once service delivery reports have been received and the invoice amount has been confirmed
with the customers. Standard payment is 45 days, but it may be 45 to 60 days depending on the individual customer contract.
| (a) | Revenue is recognized net of sales
taxes and upon transfer of significant risks and rewards of ownership to customers. Revenue is not recognized to the extent where there
are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. |
| (b) | Related service revenue or rental
income is recognized on a straight-line basis at the end of each month over the term of the lease. |
Disaggregation information of revenue by service
type is as follows:
| |
For the year ended December 31, | |
| |
2020 | | |
Percentage
of Total | | |
2019 | | |
Percentage
of Total | |
Service Type | |
(USD) | | |
Revenue | | |
(USD) | | |
Revenue | |
Cash-In-Transit – Non-Dedicated Vehicles (CIT Non-DV) | |
$ | 12,045,914 | | |
| 32.0 | % | |
$ | 12,052,738 | | |
| 31.2 | % |
Cash-In-Transit - Dedicated Vehicle to Banks (CIT DV) | |
| 4,822,354 | | |
| 12.8 | % | |
| 4,958,139 | | |
| 12.9 | % |
ATM Management | |
| 12,542,613 | | |
| 33.3 | % | |
| 14,024,291 | | |
| 36.4 | % |
Cash Processing (CPC) | |
| 2,842,209 | | |
| 7.5 | % | |
| 2,283,835 | | |
| 5.9 | % |
Cash Center Operations (CCT) | |
| 3,256,423 | | |
| 8.6 | % | |
| 3,661,135 | | |
| 9.5 | % |
Cheque Center Service (CDC) | |
| 61,197 | | |
| 0.2 | % | |
| 394,290 | | |
| 1.0 | % |
Others ** | |
| 399,977 | | |
| 1.1 | % | |
| 38,570 | | |
| 0.1 | % |
Cash Deposit Management Solutions (GDM) | |
| 1,457,307 | | |
| 3.9 | % | |
| 1,158,082 | | |
| 3.0 | % |
Robotics AI solutions | |
| 220,788 | | |
| 0.6 | % | |
| - | | |
| - | |
Total | |
$ | 37,648,782 | | |
| 100.0 | % | |
$ | 38,571,080 | | |
| 100.0 | % |
| ** | Others include primarily revenue
from express cash and coin processing services. |
During the year ended December 31, 2020,
revenue amounting to $37,433,467 and $215,315 were generated from third parties and a related party, respectively.
Cost of revenue consists primarily
of internal labor costs and related benefits, and other overhead costs that are directly attributable to services provided.
During the year ended December 31, 2020,
cost of revenue amounting to $30,478,783 and $895,315 were generated from third parties and related parties, respectively.
Income tax expense represents the sum
of the tax currently payable and deferred tax. Income taxes are charged to consolidated statements of profit or loss as they are incurred.
Current income taxes are recorded in
the results of the year they are incurred.
Deferred tax is recognized on temporary
differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax
bases used in the computation of taxable profit or loss. Deferred tax liabilities are generally recognized for all taxable temporary differences.
Deferred tax assets are generally recognized for all deductible temporary differences, including tax loss carry forwards and certain tax
credits, to the extent that it is probable that future taxable profits, reversal of existing taxable temporary differences will be available
against which those deductible temporary differences can be utilized after considering future tax planning strategies. Such deferred tax
assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax assets are recognized for
all deductible temporary differences, the carry forward of unused tax credits and any unused tax carryforward losses. Deferred tax assets
are recognized to the extent that it is probable that taxable profit and reversal of existing taxable temporary differences will be available
against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred
tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits
and reversal of existing taxable temporary differences will allow the deferred tax asset to be recovered.
Deferred tax liabilities are recognized
for taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except where
the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse
in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests
are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits
of the temporary differences and they are expected to reverse in the foreseeable future.
Net deferred income taxes are classified
as a non-current asset or liability, regardless of when the temporary differences are expected to reverse.
Deferred tax assets and deferred tax
liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred
taxes relate to the same taxable entity and the same taxation authority.
Deferred tax assets and liabilities
are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realized, based
on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred
tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of
the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Provisions are recognized for
liabilities of uncertain timing or amount when the Company has a legal or constructive obligation arising as a result of a past
event, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be estimated
reliably. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to
settle the obligation.
Where it is probable that an outflow
of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability,
unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the
occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow
of economic benefits is remote.
The Company provides for retirement
benefits payable for employees of its subsidiaries in Thailand under the Thai Labor Law; and follows IFRS 19 in accounting for the related
obligation. Depending upon the individual employee’s salary and years of service, the related obligation is calculated by an independent
actuary using the projected unit credit method. The present value of the obligation is determined by discounting with the interest rates
of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating
the terms of the related liabilities. The sensitivity analysis is determined by i) discount rate; ii) salary increase rate; iii) turnover
rate; and iv) life expectancy.
All re-measurements effects of the Company’s
retirement benefit obligation such as actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions
are recognized directly in other comprehensive income.
As of December 31, 2020 and 2019, actuarial
loss of $8,772 and $131,713, net of tax had been recognized in other comprehensive income, respectively.
From 1 January 2019, in accordance with
IFRS 16, leases with terms greater than 12 months are recognized as a right-of-use asset (“ROU”) and a corresponding lease
liability at the date in which the leased asset is available for use by the Company. Contracts may contain both lease and non-lease components.
The Company allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present
value of fixed payments.
Lease payments to be made under reasonably
certain extension options are also included in the measurement of the liability.
The lease payments are discounted using
the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases of the Company,
the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds
necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security
and conditions. To determine the incremental borrowing rate, the Company uses recent third-party financing received by the individual
lessee as a starting point, adjusted to reflect changes in financing conditions.
Lease payments are allocated between
principal and finance cost. The finance cost is charged to profit and loss over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at
cost comprising the following:
| ● | The amount of the initial measurement
of the lease liability |
| ● | any lease payments made at or
before the commencement date less any lease incentives received |
Right-of-use assets are depreciated
over the shorter of the asset’s useful life or the lease term on a straight-line basis. The lease terms of buildings and others
are generally less than ten years and less than five years, respectively.
Payments associated with leases with
a lease term of 12 months or less on the Company’s equipment and vehicles and all leases of low-value assets are recognized on a
straight-line basis as an expense in profit or loss.
Parties are considered to be related
if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party
in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant
influence, such as a family member or relative, shareholder, or a related corporation.
| 2.27 | Earnings (Loss) per share (“EPS”) |
Basic EPS is calculated by dividing
the net profit (loss) available to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated by using the weighted average number of ordinary shares outstanding adjusted to include the potentially dilutive
effect of outstanding share-based awards and convertible debt instruments, unless their inclusion in the calculation is anti-dilutive.
| 2.28 | Recent Accounting Pronouncements |
All new standards and amendments that
are effective for annual reporting period commencing January 1, 2020 have been applied by the Company for the year ended December 31,
2020. The adoption of these new and amended standards did not have material impact on the consolidated financial statements of the Company.
A number of new standards and amendments to standards have not come into effect for the year beginning January 1, 2020, and they have
not been early adopted by the Company in preparing these consolidated financial statements. None of these new standards and amendments
to standards is expected to have a significant effect on the consolidated financial statements of the Company.
| 3. | CASH, CASH EQUIVALENTS AND
RESTRICTED CASH |
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Cash on hand | |
$ | 392,803 | | |
$ | 403,017 | |
Cash in bank | |
| 8,021,241 | | |
| 5,675,674 | |
Subtotal | |
| 8,414,044 | | |
| 6,078,691 | |
Restricted cash | |
| 1,715,866 | | |
| 1,609,030 | |
Cash, cash equivalents, and restricted cash | |
$ | 10,129,910 | | |
$ | 7,687,721 | |
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Robots at warehouse | |
$ | 252,411 | | |
$ | - | |
Robots in transit | |
| 242,670 | | |
| - | |
Inventory | |
$ | 495,081 | | |
$ | - | |
No allowance for slow moving or obsolete
inventory was recorded for the year ended December 31, 2020.
| 5. | ACCOUNTS RECEIVABLE, NET |
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Accounts receivable | |
$ | 5,468,911 | | |
$ | 5,567,629 | |
Allowance for doubtful accounts | |
| - | | |
| (2,999 | ) |
Accounts receivable, net | |
$ | 5,468,911 | | |
$ | 5,564,630 | |
The following tables details the Company’s net accounts
receivables as of:
December 31, 2020
| |
Current | | |
<30 | | |
31-60 | | |
61-90 | | |
91 and over | | |
Total | |
Gross carrying amount | |
$ | 5,073,178 | | |
$ | 250,408 | | |
$ | 103,581 | | |
$ | 14,891 | | |
$ | 26,853 | | |
$ | 5,468,911 | |
Allowance | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net | |
$ | 5,073,178 | | |
$ | 250,408 | | |
$ | 103,581 | | |
$ | 14,891 | | |
$ | 26,853 | | |
$ | 5,468,911 | |
December 31, 2019
| |
Current | | |
<30 | | |
31-60 | | |
61-90 | | |
91 and over | | |
Total | |
Gross carrying amount | |
$ | 5,235,436 | | |
$ | 247,109 | | |
$ | 74,014 | | |
$ | 3,690 | | |
$ | 7,380 | | |
$ | 5,567,629 | |
Allowance | |
| - | | |
| - | | |
| - | | |
| (184 | ) | |
| (2,815 | ) | |
| (2,999 | ) |
Net | |
$ | 5,235,436 | | |
$ | 247,109 | | |
$ | 74,014 | | |
$ | 3,506 | | |
$ | 4,565 | | |
$ | 5,564,630 | |
Below is a roll forward of the allowance for doubtful
accounts:
Balance at December 31, 2018 | |
$ | (21,316 | ) |
Recovery of bad debts | |
| 19,554 | |
Write off | |
| - | |
Exchange difference | |
| (1,237 | ) |
Balance at December 31, 2019 | |
| (2,999 | ) |
Recovery of bad debts | |
| 2,872 | |
Write off | |
| - | |
Exchange difference | |
| 127 | |
Balance at December 31, 2020 | |
$ | - | |
| 6. | WITHHOLDING TAX RECEIVABLES,
NET |
| |
2020 | | |
2019 | |
Balance at January 1 | |
$ | 6,865,971 | | |
$ | 5,405,006 | |
Addition | |
| 728,165 | | |
| 960,497 | |
Collection | |
| (1,527,771 | ) | |
| - | |
Write off | |
| (710,219 | ) | |
| - | |
Allowance for uncollectible | |
| (1,055,775 | ) | |
| - | |
Exchange difference | |
| (75,332 | ) | |
| 500,468 | |
Balance at December 31 | |
$ | 4,225,039 | | |
$ | 6,865,971 | |
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Current portion | |
$ | 690,487 | | |
$ | - | |
Non-current portion | |
| 3,534,552 | | |
| 6,865,971 | |
Withholding tax receivables, net | |
$ | 4,225,039 | | |
$ | 6,865,971 | |
During 2020, the Company received a
withholding taxes refund for THB 47,812,370 (approximately $1.5 million) in connection with the Company’s 2013 to 2015 withholding
taxes refund applications (totaled THB 89,268,913 or approximately $2.9 million): the balance of the refund amounted to THB 20,724,273
(approximately $0.7 million) was received in January 2021. The Company wrote off approximately $0.7 million, representing the difference
between the receivable recorded and amount of known refund from the Thai Revenue Department. The Company did not have any write offs during
the year ended December 31, 2019.
Out of prudence, based on amount written
off for the receivable related to year 2013 to 2015, the Company recorded an allowance of approximately $1.1 million against its withholding
taxes receivable for year 2016 through 2020.
| 7. | OTHER CURRENT AND OTHER NON-CURRENT
ASSETS |
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Input VAT receivable | |
$ | 134,746 | | |
$ | 268,680 | |
Prepayments - office rental | |
| 952,616 | | |
| 958,853 | |
Prepayments - insurance | |
| 292,095 | | |
| 94,849 | |
Prepayments - others | |
| 51,920 | | |
| 144,151 | |
Uniforms | |
| 17,954 | | |
| 28,887 | |
Tools and supplies | |
| 135,553 | | |
| 158,049 | |
Other current assets | |
$ | 1,584,884 | | |
$ | 1,653,469 | |
| |
| | | |
| | |
Deposits | |
$ | 361,275 | | |
$ | 532,074 | |
Other non-current assets | |
$ | 361,275 | | |
$ | 532,074 | |
| |
Leasehold improvements | | |
Machinery and equipment | | |
Office decoration and equipment | | |
Vehicles | | |
Assets under construction | | |
GDM machines | | |
Robots | | |
Total | |
Cost | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
At December 31, 2018 | |
$ | 2,888,288 | | |
$ | 6,467,812 | | |
$ | 6,081,943 | | |
$ | 17,614,629 | | |
$ | 950,095 | | |
$ | - | | |
$ | - | | |
$ | 34,002,767 | |
Additions | |
| - | | |
| 122,942 | | |
| 53,015 | | |
| 85,919 | | |
| 521,817 | | |
| - | | |
| - | | |
| 783,693 | |
Disposals | |
| (1,608 | ) | |
| (217,140 | ) | |
| (117,215 | ) | |
| (1,349,460 | ) | |
| - | | |
| - | | |
| - | | |
| (1,685,423 | ) |
Transfers in (out) | |
| 464,241 | | |
| 188,902 | | |
| 501,710 | | |
| 59,604 | | |
| (1,214,457 | ) | |
| - | | |
| - | | |
| - | |
Exchange differences | |
| 265,841 | | |
| 565,630 | | |
| 542,869 | | |
| 1,494,372 | | |
| 70,482 | | |
| - | | |
| - | | |
| 2,939,194 | |
At December 31, 2019 | |
| 3,616,762 | | |
| 7,128,146 | | |
| 7,062,322 | | |
| 17,905,064 | | |
| 327,937 | | |
| - | | |
| - | | |
| 36,040,231 | |
Additions | |
| 38,876 | | |
| 62,626 | | |
| 136,497 | | |
| 25,237 | | |
| - | | |
| 285,510 | | |
| 860,026 | | |
| 1,408,772 | |
Disposals | |
| (2,365 | ) | |
| (1,363,245 | ) | |
| (26,512 | ) | |
| (16,570 | ) | |
| (2,774 | ) | |
| - | | |
| - | | |
| (1,411,466 | ) |
Transfers in (out) | |
| - | | |
| (44,953 | ) | |
| (1,164,305 | ) | |
| - | | |
| (311,237 | ) | |
| 1,520,495 | | |
| - | | |
| - | |
Exchange differences | |
| (4,166 | ) | |
| (68,734 | ) | |
| (56,194 | ) | |
| (27,969 | ) | |
| (13,926 | ) | |
| 77,111 | | |
| 24,924 | | |
| (68,954 | ) |
At December 31, 2020 | |
| 3,649,107 | | |
| 5,713,840 | | |
| 5,951,808 | | |
| 17,885,762 | | |
| - | | |
| 1,883,116 | | |
| 884,950 | | |
| 35,968,583 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Accumulated Depreciation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
At December 31, 2018 | |
| 2,353,333 | | |
| 5,503,362 | | |
| 4,527,915 | | |
| 11,442,195 | | |
| - | | |
| - | | |
| - | | |
| 23,826,805 | |
Depreciation charged for the year | |
| 173,026 | | |
| 608,396 | | |
| 421,050 | | |
| 1,461,122 | | |
| - | | |
| - | | |
| - | | |
| 2,663,594 | |
Disposal | |
| (857 | ) | |
| (216,853 | ) | |
| (118,117 | ) | |
| (1,347,936 | ) | |
| - | | |
| - | | |
| - | | |
| (1,683,763 | ) |
Exchange differences | |
| 210,147 | | |
| 491,089 | | |
| 403,440 | | |
| 998,943 | | |
| - | | |
| - | | |
| - | | |
| 2,103,619 | |
As December 31, 2019 | |
| 2,735,649 | | |
| 6,385,994 | | |
| 5,234,288 | | |
| 12,554,324 | | |
| - | | |
| - | | |
| - | | |
| 26,910,255 | |
Depreciation charged for the year | |
| 186,209 | | |
| 430,228 | | |
| 219,724 | | |
| 1,426,001 | | |
| - | | |
| 288,495 | | |
| 24,646 | | |
| 2,575,303 | |
Disposal | |
| (2,365 | ) | |
| (1,363,070 | ) | |
| (26,152 | ) | |
| (16,568 | ) | |
| - | | |
| | | |
| - | | |
| (1,408,155 | ) |
Transfers in (out) | |
| - | | |
| (11,747 | ) | |
| (290,802 | ) | |
| - | | |
| - | | |
| 302,549 | | |
| - | | |
| - | |
Exchange differences | |
| 3,520 | | |
| (50,439 | ) | |
| (12,436 | ) | |
| 40,307 | | |
| - | | |
| 25,236 | | |
| 638 | | |
| 6,826 | |
As December 31, 2020 | |
| 2,923,013 | | |
| 5,390,966 | | |
| 5,124,622 | | |
| 14,004,064 | | |
| - | | |
| 616,280 | | |
| 25,284 | | |
| 28,084,229 | |
Net book value | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
At December 31, 2020 | |
$ | 726,094 | | |
$ | 322,874 | | |
$ | 827,186 | | |
$ | 3,881,698 | | |
$ | - | | |
$ | 1,266,836 | | |
$ | 859,666 | | |
$ | 7,884,354 | |
At December 31, 2019 | |
$ | 881,113 | | |
$ | 742,152 | | |
$ | 1,828,034 | | |
$ | 5,350,740 | | |
$ | 327,937 | | |
$ | - | | |
$ | - | | |
$ | 9,129,976 | |
There was no impairment of fixed assets
recorded for the years ended December 31, 2020 and 2019. No fixed assets were pledged as security for bank borrowings.
| 9. | RIGHT-OF-USE ASSETS AND OPERATING
LEASE LIABILITIES |
The carrying amounts of right-of-use assets are
as below:
| |
2020 | | |
2019 | |
As at January 1 | |
$ | 6,173,590 | | |
$ | 5,927,711 | |
New leases | |
| 532,978 | | |
| 2,321,780 | |
Depreciation expense | |
| (2,506,446 | ) | |
| (2,583,318 | ) |
Exchange difference | |
| (9,771 | ) | |
| 507,417 | |
Net book amount at December 31 | |
$ | 4,190,351 | | |
$ | 6,173,590 | |
Lease liabilities were measured at the
present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate. The weighted average incremental
borrowing rate applied to new leases during year 2020 and 2019 was 3.25% and 4.08%, respectively.
During the year ended December 31, 2020,
interest expense of $146,723 arising from lease liabilities was included in finance costs. Depreciation expense related to right-of-use
assets was $2,506,446 during the year ended December 31, 2020.
| 10. | INTANGIBLE ASSETS, NET |
| |
Computer | |
| |
software | |
Cost | |
| | |
At December 31, 2018 | |
$ | 846,958 | |
Additions | |
| 47,163 | |
Exchange difference | |
| 75,165 | |
At December 31, 2019 | |
| 969,286 | |
Additions | |
| 26,316 | |
Disposals | |
| (141 | ) |
Exchange difference | |
| (416 | ) |
At December 31, 2020 | |
| 995,045 | |
| |
| | |
Accumulated amortization | |
| | |
At December 31, 2018 | |
| 617,618 | |
Amortization charged for the year | |
| 43,129 | |
Exchange difference | |
| 55,087 | |
As December 31, 2019 | |
| 715,834 | |
Amortization charged for the year | |
| 54,745 | |
Disposals | |
| (141 | ) |
Exchange difference | |
| 1,199 | |
As December 31, 2020 | |
| 771,637 | |
| |
| | |
Net book value | |
| | |
At December 31, 2020 | |
$ | 223,408 | |
At December 31, 2019 | |
$ | 253,452 | |
| 11. | TRADE AND OTHER PAYABLES AND
OTHER CURRENT LIABILITIES |
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Trade accounts payable – third parties | |
$ | 1,366,482 | | |
$ | 1,400,504 | |
Accrued salaries and bonus | |
| 140,321 | | |
| 29,386 | |
Accrued customer claims, cash loss and shortage** | |
| 33,608 | | |
| 36,048 | |
Trade and other payables | |
$ | 1,540,411 | | |
$ | 1,465,938 | |
| |
| | | |
| | |
Output VAT | |
$ | 114,877 | | |
$ | 100,710 | |
Accrued Expenses | |
| 375,815 | | |
| 931,457 | |
Payroll Payable | |
| 560,051 | | |
| 624,453 | |
Other Payables | |
| 198,363 | | |
| 238,493 | |
Other current liabilities | |
$ | 1,249,106 | | |
$ | 1,895,113 | |
| ** | Includes a provision for penalty
for failure to meet certain performance indicators as stipulated in certain customer contracts for approximately $14,600 and $10,000
respectively. |
| 12. | BORROWINGS FROM FINANCIAL INSTITUTIONS |
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Current portion of long-term borrowings | |
$ | 494,994 | | |
$ | 1,969,666 | |
Long-term borrowings | |
| 993,869 | | |
| 199,447 | |
Borrowings from financial institutions | |
$ | 1,488,863 | | |
$ | 2,169,113 | |
The Company maintains borrowings with
one financial institution. The borrowings are used for working capital purposes to support its business operations in Thailand. For the
year ended December 31, 2020, the Company borrowed five bank loans carrying interest at the rates of MLR minus 1%, MLR minus 1%, MLR minus
1%, 2%, 2%. For the year ended December 31, 2019, the Company maintained borrowings from two separate financial institutions. The borrowings
carried interests at the rates of MLR (6.25%) minus 1% and BIBOR (6M) plus 3%, respectively. Borrowings are due to mature and repayable
on Aug 31, 2021, November 31, 2021, June 30, 2023, May 31, 2022 and April 7, 2025. For the years ended December 31, 2020 and 2019, interest
expense was $82,779 and $81,191, respectively.
As of December 31, 2020, the Company
has unused bank overdraft availability of approximately $330,000 and unused trust receipts availability of approximately $1,700,000.
| 13. | SHORT-TERM BORROWINGS FROM
THIRD PARTY |
On April 29, 2018, Guardforce TH Group
Company Limited entered into an agreement with Profit Raider Investment Limited (“Profit Raider”) to transfer the loan between
Guardforce TH and the Company to Profit Raider. As a result, the Company recorded a short-term borrowing from a third party in the amount
of $13.42 million bearing interest at 4% from April 30, 2019 to December 31, 2019 and 3.22% prior to April 30, 2019. The Company assumed
an additional liability of approximately $576,000 which has been treated as an additional expense paid to the related party in 2018. The
holding companies have guaranteed the short-term borrowings from Profit Raider which amount is due on December 31, 2020. Profit Raider
became a 10% shareholder of the Company as a result of a share transfer transaction in March 2020 and therefore this borrowing is presented
as a related party loan and the loan was extended to December 31, 2022 bearing interest at 4% (see Note 21).
For the years ended December 31, 2020
and 2019, interest expense was $579,039 (Note 21) and $293,827, respectively.
| 14. | FINANCE LEASE LIABILITIES |
|
|
As of December 31, |
|
|
|
2020 |
|
|
2019 |
|
Current portion |
|
$ |
632,105 |
|
|
$ |
591,997 |
|
Non-current portion |
|
|
1,023,366 |
|
|
|
1,658,096 |
|
Finance lease liabilities |
|
$ |
1,655,471 |
|
|
$ |
2,250,093 |
|
For the years ended December 31, 2020
and 2019, interest expense was $98,405 and $135,708, respectively.
The minimum lease payments under finance
lease agreements are as follows:
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Within 1 year | |
$ | 701,796 | | |
$ | 617,178 | |
After 1 year but within 5 years | |
| 1,074,047 | | |
| 1,855,872 | |
Less: Finance charges | |
| (120,372 | ) | |
| (222,957 | ) |
Present value of finance lease liabilities, net | |
$ | 1,655,471 | | |
$ | 2,250,093 | |
Finance leased assets comprise primarily
vehicles and office equipment as follow:
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Cost | |
$ | 3,172,647 | | |
$ | 8,459,215 | |
Less: Accumulated depreciation | |
| (937,442 | ) | |
| (4,226,875 | ) |
Net book value | |
$ | 2,235,205 | | |
$ | 4,232,340 | |
Value added tax (“VAT”)
The Company is subject to a statutory
VAT of 7% for services in Thailand. The output VAT is charged to customers who receive services from the Company and the input VAT is
paid when the Company purchases goods and services from its vendors. The input VAT can be offset against the output VAT. The VAT
payable is presented on the statements of financial position when input VAT is less than the output VAT. A recoverable balance is
presented on the statements of financial position when input VAT is larger than the output VAT.
Income taxes
Cayman Islands
The Company is incorporated in the Cayman
Islands. Under the current laws of the Cayman Islands, the Company is not subject to income or capital gains taxes. In addition, dividend
payments are not subject to withholding tax in the Cayman Islands.
British Virgin Islands
The Company’s subsidiary incorporated
in the BVI is not subject to taxation.
Hong Kong
The Company’s subsidiary incorporated
in Hong Kong is subject to a corporate income tax rate of 16.5% on Hong Kong service income.
Thailand
The Company’s subsidiary incorporated
in Thailand is subject to a corporate income tax rate of 20%.
Pre-tax loss, by jurisdiction, for the
years ended December 31, 2020 and 2019 is as follows:
| |
For the years ended December 31, | |
| |
2020 | | |
2019 | |
Cayman Islands | |
$ | (1,711,094 | ) | |
$ | (714,196 | ) |
BVI | |
| (12,345 | ) | |
| (6,945 | ) |
Hong Kong | |
| (63,483 | ) | |
| (39,828 | ) |
Thailand | |
| (1,112,496 | ) | |
| 909,519 | |
| |
$ | (2,899,418 | ) | |
$ | 148,550 | |
The components of the income tax provision
are:
| |
For the years ended December 31, | |
| |
2020 | | |
2019 | |
Current income tax expense | |
$ | 261,586 | | |
$ | - | |
Deferred income tax (benefit) expense | |
| (18,749 | ) | |
| 88,473 | |
Total income tax expense | |
$ | 242,837 | | |
$ | 88,473 | |
Reconciliation between the statutory
tax rate to income before income taxes and the actual provision for income taxes is as follows:
| |
For the years ended December 31, | |
| |
2020 | | |
2019 | |
Profit before income tax expense* | |
$ | 864,207 | | |
$ | 909,519 | |
Thailand income tax statutory rate | |
| 20 | % | |
| 20 | % |
Income tax at statutory tax rate | |
| 172,841 | | |
| 181,904 | |
Permanent differences | |
| 69,996 | | |
| (93,431 | ) |
Income tax expense | |
$ | 242,837 | | |
$ | 88,473 | |
| * | This amount represents assessable
profit before income tax after adjustments for non-deductible and non-taxable expense items from the Thailand operating entity. |
Deferred tax assets and liabilities
are comprised of the following:
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Provision for employee benefits | |
$ | 1,368,335 | | |
$ | 1,287,959 | |
Net operating loss carried forwards | |
| 1,105 | | |
| 134,869 | |
Deferred tax assets | |
| 1,369,440 | | |
| 1,422,828 | |
Less: | |
| | | |
| | |
Deferred tax liabilities - finance leases | |
| 331,094 | | |
| 414,308 | |
Deferred tax assets, net | |
$ | 1,038,346 | | |
$ | 1,008,520 | |
| 16. | PROVISION FOR EMPLOYEE BENEFITS |
The Company has a defined benefit plan
based on the requirement of the Thailand Labor Protection Act B.E.2541 (1988) to provide retirement benefits to employees based on pensionable
remuneration and length of service which are considered as unfunded. There were no plan assets set up and the Company will pay benefits
when needed.
According to IAS 19 (Revised 2017),
the use of Projected Unit Credit (PUC) Cost Method is required in order to determine the actuarial liability based on past service and
expected future salary. Thus, the actuarially acceptable assumptions on salary scale are needed. Actuarial assumptions on other components
of the benefit formulas are also required to measure the obligation such as demographic assumptions and financial assumptions. All of
these assumptions are important because they are directly related to a possibility of actuarial gains and losses. Moreover, the obligations
are measured on a discounted basis because they may be settled many years after the employees render the related service.
The following assumptions
have been adopted for this actuarial valuation:
Demographic Assumptions:
| 1. | Mortality Table (Annual Death
Rate): Male and Female Thai Mortality Ordinary Tables of 2017 (TMO 2017) which is the latest mortality table from the Office of Insurance
Commission in Thailand. |
|
2. |
Annual Disability Rate: 5% of the Male and Female TMO 2017. |
|
3. |
Annual Voluntary Resignation: Age related rates as follows. |
Age Group (Years) | |
Annual Voluntarily Resignation Rate of Direct Cost Staff | | |
Annual Voluntarily Resignation Rate of Indirect Cost Staff | |
Below 31 | |
| 18 | % | |
| 33 | % |
31-40 | |
| 8 | % | |
| 19 | % |
41-50 | |
| 6 | % | |
| 15 | % |
Above 50 | |
| 0 | % | |
| 0 | % |
| 4. | Annual Forced Resignation: Age
related rates as follows. |
Age Group (Years) | |
Annual Forced Resignation Rate | |
Below 31 | |
| 0 | % |
31-40 | |
| 0 | % |
41-50 | |
| 0 | % |
Above 50 | |
| 0 | % |
Financial Assumptions:
|
1. |
Discount Rate: Single weighted average discount rate is 1.26% per year based on the zero coupon yield rate of government bonds in Thailand from the Thai Bond Market Association (Thai BMA) as of December 31, 2020. Duration (or single weighted average remaining time to retire) is 12 years. |
|
2. |
Salary Increase Rate: 3.00% per year. The projected salary is calculated at the time of retirement or forced resignation. |
|
3. |
Taxes payable by the plan: The contributions are not a tax-deductible expense according to the Revenue Department in Thailand so there are no taxes payable by the plan |
Movement in the present value of the defined benefit
obligation:
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Defined benefit obligations at January 1, | |
$ | 6,439,795 | | |
$ | 5,619,337 | |
Benefits paid during the year | |
| (517,531 | ) | |
| (611,610 | ) |
Current service costs | |
| 770,934 | | |
| 691,767 | |
Interest | |
| 96,019 | | |
| 145,589 | |
Past service cost and gain (loss) on settlement | |
| 36,939 | | |
| (68,898 | ) |
Actuarial loss | |
| 8,772 | | |
| 164,641 | |
Exchange differences | |
| 6,745 | | |
| 498,969 | |
Defined benefit obligations at December 31, | |
$ | 6,841,673 | | |
$ | 6,439,795 | |
The following table presents the sensitivity
analysis for each significant actuarial assumption with a variation of 1.0% in the assumptions as of the end of the reporting period:
December 31, 2020
Assumption | |
% Change (+) in Assumption | |
Liability | | |
Amount Change in Liability | | |
% Change in Liability | | |
% Change (-) in Assumption | |
Liability | | |
Amount Change in Liability | | |
% Change in Liability | |
Discount Rate | |
1 | |
$ | 6,246,875 | | |
$ | (594,798 | ) | |
| -8.69 | | |
-1 | |
$ | 7,540,239 | | |
$ | 698,566 | | |
| 10.21 | |
Salary Increase Rate | |
1 | |
| 7,303,544 | | |
| 461,871 | | |
| 6.75 | | |
-1 | |
| 6,442,685 | | |
| (398,988 | ) | |
| -5.83 | |
Turnover Rate | |
1 | |
| 6,515,632 | | |
| (326,041 | ) | |
| -4.77 | | |
-1 | |
| 6,990,881 | | |
| 149,208 | | |
| 2,18 | |
Life Expectancy | |
+1 Year | |
| 6,860,711 | | |
| 19,038 | | |
| 0.28 | | |
-1 Year | |
| 6,822,778 | | |
| (18,895 | ) | |
| -0.28 | |
December 31, 2019
Assumption | |
% Change (+) in Assumption | |
Liability | | |
Amount Change in Liability | | |
% Change in Liability | | |
% Change (-) in Assumption | |
Liability | | |
Amount Change in Liability | | |
% Change in Liability | |
Discount Rate | |
1 | |
$ | 5,877,653 | | |
$ | (562,142 | ) | |
| -8.73 | | |
-1 | |
$ | 7,098,037 | | |
$ | 658,242 | | |
| 10.22 | |
Salary Increase Rate | |
1 | |
| 6,832,393 | | |
| 392,599 | | |
| 6.10 | | |
-1 | |
| 6,098,352 | | |
| (341,443 | ) | |
| -5.3 | |
Turnover Rate | |
1 | |
| 6,131,013 | | |
| (308,782 | ) | |
| -4.79 | | |
-1 | |
| 6,576,958 | | |
| 137,163 | | |
| 2.13 | |
Life Expectancy | |
+1 Year | |
| 6,458,065 | | |
| 18,207 | | |
| 0.28 | | |
-1 Year | |
| 6,421,657 | | |
| (18,137 | ) | |
| -0.28 | |
Maturity profile of the defined benefit obligation as of
December 31, are as follow:
Year | |
Defined Benefit Obligation | |
2021 | |
$ | 479,261 | |
2022 | |
$ | 382,777 | |
2023 | |
$ | 307,729 | |
2024 | |
$ | 296,453 | |
2025 | |
$ | 491,235 | |
2026 | |
$ | 407,832 | |
2027 | |
$ | 665,504 | |
2028 | |
$ | 391,612 | |
2029 | |
$ | 371,439 | |
2030 | |
$ | 530,725 | |
2031-2045 | |
$ | 16,658,962 | |
>2045 | |
$ | 17,013,945 | |
On August 20, 2021, the shareholders
of the Company approved a 1 for 3 reverse split of the Company’s authorized and issued ordinary shares whereby every three shares
were consolidated into one share (the “Reverse Split”). In addition, the par value of each ordinary share increased from $0.001
to $0.003. The financial statements and all share and per share amounts have been retroactively restated to reflect the Reverse Split.
As of December 31, 2019, 16,666,663
ordinary shares were issued at par value of $0.003, equivalent to share capital of $50,000. On February 5, 2020, the shareholders of the
Company authorized an increase in the authorized shares of the Company from 16,666,663 ordinary shares to 100,000,000 ordinary shares.
In March 2020, the Company issued 689,427 ordinary shares (see Note 18) at par value. Total ordinary shares issued as of December 31,
2020 was 17,356,090, equivalent to share capital of approximately $52,069. As of December 31, 2020 and 2019, subscription receivable for
these shares was $50,000. During 2020, the Company recorded a capital distribution to the controlling shareholder for approximately $380,000,
representing the amount of a related party receivable/loan written off.
| 18. | STOCK-BASED COMPENSATION |
On December 16, 2019, the Company entered
into an agreement and plan of merger (the “Merger Agreement”) with VCAB Eight Corporation, a Texas corporation (“VCAB”),
pursuant to which, subject to certain preconditions being satisfied, it was agreed that VCAB would merge with and into the Company. The
main objective of the Merger was to increase the Company’s shareholder base to, among other things, assist the Company in satisfying
the listing standards of a national security exchange in the United States. The Merger was completed effective on March 10, 2020, and
the separate existence of VCAB ceased on that date. As consideration for the Merger, the Company agreed to issue an aggregate of 877,025
shares of capital stock (“Plan Shares’) to VCAB’s claim holders. As of December 31, 2020, the Company has issued, 689,427
of the Plan Shares to approximately 670 designated and Bankruptcy Court approved claim holders. During 2021, the Company issued 187,598
of the Plan Shares to additional claim holders upon their approval by the Bankruptcy Court. Following the completion of this process,
the Company has approximately 1,300 holders of its outstanding ordinary shares. The Company recorded the fair value of the shares in connection
to the 877,025 shares issued in the merger transaction of $18,826 as stock-based compensation expense.
On January 8, 2020, Guardforce AI Service
Ltd. entered into agreements with and transferred 833,333 shares each, totaling 1,666,666 of the Company’s ordinary shares, to,
Mr. Terence Wing Khai Yap, the Company’s Chairman and Ms. Lei Wang, the Company’s Chief Executive officer. The shares, deemed
as issuances by the Company, were transferred to Mr. Yap and Ms. Wang as compensation for serving in their roles as the Company’s
Chairman and Chief Executive Officer, respectively. The Company accounted for these transfers as stock-based compensation expenses; the
aggregate charge was $46,341, representing the fair value of the shared being transferred.
On March 13, 2020, the Company’s
Board of Directors approved the transfer of 1,666,666 ordinary shares of Guardforce AI Co. Limited from Guardforce AI Technology to Profit
Raider Investments Limited (“Profit Raider”) to fulfil a short-term borrowing transaction (Note 13). This transfer is deemed
an issuance by the Company and the Company recorded a charge of stock-based compensation expense of $35,769.
| 19. | ADMINISTRATIVE EXPENSES |
| |
For the years ended December 31, | |
| |
2020 | | |
2019 | |
Staff expense | |
$ | 2,759,505 | | |
$ | 2,201,515 | |
Rental expense | |
| 702,664 | | |
| 547,513 | |
Depreciation and amortization expense | |
| 167,380 | | |
| 153,316 | |
Utilities expense | |
| 120,236 | | |
| 131,810 | |
Travelling and entertainment expense | |
| 138,707 | | |
| 108,021 | |
Professional fees | |
| 932,891 | | |
| 391,273 | |
Repairs and maintenance | |
| 70,443 | | |
| 104,813 | |
Employee benefits | |
| 548,628 | | |
| 358,287 | |
Other service fees | |
| 273,333 | | |
| 282,322 | |
Other expenses** | |
| 960,685 | | |
| 474,696 | |
| |
$ | 6,674,472 | | |
$ | 4,753,566 | |
| ** | Other expenses mainly comprised
of stock-based compensation, office expenses, stamp duties, training costs, etc. |
Under the provisions of the Civil and
Commercial Code, GF Cash (CIT) is required to set aside as a legal reserve at least 5% of the profits arising from the business of the
Company at each dividend distribution until the reserve is at least 10% of the registered share capital. The legal reserve is non-distributable.
The Company reserve has met the legal reserve requirement of $223,500 as of December 31, 2020 and 2019.
| 21. | RELATED PARTY TRANSACTIONS |
The table below sets forth the major
related parties and their relationships with the Company as of December 31, 2020:
Name of related parties |
|
Relationship with the Company |
Tu Jingyi (“Mr. Tu”) |
|
Controlling shareholder |
Long Top Limited |
|
Mr. Tu’s father is the majority shareholder |
Guardforce TH Group Company Limited |
|
Mr. Tu’s father is the majority shareholder |
Guardforce Security (Thailand) Company Limited |
|
Mr. Tu’s father is the majority shareholder of its ultimate holding company |
Bangkok Bank Public Company Limited |
|
Minority shareholder |
Shenzhen Junwei Investment Development Company Limited |
|
Minority shareholder |
Guardforce Aviation Security Company Limited |
|
Mr. Tu’s father is the majority shareholder of its ultimate holding company |
Guardforce 3 Limited |
|
Mr. Tu’s father is the majority shareholder |
Guardforce Group Limited |
|
Controlled by Mr. Tu’s father |
Guardforce AI Technology Limited |
|
Holding Company |
Guardforce AI Service Limited |
|
Holding Company |
Profit Raider Investment Limited |
|
10% shareholder effective March 2020 |
Shenzhen Douguaer Investment Partnership |
|
Ultimately controlled by Mr. Tu |
Guardforce Holdings (HK) Limited |
|
Controlled by Mr. Tu’s father |
Guardforce Limited |
|
Mr. Tu’s father is the majority shareholder of its ultimate holding company |
Shenzhen Intelligent Guardforce Robot Technology Co., Limited |
|
Controlled by Mr. Tu |
Perfekt Technology & System Co., Ltd. |
|
Mr. Tu’s father is the majority shareholder of its ultimate holding company |
The principal related party balances
and transactions as of and for the years ended December 31, 2020 and 2019 are as follows:
Amounts due from related parties:
| |
| |
As of December 31, | |
| |
| |
2020 | | |
2019 | |
Guardforce Group Limited | |
(a) | |
$ | - | | |
$ | 11,966 | |
Guardforce TH Group Company Limited | |
(a) | |
| 6,026 | | |
| 92,078 | |
Guardforce AI Technology Limited | |
(a) | |
| - | | |
| 850 | |
Guardforce AI Service Limited | |
(a) | |
| - | | |
| 850 | |
Bangkok Bank Public Company Limited | |
(b) | |
| 443 | | |
| - | |
Guardforce Limited | |
(c) | |
| 20,647 | | |
| - | |
Shenzhen Intelligent Guardforce Robot Technology Co., Limited | |
(d) | |
| 346,152 | | |
| - | |
| |
| |
$ | 373,268 | | |
$ | 105,744 | |
| (a) | Amounts due from Guardforce Group
Limited, Guardforce TH Group Company Limited, Guardforce AI Technology Limited and Guardforce AI Service Limited were business advances
for operational purposes. In May 2020, the company wrote off approximately $80,000 of amount due from Guardforce TH Group Company Limited.
The write off is recorded as a capital distribution. |
|
(b) |
Amounts due from Bangkok Bank Public Company Limited represents trade receivables for service provided by the Company. |
|
(c) |
Amounts due from Guardforce Limited represents primarily trade receivables for the sale of robots. The balance was fully settled in January 2021. |
|
(d) |
Amounts due from Shenzhen Intelligent Guardforce Robot Technology Co., Limited comprised of $187,665 advance to suppliers for the purchase of robots and $158,487 commission receivable. |
Long-term loan to related party:
| |
As of December 31, | |
| |
2020 | | |
2019 | |
Long Top Limited | |
$ | - | | |
$ | 315,173 | |
On April 27, 2018, the Company made
a long term loan to Long Top Limited with an interest of 3%. The loan was due on December 31, 2019 and it was further extended to December
31, 2021. All interest and principal are due on the same date. On January 1, 2020, the Company wrote off the outstanding loan to Long
Top Limited of approximately $300,000. The write off is recorded as a capital distribution.
Amounts due to related parties:
| |
| |
As of December 31, | |
| |
| |
2020 | | |
2019 | |
Tu Jingyi | |
(b) | |
$ | 88,047 | | |
$ | 67,139 | |
Shenzhen Junwei Investment Development Company Limited | |
(a) | |
| 225,085 | | |
| 224,766 | |
Guardforce 3 Limited | |
(a) | |
| - | | |
| 5,751 | |
Shenzhen Douguaer Investment Partnership | |
(a) | |
| - | | |
| 1,728 | |
Guardforce Holdings (HK) Limited | |
(c) | |
| 156,782 | | |
| - | |
Profit Raider Investment Limited | |
(b) | |
| 1,136,664 | | |
| - | |
Guardforce Aviation Security Company Limited | |
(d) | |
| 1,224 | | |
| - | |
Guardforce Security (Thailand) Company Limited | |
(d) | |
| 62,667 | | |
| - | |
| |
| |
$ | 1,670,469 | | |
$ | 299,384 | |
| (a) | Amounts due to Shenzhen Junwei
Investment Development Company Limited, Guardforce 3 Limited and Shenzhen Douguaer Investment Partnership represent non-interest bearing
advances from related parties. In May 2020, the amount due to Guardforce 3 Limited was forgiven. |
| (b) | Amounts due to Tu Jingyi and Profit
Raider Investment Limited represented interest accrued on the respective loans. |
|
(c) |
Amounts due to Guardforce Holdings (HK) Limited comprised of $99,998 advances made and $56,784 accrued interests on the loans. |
|
(d) |
Amounts due to Guardforce Aviation Security Company Limited and Guardforce Security (Thailand) Company Limited represent accounts payable for services provided by related parties. |
Short-term borrowings from related parties:
| |
| |
As of December 31, | |
| |
| |
2020 | | |
2019 | |
Guardforce Holdings (HK) Limited | |
(a) | |
$ | - | | |
$ | 1,499,998 | |
Tu Jingyi | |
(b) | |
| - | | |
| 1,437,303 | |
| |
| |
$ | - | | |
$ | 2,937,301 | |
Long-term borrowings from related parties:
| |
| |
As of December 31, | |
| |
| |
2020 | | |
2019 | |
Guardforce Holdings (HK) Limited | |
(a) | |
$ | 4,140,500 | | |
$ | - | |
Tu Jingyi | |
(b) | |
| 1,437,303 | | |
| - | |
Profit Raider Investment Limited | |
(c) | |
| 13,508,009 | | |
| - | |
| |
| |
$ | 19,085,812 | | |
$ | - | |
| (a) | On December 31, 2019, the Company
entered into an agreement with Guardforce Holdings (HK) Limited whereby Guardforce Holdings (HK) Limited loaned $1,499,998 to the Company.
The loan is unsecured and it bears an interest rate of 3%. The loan was initially due on December 31, 2020. During the year ended December
31, 2020, the Company repaid $507,998 to partially settle the principal. The loan was extended to December 22, 2022 bearing interest
rate at 2%. For the years ended December 31, 2020 and 2019, interest expense on this loan was $19,840 and $123, respectively. |
On April 17, 2020, the Company borrowed
$2,735,000. The loan is unsecured and bears an interest rate at 2%. The loan is due on April 16, 2023. For the year ended December 31,
2020, interest expense on this loan was $34,187.
On September 9, 2020, the Company borrowed
$413,500. The loan is unsecured and it bears interest at 2%. The loan is due on September 8, 2023. For the year ended December 31, 2020,
interest expense on this loan was $2,757.
|
(b) |
On September 1, 2018, the Company entered into an agreement with Mr. Tu Jingyi whereby he lent $1,437,303 (RMB10 million) to the Company. The loan is unsecured with an interest at 3%. The loan was expired on August 31, 2019, which was extended to August 31, 2020. On September 1, 2020, the Company further extended the loan to August 31, 2022 with an interest rate at 1.5%. For the years ended December 31, 2020 and 2019, interest expense on this loan was $35,933 and approximately $38,000, respectively. |
|
(c) |
As of December 31, 2019, the loan from Profit Raider was presented as short-term borrowings from a third party (Note 13). On March 11, 2020, the Company entered into a second supplemental agreement to the loan agreement with Profit Raider to extend the due date of the loan to December 31, 2020. The outstanding principal amount due was $13,508,009 and the amount of interest accrued on the loan, calculated up to December 31, 2020 was $1,136,664. |
On March 13, 2020, the Company’s
Board of Directors approved the transfer of 1,666,666 ordinary shares of Guardforce AI Co. Limited from Guardforce AI Technology to Profit
Raider. As a result of this share transfer, Profit Raider is deemed an affiliate of the Company.
On December 31, 2020, the loan with
Profit Raider was extended to December 31, 2022 with the same terms and conditions. For the year ended December 31, 2020 and 2019, interest
expense was $579,039 and $293,827 (Note 13), respectively.
Related party transactions:
| |
| |
For the years ended December 31, | |
| |
Nature | |
2020 | | |
2019 | |
Service/ Products received from related parties: | |
| |
| | | |
| | |
Guardforce Security (Thailand) Company Limited | |
(a) | |
$ | 714,625 | | |
$ | 415,604 | |
Guardforce Aviation Security Company Limited | |
(b) | |
| 13,190 | | |
| 4,219 | |
Perfekt Technology & System Co., Ltd. | |
(c) | |
| 35,842 | | |
| - | |
Shenzhen Intelligent Guardforce Robot Technology Co., Limited – Purchases | |
(d) | |
| 1,584,873 | | |
| - | |
Profit Raider Investment Limited | |
(e) | |
| 150,000 | | |
| - | |
| |
| |
$ | 2,498,530 | | |
$ | 419,823 | |
| |
| |
| | | |
| | |
Service/ Products delivered to related parties: | |
| |
| | | |
| | |
Bangkok Bank Public Company Limited | |
(f) | |
$ | 9,726 | | |
$ | - | |
Shenzhen Intelligent Guardforce Robot Technology Co., Limited – Commission | |
(g) | |
| 158,487 | | |
| - | |
Guardforce Limited – Sales | |
(h) | |
| 205,589 | | |
| - | |
| |
| |
$ | 373,802 | | |
$ | - | |
Nature of transactions:
|
(a) |
Guardforce Security (Thailand) Co., Ltd. provided security guard services to the Company; |
|
|
|
|
(b) |
Guardforce Aviation Security Co., Ltd. provided escort services to the Company; |
|
|
|
|
(c) |
Perfekt Technology & System Co., Ltd. provided security equipment to the Company; |
|
|
|
|
(d) |
The Company purchased robots from Shenzhen Intelligent Guardforce Robot Technology Co., Limited; |
|
|
|
|
(e) |
The Company paid $150,000 outstanding accrued interest to Profit Raider Investment Limited; |
|
|
|
|
(f) |
The Company provided CIT service to Bangkok Bank Public Company Limited; |
|
|
|
|
(g) |
Shenzhen Intelligent Guardforce Robot Technology Co., Limited shall pay commission to the Company for the robots purchased. |
|
|
|
|
(h) |
The Company sold robots to Guardforce Limited. |
| 22. | COMMITMENTS AND CONTINGENCIES |
Executives/directors agreements
The Company has several employment agreements
with executives and directors with the latest expiring in 2024. All agreements provide for automatic renewal options with varying terms
of one year or three years unless terminated by either party. Future payments for employment agreements as of December 31, are as follows:
| |
Amount | |
Years ending December 31: | |
| |
2021 | |
$ | 510,463 | |
2022 | |
| 358,951 | |
2023 | |
| 285,000 | |
2024 | |
| 1,538 | |
Total minimum payment required | |
$ | 1,155,952 | |
Contracted expenditure commitments
The Company’s contracted expenditures
commitments as of December 31, 2020 but not provided in the consolidated financial statements are as follows:
| |
| |
Payments Due by Period | |
| |
| |
| | |
Less than | | |
1-3 | | |
4-5 | | |
More than | |
Contractual Obligations | |
Nature | |
Total | | |
1 year | | |
years | | |
years | | |
5 years | |
Service fee commitments | |
(a) | |
$ | 1,039,515 | | |
$ | 373,159 | | |
$ | 666,356 | | |
$ | - | | |
$ | - | |
Operating lease commitments | |
(b) | |
| 342,151 | | |
| 285,304 | | |
| 56,847 | | |
| - | | |
| - | |
| |
| |
$ | 1,381,666 | | |
$ | 658,463 | | |
$ | 723,203 | | |
$ | - | | |
$ | - | |
|
(a) |
The Company has commitments to pay certain service fees to Stander Information Company Limited, as its service provider to provide technical services for operating systems, that comprise a monthly fixed amount and certain other fees as specified in the agreement. |
|
|
|
|
(b) |
The Company has leased various low value items with various lease terms. |
Bank guarantees
As of December
31, 2020, the Company had commitments with banks for bank guarantees in favor of government agencies and others of approximately $3,164,000.
Litigation
As of the date
of filing, the Company is a defendant in various labor related lawsuits totaling approximately $773,858 Management believes these cases
are without merit and is confident that the Appeals Court will make the decision according to the consideration of the Court of First
Instance and order the dismissal of such lawsuits. Therefore, no provision has been made for these liabilities in the financial statements.
The following table sets forth information
as to each customer that accounted for 10% or more of the Company’s revenue for the years ended December 31, 2020 and 2019.
| |
For the years ended December 31, | |
| |
2020 | | |
% of revenue | | |
2019 | | |
% of revenue | |
Company A | |
$ | 10,237,481 | | |
| 27.2 | % | |
$ | 10,314,869 | | |
| 26.7 | % |
Company B | |
| 7,284,968 | | |
| 19.3 | % | |
| 7,032,721 | | |
| 18.2 | % |
Company C | |
| 3,296,691 | | |
| 8.8 | % | |
| 4,143,091 | | |
| 10.7 | % |
Company D | |
| 4,007,021 | | |
| 10.6 | % | |
| 2,831,833 | | |
| 7.3 | % |
| |
$ | 24,826,161 | | |
| 65.9 | % | |
$ | 24,322,514 | | |
| 62.9 | % |
Details of the customers which accounted
for 10% or more of accounts receivable are as follows:
| |
As of December 31, | |
| |
2020 | | |
% account receivable | | |
2019 | | |
% account receivable | |
Company A | |
$ | 803,031 | | |
| 14.7 | % | |
$ | 769,734 | | |
| 13.8 | % |
Company B | |
| 708,165 | | |
| 12.9 | % | |
| 653,256 | | |
| 11.7 | % |
Company C | |
| 584,928 | | |
| 10.7 | % | |
| 685,419 | | |
| 12.3 | % |
Company D | |
| 1,215,095 | | |
| 22.2 | % | |
| 1,155,864 | | |
| 20.8 | % |
| |
$ | 3,311,219 | | |
| 60.5 | % | |
$ | 3,264,273 | | |
| 58.6 | % |
Subsequent events have been reviewed
through the date the consolidated financial statements were issued and required no adjustments or disclosures other than the following:
On the February 4, 2021, the Company
announced the acquisition of a majority stake in information security consultants Handshake Networking Ltd (“Handshake”),
a Hong Kong-based company specializing in penetration testing. A total of 43,700 shares were issued and valued at $7.50 per share
in consideration for 51% of Handshake.
On August 20, 2021, in addition to the
Reverse Split (see Note 17), the shareholders of the Company also approved:
| ● | a proposal to resolve fractional
entitlements to the Company’s issued ordinary shares resulting from the Reserve Split – under the proposal, fractional shares
will be disregarded and will not be issued to the shareholders of the Company but all such fractional shares shall be redeemed in cash
for the fair value of such fractional share, with fair value being defined as the closing price of the ordinary shares on a post-reverse
split basis on the applicable trading market on the first trading date of the Company’s ordinary shares following the effectiveness
of the Reverse Split; and |
| ● | an increase in the Company’s
authorized ordinary shares from 100,000,000 to 300,000,000. |
| 25. | CONDENSED FINANCIAL INFORMATION
OF THE PARENT COMPANY |
The Company performed a test of its
restricted net assets of the consolidated subsidiaries in accordance with the Securities and Exchange Commission’s Regulation S-X
Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that it was applicable for the Company to disclose
the financial information of the parent company.
The subsidiaries did not pay any dividends
to the Company for the periods presented. For the purpose of presenting parent-only financial information, the Company records its investment
in its subsidiaries under the equity method of accounting. Such investment is presented on the separate condensed statement of financial
position of the Company as “Investment in subsidiaries”. Certain information and footnote disclosures generally included in
financial statements prepared in accordance with IFRS have been condensed or omitted.
The parent Company did not have significant
capital and other commitments, long-term obligations, or guarantees as of December 31, 2020 and 2019.
STATEMENTS OF FINANCIAL POSITION - PARENT COMPANY ONLY
| |
As of December 31, | |
| |
2020 | | |
2019 | |
| |
(Unaudited) | | |
(Unaudited) | |
Assets | |
| | |
| |
Current assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 1,030,340 | | |
$ | 1,508,244 | |
Other receivables | |
| - | | |
| 57,400 | |
Investment in subsidiaries | |
| 1,823,463 | | |
| 2,147,265 | |
Total assets | |
$ | 2,853,803 | | |
$ | 3,712,909 | |
| |
| | | |
| | |
Liabilities and equity | |
| | | |
| | |
| |
| | | |
| | |
Trade and other payables | |
$ | 116,084 | | |
$ | 1,014,593 | |
Long-term borrowings from related company | |
| 4,947,400 | | |
| 1,437,303 | |
Total liabilities | |
| 5,063,484 | | |
| 2,451,896 | |
| |
| | | |
| | |
Equity | |
| | | |
| | |
Ordinary Shares* –Authorized 100,000,000 shares, par value $0.003 (2019: Authorized 16,666,663 shares) | |
| 52,069 | | |
| 50,000 | |
Subscription receivable | |
| (50,000 | ) | |
| (50,000 | ) |
Additional paid in capital | |
| 2,082,795 | | |
| 2,360,204 | |
Legal reserve | |
| 223,500 | | |
| 223,500 | |
Deficit | |
| (4,722,294 | ) | |
| (1,596,270 | ) |
Accumulated other comprehensive income | |
| 204,249 | | |
| 273,579 | |
Total equity | |
| (2,209,681 | ) | |
| 1,261,013 | |
Total liabilities and equity | |
$ | 2,853,803 | | |
$ | 3,712,909 | |
| * | Giving retroactive effect to the
reverse split on August 20, 2021. |
STATEMENTS OF PROFIT AND LOSS AND COMPREHENSIVE LOSS -
PARENT COMPANY ONLY
| |
For the years ended December 31, | |
| |
2020 | | |
2019 | |
| |
(Unaudited) | | |
(Unaudited) | |
Revenue | |
$ | - | | |
$ | - | |
Cost of revenue | |
| - | | |
| - | |
Gross margin | |
| - | | |
| - | |
| |
| | | |
| | |
Administrative expenses | |
| (1,519,150 | ) | |
| (656,176 | ) |
Loss from operations | |
| (1,519,150 | ) | |
| (656,176 | ) |
| |
| | | |
| | |
Other income, net | |
| 9 | | |
| - | |
Finance cost | |
| (92,717 | ) | |
| (53,214 | ) |
Equity (loss) income from equity investments | |
| (1,514,166 | ) | |
| 763,425 | |
Net (loss) profit for the year | |
| (3,126,024 | ) | |
| 54,035 | |
Total comprehensive (loss) income for the year | |
$ | (3,126,024 | ) | |
$ | 54,035 | |
STATEMENTS OF CASH FLOWS – PARENT COMPANY ONLY
| |
For the years ended December 31, | |
| |
2020 | | |
2019 | |
| |
(Unaudited) | | |
(Unaudited) | |
Operating activities | |
| | | |
| | |
Net (loss) profit | |
$ | (3,126,024 | ) | |
$ | 54,035 | |
Adjustments to reconcile net income to net cash provided by operating activities | |
| | | |
| | |
Stock-based compensation | |
| 100,936 | | |
| - | |
Equity (loss) income from equity investments | |
| 1,514,166 | | |
| (763,425 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Other receivables, net | |
| 57,400 | | |
| 332,599 | |
Other payables | |
| 975,618 | | |
| 1,422,550 | |
Net cash provided by operating activities | |
| (477,904 | ) | |
| 1,045,759 | |
| |
| | | |
| | |
Net (decrease) increase in cash and cash equivalents, and restricted cash | |
| (477,904 | ) | |
| 1,045,759 | |
Cash and cash equivalents at beginning of year | |
| 1,508,244 | | |
| 462,485 | |
Cash and cash equivalents at end of year | |
$ | 1,030,340 | | |
$ | 1,508,244 | |
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference”
the information we file with it into this prospectus. This means that we can disclose important information about us and our financial
condition to you by referring you to another document filed separately with the SEC instead of having to repeat the information in this
prospectus. The information incorporated by reference is considered to be part of this prospectus and later information that we file with
the SEC will automatically update and supersede this information. We incorporate by reference into this prospectus the information contained
in the documents listed below and any future filings made by us with the SEC under Section 13(a), 13(c) or 15(d) of the Exchange Act,
except for information “furnished” to the SEC which is not deemed filed and not incorporated by reference into this prospectus
(unless otherwise indicated below), until the termination of the offering of securities described in the applicable prospectus supplement:
| ● | the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2020, filed with
the SEC on April 29, 2021; |
| ● | the Company’s Report on Form 6-K furnished to the SEC on December 17, 2021, containing our unaudited
consolidated financial statements for the six months ended June 30, 2021 and 2020; and |
| ● | the description of the Company’s Ordinary Shares contained in the Company’s Registration Statement
on Form 8-A12B (File No. 001-40848) filed with the SEC on September 28, 2021, pursuant to Section 12(b) of the Exchange Act, including
any amendment or report filed for the purpose of updating such description. |
We also incorporate by reference any future annual
reports on Form 20-F we file with the SEC under the Exchange Act after the date of this prospectus and prior to the termination of the
offering of securities by means of this prospectus, and any future reports of foreign private issuer on Form 6-K we furnish with the SEC
during such period that are identified in such reports as being incorporated by reference in this prospectus.
Any reports filed by us with the SEC after the
date of this prospectus and before the date that the offering of securities by means of this prospectus is terminated will automatically
update and, where applicable, supersede any information contained in this prospectus or incorporated by reference in this prospectus.
This means that you must look at all of the SEC filings that we incorporate by reference to determine if any of the statements in this
prospectus or in any documents incorporated by reference have been modified or superseded. Unless expressly incorporated by reference,
nothing in this prospectus shall be deemed to incorporate by reference information furnished to, but not filed with, the SEC.
We will provide without charge to any person (including
any beneficial owner) to whom this prospectus is delivered, upon oral or written request, a copy of any document incorporated by reference
in this prospectus but not delivered with the prospectus (except for exhibits to those documents unless a document states that one of
its exhibits is incorporated into the document itself). Such request should be directed to: Guardforce AI Co., Limited, 10 Anson Road,
#28-01 International Plaza, Singapore 079903, and telephone number +66 (0) 2973 6011.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part
of a registration statement on Form F-3 that we filed with the SEC registering the securities that may be offered and sold hereunder.
This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration
statement, the exhibits filed therewith or the documents incorporated by reference therein. For further information about us and the
securities offered hereby, reference is made to the registration statement, the exhibits filed therewith and the documents incorporated
by reference therein. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed
as an exhibit to the registration statement are not necessarily complete, and in each instance, we refer you to the copy of such contract
or other document filed as an exhibit to the registration statement. We are required to file reports and other information with the SEC
pursuant to the Exchange Act, including annual reports on Form 20-F and reports of foreign private issuer on Form 6-K.
The SEC maintains a website
that contains reports and other information regarding issuers, like us, that file electronically with the SEC. The address of the website
is www.sec.gov. The information on our website (https://www.guardforceai.com), other than our SEC filings, is not, and should not be,
considered part of this prospectus and is not incorporated by reference into this document.
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. In addition, we are not required under the Exchange Act to file periodic reports and financial statements
with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
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