The information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any state or other jurisdiction where the offer or sale is not permitted.

 

Filed Pursuant to Rule 424(b)(5)
Registration No. 333-261881

 

SUBJECT TO COMPLETION, DATED MAY 10, 2023

 

PRELIMINARY PROSPECTUS SUPPLEMENT

(To Prospectus dated January 5, 2022)

 

Ordinary Shares

Pre-Funded Warrants to Purchase up to          Ordinary Shares

 

 

GUARDFORCE AI CO., LIMITED

 

Pursuant to this prospectus supplement and the accompanying prospectus, Guardforce AI Co., Limited, a Cayman Islands exempted company with limited liability (the “Company,” “Guardforce,” “we,” “us,” and “our”) is offering up to ordinary shares, par value $0.12 per share (the “Ordinary Shares”) at a price of $          per share. We are also offering           pre-funded warrants (each a “Pre-funded Warrant”) to purchase up to           Ordinary Shares, exercisable at an exercise price of $0.12 per share, to those purchasers whose purchase of Ordinary Shares in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of our outstanding Ordinary Shares immediately following the consummation of this offering. The purchase price of each Pre-funded Warrant is $            , which equals the price per Ordinary Share being sold to the public in this offering, minus $0.12. The Pre-funded Warrants will be immediately exercisable upon issuance until exercised in full.

 

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 May 9, 2023 was $8.05 and $0.30, respectively. There is no established trading market for the Pre-funded Warrants and we do not intend to apply for listing of the pre-funded warrants on any national securities exchange. As of the date of this preliminary prospectus supplement, the aggregate market value of our outstanding Ordinary Shares held by non-affiliates is approximately $101.62 million, based on 3,915,533 Ordinary Shares issued and outstanding, of which approximately 3,265,525 Ordinary Shares are held by non-affiliates, and a per share price of $31.12 based on the closing price of our Ordinary Shares on April 12, 2023, 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 sold 1,978,494 Ordinary Shares pursuant to General Instruction I.B.5 of Form F-3, for aggregate gross proceeds of $ 9,199,997.10.

  

Investing in our securities involves a high degree of risk. Please read “Risk Factors” beginning on page S-25 of this prospectus supplement and on page 6 of the accompanying prospectus.

 

Neither the U.S. Securities and Exchange Commission nor any states securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

   Per Ordinary Share  

Per

Pre-Funded

Warrant

   Total (3) 
Offering Price  $   $   $ 
Underwriting discounts (1)  $   $   $ 
Proceeds, before expenses, to us  $                     $                     $              

 

(1) We will also pay the underwriter for certain expenses incurred in this offering. See “Underwriting” on page S-38 of this prospectus supplement for more information regarding the underwriting compensation.
(2) Assumes the underwriter does not exercise its over-allotment option.

 

We have granted the underwriter an option for a period ending 45 days after the closing date of this offering to purchase up to an additional          Ordinary Shares and/or            Pre-funded Warrants at the public offering price, less the underwriting discounts, solely to cover over-allotments, if any. If the underwriter exercises the option in full, the total underwriting discounts will be $        , and the total proceeds to us, before expenses, will be $        .

 

We expect that delivery of the Ordinary Shares and Pre-funded Warrants being offered pursuant to this prospectus supplement and the accompanying prospectus will be made on or about May 15, 2023, subject to customary closing conditions.

 

Lead Book-Running Manager

 

EF HUTTON

division of Benchmark Investments, LLC

 

Co-Manager

 

Spartan Capital Securities, LLC 

 

The date of this prospectus supplement is                    , 2023.

 

 

 

 

TABLE OF CONTENTS

 

Prospectus Supplement
     
  Page
About this Prospectus Supplement   S-ii
Use of Certain Defined Terms   S-iii
Forward-Looking Statements   S-vi
Prospectus Supplement Summary   S-1
Risk Factors   S-25
Use of Proceeds   S-30
Capitalization  S-31
Dilution   S-32
Description of Securities We Are Offering   S-33
Underwriting   S-38
Legal Matters   S-41
Experts   S-41
Incorporation of Certain Information by Reference   S-42
Where You Can Find More Information   S-42

 

Prospectus
   
About this Prospectus 1
Risk Factors 6
Forward-Looking Statements 9
Use of Proceeds 10
Capitalization and Indebtedness 10
Description of Share Capital 10
Description of Debt Securities 14
Description of Warrants 23
Description of Rights 24
Description of Units 24
Taxation 25
Plan of Distribution 25
Expenses of Issuance and Distribution 27
Legal Matters 27
Experts 27
Indemnification 27
Enforceability of Civil Liabilities 28
Material Changes 28
Financial Statements F-1
Incorporation of Certain Information by References 29
Where you can find more information 30

 

You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. We have not authorized anyone else to provide you with additional or different information. We are offering to sell, and seeking offers to buy Ordinary Shares only in jurisdictions where offers and sales are permitted. You should not assume that the information in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the front of those documents or that any document incorporated by reference is accurate as of any date other than its filing date.

 

No action is being taken in any jurisdiction outside the United States to permit a public offering of the Ordinary Shares or possession or distribution of this prospectus supplement or the accompanying prospectus in that jurisdiction. Persons who come into possession of this prospectus supplement or the accompanying prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus supplement and the accompanying prospectus applicable to that jurisdiction.

 

S-i

 

 

ABOUT THIS PROSPECTUS

 

ABOUT THIS PROSPECTUS SUPPLEMENT

 

On December 23, 2021, we filed with the U.S. Securities and Exchange Commission, or the SEC, a registration statement on Form F-3 (File No. 333-261881) utilizing a shelf registration process relating to the securities described in this prospectus supplement. The registration statement was declared effective on January 5, 2022. Under this shelf registration process, we have registered to sell, from time to time, up to $150 million in the aggregate of Ordinary Shares, debt securities, warrants, rights and units.

 

This document is in two parts. The first part is the prospectus supplement, which describes the specific terms of this offering and adds, updates and changes information contained in the accompanying prospectus. The second part is the accompanying prospectus, which gives more general information, some of which may not apply to this offering. To the extent there is a conflict between the information contained in this prospectus supplement, on the one hand, and the information contained in the accompanying prospectus or any document incorporated by reference in this prospectus supplement or the accompanying prospectus, on the other hand, you should rely on the information in this prospectus supplement. However, if any statement in one of these documents is inconsistent with a statement in another document having a later date — for example, a document incorporated by reference in this prospectus supplement or the accompanying prospectus — the statement in the document having the later date modifies or supersedes the earlier statement as our business, financial condition, results of operations and prospects may have changed since the earlier dates.

 

This prospectus supplement and the accompanying prospectus include important information about us, our Ordinary Shares and other information you should know before investing. You should carefully read this prospectus supplement, the accompanying prospectus, all information incorporated by reference herein and therein, as well as the additional information described under the heading “Where You Can Find More Information.”

 

This prospectus supplement and the accompanying prospectus may contain and incorporate by reference, market data and industry statistics and forecasts that are based on independent industry publications and other publicly available information. Although we believe these sources are reliable, we do not guarantee the accuracy or completeness of this information, and we have not independently verified this information. In addition, the market and industry data and forecasts that may be included or incorporated by reference in this prospectus supplement and the accompanying prospectus or any applicable free writing prospectus may involve estimates, assumptions and other risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” contained in this prospectus supplement and the accompanying prospectus and any applicable free writing prospectus, and under similar headings in other documents that are incorporated by reference into this prospectus supplement. Accordingly, investors should not place undue reliance on this information.

 

S-ii

 

 

USE OF CERTAIN DEFINED TERMS

 

Except as otherwise indicated by the context and for the purposes of this prospectus supplement only, references in this prospectus supplement to:

 

  ● “AI Holdings” are to Guardforce AI Holdings Limited (BVI), a BVI company and our wholly owned subsidiary;
     
  ● “AI Hong Kong” are to Guardforce AI Hong Kong Co., Limited, a Hong Kong company and our wholly owned subsidiary;
     
  ● “AI Robots” are to Guardforce AI Robots Limited (BVI), a BVI company and our wholly owned subsidiary;
     
  ● “AI Singapore” are to Guardforce AI Singapore Pte Ltd., a Singapore company and our wholly owned subsidiary;
     
  ● “AI Technology” are to Guardforce AI Technology Limited, a BVI company;
     
  ● “AI Thailand” are to Guardforce AI Group Co., Limited (Thailand), a Thailand company and Southern Ambition’s 49% owned subsidiary;
     
  ● “Baht” and “THB” are to the legal currency of Thailand;
     
  ● “Bank of Thailand” or “BOT” are to Thailand’s central bank;
     
  ● “BVI” are to the British Virgin Islands;
     
  ● “Beijing Wanjia” are to Beijing Wanjia Security System Limited, a PRC company and Shenzhen GFAI’s wholly owned subsidiary;
     
  ● “Cayman Islands” are to the Cayman Islands;
     
  ● “CIT” are to cash-in-transit or cash/valuables-in-transit;
     
  ● “Companies Act” are to the Companies Act (As Revised), as consolidated and revised, of the Cayman Islands;
     
  ● “Exchange Act” are to the Securities Exchange Act of 1934, as amended;
     
  ● “FINRA” are to the Financial Industry Regulatory Authority;
     
  ● “GF Cash (CIT)” are to Guardforce Cash Solutions Security (Thailand) Co., Ltd., a Thailand company and AI Thailand’s 99.07% owned subsidiary;

 

S-iii

 

 

  ●

“Guardforce,” “we,” “us,” “our” and the “Company” are to the combined business of GUARDFORCE AI CO., LIMITED, a Cayman Islands exempted company, its subsidiaries and other consolidated entities;

     
  ● “GFAI Japan” are to GFAI Robot Service GK, a Japan company and AI Hong Kong’s wholly owned subsidiary;
     
  ● “GFAI Korea” are to GFAI Robot Service Co., Ltd., a South Korea company and AI Hong Kong’s wholly owned subsidiary;
     
  ● “GFAI R&I” are to GFAI Robotic and Innovation Solution (Thailand) Company Limited, a Thailand company and AI Thailand’s 98% owned subsidiary;
     
  ● “GFAI UK” are to GFAI Robot Service (UK) Limited, a UK company and Robot Service Hong Kong’s wholly owned subsidiary;
     
  ● “GFAI Canada” are to GFAI Robot Service Limited, a company incorporated in the Province of Ontario, Canada, and Robot Service Hong Kong’s wholly owned subsidiary;
     
  ● “GFAI Vietnam” are to GFAI Robot Service (Vietnam) Co., Ltd, a Vietnam company and AI Hong Kong’s wholly owned subsidiary, on March 22, 2023, the Company deregistered AI Vietnam;
     
  ● “Guangzhou GFAI” are to Guangzhou GFAI Technology Co., Limited, formerly known as Guangzhou Kewei Robot Technology, a PRC company and Shenzhen GFAI’s wholly owned subsidiary;
     
  ● “Handshake” are to Handshake Networking Limited, a Hong Kong company and our 51% owned subsidiary;
     
  ● “Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China;
     
  ● “Horizon Dragon” are to Horizon Dragon Limited (BVI), a BVI company and AI Holdings’ wholly owned subsidiary;
     
  ● “Japan” are to Japan;
     
  ● “PRC” and “China” are to the People’s Republic of China;
     
  ● “Robotics BVI” are to GFAI Robotics Group Co., Limited, a BVI company and our wholly owned subsidiary;
     
  ● “Robotics Malaysia” are to GF Robotics Malaysia Sdn. Bhd., a Malaysia company and Robotics BVI’s wholly owned subsidiary;
     
  ● “Robot Service Hong Kong” are to GFAI Robot Service (Hong Kong) Limited, a Hong Kong company and Robotics BVI’s wholly owned subsidiary;
     
  ● “Robot Service Australia” are to GFAI Robot Service (Australia) Pty Ltd., an Australia company and Robot Service Hong Kong’s wholly owned subsidiary;

 

S-iv

 

 

  ● “Robotics US” are to GFAI Robotics Services LLC, a Delaware limited liability company and Robotics BVI’s wholly owned subsidiary;
     
  ● “Robotics Macau” are to Macau GF Robotics Limited, a Macau company and Robotics BVI’s wholly owned subsidiary;
     
  ● “Robot Service Shenzhen” are to Guardforce AI Robot Service (Shenzhen) Co., Limited, a PRC company and Robot Service Hong Kong’s wholly owned subsidiary; 
     
  ● “Robot Trading Dubai” are to GFAI Robot & Smart Machines Trading LLC, an UAE limited liability company and Robot Service Hong Kong’s wholly owned subsidiary; 
     
  ● “Shenzhen GFAI” are to Shenzhen GFAI Robot Technology Co., Limited, formerly name as Shenzhen Keweien Robot Service Co. Limited, a PRC company and Robot Service Shenzhen’s wholly owned subsidiary;
     
  ● “Robot Jian” are to Guardforce AI Robot (Jian) Co., Limited, a PRC company and Robot Service Hong Kong’s wholly owned subsidiary;
     
  ●

“Securities Act” are to the Securities Act of 1933, as amended;

     
  ●

“Shenzhen Kewei” are to Shenzhen Kewei Robot Technology Co., Limited, a PRC company.

     
  ● “Shenzhen Yeantec” are to Shenzhen Yeantec Co., Limited, a PRC company.
     
  ● “Southern Ambition” are to Southern Ambition Limited (BVI), a BVI company and Robotics BVI’s wholly owned subsidiary;
     
  ●  “South Korea” are to the Republic of Korea;
     
  ● “SEC” are to the Securities and Exchange Commission;
     
  ● “Thailand” are to the Kingdom of Thailand;
     
  ● “UAE” are to the United Arab Emirates;
     
  ● “UK” are to the United Kingdom of Great Britain and Northern Ireland;
     
  ● “U.S. dollars,” “dollars,” “USD” and “$” are to the legal currency of the United States;
     
  ● “Vietnam” are to Socialist Republic of Vietnam;
     
  ● “VCAB” are to VCAB Eight Corporation; and
     
  ● “WK Venture” are to WK Venture Success Limited, a BVI company.

 

S-v

 

 

FORWARD-LOOKING INFORMATION

 

This prospectus supplement contains “forward-looking statements” that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus supplement, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Our actual results may differ materially or perhaps significantly from those discussed herein, or implied by, these forward-looking statements. Forward-looking statements included or incorporated by reference in this prospectus supplement or our other filings with the SEC, include, but are not necessarily limited to, those relating to:

 

  ● Changes to legislation in Thailand and PRC may negatively affect our business;

 

  ● Lack of insurance coverage for our product-related liabilities and other business liability;

 

  ● Fail to obtain the necessary funding for our future capital or refinancing needs;

 

  ● Uncertainties with respect to the PRC legal system could adversely affect us; and

 

  ● A general economic downturn.

 

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors with which we are faced that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Risk Factors” in our reports filed or furnished with the SEC or in this prospectus supplement and the accompanying prospectus for additional risks which could adversely impact our business and financial performance.

 

Moreover, new risks regularly emerge and it is not possible for our management to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this prospectus supplement and the accompanying prospectus are based on information available to us on the date of this prospectus supplement or the accompanying prospectus, as applicable. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

S-vi

 

 

PROSPECTUS SUPPLEMENT SUMMARY

 

This summary highlights information about us and the offering contained elsewhere in, or incorporated by reference into, this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all the information that may be important to you. You should carefully read the entire prospectus supplement and the accompanying prospectus, as well as the information incorporated by reference, before making an investment decision, especially the information presented under the heading “Risk Factors” beginning on page S-25 of this prospectus supplement, and our financial statements and the notes to those financial statements, which are incorporated by reference, and the other financial information appearing elsewhere in or incorporated by reference into this prospectus supplement. See “Incorporation of Certain Information by Reference.” In this prospectus supplement, except as otherwise indicated or as the context otherwise requires, “Guardforce,” “the Company,” “we,” “our” and “us” refer to Guardforce AI Co., Limited and its consolidated subsidiaries.

 

Corporate History

 

We were founded in 2018 with the purpose of acquiring our operating subsidiary GF Cash (CIT) and develop complementary technology related solutions and services.

 

In 2020, we established a Robotics Solution business with a goal of diversifying our revenue base, proven to be well timed as the global COVID-19 pandemic soon followed.

 

In March 2021, we acquired 51% of Handshake Networking Limited, or Handshake, in Hong Kong as part of our strategy to enter into the Information Security business.

 

The principal executive office of our company was changed to Singapore from Bangkok, Thailand in November 2021.

 

On March 22, 2022, we acquired 100% of the equity interests in Shenzhen GFAI and Guangzhou GFAI in the Greater Bay Area of China. This acquisition is expected to serve an integral role in the growth of Guardforce AI’s robotics as a service (RaaS) business initiative.

 

On June 22, 2022, we closed the acquisition of 100% equity interests in Beijing Wanjia, an integrated security provider with 25 years of experience, from Shenzhen Yeantec.  

 

Our businesses are categorized into four main units:

 

  [i] Secured Logistics Business;

 

  [ii] General Security Solutions;

 

  [iii] Robotics AI Solutions Business; and

 

  [iv] Information Security Business.

 

Guardforce Cash Solutions Security (Thailand) Company Limited, or GF Cash (CIT), is the only subsidiary providing secured logistics services with operations in Thailand. The Secured logistics business is our largest business segment which provides cash solutions (i.e., efficient cash management) and cash handling services to customers including cash transportation, cash processing and ATM services markets in Thailand. We attribute our success to our focus on quality service, customer retention, and a disciplined approach to growth. We believe our secured logistics business is a premium provider of services in the markets that we serve.

 

Our newly developed robotic AI solutions services, information security services and general security solutions services were reported as separate segments during the year ended December 31, 2022.

 

S-1

 

 

We have grown consistently over the past several years due to our ability to attract and retain customers by providing quality services while operating as efficiently as possible. Our revenue declined by 1.9% during the year ended December 31, 2022, due to the impact of COVID-19. Revenues are fairly predictable because most of our service revenues are derived from three-year contracts that generally include recurring one-year renewal clauses. During the years ended December 31, 2022, 2021 and 2020, recurring revenues for GF Cash (CIT), our main operating subsidiary, have been approximately 89.6%, 97.6% and 99.4% of our total revenues. Our primary customers are banks within our secured logistic business unit, which comprise approximately 65.5%, 64.0% and 69.0% of our secured logistic revenue for the year ended December 31, 2022, 2021 and 2020, respectively.

 

The business environment in which we operate can change quickly. We must quickly adapt to changes in the competitive landscape and local market conditions. To be successful, we must be able to balance, on a market-by market basis, the effects of changing demand on the utilization of our resources. We operate on a centralized basis but allow enough flexibility so local field management can adjust operations to the particular circumstances of their markets.

 

We measure financial performance on a long-term basis. We create value by focusing on yielding solid returns on capital, growing our revenues and earnings, and generating cash flows sufficient to fund our growth.

 

Recent Developments

 

On January 26, 2021, the Bank of Thailand announced that our subsidiary, GF Cash (CIT), had been selected as the authorized operator of the Consolidated Cash Center (CCC) in the Khon Kaen province of Thailand for a period of five years starting April 19, 2021. After these five years, the contract may be renewed through a bidding process. There is no certainty that we may be able to renew or that we may renew such contract on terms as favorable. The decision to appoint GF Cash (CIT) was jointly made by the Thai Banking Association, representatives from Thai commercial banks and the Bank of Thailand. GF Cash (CIT) was subsequently selected as the authorized operator of the Consolidated Cash Center in the City of Hadyai. This CCC covers seven provinces in total. Under these appointments, GF Cash (CIT), which is an integrated security solutions provider in Asia, provides cash management services to local financial institutions in twelve provinces in Thailand, including Khon Kean, Roi-Et, Mahasarakam, Kalasin, Chaiyaphum, Songkhla, Trang, Satun, Phatthalung, Yala, Pattani and Narathiwat. The establishment of the CCC in Khon Kaen and in the City of Hadyai will help optimize the efficiency of cash logistics management in these provinces, reduce associated costs and improve the overall cash logistics processes for local financial institutions.

 

On February 4, 2021, we entered into a purchase and sale agreement to acquire a 51%, or majority, interest in Handshake in exchange for 1,091 (post-consolidation) restricted ordinary shares. This acquisition was completed on March 25, 2021. The restricted ordinary shares that we issued to the seller (“Consideration Shares”) were subject to a two-year lockup and are subject to certain share claw back provisions as follows (the Consideration Shares shall be subject to the clawback for the targets audited and under Hong Kong Financial Reporting Standards): (i) 50% of the Consideration Shares (i.e., 545 post consolidation number of shares) shall be subject to the revenue target and net profit of the Company in the fiscal year of 2023 (HK$6,000,000 and HK$104,703); and (ii) the remaining 50% of the Consideration Shares (i.e., 546 post consolidation number of shares) shall be subject to the revenue target and net profit of the Company in the fiscal year of 2024 (which will be determined by the end of year 2023). The difference between the targets above and the final respective revenue and net profit figures as reflected in the audited accounts shall be the amount of Consideration Shares to be clawed back. Any amount of the Consideration Shares shall be proportionately adjusted in accordance with our effectuated reverse split or forward split.

 

Effective March 1, 2021, Mr. Jingxu Wu resigned from his position as a member of our board of directors. Mr. Feng Dai was appointed as a member of our board of directors, replacing Mr. Wu in this position.

 

On May 17, 2021, Terence Wing Khai Yap resigned as our Chief Financial Officer and, on the same date, Ms. Chung Chi Ng was appointed as our new Chief Financial Officer.

 

S-2

 

 

Effective September 28, 2021, we appointed Donald Duane Pangburn to our board of directors. Mr. Pangburn is an independent director and Chair of the Audit Committee.

 

Effective September 28, 2021, we appointed John Fletcher to our board of directors. Mr. Fletcher is an independent director and Chair of the Compensation Committee.

 

Effective September 28, 2021, we appointed David Ian Viccars to our board of directors. Mr. Viccars is an independent director and Chair of the Nominating and Corporate Governance Committee.

 

On October 1, 2021, the Company completed an initial public offering and issued 90,309 (post-consolidation) units, each unit consisting of one Ordinary Share, and a warrant to purchase one Ordinary Share at $166 (post-consolidation) per unit for aggregate gross proceeds of approximately $15 million. Each whole share exercisable pursuant to the warrants will have an exercise price per share at $6.4 (post-consolidation), as adjusted pursuant to Section 3(b) of the Ordinary Share purchase warrant and the exercise price was further adjusted upon the warrant solicitation inducement in July 2022 (see below). The warrants were immediately exercisable and will expire on the fifth anniversary of the original issuance date.

 

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. (“AI Singapore”), a company incorporated in Singapore. Pursuant to the Agreement, AI Singapore became a wholly owned subsidiary of the Company. AI Singapore and Guardforce are ultimately controlled by Mr. Tu before and after the acquisition was completed.

  

On November 18, 2021, the Company entered into a Transfer Agreement (the “Macau Agreement”) to acquire 100% of the equity interests in Macau GF. Pursuant to the Macau Agreement and upon the closing of the acquisition, Macau GF became a wholly owned subsidiary of the Company. The acquisition closed on February 9, 2022. AI Macau was controlled by Mr. Tu’s brother before the acquisition was completed.

 

On November 18, 2021, 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 became a wholly owned subsidiary of the Company. The acquisition closed on January 20, 2022. The acquisitions of Macau GF and Malaysia GF provide the Company entry into the Macau and Malaysia markets with a focus on education, hospitality, retail and corporate sectors. AI Malaysia was controlled by Mr. Tu’s brother before the acquisition was completed.

 

On December 6, 2021, GFAI Robotics Group Co., Limited (“AI Robotics”) was incorporated in the British Virgin Islands under the BVI Business Companies Act, 2004. AI Robotics is a 100% owned subsidiary of Guardforce.

 

On January 20, 2022, the Company completed a private placement with several investors, wherein a total of 197,999 (post-consolidation) Ordinary Share of the Company were issued at a purchase price of $7.2 (post consolidation) per share, with each investor also receiving a warrant to purchase up to a number of Ordinary Shares equal to 150% of the number of Ordinary Shares purchased by such investor in the offering, at an exercise price of $7.2 (post-consolidation) per share, for a total purchase price of approximately $10.3 million.

 

On January 20, 2022, we ceased to be a “controlled company” under the rules of the Nasdaq Stock Market, or Nasdaq. As a foreign private issuer, we have the option to follow certain Cayman Islands corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the requirements we are not following and describe the Cayman Islands practices we follow instead. We are currently electing to follow home country practices in the Cayman Islands with regard to certain corporate governance matters.

 

S-3

 

 

On January 25, 2022, we adopted the Guardforce AI Co., Limited 2022 Equity Incentive Plan, or the Plan. The purposes of the Plan are to (a) promote the long-term growth and profitability of the Company, and any affiliate to attract and retain the types of employees, consultants and directors who will contribute to the Company’s long-term success; (b) provide incentives that align the interests of employees, consultants and directors with those of the shareholders of the Company; and (c) promote the success of the Company’s business. The Plan provides for an aggregate of 79,500 (post-consolidation) Ordinary Shares, in the form of incentive share options, non-qualified share options, restricted shares, restricted share units, share appreciation rights, performance Share awards and performance compensation awards to employees, directors, and consultants of the Company or any affiliates of the Company and the Plan would expire on January 25, 2032. See the Report on Form 6-K furnished on January 27, 2022 for more information of the Plan.

 

As of the date of this prospectus supplement, 6,500 (post-consolidation) restricted Ordinary Shares are currently issued and outstanding, and 2,920,000 of our Ordinary Shares remain available for grant under the Plan.

 

On February 8, 2022, we entered into a Commissioned Development Agreement with Shenzhen Kewei, wherein Shenzhen Kewei will develop a robotics management platform named GFAI Intelligent Cloud Platform V2.0 for us. The initial term of the Commissioned Development Agreement will be from February 8, 2022 until December 31, 2024, in accordance with certain development milestones listed in an exhibit to this report. We agreed to deliver payment to Shenzhen Kewei in the amount of USD$5,000,000, discounted to USD$3,000,000 provided the Company were to issue a one-time, lump sum payment within five (5) business days of the execution of the Agreement, which $3,000,000 amount the Company will be required to pay. We will be the sole owner of all intellectual property rights in the GFAI Intelligent Cloud Platform V2.0. The Agreement is governed by and construed in accordance with the laws of Hong Kong. The full payment was made in February 2022. As of the date of this preliminary prospectus supplement, Shenzhe Kewei has substantially completed the development of GFAI Intelligent Cloud Platform V2.0.

 

Although Shenzhen Kewei is affiliated with the Company, after careful consideration, the board of directors of the Company unanimously determined that the quotation received from Shenzhen Kewei was just, equitable and fair to the Company and that it would be in the best interests of the Company to enter into the Agreement with Shenzhen Kewei.

 

On February 18, 2022, we announced that we had deployed more than 1,400 robots in the Asia Pacific area.

 

On February 28, 2022, we entered into a Strategic Partnership Agreement with SBC Global Holdings Inc. (“SBC”), wherein the Company and SBC will collaborate on the sale and leasing of robots in the United States. The strategic partnership is in lieu of the previously proposed acquisition. As part of the partnership the Company will establish a wholly owned U.S. subsidiary and will commit additional resources to develop the business to meet demand while working closely with SBC to accelerate overall U.S. market penetration. As part of the Agreement, SBC will refer customers to the Company. The Company and SBC will work together on a non-exclusive basis and each of the Company and SBC may enter into similar arrangements and agreements with any other parties. Our management team believes that the Strategic Partnership Agreement with SBC was made in the ordinary course of business. On May 8, 2022, the Strategic Partnership Agreement with SBC was terminated.

  

On February 28, 2022, we incorporated GFAI Australia, a wholly owned subsidiary of our Company. We have not sent any employees or representatives to Australia due to COVID travel restrictions. GFAI Australia currently does not have any business operations. However, we have already started performing market research and development remotely. During the year ended December 31, 2022, no revenue was generated from GFAI Australia.

 

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) (“Rule 5550(a)(2)”).

 

S-4

 

 

On March 11, 2022, the Company entered into a Sale and Purchase Agreement with Shenzhen Kewei relating to the acquisition of Shenzhen GFAI and Guangzhou GFAI, this acquisition was completed on March 22, 2022, we issued 53,571 (post-consolidation) restricted Ordinary Shares to the vendors’ designated parties.

 

On March 13, 2022, we incorporated GFAI Robot Dubai. We have sent a representative from our Company to Dubai to perform the initial setup and market research and development. GFAI Robot Dubai was incorporated to help our Company enter the Dubai market. During the year ended December 31, 2022, no revenue was generated from GFAI Robot Dubai.

 

On March 21, 2022, the Company signed a non-binding letter of intent (the “LOI”) with Shenzhen Kewei and Shenzhen Yeantec (together, the “Kewei Group”) to purchase up to 36 of the Kewei Group’s subsidiaries located in China. Under the LOI, in the first of two phases, we will acquire eight of the Kewei Group companies. The second phase provides us with the right of first refusal to purchase the remaining 28 companies within a period of 24 months from the date of the signing of the LOI. This LOI was terminated on September 13, 2022.

 

On April 6, 2022, we and certain investors entered into a securities purchase agreement (the “April 2022 SPA”), pursuant to which we agreed to sell to such investors an aggregate of 218,484 (post-consolidation) Ordinary Shares in a registered direct offering (the “Registered Direct Offering”). As a result of the Registered Direct Offering, the exercise price of the Company’s private warrants was adjusted to $46 (post-consolidation) pursuant to the antidilution provisions of s warrants. During the fiscal year 2022, 8,195,641 warrants were exercised. Since January 1, 2023, to the date of this report, 6,007,942 warrants were exercised. 

 

On April 11, 2022, we received a letter from Nasdaq informing that we regained compliance with the minimum bid price requirement under Nasdaq listing rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. This requirement was met on April 8, 2022, the tenth consecutive trading day when the closing bid price of the Company’s Ordinary Share was over $1.00.

 

On May 24, 2022, we entered into a Sale and Purchase Agreement (the “Kewei Agreement”) with Shenzhen Yeantec to acquire 100% of the equity interests in Beijing Wanjia from Shenzhen Yeantec. The acquisition closed on June 22, 2022. The acquisition purchase price of $8,400,000 was paid in a mix of cash (10%) and restricted Ordinary Shares of the Company (90%). On June 16, 2022, the Company issued 94,500 (post-consolidation) restricted Ordinary Shares to the sellers’ designated parties.

 

On May 27, 2022, we received a written notification from the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was not in compliance with the minimum bid price requirement set forth in Nasdaq rules for continued listing on the Nasdaq, and the Company was provided 180 calendar days, or until November 23, 2022, to regain compliance.

 

On June 16, 2022, a total of 243,000 (post-consolidation) shares were issued as a deposit to acquire 100% of the equity interests in the remaining seven Kewei Group companies out of the eight phase one companies. On September 13, 2022, we signed a termination agreement with the shareholders of seven Kewei Group companies to terminate such acquisition. The shares issued were cancelled. As of the date of this prospectus supplement, 243,000 (post-consolidation) restricted Ordinary Shares amounting to $4,860,000 were returned to us.

 

On June 22, 2022, we closed the acquisition of 100% equity interests in Beijing Wanjia from Shenzhen Yeantec.

 

S-5

 

 

On July 12, 2022, we entered into warrant solicitation inducement letters (the “Inducement Letters”) with several accredited investors that are existing holders (collectively, the “Exercising Holders”) of its private warrants   wherein the investors agreed to exercise 139,547 (post-consolidation) outstanding private warrants (the “Existing Warrants”) to purchase an aggregate of 139,547 (post-consolidation) Ordinary Shares for cash, at an exercise price reduced by the Company from $46 (post-consolidation) per share to $9.52 (post-consolidation) per share (the “Warrant Exercise”). In consideration for the immediate exercise of the Existing Warrants for cash, the Company issued one-half (1/2) of an Ordinary Share (the “Share Consideration”) for each Warrant Exercise. As a result, the Exercising Holders received approximately 69,773 (post-consolidation) Ordinary Shares as Share Consideration. We received aggregate net proceeds of approximately $1.23 million from the exercise of the Existing Warrants by the Exercising Holders, after deducting fees and expenses. As a result of the Warrant Exercise, the exercise price of the Company’s public warrants was adjusted to $6.40 (post-consolidation) to purchase 1 share and the exercise price of the Company’s private warrants was adjusted to $9.52 (post-consolidation) to purchase 1 share, which is the floor price of the private warrants, pursuant to the antidilution provisions of both warrants. The Company sent notices to warrant holders regarding the adjustment of exercise price on July 13, 2022. In addition, in connection with the transactions contemplated by the Inducement Letters, we obtained waivers and amendments from the requisite investors under the January 2022 SPA and the April 2022 SPA to eliminate the prohibition on variable rate transactions set forth in such agreements. EF Hutton, division of Benchmark Investments, LLC acted as warrant inducement agent and financial advisor in connection with the transaction. 

 

On August 31, 2022, our previous Chairman Terence Wing Khai Yap (“Mr. Yap”) resigned as the Chairman of the Board of the Company, and Ms. Chung Chi Ng (“Ms. Ng”) resigned as the Chief Financial Officer of the Company, effective as of August 31, 2022. On the same date, the board of directors (the “Board”) of the Company appointed Ms. Lei Wang (“Ms. Wang”) as the Chairman of the Board of the Company, Mr. Lin Jia (“Mr. Jia”) as the President of the Company, Mr. Yu-Heng Ma (“Mr. Ma”) as the Chief Financial Officer of the Company and Mr. Mingchang Liu (“Mr. Liu”) as the Chief Technology Officer of the Company. Please refer to our 6-K furnished on September 2, 2022.

 

On September 13, 2022, we signed a letter of intent to acquire Shenzhen Kewei, a high-tech affiliated robotics company specializing in developing robotics software solutions and robotics management platforms, as well as robotics sales and technical services. We subsequently changed to the stricture of this acquisition to an asset acquisition. On December 21, 2022, we signed an asset purchase agreement with Shenzhen Kewei, to purchase certain of Shenzhen Kewei’s robot-related business assets in China.

 

On September 19, 2022, we were awarded a 5-year contract by the Bank of Thailand to manage its Consolidated Cash Centers (CCCs) in the city of Ubonratchathani and the city Phitsanulok in Thailand.

 

On September 23, 2022, we entered into a partnership agreement with Riversoft Inc., a Peakwork Company that is specialized in travel management software, to co-develop and co-launch contactless travel services with our robots.

 

On October 25, 2022, we entered into a securities purchase agreement (the “Agreement”) with Streeterville Capital, LLC, a Utah limited liability company (the “Investor”), pursuant to which the Company issued the Investor an unsecured convertible promissory note on October 25, 2022 in the original principal amount of $1,707,500.00 (the “Note”), convertible into Ordinary Shares, par value then being $0.12 (post-consolidation) per share, of the Company (the “Ordinary Shares”). The Note bears simple interest at a rate of 8% per annum. All outstanding principal and accrued interest on the Note will become due and payable on the maturity date (the “Maturity Date”), which is twelve months after the purchase price of the Note is delivered by Investor to the Company. The Company may pay all or any portion of the amount owed earlier than it is due; provided that in the event the Company elects to prepay all or any portion of the outstanding balance, the Company shall pay to the Investor 120% of the portion of the outstanding balance the Company elects to prepay. Early payments of less than all principal, fees and interest outstanding will not, unless agreed to by the Investor in writing, relieve the Company of the Company’s remaining obligations hereunder. Under the Agreement, while the Note is outstanding, the Company agreed to keep adequate public information available and maintain its Ordinary Shares listed on Nasdaq. Upon the occurrence of a Trigger Event (as defined in the Note), the Investor shall have the right to increase the balance of the Note by 10% for Major Trigger Event (as defined in the Note) and 5% for Minor Trigger Event (as defined in the Note). The Note and the Agreement triggered the participation rights of the Company’s private warrants holders (the “Holders”), pursuant to that Securities Purchase Agreement dated January 18, 2022 (the “PIPE Purchase Agreement”), in which the Company issued to the Holders Ordinary Shares, and Ordinary Share purchase warrants. According to the PIPE Purchase Agreement, each Holder has the right to participate up to an amount equal to 35% of the Subsequent Financing (as defined in the PIPE Purchase Agreement) in the aggregate on the same terms, conditions and price provided for in the Subsequent Financing. The Company provided notice to the Holders regarding the Holders’ participation rights on October 24, 2022. None of the Holders elected to participate within the prescribed time frame. In addition, as a result of the Company entering into the Agreement and issuing the Note, the exercise price of the Company’s private warrants was adjusted to $7.20 (post-consolidation) per share, which is the floor price of the Note, pursuant to the antidilution provisions of the private warrants. The Company sent notices to the private warrant holders regarding the adjustment of exercise price on October 26, 2022.

 

S-6

 

 

On November 22, 2022, we announced the formal launch of the “AIoT” Robot Advertising model, and the mobile application, GFAI A, on the Apple App Store in Asia. The initial launch of the app is commencing with robots in Macau.

 

On December 19, 2022, our former Chief Technology Officer (“CTO”), Mingchang Liu, resigned from his position as CTO of the Company. Mr. Liu’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

 

On December 21, 2022, we entered into an asset purchase agreement (the “Agreement”) with Shenzhen Kewei, to purchase certain of Kewei’s robot-related business assets in China. Under the terms of the Agreement, the Company will acquire, and Shenzhen Kewei will transfer to the Company, select robotic equipment assets, Shenzhen Kewei’s client base, sales pipeline and related sales channels and staff, as well as provide the Company with rights to the permanent use of its patents. The purchase price for these assets is 2.1 million US dollars, which has been fully paid in the form of 262,500 (post-consolidation) restricted Ordinary Shares of the Company based on a price of $8.00 per share. The acquisition closed on February 15, 2023.

 

On December 31, 2019, Guardforce TH entered into a loan agreement with Profit Raider Investment Limited (the “Loan”). On March 11, 2020, Guardforce TH 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. On March 13, 2020, the Company’s Board of Directors approved the transfer of 1,666,666 Ordinary Shares of the Company from Guardforce AI Technology to Profit Raider. As a result of this share transfer, Profit Raider has been deemed an affiliate of the Company. On December 31, 2020, the Loan was extended to December 31, 2022 with the same terms and conditions by entering into a third supplemental agreement between Guardforce TH and Profit Raider. On September 29, 2022, Profit Raider entered into a deed of assignment and transfer (the “Assignment Deed”) with WK Venture, as a result, the Loan was assigned and transferred to WK Venture. On December 30, 2022, the loan with WK Venture was extended to December 31, 2024, with the same terms and conditions, by entering into a fourth supplemental agreement (the “Fourth Supplemental Agreement”) between Guardforce TH and WK Venture.

 

On January 13, 2023, we announced that we have secured a 5-year contract and a 3-year contract with pre-existing customers for its secured logistics and cash handling services. Our 5-year contract is with Don Muang Tollway Public Company Limited (“DMT”), a toll facility management company that constructs and manages toll roads, and our 3-year contract is with a renowned retail chain store in Thailand.

 

On January 31, 2023, our shareholders approved a 1-for-40 consolidation of our authorized and issued Ordinary Shares; and immediately following the completion of the share consolidation, our shareholders approved an increase in its authorized Ordinary Shares from 7,500,000 Ordinary Shares to 300,000,000 Ordinary Shares. The share consolidation was effective upon passing of the ordinary resolutions on January 31, 2023. On March 8, 2023, we issued a Notice regarding Adjustment of Exercise Price (for Public Warrants) after Share Consolidation to our public warrant holders. As a result of the share consolidation, the exercise price under the public warrant was proportionately increased from $0.16 to $6.40, the exercise price under the private warrant was proportionately increased from $0.18 to $7.20. If any holder exercises one warrant, one-40th (1/40) Ordinary Share will be received in cash (by Cash in Lieu), holders must exercise at least 40 warrants to receive 1 Ordinary Share.

 

On February 23, 2023, we announced that we had signed an Artificial Intelligence of Things (AIoT) Robot Advertising contract with a local government office in Macau to promote shows, exhibitions and forums on approximately 165 robots for a total period of 20 weeks.

 

On February 28, 2023, we received a letter from Nasdaq informing that we regained compliance with the minimum bid price requirement under Nasdaq listing rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. This requirement was met on February 28, 2023, the tenth consecutive trading day when the closing bid price of the Company’s Ordinary Share was over $1.00.

 

On March 22, 2023, our wholly-owned subsidiary GFAI Vietnam was formally de-registered.

 

S-7

 

 

On April 17, 2023, Streeterville Capital, LLC delivered to the company a conversion notice informing us that it had elected to convert a portion of the Note balance ($1,238,400.00) at the conversion price of $7.20 into fully paid and non-assessable Ordinary Shares of the Company. In connection with this conversion, we issued 172,000 restricted Ordinary Shares to Streeterville Capital, LLC on April 19, 2023.  As of April 17, 2023, the date of conversion notice, $534,743.89 remained outstanding under the Note.

 

On May 5, 2023, we closed an underwritten public offering of 1,720,430 Ordinary Shares at a public offering price of $4.65 per share. The underwriters exercised their over-allotment option in full for an additional 258,064 ordinary shares at the time of the closing of the offering. As a result, the aggregate gross proceeds of the offering, including the over-allotment, are approximately $9.2 million, prior to deducting underwriting discounts and other Offering expenses. We entered into an Underwriting Agreement on May 2, 2023, with EF Hutton, division of Benchmark Investments, LLC, as the representative for the underwriters listed on Schedule 1 thereto, relating to the above underwritten public offering. The Company, as well as our officers and directors, and certain 5% shareholders, have agreed, subject to limited exceptions, for a period of 180 days after May 5, 2023, not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of, directly or indirectly any Ordinary Shares or any securities convertible into or exchangeable for our Ordinary Shares either owned as of the date of the Underwriting Agreement or thereafter acquired without the prior written consent of the Representative, subject to certain exceptions. The Representative may, in their sole discretion and at any time or from time to time before the termination of the lock-up period, without notice, release all or any portion of the securities subject to lock-up agreements. As a result of the underwritten public offering that we closed on the same day, the exercise price of the Company’s public and private warrants has been adjusted to $4.65, pursuant to the anti-dilution provisions of both types of warrants. We sent notices to the warrant holders regarding this adjustment in exercise price on May 5, 2023.

 

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.

 

The chart below presents our current corporate structure, as of the date of this prospectus supplement:

 

 

Business Overview

 

We were founded in 2018 for the purpose of acquiring our operating subsidiary GF Cash (CIT) and develop complementary technology related solutions and services.

 

In 2020, we established a Robotics Solution business with a goal of diversifying our revenue base, proven to be well timed as the global COVID-19 pandemic soon followed.

 

On March 25, 2021, we closed the acquisition of 51% of the equity interests in Handshake in Hong Kong as part of our strategy to enter into the Information Security business.

 

S-8

 

 

The principal executive office of our Company was changed to Singapore from Bangkok, Thailand in November 2021.

 

On March 22, 2022, we closed the acquisitions of 100% of the equity interests in Shenzhen GFAI and Guangzhou GFAI in Greater Bay Area of China. On February 15, 2023, we closed the acquisition of certain robot-related business assets in China from Shenzhen Kewei. These acquisitions are expected to serve an integral role in the growth of Guardforce AI’s robotics as a service (RaaS) business initiative. 

 

On June 22, 2022, we closed the acquisition of 100% of the equity interests in Beijing Wanjia, an integrated security provider with 25 years of experience, from Shenzhen Yeantec.

 

Our businesses are categorized into four main units:

 

  [i] Secure Logistics Business;

 

  [ii] Robotics AI Solutions Business;

 

  [iii] Information Security Business; and

 

  [iv] General Security Solutions Business.

 

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 four major customers are Government Savings Bank, Bank of Ayudhya, TTB Bank Public Company and CP All Public Company. A few global customers also retain our services under temporary contract. As of the date of this preliminary prospectus supplement, we employed 1,663 staff located in GF Cash (CIT) and had 469 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.

 

Our revenues are substantially derived from GF Cash (CIT)’s secure logistic business and gross revenue for our secure logistic business years ended December 31, 2022, 2021 and 2020, was approximately $30.9 million, $34.3 million and $37.4 million, respectively.

 

In the recent years, the cash-in-transit, or CIT, market in Thailand has been growing due to the increasing demand for secure transportation of cash and valuable. This growth is driven by the expansion of banking and financial sectors, as well as the rising number of retail businesses.

 

The cash-in-Transit industry in Thailand has faced some challenges in recent years. One of the biggest challenges is the rise of cashless payment systems, which may reduce the need for cash transportation services in the future. Additionally, the COVID-19 pandemic has impacted society and the industry, which has led to a shift towards digital payments and online transactions. As the closure of many businesses during the COVID situation, it further reduced the need for cash transportation services.

 

In Thailand, the adoption of electronic cash has been steadily increasing, with the government and private sector promoting the use of digital payment system and the result of COVID-19 pandemic.

 

S-9

 

 

However, the impact of electronic cash on banking market in Thailand will depend on various factors such as the level of adoption, consumer behaviour and user age group and the geographical distribution etc. It could also pose a challenge to banks that rely on transaction fees and interest income.

 

Overall, the emergence of electronic cash in Thailand presents both opportunities and challenges for the banking industry and GF Cash (CIT). We believe that the adoption of electronic cash in Metropolitan Bangkok and some major cities will have am imoact, but believe that for all other cities in up-country provinces the adoption should be low as consumers prefer to have physical cash transaction instead of electronic transaction.

 

Based on the development of electronic cash, we have changed our operating methodology and started to approach cash-rich businesses liked retails, commercial sector, and F&B businesses in up-country provinces to offer our secure logistics services.

 

Nevertheless, the CIT market in Thailand remains an important and growing industry, and faces challenges from changing market conditions and the adoption of digital solutions.

 

In 2020, having observed the market situation and the changing demands of the CIT service, 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 began to rollout robotic solutions for our customers in Thailand and across the Asia Pacific region. For the years ended December 31, 2022, 2021 and 2020, we had generated approximately $1.3 million, $0.4 million and $0.2 million in revenue from our robotics solutions business, respectively. The increase is mainly due to the revenue contributed from GFAI Shenzhen and GFAI Guangzhou that we acquired on March 22, 2022.

 

Our Products and Services for our Secure Logistics Business

 

As of the date of this preliminary prospectus supplement, almost all 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; and (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.

  

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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, 2022, Core Services represented 89.6% 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, 2022, 2021 and 2020. These business sectors are discussed below:

 

Revenue by Services (For the year ended December 31, 2022):

 

 

Revenue by Services (For the year ended December 31, 2021):

 

 

S-11

 

 

Revenue by Services (For the year ended December 31, 2020):

 

 

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, 2022, 2021 and 2020, CIT (Non-DV) revenues were approximately $10.7 million (31.0%), $11.2 million (31.9%) and $12.0 million (32.0%), 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, 2022, 2021 and 2020, CIT (DV) revenues were approximately $4.1 million (11.8%), $4.6 million (13.0%) and $4.8 million (12.8%), 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, 2022, 2021 and 2020, ATM Management revenues were approximately $8.9 million (25.8%), $10.8 million (30.7%) and $12.5 million (33.3%), 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, 2022, 2021 and 2020, CPC revenues were approximately $2.8 million (8.1%), $3.0 million (8.6%) and $2.8 million (7.5%), respectively.

 

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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, 2022, 2021 and 2020, CCT revenues were approximately $2.2 million (6.4%), $2.8 million (8.0%) and $3.3 million (8.6%), 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). As of the date of this preliminary prospectus supplement, we operate four Consolidate Cash Centers in Khon Kean, Hadyai, Phitsanulok and Ubon Ratchathani.

 

For the years ended December 31, 2022, 2021 and 2020, CCC revenues were approximately $0.5 million (1.3%), $0.2 million (0.5%) and $nil (nil %).   

 

Cheque Center Service (CDC)

 

Cheque Center Service (CDC) includes secured cheque pickup and delivery service.

 

For the year ended December 31, 2022, 2021 and 2020, CDC revenues were approximately $0.005 million (0.0%), $0.05 million (0.1%) and $0.1 million (0.2%), 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, 2022, 2021 and 2020, express cash service revenues were $nil (nil %), $nil (nil %) and $0.1 million (0.3%), 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.

 

S-13

 

 

Since coins are still an important part of the Thai currency system and widely uses by consumers in the retails market, there is a demand for coin exchanges, coin processing and coin storage. Except for the Royal Mint, there is no private/ commercial coin operator in Thailand. Thai citizen and retailers are required to go directly to Royal Mint and banks to exchange and deposit coins. Except for the Royal Mint, the banks may not have the denominations of coin that customers want.

 

Following the expansion in the retail market, we plan develop our coins operations in 2023   which will include the following services:

 

  i. Coin delivery and collection,

 

  ii. Coin sorting and processing,

 

  iii. Coin storage,

 

  iv. Coin exchange services,

 

  v. Inter- provincial coins delivery and collection.

 

Our advantage on operating the coins operation is our existing good coverage in up country and Bangkok and we can utilize our existing vehicles to perform the collection and delivery. We also have sufficient and available space to build a coin centre for the sorting and processing, wrapping and storage of coins.

 

For the years ended December 31, 2022, 2021 and 2020, coin processing service revenues were $nil (nil %), $nil (nil %) and $0.3 million (0.8%), respectively.

 

Others - 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 deliver to local customers in Thailand or vice versa.

 

There are several international operating CIT companies in Thailand that provide international shipment services, such as Brinks, Loomis and Malca Amit. Some of them have local operations and operations at the destination cities. We, as a local CIT operator, cooperate with some international provider with no local presence in Thailand to provide local support such a Loomis and Malca Amit.

 

For the years ended December 31, 2022, 2021 and 2020, international shipment revenues were $0.01 million (0.1%), $0.05 million (0.1%) and $0.06 million (0.0%), respectively.

 

S-14

 

 

Cash Deposit Management Solutions (GDM)

 

Following the launch of our retails collection and processing services, we work with a machine vendor to promote our Cash Deposit Management Solutions (GDM) currently delivered by our Guardforce Digital Machine. We use GDM as part of the cash handling services offered to customers in order to assist our customers in handling and storing their cash safely and accurately. 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 with the agreed schedules. All cash receipts are then securely collected and delivered to our cash processing center for further handling and processing.

 

By using the GDM, store staff can deposit the cash into the machine at any time, reduce the risk of storing cash in the store and the store staff can generate electronic reports from the machine at any cut-off time. We also offer to the headquarter for those retail chain stores the online real time data about the sales of each individual store which can assist our customers on better cashflow forecast and cash usage.

 

For the years ended December 31, 2022, 2021 and 2020, GDM revenues were approximately $1.8 million (5.1%), $1.6 million (4.7%) and $1.5 million (3.9%), 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 469 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 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 free 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. Our robots have been deployed in various countries through customers free trial, recurring rental, sale and advertising placements, which have served more than 10,000 customers as of the date of this preliminary prospectus supplement. The collection of a huge quantity of data and customer feedback by using the robots through our ICP provides useful analysis and information on customer usage patterns and market intelligence for us to enhance and further develop our applications and features that are most suitable to our customers. 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.

 

S-15

 

 

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.

 

In February 2022, we entered into a Commission Development Agreement with Shenzhen Kewei to enhance the development of the ICP to GFAI Intelligent Cloud Platform V2.0 by adding an additional advertising feature to the ICP to commence our robot advertisement business in Macau.

 

In November 2022, we officially announced our advertisement business model (the “AIOT Robot Advertising”) and launched a mobile app (the “APP”) in Apple App Store in the Asia Pacific Region. The App allows customers to register and place ads through their mobile phones. Currently, we start this APP for ads placement in Macau and we plan to promote and deploy this APP to further develop our advertising business in Southeast Asia in the year of 2023.

 

Besides advertising business, we also added Tech Service Platform (TS) and Robot Operation Management Platform (ROMP) under the framework of ICP, which can better manage the functions of the robots and can better deal with defective robots on our cloud platform. We plan to provide access to the ICP to all our customers through a browser-based interface that allows real-time data access. We are working continuously to improve and upgrade the specifications of our robots and the ICP to cope with the rapid technological change.

 

Beginning March 2022, we sped up our global expansion and entered new markets such as Dubai, Japan, and the United States.

 

As of the date of this preliminary prospectus supplement, we have operational offices in Thailand, Singapore, Malaysia, Japan, China, Hong Kong, Macau, and the United States.

 

We also established partnership with two technology companies, Blue Pin (HK) Limited and Riversoft Inc. We are co-launching the self-check-in/out system for hotels with Blue Pin (HK).

 

We are also developing a Robot Travel Agency (RTA) that can help to offer travel advice and booking services for tourists with Riversoft Inc. The RTA is still in the development phase and the self-check-in/out system has been deployed to 5 hotels in Hong Kong.

 

In addition, GFAI’s robot and ICP platform can provide multiple types of interfaces, including hardware interfaces, software interfaces, and cloud API interfaces, which allow them to connect and communicate with different hardware, software, and platform services. The robots can be customized and adapted to work with a variety of systems and technologies, making them useful in many different applications and industries.

 

We are currently using 3 different kinds of 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.

 

S-16

 

 

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;

 

  ● Attendance management;
     
  ● Ability to integrate many kinds of accessories, such as IC card, printer, ATM card reader, etc.

 

  ● Interactive touch screen; and

 

  ● Large frontal display screen for remote public announcement and advertising.

  

The specifications of the T-Series are as follows:

 

  ● Width = 440 mm;

 

  ● Height = 1410 mm; and

 

  ● Weight = 32.65 kg.

  

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:

 

  ● Width = 500 mm;

 

  ● Height = 1195 - 1430 mm; and

 

  ● Weight = 59.5 – 65 kg.

 

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%.

 

  ● Multi-robot control and scheduling system.

 

S-17

 

 

The specifications for the D – Series are as follows:

 

  ● Width = 500 mm;

 

  ● Height = 1455 mm; and

 

  ● Weight = 62.75 kg.

 

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 years ended December 31, 2022, 2021 and 2020, robotics solutions revenues were approximately $1.3 million (3.7%), $0.4 million (1.0%) and $0.2 million (0.6%) of the company’s total revenues, respectively.

 

Our Fee Structure for the Robotics Solutions Business

 

Our Robotics Solution Business has three fee structures:

 

  ● Sale of Robots: One-off purchase by customers of the robots with the provision of add-on technical support service with additional charges during and after the warranty period; and

 

  ● Rental of Robots: Customers lease the robots as part of our Robots as a Service (RaaS) model, regular payment made by customer by daily, weekly, monthly and annually.

 

  ● Advertising Service: We place our robots in the main entrance of buildings and shopping malls, customers lease the advertising page on the AD playing screen of our robots.

 

Information Security Business

 

We acquired a majority stake in Handshake Networking (Handshake) on March 25, 2021, and we began generating revenues from information security consultancy services. The purpose of this acquisition was to provide us with the experience, expertise and creditability to capitalize on the growing information security market.

 

Handshake has been providing professional information security consultancy services since 2004 within the Asia Pacific region.

 

For the years ended December 31, 2022, 2021 and 2020, Information Security revenues were approximately $0.5 million, $0.48 million and $nil and represented 1.5%, 1.4% and nil% of our total revenues, respectively.  

 

Our General Security Solutions

 

We began operating our general security solutions service through the acquisition of the 100% equity interest in Beijing Wanjia on June 22, 2022. Our services include the provision of Smart Retail Operation Management, CCTV and Security Alarm Operation, Security Engineering and Maintenance.

 

Beijing Wanjia was founded in Beijing, China in 1996, it is a certified National High Technology company in China, a certified High Technology Company of Zhongguancun, and it is the Vice Chairman member of both the China Security & Protection Industry Association and Beijing Security & Protection Industry Association, and China Security Association. Beijing Wanjia has three main competitive advantages in the market: Beijing Wanjia possesses a solid technology foundation, a broad service network, and a premier client foundation. With more than 26 years of experience in the general security solutions business, it has developed the technology foundation related to security alarm solutions. Combined with the technology in big data filtering and model building, the self-developed management platform can help to monitor the operation status of retail stores, provide feedback and analysis, and help to offer solutions to improve the operating efficiency and the overall security level of the store. Currently, Beijing Wanjia’s service network is covering more than 600 cities in China and has built a long-term, diversified client base over the past two decades. Most of the customers are among the big players in their representative industries such as finance, retail chain stores, community property management, government facilities etc. Currently, some of Beijing Wanjia’s top customers are Starbucks (China), Watson, Lukfook Jewelry, Xiabu Xiabu, Agape Optical etc.

 

S-18

 

 

Core Services

 

Commercial Smart Retail Operation Management

 

Commercial Smart Retail Operation Management is an intelligent management system that is based on big data technology, and the provision of a series of consultant services on store risk evaluation, surveillance and management, anti-fraud checks etc.

 

CCTV and Security Alarm Operation

 

Our automatic security alarm system consists of various electronic sensors, security alarms host and the operating surveillance control center. With the support of the Internet of Things (IoT) and communication networks, if there are any abnormal situations that have been detected by the electronic sensors, it will automatically send the signals, surveillance pictures and analysis to the control center. Once the data are checked and verified by the surveillance team in the control center, we will provide our first response security team onsite to handle the potential security threat. Our offsite security support network is currently covering most of the provinces and cities in China.

 

Security Engineering and Maintenance

 

We hold a well-recognized certification in security engineering in China and are equipped with an experienced professional team to perform first-class integrated security projects and provides continuous maintenance services.

 

For the years ended December 31, 2022, 2021 and 2020, general security solutions revenues were approximately $1.8 million (5.2%), $nil (nil %) and $nil (nil %) of the company’s total revenues.

 

2023 Business Plan

   

In 2023, we will work on ensuring the renewal of our existing customers and track the implementation of pilot projects to achieve our underlying business metrics. In addition, we are planning to promote our business with the following activities:

 

  1. Develop new retail chain customers.

 

  2. Promoting big data anti-fraud software projects among existing customers.

 

  3. Refine and upgrade our retail security engineering business to increase our revenue per store, with a focus on promoting smart customer flow and smart big screens.

     

Secure Logistics Business 

 

Sales & Marketing

 

During the 2023 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.

 

S-19

 

 

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.

 

We have derived a significant portion of our revenues from our top four customers, two of which are commercial banks and one is a state-owned bank. The fourth customer is a retail client. For the year ended December 31, 2022, 2021 and 2020, revenue derived from the state-owned bank (the Government Savings Bank) was approximately $8.1 million, $9.6 million and $10.2 million, respectively, which accounted for approximately 23.5%, 27.3% and 27.3% of our total revenues, respectively.

 

For the years ended December 31, 2022, 2021 and 2020, revenues from the next three largest customers were Bank of Ayudhya Public Company, TTB Bank Public Company and CP All Public Company, representing combined revenues of approximately $13.4 million, $14.3 million, and $14.6 million, respectively, or 38.8%, 40.8% and 39.0%   of our total revenues, respectively. Therefore, for the years ended December 31, 2022, 2021 and 2020, our top four customers combined accounted for approximately 62.3%, 68.1% and 66.3% of our total revenues, respectively. We have three, four and three customers that accounted for 10% or more of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively.

 

As of 2022, Thailand’s retail market is one of the largest and most dynamic markets in Southeast Asia and thus, other than banking customers, we are expanding our customer base to retail customers. The retail industry in Thailand is highly fragmented, with both local and international players operating in the market. Some of the key players include Central Group, CP Group, 7-11, Big C. Tesco Lotus, or Watsons and Boots. They operate supermarkets, hypermarkets, department stores, convenience stores, wet markets and street vendors. In which most of the shops are cash rich operations, their customers like to use cash for the transaction especially in the up-country provinces. Therefore, their staff need to handle the cash during the shifts and after the shifts, they need to handover the cash to the next shifts.

 

Additionally, some international players are currently using CIT collection and processing services to increase efficiency and reduce the risk of storing cash in their shops. These benefits encourage other players in the retail market to use the same services.  

 

We have started to expand our CIT collection and processing services in up-country retail chains and other individual retailers by using their extensive coverage in up-country provinces and attractive pricing. During the recent three years, there is an increasing trend in our retail services revenue, and we are getting more retail customers, which partially offset the negative impact on our revenues from other activities and service lines as a result of the COVID-19 pandemic environment.

 

Our primary customers are banks within our secured logistic business unit, which comprise approximately 65.5%, 64.0% and 69.0% of our secured logistic revenue for the year ended December 31, 2022, 2021 and 2020, respectively.

 

Other customers were retail customers, or from hospitality, corporate and logistics sectors. 

 

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.

 

S-20

 

 

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 2022.

  

THAILAND MARKET SHARE 2022

 

 

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;

 

S-21

 

 

  ● 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 2023 fiscal year, we plan to undertake the following activities to promote our Robotics Solutions business:

 

  ● To cooperate with local service providers in the markets we participate to integrate localized services with the primary functions of our robots to jointly explore the local markets;

 

  ● To leverage our existing infrastructure to roll out and introduce our robotic solutions in hotels, malls, transport hubs, hospitals and shopping malls. We will focus on these industries in the Asia Pacific region where we expect the economy to gradually recover from the pandemic in 2023;

 

  ● To focus on the deployment and promotion of our ICP, for which the infrastructure was substantially completed by the end of 2022. We plan for integration with third party service platforms to boost RaaS revenue, especially the integration of our advertising platform, property management platform and travel agency service platform; we also plan to expand the advertisement features and the mobile app to more regions that we are currently operating in.

 

  ● Incorporating AI technology into RaaS businesses to help improve efficiency, reduce costs, and enhance customer experiences. By optimizing scheduling, predicting maintenance needs, remotely monitoring solutions, providing customized reporting, and offering virtual assistance, RaaS businesses can improve customer satisfaction and retention, ultimately leading to business growth.

 

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.

 

Competition

 

The robotics industry globally is still in its infancy. Competition is intense between manufacturing and trading companies who 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;

 

  ● Development of the Intelligent Cloud Platform that will enhance the customer experience and value; and

 

  ● Through our “Customer Free-Trial” business model, we are able to obtain massive amounts of data for the integration of better AI functions, for optimization of our service functions and processes of our robots. The deployment of our robots to different sectors for different purposes provides us with a more comprehensive analysis of the market trend and demand.

 

S-22

 

 

Information Security Business

 

During the 2023 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;

 

  ● Enroll additional professionals to serve more customers while we are expanding the market.

  

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.

 

General Security Solutions Business

 

In 2023, we will work on ensuring the renewal of our existing customers and track the implementation of pilot projects to achieve our underlying business metrics.

 

In addition, we are planning to promote our business with the following activities：

 

Develop new retail chain customers.

 

  1. Promoting big data anti-fraud software projects among existing customers.

 

  2. Refine and upgrade retail security engineering business to increase our revenue per store, with a focus on promoting smart customer flow and smart big screens.

 

S-23

 

 

THE OFFERING

 

Securities Offered by Us                    Ordinary Shares and Pre-funded Warrants. The Pre-funded Warrants will have an exercise price of $0.12 per share, will be immediately exercisable upon issuance until exercised in full. We are also offering Ordinary Shares issuable upon exercise of the Pre-funded Warrants.
     
Public Offering Price of Ordinary Shares   $                     per Ordinary Share
     
Offering Price of Pre-funded Warrant   $                    per Pre-funded Warrant
     
Total Ordinary Shares Outstanding
Immediately Before this Offering		   3,915,533 shares
     

Ordinary Shares to be Outstanding
Immediately After this Offering

 

Total Pre-funded Warrants Outstanding Immediately After this Offering

 

Over-Allotment Option

  

                Ordinary Shares, assuming none of the Pre-funded Warrants in this offering are exercised.

 

                Pre-funded Warrants, assuming none of the Pre-funded Warrants are exercised.

 

We have granted the underwriter an option for a period ending 45 days after the closing of this offering to purchase up to an additional               Ordinary Shares and/or Pre-funded Warrants at the public offering price, less underwriting discounts, solely to cover over-allotments, if any.

     
Market for the Ordinary Shares   Our Ordinary Shares are traded on the Nasdaq Capital Market under the symbol “GFAI.” We do not intend to apply for listing of the Pre-Funded Warrants on any national securities exchange. As a result, there is no established public trading market for the Pre-Funded Warrants, and we do not expect a market to develop.
     
Use of Proceeds  

We intend to use the net proceeds from this offering for research and development to further advance AI and robotic business and technology capabilities; business development, including sales, marketing, and business expansion; corporate management, talent recruitment and general working capital purposes. See “Use of Proceeds” on page S-30 of this prospectus supplement.

 

Lock-ups   Our Company has agreed, subject to limited exceptions, for a period of 180 days after the closing of this Offering, not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of, directly or indirectly any Ordinary Shares or any securities convertible into or exchangeable for our Ordinary Shares either owned as of the date of the underwriting agreement or thereafter acquired without the prior written consent of the representatives, subject to certain exceptions. The representatives may, in their sole discretion and at any time or from time to time before the termination of the lock-up period, without notice, release all or any portion of the securities subject to lock-up agreements. See “Underwriting—Lock-Up Agreements.”
     
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-25 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
     
Warrant Agent   Depending on the number of Pre-Funded Warrants holders, we may engage a warrant agent for the Pre-Funded Warrants.

 

Unless otherwise indicated, the number of Ordinary Shares outstanding prior to and after this offering is based on 3,915,533 Ordinary Shares issued and outstanding as of May 10, 2023 and no exercise of the Pre-funded Warrants, and excludes:

 

  ● 73,000 Ordinary Shares reserved for future issuance under our Guardforce AI Co., Limited 2022 Equity Incentive Plan;

 

  ● 30,825 Ordinary Shares issuable upon exercise of the publicly listed warrants, at an exercise price of $4.65 per share with the expiration date of September 28, 2026;

 

  ● 15,000 Ordinary Shares issuable upon exercise of the private placement warrants, at an exercise price of $4.65 per share with the expiration date of January 20, 2027;
     
  ● 4,518 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; and
     
  ● That certain number of ordinary shares that may become issuable to Streeterville Capital, LLC under that certain unsecured convertible promissory note dated October 25, 2022 in the original principal amount of $1,707,500.00.

 

Unless otherwise indicated, all information in this prospectus supplement assumes no exercise of the underwriter’s over-allotment option.

S-24

 

 

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, 2022, 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 on 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.

 

Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $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. 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).

 

On April 11, 2022, we received a letter from Nasdaq informing that we regained compliance with the minimum bid price requirement under Nasdaq listing rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. This requirement was met on April 8, 2022, the tenth consecutive trading day when the closing bid price of the Company’s Ordinary Share was over $1.00.

 

S-25

 

 

On May 27, 2022, we received a written notification from the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was not in compliance with the minimum bid price requirement set forth in Nasdaq rules for continued listing on the Nasdaq, and the Company was provided 180 calendar days, or until November 23, 2022, to regain compliance. The Company’s Ordinary Shares have not regained compliance with the minimum $1 bid price per share requirement. However, on November 28, 2022, the Company received a written notification (the “Notification Letter”) from Nasdaq, notifying the Company that it is eligible for an additional 180 calendar day period, or until May 22, 2023, to regain compliance. 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 any consecutive period of 30 business days from May 27, 2022 to November 23, 2022, the Company does not meet the minimum bid price requirement. The Notification Letter does not impact the Company’s listing on the Nasdaq Capital Market at this time. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided an additional 180 calendar days, or until May 22, 2023, to regain compliance with Nasdaq Listing 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. In the event the Company does not regain compliance by May 22, 2023, the Company may face delisting.

 

Pursuant to the approval of its board of directors, and the approval of its shareholders at the Company’s extraordinary general meeting held on Tuesday, January 31, 2023 at 11:00 a.m. (Hong Kong standard time), we effected a 1-for-40 consolidation of its Ordinary Shares. On February 2, 2023, Conyers Trust Company (Cayman) Limited, the Secretary of the Company, filed two certificates certifying the ordinary resolutions passed by the shareholders with the Registrar of Companies of the Cayman Islands. The share consolidation was effective upon passing of the ordinary resolutions on January 31, 2023. The Company’s Ordinary Shares began trading on the NASDAQ Capital Market on a post-consolidation basis when the market opens on February 10, 2023.

 

On February 28, 2023, we received a letter from Nasdaq informing that we regained compliance with the minimum bid price requirement under Nasdaq listing rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. This requirement was met on February 28, 2023, the tenth consecutive trading day when the closing bid price of the Company’s Ordinary Share was over $1.00.

 

The Company intends to monitor the closing bid price of its Ordinary Shares and may, if appropriate, consider implementing available options to maintain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. Though we intend to maintain compliance with the minimum bid price requirement, 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 Shares are delisted from the Nasdaq, the liquidity and value of an investment in our Ordinary Shares will be materially and adversely affected and 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.

 

S-26

 

 

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.

 

We are exempted from certain corporate governance requirements of Nasdaq by virtue of being a foreign private issuer. As a foreign private issuer, we are permitted to follow the governance practices of our home country in lieu of certain corporate governance requirements of Nasdaq. As result, the standards applicable to us are considerably different than the standards applied to domestic U.S. issuers. For instance, we are not required to:

 

  ● have a majority of the board be independent (although all of the members of the Audit Committee must be independent under the Exchange Act);

 

  ● have a Compensation Committee and a Nominating and Corporate Governance Committee to be comprised solely of “independent directors”; or

 

  ●

hold an annual meeting of shareholders no later than one year after the end of our fiscal year.

 

We currently follow our home country practice that (i) does not require us to hold an annual meeting of shareholders no later than one year after the end of its fiscal year; (ii) does not require us to seek shareholder approval for amending our share incentive plans; (iii) does not require us to have a nominating/corporate governance committee consisting entirely of independent directors, or a written nominating/corporate governance committee charter that meets the requirements of the Nasdaq Capital Market; and (iv) does not require us to have a compensation committee composed entirely of independent directors, or a written compensation committee charter that meets the requirements of Nasdaq. Consequently, we are exempt from independent director requirements of Rule 5605 (d) and (e) of Nasdaq Capital Market listing standards, except for the requirements under subsection (b)(2) thereof pertaining to executive sessions of independent directors and those under subsection (c) thereof pertaining to the Audit Committee; (v) does not require shareholder approval prior to the issuance of securities in connection with the acquisition of the stock or assets of another company in certain circumstances; and (vi) does not require shareholder approval in order to enter into any transaction, other than a public offering, involving the sale, issuance or potential issuance by the Company of Ordinary Shares (or securities convertible into or exercisable for Ordinary Shares) equal to 20% or more of the outstanding share capital of the Company or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the Ordinary Shares. Accordingly, our investors may not be provided with the benefits of certain corporate governance requirements of Nasdaq. As a result, our shareholders may not be provided with the benefits of certain corporate governance requirements of Nasdaq.

 

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 May 9, 2023, the closing price of our Ordinary Share on the Nasdaq Capital Market has ranged from a high of $158.40 (post-split) to a low of $4.14 (post-split). 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;

 

 

S-27

 

 

  ● 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.

 

Ordinary Shares representing a substantial percentage of our outstanding shares may be sold in this offering, which could cause the price of our ordinary shares to decline.

 

Pursuant to this offering, we may sell up to          Ordinary Shares and/or Pre-funded Warrants representing approximately %, of our outstanding Ordinary Shares as of May 10, 2023. This sale and any future sales of a substantial number of Ordinary Shares in the public market, or the perception that such sales may occur, could materially adversely affect the price of our Ordinary Shares. We cannot predict the effect, if any, that market sales of those Ordinary Shares or the availability of those Ordinary Shares for sale will have on the market price of our Ordinary Shares.

 

There is no established public trading market for the Pre-funded Warrants being offered in this offering, and we do not expect a market to develop for the Pre-funded Warrants.

 

There is no established public trading market for the Pre-funded Warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply to list the Pre-funded Warrants on any national securities exchange or other nationally recognized trading system. Without an active market, the liquidity of the Pre-funded Warrants will be limited. Further, the existence of the Pre-funded Warrants may act to reduce both the trading volume and the trading price of our Ordinary Shares.

 

The Pre-funded Warrants are speculative in nature and holders of the Pre-Funded Warrants will have no rights as ordinary shareholders until they acquire our Ordinary Shares.

 

Except as otherwise provided in the Pre-funded Warrants, until holders of Pre-Funded Warrants acquire our Ordinary Shares upon exercise of the Pre-funded Warrants, holders of Pre-funded Warrants will have no rights with respect to our Ordinary Shares underlying such Pre-funded Warrants. Upon exercise of the Pre-funded Warrants, the holders will be entitled to exercise the rights of a shareholder only as to matters for which the record date occurs after the exercise date.

 

Moreover, following this offering, the market value of the Pre-funded Warrants is uncertain. There can be no assurance that the market price of our Ordinary Shares will ever equal or exceed the price of the Pre-funded Warrants, and, consequently, whether it will ever be profitable for investors to exercise their Pre-funded Warrants.

 

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.

 

S-28

 

 

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.

 

S-29

 

 

USE OF PROCEEDS

 

We estimate that the net proceeds from this offering will be approximately $        million, assuming no exercise of the over-allotment option, or approximately $ million, assuming full exercise of the over-allotment option, after deducting the underwriting discounts, non-accountable expense allowance and estimated offering expenses payable by us.

 

We plan to use the net proceeds of this offering as follows:

 

●Approximately 30% for research and development to further advance AI and robotic business and technology capabilities;

 

●Approximately 30% for business development, including sales, marketing, and business expansion; and

 

●Approximately 40% for corporate management, talent recruitment and general working capital purposes.

 

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.

 

S-30

 

 

CAPITALIZATION

 

The table below sets forth our capitalization and indebtedness as of December 31, 2022:

 

  ● on an actual basis, as derived from our audited consolidated financial statements as of December 31, 2022, which are incorporated by reference into this prospectus supplement; and

 

  ● on a pro forma as adjusted basis to give further effect to this offering based on a public offering price of $        per Ordinary Share and an offering price of Pre-funded Warrants of $      per warrant, after deducting the underwriting discounts, non-accountable expense allowance, and estimated offering expenses payable by us.

 

You should read this table together with our consolidated financial statements and notes included in the information incorporated by reference into this prospectus supplement and the accompanying prospectus. 

 

   As of December 31, 2022 
   Actual   Pro Forma 
Cash and cash equivalents and restricted cash  $8,230,644   $      
Total current liabilities  $19,212,766   $ 
Shareholder’ equity          
Ordinary Share, $0.12 par value; 300,000,000 authorized; 1,618,977 issued and outstanding as of December 31, 2022  $194,313   $ 
Subscription receivable   (50,000)     
Additional paid in capital   46,231,302      
Legal reserve   223,500      
Warrants reserve   251,036      
Accumulated deficit   (28,769,014)     
Accumulated other comprehensive income   1,112,494      
Non-controlling interests   (61,329)     
Total capitalization  $19,132,302   $ 

 

The information above is based on 1,618,977 Ordinary Shares issued and outstanding as of December 31, 2022, and the proforma is excluding the following:

 

  ● 73,000 Ordinary Shares reserved for future issuance under our Guardforce AI Co., Limited 2022 Equity Incentive Plan;

 

  ● 103,915 Ordinary Shares issuable upon exercise of the publicly listed warrants, at an exercise price of $4.65 per share with the expiration date of September 28, 2026;

  

  ● 297,000 Ordinary Shares issuable upon exercise of the private placement warrants, at an exercise price of $4.65 per share with the expiration date of January 20, 2027;

 

  ● 4,518 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;

  

  ● 262,500 restricted Ordinary Shares were issued on March 1, 2023 for acquiring assets related to the robot business of Shenzhen Kewei;

 

  ● 55,726 Ordinary Shares were issued on April 3, 2023, April 4, 2023, April 12, 2023 and April 13, 2023 in connection with cashless exercise of 3,080,757 private placement warrants by six of our PIPE investors;

 

  ● 8,004 Ordinary Shares were issued on April 4, 2023, April 13, 2023 and April 14, 2023 in connection with exercise of 320,180 publicly listed warrants; and

 

  ● 172,000 restricted Ordinary Shares were issued on April 19, 2023, upon receiving the conversion notice dated April 17, 2023, from Streeterville Capital, LLC, indicating its election to convert a portion of the Note balance ($1,238,400.00) at the conversion price of $7.20.

 

S-31

 

 

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 represents the amount of our total assets less our total liabilities, excluding goodwill and intangible assets. The net tangible book value of our Ordinary Shares as of December 31, 2022 was approximately $9.1 million or $5.65 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, 2022.

 

After reflecting the sale of Ordinary Shares offered by us at the public offering price of $ per share, less underwriting discounts, non-accountable expense allowance and estimated offering expenses, our adjusted net tangible book value per our Ordinary Shares as of December 31, 2022 would have been $ per share. The change represents an immediate increase in net tangible book value per our Ordinary Share of $ per share to existing shareholders and an immediate dilution of $ per share to new investors purchasing Ordinary Shares in this offering.

 

The following table illustrates this per share dilution:

 

    Per 
Ordinary
Share		 
Offering price per share  $ 
Net tangible book value per share as of December 31, 2022  $5.65 
Increase per share attributable to existing investors  $ 
Adjusted net tangible book value per share after giving effect to this offering  $ 
Dilution per share to new investors  $ 

 

The information above is based on 1,618,977 Ordinary Shares issued and outstanding as of December 31, 2022, and the proforma is excluding the following:

 

  ● 73,000 Ordinary Shares reserved for future issuance under our Guardforce AI Co., Limited 2022 Equity Incentive Plan;

 

  ● 103,915 Ordinary Shares issuable upon exercise of the publicly listed warrants, at an exercise price of $4.65 per share with the expiration date of September 28, 2026;

  

  ● 297,000 Ordinary Shares issuable upon exercise of the private placement warrants, at an exercise price of $4.65 per share with the expiration date of January 20, 2027;

 

  ● 4,518 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;

  

  ● 262,500 restricted Ordinary Shares were issued on March 1, 2023 for acquiring assets related to the robot business of Shenzhen Kewei;

 

  ● 55,726 Ordinary Shares were issued on April 3, 2023, April 4, 2023, April 12, 2023 and April 13, 2023 in connection with cashless exercise of 3,080,757 private placement warrants by six of our PIPE investors;

 

  ● 8,004 Ordinary Shares were issued on April 4, 2023, April 13, 2023 and April 14, 2023 in connection with exercise of 320,180 publicly listed warrants; and

 

  ● 172,000 restricted Ordinary Shares were issued on April 19, 2023, upon receiving the conversion notice dated April 17, 2023, from Streeterville Capital, LLC, indicating its election to convert a portion of the Note balance ($1,238,400.00) at the conversion price of $7.20.

 

This discussion of dilution, and the table quantifying it, assumes no exercise of any over allotment option.

 

S-32

 

 

DESCRIPTION OF SECURITIES WE ARE OFFERING

 

We are a Cayman Islands exempted company with limited liability and our affairs are governed by our Amended and Restated Memorandum of Association and Second Amended and Restated Articles of Association (together the “Amended and Restated Memorandum and Articles of Association”) and the Companies Act. We were incorporated in the Cayman Islands on April 20, 2018 under the Companies Act. Pursuant to the approval of our board of directors, and the approval of our shareholders at the Company’s extraordinary general meeting held on Tuesday, January 31, 2023 at 11:00 a.m. (Hong Kong standard time), we effected a 1-for-40 consolidation of its Ordinary Shares. On February 2, 2023, Conyers Trust Company (Cayman) Limited, the Secretary of the Company, filed two certificates certifying the ordinary resolutions passed by the shareholders with the Registrar of Companies of the Cayman Islands. The share consolidation was effective upon passing of the ordinary resolutions on January 31, 2023. The Company’s Ordinary Shares began trading on the NASDAQ Capital Market on a post-consolidation basis when the market opens on February 10, 2023. The share consolidation resulted in every forty (40) shares of our issued and outstanding Ordinary Shares of a nominal or par value of US$0.003 each automatically consolidated into one (1) issued and outstanding Ordinary Share of a nominal or par value of US$0.12 each. Immediately following the share consolidation, the shareholders approved an increase of the authorized share capital of the Company from US$900,000 divided into 7,500,000 shares of a nominal or par value of US$0.12 each, to US$36,000,000 divided into 300,000,000 shares of a nominal or par value of US$0.12 each, 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 Ordinary Shares and Pre-Funded Warrants to purchase up to 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 and Pre-Funded Warrants. 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 February 8, 2023 and is incorporated by reference into this prospectus supplement. Our shareholders adopted our Second Amended and Restated Articles of Association by a special resolution on June 23, 2022.

 

As of May 10, 2023, there were 3,915,533 Ordinary Shares issued and outstanding. In addition, we currently have 2,013,759 warrants issued and outstanding, which include: (i) 1,233,023 warrants to purchase 30,825 Ordinary Shares, subject to rounding of fractional warrants and these warrants are exercisable at an exercise price of $4.65 per share with the expiration date of September 28, 2026; (ii) 600,013 warrants to purchase 15,000 Ordinary Shares, subject to rounding of fractional warrants, at an exercise price of $4.65 per share with the expiration date of January 20, 2027; and (iii) 180,723 warrants to purchase 4,518 Ordinary Shares, subject to rounding of fractional warrants, that were issued to the assignee of the representative of the underwriters in our initial public offering with the expiration date of September 28, 2026.

 

The following are summaries of material provisions of our Amended and Restated 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 out of the share premium account if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.

 

S-33

 

 

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 poll save that in certain circumstances the chairman of the meeting may in good faith, allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. 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. All general meetings (including an annual general meeting, any adjourned general meeting or postponed meeting) may be held as a physical meeting at such times and in any part of the world and at one or more locations, as a hybrid meeting or as an electronic meeting, as may be determined by our board of directors in its absolute discretion.

 

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 provides that only a majority of the Board or the Chairman of the Board may call general meetings, which general meetings shall be held at such times and locations as such person or persons shall determine.

 

A quorum required for any general meeting of shareholders consists of two shareholders present in person or by proxy representing not less than one-third of the votes attached to the then issued share capital of the Company throughout the meeting. Advance notice of at least ten clear calendar days is required for the convening of any general meeting of our shareholders.

 

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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 in a form designated by the relevant stock exchange 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 which is not fully paid up or on which we have a lien or in accordance with our articles of association. Our board of directors may also decline to register any transfer of any Ordinary Share unless:

 

  ● the instrument of transfer is lodged with us, accompanied by the certificate for the Ordinary Shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

 

  ● the instrument of transfer is in respect of only one class of Ordinary Shares;

 

  ● the instrument of transfer is properly stamped, if required;

 

  ● in the case of a transfer to joint holders, the number of joint holders to whom the Ordinary Share is to be transferred does not exceed four; and

 

  ● a fee of such maximum sum as the relevant stock exchange may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof.

 

If our directors refuse to register a transfer they are obligated to, within three 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.

 

The registration of transfers may, after compliance with any notice required in accordance with the rules of the relevant stock exchange, be suspended at such times and for such periods as our board of directors may from time to time determine; provided, however, that the registration of transfers shall not be suspended for more than 30 days in any year.

 

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.

 

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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 of these shares, on such terms and in such manner as may be determined by our board of directors. Our company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors in accordance with our articles of association. Under the Companies Act, the redemption or repurchase of any share may be paid out of our company’s profits, share premium or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or 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 sanction of a special resolution passed 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 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;

 

  ● divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges, conditions or such restrictions

 

  ● 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

 

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 or other undistributable 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 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 that an exempted company:

 

  ● does not have to file an annual return of its shareholders with the Registrar of Companies;

 

  ● is not required to open its register of members for inspection;

 

  ● does not have to hold an annual general meeting;

 

  ● may issue shares with no par value;

 

  ● may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

 

  ● may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

 

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  ● may register as an exempted limited duration company;

 

  ● may register as a segregated portfolio company; and

 

  ● 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 shareholder’s 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.

 

Pre-Funded Warrants

 

The material terms and provisions of the Pre-Funded Warrants being offered are summarized below. The summary is subject to, and qualified in its entirety by reference to, the form of Pre-Funded Warrant which has been provided to each investor in this offering and will be filed as an exhibit to a Report on Form 6-K with the SEC in connection with this offering.

 

The term “pre-funded” refers to the fact that the purchase price of our Ordinary Shares in this offering includes almost the entire exercise price that will be paid under the Pre-funded Warrants, except for a nominal remaining exercise price of $0.12. The purpose of the Pre-funded Warrants is to enable investors that may have restrictions on their ability to beneficially own more than 4.99% (or, upon election of the holder, 9.99%) of our outstanding Ordinary Shares following the consummation of this offering the opportunity to make an investment in the Company without triggering their ownership restrictions, by receiving Pre-funded Warrants in lieu of our Ordinary Shares which would result in such ownership of more than 4.99% (or 9.99%), and receive the ability to exercise their option to purchase the shares underlying the Pre-funded Warrants at such nominal price at a later date.

 

Exercise of Warrants.

 

Each Pre-funded Warrant is exercisable for one share of our Ordinary Shares, with an exercise price equal to $0.12 per share, at any time that the Pre-funded Warrant is outstanding. There is no expiration date for the Pre-funded Warrants. The holder of a Pre-funded Warrant will not be deemed a holder of our underlying Ordinary Shares until the Pre-funded Warrant is exercised.

 

Subject to limited exceptions, a holder of Pre-funded Warrants will not have the right to exercise any portion of its Pre-funded Warrants if the holder (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number of ordinary shares in excess of 4.99% (or, at the election of the purchaser prior to the date of issuance, 9.99%) of our Ordinary Shares then outstanding after giving effect to such exercise.

 

The exercise price and the number of shares issuable upon exercise of the Pre-funded Warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our Ordinary Shares. The Pre-funded Warrant holders must pay the exercise price in cash upon exercise of the Pre-funded Warrants, unless such Pre-funded Warrant holders are utilizing the cashless exercise provision of the Pre-funded Warrants.

 

Upon the holder’s exercise of a Pre-funded Warrant, we will issue Ordinary Shares issuable upon exercise of the Pre-funded Warrant within two trading days following our receipt of a notice of exercise, provided that payment of the exercise price has been made (unless exercised to the extent permitted via the “cashless” exercise provision). Prior to the exercise of any Pre-funded Warrants to purchase ordinary shares, holders of the Pre-funded Warrants will not have any of the rights of holders of the ordinary shares purchasable upon exercise, including the right to vote, except as set forth therein.

 

Cashless Exercise

 

In lieu of making the cash payment otherwise contemplated to be made to us upon the exercise of a Pre-Funded Warrant in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of ordinary shares determined according to a formula set forth in the pre-funded warrant.

 

Transferability

 

In accordance with its terms and subject to applicable laws, a Pre-Funded Warrant may be transferred at the option of the holder upon surrender of the Pre-Funded Warrant to us together with the appropriate instruments of transfer and payment of funds sufficient to pay any transfer taxes (if applicable).

 

Fundamental Transaction.

 

In the event we consummate a merger or consolidation with or into another person or other reorganization event in which our Ordinary Shares are converted or exchanged for securities, cash or other property, or we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding Ordinary Shares, then following such event, the holders of the Pre-funded Warrants will be entitled to receive upon exercise of such Pre-funded Warrants the same kind and amount of securities, cash or property which the holders would have received had they exercised their Pre-funded Warrants immediately prior to such fundamental transaction. Any successor to us or surviving entity shall assume the obligations under the Pre-funded Warrants.

 

No Market for Pre-Funded Warrants

 

We do not intend to apply to list the Pre-Funded Warrants being on any securities exchange. Accordingly, there is no established public trading market for the Pre-Funded Warrants, and we do not expect a market to develop. Without an active market, the liquidity of the Pre-Funded Warrants will be limited.

 

Registrar

 

Depending on the number of Pre-Funded Warrants holders, we may engage a warrant agent for the Pre-Funded Warrants.

 

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UNDERWRITING

 

We are offering the Ordinary Shares and Pre-funded Warrants described in this prospectus supplement through the underwriters listed below. EF Hutton, division of Benchmark Investments, LLC (the “representative”) is acting as the representative of the underwriters for this offering. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed to issue and sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the number of Ordinary Shares and Pre-funded Warrants listed opposite its name below.

 

Name of Underwriters  Number of
Ordinary Shares		   Number of Pre-funded Warrants 
EF Hutton, division of Benchmark Investments, LLC                                     
Spartan Capital Securities, LLC          
Total          

 

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers’ certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

 

The underwriting agreement provides that the obligation of the underwriters to purchase the Ordinary Shares and Pre-funded Warrants offered by this prospectus supplement and the accompanying base prospectus is subject to the approval of certain legal matters by counsel for the representatives and to certain other conditions.

 

Over-Allotment Option

 

We have granted the underwriters an option to purchase up to an additional       Ordinary Shares and/or Pre-funded Warrants from us at the same price to the public, and with the same underwriting discount, as set forth in the table below. The underwriters may exercise this option any time during the 45-day period after the closing of this offering, but only to cover over-allotments, if any. To the extent the underwriters exercise the option, the underwriters will become obligated, subject to certain conditions, to purchase Ordinary Shares for which they exercise the option.

 

Discount and Expenses

 

The table below summarizes the underwriting discounts that we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the over-allotment option.

 

   Per
Share		   Per
Pre-funded
Warrant		   Total with
no Over-Allotment		   Total with
Over-Allotment		 
Public offering price  $   $   $   $ 
Underwriting discount (  %)  $   $   $   $ 
Non-accountable expense allowance (0.5%)  $   $   $   $ 
Proceeds, before expenses, to us  $              $                       $                $              

 

We have agreed to pay the expenses of the underwriters in connection with the offering, including filing fees and investor presentation expenses, as well as underwriters’ counsel legal fees, up to an aggregate $80,000.

 

We have also agreed to pay the representative a non-accountable expense allowance equal to half of one percent (0.5%) of the gross proceeds received from the sale of Ordinary Shares and Pre-funded Warrant in this offering. The non-accountable expense allowance will be paid through a deduction from the net proceeds of the offering.

 

We estimate that the total expenses of this offering, excluding underwriting discounts, will be $     . This includes $     of the fees and expenses of the representatives we agreed to pay the representatives of the underwriters. These expenses are payable by us.

 

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Right of First Refusal

 

Following the closing of this offering, the representative will have an irrevocable right of first refusal, for a period of three (3) months after the date this offering is completed, to act as sole investment banker, sole book-runner, and/or sole placement agent, at the representative’s sole discretion, for each and very future public and private equity and debt offering (other than customary commercial bank loans)), during such three (3) month period, of the Company, or any successor to or any current or future subsidiary of the Company, on terms and conditions customary for such transactions.

 

Indemnification

 

We also have agreed to indemnify the underwriters against certain liabilities, including civil liabilities under the Securities Act of 1933, as amended, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.

 

Lock-up Agreements

 

Our Company has agreed, subject to limited exceptions, for a period of 180 days after the closing of this Offering, not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of, directly or indirectly any Ordinary Shares or any securities convertible into or exchangeable for our Ordinary Shares either owned as of the date of the underwriting agreement or thereafter acquired without the prior written consent of the representatives, subject to certain exceptions. The representatives may, in their sole discretion and at any time or from time to time before the termination of the lock-up period, without notice, release all or any portion of the securities subject to lock-up agreements.

 

Price Stabilization, Short Positions, and Penalty Bids

 

In connection with this offering, each underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of our securities. Specifically, such underwriter may over-allot in connection with this offering by selling more securities than are set forth on the cover page of this prospectus. This creates a short position in our securities for such underwriter’s own accounts. The short position may be either a covered short position or a naked short position. In a covered short position, the number of securities over-allotted by such underwriter is not greater than the number of securities that it may purchase in the over-allotment option. In a naked short position, the number of securities involved is greater than the number of securities in the over-allotment option. To close out a short position, such underwriter may elect to exercise all or part of the over-allotment option. Such underwriter may also elect to stabilize the price of our securities or reduce any short position by bidding for, and purchasing, securities in the open market.

 

The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing a security in this offering because the underwriter repurchases that security in stabilizing or short covering transactions.

 

Finally, each underwriter may bid for, and purchase, shares of our securities in market-making transactions, including “passive” market-making transactions as described below.

 

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These activities may stabilize or maintain the market price of our securities at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be affected on NASDAQ, in the over-the-counter market, or otherwise.

 

In connection with this offering, the underwriters and selling group members, if any, or their affiliates may engage in passive market-making transactions in our Ordinary Shares immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103 generally provides that:

 

●a passive market maker may not affect transactions or display bids for our securities in excess of the highest independent bid price by persons who are not passive market makers;

 

●net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily trading volume in our Ordinary Shares during a specified two-month prior period or 200 shares, whichever is greater, and must be discontinued when that limit is reached; and

 

●passive market-making bids must be identified as such.

 

Determination of Offering Price

 

The public offering price of the securities we are offering was negotiated between us and the underwriters based on the trading of our Ordinary Shares prior to the Offering, among other things. Other factors considered in determining the public offering price of the shares include the history and prospects of the Company, the stage of development of our business, our business plans for the future and the extent to which they have been implemented, an assessment of our management, general conditions of the securities markets at the time of the Offering and such other factors as were deemed relevant.

 

Electronic Distribution

 

This prospectus in electronic format may be made available on websites or through other online services maintained by the underwriters, or by their affiliates. Other than this prospectus in electronic format, the information on the underwriters’ websites and any information contained in any other websites maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters in their capacity as underwriter, and should not be relied upon by investors.

 

Other than the prospectus in electronic or printed format, the information on the underwriters’ website and any information contained in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the underwriters in their capacity as underwriters and should not be relied upon by investors.

  

Offers Outside the United States

 

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

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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 as to United States federal securities and New York State law 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 underwriters in this offering. 

 

EXPERTS

 

The consolidated financial statements of our Company as of December 31, 2022 and 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 May 1, 2023, 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 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.

 

S-41

 

 

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 Reports on Form 6-K furnished to the SEC on May 2, 2023 and May 5, 2023;

 

  ● the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2022, filed with the SEC on May 1, 2023; 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 on 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.

 

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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

 

 

 

 

  Prospectus  
   
About this Prospectus 1
Risk Factors 6
Forward-Looking Statements 9
Use of Proceeds 10
Capitalization and Indebtedness 10
Description of Share Capital 10
Description of Debt Securities 14
Description of Warrants 23
Description of Rights 24
Description of Units 24
Taxation 25
Plan of Distribution 25
Expenses of Issuance and Distribution 27
Legal Matters 27
Experts 27
Indemnification 27
Enforceability of Civil Liabilities 28
Material Changes 28
Financial Statements F-1
Incorporation of Certain Information by References 29
Where you can find more information 30

 

i

 

 

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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.”

 

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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.

  

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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:

 

  ● the title and authorized denominations of the series of debt securities;

 

  ● any limit on the aggregate principal amount of the series of debt securities;

 

  ● 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;

 

  ● 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;

 

  ● the price or prices at which the debt securities will be issued;

 

  ● the date or dates on which principal is payable;

 

  ● 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;

 

  ● interest rates, and the dates from which interest, if any, will accrue, and the dates when interest is payable and the maturity;

 

  ● the right, if any, to extend the interest payment periods and the duration of the extensions;

 

  ● our rights or obligations to redeem or purchase the debt securities;

 

  ● any sinking fund or other provisions that would obligate us to repurchase or otherwise redeem some or all of the debt securities;

 

  ● conversion or exchange provisions, if any, including conversion or exchange prices or rates and adjustments thereto;

 

  ● the currency or currencies of payment of principal or interest;

 

  ● the terms applicable to any debt securities issued at a discount from their stated principal amount;

 

  ● the terms, if any, under which any debt securities will rank junior to any of our other debt;

 

  ● whether and upon what terms the debt securities may be defeased, if different from the provisions set forth in the indenture;

 

  ● 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;

 

  ● the provisions, if any, relating to any collateral provided for the debt securities;

 

  ● 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;

 

  ● the events of default and covenants relating to the debt securities that are in addition to, modify or delete those described in this prospectus;

 

  ● the nature and terms of any security for any secured debt securities; and

 

  ● 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.

 

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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:

 

  ● the conversion or exchange price;

 

  ● the conversion or exchange period;

 

  ● provisions regarding the ability of us or the holder to convert or exchange the debt securities;

 

  ● events requiring adjustment to the conversion or exchange price; and

 

  ● 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.

 

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Events of Default

 

The term “Event of Default,” when used in the indenture, unless otherwise indicated, means any of the following:

 

  ● failure to pay interest for 30 days after the date payment is due and payable;

 

  ● failure to pay principal or premium, if any, on any debt security when due, either at maturity, upon any redemption, by declaration or otherwise;

 

  ● failure to make sinking fund payments when due;

 

  ● failure to perform other covenants for 60 days after notice that performance was required;

 

  ● events in bankruptcy, insolvency or reorganization relating to us; or

 

  ● 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.

 

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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:

 

  ● the holder has previously given to the trustee written notice of default and continuance of such default;

 

  ● 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;

 

  ● the requesting holders have offered the trustee reasonable indemnity for expenses and liabilities that may be incurred by bringing the action;

 

  ● the trustee has not instituted the action within 60 days of the request; and

 

  ● 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:

 

  ● by the depositary for such registered global security to its nominee;

 

  ● by a nominee of the depositary to the depositary or another nominee of the depositary; or

 

  ● 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:

 

  ● 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;

 

  ● 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;

 

  ● 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

 

  ● 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.

 

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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:

 

  ● will not be entitled to have the debt securities represented by a registered global security registered in their names;

 

  ● will not receive or be entitled to receive physical delivery of the debt securities in the definitive form; and

 

  ● 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.

 

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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:

 

  ● 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;

 

  ● 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

 

  ● 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.

 

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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:

 

  ● secure any debt securities and provide the terms and conditions for the release or substitution of the security;

 

  ● evidence the assumption by a successor corporation of our obligations;

 

  ● add covenants for the protection of the holders of debt securities;

 

  ● add any additional events of default;

 

  ● cure any ambiguity or correct any inconsistency or defect in the indenture;

 

  ● 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;

 

  ● establish the forms or terms of debt securities of any series;

 

  ● eliminate any conflict between the terms of the indenture and the Trust Indenture Act of 1939;

 

  ● 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

 

  ● 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:

 

  ● extend the final maturity of any debt security;

 

  ● reduce the principal amount or premium, if any;

 

  ● reduce the rate or extend the time of payment of interest;

 

  ● reduce any amount payable on redemption or impair or affect any right of redemption at the option of the holder of the debt security;

 

  ● change the currency in which the principal, premium or interest, if any, is payable;

 

  ● 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;

 

  ● alter provisions of the relevant indenture relating to the debt securities not denominated in U.S. dollars;

 

  ● impair the right to institute suit for the enforcement of any payment on any debt security when due;

 

  ● if applicable, adversely affect the right of a holder to convert or exchange a debt security; or

 

  ● reduce the percentage of holders of debt securities of any series whose consent is required for any modification of the indenture.

 

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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:

 

  ● 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

 

  ● 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:

 

  ● would not conflict with any rule of law or with the relevant indenture;

 

  ● would not be unduly prejudicial to the rights of another holder of the debt securities; and

 

  ● 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.

 

22

 

 

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:

 

  ● the title of the warrants;

 

  ● the offering price or prices of the warrants, if any;

 

  ● the minimum or maximum amount of the warrants which may be exercised at any one time;

 

  ● the currency or currency units in which the offering price, if any, and the exercise price are payable;

 

  ● the number of securities, if any, with which such warrants are being offered and the number of such warrants being offered with each security;

 

  ● the date, if any, on and after which such warrants and the related securities, if any, will be transferable separately;

 

  ● 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;

 

  ● the date on which the right to exercise such warrants shall commence and the date on which such right shall expire;

 

  ● the circumstances, if any, which will cause the warrants to be deemed to be automatically exercised;

 

  ● any material risk factors, if any, relating to such warrants;

 

  ● the identity of any warrant agent; and

 

  ● 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.

 

23

 

 

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.

 

24

 

 

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;

 

  ● directly to 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.

 

25

 

 

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.

 

26

 

 

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.

 

27

 

 

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.

 

28

 

   

FINANCIAL STATEMENTS

  

GUARDFORCE AI CO., LIMITED AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019

 

Contents   Page(s)
     
Report of Independent Registered Public Accounting Firm   F-2
Consolidated Statements of Financial Position   F-3
Consolidated Statements of Profit or Loss   F-4
Consolidated Statements of Comprehensive Income (Loss)   F-5
Consolidated Statements of Changes in Equity (Deficit)   F-6
Consolidated Statements of Cash Flows   F-7
Notes to the Consolidated Financial Statements   F-8

  

F-1

 

 

 

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.

  

F-2

 

 

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. 

F-3

 

  

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.

 

F-4

 

  

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.

 

F-5

 

  

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

  

F-6

 

 

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.

 

F-7

 

  

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)

 

1.NATURE OF OPERATIONS

 

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.

 

F-8

 

 

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.

 

F-9

 

 

2.1Basis of presentation

 

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.

  

2.2Basis 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.

 

F-10

 

 

2.3Business 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.

 

2.4Non-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.

  

2.5Use of estimates

 

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.

 

2.6Foreign 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 

  

2.7Financial risk management

 

2.7.1Financial 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.

 

F-11

 

 

(i)Foreign exchange risk

 

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.

 

  (ii) Interest rate risk

 

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.

 

  (iii) Liquidity risk

 

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 

 

F-12

 

 

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 

 

2.7.2Capital 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.

 

2.7.3Impact of COVID-19

 

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.

 

2.8Fair 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.

 

F-13

 

 

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.

 

2.9Cash 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.

  

2.10Accounts 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.

  

F-14

 

 

2.11Inventory

 

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.

 

2.12Withholding 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

 

2.13Loans 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.

  

2.14Fixed assets

 

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

 

F-15

 

 

2.15Assets 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.

  

2.16Intangible 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.

  

2.17Impairment 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.

 

2.18Trade and other payables

 

Trade and other payables are recognized at fair value.

 

2.19Interest-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.

 

2.20Revenue 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.

 

F-16

 

 

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       √

 

F-17

 

 

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. 

 

2.21Cost of revenue

 

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. 

 

F-18

 

 

2.22Income taxes

 

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.

  

F-19

 

 

2.23Provisions

 

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.

 

2.24Employee benefits

 

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.

 

2.25Leases

 

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

 

F-20

 

 

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.

 

2.26Related parties

 

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.

 

2.27Earnings (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.

 

2.28Recent 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 

 

4.INVENTORY

 

   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 

 

F-21

 

 

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.

 

F-22

 

 

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 

 

8.FIXED ASSETS, NET

 

   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.

  

F-23

 

 

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.

F-24

 

 

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.

 

F-25

 

 

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 

 

15.TAXATION

 

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 

  

F-26

 

 

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.

 

F-27

 

 

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 

 

F-28

 

 

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 

 

F-29

 

 

17.SHAREHOLDERS’ EQUITY

 

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.

 

F-30

 

 

20.LEGAL RESERVE

 

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

 

F-31

 

 

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.

 

F-32

 

 

  (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.

 

F-33

 

 

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.

 

F-34

 

 

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.

 

23.CONCENTRATIONS

 

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%

 

F-35

 

 

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%

  

24.SUBSEQUENT EVENTS

 

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.

 

F-36

 

 

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.

 

F-37

 

 

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 

 

F-38

 

 

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 

 

F-39

 

 

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.

 

29

 

 

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.

 

 

30
 

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