adidas
Annual Report 2018

Plain-text annual report

Table of Contents Chairman’s Report Directors’ Report Remuneration Report Auditors Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Audit Report to the Members Corporate Governance Statement Shareholder Information Corporate Directory 2 4 12 21 22 23 24 25 26 63 64 67 67 68 Chairman’s Report Dear Shareholder, The 2018 financial year was a disappointing one for the company. Business performance did not meet expectations. Licence Fees and Trading Fees were both slightly down, and combined with the anticipated decline in ad serving revenues, meant overall revenues were down 11%. Furthermore, the Company’s increased investment in R&D was not delivering meaningful commercial returns in FY18. As a result, the Board undertook an in-depth strategic review of the Company’s operations in January and February 2018. The review resulted in a number of changes within the business. Ian Lowe stepped down as CEO, and Executive Director, Ben Dixon, was appointed interim CEO. I also stepped back into the business full-time to support Ben and the executive team, becoming Executive Chairman. We narrowed the strategic focus of the business on two core opportunities: • • Protecting and growing the Symphony business to drive Licence Fees; and, Doubling down on the US market opportunity for Adslot Media in order to drive Trading Fees. We also implemented a significant cost-reduction program. The workforce was reduced by 20%. Savings totalled more than $2 million on a per annum basis. The narrowing of focus saw the long-awaited Adslot-Symphony integration put on hold, while the Company stabilised and focused on returning the existing Symphony business to growth. I am pleased to say that with more stream-lined business disciplines, processes and reporting in place, the Company has subsequently made much positive progress. The Company successfully deployed Symphony to the Indian market on-time in June 2018, which in addition to the deployments of Turkey and Belgium earlier in the financial year, brought the total number of markets deployed for Group M in FY18 to three. Symphony has serviced 55 agencies in 16 countries around the world to date, with more than 13,500 individual users having registered on the platform since inception. More than 58,000 individual campaigns, valued at more than $3 Billion in value, were managed by the Symphony platform in FY18. Following a review and agreed amendments to the Company’s global Symphony contract with GroupM, the Company was pleasingly able to provide guidance that Symphony Licence Fees, on a normalised basis, will increase by an expected 38.7% from $4M to $5.5M in financial year 2019. These are fixed, contracted revenues, with additional revenues to be derived with the launch of each individual market for GroupM, of which five are anticipated in the 2019 financial year. With regards to Adslot Media and Trading Fees, the Company decided to invest aggressively in the US and UK markets, recognising this was the best opportunity to grow this part of the business. Since taking this decision, the Company saw an increase in the value of media traded on the Adslot Media platform in the second half of FY18, and has subsequently seen a significant increase in media traded on the platform in the September quarter just gone, where trading activity increased some 295% from $1.38m in the June 2018 quarter, to more than $5.46m in the September 2018 quarter. The most pleasing aspect of this increased trading activity is the fact that the vast majority of the September quarter trades were repeat trades, emanating from agencies both large and small from the US, UK, Europe and Australia. The agencies involved represent some of the world’s largest global brands, who are advertising on some of the biggest publisher websites globally. From a corporate perspective, the Company made a number of announcements during the 2018 financial year, including the appointment of Felicity Conlan as Chief Financial Officer in July 2017, and Company Secretary in October 2017. The Company also announced the appointment of Andrew Dyer as non-executive director at the end of May 2018. Subsequent to financial year end, the Company also completed a placement of $3.5M to mostly existing sophisticated and institutional investors. In summary, although it was a challenging year for the Company in the first half, the second half saw much positive change and we are now starting to see real evidence of definitive progress. The Board and the Executive Team will continue to work tirelessly to maintain and grow the Symphony and Adslot Media businesses, returning the Company to consistent revenue growth and ultimately profitability. 2 In closing, I’d like to take this opportunity to first thank all our loyal shareholders who have not only stuck with the Company during its darkest hour, but supported the Company through further investment via the placement and on-market buying when the risks were high, and the results far from certain. I would also like to acknowledge the commitment of the executive team, who similarly chose to stay and support the Company throughout what has been a difficult and challenging period, from which we have emerged stronger, and with an exciting year now ahead of us. Yours sincerely, Andrew Barlow Executive Chairman Adslot Ltd 09 October 2018 3 Directors’ Report Your Directors present their report, together with the financial report of Adslot Ltd ACN 001 287 510 (‘the Company’) and its controlled entities (‘the Group’) for the financial year ended 30 June 2018 and the auditor’s report thereon. Information on Directors Mr Andrew Barlow, Mr Adrian Giles, Mr Ben Dixon, Mr Quentin George and Ms Sarah Morgan were directors for the whole financial year and up to the date of this report. Mr Ian Lowe resigned from his appointment as director on 27 February 2018. Mr Andrew Dyer was appointed as a director on 28 May 2018. Mr Andrew Barlow Executive Chairman (Age 45) Andrew Barlow is the founder and Executive Chairman of Adslot, and an experienced technology entrepreneur. Prior to Adslot, Mr Barlow co-founded online competitive intelligence company, Hitwise, with Adrian Giles in 1997. Hitwise was ranked one of the Top 10 fastest growing companies by Deloitte for five years running, before being sold to Experian Group (LSX.EXPN) in May 2007. Mr Barlow was also Founder and CEO of Max Super, an online retail superannuation fund sold to Orchard Funds Management in 2007. Mr Barlow is also the Founder of Venturian, a privately-owned venture capital fund with investments in early-stage technology companies with unique IP, highly scalable business models and global market potential. Mr Barlow is currently a director of Nitro Software, Inc., a leading provider of PDF creation, conversion and editing software and e-signing cloud services. Mr Barlow was appointed as Executive Chairman of Adslot on 27 February 2018. He was the Non- Executive Chairman prior to 27 February 2018. Mr Adrian Giles Non-Executive Director (Age 44) Adrian Giles is an entrepreneur in the Internet and Information Technology industries. In 1997 Mr Giles co-founded Sinewave Interactive which pioneered the concept of marketing a website using search engines and was the first company in Australia to offer Search Engine Optimisation (SEO) as a service. In 1997 Mr Giles co-founded Hitwise which grew over 10 years to become one of the most recognised global internet measurement brands in the USA, UK, Australia, NZ, Hong Kong, and Singapore. Whilst positioning the company for a NASDAQ listing in early 2007 Hitwise was sold to Experian (LSX: EXPN) in one of Australia’s most successful venture capital backed trade sales. Mr Giles is also Chairman of Market Engine, a global retailing platform for Asian marketplaces and Chairman of Proquo, an Australian small business marketplace joint venture between Telstra and NAB. Mr Giles is Chair of the Remuneration Committee. Mr Ben Dixon Interim CEO and Executive Director (Age 44) Mr Ben Dixon’s career in the advertising industry goes back over 19 years and includes roles at several large multinational agency groups including DDB and Mojo. He has wide experience across both the media buying and account management fields having held senior positions directing accounts for advertisers such as Telstra and Kraft Foods. In particular he was responsible for the development and implementation of e-commerce and online strategies across a number of advertisers. In late 1999 Ben conceptualised and then co-founded Facilitate Digital Pty Ltd, assuming the role of General Manager. In the subsequent 3 years he played an integral role in steering the business through an industry collapse to a position of strength. Ben was appointed Chief Executive Officer of Facilitate when Adslot acquired it in December 2013. Mr. Dixon was interim Company Secretary from 15 July 2018 to 9 October 2018. He was appointed as the interim CEO on the 27 February 2018. 4 Mr Quentin George Non-Executive Director (Age 48) Quentin George is one of the advertising industry’s most credentialed and respected thought leaders. Based in the United States, Mr George has previously served as the Chief Digital and Innovation Officer at IPG Mediabrands, where he was responsible for overseeing $2b in digital media spend across global media agency networks, as well as specialist digital agencies for Fortune 500 brands. Mr George has also previously held the positions of Global Head of Digital Media and Strategic Innovation, and President, Global at Universal McCann. In 2008, Mr George led the team that architected and built the industry’s first ever, standalone programmatic media-buying agency, Cadreon, which he successfully grew into a multi-national organisation encompassing North America, Europe and Asia-Pacific. Mr George has also previously served on the customer advisory boards of Google, Microsoft Advertising, Yahoo! and AOL. He has also served on high-profile industry advisory boards including the Internet Advertising Bureau (IAB) and the American Association of Advertising Agencies (AAAA’s), and has held senior leadership roles at digital agencies such as Razorfish and Organic. Ms Sarah Morgan Non-Executive Director (Age 48) Sarah has extensive experience in the finance industry, primarily as part of independent corporate advisory firm Grant Samuel. Sarah has been involved in public and private company mergers and acquisitions, as well as equity and debt capital raisings. Sarah holds a degree in Engineering and a Master of Business Administration from the University of Melbourne and is a Graduate of Australian Institute of Company Directors. Sarah is also Non-Executive Director of the National Gallery of Victoria Foundation. Directorships of other Australian Listed Companies during the past 3 years:  Hansen Technologies Limited (ASX:HSN) from October 2014 to current.  Future Generation Global Investment Company (ASX:FGG) from July 2015 to current. Ms Morgan is Chair of the Audit and Risk Committee. Mr Andrew Dyer Non-Executive Director (Age 54) Andrew Dyer is a Senior Partner and Director of The Boston Consulting Group (BCG). Mr Dyer has held local, regional and global leadership positions, including leading BCG’s People & Organization and Enablement Practices. He has also been a member of BCG’s global Executive Committee and held various roles on a number of BCG Board Committees and initiatives. Mr Dyer has over 24 years' consulting experience supporting senior executives in leading companies around the world, with a particular focus on financial and other services businesses. Prior to joining BCG in 1994, Mr Dyer worked for the Commonwealth Bank and the Australian Federal Government. Mr Dyer was appointed as a director on 28 May 2018. Ms Felicity Conlan Company Secretary (Age 52) Ms Conlan brings to the Company extensive experience in the media/advertising and technology sectors where she has held General Manager - Finance and CFO roles with companies including M&C Saatchi, Network Ten, Beattie McGuinness Bungay (London) and Genero Media. Ms Conlan is a member of CPA Australia and a member of the Australian Institute of Company Directors. Ms Conlan was appointed as Chief Financial Officer on 30 August 2017 and Company Secretary on 9 October 2017. Mr. Ian Lowe resigned as CEO and Executive Director on 27 February 2018. Mr. Brendan Maher resigned as Company Secretary as of 14 July 2017. 5 Directors’ Report (Continued) Directorships of other listed companies Other than those disclosed on pages 2 to 5 of this Annual Report no director holds a Directorship in any other listed companies in the three year period immediately before the end of the financial year. Directors’ shareholdings The following table sets out each director’s relevant interest in shares or options in shares of the Company as at the date of this report. Directors Mr Andrew Barlow Mr Adrian Giles Mr Ben Dixon Mr Quentin George Ms Sarah Morgan Mr Andrew Dyer Ordinary Shares # Share Rights # 35,674,668 7,551,452 37,353,660 - 200,500 21,659,342 - - - - - - Share Options # - - 1,000,000 - - 4,000,000 ESOP Shares # - - - 1,000,000 - - Performance Rights # - - 250,000 - - - Remuneration of directors and senior management Information about the remuneration of directors and senior management is set out in the remuneration report of this directors’ report. Directors’ Meetings The following table sets out the number of meetings of the Company’s Directors held during the year ended 30 June 2018 and the number of meetings attended by each Director. Directors Mr Andrew Barlow Mr Ian Lowe (i) Mr Adrian Giles Mr Ben Dixon Mr Quentin George Ms Sarah Morgan Mr Andrew Dyer (ii) Board of Directors Held Attended Remuneration Committee Held Attended Audit and Risk Committee Attended Held 14 9 14 14 14 14 2 14 9 14 14 13 14 2 3 - 3 - 3 - - 3 - 3 - 1 - - - - 4 - - 4 - - - 4 - - 4 - (i) Mr. Lowe resigned as Director on 27 February 2018. (ii) Mr Dyer was appointed as Director on 28 May 2018. Mr Dyer has also been appointed a member of the Company’s Audit and Risk Committee. Principal activities Adslot Ltd derives revenue from three principal activities: 1. Trading Technology - comprises Adslot, a leading global media trading technology, and Symphony, market-leading workflow automation technology for media agencies. 2. Services - comprises digital marketing services - provided by the Company’s Webfirm division - and project-based customisation of Trading Technology. 3. Adserving - technology that enables advertisers to deliver, measure and optimise the performance of online display advertising. For strategic reasons the Company decided to discontinue providing Adserving services in the first quarter of the financial year. Operating Results Group revenues for the FY18 period were $8,013,289, a decrease of 11% versus the year prior ($9,007,016). The Consolidated Group operating loss before interest, income tax, depreciation and amortisation (EBITDA) of $6,340,479, an increased loss versus prior year of $4,239,255 or 50%. The Consolidated Group operating loss of $11,653,319 is 35% higher than the loss for the prior year of $8,630,187. 6 Review of Operations The financial year ended 30 June 2018 was a challenging one for the Company. Total group revenue of $8.0m represented an 11% decrease on the prior financial year. Revenue declines were driven in part by the cessation of the Company’s non- strategic ad serving platform (a reduction of $521k) and lower interest income (a reduction of $164k). Revenues generated from Trading Technology were modestly down by 4% compared to the prior financial year. YoY Revenue by Segment $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 FY13 FY14 FY 15 FY16 FY17 FY18 Trading Technology Services Adserving Other In response to business performance, the Board undertook a strategic review of operations in February 2018 with the objective of identifying a path to returning the business to growth and ultimately profitability. This review identified the following items as key priorities for the business: 1. Maintain the Symphony product and grow its user base; 2. Focus on the US market for Trading Fees; and 3. Implement a cost reduction plan. The subsequent six months have shown considerable progress towards these three objectives, and as a result, the Company commences the 2019 financial year better placed to deliver revenue growth and improved cash flows over the coming year. Key Objective Progress 1. Symphony Growth Forecast growth of 38.7% in Symphony License Fees in FY19. Updated agreement with GroupM. 2. US Market Trading Fees Strong improvement in the value of media traded via Adslot Media in the US market driven by increased engagement with advertisers, agencies and publishers.. 3. Cost Reductions Reduction in Q4 FY18 outgoing cash costs (excluding publisher payments) of $829k, including savings on employment costs of $643k. 7 Review of Operations (Continued) Trading Technology The strategic focus of the business remains Trading Technology revenues. These revenues are comprised of:   Licence Fees – derived mostly from Symphony, a market-leading workflow automation tool, but also from Adslot customised legacy solutions (eg. Suburb Sponsorship tool for REA); and Trading Fees – fees charged as a percentage of media traded via the stand alone Adslot Media platform and also via Symphony. Adslot earns a higher average Trading Fee (% of trade value) from media traded via Adslot Media on a standalone basis. Symphony Significant events for the past year for Symphony include:  Successful deployment of Symphony for GroupM into two new markets in Europe (Turkey and Belgium); and  Successful deployment of Symphony for GroupM into India, which is anticipated to be the second largest deployment of the Symphony platform to date. Subsequent to the end of the financial year, the Company also completed a re-negotiation of the Company’s agreement with the world’s largest media buyer, GroupM. The updated terms of this agreement include:  Agreement on five new markets for deployment in FY19; and  Anticipated growth in Symphony License Fees from $3.96m to $5.50m (38.7%) in FY19. Total License Fee revenues were $4.47m in FY18, representing a modest decline of 3% on the prior financial year. Additional License Fees for newly deployed markets were offset by a reduction in License Fees from legacy clients in the US market ending Symphony contracts in the prior financial year. 8 Adslot Media Significant events for the past year for Adslot Media include:  A renewed focus on the US market as the likely source of strong growth in Trading Fee revenues;  A successful pilot with a top 5 US advertiser for use of the Adslot Media platform;  Continued success in signing top tier US publishers to the Adslot Media platform; and  Development and deployment of the Audience First capability. This unique feature allows advertisers to leverage their own 1st party data assets in a forward guaranteed manner with premium publishers. Trading Fee revenues of $670k in FY18 were disappointing and did not represent the significant investment and progress made in developing the US market opportunity. Subsequent to financial year end, and as disclosed in the Company’s trading update of 29 August 2018, this improved performance has seen:  The value of media traded via the stand alone Adslot Media platform for the quarter to date (as at 29 August 2018) represent 190% of the total 4th quarter of FY18; and  Additional high quality publishers being onboarded to the Adslot Media platform as well as existing publishers adopting the Audience First capability. Services Services revenue is derived predominantly from Webfirm, the Company’s Australian-based digital marketing services business, providing website design, hosting, search engine optimisation (SEO), search engine marketing (SEM) and social media marketing services ($1.69m). Services revenue is also derived to a lesser extent custom development work for Symphony customers. 86% of the Company’s Services revenue is recurring subscription revenue derived mostly from web hosting, SEO and SEM. FY18 saw a 5.6% decline in Services revenue, due to reduced performance in the Webfirm business. Adserving The Company’s non-strategic Adserving business was wound down and closed on Q2 FY18. The Company will no longer report on Adserving revenue. 9 Review of Operations (Continued) Matters Subsequent to the End of the Financial Year On 3 August 2018 the Company successfully completed a $3.50 million share placement (Placement). The Placement involved the issue of 140,000,000 new, fully paid ordinary shares (New Shares) at $0.025 per New Share (Offer Price) to raise $3.50 million (before costs). The Placement was conducted in two tranches. The first tranche comprising 118,000,000 New Shares at the Offer Price ($2.95 million) placed to sophisticated and institutional investors completed in August 2018. The second tranche comprising 22,000,000 New Shares at the Offer Price ($0.55 million) will be placed to Directors and related parties subject to shareholder approval at a General Meeting to be held on 14 September 2018. The details of this capital raising are disclosed on note 27. Environmental regulations The Group’s operations are not subject to any significant environmental regulations under the Commonwealth, State or any other country in which the entity operates. Dividends The Directors do not recommend the declaration of a dividend. No dividend has been declared or paid during the year. Shares under option Details of unissued shares or interests under option as at the date of signing this report are. Expiry Date Exercise Price $ Balance at beginning of the year (Number) Issued during the year (Number) Forfeited during the year (Number) Exercised during the year (Number) Balance at end of the year (Number) Issue Type Ordinary options 4/10/21 0.073 Ordinary options 25/11/21 0.060 Ordinary options 25/02/22 0.035 Ordinary options 15/05/22 0.034 Ordinary options 27/05/22 0.036 - - - - - - 3,000,000 - 6,550,000 (750,000) 25,750,000 (2,250,000) 12,700,000 4,000,000 - - 52,000,000 (3,000,000) - - - - - - 3,000,000 5,800,000 23,500,000 12,700,000 4,000,000 49,000,000 Shares subject to rights Details of unissued shares or interests subject to rights as at the date of signing this report are: Executive Performance Rights Issue or Acquisition Date Issue Price $ Balance at beginning of the year (Number) Issued during the year (Number) Issue Type Performance Rights 26/08/15 Performance Rights 27/06/16 Performance Rights 01/09/16 Nil Nil Nil 1,090,000 400,000 7,750,000 9,240,000 - - - - Transfers during the year (Number) (790,000) (400,000) Forfeited during the year (Number) (300,000) - Balance at end of the year (Number) - - (2,687,500) (2,937,500) 2,125,000 (3,877,500) (3,237,500) 2,125,000 10 Indemnification and Insurance of Officers The Company has during the financial year, in respect of each person who is or has been an officer of the Company or a related body Corporate, made a relevant agreement for indemnifying against a liability incurred as an officer, including costs and expenses in successfully defending legal proceedings. Since the end of the financial year, the Company has paid premiums to insure all directors and officers of Adslot Ltd and the Adslot Group of companies, against costs incurred in defending any legal proceedings arising out of their conduct as a director and officer of the Company, other than for conduct involving a wilful breach of duty or a contravention of Sections 232(5) or (6) of the Corporations Act 2011, as permitted by section 241A (3) of the Corporations Act. Disclosure of the premium amount is prohibited by the insurance contract. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Auditor’s Independence Declaration The auditor’s independence declaration for the year ended 30 June 2018 has been received and can be found on page 21 of the financial report. Details of amounts paid or payable to the auditor for non-audit services provided during the year are outlined in Note 20 to the financial statements. The Directors are satisfied that the provision of non-audit services, during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. 11 Remuneration Report The remuneration report is set out under the following headings: Section 1: Non-executive directors’ remuneration Section 2: Executive remuneration Section 3: Details of remuneration Section 4: Executive contracts of employment Section 5: Long Term Incentives (equity-based compensation) Section 6: Equity holdings and transactions Section 7: Other transactions with key management personnel Section 1: Non-executive directors’ remuneration Non-executive directors’ fees are reviewed annually and are determined by the Board. In making its determination it takes into account fees paid to other non-executive directors of comparable companies. Non-executive directors’ fees are within the maximum aggregate limit of $350,000 per annum agreed to by shareholders at the Annual General Meeting held on 30 November 2009. To preserve the independence and integrity of their position, non-executive directors do not receive performance-based bonuses. For the 2018 financial year, the Chairman’s fees were $100,000 per annum. Non-executive directors’ fees were $50,000 per annum. In addition, the Chair of the Audit & Risk Committee and the Remuneration Committee received a further $25,000 in recognition of the additional workload of those positions. Section 2: Executive remuneration The Board of Directors are responsible for determining and reviewing compensation arrangements for key management personnel and the executive team. The Remuneration Committee makes recommendations on remuneration of key management personnel to the Board. The Board assesses the appropriateness of the nature and amount of emoluments of these employees on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit by: a) Attracting the highest quality employees; b) Retaining the best performing employees c) Aligning the employees with shareholder outcomes; d) Aligning employee motivation to a cascading set of key performance indicators that drive the most optimal strategic outcomes for the business; and e) Ensuring it aligns with the latest industry best practice. Executives’ remuneration consists of a fixed cash component, short-term incentives in the form of cash bonuses, and long- term incentives in the form of equity-based compensation linked to the long term prospects and future performance of the Company. The inclusion of equity-based compensation in executives’ remuneration provides a direct link between their remuneration and shareholder wealth, otherwise there are no direct relationships. In providing the Company’s performance and benefits for shareholder wealth, the Board have regard to the following indices in respect of the current financial year and the previous four financial years: Item EPS (cents) Net loss ($) 2018 (0.91) 2017 (0.70) 2016 (0.77) 2015 (0.89) 2014 (1.20) 11,653,319 8,630,187 8,138,485 9,205,521 10,095,562 Share price at 30 June ($) 0.026 0.051 0.110 0.090 0.115 The above indices are below the Committee’s expectations, and accordingly no short-term incentives were paid to KMP during the year. 12 Section 3: Details of remuneration Details of the remuneration of the directors and the key management of the Company and its controlled entities are set out in the following tables. The key management personnel of Adslot Ltd and its controlled entities include the following directors and executive officers: Directors Position Mr Andrew Barlow Executive Chairman Non-Executive Chairman Non-Executive Director Mr Ben Dixon Interim Chief Executive Officer Interim Company Secretary Executive Director Date appointed/resigned Appointed 27 February 2018 Appointed 26 November 2013 Appointed 16 February 2010 Appointed 27 February 2018 15 July to 9 October 2017 Appointed 23 December 2013 Mr Andrew Dyer Non-Executive Director Appointed 28 May 2018 Mr Quentin George Non-Executive Director Appointed 14 June 2014 Mr Adrian Giles Non-Executive Director Appointed 26 November 2013 Mr Ian Lowe Chief Executive Officer Resigned 27 February 2018 Ms Sarah Morgan Non-Executive Director Appointed 27 January 2015 Executive Officers Ms Felicity Conlan Company Secretary Chief Financial Officer Appointed 9 October 2017 Appointed 30 August 2017 Mr Brendan Maher Company Secretary / Chief Financial Officer Resigned 14 July 2017 Mr Tom Peacock Group Commercial Director Appointed 23 December 2013 13 Remuneration Report (Continued) Section 3: Details of remuneration (Continued) Group 2018 Name Short-term benefits Salary & fees $ Short Term Incentive Other $ $ Executive directors Mr A Barlow (i) Mr B Dixon Mr I Lowe (ii) Non-executive directors Mr A Giles Mr Q George Ms S Morgan Mr A Dyer (iii) 141,324 206,000 360,000 75,000 50,000 68,493 - Other key management personnel Ms F Conlan (iv) Mr T Peacock Mr B Maher (v) 211,956 224,000 20,538 Totals 1,357,311 - - - - - - - - - - - - - - - - - - - - - - Long Term Benefits Long Service Leave $ - 3,975 - - - - - - Post- employment benefits Share-based payment Super- annuation $ Share Options $ Performance Rights $ Total $ 8,676 19,570 20,049 - 6,817 13,635 - - 6,507 - 4,095 - - 32,392 - 150,000 53,125 289,487 - - - - - - 393,684 75,000 54,095 75,000 32,392 264,352 83,097 370,290 - 22,309 17,360 8,108 20,049 - 1,771 35,036 35,036 - 12,083 93,982 127,011 136,222 1,726,609 (i) (ii) (iii) (iv) (v) includes $50,000 consultancy fees incurred since his appointment as an Executive Chairman. resigned as CEO and Executive Director on 27 February. Continued to be a key management personnel for the rest of the year. Figures represent annual remuneration. from 28 May 2018. from 30 August 2017. to 14 July 2017. Short Term Incentives No Short Term Incentives (STIs) were paid in the year ended 30 June 2018 relating to the 2017 financial year. The total 2017 STI opportunity is outlined in the table below: Name Amount Paid Total 2017 STI Opportunity Assessment Criteria $ $ Mr I Lowe Mr B Dixon Mr B Maher Mr T Peacock - - - - 150,000 Company performance to budget, product development and launch, and client & partnership signings. 55,000 Performance related KPI’s. 45,063 Division performance, governance, reporting and performance related KPI’s. N/A (a) Performance related KPI’s. (a) Not applicable as total bonus opportunity is based on a percentage of the Group’s performance. No portion of the total bonus opportunity for key management personnel was forfeited. 14 Group 2017 Name Short-term benefits Salary & fees $ Short Term Incentive Other $ $ Executive directors Mr I Lowe Mr B Dixon 355,750 206,000 20,623 10,000 Non-executive directors Mr A Giles Mr A Barlow Mr G Dixon (i) Mr Q George Ms S Morgan 50,000 68,493 19,026 50,000 68,493 - - - - - Other key management personnel Mr B Maher (ii) Mr T Peacock 264,296 206,000 10,000 10,000 Totals 1,288,058 50,623 - - - - - - - - - - Long Term Benefits Long Service Leave $ - 3,975 - - - - - (16,322) 7,744 Post- employment benefits Super- annuation Share-based payment Shares1 Rights1 Total $ $ $ $ 19,616 19,308 - 6,507 1,807 - - - - - - 12,321 6,507 19,616 19,308 - - - - 395,989 18,300 257,583 - - - - - 50,000 75,000 20,833 62,321 75,000 19,600 22,553 297,190 265,605 (4,603) 92,669 12,321 60,453 1,499,521 1 Awards of Shares and Rights are governed by the rules of the Company’s ESOP. Given the forfeiture conditions contained in that Plan, these awards are in substance rights issues. (i) (ii) to 01 December 2016 includes a long service leave provision reversal brought forward from 2016. Mr Maher tendered his resignation as CFO in April 2017, as such will not be entitled to any long service leave payout based on Long Service Leave Act 1992 No. 83 of the Victoria State legislation. Short Term Incentives Short Term Incentives appearing in the table above were paid in the year ended 30 June 2017 (but relate to the performance from the prior year) as follows: Name Amount Paid Amount available in future periods Total 2016 STI Opportunity Assessment Criteria $ $ $ Mr I Lowe 20,623 Mr B Dixon Mr B Maher Mr T Peacock 10,000 10,000 10,000 - - - - 150,000 Company performance to budget, product development and launch, and client & partnership signings. 55,000 Performance related KPI’s. 45,063 Division performance, governance, reporting and performance related KPI’s. N/A (a) Performance related KPI’s. (a) Not applicable as total bonus opportunity is based on a percentage of the Group’s performance. No portion of the total bonus opportunity for key management personnel was forfeited. 15 Remuneration Report (Continued) Section 4: Executive contracts of employment Formal contracts of employment for all members of the key management personnel are in place. Contractual terms for most executives are similar but do, on occasions, vary to suit different needs. The following table summarises the key contractual terms for all key management personnel. Length of contract Open ended Fixed Remuneration Remuneration comprises salary and statutory employer superannuation contributions. Incentive Plans Notice Period Resignation Retirement Eligible to participate. Incentive criteria and award opportunities vary for each executive. Members of the key management, including executive directors, have notice periods ranging from four weeks to four months. The Chief Executive Officer and Chief Financial Officer have notice periods of four months and three months respectively. Other Executives have notice periods ranging from four weeks to three months. Employment may be terminated by giving notice consistent with the notice period. There are no financial entitlements due from the Company on retirement of an executive. Termination by the Company The Company may terminate the employment agreement by providing notice consistent with the notice period or payment in lieu of the notice period. Redundancy Payments for redundancy are discretionary and are determined having regard to the particular circumstances. There are no contractual commitments to pay redundancy over and above any statutory entitlement. Termination for serious misconduct The Company may terminate the employment agreement at any time without notice, and the executive will be entitled to payment of remuneration only up to the date of termination. Section 5: Long Term Incentives (equity-based compensation) Performance Rights over Shares Shareholders approved at the November 2014 Annual General Meeting the creation of Performance Rights over Shares which enables the Board to offer eligible employees the right to Performance Rights which convert to shares subject to the executive’s performance against specific individual financial and non-financial performance criteria. No amounts are paid or payable by the recipient on receipt of the right. The rights carry no voting rights. All rights are subject to service periods which require the employees remain an employee of the Company. The Performance Rights over Shares Plan was replaced by the Incentive Option Plan in financial year 2018 and as such there have been no new Performance Rights granted during the year ending 30 June 2018. The Performance Rights over Shares Plan will conclude by 30 June 2019. The following table shows grants of share-based compensation to directors and senior management under the Performance Rights over Shares Plan during the 2018 financial year: Name Ben Dixon Brendan Maher Tom Peacock Series Sep 16 Sep 16 Sep 16 Balance at beginning of the year (Number) Granted during the year (Number) Expired during the year (Number) Exercised during the year (Number) Balance at the end of the year (Number) 500,000 750,000 750,000 - - - - (250,000) 250,000 (750,000) - - - (375,000) 375,000 2,000,000 - (750,000) (625,000) 625,000 The final assessment of the balance of Performance Rights will occur in second quarter of FY 2018. No Performance rights to shares were granted to KMP during the year ended 30 June 2018. 16 The following table shows grants of share-based compensation to directors and senior management under the Performance Rights over Shares Plan during the prior year ending 30 June 2017: Name Ben Dixon Brendan Maher Tom Peacock Ben Dixon Brendan Maher Tom Peacock Series Nov 14 Nov 14 Nov 14 Sep 16 Sep 16 Sep 16 Balance at beginning of the year (Number) Granted during the year (Number) Expired during the year (Number) Exercised during the year (Number) Balance at the end of the year (Number) 500,000 833,333 666,667 - - - - - - (250,000) (416,666) (333,333) (250,000) (416,667) (333,334) 500,000 750,000 750,000 - - - - - - - - - 500,000 750,000 750,000 2,000,000 2,000,000 (999,999) (1,000,001) 2,000,000 The model inputs for Performance rights to shares granted during the year ended 30 June 2017 included: Model Input Grant Date Assessment period Exercise Price Probability of Conversion to Shares Price at Grant Date PR # 17-1 01/09/16 2 years - 50% $0.125 Employee share option plan (ESOP) In November 2012 the Company gained approval to establish an employee incentive scheme comprising the Adslot Limited Share Option Plan and the Adslot Employee Share Trust. The ESOP was replaced by the Performance Rights over Shares Plan in financial year 2015 and as such there have been no new ESOP rights granted during the years ending 30 June 2015 to 30 June 2018. There was no vesting of ESOP share-based compensation to directors and senior management under the ESOP for the current financial year ended June 2018 (2017: nil). Rights over Shares under the Company’s previous ESOP Upon commencement of his employment on 8 October 2012 Mr Lowe was granted the right to receive up to 17,000,000 shares after the share price of the Company trades above certain 30 day volume-weighted average price (VWAP) hurdles. Each right would convert into one ordinary share of Adslot Ltd when the VWAP criteria was met. In the event of a Change of Control of the Company some of the Rights over Shares would have vested on a sliding scale between the take-over price and required VWAP of the next eligible series. No amounts would have been paid or payable by the recipient on receipt of the right. The rights carried no voting rights. Mr Lowe has signed a Separation and Exit Deed with the Company with a separation date of 27 August 2018. All of Mr Lowe's Share Rights will automatically lapse on the separation date. 17 Remuneration Report (Continued) Section 5: Long Term Incentives (continued) Incentive Option Plan At the November 2017 Annual General Meeting, shareholders approved the creation of the Company’s Incentive Option Plan which enables the Board to offer eligible employees and directors the right to options which convert to fully-paid ordinary shares upon exercise, subject to meeting certain vesting criteria. The objective of the Incentive Option Plan is to attract, motivate and retain key employees and the Company considers that the adoption of the Incentive Option Plan and the future issue of options under the Incentive Option Plan will provide selected employees and directors with the opportunity to participate in the future growth of the Company. Part of the strategic review of operations included a review of the incentives for key executives to ensure their efforts are aligned with company growth and shareholder outcomes. Adslot continues to operate within a highly competitive employment environment for experienced people in the technology and software field. Whilst the performance of the business and our related cost reduction plan limited our ability to incentivise by increasing base or short term cash incentives across executives we were instead able to provide an option allocation to the management team designed to provide a strong incentive to continued commitment to the business and increasing shareholder value. No amounts are paid or payable by the recipient on the receipt of the options. The options carry no voting rights. All options are subject to service periods which require the employees remain an employee or Director of the Company. The following table shows grants and movements of share-based compensation to directors and senior management under the Incentive Option Plan during the current financial year: Name Ian Lowe (i) Ben Dixon Felicity Conlan Tom Peacock Felicity Conlan Tom Peacock Series OP # 18-1 OP # 18-1 OP # 18-2 OP # 18-2 OP # 18-3 OP # 18-3 Balance at beginning of the year (Number) Granted during the year (Number) Expired during the year (Number) Exercised during the year (Number) Balance at the end of the year (Number) Vested and exercisable at the end of the year (Number) - 2,000,000 - 1,000,000 - - - 2,000,000 - 1,000,000 - - - - 1,000,000 1,000,000 6,500,000 6,500,000 - - - - - - - - 1,000,000 1,000,000 6,500,000 6,500,000 - - - - - - Andrew Dyer (ii) OP # 18-5 - 4,000,000 - - 4,000,000 2,000,000 - 22,000,000 - - 22,000,000 2,000,000 (i) Based on the Separation and Exit Deed signed with the Company, Mr Lowe is entitled to retain the 2,000,000 options issued to him. The Board has agreed to exercise its discretion to waive the vesting condition that Mr Lowe remains an employee. If a strategic project Mr Lowe is engaged in is completed on or before 27 September 2018, the Board has further agreed to exercise its discretion to bring forward the vesting date from November 2019. In conjunction with his appointment as Director, Mr Dyer was granted 4 million options. The exercise price of each Option is $0.036 and the Options expire on 27 May 2022. 2 million of the options vested immediately. The remaining 2 million vest in four equal tranches in 6 month intervals from the date of appointment. Mr Dyer has agreed to waive his annual base director fees of $50,000 per annum for the first two years of his directorship. (ii) The options are valued using the Black-Scholes pricing model. The model inputs for options granted during the year ended 30 June 2018 included: Model Input Grant Date Expiry Date Exercise Price $ 5 day VWAP at Grant Date $ Expected Volatility Risk Free Interest rate OP # 18-1 OP # 18-2 OP # 18-3 OP # 18-5 5/10/17 4/10/21 0.073 0.050 62.62% 1.83% 26/11/17 25/11/21 0.060 0.041 61.92% 1.83% 26/02/18 25/02/22 0.035 0.024 69.20% 1.99% 28/05/18 27/05/22 0.036 0.025 86.58% 2.02% 18 Details of Share Options, ESOP and other rights to ordinary shares in the Company provided as remuneration of directors and the key management personnel of the Company are set out below: Name 2018 (Options) 2017(Rights) 2018 (Rights) 2017 (Rights) Number $ Number $ Number $ Number $ Options/Rights Granted During the Year Rights Vested During the Year Directors Mr Adrian Giles Mr Ian Lowe Mr Andrew Barlow Mr B Dixon Mr Q George Ms S Morgan Mr A Dyer Other Key Management Personnel Ms F Conlan Mr B Maher Mr T Peacock - - - - - - - - 2,000,000 39,200 - - - - - - - - - - - - - - 1,000,000 19,600 500,000 62,500 250,000 31,250 250,000 26,250 - - - - 4,000,000 55,208 7,500,000 84,722 - - 7,500,000 84,722 - - - - - - - - 750,000 750,000 93,750 93,750 - - - - - - - - - - - - - - 416,667 375,000 46,875 333,334 - - - - 43,750 35,000 The assessed fair value at issue date of the rights, and the assessed fair value at grant date of the options, granted to the executive are allocated equally over the period from issue/grant date to vesting date, and the amount is included in the remuneration tables above. 19 Remuneration Report (Continued) Section 6: Equity holdings and transactions The number of shares in the Company held during the financial year by each Director of Adslot Ltd and other key management personnel of the Group, including their personally related parties, are set out below: 2018 Name Directors Mr A Giles Mr A Barlow Mr I Lowe (i) Mr B Dixon Mr Q George Ms S Morgan Mr A Dyer (ii) Other key management personnel Ms F Conlan Mr T Peacock Totals Balance at the start of the year (Number) Received during the year as compensation (Number) Net other changes during the year (Number) Balance at the end of the year (Number) 20,069,707 50,050,000 14,552,838 37,103,660 - 170,000 - - - - - 250,000 - - - - (12,518,255) (14,375,332) (3,897,596) - - 30,500 21,659,342 7,551,452 35,674,668 10,655,242 37,353,660 - 200,500 21,659,342 500,000 500,000 4,409,309 375,000 (1,555,502) 3,228,807 126,355,514 625,000 (10,156,84 3) 116,823,671 (i) Mr Lowe resigned as a director on 27 February 2018 (ii) Mr Dyer was appointed as a director on 28 May 2018. Section 7: Other transactions with Key Management Personnel Transactions with Directors and their personally related entities: During the years ending 30 June 2018 and 30 June 2017 there were no transactions with Directors and their personally related entities. This marks the end of the audited remuneration report. This report is made in accordance with a resolution of directors. Andrew Barlow Executive Chairman 29 August 2018 20 Collins Square, Tower 1 727 Collins Street Docklands VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Adslot Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Adslot Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants Michael Climpson Partner - Audit & Assurance Melbourne, 29 August 2018 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 21 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2018 Total revenue from continuing operations Other income Total revenue and other income Hosting & other related technology costs Employee benefits expense Directors’ fees Recruitment fees Advertising expense Lease – rental premises Impairment of receivables Listing & registrar fees Legal fees Travel expenses Consultancy fees Audit and accountancy fees Other expenses Share based payment expense Depreciation and amortisation expenses Total expenses Loss before income tax expense Income tax benefit / (expense) Loss after income tax expense Net loss attributable to members Other comprehensive income / (loss) Items that may be reclassified subsequently to profit or loss Foreign exchange translation Total other comprehensive income / (loss) Notes 3 3 3 4,10 4 4 4 22 4 5 2018 $ 7,072,464 940,825 8,013,289 (832,936) (8,943,887) (350,000) (99,935) (221,407) (958,707) (4,537) (92,392) (140,071) (420,995) (264,869) (185,744) (900,468) (777,804) 2017 $ 7,574,682 1,432,334 9,007,016 (686,624) (8,139,988) (270,833) (238,350) (160,424) (1,074,702) (17,747) (119,299) (49,507) (488,180) (212,775) (196,936) (936,303) (330,467) (5,442,959) (4,685,082) (19,636,711) (17,607,217) (11,623,422) (8,600,201) (29,897) (11,653,319) (11,653,319) (29,986) (8,630,187) (8,630,187) (4,136) (4,136) 3,194 3,194 Total comprehensive loss attributable to the members (11,657,455) (8,626,993) Earnings per share (EPS) from loss from continuing operations attributable to the ordinary equity holders of the Company Basic earnings per share Diluted earnings per share 17 17 2018 Cents (0.91) (0.91) 2017 Cents (0.70) (0.70) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 22 Consolidated Statement of Financial Position As at 30 June 2018 Notes 2018 $ 2017 $ Current assets Cash and cash equivalents Trade and other receivables Total current assets Non- current assets Property, plant & equipment Deferred tax assets Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Other liabilities Lease Incentive Liability Provisions Total current liabilities Non- current liabilities Lease Incentive Liability Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity 7 8 9 5 10 11 12 13 14 13 14 5 15 16 4,775,331 14,320,147 5,471,925 4,685,621 10,247,256 19,005,768 832,833 36,370 243,744 36,370 23,202,768 24,747,821 24,071,971 25,027,935 34,319,227 44,033,703 2,925,743 445,491 60,248 587,150 2,252,581 583,759 - 605,590 4,018,632 3,441,930 555,463 360,763 36,370 952,596 - 325,473 36,370 361,843 4,971,228 3,803,773 29,347,999 40,229,930 138,397,710 137,949,047 712,654 389,929 (109,762,365) (98,109,046) 29,347,999 40,229,930 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 23 Consolidated Statement of Changes in Equity For the year ended 30 June 2018 2018 Balance at 1 July 2017 Movement in foreign exchange translation reserve Other comprehensive income Loss attributable to members of the Company Total comprehensive income/(loss) Transactions with equity holders in their capacity as equity holders Contributions of equity, net of transaction costs Reclassification of vested performance rights Net movement in treasury shares Increase in employees share based payments reserve Notes Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ 137,949,047 389,929 (98,109,046) 40,229,930 16 15 15 16 - (4,136) (4,136) - - (4,136) (4,136) - (11,653,319) (11,653,319) (4,136) (11,653,319) (11,657,455) - - - - 412,119 36,544 - - (414,399) (36,544) 777,804 448,663 326,861 - - - - - - (2,280) - 777,804 775,524 Balance 30 June 2018 138,397,710 712,654 (109,762,365) 29,347,999 2017 Balance at 1 July 2016 Movement in foreign exchange translation reserve Other comprehensive income Loss attributable to members of the Company Total comprehensive income/(loss) Notes 16 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ 120,693,650 404,736 (89,478,859) 31,619,527 - - - - 3,194 3,194 - 3,194 - - 3,194 3,194 (8,630,187) (8,630,187) (8,630,187) (8,626,993) Transactions with equity holders in their capacity as equity holders Contributions of equity, net of transaction costs Reclassification of vested performance rights Net movement in treasury shares Increase in employees share based payments reserve 15 16 16 16,910,710 - 344,479 (348,260) 208 - (208) 330,467 17,255,397 (18,001) - - - - - 16,910,710 (3,781) - 330,467 17,237,396 Balance 30 June 2017 137,949,047 389,929 (98,109,046) 40,229,930 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 24 Consolidated Statement of Cash Flow As at 30 June 2018 Notes 2018 $ 2017 $ Cash flows from operating activities Receipts from trade and other debtors Interest received Receipt of R&D tax incentive and other Grants 8,276,865 11,028,575 157,478 768,439 326,488 775,241 Payments to trade creditors, other creditors and employees (14,476,555) (16,251,884) Income tax received/ (paid) Interest paid - (60) - (594) Net cash outflows from operating activities 23 (5,273,833) (4,122,174) Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of fixed assets Receipt of R&D tax incentive relating to capitalised assets Payments for intangible assets (134,740) 330 1,921,946 (6,068,636) (177,950) 2,750 1,583,175 (4,524,194) Net cash outflows from investing activities (4,281,100) (3,116,219) Cash flows from financing activities Proceeds from issue of shares Payments of equity raising costs Net cash inflows from financing activities Net increase / (decrease) in cash held Cash at the beginning of the financial year Effects of exchange rate changes on cash - - - (9,554,933) 14,320,147 10,117 18,054,640 (1,219,342) 16,835,298 9,596,905 4,745,969 (22,727) Cash at the end of the financial year 7 4,775,331 14,320,147 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 25 Notes to the Financial Statement For the year ended 30 June 2018 Summary of Significant Accounting Policies The financial report covers Adslot Ltd (‘the Company’) and controlled entities (‘the Group’). Adslot Ltd is a listed public company, incorporated and domiciled in Australia. The financial report is for the financial year ended 30 June 2018 and is presented in Australian dollars. The principal accounting policies adopted in the preparation of these consolidated financial statements are summarised below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. Compliance with IFRS Australian Accounting Standards include International Financial Reporting Standards as adopted in Australia. Compliance with Australian Accounting Standards ensures that the financial statements and notes of Adslot Ltd comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Adslot Ltd is a for-profit entity for the purpose of preparing the financial statements. Historical cost convention These financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale financial assets. Under the historical cost convention assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business. Critical accounting estimates The preparation of financial statements in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. The estimates and associated assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Going concern Management continues to invest resources to support growth in trading fees in the US market, and the anticipated market deployments and growth in Symphony licence fees. The Group has incurred net cash outflows of $9.6m for the year, and management anticipate incurring further net cash outflows from operations until such time as sufficient revenue growth is achieved. As previously disclosed, and consistent with its stated focus on software development companies, AusIndustry has commenced a review of the Company’s FY2016 R&D claim. Management believe its FY2016 R&D claim is consistent with the criteria of the scheme. If a delay in expected revenues and/or a negative outcome of AusIndustry’s review of the FY2016 R&D claim was to occur, this has the potential to create a cash flow risk to the Group which could affect its ability to pay its debts as and when they fall due, and to realise its assets in the normal course of business. However, the Directors believe the Group will be able to continue to pay its debts as and when they fall due for the following reasons:        the Group had a cash position of $4.8 million at 30 June 2018; on 3 August 2018 the Company raised $3.5 million (before costs and including $0.55 million to be approved at an EGM in mid-September) via a share placement; the Group expects to receive $3.3 million in R&D grants in the December 2018 quarter, relating to R&D expenditure incurred in FY2018; as previous announced, a 38.7% or $1.5 million increase to Symphony licence fees in FY2019; a cost reduction plan which was implemented at the end of February 2018, and the full effects of which are expected to be realised in FY2019; the opportunity to implement further cost reductions; and the ability to raise additional capital. Accordingly, the Directors believe there exists a reasonable expectation that the Company can continue to pay its debts as and when they fall due, and the financial report has been prepared on a going concern basis. 26  Principles of consolidation Subsidiaries The consolidated financial statements comprise those of the Company, and the entities it controlled at the end of, or during, the financial year. The Company controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All intra-group transactions, balances, income and expenses between entities in the Group included in the financial statements have been eliminated in full. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Where an entity either began or ceased to be controlled during the year, the results are included only from the date control commenced or up to the date control ceased. The accounting policies adopted in preparing the financial statements have been consistently applied by entities in the Group. Investments in subsidiaries are accounted for at cost less impairment losses in the parent entity information in Note 25. Business combinations Acquisition of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred. The Group recognises identifiable assets and liabilities assumed in the business combination regardless of whether they have been previously recognised in the acquiree’s financial statements prior to acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition date fair values. Goodwill is stated after separate recognition of identifiable intangible assets calculated as the excess of the sum of the fair value of the consideration transferred over the acquisition date fair value of identifiable net assets. If the identifiable net assets exceed the consideration transferred, the excess amount is recognised in profit or loss immediately. Any deferred settlement of cash consideration is discounted to its present value as at the date of acquisition. The discount rate used is the incremental borrowing rate that the Group can obtain from an independent financier under comparable terms and conditions. Foreign Currency Exchange In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the reporting date. Exchange differences are recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income in the period in which they arise. On consolidation, the assets and liabilities of the Group’s foreign operations are translated into Australian dollars at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are charged/credited to other comprehensive income and recognised in the Group’s foreign currency translation reserve in equity. On disposal of a foreign operation the cumulative translation difference recognised in equity are reclassified to profit or loss and recognised as part of the gain or loss on disposal. Cash and cash equivalents For the purposes of the Consolidated Statement of Cash Flows, cash includes cash on hand and deposits at call which are readily convertible to cash and are not subject to significant risk of changes in value, net of bank overdrafts. Publisher Account Cash represents share of advertising revenue held before release to Adslot Publishers. 27 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Leasehold improvements are depreciated using the straight-line method over the remaining period of the underlying lease. Depreciation is calculated on a straight line basis for all plant and equipment. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, with the effect of any changes recognised on a prospective basis. The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of asset and is recognised in profit or loss. The following depreciation rates are used for each class of depreciable asset: Computer Equipment Plant & Equipment 33– 40% per annum 20 – 33% per annum Leasehold Improvements 20 – 100% per annum Receivables Trade receivables are recognised initially at fair value and thereafter are measured at amortised cost, less provision for impairment. They are non-derivative financial assets with fixed or determinable amounts not quoted in an active market. Trade accounts receivable are generally settled between 14 and 60 days and carried at amounts recoverable. Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in profit or loss. Subsequent recoveries of amounts previously written off are credited against the allowance account. Investments and other financial assets Financial assets are recognised when the Group entity becomes a party to the contractual provisions of the instrument. At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed through profit or loss. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured subsequent to recognition at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. Available-for-sale financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any other category of financial assets. Available-for-sale financial assets are measured at fair value. Gains or losses arising from changes in available-for-sale financial assets are presented in other comprehensive income in the period in which they arise. Trade and other creditors – financial liabilities Trade accounts payable and other creditors represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 45 days of recognition. Financial liabilities are measured subsequently at amortised cost using the effective interest method. Borrowings Borrowings are initially recognised at fair value (less transaction costs) and subsequently measured at amortised cost. Any difference between the proceeds and the redemption amount is recognised in profit or loss over the period of the borrowing using the effective interest method. Finance costs Finance costs are recognised as expenses in the period in which they are incurred except where they are incurred in the construction of a qualifying asset in which case the finance costs are capitalised as part of the asset. 28  Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities are always provided for in full. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Tax consolidation legislation Adslot Ltd and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Adslot Ltd, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. To the extent that it is not probable that taxable profit will be available in the foreseeable future against which the unused tax losses or unused tax credits can be utilised, the deferred tax assets of its own and its controlled entities are not recognised by Adslot Ltd. Employee benefits Wages and salaries, annual leave and sick leave Short-term employee benefits are current liabilities included in employee benefits, measured at the undiscounted amount that the Group expects to pay as a result of the unused entitlement. Annual leave is included in ‘provisions’. The Group does not discount the leave liability calculations as the Group expects all annual leave for all employees to be used wholly within 12 months of the end of reporting period. Long service leave The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in provisions for employee entitlements and is measured at the amount expected to be paid when the liabilities are settled. The liability for long service leave expected to be settled more than 12 months from the reporting date, is recognised in the non-current provision for employee benefits and is measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. Share-based compensation benefits Equity-settled share-based payments with employees and others providing similar services are measured at the fair value of the equity instrument at the grant date. The fair value at grant date is determined using a binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair value determined at the grant date of the equity-settled share-based payments is recognised as an expense, with a corresponding increase in equity (share-based payments reserve) on a straight line basis over the vesting period. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital while the proceeds received, net of any directly attributable transaction costs, and are credited to share capital. 29 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Intangible Assets Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (acquisition date). Goodwill is measured as the excess of the fair value of consideration paid over the fair value of the identifiable net assets of the entity or operations acquired. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment at least on an annual basis. An impairment loss for goodwill is recognised immediately in profit or loss and is not reversed in a subsequent period. Research and development expenditure Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the assets to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefits from the related project. The carrying value of an intangible asset arising from development costs is tested for impairment annually when the asset is not yet available for use or more frequently when an indicator of impairment arises during the reporting period. Intellectual property The intellectual property relates to the platform technology, branding and domains acquired as a result of the acquisition of Adslot, QDC IP Technology and Facilitate Digital businesses. Where the useful life is assessed as indefinite, assets are not amortised and the carrying value is tested for impairment annually or more frequently if events or changes in circumstances indicate impairment. It is carried at cost less impairment losses. For those assets assessed as having a finite life, they are amortised on a straight-line basis over the estimated useful life of the asset. The expected accounting useful life of intellectual property relating to the Adslot, QDC IP Technology and Facilitate Digital business is 4 to 5 years. Domain name Acquired domain names are accounted for at cost, useful life is assessed as indefinite and the assets are not amortised. The carrying value is tested for impairment annually or more frequently if events or changes in circumstances indicate impairment. They are carried at cost less impairment losses. Software Software represents internally developed software platforms capitalised according to accounting standards. Software is assessed as having a finite life and is amortised on a straight-line basis over the estimated useful life of the asset. The expected accounting useful life of software is 5 years. The carrying value of the software is tested for impairment when an indicator of impairment arises during the reporting period. Leased assets Leases of assets under which the Group assumes substantially all the risks and benefits of ownership are classified as finance leases. This is distinct from operating leases under which the lessor effectively retains substantially all such risks and benefits. Property, plant and equipment acquired by finance leases are capitalised at the present value of the minimum lease payments as a finance lease asset and as a corresponding lease liability from date of inception of the lease. Lease assets are amortised over the period the entity is expected to benefit from the use of the assets or the term of the lease, whichever is shorter. Finance lease liabilities are reduced by the component of principal repaid. Lease payments are allocated between the principal component of the liability and interest expense. Operating lease payments are charged to statement of profit or loss and other comprehensive income on a straight- line basis over the period of the lease term. Associated costs such as maintenance and insurance are expensed as incurred. 30  Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except: i. Where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii. For receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, allowances, duties and taxes paid. Revenue is recognised for the major business activities as follows: Revenue from Trading Technology - Licence Fees Licence Fee revenue is recognised monthly on invoicing as all relevant activities to ensure access and functionality of the platform have been performed by the Company. Revenue is recognised over the duration of the agreement. Revenue from Trading Technology – Trading Fees Adslot Publisher revenue is accounted for in accordance with AASB 118 Revenue such that only the portion of the media campaign that is retained by Adslot for their services is recorded as revenue. Where underlying campaigns selected by advertisers are served over a period a time, the portion that extends beyond the reporting period is not taken up as revenue. Where the funds for these campaigns are prepaid by advertisers those amounts are treated as unearned revenue in the Consolidated Statement of Financial Position. Funds collected from advertisers and due to publisher clients are disclosed in the accounts as “Cash held on behalf of Publishers”. “Publisher Creditors” represents “Cash held on behalf of Publishers” and amounts due from advertisers that needs to be repaid to the publishers. Rendering of services Service revenue is recognised on an accruals basis as and when the service has been passed onto the customer. Website development revenue is recorded based on project delivery. All projects are assigned percentages of project completion (based on actual work in progress) and all website development revenue applicable to percentage of incomplete work is recorded as unearned revenue. Website hosting, SSL certificate and domain name registration revenue is recorded over a one year duration. While 30% of search engine optimisation renewal revenue is recorded as earned in first month of renewal contract, the remaining 70% revenue is recognised over a one year duration. Prepaid revenue calculated in this regard is excluded from revenue and is being treated as unearned revenue in the Consolidated Statement of Financial Position. Interest revenue Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount can be measured reliably, taking into account the effective yield on the financial asset. Government grants In accordance with AASB 120, government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Where appropriate grants relating to expense items are recognised as either other income or deducted in reporting the related expense, over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income and are amortised on a straight line basis over the expected lives of the assets. Sale of non-current assets The net gain from the sale of non-current asset sales is recognised as income at the date control of the asset passes to the buyer, usually when the signed contract of sale becomes unconditional. 31 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Leasehold improvements The cost of improvements to leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement to the Group, whichever is the shorter. Earnings per share Basic earnings per share Basic earnings per share for continuing operations and total operations attributable to members of the Company are determined by dividing net profit after income tax from continuing operations and the net profit attributable to members of the Company respectively, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial period. The number of shares used in the calculation at any time during the period is based on the physical number of shares issued. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Dividends Provision is made for the amount of any dividend determined or recommended by the directors on or before the end of the financial year but not distributed at reporting date. Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Chief Executive Officer. Each of the operating segments is managed separately as each of these service lines requires different technologies, service different clients and sells different products. All inter-segment transactions are carried out at arm’s length prices. The Group reports its segments based on geographical locations:  APAC – Australia, New Zealand and Asia;  EMEA – Europe, the Middle East and Africa; and  The Americas – North, Central and South America. 32  Critical accounting judgements and key sources of estimation uncertainty Critical judgements in applying the entity’s accounting policies The following are the critical judgements (apart from those involving estimations, which are dealt with below), that management has made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements: Revenue recognition In web development and web hosting business operations, management assesses stage of completion of each project and recognises revenue in the period in which development work is undertaken. In making its judgement, management considered the standard duration of such contracts, stage of progress in contracts and commencement date of such contracts. Accordingly, management has deferred recognising some web development and web hosting revenue of an estimated value of services to be rendered in the future. Key sources of estimation uncertainty The following are the key assumptions concerning the future and other key estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Impairment of goodwill and intangible assets Determining whether goodwill and intangible assets are impaired requires an estimation of the fair value less costs to sell of the cash-generating units to which goodwill and intangible assets have been allocated. Under the market- based approach for fair value less costs to sell calculations, the entity is required to estimate the amount obtainable from the sale of an asset or CGU in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. The Company’s shares are traded on the Australian Stock Exchange, and in the absence of a binding sale agreement, the year-end share price is used to calculate the asset’s market value. In the event the share price falls an impairment of the related intangible assets may result. The carrying amount of goodwill and intangible assets at the reporting date was $ 23,202,768 (2017: $24,747,821) and there were no impairment losses (2017: nil) recognised during the current financial year. Refer to Note 10 for further details. Capitalisation of internally developed software Distinguishing the research and development phases of software projects and determining whether the recognition requirements for the capitalisation of development costs are met, requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. The capitalisation of internally developed software amount for the year was $3,666,409 (2017: $2,605,280). Refer to Note 10 for further details. Share based payments The calculation of the fair value of options issued requires significant estimates to be made in regards to several variables such as volatility and the probability of options reaching their vesting period. The estimations made are subject to variability that may alter the overall fair value determined. The share based payment expense for the year was $ 777,804 (2017: $ 330,467). Unrecognised deferred tax assets As disclosed in Note 5, the Group recognises deferred tax assets relating to temporary differences, capital losses or operating losses when it is probable that they will be able to be utilised in future reporting periods. Due to the continuing operating losses, the Directors have determined it is not appropriate to recognise deferred tax assets until a point in time where it is probable that future taxable income is going to be available to utilise the assets. The tax benefit of deferred tax assets not recognised is $10,541,711 (2017: $ 9,562,457). Refer to Note 5 for further details. Research and development tax concessions A receivable of $ 3,279,573 (2017: $ 2,706,250) has been recognised in relation to a research and development tax concession for the 2018 financial year. Refer to Note 8 for further details. The actual claim is yet to be submitted with the Australian Tax Office and therefore there remains some uncertainty in regards to the quantum of the concession to be received. The financial statements reflect the Directors’ estimate of the receivable after taking into account the likelihood of each component of the claim being received. 33 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) New standards and interpretations issued but not effective The following new or amendments to existing standards have been published and are mandatory for accounting periods beginning on or after 1 July 2018 or later periods, but have not yet been adopted by the Company. AASB 9 Financial Instruments AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. The new standard has no impact on the Group’s current classification, measurement and derecognition of financial assets and liabilities. The Group does not have any debt instruments, available-for sale financial assets or any hedging agreements. For trade and other receivable the Group applies the simplified approach permitted by AASB 9, whereby the loss allowance is measured at an amount equal to lifetime expected credit losses. Lifetime expected credit loss is the amount the Group expects to lose due to default events that are possible over the life of the financial instrument. AASB 15 Revenue from Contracts with Customers AASB 15 will replace AASB 118 which covers revenue arising from the sale of goods and the rendering of services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption. Management has assessed the effects of applying the new standard on the Group’s financial statements and has identified Services revenue from following products will be affected: Search Engine Optimization (SEO) revenues. The Group has historically recognised 30% of annual SEO contracts upfront to reflect the initial work involved. However, there is no specific performance obligation nor is there an identifiable transaction price for this initial work. As such as per AASB 15 this upfront work needs to be recognised over time as clients simultaneously receive the service and Webfirm satisfies its obligation to perform. When initially adopted on 1 July 2018, the Group needs to increase deferred revenue by $117,195 and adjust the retained earnings by the same amount. Domain Name Registration (DNR) and SSL Certification revenues DNR services is provided by the Group where the client’s domain name is registered for 2 years with a 3rd party registry. SSL Certification services involves obtaining annual SSL Certificates on behalf of the client from a 3rd party and installing in the client’s website. Historically these revenues have been recognised over time. For both DNR and SSL certification, on initial set up the service has been transferred in full to the customer; and the customer is able to realize benefit from service received without further involvement from the Group. Furthermore, the Group separately prices and sells these products. There are no further performance obligations for the Group. Therefore, as per AASB 15, the Group needs to recognize revenue at a point of time not over a period of time. On 1 July 2018 initial adoption the Group will reduce deferred revenue by; $ 25,620 for Domain Names Registration and $ 6,450 for SSL certification and adjust the retained earnings. AASB 16 Leases AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short term and low-value leases. The standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments of $3,604,816, see note 19. The Group estimates that approximately 5% of these relate to payments for short-term and low value leases which will be recognised on a straight-line basis as an expense in profit or loss. However, the Group has not yet assessed what other adjustments, if any, are necessary for example because of the change in the definition of the lease term and the different treatment of variable lease payments and of extension and termination options. It is therefore not yet possible to estimate the amount of right-of-use assets and lease liabilities that will have to be recognised on adoption of the new standard and how this may affect the Group’s profit or loss and classification of cash flows going forward. AASB 9, AASB 15 and AASB 16 are available for early adoption but have not been applied in this financial report. 34 Segment Information 2018 Operating segments APAC $ EMEA $ The Americas $ Total $ Revenue for services rendered (i) Segment result from continuing operations Depreciation included in segment result (Note 9) Amortisation included in segment result (Note 10) Additions to non-current assets (PP&E) (Note 9) 6,464,519 (5,591,454) 223,593 5,211,462 18,208 275,999 (555,384) 772 - - 171,929 (1,710,534) 7,132 - 2,316 6,912,447 (7,857,372) 231,498 5,211,462 20,524 Statement of financial position Segment assets Segment liabilities 2017 Operating segments 35,834,855 15,726,667 123,351 97,445 178,056 130,848 36,136,262 15,954,960 APAC $ EMEA $ The Americas $ Total $ Revenue for services rendered (i) Segment result from continuing operations Depreciation included in segment result (Note 9) Amortisation included in segment result (Note 10) Additions to non-current assets (PP&E) (Note 9) 6,702,466 (5,184,422) 62,665 4,617,026 232,293 217,631 (1,487,849) 997 - 1,372 330,449 (1,600,122) 4,394 - 12,810 7,250,546 (8,272,393) 68,056 4,617,026 246,475 Statement of financial position Segment assets Segment liabilities 36,201,990 (15,257,765) 232,452 (103,487) 525,257 (146,682) 36,959,699 (15,507,934) Segment revenue reconciles to total revenue from continuing operations as follows: Revenue Total segment revenue Head office revenue Interest revenue 2018 $ 6,912,447 - 160,017 2017 $ 7,250,546 - 324,136 Total revenue from continuing operations 7,072,464 7,574,682 (i) Refer to Note 3 for a description of Revenue. 35 Notes to the Financial Statements (Continued) 2. Segment Information (Continued) A reconciliation from segment result to operating profit before income tax is provided as follows: Segment Result Total segment result Interest revenue Other revenue Share option expenses Gain / (Loss) on foreign exchange Income tax benefit/(expense) Profit/ (Loss) on sale/write off of asset Other head office income/(expenses) not allocated in segment result 2018 $ 2017 $ (7,857,372) (8,272,393) 160,017 940,825 (777,804) 44,611 (12,755) 182 (4,151,024) 324,136 1,432,334 (330,467) (13,090) (11,842) 2,549 (1,761,414) Loss before income tax from continuing operations (11,653,319) (8,630,187) Reportable segment assets are reconciled to total assets as follows: Segment assets Total segment assets Head office assets Intersegment eliminations 2018 $ 36,136,262 48,289,359 (50,106,394) 2017 $ 36,959,699 57,425,836 (50,351,832) Total assets as per the statement of financial position 34,319,227 44,033,703 Reportable segment liabilities are reconciled to total liabilities as follows: Segment liabilities Total segment liabilities Head office liabilities Intersegment eliminations 2018 $ (15,954,960) (845,451) 11,829,183 2017 $ (15,507,934) (669,670) 12,373,831 Total liabilities as per the statement of financial position (4,971,228) (3,803,773) The Company’s Total Revenue and Other Income (Note 3) and its non-current assets (other than financial instruments) are divided into the following geographical areas: Australia (Domicile) New Zealand USA Other countries Total 2018 $ 2017 $ Revenue Non-Current Assets Revenue Non-Current Assets 6,657,110 161,008 171,929 1,023,242 8,013,289 24,052,355 571 9,284 9,761 24,071,971 7,184,931 496,203 330,449 995,433 9,007,016 25,007,283 1,411 12,975 6,266 25,027,935 Revenues from external customers in the Group’s domicile, Australia, as well as its major markets, New Zealand and the USA, have been identified on the basis of the customer’s geographical location. Non-current assets are allocated based on their physical location. 36 Notes to and forming part of the segment information Business segments The Group reports its segments based on geographical locations:  APAC – Australia, New Zealand and Asia;  EMEA – Europe, the Middle East and Africa; and  The Americas – North, Central and South America. Accounting policies The accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 1. Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment profit represents the profit earned by each segment without investment revenue, finance costs and income tax expense. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. Segment assets include all assets used by a segment and consist primarily of operating cash, receivables, capitalised R&D and other intangible assets, net of related provisions but do not include non-current inter-entity assets and liabilities which are considered quasi-equity in substance. Segment liabilities consist primarily of trade and other creditors, employee benefits and sundry provisions and accruals. Segment assets and liabilities do not include income taxes. Inter-segment transfers Segment revenue reported above represents revenue generated from external customers. There were no Inter segment revenue transfers or expenses to be eliminated on consolidation (2017: nil) Major customers The Group provides services to and derives revenue from a number of customers across all the divisions. The Group had certain customers whose revenue individually represented 10% or more of the Company’s total revenue For the year to 30 June 2018, one customer accounted for 10% or more of revenue (2017: one). 37 Notes to the Financial Statements (Continued) Revenue and Other Income Revenue Revenue from Trading Technology Revenue from Services Total revenue for services rendered Interest revenue Total revenue from continuing operations Other income Grant income Revenue from Adserving Total Other Income Total revenue and other income 2018 $ 2017 $ 5,146,669 1,765,778 6,912,447 160,017 7,072,464 853,859 86,967 940,825 8,013,289 5,379,387 1,871,159 7,250,546 324,136 7,574,682 823,640 608,694 1,432,334 9,007,016 Revenue derived from the three product lines are described as follows: Trading Technology Comprises Adslot, a leading global media trading technology, and Symphony, market-leading workflow automation technology, purpose built for digital media agencies. Services Comprising marketing services that are provided by the Company’s Webfirm division to SME clients and project-based customisation of Trading Technology. Adserving Technology that enables advertisers to deliver and measure the performance of online display advertising (including impressions, clicks and online sales). For strategic reasons the Company decided to discontinue providing Adserving services in the first quarter of the financial year. 38 Expenses Loss before income tax includes the following specific expenses: Depreciation and amortisation Amortisation – Software development costs Amortisation – Leasehold improvements Depreciation – Computer & Equipment Depreciation – Plant & equipment Total depreciation and amortisation Other charges against assets Impairment of trade receivables Employee benefits expense Total capitalised development wages Employee benefits included in Share based payment expense Total employee benefits Defined contribution superannuation expense included in Employee benefit expense Capitalised development wages (net of related grants) Capitalised development wages included in the R&D grant Total capitalised development wages Rental expense – operating leases Foreign currency (gain) / loss included in Other expenses 2018 $ 2017 $ 5,211,462 4,617,026 125,802 102,215 3,480 5,848 55,178 7,030 5,442,959 4,685,082 4,537 17,747 8,943,887 6,068,635 741,317 8,139,988 4,527,222 318,146 15,753,839 12,985,356 1,026,983 780,067 3,666,409 2,402,226 6,068,635 958,707 (44,611) 2,605,280 1,921,942 4,527,222 1,074,702 13,090 39 Notes to the Financial Statements (Continued) Income Tax Expense a) Numerical reconciliation of income tax expense to prima facie tax benefit Loss before income tax 2018 $ 2017 $ (11,623,422) (8,600,201) Prima facie tax benefit on loss before income tax at 27.5% (2017: 27.5%) (3,196,441) (2,365,055) Tax effect of: Other non-allowable items Share based expensed during year Research and development tax concession Income tax benefit attributable to entity Deferred tax income relating to utilisation of unused tax losses Deferred tax assets relating to tax losses not recognised Other – adjustments and net foreign exchange differences Income tax benefit/(expense) attributable to entity b) Movement in deferred tax balances Balance at 1 July 2017 $ Recognised in Profit & Loss $ Acquired in Business combination $ Trade and other receivables (125,957) Property, plant and equipment Intangible assets Unused tax losses 199 165,435 (39,677) 10,496 (17) (13,786) 3,307 Net tax (assets) / liabilities - - - - - - - Balance at 1 July 2016 $ Recognised in Profit & Loss $ Acquired in Business combination $ Trade and other receivables (125,957) Property, plant and equipment Intangible assets Unused tax losses 199 165,435 (39,677) 10,496 (17) (13,786) 3,307 Net tax (assets) / liabilities - - - - - - - 14,661 213,896 2,073,293 (894,591) - 979,254 (114,560) (29,897) 11,789 90,878 1,710,848 (551,540) - 667,198 (145,644) (29,986) Balance at 30 June 2018 Net $ Deferred tax assets $ Deferred tax liabilities $ (115,461) 182 151,649 - - - (36,370) (36,370) (115,461) 182 151,649 - - (36,370) 36,370 Balance at 30 June 2017 Net $ Deferred tax assets $ Deferred tax liabilities $ (115,461) 182 151,649 - - - (36,370) (36,370) (115,461) 182 151,649 - - (36,370) 36,370 40 c) Deferred tax assets not brought to account Deferred tax assets not brought to account, the benefits of which will only be realised if the conditions for deductibility set out on Note 1(k) occur. Temporary differences Tax Losses: Operating losses Capital losses Potential tax benefit (27.5% 2017: 27.5%) 2018 $ 2017 $ (5,344,713) (4,512,568) 43,439,948 39,046,882 238,258 238,258 38,333,493 10,541,711 34,772,572 9,562,457 The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group and are therefore taxed as a single entity. The head entity within the tax-consolidated group is Adslot Ltd. Deferred tax liabilities from temporary differences of $1,469,769 (2017: $1,240,956) have not been recognised as they have been offset with deferred tax assets of the same value. Dividends The Company did not declare any dividends in the current year or prior year. There are no franking credits available to shareholders of the Company. Cash and Cash Equivalents Cash at bank and on hand Cash held on behalf of Publishers 2018 $ 3,755,744 1,019,587 4,775,331 2017 $ 13,681,124 639,023 14,320,147 Included in the Cash at Bank is $615,289 (2017: $833,097) of funds held on term deposit as guarantee for our corporate credit card facilities and for the benefit of landlords under office lease agreements. 41 Notes to the Financial Statements (Continued) 8. Trade and Other Receivables Current: Trade debtors Less: Allowance for impairment Research and Development grant receivable Other receivables (i) Prepayments 2018 $ 2,042,744 (2,370) 2,040,374 3,279,573 (93,219) 245,197 5,471,925 (i) Includes $116,821erroneously received in June from a trade debtor. This amount was refunded in July. The average age of the Company’s trade debtors is 49 days (2017: 49 days). (a) Ageing of past due but not impaired 0 – 30 days 31 – 60 days 61 – 90 days Over 91 days (b) Movement in the provision for impairment Balance at beginning of the year Impairment recognised during the year Amounts written off as uncollectible Amounts recovered during the year Net foreign exchange differences Balance at the end of the year 2018 $ 255,626 228,540 53,267 66,031 603,464 2018 $ 2,814 2,370 - (2,814) - 2,370 2017 $ 1,526,780 (2,814) 1,523,966 2,706,250 176,002 279,403 4,685,621 2017 $ 141,220 70,035 24,600 517 236,372 2017 $ 161,683 54,852 (206,031) (7,690) - 2,814 In determining the recoverability of a trade receivable, the Company considers any recent history of payments and the status of the projects to which the debt relates. No payment terms have been renegotiated. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors believe that there is no further provision required in excess of the allowance for impairment. Fair value of receivables Fair value of receivables at year end is measured to be the same as receivables net of the allowance for impairment. 42 9. Property, Plant and Equipment Leasehold improvements – at cost Less: Accumulated amortisation Plant and equipment – at cost Less: Accumulated depreciation Computer equipment – at cost Less: Accumulated depreciation 2018 $ 815,965 (126,466) 689,499 90,307 (79,054) 11,253 531,109 (399,028) 132,081 2017 $ 133,010 (110,020) 22,990 156,190 (131,481) 24,709 497,285 (301,240) 196,045 Total carrying amount of property, plant and equipment 832,833 243,744 Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current financial year are set out below: 2018 Carrying amount at 1 July 2017 Additions Disposals/ Write Offs Depreciation / amortisation expense Net foreign exchange differences Leasehold Plant and Computer Improvements Equipment Equipment $ $ $ 22,990 792,311 - (125,802) 24,709 196,045 (8,537) (1,449) (3,480) 33,456 1,197 (102,215) (231,497) - 10 3,598 3,608 Total $ 243,744 817,230 (252) Carrying amount at 30 June 2018 689,499 11,253 132,081 832,833 2017 Carrying amount at 1 July 2016 Additions Depreciation / amortisation expense Net foreign exchange differences Leasehold Plant and Computer Improvements Equipment Equipment $ 108 28,730 (5,848) - $ 3,901 27,838 (7,030) - $ 61,509 189,907 (55,178) (193) Carrying amount at 30 June 2017 22,990 24,709 196,045 Total $ 65,518 246,475 (68,056) (193) 243,744 43 Notes to the Financial Statements (Continued) 10. Intangible Assets Internally Developed Software $ Domain Name $ Intellectual Property $ Goodwill $ Total $ Year ended 30 June 2018 Opening net book amount 4,721,903 38,267 4,825,712 15,161,939 24,747,821 Additions Amortisation 3,666,409 (1,925,477) - - - (3,285,985) - - 3,666,409 (5,211,462) Carrying amount at 30 June 2018 6,462,835 38,267 1,539,727 15,161,939 23,202,768 At 30 June 2018 Cost Accumulated amortisation and impairment Carrying amount at 30 June 2018 11,607,437 38,267 29,045,251 15,161,939 55,852,894 (5,144,602) - (27,505,524) - (32,650,126) 6,462,835 38,267 1,539,727 15,161,939 23,202,768 Year ended 30 June 2017 Opening net book amount Additions Amortisation Carrying amount at 30 June 2017 At 30 June 2017 Cost Accumulated amortisation and impairment Carrying amount at 30 June 2017 Internally Developed Software $ 3,375,131 2,605,280 (1,258,508) Domain Name $ Intellectual Property $ Goodwill $ Total $ 38,267 8,184,230 15,161,939 26,759,567 - - - (3,358,518) - - 2,605,280 (4,617,026) 4,721,903 38,267 4,825,712 15,161,939 24,747,821 7,941,028 38,267 29,045,250 15,161,939 52,186,484 (3,219,125) - (24,219,538) - (27,438,663) 4,721,903 38,267 4,825,712 15,161,939 24,747,821 44 Internally Developed Software Internally developed software represents a number of software platforms developed within the Company. The following table shows the portion of platform development costs that are capitalised and expensed for the current financial year, 2018: Platform Capitalised Wages R&D grants offsetting capitalised wages Net Capitalised Wages Adslot Publisher and Marketplace Symphony $ 1,432,707 4,635,928 6,068,635 $ (623,227) (1,778,999) (2,402,226) $ 809,480 2,856,929 3,666,409 The following table shows the portion of platform development costs that are capitalised and expensed for the prior financial year, 2017: Platform Capitalised Wages R&D grants offsetting capitalised wages Net Capitalised Wages $ $ $ Adslot Publisher and Marketplace 1,169,600 (508,776) 660,824 Symphony 3,357,629 (1,413,173) 1,944,456 4,527,229 (1,921,949) 2,605,280 The Directors have assessed the accounting useful life of these internally developed software systems, for accounting purposes, to be five years. This assessment has given regard to the expected financial benefits of the technology. Domain names Domain names opening carrying value of $38,267 (2017: $38,267) relates to the various domain names held by Webfirm and Adslot. The Directors have assessed that this intellectual property has an indefinite useful life on the basis that the Directors do not believe that there is a foreseeable limit on the period over which this asset is expected to generate cash inflows for the entity. Intellectual property Adslot Technologies Pty Ltd (“Adslot”) holds valuable copyright and patent licences (“Licences”) in respect of Combinatorial Auction Platform Technology (“CAP” or “Core IP”) owned by Enterprise Point Pty Ltd and its controlled entities (“Enterprise”). $5,932,006 (2017: $5,932,006) of the opening balance relates to this “CAP” technology. Accumulated amortisation of this asset as at 30 June 2018 was $5,932,006 (2017: $5,932,006). This asset has been fully amortised. QDC IP Technology (“QDC”) is creative ad building and video advertising technology with licences to the Core IP valued at $6,466,517 (2017: $6,466,517) in the opening balance and attached to the Adslot CGU. Accumulated amortisation of this asset as at 30 June 2018 was $6,466,517 (2017: $5,904,904). This asset has been fully amortised. The Symphony platform technology was acquired as part of the Facilitate Digital Holdings Limited acquisition. The fair value attributable to the Symphony technology platform intellectual property was $16,191,496 (2017: $16,191,496). Accumulated amortisation of this asset at 30 June 2018 was $14,651,770 (2017: $11,413,471). This asset has a remaining useful life for accounting purposes of six months. The Facilitate for Agencies (“FFA”) platform technology was acquired as part of the Facilitate Digital Holdings Limited acquisition. The fair value attributable to the FFA technology platform intellectual property was $455,231 (2017: $455,231). Accumulated amortisation of this asset at 30 June 2018 was $455,231 (2017: $407,545). This asset was fully amortised during the year. With the exception of FFA, the Directors have assessed the accounting useful life of all of the above technologies for accounting purposes to be five years. This assessment has given regard to the expected financial benefits of the technologies to be potentially well beyond a five year period, together with the risk that competitors could replicate these technologies and in light of the Company’s ongoing commitment to research and development of the Core IP. 45 Notes to the Financial Statements (Continued) 10. Intangible Assets (Continued) Goodwill The Goodwill balance relating to the acquisition of Facilitate has an attributed fair value of $15,161,939 and has not been impaired. (a) Cash Generating Units (CGUs) For the purpose of impairment testing, goodwill has been allocated to the group of CGUs that are expected to benefit from the acquisition, being both the Adslot and Symphony CGUs. A summary of the carrying amount of goodwill and intangible assets with indefinite useful lives is detailed below: CGU 2018 2017 Intangible assets with indefinite useful lives $ Goodwill $ Intangible assets with indefinite useful lives $ Goodwill $ Adslot and Symphony CGUs 15,161,939 - 15,161,939 - (b) Impairment testing and key assumptions The Company tests whether goodwill and other intangible assets have suffered any impairment in accordance with the Company’s accounting policies. The recoverable amounts of assets and CGUs have been determined using a fair value less costs to sell approach. The directors have assessed the fair value having regard to a market-based approach and have determined the goodwill is not impaired. The directors’ determination of fair value using a market based approach is the market capitalisation of the Company, less the value attributed to business units that are not part of the group of CGUs attributed to goodwill, less other net assets. The most significant judgements and key assumptions pertaining to the calculation are: the Company’s share price (ASX: ADJ as at 30 June 2018);   a 4x valuation multiple on EBITDA to estimate the value of the business unit (Webfirm) that is not part of the group of CGUs attributed to goodwill; and  costs to sell including a transaction fee (3.5% of total value) plus estimate of legal, account and other consultant costs ($200k). The Company’s directors appointed an independent expert to review the approach adopted by management in assessing the carrying value of the intangible assets of the Company as at 30 June 2018. The review supported the selection of methodology and the assessment of the value of the Company under the primary quoted security price approach. (c) Sensitivity analysis The Company’s share price forms the basis of the market-based approach. A material adverse change in the Company’s share price would likely result in the carrying amount exceeding the recoverable amount. On 3rd August 2018 Adslot Limited announced the successful closing of a $3.5 million share placement to institutional and sophisticated investors. While the placement occurred post 30 June 2018, it is a reference point as a binding sale agreement in an arm’s length transaction. Sensitivity Analysis has been performed using the placement offer price of $0.025, a recalculation of the Costs to Sell and all other elements of the 30 June calculation remaining equal. The result also shows a surplus fair value over carrying value of the intangible assets at a share price of $0.025, albeit with less headroom. There are no other material sensitivities involved in the directors’ determination of fair value using a market based approach. 46 11. Trade and Other Payables Trade creditors Publisher creditors (i) Other creditors (i) Refer to Note 1(p) for further information on publisher creditors. Other Liabilities Current: Unearned revenue 2018 $ 546,024 1,514,495 2017 $ 417,008 807,179 865,224 1,028,394 2,925,743 2,252,581 2018 $ 2017 $ 445,491 583,759 Unearned revenue relates to website development and hosting invoices that are rendered based on full contract terms at the contracts’ inception, however performed over stages which straddle the reporting date, licence fees billed in advance and advertising campaigns that have been purchased but whose delivery will occur after the reporting date. Lease Incentives Liabilities Current: Lease Incentives Liability Non-current: Lease Incentives Liability 2018 $ 60,248 555,463 2017 $ - - The lease agreements for some premises included a free fit-out provided by the lessor as a lease incentive. The assets obtained by the Group have been recognised as leasehold improvements at fair value and are depreciated over the lease term (see Note9). A corresponding liability is presented as part of the lease liabilities and is reversed on a straight-line basis over the lease term. Provisions Current: Employee benefits Non-current: Employee benefits 2018 $ 587,150 360,763 2017 $ 605,590 325,473 47 Notes to the Financial Statements (Continued) 15. Contributed Equity 2018 Number 2017 Number 2018 $ 2017 $ Ordinary Shares – Fully Paid 1,284,950,994 1,280,918,427 138,397,710 137,949,047 Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the numbers of shares. At the shareholders meeting each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Movements in Paid-Up Capital Date Details 01-Jul-16 Balance (including Treasury shares) Number of shares Number 1,116,771,133 Issue price $ Capital raising costs $ Value $ (1,472,056) 121,032,092 01-Sep-16 Issue of shares – Performance Rights vesting 3,424,524 $0.102 (3,781) 344,479 28-Sep-16 Share Placement 24-Oct-16 Rights Issue 30-Jun-17 Less: Treasury shares 30-Jun17 Balance 101,900,000 $0.110 (651,251) 10,557,749 62,233,112 $0.110 (492,681) 6,352,961 1,284,328,769 (3,410,342) 1,280,918,427 (2,619,769) 138,287,281 - (338,234) (2,619,769) 137,949,047 01-Jul-17 Balance (including Treasury shares) 1,284,328,769 (2,619,769) 138,287,281 11-Oct-17 Issue of shares – Performance Rights vesting 3,677,500 $0.113 (2,278) 412,119 30-Jun-18 Less: Treasury shares 30-Jun18 Balance Treasury Shares 1,288,006,269 (3,055,275) 1,284,950,994 (2,622,047) 138,699,400 - (301,690) (2,622,047) 138,397,710 Treasury shares are shares in Adslot Ltd that are held by the Adslot Employee Share Trust, which administers the Adslot Employee Share Ownership Plan (ESOP). This Trust has been consolidated in accordance with Note 1(c). Shares held by the Trust on behalf of eligible employees are shown as treasury shares in the financial statements. Shares issued under this scheme will, subject to the provision of the Trust deed, rank equally in all respects and will have the same rights and entitlements as ordinary shares under the Constitution of the Company. Treasury Shares movements during the financial year are summarised below: Issue Type Issue or Acquisition Date Employee ESOP 16/06/14 Employee ESOP 1/05/15 Employee ESOP 27/08/15 Employee ESOP 01/09/16 Issue Price $ 0.105 0.090 0.080 0.125 Balance at beginning of the year (Number) 1,000,000 2,142,775 67,567 200,000 3,410,342 Issued during the year (Number) Transfers during the year (Number) Balance at end of the year (Number) - - - - - - (200,000) (67,567) (87,500) 1,000,000 1,942,775 - 112,500 (355,067) 3,055,275 48 Rights over shares movements during the financial year are summarised below: Issue Type Rights over shares Rights over shares Rights over shares Rights over shares Balance at beginning of the year Granted during the year Expired during the year Vested during the year Balance at end of the year (Number) (Number) (Number) (Number) (Number) Required VWAP Price $ 0.200 0.300 0.400 0.500 3,000,000 4,000,000 5,000,000 5,000,000 17,000,000 - - - - - - - - - - - - - - - 3,000,000 4,000,000 5,000,000 5,000,000 17,000,000 Performance rights movements during the financial year are summarised below: Issue Type Issue or Acquisition Date Performance Rights 26/08/15 Performance Rights 27/06/16 Performance Rights 01/09/16 Issue Price $ Nil Nil Nil Balance at beginning of the year (Number) Issued during the year (Number) 1,090,000 400,000 7,750,000 9,240,000 - - - - Transfers during the year (Number) (790,000) (400,000) Forfeited during the year (Number) (300,000) - Balance at end of the year (Number) - - (2,687,500) (2,937,500) 2,125,000 (3,877,500) (3,237,500) 2,125,000 Options movements during the financial year are summarised below: Exercise Price Issue Type Expiry Date $ Ordinary options 4/10/21 Ordinary options 25/11/21 Ordinary options 25/02/22 Ordinary options 15/05/22 Ordinary options 27/05/22 0.073 0.060 0.035 0.034 0.036 Balance at beginning of the year (Number) Issued during the year (Number) Forfeited during the year (Number) Exercised during the year (Number) Balance at end of the year (Number) - - - - - - 3,000,000 - 6,550,000 (750,000) 25,750,000 (2,250,000) 12,700,000 4,000,000 - - 52,000,000 (3,000,000) - - - - - - 3,000,000 5,800,000 23,500,000 12,700,000 4,000,000 49,000,000 49 Notes to the Financial Statements (Continued) 16. Reserves Reserves Share–based payments reserve Foreign currency translation reserve Share–based payments reserve Opening balance Reclassification of Treasury Shares Reclassification vested Performance Rights Share based payment expense Closing balance Foreign currency translation reserve Opening balance Movement on currency translation Closing balance 2018 $ 605,978 106,676 712,654 2017 $ 279,117 110,812 389,929 279,117 (36,544) (414,399) 777,804 297,118 (208) (348,260) 330,467 605,978 279,117 110,812 (4,136) 106,676 107,618 3,194 110,812 The Share-based payments reserve is used to record the value of options accounted for in accordance with AASB2: Share Based Payments. The foreign currency translation reserve is used to record the value of aggregate movements in the translation of foreign currency in accordance with AASB 121: The Effects of Changes in Foreign Exchange Rates. 50 17. Earnings Per Share (a) Basic earnings per share 2018 Cents 2017 Cents Loss attributable to the ordinary equity holders of the Company (0.91) (0.70) (b) Diluted earnings per share Loss attributable to the ordinary equity holders of the Company (0.91) (0.70) (c) Reconciliation of earnings used on calculating earnings per share (i) Loss from continuing operations attributable to the members of the Company used on calculating basic and diluted earnings per share (11,653,319) (8,630,187) 2018 $ 2017 $ (d) Weighted average number of shares used as the denominator Weighted average number of shares on issue used in the calculation of basic EPS 1,283,691,139 1,235,331,383 2018 Number 2017 Number (e) Weighted average number of shares used as the denominator Weighted average number of shares on issue used in the calculation of diluted EPS 1,283,691,139 1,235,331,383 (i) During 2018 and 2017 there were no discontinued operations or values attributable to minority interests. 2018 Number 2017 Number Weighted average number of rights and options that could potentially dilute basic earnings per share in the future, but are not included in the calculation of diluted EPS because they are anti-dilutive for the period presented. 2018 Number 2017 Number 17,186,327 1,080,115 51 Notes to the Financial Statements (Continued) 18. Contingencies No contingent assets or liabilities are noted. Commitments Operating lease commitments Total operating lease expenditure contracted for at reporting date but not capitalised in the financial statements payable: Within 1 year Between 1 and 5 years 2018 $ 2017 $ 917,155 555,047 2,687,661 1,273,533 3,604,816 1,828,580 The lease commitments detailed above relate to rental premises and lease rental of printer/copier. Capital commitments The Group has not entered any capital expenditure contracts at reporting date that are not recognised as liabilities on the Statement of Financial Position. Remuneration of auditors During the year the following fees were paid/payable to the auditor of the Company: Audit services Audit and review of financial reports During the year the following fees were paid/payable to a related entity of the auditor of the Company: Other services Taxation compliance, groupm compliance audit, ASIC special purpose accounts for Symphony International Solutions Limited, ESS advice and Research and Development grant advice 2018 $ 2017 $ 112,000 109,000 119,070 64,300 231,070 173,300 52 21. Key Management Personnel Disclosures Directors The following persons were directors of the Company during the financial year: Mr Andrew Barlow (Executive Chairman) (i) Mr Adrian Giles (Non-Executive Director) Mr Quentin George (Non-Executive Director) Ms Sarah Morgan (Non-Executive Director) Mr Andrew Dyer (Non-Executive Director) Mr Ian Lowe (Executive Director & CEO) (ii) Mr Ben Dixon (Executive Director & interim CEO) (iii) Appointed 27 February 2018 Appointed 28 May 2018 Resigned 27 February 2018 Appointed 27 February 2018 Other key management personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year: Name Ms Felicity Conlan (iv) Mr Brendan Maher (v) Mr Tom Peacock Position Chief Financial Officer and Company Secretary Chief Financial Officer and Company Secretary Group Commercial Director Key management personnel compensation Short-term employee benefits Post-employment benefits Other long-term employee benefits Share based payments Total compensation (a) 2018 $ 1,357,311 93,982 12,083 263,233 2017 $ 1,338,681 92,669 (4,603) 72,774 1,726,609 1,499,521 (i) Mr Barlow was a Non-Executive Chairman prior to 27 February 2018. (ii) Mr Lowe continued to be a key management personnel post 27 February 2018. (iii) Mr Dixon was an Executive Director for the entire financial year. He was interim Company Secretary from 15 July 2017 to 9 October 2017 and was appointed as interim CEO on 27 February 2018 (iv) Ms Conlan was appointed as the Chief Financial Officer on 30 August 2017 and Company Secretary on 9 October 2017. (v) Mr Maher ceased to be the Chief Financial Officer and Company Secretary on 14 July 2017. (a) There were 10 key management personnel throughout 2018, some of whom have a part year of service (2017: 9). Business Acquisitions: There were no related party transactions during the year ended 30 June 2018. Transactions with Directors and their personally related entities: During the year there were no transactions with Directors and their personally related entities (2017: nil). 53 Notes to the Financial Statements (Continued) 22. Share Based Payments Employee Share Option Plan (ESOP) In November 2012 the Company gained approval to establish an employee incentive scheme comprising the Adslot Limited Share Option Plan and the Adslot Employee Share Trust. Awards of rights to shares are available to be issued to eligible employees and are subject to a two-year service period and if this service period is not met, the rights to shares will be forfeited by the eligible employee. Shares held by the Trust under the scheme will have voting and dividend rights, and the right to participate in further issues pro-rata to all ordinary shareholders. ESOP rights to shares are valued at fair value at the date the options were granted. The ESOP was replaced by the Performance Rights over Shares Plan in financial year 2015 and as such there have been no new ESOP rights granted during the years ending 30 June 2015 to 30 June 2018. The remaining ESOP shares vested at the end of the financial year and have subsequently been transferred to the employees. The following tables shows the movement of share-based compensation to employees under the ESOP for the period. 2018 Grant Date Escrow End Date Valuation Price $ Balance at start of the year Granted during the year Transferre d during the year Forfeited during the year (Number) (Number) (Number) (Number) Balance at end of the year (Number) Vested at the end of the year (Number) 15/06/14 15/06/15 15/06/14 2016-2018 27/08/15 07/09/17 Total 0.105 0.105 0.080 250,000 750,000 67,567 1,067,567 Weighted average share price $0.103 - - - - - - - (67,567) (67,567) $0.080 - - - - - 250,000 750,000 - 250,000 750,000 - 1,000,000 1,000,000 $0.105 $0.105 Weighted average remaining contractual life at 30 June 2018 (days) - 2017 Grant Date Escrow End Date Valuation Price $ Balance at start of the year Granted during the year Transferre d during the year Forfeited during the year (Number) (Number) (Number) (Number) Balance at end of the year (Number) Vested at the end of the year (Number) 15/06/14 15/06/15 15/06/14 2016-2018 27/08/15 07/09/16 27/08/15 07/09/17 Total 0.105 0.105 0.080 0.080 250,000 750,000 67,567 67,567 1,135,134 Weighted average share price $0.102 - - - - - - - - (67,567) - (67,567) $0.080 - - - - - - 250,000 750,000 - 67,567 250,000 499,992 - - 1,067,567 749,992 $0.103 $0.105 Weighted average remaining contractual life at 30 June 2017 (days) 159 54 Performance Rights over Shares Shareholders approved at the November 2014 Annual General Meeting the creation of Performance Rights over Shares which enables the Board to offer eligible employees the right to Performance Rights which convert to shares subject to the employee’s performance against certain performance criteria. No amounts are paid or payable by the recipient on receipt of the right. The rights carry no voting rights. All rights are subject to service periods which require the employees remain an employee of the Company. The following table shows grants and movements of share-based compensation to employees under the Performance Rights over Shares Plan during the current financial year: 2018 Grant Date Assessment period Valuation Price $ Balance at start of the year Granted during the year Transferre d during the year Forfeited during the year Balance at end of the year Vested at the end of the year (Number) (Number) (Number) (Number) (Number) (Number) 26/08/15 27/06/16 01/09/16 01/09/16 Total 2 years 2 years 1 year 2 years 0.074 0.100 0.125 0.125 1,090,000 400,000 250,000 7,500,000 9,240,000 - - - - - (790,000) (300,000) (400,000) (250,000) - - - - - (2,437,500) (2,937,500) 2,125,000 (3,877,500) (3,237,500) 2,125,000 - - - - No Performance Rights over Shares were granted during the financial year 2018 2017 Grant Date Assessment period Valuation Price $ Balance at start of the year Granted during the year Transferre d during the year Forfeited during the year Balance at end of the year Vested at the end of the year (Number) (Number) (Number) (Number) (Number) (Number) 26/11/14 26/08/15 27/06/16 01/09/16 01/09/16 Total 2 years 2 years 2 years 1 year 2 years 0.105 0.074 0.100 0.125 0.125 5,309,523 1,955,000 600,000 - - - - - 250,000 8,050,000 (3,059,524) (2,249,999) - (365,000) (200,000) - - (500,000) 1,090,000 - - 400,000 250,000 (550,000) 7,500,000 7,864,523 8,300,000 (3,624,524) (3,299,999) 9,240,000 - - - - - The model inputs for Performance Rights to shares granted during the year ended 30 June 2017 included: Model Input Grant Date Assessment Period Exercise Price Probability of Conversion to Shares Price at Grant Date PR # 17-1 PR # 17-2 PR # 17-3 PR # 17-4 01/09/16 2 years - 50% $0.125 01/09/16 2 years - 50% $0.125 01/09/16 2 years - 10% $0.125 01/09/16 1 year - 25% $0.125 55 Notes to the Financial Statements (Continued) 22. Share Based Payments (Continued) Rights over Shares Upon commencement of employment (8 October 2012) Mr Lowe was granted the right to receive the following shares after the share price of the Company trades above a 30 day volume-weighted average price (VWAP) as per the table below. Each right would convert into one ordinary share of Adslot Ltd when the VWAP criteria is met. In the event of a Change of Control of the Company some of these Rights would vest on a sliding scale between the take over price and required VWAP of the next eligible series. No amounts are paid or payable by the recipient on receipt of the right. The rights carry no voting rights. Some rights are subject to escrow per the below table and all rights are subject to Mr Lowe remaining an employee of the Company. No Rights over Shares were issued in 2018 (2017: nil). The following table shows movement in the Rights over Shares for the current financial year (no change in the last two years): Required VWAP Price $ 0.20 0.30 0.40 0.50 Escrow Required from award 2 years - - - Valuation Price $ 64,500 66,000 73,000 63,500 Balance at start of the year (Number) 3,000,000 4,000,000 5,000,000 5,000,000 267,000 17,000,000 Issue Date 8-Oct-2012 8-Oct-2012 8-Oct-2012 8-Oct-2012 Total Granted during the year (Number) - Vested during the year (Number) - Forfeited during the year (Number) - Balance at end of the year (Number) 3,000,000 - - - - - - - - - - - - 4,000,000 5,000,000 5,000,000 17,000,000 56 Employee Option Plan Shareholders approved at the November 2017 Annual General Meeting the creation of Incentive Option Plan which enables the Board to offer eligible employees and directors the right to options which can be exercised to shares subject to the certain vesting criteria. The objective of the Option Plan is to attract, motivate and retain key employees and it is considered by the Company that the adoption of the Option Plan and the future issue of Options under the Option Plan will provide selected employees and directors with the opportunity to participate in the future growth of the Company. No amounts are paid or payable by the recipient on the receipt of the options. The options carry no voting rights. All options are subject to service periods which require the employees remain an employee or Director or the Company. The following table shows grants and movements of share-based compensation to employees under the Employee Option Plan during the current financial year: Grant Date 05/10/17 Expiry Date 04/10/21 Exercise Price $ 0.073 26/11/17 25/11/21 26/02/18 25/02/22 16/05/18 15/05/22 28/05/18 27/05/22 0.060 0.035 0.034 0.036 Total Weighted average exercise price Balance at start of the year (Number) - - - - - - - Granted during the year (Number) 3,000,000 6,550,000 25,750,000 12,700,000 4,000,000 52,000,000 $0.040 Exercised during the year (Number) - Lapsed during the year (Number) - - - - - - - - - - - - - Forfeited during the year (Number) - Balance at end of the year (Number) 3,000,000 (750,000) 5,800,000 (2,250,000) 23,500,000 Vested and exercisable at the end of the year (Number) - - - - - 12,700,000 1,000,000 4,000,000 2,000,000 (3,000,000) 49,000,000 3,000,000 $0.041 $0.040 $0.035 The options are valued using the Black-Scholes pricing model. The model inputs for options granted during the year ended 30 June 2018 included: Model Input Grant Date Expiry Date Exercise Price $ 5 day VWAP at Grant Date $ Expected Volatility Risk Free Interest rate OP # 18-1 OP # 18-2 OP # 18-3 OP # 18-4 OP # 18-5 5/10/17 4/10/21 0.073 0.050 62.62% 1.83% 26/11/17 25/11/21 0.060 0.041 61.92% 1.83% 26/02/18 25/02/22 0.035 0.024 69.20% 1.99% 16/05/18 15/05/22 0.034 0.023 85.12% 2.02% 28/05/18 27/05/22 0.036 0.025 86.58% 2.02% 57 Notes to the Financial Statements (Continued) 23. Cash Flow reconciliation Reconciliation of Net Cash Flows from Operating Activities to Loss for the year Add/(less) non-cash and other items: Loss for the year after income tax Depreciation and amortisation Cash Based: Depreciated Leasehold Fitout Share based payment Impairment of receivables (Profit)/Loss on asset write off Unrealised foreign currency loss / (gain) Movements in receivables relating to investing activities Changes in assets and liabilities (net of effects of acquisition and disposal of entities) (Increase)/Decrease in receivables (Decrease)/Increase in payables and other provisions Net cash outflow from operating activities 2018 $ 2017 $ (11,653,319) (8,630,187) 5,442,959 4,685,082 (107,260) 777,804 4,537 (182) 15,908 480,280 - 330,467 17,747 (2,549) 8,240 338,771 (786,304) (329,634) 551,744 (540,111) (5,273,833) (4,122,174) 24. Financial Risk Management The Group’s operations expose it to various financial risks including market, credit, liquidity and cash flow risks. Risk management programmes and policies are employed to mitigate the potential adverse effects of these exposures on the results of the Group. Financial risk management is carried out by the Chief Financial Officer with oversight provided by the Audit & Risk Committee and Board. (a) Market risks Market risks include foreign exchange risk, interest rate risk and other price risk. The Group’s activities expose it to the financial risks of changes in foreign currency, interest rate risk relating to interest earned on cash and cash equivalents. Disclosures relating to foreign currency risks are covered in Note 0(d) and interest rate risk is covered in Note 24(e). The Group does not have formal policies that address the risks associated with changes in interest rates or changes in fair values on available-for-sale financial assets. (b) Credit risk Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. The credit risk on financial assets, other than investments, of the Group which have been recognised in the Consolidated Statement of Financial Position is the carrying amount net of any provision for doubtful debts. The Group has no significant concentrations of credit risk. As disclosed in Note 8(a), ‘Impairment of receivables’, the Group has policies in place to ensure that sales of services are made to customers with appropriate credit history. Before accepting any new customers, the Group internally reviews the potential customer’s credit quality. A substantial deposit on contract in website development and hosting segment of the Group mitigates initial credit risk. The Group held the following financial assets with potential credit risk exposure: Financial assets Cash and cash equivalents Trade debtors and Other receivables (Note 8) 2018 $ 2017 $ 4,775,331 14,320,147 5,471,925 4,685,621 10,247,256 19,005,768 58 (c) Liquidity risk Financial liabilities Trade and other payables 2,925,743 2,252,581 Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close-out market positions. Due to the dynamic nature of the underlying business, the Board aims at maintaining flexibility in funding by keeping committed credit lines and sufficient cash available. All financial liabilities are expected to be settled within 12 months of the reporting date, per the contractual terms of the obligations. (d) Foreign currency risk Most of the Group’s transactions are carried out in Australian Dollars (AUD). Exposures to currency exchange rates arise from the Group’s overseas operations which are primarily denominated in US dollars (USD), Pound Sterling (GBP), Euros (EUR), New Zealand dollars (NZD), Chinese Yuan (CNY) and Malaysian Ringgit (MYR). Foreign currency exposure is monitored by the Board on a monthly basis. Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into AUD at the closing rate: 30 June 2018 Financial Assets USD A$ 1,716,774 GBP A$ 78,689 EUR A$ 91,938 NZD A$ 40,636 CNY A$ 31,220 MYR A$ 3,857 Financial Liabilities (796,334) (193,004) (44,996) (1,452) (29,907) - Total Exposure 920,440 (114,315) 46,942 39,184 1,313 3,857 30 June 2017 Financial Assets 1,337,881 207,753 30,483 54,144 25,103 9,165 Financial Liabilities (468,983) (167,148) (24,221) (43,490) (23,432) - Total Exposure 868,898 40,605 6,262 10,654 1,671 9,165 The following table illustrates the sensitivity on profit and equity in relation to the Group’s financial assets and liabilities and the USD/AUD exchange rate, GBP/AUD exchange rate, EUR/AUD exchange rate, NZD/AUD exchange rate and CNY/AUD exchange rate ‘all other things being equal’. It assumes a +/- 10% change of the following exchange rates for the year ended 30 June 2018 (30 June 2017:10%). These percentages have been determined based on the average market volatility in exchange rates in the previous 12 months. There is no Equity exposure to foreign currency risk. 30 June 2018 USD A$ GBP A$ Impact on Profit (131,245) (4,318) Impact on Reserves Impact on Equity 30 June 2017 Impact on Profit Impact on Reserves Impact on Equity 47,569 (83,676) 14,710 10,392 (46,353) (32,638) (78,991) 4,151 (7,842) (3,691) EUR A$ (2,091) (2,176) (4,267) (363) (206) (569) +10% NZD A$ - (3,562) (3,562) CNY A$ (373) MYR A$ (351) Total A$ (138,378) 254 - 56,795 (119) (351) (81,583) 6 (975) (969) 102 (254) (152) (833) (43,290) - (41,915) (833) (85,205) 59 Notes to the Financial Statements (Continued) 24. Financial Risk Management (Continued) 30 June 2018 Impact on Profit USD A$ 160,410 GBP A$ 5,278 Impact on Reserves (58,139) (17,980) Impact on Equity 102,271 (12,702) 30 June 2017 Impact on Profit Impact on Reserves Impact on Equity 56,653 39,891 96,544 (5,074) 9,586 4,512 (e) Cash flow and interest rate risk -10% NZD A$ - 4,354 4,354 (7) 1,191 1,184 EUR A$ 2,556 2,660 5,216 443 253 696 CNY A$ 456 (310) 146 (124) 310 186 MYR A$ 429 Total A$ 169,129 - (69,415) 429 99,714 1,018 - 52,909 51,231 1,018 104,140 As the Group has no significant interest-bearing assets or liabilities (except cash), the Group’s income and operating cash flows are not materially exposed to changes in market interest rates. Interest rate sensitivity analysis The sensitivity analysis below has been determined based on exposure to interest rates on interest bearing bank balances throughout the reporting period. A 100-basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates (also comparable to movement in interest rates during the reporting year). At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were held constant, the Group’s net profit would: 30 June 2018 30 June 2017 +1% $ 68,461 138,479 -1% $ (64,993) (136,171) This is mainly attributable to the Group’s exposure to interest rate on its bank balances bearing interest. (f) Net fair value of financial assets and liabilities The net fair value of cash and cash equivalents and other short-term financial assets and financial liabilities of the Group approximates their carrying value. The net fair value of other financial assets and financial liabilities is based upon market prices where a market exists or by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles. 60 25. Parent Entity Information The following details of information are related to the parent entity, Adslot Ltd, at 30 June 2018. This information has been prepared using consistent accounting policies as presented in Note 1. Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Contributed equity Share-based payments reserve Retained losses Total equity Loss for the year Total comprehensive loss for the year 2018 $ 3,667,011 2017 $ 12,808,996 44,919,847 44,289,745 48,586,858 57,098,741 447,356 555,463 236,351 - 1,002,819 236,351 138,699,400 138,287,281 605,975 279,115 (91,721,336) (81,704,006) 47,584,039 56,862,390 (10,014,024) (7,999,100) (10,014,024) (7,999,100) The Commitments Note 19 includes commitments by the parent entity related to leases of the Melbourne office premises at 425 Collins Street, Melbourne (46 ½ months) for an amount of $1,063,969 (2017: $1,565,583) and the Sydney office premises at 10-14 Waterloo Street, Surry Hills (54 months) for an amount of $2,358,486 (2017: nil) 26. Related Party Transactions Other than the transactions disclosed in Note 21 relating to key management personnel, there have been no related party transactions that have occurred during the current or prior financial year. 27. Events Subsequent to Reporting Date On 3 August 2018 the Company successfully completed a $3.50 million share placement (Placement). The Placement involved the issue of 140,000,000 new, fully paid ordinary shares (New Shares) at $0.025 per New Share (Offer Price) to raise $3.50 million (before costs). The Placement was conducted in two tranches. The first tranche comprising 118,000,000 New Shares at the Offer Price ($2.95 million) placed to sophisticated and institutional investors completed in August 2018. The second tranche comprising 22,000,000 New Shares at the Offer Price ($0.55 million) will be placed to Directors and related parties subject to shareholder approval at a General Meeting to be held on 14 September 2018. 61 Country of Incorporation Ordinary Share Consolidated Equity Interest 2018 % 2017 % Notes to the Financial Statements (Continued) 28. Consolidated Entities Name Parent entity Adslot Ltd Controlled entities Adslot Technologies Pty Ltd Ansearch.com.au Pty Ltd Ansearch Group Services Pty Ltd Webfirm Pty Ltd QDC IP Technologies Pty Ltd Adslot UK Limited Adslot Inc. Symphony International Solutions Limited Symphony Workflow Pty Ltd Symphony Media Pty Ltd Facilitate Digital (Shanghai) Software Services Co. Ltd Facilitate Digital Limited Facilitate Digital Trust Facilitate Digital, LLC Facilitate Digital UK Limited Facilitate Digital Deutschland GmbH Equity interests in all controlled entities are by way of ordinary shares. Australia Australia Australia Australia Australia Australia United Kingdom United States Australia Australia Australia China New Zealand New Zealand United States United Kingdom Germany 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 62 Directors’ Declaration The directors declare that the financial statements, comprising the statement of profit or loss and other comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows, accompanying notes, as set out on pages 22 to 62 are in accordance with the Corporations Act 2001 and: (a) comply with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements in Australia; (b) give a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance, as represented by the results of its operations and its cash flows, for the financial year ended on that date; and (c) the Company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. In the directors’ opinion: (a) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (b) the audited remuneration disclosures set out on pages 12 to 20 of the Directors’ Report comply with section 300A of the Corporations Act 2001. The directors have been given the declaration by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Andrew Barlow Chairman Adslot Ltd 29 August 2018 63 Collins Square, Tower 1 727 Collins Street Docklands VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of Adslot Limited Report on the audit of the financial report Opinion We have audited the financial report of Adslot Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and b Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 1 in the financial statements, which indicates that the Group incurred net cash outflows of $9.6m for the year, and management anticipate incurring further net cash outflows from operations until such time as sufficient revenue growth is achieved. The Directors are forecasting improved results for the 2019 financial year from a combination of revenue growth and reduced costs, however cash flow risk could exist. These events or conditions, along with other matters and mitigating factors as set forth in Note 1, indicate that a material uncertainty exists that may cast doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 64 Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key audit matter How our audit addressed the key audit matter Intangible assets and goodwill impairment testing Note 10 At 30 June 2018, the Group’s statement of financial position includes goodwill and other intangibles amounting to $23.2m. AASB 136 Impairment of Assets requires that an entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any indication exists, the entity shall estimate the recoverable amount of the asset. Goodwill and intangible assets impairment testing is a key audit matter due to the high degree of estimation and judgement required by management and the subjectivity relating to assumptions and key inputs. Our procedures included, amongst others:  Reviewing the impairment model for compliance with AASB 136 Impairment of Assets;  Assessing management's determination of the Group's cash generating units based on our understanding of the nature of the Group's business, the economic environment in which segments operate and the Group's internal reporting structure;  Testing the mathematical accuracy and appropriateness of the methodology of the underlying model calculations;  Reviewing the valuation expert’s report and assessing the reasonableness of inputs and assumptions used in the market based model;  Performing a sensitivity analysis of the key assumptions in model; and  Reviewing relevant disclosures for adequacy in the financial statements. Research and development grants and capitalised wages Note 1(v) At 30 June 2018, the Group recognised $3.6m relating to capitalised developments costs as intangible assets. The Group also claims associated research and development (R&D) grants from Aus. Industry under the R&D Tax Incentive Scheme, a receivable to the value of $3.3m for estimated and submitted R&D claims at year end. A high level of judgement is required to determine whether the criteria for capitalising R&D costs are met and there is a risk that the costs capitalised do not meet the criteria for capitalisation in accordance with AASB 138 Intangible Assets. In addition, AASB 120 Accounting for Government Grants and Disclosure of Government Assistance require grants received relating to costs that are capitalised to be offset against the capitalised amount, and grants relating to costs that are not capitalised expenses to be recognised as income. A receivable is recognised for R&D grant claims submitted but not yet received pertaining to costs incurred in the previous financial year, and for the estimated R&D grant claim pertaining to costs incurred during the 2018 financial year. This is a key audit matter due to the subjectivity and management judgement applied in the assessment of whether costs meet the recognition criteria of AASB 138. Our procedures included, amongst others:  Obtaining an understanding of the capitalisation process and how costs are allocated to the project;  Reviewing compliance with criteria for capitalisation of costs under AASB 138 Intangible Assets;  Assessing the reasonableness of total development costs against expectations, having regard to prior year costs and current year budgeted costs;  Testing on a sample basis, capitalised development costs incurred to underlying supporting documentation;  Ensuring the above sample meets the recognition requirements of accounting standing AASB 138;  Tracing the R&D receivable to submitted claims and where applicable, subsequent cash receipt;  Testing the mathematical accuracy of R&D grant claims accrued for;  Obtaining an understanding of the current status of discussions with AusIndustry in relation to R&D claims;  Engaging with Adslot's R&D specialist to review the reasonableness of the methodology and inclusion of expenses in the calculation; and  Assessing the appropriateness of the disclosures in the financial statements. 65 Information Other than the Financial Report and Auditor’s Report Thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. Responsibilities of the Directors for the Financial Report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 12 to 20 of the directors’ report for the year ended 30 June 2018 In our opinion, the Remuneration Report of Adslot Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Grant Thornton Audit Pty Ltd Chartered Accountants Michael Climpson Partner – Audit & Assurance Melbourne, 29 August 2018 66 Corporate Governance Statement In accordance with Listing Rule 4.10.3, Adslot’s Corporate Governance Statement can be http://www.adslot.com/investor-relations/governance/ found at Shareholder Information Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows. The information is current as at 23 August 2018. Distribution of equity securities The number of shareholders by size of shareholding are: Ordinary Shares Number of Holders Number of Shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 + TOTAL The number of shareholders holding less than a marketable parcel of shares (14,706 shares): Twenty largest shareholders The names of the twenty largest holders of quoted shares are: 1 2 NATIONAL NOMINEES LIMITED MR PETER JOHN DIAMOND + MRS DIANA ELIZABETH DIAMOND J P MORGAN NOMINEES AUSTRALIA LIMITED DAWNIE DIXON PTY LTD INVIA CUSTODIAN PTY LIMITED CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMINEES PTY LTD VENTURIAN PTY LTD ANDAMA HOLDINGS PTY LTD AMBLESIDE VENTURES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CAPITAL ACCRETION PTY LTD 3 4 5 6 7 8 9 10 11 12 13 MR RICHARD ARMSTRONG CALDOW 14 15 MDJD PTY LTD 16 MR VLADIMIR ANTHONY VITEZ & MS CATHERINE MARY DOWLAN CHARMED5 PTY LTD 17 18 WALLOON SECURITIES PTY LTD 19 20 INVIA CUSTODIAN PTY LIMITED SLADE TECHNOLOGIES PTY LTD Total Top 20 holders of Ordinary Shares Remaining holders balance Classes of Shares Adslot Ltd has only one class of share on issue, being fully paid ordinary shares. Substantial Shareholders Peter Diamond Geoff Dixon Private Portfolio Managers Pty Ltd Voting Rights All ordinary shares carry one vote per share without restrictions. 206 345 530 1,396 929 3,406 1,331 22,179 1,155,863 4,241,570 54,480,530 1,346,106,127 1,406,006,269 8,477,873 Listed Ordinary Shares Number of Shares % of Shares 123,555,337 116,481,307 96,759,549 76,046,522 52,252,850 46,190,795 42,665,548 35,674,668 34,400,000 33,091,710 30,932,167 20,647,827 16,000,000 12,302,184 11,500,000 11,000,000 10,000,000 9,931,935 9,689,841 9,000,000 8.79 8.28 6.88 5.41 3.72 3.29 3.03 2.54 2.45 2.35 2.20 1.47 1.14 0.87 0.82 0.78 0.71 0.71 0.69 0.64 798,122,240 607,884,029 56.77 43.23 Shares 116,481,307 89,845,849 87,908,300 % Shares 8.28 6.39 6.25 67 Corporate Directory Directors Mr Andrew Barlow – Executive Chairman Mr Ben Dixon – Chief Executive Director Mr Adrian Giles – Non-Executive Director Mr Quentin George – Non-Executive Director Ms Sarah Morgan – Non-Executive Director Mr Andrew Dyer – Non-Executive Director Chief Executive Officer Mr Ben Dixon Company Secretary Ms Felicity Conlan Auditors Grant Thornton Australia Collins Square, Tower 1 727 Collins Street Melbourne VIC 3008 Australia Bankers National Australia Bank Limited 330 Collins Street, Melbourne VIC 3000 Australia Share Register Computershare Registry Services Pty Ltd Yarra Falls 452 Johnston Street Abbotsford, VIC 3001 Australia Home Stock Exchange Australian Securities Exchange Limited Level 45, South Tower Rialto, 525 Collins Street Melbourne, VIC 3000 Australia ASX Code: ADJ Website www.adslot.com Registered Office Adslot Ltd Level 2, 419 Collins Street, Melbourne VIC 3000 Australia Phone: + 61 3 8695 9100 Fax: + 61 3 9696 0700 Head Office Adslot Ltd Level 2, 419 Collins Street, Melbourne VIC 3000 Australia Phone: + 61 3 8695 9100 Fax: + 61 3 9696 0700 Asia Pacific Offices Level 8, 10-14 Waterloo Street Surry Hills NSW 2010 Australia 1-231, Shanghai 1933 No 10 Shajing Road Shanghai 200080 China 301S Botany Road Botany Downs, Auckland New Zealand North America Offices 79 Madison Avenue New York, NY 10016 United States of America European Offices Three Tuns House 109 Borough High Street London, SE1 1NL United Kingdom 8th Floor 33 Theatinerstrasse 11 80333 Munchen Bayern Germany 68 

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