2020 Annual Report. VISION. To simplify premium media trading through technology and collaboration. CONTENTS. 2 Chairman’s Report 4 CEO’S Message 6 Directors’ Report 17 Remuneration Report 26 Auditors Independence Declaration 27 Consolidated Statement of Profit or Loss and Other Comprehensive Income 28 Consolidated Statement of Financial Position 29 Consolidated Statement of Changes in Equity 30 Consolidated Statement of Cash Flows 31 Notes to the Financial Statements 77 Directors’ Declaration 78 Independent Audit Report to the Members 82 Corporate Governance Statement 82 Shareholder Information 83 Corporate Directory CHAIRMAN’S REPORT. Dear Shareholder, With Symphony having returned to growth, and meaningful pilot validation of the Adslot Media platform having been achieved in FY19, the Company focussed on three key strategic priorities in FY20 in order to grow Adslot Media Trading Fees. The first strategic priority was to execute Master Service Agreements (MSAs) with as many of the six global agency holding companies as possible, and then activate their demand on the Adslot Media platform. I am pleased to report that during the period, the Company signed MSAs with two of the six largest media agency companies in the world, namely: Havas Media Group and Dentsu Aegis Network, in addition to Interpublic Group (IPG) signed in June 2019. This led to the activation of two IPG agencies (Matterkind (formerly Cadreon) and Orion) and one Havas Media Group agency (Havas) during the period. Since the end of FY20, the Company has also signed MSAs with two further independent media agencies: Fundamental Media and Evergreen Trading (both of which have now been activated, and have commenced trading). The Company also has an active trading agreement in place with a fourth media holding company, and pilot activity has commenced with a fifth media holding company. Limited initial discussions are taking place with the sixth media holding company. The securing of these MSAs and commencement of trading activity has established strong foundations upon which we will build growing, sustainable Trading Fees in FY21 and beyond. In addition to signing MSAs with global media holding companies in the US market, Adslot also focussed on realising Trading Fees from its first iteration of the Adslot-Symphony combined platform in the test market of Austria. This has resulted in consistent growth in Trading Fees out of Europe, in spite of the economic impact of COVID-19 during the period. We expect these Trading Fee revenues to continue to grow in FY21. The second strategic objective in FY20 was to expand sources of supply (premium publisher inventory) on the Adslot Media platform to meet growing demand. I am pleased to report that the Company has made significant progress in this area, now having signed additional premium publishers during the year, including Associated Newspapers (publishers of the Mail Online, the Daily Mail, Metro, etc.), Bloomberg, the Financial Times, Business Insider, WebMD, Vice Media, PopSugar, Flight Aware, Minute Media and Times of India to name a few. In addition, the Company signed and implemented data partnerships with Oracle Data Cloud and Liveramp during the year, greatly enhancing the third-party audience targeting capabilities of the Adslot Media platform for media buyers. Adslot’s core business of Symphony also continued to perform well in FY20 following a partnership integration with Marathon in April, which led to the signing and deployment of Symphony for Omnicom Media Group in the Netherlands. More integrated deployments in partnership with Marathon are expected in Europe. Finally, our third strategic priority was to continue our focus on cost management due to capital constraints. To that end, we saw a further reduction in operating costs (down 9%), with the Company’s Adjusted EBITDA Loss* reducing from $2.6M in FY19 to $1.2M in FY20. Adjusted NPAT Loss was also reduced from $7.0M in FY19 to $5.1M in FY20. 2 Adslot 2020 Annual Report Further, the Company undertook further cost reduction initiatives in March 2020 following the onset of COVID-19, including all directors not taking any fees for six months, while executives and all other staff took salary cuts of 25% initially, reduced to 12.5% for the September 2020 quarter. Although FY20 saw successful execution on all key objectives, we did not see the anticipated growth in Trading Fees that we expected to see during the second half of FY20. This was mostly due to the impact of COVID-19, which disrupted media business practices globally, slowing our deployment and pilot programs with key media holding companies, combined with negatively impacted global media spend during the period. Fortunately, from a financial perspective, the shortfall in Adslot Media Trading Fees was more than compensated for by the continued increase in Symphony Licence Fees (up 8% to $7.2M), enabling the Company to maintain a modest growth profile (Group Revenue up 3% to $10.6M) in FY20. FY20 also saw a continued increase in cash receipts, which grew 11% from $17.4M in FY19 to $19.3M in FY20. The Company held a closing cash balance of $6.2M as at 30 June 2020, supplemented by $6.4M placement in December 2019 to support the balance sheet. In FY21, the Company is now focused on five key strategic and operational initiatives: • Drive activation and trading activity from previously signed global agency holding companies; • Execute Master Service Agreements (MSAs) with the three remaining global agency holding companies; • Expand sources of supply on the Adslot Media marketplace to meet growing demand; • Further explore opportunities to activate the Adslot Media marketplace with existing Symphony customers; and, • Maintain our focus on careful cost management. In summary: we have positioned the Company well to realise material trading fees from Adslot Media in FY21 via the already signed MSAs with agency holding companies, and the continued activation and growth of demand from “I am pleased to report that the Company has made significant progress” those agencies. Additional MSA signings will be supplemental to that foundation. With the appointment of Chris Maher as head of our US operations in January 2020, we have a high level of confidence that Trading Fees will continue to grow in a meaningful way in FY21, following our record trading quarter in the September 2020 quarter. A hint of what’s to come. Thank you all again for your continued to support the Company throughout financial year 2020. We are looking forward to a big FY2021. Andrew Barlow Executive Chairman * Adjusted EBITDA and NPAT loss is after adding back impairment of Goodwill of $10.0M and once off provision for FY16 R&D Claim of $1.5M to the Unadjusted EBITDA loss ($12.7M) and Unadjusted NPAT loss ($16.6M). Adslot 2020 Annual Report 3 CEO’S MESSAGE. 2020 was a year of achievement for Adslot in a very challenging environment. During the year the Company made considerable progress in developing both the buy and sell side of the Adslot Media marketplace while also further growing the client base for the Symphony platform. Whilst the impacts on trading conditions caused by the COVID-19 pandemic were felt during the second half, the Company acted quickly and prudently to mitigate these impacts and the progress made during the second half of the year leaves Adslot well positioned for the year ahead. As the Company has previously stated, a key objective for development of the Adslot Media marketplace has been the execution of Master Service Agreements with the 6 largest global agency holding companies, who between them control the majority of media buying around the world. In the final days of the 2019 Financial Year, the Company announced the first of these agreements with Cadreon (now Matterkind), the media trading division of the Interpublic Group of Companies (IPG). During 2020 the Company followed this with further MSAs with holding companies Havas Media and Dentsu Aegis. An interim trading agreement with a further holding company was agreed during 2020 leaving the Company with 4 of the 6 holding companies in a position to trade on the Adslot Media platform. The supply side of the Adslot Media has long been a strength with inventory from almost 50% of the Comscore Top 50 publishers in the US market available on the platform (excluding the ‘walled gardens’ of Facebook, Google and Amazon). During 2020 new premium publishers were added to the Adslot Media platform in multiple markets. New publishers included well-known brands such as WebMD, AMC, Vice Media, Dow Jones, and the Economist. These additional publishers further enhance Adslot’s presence in a number of high value verticals including finance and healthcare. The US market remains a focus for development of the Adslot Media marketplace due to its size and its ongoing leadership position in adoption of new technologies and solutions for the media industry. In January 2020, the Company made a significant commitment to the US market with the appointment of Chris Maher to the role of President, North America. Chris is a highly experienced sales and media executive and his leadership has seen a strong improvement in the sales and activation efforts and client engagement. The Company remains highly optimistic regarding the opportunities the US market will provide in 2021 and beyond. “ In summary, I believe that the company can look proudly on its achievements” Our progress was not limited to Adslot Media with two significant developments with Symphony during the 2020 financial year. Firstly, in April 2020 the Company announced a partnership with Kalin Setterberg Data SV to integrate their Marathon financial ERP solution with Symphony. 4 Adslot 2020 Annual Report This integrated solution provides a best of breed solution for media agencies to manage the whole campaign lifecycle from planning and trading through to financial reconciliation and invoicing. This integration was completed in September 2020 and we believe a significant opportunity exists for this integrated offering across Europe. In May 2020 the Company announced an agreement to deploy Symphony for the Omnicom Media Group in the Netherlands. This agreement represented the first potential deployment of Symphony in the Netherlands, the first deployment for OMG and the first to feature the integration with Marathon. This activation was completed in October of 2020 and represented a pleasing diversification of both clients and geographic footprint for Symphony. Further, during the June 2020 quarter the Company saw very encouraging adoption of the integrated offering between the Symphony and Adslot Media platforms in the pilot market of Austria. This adoption was a significant driver of the strong (84%) growth in the value of media traded on the Adslot Media platform when compared to the prior quarter. The Company believes that over the medium term further opportunities exist to replicate this success in current and potential Symphony markets. An undoubted low point of the year was the impact of the COVID-19 pandemic which impacted our employees, our clients and the media industry as a whole. The Company made the decision early to reduce our cost base, eliminate discretionary expenditure and switch our workforce to remote working. These measures involved considerable sacrifice from our staff, for which we are very grateful, however productivity from a sales and development perspective remained very high. Further, while media spending globally declined significantly immediately after the start of the pandemic it has strongly returned in many markets and many industry analysts expect strong growth in 2021 and beyond as part of a wider recovery. In summary, I believe that the company can look proudly on its achievements during a very challenging period not only for our industry but for the wider economy as a whole. The progress we have made on our key strategic objectives in 2020 leaves us well placed to finally deliver on the considerable opportunity that this company, its employees, and its shareholders have long believed in. Ben Dixon CEO and Executive Director. Adslot 2020 Annual Report 5 Director’s Report DIRECTORS’ REPORT. Mr Andrew Barlow Executive Chairman Mr Ben Dixon CEO and Executive Director Mr Adrian Giles Non-Executive Director Your Directors present Andrew Barlow is the founder Ben Dixon’s career in the Adrian Giles is an their report, together and Chairman of Adslot, and advertising industry goes entrepreneur in the Internet with the financial an experienced technology back over 20 years and and Information Technology report of Adslot Ltd entrepreneur. Prior to Adslot, includes roles at several large industries. In 1997 Mr Giles ACN 001 287 510 (‘the Mr Barlow co-founded online multinational agency groups co-founded Sinewave Company’) and its competitive intelligence including DDB and Mojo. He Interactive which pioneered controlled entities company, Hitwise, with Adrian has wide experience across the concept of marketing a (‘the Group’) for the Giles. Hitwise was ranked one both the media buying website using search engines financial year ended of the Top 10 fastest growing and account management and was the first company 30 June 2020 and companies by Deloitte for five fields having held senior in Australia to offer Search the auditor’s report years running, before being positions directing accounts Engine Optimisation (SEO) as thereon. sold to Experian Group (LSX. for advertisers such as a service. EXPN) in May 2007. Telstra and Kraft Foods. In Mr Giles co-founded Hitwise Mr Barlow was also Founder particular he was responsible which grew over 10 years and CEO of Max Super, an for the development to become one of the most online retail superannuation and implementation of recognised global internet fund sold to Orchard Funds e-commerce and online measurement brands in the Management in 2007. strategies across a number of USA, UK, Australia, NZ, Hong Mr Barlow is also the Founder advertisers. Kong, and Singapore. Whilst of Venturian, a privately- In late 1999 Mr Dixon positioning the company owned venture capital fund conceptualised and then for a NASDAQ listing in early with investments in early- co-founded Facilitate Digital 2007 Hitwise was sold to stage technology companies Pty Ltd, assuming the role Experian (LSX: EXPN) in one with unique IP, highly scalable of General Manager. In the of Australia’s most successful business models and global subsequent 3 years he played venture capital backed trade market potential. an integral role in steering the sales. Mr Barlow served a non- executive director of Nitro business through an industry collapse to a position of Mr Giles is also Chairman of ORDER Esports - an Software Limited (ASX:NTO) strength. Australian esports team and from 30 January 2007 until 25 Mr Dixon was appointed Chief Chairman of Fortress Esports August 2020. Executive Officer of Facilitate - an esports and video game Mr Barlow was first appointed when Adslot acquired it in entertainment company. as a Non-Executive Director December 2013. Mr Giles is Chair of the on 16 February 2010. He was the Executive Chairman for the 2020 financial year, returning to non-executive Chairman on 28 July 2020. Mr Barlow is also a member of the Remuneration Committee. Remuneration Committee and a member of the Audit & Risk Committee. 6 Adslot 2020 Annual Report Ms Sarah Morgan Non-Executive Director Mr Andrew Dyer Non-Executive Director Ms Felicity Conlan Company Secretary Sarah Morgan has Andrew Dyer is a Senior Felicity Conlan brings to the extensive experience Partner and Director of Group extensive experience in the finance industry, The Boston Consulting in the media/advertising primarily as part of Group (BCG). and technology sectors independent corporate Mr Dyer has held local, where she has held General advisory firm Grant regional and global Manager - Finance and Samuel. Ms Morgan has leadership positions, CFO roles with companies been involved in public including leading BCG’s including M&C Saatchi, and private company People & Organization and Network Ten, Beattie mergers and acquisitions, Enablement Practices. McGuinness Bungay as well as equity and debt He has also been a member (London) and Genero Media. capital raisings. She holds of BCG’s global Executive Ms Conlan is a member a degree in Engineering Committee and holds of CPA Australia and a and a Master of Business various roles on a number member of the Australian Administration from the of BCG Board Committees. Institute of Company University of Melbourne Mr Dyer has over 26 years' Directors. and is a Graduate of consulting experience Australian Institute of supporting senior Company Directors. executives in leading Ms Morgan is a Non- companies around the Executive Director of world, with a particular Nitro Sof tware Limited, focus on financial and other Future Generation Global services businesses. Investment Company Mr Dyer is also a member of Limited and Whispir the Finance Committee of Limited. Ms Morgan was the Council of the Australian a Non-Executive Director of Hansen Technology National University. Prior to joining BCG in Limited for part of the 1994, Mr Dyer worked for 2020 year. the Commonwealth Bank Ms Morgan is Chair of the and the Australian Federal Audit and Risk Committee. Government. Mr Dyer is a member of the Audit & Risk Committee and was also appointed to the Remuneration Committee on 2 August 2019. Adslot 2020 Annual Report 7 PERFORMANCE. 2020 RESULTS. +3 % GROUP. GROUP REVENUE $10.6m up +3% on prior year +1% TRADING TECHNOLOGY REVENUES $8.1m up +1% on prior year +54% ADJUSTED EBITDA LOSS $1.2m reduced by 54% on prior year 8 Adslot 2020 Annual Report +1% ADSLOT MEDIA. MEDIA TRADED $15.5m up 1% -35% TRADING FEE REVENUE $0.7m down 35% +9% SYMPHONY. LICENCE FEE REVENUE $6.6m up 9% Adslot 2020 Annual Report 9 Directors’ Report Operating Results Trading technology revenue 8,115,100 8,038,425 76,675 Total revenue and other income 10,572,950 10,271,629 301,321 2020 $ 2019 Movement $ $ % 1% 3% EBITDA (loss) Adjusted EBITDA (loss) 1 NPAT (loss) Adjusted NPAT (loss) 1 (12,725,348) (2,619,402) (10,105,946) (386%) (1,197,614) (2,619,402) 1,421,788 54% (16,617,725) (7,042,755) (9,574,970) (136%) (5,089,991) (7,042,755) 1,952,764 28% 1 Adjusted EBITDA (loss) and Adjusted NPAT (loss): Adding back impairment of Goodwill (refer note 10 for further information) and once off Provision for R&D Claim for Financial Year 2015/2016 (refer note 8 for further information) to EBITDA and NPAT. Licence Fees Significant events for the past year for Symphony include: Group revenues for FY20 were $10,572,950 an increase of 2.93% versus FY19 ($10,271,629). The Adjusted Consolidated Group operating loss before interest, income tax, depreciation and amortisation (Adjusted EBITDA) in FY20 was $1,197,614, a 54% decrease in losses versus FY19 ($2,619,402). The Adjusted Consolidated Group operating loss after tax of $5,089,991 is 28% lower than the loss for the prior year of $7,042,755. Review of Operations Despite challenging conditions in the second half of the 2020 financial year, the Company achieved revenue growth on the prior year. Total group revenue of $10.6m represented a 3% increase on the prior financial year (FY19: $10.3m). Revenue growth was primarily driven by a $0.5m (+9%) increase in Symphony licence fee revenue and a $0.4m increase in Grant Proceeds primarily relating to COVID-19 government stimulus. Revenues generated from Trading Technology (licence fees and trading fees combined) at $8.1m represented a 1% growth on the prior financial year (FY19: $8.0m). During the period the Company continued to focus on the following key strategies for the business in FY20: 1. For Adslot Media a. Secure Master Service Agreements (MSAs) with additional agency holding companies; b. Activate previously contracted agencies to drive growth in trading fees; c. Secure additional premium publishers to grow the quality, quantity and variety of marketplace inventory; and, d. Develop partnerships with key data providers. 2. Pursue further deployments for Symphony with existing and prospective clients; and 3. Maintain focus on cost management. The COVID-19 pandemic represented a challenge for businesses globally in the 2020 financial year, and this is expected to continue into the 2021 financial year. COVID-19 saw an immediate decline in media spend globally during the March 2020 quarter and this had an impact on Adslot Media bookings during that quarter. The Company saw both reduced activity levels and cancellations of previously booked media. This combined with the usual low seasonal activity in the March 2020 quarter resulted in the lowest quarter for the 2020 year. By contrast, and despite ongoing uncertainty, Adslot Media achieved its highest bookings result for the 2020 financial year in the June 2020 quarter. This was driven by a significant improvement in trading activity on the Adslot Media platform from European agencies. However, the US market continued to see negative impacts on media trading caused by social unrest. Despite that, engagement and planning activities with US-based agencies and publishers accelerated towards the end of the quarter and significant improvement in Adslot Media trading activity from the US market is anticipated in the September 2020 quarter. Symphony revenue is primarily made up of recurring contracted licence fees with little impact from COVID-19 in the 2020 financial year. Webfirm’s digital marketing services whose clients consist mostly of small to medium enterprises, were impacted in March and April 2020, with a small number of clients putting a hold on their retained services that have not been reinstated to date. 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 for Media Agencies, and also from customised solutions developed for Publishers; and, • Trading Fees – fees charged as a percentage of media traded via the stand alone Adslot Media platform and also via Symphony. Trading fees generated via the stand alone Adslot Media platform attract a higher % fee and represent a significant majority of Trading Fees. • Partnership with Marathon, a Sweden-based provider of Enterprise Resource Planning (ERP) software to the media industry across Europe, opening up new European markets for Symphony; • Execution of a multi-year agreement for deployment of Symphony with Omnicom Media Group in the Netherlands, representing additional diversification of the Company’s geographic and client footprint • Validation of the Symphony – Adslot Media offering with a significant increase in media traded in for the Symphony product; and, Europe on the integrated platform. Total Licence Fee revenues across Symphony and Adslot Media were $7.2m in FY20, representing growth of 8% on the prior financial year (FY19: $6.7m). Note: Symphony Licence Fee revenues for FY17 and FY18 are normalised to allow for the reversal of a one- off payment, as outlined in the 20 July 2018 Symphony Outlook release. 10 Adslot 2020 Annual Report 10 Adslot 2020 Annual Report Adslot 2020 Annual Report 11 Symphony revenue is primarily made up of recurring contracted licence fees with little impact from COVID-19 in the 2020 financial year. Webfirm’s digital marketing services whose clients consist mostly of small to medium enterprises, were impacted in March and April 2020, with a small number of clients putting a hold on their retained services that have not been reinstated to date. 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 for Media Agencies, and also from customised solutions developed for Publishers; and, • Trading Fees – fees charged as a percentage of media traded via the stand alone Adslot Media platform and also via Symphony. Trading fees generated via the stand alone Adslot Media platform attract a higher % fee and represent a significant majority of Trading Fees. Licence Fees Significant events for the past year for Symphony include: • Partnership with Marathon, a Sweden-based provider of Enterprise Resource Planning (ERP) software to the media industry across Europe, opening up new European markets for Symphony; • Execution of a multi-year agreement for deployment of Symphony with Omnicom Media Group in the Netherlands, representing additional diversification of the Company’s geographic and client footprint for the Symphony product; and, • Validation of the Symphony – Adslot Media offering with a significant increase in media traded in Europe on the integrated platform. Total Licence Fee revenues across Symphony and Adslot Media were $7.2m in FY20, representing growth of 8% on the prior financial year (FY19: $6.7m). Note: Symphony Licence Fee revenues for FY17 and FY18 are normalised to allow for the reversal of a one- off payment, as outlined in the 20 July 2018 Symphony Outlook release. Adslot 2020 Annual Report 11 Adslot 2020 Annual Report 11 Directors’ Report (Continued) Trading Fees The March 2020 quarter was significantly impacted by the COVID-19 pandemic with trades paused or cancelled due to uncertainty. Bookings came back strongly in the June 2020 quarter, at $4.8m, the largest in the 2020 financial year. follows: Value of Media Traded - Stand Alone Adslot (AUD) (cid:3)(cid:1010)(cid:853)(cid:1004)(cid:1004)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004) (cid:3)(cid:1009)(cid:853)(cid:1004)(cid:1004)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004) (cid:3)(cid:1008)(cid:853)(cid:1004)(cid:1004)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004) (cid:3)(cid:1007)(cid:853)(cid:1004)(cid:1004)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004) (cid:3)(cid:1006)(cid:853)(cid:1004)(cid:1004)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004) (cid:3)(cid:1005)(cid:853)(cid:1004)(cid:1004)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004) (cid:3)(cid:882) (cid:89)(cid:1005)(cid:3)(cid:38)(cid:122)(cid:1005)(cid:1013) (cid:89)(cid:1006)(cid:3)(cid:38)(cid:122)(cid:1005)(cid:1013) (cid:89)(cid:1007)(cid:3)(cid:38)(cid:122)(cid:1005)(cid:1013) (cid:89)(cid:1008)(cid:3)(cid:38)(cid:122)(cid:1005)(cid:1013) (cid:89)(cid:1005)(cid:3)(cid:38)(cid:122)(cid:1006)(cid:1004) (cid:89)(cid:1006)(cid:3)(cid:38)(cid:122)(cid:1006)(cid:1004) (cid:89)(cid:1007)(cid:3)(cid:38)(cid:122)(cid:1006)(cid:1004) (cid:89)(cid:1008)(cid:3)(cid:38)(cid:122)(cid:1006)(cid:1004) The FY20 value of media traded via the stand alone Adslot Media platform at $15.5m was flat on FY19 ($15.4m). The FY20 trading activity resulted in Trading Fees derived from the Adslot Media platform of $0.7m (FY19 $1.1m). The reduction in trading fees despite a similar value of media traded in FY19, reflects the lower average fee percentage in European markets where many larger agencies access the Adslot Media platform via the integration to the Group’s Symphony platform. Average trading fee percentages are expected to increase as activity in the US market grows. The Group continues to make significant progress in growing adoption and sales pipelines across all active regions, including the US, UK, Europe and Australia. The Group’s growth strategy continues to focus on the six largest global media agency holding companies for the US market, and securing Master Services Agreements (MSAs) with these groups to enable access to the demand they control. The Company’s status with the six largest global media agency holding companies is as • Formal MSAs in place with three of the six largest global media agency holding companies – IPG / Matterkind, Havas and Dentsu / Amplifi; • An active interim trading agreement with a fourth holding company, anticipated to proceed to formal MSA later in 2020; • Confirmed pilot activity with a fifth holding company scheduled for the September 2020 quarter; and, • Limited initial discussions the remaining sixth holding company. During the financial year, the Group continued to add premium publishers to its Adslot Media marketplace around the world. These included WebMD, Reach plc, AMC Networks, Vice Media, Frankly Media, Young Hollywood, Investing.com and Russmedia. The sales pipeline of large publishers continues to grow. In addition, publisher-initiated demand continues to grow across agreements with publishers that see Adslot as a preferred or mandated channel for certain transactions. These include the leading Australian property website Domain and the UK publisher the Financial Times (FT). In the 2020 financial year the Company executed data partnership agreements with: • Oracle Data Cloud (ODC), the world’s largest cloud-based data management platform for marketing; • LiveRamp, a leading provider of technology for the onboarding of advertiser’s first party data. These relationships will make it easy for advertisers to share their audiences for targeting against media in the and Adslot Platform. Services Services revenue is derived predominantly from Webfirm, the Group’s Australian-based digital marketing services business, providing website design, hosting, search engine optimisation (SEO), search engine marketing (SEM) and social media marketing services (FY20: $1.6m). The COVID-19 pandemic resulted in thirteen clients of Webfirm’s digital marketing services putting a hold on their SEO retained services in March and April 2020, that have not been reinstated to date. FY20 Services revenue at $1.6m was a reduction year on year (-4% reduction). Services revenue is also derived to a lesser extent from custom development work for Symphony and Adslot Media customers. Government Stimulus The Group was eligible for Australian Government stimulus in FY2020 including JobKeeper of $97.5k, Cash Flow Boost Grant of $200k and the Small Business Grant (UK) of $18k. The Group expects to receive an additional $448.5k for the current JobKeeper scheme and $158k for the Paycheck Protection Program (US) in FY21. 12 12 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 13 The Group continues to make significant progress in growing adoption and sales pipelines across all active regions, including the US, UK, Europe and Australia. The Group’s growth strategy continues to focus on the six largest global media agency holding companies for the US market, and securing Master Services Agreements (MSAs) with these groups to enable access to the demand they control. The Company’s status with the six largest global media agency holding companies is as follows: • Formal MSAs in place with three of the six largest global media agency holding companies – IPG / Matterkind, Havas and Dentsu / Amplifi; • An active interim trading agreement with a fourth holding company, anticipated to proceed to formal MSA later in 2020; • Confirmed pilot activity with a fifth holding company scheduled for the September 2020 quarter; and, • Limited initial discussions the remaining sixth holding company. During the financial year, the Group continued to add premium publishers to its Adslot Media marketplace around the world. These included WebMD, Reach plc, AMC Networks, Vice Media, Frankly Media, Young Hollywood, Investing.com and Russmedia. The sales pipeline of large publishers continues to grow. In addition, publisher-initiated demand continues to grow across agreements with publishers that see Adslot as a preferred or mandated channel for certain transactions. These include the leading Australian property website Domain and the UK publisher the Financial Times (FT). In the 2020 financial year the Company executed data partnership agreements with: • Oracle Data Cloud (ODC), the world’s largest cloud-based data management platform for marketing; and • LiveRamp, a leading provider of technology for the onboarding of advertiser’s first party data. These relationships will make it easy for advertisers to share their audiences for targeting against media in the Adslot Platform. Services Services revenue is derived predominantly from Webfirm, the Group’s Australian-based digital marketing services business, providing website design, hosting, search engine optimisation (SEO), search engine marketing (SEM) and social media marketing services (FY20: $1.6m). The COVID-19 pandemic resulted in thirteen clients of Webfirm’s digital marketing services putting a hold on their SEO retained services in March and April 2020, that have not been reinstated to date. FY20 Services revenue at $1.6m was a reduction year on year (-4% reduction). Services revenue is also derived to a lesser extent from custom development work for Symphony and Adslot Media customers. Government Stimulus The Group was eligible for Australian Government stimulus in FY2020 including JobKeeper of $97.5k, Cash Flow Boost Grant of $200k and the Small Business Grant (UK) of $18k. The Group expects to receive an additional $448.5k for the current JobKeeper scheme and $158k for the Paycheck Protection Program (US) in FY21. Adslot 2020 Annual Report 13 Adslot 2020 Annual Report 13 Directors’ Report (Continued) People In January 2020 the Group appointed Chris Maher to the role of President, North America, a critical role leading the US team to drive success in the US market. The Group’s entire workforce moved to working from home with the onset of the COVID-19 pandemic, using enabling technology solutions. All business travel was cancelled. period (FY19: $19.3m). Practical support and guidance to aid working from home included early identification and sourcing of equipment, tests to ensure systems worked remotely, ongoing technical support and grants for home equipment. Where employees were able to return to work, the Group implemented both social distancing and elevated health measures, including additional cleaning regimes, to ensure the safety of our employees. The Group adopted all government and public health authority guidelines in each of our markets. We have also put additional measures in place to support the health and wellbeing of all our employees in these uncertain times, including a new Employee Assistance Program offering counselling advice to employees and their families. Cost Management Total operating costs of $11.7m for FY20 represents a $1.1m (-9%) reduction in costs on FY19 ($12.8m) including reclassification of rental expense of $0.6m , waived Directors fees of $0.2m and travel savings of $0.2m. In March 2020, the Group removed twenty external development contractors representing annual savings of $1.4m (with associated reduction in recurring revenues in FY21). Due to the impact of the COVID-19 pandemic on the Group, the following employee cost reductions were implemented in the 2020 financial year: • The Chairman and non-executive directors waived all fees from March to June 2020 (inclusive); • 30% salary reduction for the CEO and CFO for the quarter to June 2020; • up to 25% salary reductions across employees earning above a minimum threshold for the quarter to June 2020; further headcount reductions due to redundancy and natural attrition; and freeze on all salary increases and new hires. • • These initiatives resulted in an annualised $1.09m or 30% cash saving in employment costs across Staff Costs ($0.75M) and Intellectual Property ($0.34m). The employee salary reductions implemented in the June 2020 quarter have been reduced by half in the September 2020 quarter. The Chairman and non-executive directors have continued to waive all fees in the September 2020 quarter. Cost reductions were targeted to ensure continued investment in strategic and revenue generating product development and no disruption to existing client relationships. EBITDA The EBITDA loss for the 2020 financial year is $12,725,348 (FY19 $2,619,402). During the period the Group: • made a one-off provision of $1,527,734 for the part repayment of the FY16 R&D claim (see Note 8); and, • made a non-cash goodwill impairment charge of $10,000,000 (see Note 10). The Adjusted EBITDA loss for the 2020 financial year, excluding the FY16 R&D provision and goodwill impairment, is $1,197,614 representing a 54% reduction on the prior period due to the growth in revenue combined with tight cost control. Cash Management Key major shareholders and new investors supported the Group in a capital raise of $6.4m in FY20 contributing net cash inflows from financing activities of $5.6m (after transaction costs). Net cash outflows from operating activities for FY20 were $3.4m, a $2.3m increase on the prior period (FY19: $1.1m net cash outflow). Cash receipts for FY20 were $19.3m, an 11% increase of $1.9m on the prior period (FY19: $17.4m). Cash payments for operating activities at $22.8m was a 19% increase of $3.5m on the prior The Group received $328k (FY19 $3.0m) in R&D receipts across operating activities ($51k) and investing activities ($278k). This significant reduction in R&D receipts is due to the ATO offsetting the disputed FY16 R&D claim against the FY19 R&D claim, as outlined in Note 8. Cash from government stimulus includes an Australian Cash Flow Boost payment of $100k; a UK Small Business Grant of $18k included in operating activities (see note 3); and a US Paycheck Protection Program payment of $167k, in financing activities (see note 12, flow through P&L in FY21). Due to the impact of the COVID-19 pandemic on operations, the Company expects to receive an additional $0.4m Job Keeper allowance and an additional $0.05m ATO Boost Payment in the September 2020 quarter. Cash as at 30 June 2020 was $6.2m (FY19: $8.2m). Matters Subsequent to the End of the Financial Year The Company granted the following unlisted share options: 25,625,000 options issued to employees as outlined in the Appendix 3G lodged on 22 July 2020. 18,000,000 options granted to Mr Ben Dixon, CEO and executive director as outlined in the ASX release on 12 August 2020. COVID-19 Pandemic The outbreak of the coronavirus pandemic in early 2020 has had an adverse impact on the business across all geographic regions. It is not practicable to estimate the duration or potential quantum of the impact of the health and economic crisis, after the reporting date. The situation continues to develop and any further impact will be dependent on any measures imposed by the Australian Government and other Governments around the world including restrictions on social and work environments and economic stimulus. Other than the above, there has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in future years. 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 year. The Directors do not recommend the declaration of a dividend. No dividend has been declared or paid during 14 14 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 15 Cash Management Key major shareholders and new investors supported the Group in a capital raise of $6.4m in FY20 contributing net cash inflows from financing activities of $5.6m (after transaction costs). Net cash outflows from operating activities for FY20 were $3.4m, a $2.3m increase on the prior period (FY19: $1.1m net cash outflow). Cash receipts for FY20 were $19.3m, an 11% increase of $1.9m on the prior period (FY19: $17.4m). Cash payments for operating activities at $22.8m was a 19% increase of $3.5m on the prior period (FY19: $19.3m). The Group received $328k (FY19 $3.0m) in R&D receipts across operating activities ($51k) and investing activities ($278k). This significant reduction in R&D receipts is due to the ATO offsetting the disputed FY16 R&D claim against the FY19 R&D claim, as outlined in Note 8. Cash from government stimulus includes an Australian Cash Flow Boost payment of $100k; a UK Small Business Grant of $18k included in operating activities (see note 3); and a US Paycheck Protection Program payment of $167k, in financing activities (see note 12, flow through P&L in FY21). Due to the impact of the COVID-19 pandemic on operations, the Company expects to receive an additional $0.4m Job Keeper allowance and an additional $0.05m ATO Boost Payment in the September 2020 quarter. Cash as at 30 June 2020 was $6.2m (FY19: $8.2m). Matters Subsequent to the End of the Financial Year The Company granted the following unlisted share options: 25,625,000 options issued to employees as outlined in the Appendix 3G lodged on 22 July 2020. 18,000,000 options granted to Mr Ben Dixon, CEO and executive director as outlined in the ASX release on 12 August 2020. COVID-19 Pandemic The outbreak of the coronavirus pandemic in early 2020 has had an adverse impact on the business across all geographic regions. It is not practicable to estimate the duration or potential quantum of the impact of the health and economic crisis, after the reporting date. The situation continues to develop and any further impact will be dependent on any measures imposed by the Australian Government and other Governments around the world including restrictions on social and work environments and economic stimulus. Other than the above, there has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in future years. 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. Adslot 2020 Annual Report 15 Adslot 2020 Annual Report 15 Directors’ Report (Continued) Shares under option Details of unissued shares or interests under option as at the date of signing this report are. Non-executive directors’ and Chairman’s remuneration Issue Type 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) Ordinary options 04/10/2021 0.073 3,000,000 Ordinary options 25/11/2021 0.060 5,600,000 Ordinary options 25/02/2022 0.035 23,500,000 Ordinary options 15/05/2022 0.034 11,400,000 Ordinary options 27/05/2022 0.036 4,000,000 Ordinary options 30/01/2023 0.060 5,800,000 - - - - - - - - - - - (750,000) Ordinary options 02/09/2023 0.041 Ordinary options 12/12/2023 0.045 Ordinary options 15/12/2022 0.044 Ordinary options 29/01/2024 0.032 - - - - 11,900,000 (200,000) 4,000,000 8,000,000 8,000,000 - - - 53,300,000 31,900,000 (950,000) - - - - - - - - - - - Balance at end of the year (Number) 3,000,000 5,600,000 23,500,000 11,400,000 4,000,000 5,050,000 11,700,000 4,000,000 8,000,000 8,000,000 84,250,000 Indemnification and Insurance of Officers The Group has during the financial year, in respect of each person who is or has been an officer of the Group 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 Group 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 Group, 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 Group No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group 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 2020 has been received and can be found on page 26 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 19 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. Remuneration Report The remuneration report is set out under the following headings: Section 1: Section 2: Section 3: Section 4: Section 5: Executive remuneration Details of remuneration Executive contracts of employment Long Term Incentives (equity-based compensation) Section 6: Culture, accountability and remuneration Section 7: Equity holdings and transactions Section 8: Other transactions with key management personnel Section 1: Non-executive directors’ and Chairman’s 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 2020 financial year, the Chairman’s fees were $100,000 per annum plus time-based executive fees. For the 2020 financial year, non-executive directors’ fees were $50,000 per annum. Mr Andrew Dyer waived his non-executive director fees for the 2020 year. In addition, the Chair of the Audit & Risk Committee and the Remuneration Committee received a further $25,000 in recognition of the additional workload of those positions. With the onset of the COVID-19 pandemic and in support of the Group’s immediate actions to reduce costs, the Chairman and non-executive directors waived their fees from March 2020 to June 2020 inclusive. The Chairman and non-executive directors have continued to waive all fees in the September 2020 quarter. Section 2: Executive remuneration The Board of Directors are responsible for determining and reviewing compensation arrangements for key management personnel and the executive team. The Remuneration Committee makes recommendations on remuneration of key management personnel to the Board. The Board assesses the appropriateness of the nature and amount of emoluments of these employees on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit by: a) Attracting the highest quality employees; b) Retaining the best performing employees; c) Aligning the employees with shareholder outcomes; optimal strategic outcomes for the business; and e) Ensuring it aligns with the latest industry best practice. d) Aligning employee motivation to a cascading set of key performance indicators that drive the most Executives’ remuneration consists of a fixed cash component, short-term incentives in the form of cash bonuses, and long-term incentives in the form of equity-based compensation linked to the long-term prospects and future performance of the Group. The inclusion of equity-based compensation in executives’ remuneration provides a direct link between their remuneration and shareholder wealth, otherwise there are no direct relationships. Item EPS (cents) Net loss ($) In providing the Group’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: 2020 (0.96) 2019 (0.49) 2018 (0.91) 2017 (0.70) 2016 (0.77) 16,617,725 7,042,755 11,653,319 8,630,187 8,138,485 Share price at 30 June ($) 0.018 0.028 0.026 0.051 0.110 16 16 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 17 Remuneration Report The remuneration report is set out under the following headings: Section 1: Section 2: Section 3: Section 4: Section 5: Section 6: Section 7: Section 8: Non-executive directors’ and Chairman’s remuneration Executive remuneration Details of remuneration Executive contracts of employment Long Term Incentives (equity-based compensation) Culture, accountability and remuneration Equity holdings and transactions Other transactions with key management personnel Section 1: Non-executive directors’ and Chairman’s 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 2020 financial year, the Chairman’s fees were $100,000 per annum plus time-based executive fees. For the 2020 financial year, non-executive directors’ fees were $50,000 per annum. Mr Andrew Dyer waived his non-executive director fees for the 2020 year. In addition, the Chair of the Audit & Risk Committee and the Remuneration Committee received a further $25,000 in recognition of the additional workload of those positions. With the onset of the COVID-19 pandemic and in support of the Group’s immediate actions to reduce costs, the Chairman and non-executive directors waived their fees from March 2020 to June 2020 inclusive. The Chairman and non-executive directors have continued to waive all fees in the September 2020 quarter. Section 2: Executive remuneration The Board of Directors are responsible for determining and reviewing compensation arrangements for key management personnel and the executive team. The Remuneration Committee makes recommendations on remuneration of key management personnel to the Board. The Board assesses the appropriateness of the nature and amount of emoluments of these employees on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit by: a) Attracting the highest quality employees; b) Retaining the best performing employees; c) Aligning the employees with shareholder outcomes; d) Aligning employee motivation to a cascading set of key performance indicators that drive the most optimal strategic outcomes for the business; and e) Ensuring it aligns with the latest industry best practice. Executives’ remuneration consists of a fixed cash component, short-term incentives in the form of cash bonuses, and long-term incentives in the form of equity-based compensation linked to the long-term prospects and future performance of the Group. The inclusion of equity-based compensation in executives’ remuneration provides a direct link between their remuneration and shareholder wealth, otherwise there are no direct relationships. In providing the Group’s performance and benefits for shareholder wealth, the Board have regard to the following indices in respect of the current financial year and the previous four financial years: Item EPS (cents) Net loss ($) 2020 (0.96) 2019 (0.49) 2018 (0.91) 2017 (0.70) 2016 (0.77) 16,617,725 7,042,755 11,653,319 8,630,187 8,138,485 Share price at 30 June ($) 0.018 0.028 0.026 0.051 0.110 Adslot 2020 Annual Report 17 Adslot 2020 Annual Report 17 Remuneration Report (Continued) Section 3: Details of remuneration Details of the remuneration of the directors and the key management of the Group 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 Date appointed/resigned Mr Andrew Barlow Non-Executive Chairman Appointed 28 July 2020 Executive Chairman Appointed 27 February 2018 Mr Ben Dixon Chief Executive Officer Appointed 1 January 2019 Executive Director Appointed 23 December 2013 Mr Andrew Dyer Non-Executive Director Appointed 28 May 2018 Mr Adrian Giles Non-Executive Director Appointed 26 November 2013 Ms Sarah Morgan Non-Executive Director Appointed 27 January 2015 Mr Quentin George Non-Executive Director Appointed 14 June 2014 Resigned 16 July 2019 Executive Officers Position Date appointed/resigned Ms Felicity Conlan Company Secretary Chief Financial Officer Appointed 9 October 2017 Appointed 30 August 2017 Mr Tom Peacock Chief Commercial Officer Appointed 6 December 2017 $ $ Due to the impact of COVID-19 on the Group, employment cost reduction initiatives in the period included: Mr B Dixon 50,000 100,000 $ 100,000 Group performance to budget and executive management to achieve KPIs • The Chairman and non-executive directors waived all fees from March to June 2020 (inclusive); • 30% salary reduction for the CEO and CFO for the quarter to June 2020; • up to 25% salary reductions across employees earning above a minimum threshold for the quarter to June 2020; further headcount reductions due to redundancy and natural attrition; and freeze on all salary increases and new hires. • • The employee salary reductions implemented in the June 2020 quarter have been reduced by half in the September 2020 quarter. The Chairman and non-executive directors have continued to waive all fees in the September 2020 quarter. 18 18 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 19 Group 2020 Name Executive directors Mr A Barlow (i) Mr B Dixon Non-executive directors Mr A Giles Mr Q George (ii) Ms S Morgan Mr A Dyer Ms F Conlan Mr T Peacock Salary & fees $ 95,883 277,500 50,000 2,273 45,662 - 237,708 224,063 933,089 Other key management personnel Short-term benefits employment Share-based payment Post- Benefits benefits Long Term Long Service Leave Short Term Incentive Other $ $ Super- Share Performance annuation Options Rights $ Total $ 5,715 20,739 2,557 $ - - - - - $ 5,784 - - - 4,338 $ - - - - 4,409 1,186 4,685 20,324 20,009 2,979 2,979 11,586 71,194 12,924 - - - - - - - - - - - - - - - - - - - - - - - - - - - 101,667 306,511 50,000 2,273 50,000 4,409 262,197 251,736 1,028,793 includes $35,000 consultancy fees incurred during his appointment as Executive Chairman. Mr. George resigned on 16 July 2019. Short Term Incentives Short Term Incentives (STIs) paid in the year, along with the total STI opportunity in each year, relating to the 2019 and 2020 financial years, are outlined in the table below: Totals (i) (ii) Name Amount Paid Total 2019 STI Opportunity Amount Paid Total 2020 Opportunity STI Assessment Criteria $ - - - Ms F Conlan Mr T Peacock - - 50,000 N/A (a) 100,000 (b) Revenue achievement and KPIs 100,000 (b) Revenue achievement and KPIs (a) (b) Not applicable as total bonus opportunity is based on a percentage of the Group’s performance. A new STI plan was introduced in 2020 with a $100,000 STI opportunity. A third assessed on revenue targets at the half year and the balance assessed on revenue targets and personal KPIs at the full year No STIs were paid to key management personnel in relation to the 2020 financial year. Group 2020 Name Executive directors Mr A Barlow (i) Mr B Dixon Salary & fees $ 95,883 277,500 Non-executive directors Mr A Giles Mr Q George (ii) Ms S Morgan Mr A Dyer 50,000 2,273 45,662 - Other key management personnel Ms F Conlan Mr T Peacock Totals 237,708 224,063 933,089 Short-term benefits Short Term Incentive Other $ $ Long Term Benefits Long Service Leave $ Post- employment benefits Share-based payment Super- annuation $ Share Options $ Performance Rights $ - - - - - - - - - - - - - - - - - - - 5,715 5,784 - 20,739 2,557 - - - - - - 4,338 - - - - 4,409 1,186 4,685 20,324 20,009 2,979 2,979 11,586 71,194 12,924 - - - - - - - - - Total $ 101,667 306,511 50,000 2,273 50,000 4,409 262,197 251,736 1,028,793 (i) (ii) includes $35,000 consultancy fees incurred during his appointment as Executive Chairman. Mr. George resigned on 16 July 2019. Short Term Incentives Short Term Incentives (STIs) paid in the year, along with the total STI opportunity in each year, relating to the 2019 and 2020 financial years, are outlined in the table below: Name Amount Paid Total 2019 STI Opportunity Amount Paid Total 2020 STI Opportunity Assessment Criteria $ $ Mr B Dixon 50,000 100,000 Ms F Conlan Mr T Peacock - - 50,000 N/A (a) $ - - - $ 100,000 Group performance to budget and executive management to achieve KPIs 100,000 (b) Revenue achievement and KPIs 100,000 (b) Revenue achievement and KPIs (a) (b) Not applicable as total bonus opportunity is based on a percentage of the Group’s performance. A new STI plan was introduced in 2020 with a $100,000 STI opportunity. A third assessed on revenue targets at the half year and the balance assessed on revenue targets and personal KPIs at the full year No STIs were paid to key management personnel in relation to the 2020 financial year. Adslot 2020 Annual Report 19 Adslot 2020 Annual Report 19 Remuneration Report (Continued) Section 3: Details of remuneration (Continued) Group 2019 Name Short-term benefits Salary & fees $ Short Term Incentive Other $ $ Long Term Benefits Long Service Leave $ Post- employment benefits Share-based payment Super- annuation $ Share Options $ Performance Rights $ Executive directors Mr A Barlow (i) 228,262 - Mr B Dixon 253,000 50,000 Non-executive directors Mr A Giles Mr Q George Ms S Morgan Mr A Dyer 75,000 50,000 68,493 - Other key management personnel Ms F Conlan Mr T Peacock Mr I Lowe (ii) 250,000 231,500 67,509 - - - - - - - - - - - - - - - 60,000 - 16,648 8,676 - 20,051 10,226 - - - - - - 6,507 - - - - 18,402 594 7,522 - 20,531 49,686 20,531 49,686 5,133 20,452 - - - - - - - - - Total $ 236,938 349,925 75,000 50,000 75,000 18,402 320,811 309,239 153,094 Totals (i) (ii) 1,223,764 50,000 60,000 24,764 81,429 148,452 - 1,588,409 includes $136,938 consultancy fees incurred during his appointment as Executive Chairman. resigned as CEO and Executive Director on 27 February 2018. Continued to be a key management personnel until 27 July 2018. Termination for serious misconduct The Group 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. Short Term Incentives Short Term Incentives (STIs) paid in the year, along with the total STI opportunity in each year, relating to the 2018 and 2019 financial years, are outlined in the table below: Name Amount Paid Total 2018 STI Opportunity Amount Paid Total 2019 STI Opportunity Assessment Criteria Mr B Dixon Ms F Conlan Mr T Peacock Mr I Lowe $ - - - - $ $ $ 100,000 50,000 100,000 Group performance to budget and executive management to achieve KPIs 50,000 N/A (a) - - 50,000 Performance related KPIs N/A(a) Performance related KPIs N/A - 80,000 to 160,000 Bonus for completion of strategic project (a) Not applicable as total bonus opportunity is based on a percentage of the Group’s performance. No STIs were paid in relation to the 2018 financial year. Mr Dixon was the only key management personnel entitled to be paid an STI in the 2019 financial year, which was paid during the 2019 financial year. 20 20 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 21 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 Incentive Plans Eligible to participate. Incentive criteria and award opportunities vary for each contributions. executive. Notice Period Resignation Retirement Group Redundancy Key Management Personnel, including executive directors, have notice periods ranging from three to four months. The Chief Executive Officer has a notice period of four months and the Chief Financial Officer and Chief Commercial Officer have notice periods of three months. 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 Group on retirement of an executive. Termination by the The Group may terminate the employment agreement by providing notice consistent with the notice period or payment in lieu of the notice period. 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. Section 5: Long Term Incentives (equity-based compensation) Incentive Option Plan At the November 2017 Annual General Meeting, shareholders approved the creation of the Group’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 Group 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 Group. Adslot continually reviews its operations, performance and the broader market conditions to ensure that incentives offered to key executives are aligned with the growth of the Group and shareholder outcomes whilst ensuring it can attract and retain experienced talent in a competitive industry. Adslot continues to operate within a highly competitive employment environment for experienced people in the technology and software field. of the Group. 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 The following tables show grants and movements of share-based compensation to directors and senior management under the Incentive Option Plan during the current financial year and the previous financial year: 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. Key Management Personnel, including executive directors, have notice periods ranging from three to four months. The Chief Executive Officer has a notice period of four months and the Chief Financial Officer and Chief Commercial Officer have notice periods of three months. 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 Group on retirement of an executive. Termination by the Group The Group 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 Group 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) Incentive Option Plan At the November 2017 Annual General Meeting, shareholders approved the creation of the Group’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 Group 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 Group. Adslot continually reviews its operations, performance and the broader market conditions to ensure that incentives offered to key executives are aligned with the growth of the Group and shareholder outcomes whilst ensuring it can attract and retain experienced talent in a competitive industry. Adslot continues to operate within a highly competitive employment environment for experienced people in the technology and software field. 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 Group. The following tables show grants and movements of share-based compensation to directors and senior management under the Incentive Option Plan during the current financial year and the previous financial year: Adslot 2020 Annual Report 21 Adslot 2020 Annual Report 21 Remuneration Report (Continued) Section 5: Long Term Incentives (Continued) 2020 Name Ian Lowe (i) Ben Dixon Felicity Conlan Tom Peacock Felicity Conlan Tom Peacock Andrew Dyer Felicity Conlan Tom Peacock Series OP # 18-1 OP # 18-1 OP # 18-2 OP # 18-2 OP # 18-3 OP # 18-3 OP # 18-5 OP # 20-1 OP # 20-1 Balance at beginning of the year (Number) 2,000,000 1,000,000 1,000,000 1,000,000 6,500,000 6,500,000 4,000,000 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 2,000,000 - 1,000,000 1,000,000 - - - - - - - - - - - - 1,000,000 1,000,000 1,000,000 1,000,000 6,500,000 6,500,000 6,500,000 6,500,000 - - - 4,000,000 4,000,000 - 1,000,000 - 1,000,000 22,000,000 2,000,000 - - - - - - 1,000,000 1,000,000 - - 24,000,000 22,000,000 (i) Based on the Separation and Exit Deed signed with the Group, 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. On 7 August 2020 18,000,000 options were granted to Mr Ben Dixon, the issuing of the options is subject to shareholder approval at a general meeting. The options are valued using the Black-Scholes pricing model. The model inputs for options granted during the year ended 30 June 2020 included: Model Input Grant Date Expiry Date Exercise Price $ 5-day VWAP at Grant Date $ Expected Volatility Risk Free Interest rate 2019 Name Ian Lowe (i) Ben Dixon Felicity Conlan Tom Peacock Felicity Conlan Tom Peacock Andrew Dyer (ii) Series OP # 18-1 OP # 18-1 OP # 18-2 OP # 18-2 OP # 18-3 OP # 18-3 OP # 18-5 OP # 20-1 03/09/19 02/09/23 0.041 0.028 62.60% 0.99% Balance at beginning of the year (Number) 2,000,000 1,000,000 1,000,000 1,000,000 6,500,000 6,500,000 4,000,000 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 - - - - - - - - - - - - 1,000,000 1,000,000 6,500,000 6,500,000 - - - - 6,500,000 6,500,000 - - - 4,000,000 3,000,000 22,000,000 - - - 22,000,000 16,000,000 (i) Based on the Separation and Exit Deed signed with the Group, 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. (ii) In conjunction with his appointment as Director, Mr Dyer was granted 4,000,000 options. The exercise price of each Option is $0.036 and the Options expire on 27 May 2022. 2,000,000 of the options vested immediately. The remaining 2,000,000 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. There were no new options granted to key management personnel under the Incentive Option Plan during the year ended 30 June 2019. Details of Share Options, ESOP and other rights to ordinary shares in the Group provided as remuneration of directors and the key management personnel of the Group are set out below: Name 2020 (Options) 2019 (Options) 2020 (Rights) 2019 (Rights) Number $ Number $ Number $ Number $ Options Granted During the Year Rights Vested During the Year Directors Mr A Giles Mr A Barlow Mr B Dixon Mr Q George (i) Ms S Morgan Mr A Dyer Other Key Management Personnel Ms F Conlan Mr T Peacock 1,000,000 10,724 1,000,000 10,724 (i) Mr. George resigned on 16 July 2019. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 250,000 31,250 - - - - - - - - - - - - - - - - - - - 375,000 46,875 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. Section 6: Culture, accountability and remuneration The Group’s values of respect, collaboration, communication, integrity and innovation remain critical to our culture and effectively guide our employees in making decisions that realise opportunity for the benefit of our clients, our shareholders, our employees and the communities in which we operate. Employees are made aware that these values form the basis of all behaviours and actions. These behavioural expectations are outlined in the Board approved Code of Conduct. The Group communicates and reinforces our culture through executive communications, non-monetary performance recognition, policy reminders and updates, training, learning and development. The Remuneration Committee and the Board are able to assess culture in many ways including through People & Culture reporting, senior management off-sites, department head presentations, staff survey results, as well as through personal observation of management and staff behaviours and actions. The remuneration framework supports our principles by motivating staff to be innovative but also be accountable for their decisions within the business. 22 22 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 23 (i) Based on the Separation and Exit Deed signed with the Group, 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. In conjunction with his appointment as Director, Mr Dyer was granted 4,000,000 options. The exercise price of each Option is $0.036 and the Options expire on 27 May 2022. 2,000,000 of the options vested immediately. The remaining 2,000,000 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) There were no new options granted to key management personnel under the Incentive Option Plan during the year ended 30 June 2019. Details of Share Options, ESOP and other rights to ordinary shares in the Group provided as remuneration of directors and the key management personnel of the Group are set out below: Name 2020 (Options) 2019 (Options) 2020 (Rights) 2019 (Rights) Number $ Number $ Number $ Number $ Options Granted During the Year Rights Vested During the Year Directors Mr A Giles Mr A Barlow Mr B Dixon Mr Q George (i) Ms S Morgan Mr A Dyer - - - - - - - - - - - - Other Key Management Personnel Ms F Conlan Mr T Peacock 1,000,000 10,724 1,000,000 10,724 (i) Mr. George resigned on 16 July 2019. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 250,000 31,250 - - - - - - - - - - - - - 375,000 46,875 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. Section 6: Culture, accountability and remuneration The Group’s values of respect, collaboration, communication, integrity and innovation remain critical to our culture and effectively guide our employees in making decisions that realise opportunity for the benefit of our clients, our shareholders, our employees and the communities in which we operate. Employees are made aware that these values form the basis of all behaviours and actions. These behavioural expectations are outlined in the Board approved Code of Conduct. The Group communicates and reinforces our culture through executive communications, non-monetary performance recognition, policy reminders and updates, training, learning and development. The Remuneration Committee and the Board are able to assess culture in many ways including through People & Culture reporting, senior management off-sites, department head presentations, staff survey results, as well as through personal observation of management and staff behaviours and actions. The remuneration framework supports our principles by motivating staff to be innovative but also be accountable for their decisions within the business. Adslot 2020 Annual Report 23 Adslot 2020 Annual Report 23 Remuneration Report (Continued) Section 7: Equity holdings and transactions Other Directors’ Report Disclosures The number of shares in the Group 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: Ben Dixon Adrian Giles CEO & Executive Director Non-Executive Director 2020 Name Balance at the start of the year Received during the year on exercise of an option or right Net other changes during the year Balance at the end of the year (Number) (Number) (Number) (Number) Directors Mr A Giles Mr A Barlow Mr B Dixon Mr Q George (i) Ms S Morgan Mr A Dyer 9,571,452 48,102,668 37,603,660 1,000,000 200,500 35,659,342 Other key management personnel Ms F Conlan Mr T Peacock Totals 500,000 3,375,000 136,012,622 (i) Mr. George resigned on 16 July 2019. - - - - - - - - - 3,000,000 10,250,000 12,571,452 58,352,668 - 37,603,660 (1,000,000) - - 200,500 13,452,000 49,111,342 - - 500,000 3,375,000 25,702,000 161,714,622 Section 8: Other transactions with Key Management Personnel Transactions with Directors and their personally related entities: During the year the Company earned revenue of $ 28,242 from a company requiring web development and marketing services related to Mr. Adrian Giles on normal commercial terms and conditions. There were no other transactions with directors and their personally related entities for the financial years ending 30 June 2020 and 30 June 2019. This marks the end of the audited remuneration report. This report is made in accordance with a resolution of directors. Andrew Barlow Chairman 25 August 2020 Directors Andrew Barlow Chairman Sarah Morgan on 16 July 2019. Directors’ shareholdings the date of this report. Directors Mr Andrew Barlow Mr Adrian Giles Mr Ben Dixon Ms Sarah Morgan Mr Andrew Dyer of this directors’ report. Directors’ Meetings Mr Andrew Barlow Mr Adrian Giles Mr Ben Dixon Ms Sarah Morgan Mr Andrew Dyer Mr Quentin George Principal activities Non-Executive Director Non-Executive Director Andrew Dyer Mr Andrew Barlow, Mr Adrian Giles, Mr Ben Dixon, Ms Sarah Morgan and Mr Andrew Dyer were directors for the whole financial year and up to the date of this report. Mr Quentin George (Non-Executive Director) resigned Directorships of other listed companies Other than those disclosed on pages 8 to 9 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. The following table sets out each director’s relevant interest in shares or options in shares of the Group as at Ordinary Shares Share Options # 58,352,668 12,571,452 37,603,660 200,500 49,111,342 # - - - 19,000,0001 4,000,000 1 18,000,000 subject to shareholder approval Remuneration of directors and senior management Information about the remuneration of directors and senior management is set out in the remuneration report The following table sets out the number of meetings of the Group’s Directors held during the year ended 30 June 2020 and the number of meetings attended by each Director. Directors Held Attended Held Attended Held Attended Board of Directors Remuneration Committee Audit and Risk Committee 8 8 8 8 8 - 8 8 8 8 8 - 4 4 - - 3 - 4 4 - - 3 - - 7 - 7 7 - - 7 - 7 7 - Adslot Ltd derives revenue from two principal activities: 1. Trading Technology - comprises Adslot Media, a leading global media trading technology platform, and Symphony, market-leading workflow automation technology for media agencies. 2. Services - comprises digital marketing services - provided by the Group’s Webfirm division - and project- based customisation of Trading Technology. 24 24 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 25 Other Directors’ Report Disclosures Directors Andrew Barlow Chairman Ben Dixon CEO & Executive Director Adrian Giles Non-Executive Director Sarah Morgan Non-Executive Director Andrew Dyer Non-Executive Director Mr Andrew Barlow, Mr Adrian Giles, Mr Ben Dixon, Ms Sarah Morgan and Mr Andrew Dyer were directors for the whole financial year and up to the date of this report. Mr Quentin George (Non-Executive Director) resigned on 16 July 2019. Directorships of other listed companies Other than those disclosed on pages 8 to 9 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. 6 to 7 Directors’ shareholdings The following table sets out each director’s relevant interest in shares or options in shares of the Group as at the date of this report. Directors Mr Andrew Barlow Mr Adrian Giles Mr Ben Dixon Ms Sarah Morgan Mr Andrew Dyer Ordinary Shares # 58,352,668 12,571,452 37,603,660 200,500 49,111,342 Share Options # - - 19,000,0001 - 4,000,000 1 18,000,000 subject to shareholder approval 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 Group’s Directors held during the year ended 30 June 2020 and the number of meetings attended by each Director. Directors Held Attended Held Attended Held Attended Board of Directors Remuneration Committee Audit and Risk Committee Mr Andrew Barlow Mr Adrian Giles Mr Ben Dixon Ms Sarah Morgan Mr Andrew Dyer Mr Quentin George Principal activities 8 8 8 8 8 - 8 8 8 8 8 - 4 4 - - 3 - 4 4 - - 3 - - 7 - 7 7 - - 7 - 7 7 - Adslot Ltd derives revenue from two principal activities: 1. Trading Technology - comprises Adslot Media, a leading global media trading technology platform, and Symphony, market-leading workflow automation technology for media agencies. 2. Services - comprises digital marketing services - provided by the Group’s Webfirm division - and project- based customisation of Trading Technology. Adslot 2020 Annual Report 25 Adslot 2020 Annual Report 25 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2020 Collins Square, Tower 5 727 Collins Street Melbourne Victoria 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 Ltd for the year ended 30 June 2020, 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 M J Climpson Partner – Audit & Assurance Melbourne, 25 August 2020 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. Total comprehensive loss attributable to the members (16,586,137) (6,935,164) Earnings per share (EPS) from loss from continuing operations attributable to the ordinary equity holders of the Group Basic earnings per share Diluted earnings per share The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 26 Adslot 2020 Annual Report Adslot 2020 Annual Report 27 Total revenue for services rendered Interest revenue Other income Total revenue from continuing operations 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 Provision for R&D claim for financial year 2015/2016 Audit and accountancy fees Other expenses Share based payment expense Depreciation and amortisation expenses Impairment of Goodwill Interest Expense 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 3 4,10 4 4,8 4 21 4 10 8 5 17 17 10,572,950 10,271,629 2020 $ 9,787,867 48,039 9,835,906 737,044 (1,290,381) (7,654,417) (203,939) (49,778) (204,018) (419,386) (19,565) (79,858) (174,754) (155,546) (183,270) (189,819) (890,524) (207,270) (3,665,792) (10,000,000) (1,527,734) (148,041) (27,064,092) (16,491,142) (126,583) (16,617,725) (16,617,725) 31,588 31,588 2020 Cents (0.96) (0.96) 2019 $ 9,839,017 55,144 9,894,161 377,468 (1,214,754) (7,817,748) (436,938) (106,649) (258,976) (1,024,336) (3,489) (87,620) (65,835) (367,553) (218,638) (196,012) (919,212) (118,127) (4,367,983) - - - (17,203,870) (6,932,241) (110,514) (7,042,755) (7,042,755) 107,591 107,591 2019 Cents (0.49) (0.49) Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2020 Total revenue for services rendered Interest revenue 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 Impairment of Goodwill Provision for R&D claim for financial year 2015/2016 Interest Expense 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) Total comprehensive loss attributable to the members Earnings per share (EPS) from loss from continuing operations attributable to the ordinary equity holders of the Group Basic earnings per share Diluted earnings per share Notes 3 3 3 3 4,10 4 4,8 4 21 4 10 8 5 17 17 2020 $ 9,787,867 48,039 9,835,906 737,044 2019 $ 9,839,017 55,144 9,894,161 377,468 10,572,950 10,271,629 (1,290,381) (7,654,417) (203,939) (49,778) (204,018) (419,386) (19,565) (79,858) (174,754) (155,546) (183,270) (189,819) (890,524) (207,270) (3,665,792) (10,000,000) (1,527,734) (148,041) (27,064,092) (16,491,142) (126,583) (16,617,725) (16,617,725) (1,214,754) (7,817,748) (436,938) (106,649) (258,976) (1,024,336) (3,489) (87,620) (65,835) (367,553) (218,638) (196,012) (919,212) (118,127) (4,367,983) - - - (17,203,870) (6,932,241) (110,514) (7,042,755) (7,042,755) 31,588 31,588 107,591 107,591 (16,586,137) (6,935,164) 2020 Cents (0.96) (0.96) 2019 Cents (0.49) (0.49) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. Adslot 2020 Annual Report 27 Adslot 2020 Annual Report 27 Consolidated Statement of Financial Position As at 30 June 2020 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 liability Provisions Total current liabilities Non-current liabilities Lease liability Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Notes 2020 $ 2019 $ 7 8 9 5 10 11 12 13 14 13 14 5 15 16 6,160,440 5,032,434 8,165,544 6,424,659 11,192,874 14,590,203 1,845,736 601,239 36,370 36,370 13,184,940 22,886,434 15,067,046 23,524,043 26,259,920 38,114,246 3,098,704 6,538,788 685,610 886,952 634,916 374,781 146,300 658,736 5,306,182 7,718,605 960,915 675,146 36,370 1,672,431 323,110 439,041 36,370 798,521 6,978,613 8,517,126 19,281,307 29,597,120 151,866,361 145,838,216 939,474 649,149 (133,524,528) (116,890,245) 19,281,307 29,597,120 Consolidated Statement of Changes in Equity For the year ended 30 June 2020 2020 Balance 30 June 2020 151,866,361 939,474 (133,524,528) 19,281,307 Balance at 1 July 2019 Adjustment from adoption of AASB 16 Adjusted balance at 1 July 2019 Other comprehensive income Loss attributable to members of the Group Total comprehensive income/(loss) Movement in foreign exchange translation reserve 16 Transactions with equity holders in their capacity as equity holders Contributions of equity, net of transaction costs Share based payments - third party Increase in employees share based payments reserve 15 16 16 2019 Balance at 1 July 2018 Adjustment from adoption of AASB 15 Adjusted balance at 1 July 2018 Other comprehensive income Loss attributable to members of the Group Total comprehensive income/(loss) Movement in foreign exchange translation reserve 16 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 - - - - - - - - - - Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ 145,838,216 649,149 (116,890,245) 29,597,120 - (16,558) (16,558) Notes 1(a) 145,838,216 649,149 (116,906,803) 29,580,562 31,588 31,588 31,588 31,588 - (16,617,725) (16,617,725) 31,588 (16,617,725) (16,586,137) 6,079,612 (51,467) - 6,028,145 - 51,467 207,270 258,737 6,079,612 - 207,270 6,286,882 - - - - - - Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Notes 138,397,710 712,654 (109,762,365) 29,347,999 - (85,125) (85,125) 138,397,710 712,654 (109,847,490) 29,262,874 107,591 107,591 - - 107,591 107,591 - (7,042,755) (7,042,755) 107,591 (7,042,755) (6,935,164) 7,151,283 184,223 105,000 - 7,440,506 - (184,223) (105,000) 118,127 (171,096) - - - - - 7,151,283 - - 118,127 7,269,410 Balance 30 June 2019 145,838,216 649,149 (116,890,245) 29,597,120 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 28 28 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 29 Consolidated Statement of Changes in Equity For the year ended 30 June 2020 2020 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Notes Balance at 1 July 2019 145,838,216 649,149 (116,890,245) 29,597,120 Adjustment from adoption of AASB 16 1(a) - - (16,558) (16,558) Adjusted balance at 1 July 2019 145,838,216 649,149 (116,906,803) 29,580,562 Movement in foreign exchange translation reserve 16 Other comprehensive income Loss attributable to members of the Group Total comprehensive income/(loss) Transactions with equity holders in their capacity as equity holders Contributions of equity, net of transaction costs Share based payments - third party Increase in employees share based payments reserve 15 16 16 - - - - 31,588 31,588 - - 31,588 31,588 - (16,617,725) (16,617,725) 31,588 (16,617,725) (16,586,137) 6,079,612 (51,467) - 6,028,145 - 51,467 207,270 258,737 - - - - 6,079,612 - 207,270 6,286,882 Balance 30 June 2020 151,866,361 939,474 (133,524,528) 19,281,307 2019 Balance at 1 July 2018 Adjustment from adoption of AASB 15 Adjusted balance at 1 July 2018 Movement in foreign exchange translation reserve 16 Other comprehensive income Loss attributable to members of the Group 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 15 16 16 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Notes 138,397,710 712,654 (109,762,365) 29,347,999 - - (85,125) (85,125) 138,397,710 712,654 (109,847,490) 29,262,874 - - - - 107,591 107,591 - - 107,591 107,591 - (7,042,755) (7,042,755) 107,591 (7,042,755) (6,935,164) 7,151,283 184,223 105,000 - 7,440,506 - (184,223) (105,000) 118,127 (171,096) - - - - - 7,151,283 - - 118,127 7,269,410 Balance 30 June 2019 145,838,216 649,149 (116,890,245) 29,597,120 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. Adslot 2020 Annual Report 29 Adslot 2020 Annual Report 29 Consolidated Statement of Cash Flows For the year ended 30 June 2020 Notes 2020 $ 2019 $ Cash flows from operating activities Receipts from trade and other debtors Interest received Receipt of R&D tax incentive and other Grants 19,294,163 17,401,152 49,746 183,175 56,077 733,145 Payments to trade creditors, other creditors and employees (22,769,767) (19,300,249) Income tax refund Interest paid 4,338 (144,063) - - Net cash outflows from operating activities 22 (3,382,408) (1,109,875) Any new, revised or amended Accounting Standards or Interpretations that are not yet mandatory have not Cash flows from investing activities Payments for property, plant and equipment Receipt of R&D tax incentive relating to capitalised assets Payments for intangible assets Net cash outflows from investing activities (6,099) 277,760 (33,109) 2,265,149 (4,562,586) (5,021,387) (4,290,925) (2,789,347) Cash flows from financing activities Proceeds from issue of shares Payments of equity raising costs Payments for leased assets Proceeds from borrowings 6,400,000 (328,250) (681,698) 167,315 7,500,000 (392,949) - - 12(ii) Net cash inflows from financing activities 5,557,367 7,107,051 Net increase / (decrease) in cash held Cash at the beginning of the financial year Effects of exchange rate changes on cash (2,115,966) 8,165,544 110,862 3,207,829 4,775,331 182,384 Cash at the end of the financial year 7 6,160,440 8,165,544 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. Notes to the Financial Statements For the year ended 30 June 2020 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 2020 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. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new, revised or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the group. been early adopted. AASB 16 ‘Leases’ AASB 16 ‘Leases’ replaced AASB 117 ‘Leases’ along with three interpretations namely; determining whether an arrangement contains a lease, operating leases-incentives and evaluating the substance of transactions involving the legal form of a lease. AASB 16 ‘Leases’ provides lessees with a choice between two transition approaches. 1. Fully Retrospective Approach - Under this method, the financial statements are presented as if AASB 16 ‘Leases’ has always been applied. The impact of adoption is adjusted in the opening balance sheet of the earliest period presented and comparative amounts are reinstated for each prior period presented. The rate used to discount the cash flows should be the prevailing rate on the commencement date of the lease. 2. Modified Retrospective Method - The cumulative effect of adopting AASB 16 ‘Leases’ is recognised in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods are not restated. The Group has chosen this method as its method of transition. The new standard has been adopted by the Group using the modified retrospective approach with the cumulative effect of adopting AASB 16 being recognised in equity as an adjustment to the opening balance of retained earnings for the current period. In doing so, the Group has used the following practical expedients permitted by the standard when using the modified retrospective method: the use of a single discount rate to a portfolio of leases, relying in previous assessments on whether leases are onerous as an alternative to performing an the accounting for operating leases with remaining lease term of less than 12 months of initial application as a short-term lease and recognise lease rentals as an expense, • not carrying out transition adjustments for low value assets and accounting for same on a straight-line • exclusion of initial direct costs in arriving at the right-of-use asset value, and • use of hindsight in determining the lease term where there are options to extend or terminate the lease. For contracts which are classified as leases under AASB 16 ‘Leases’, recognition of lease expenses on a straight-line basis and therefore being included in the operating costs, has been replaced with a depreciation charge for the right-of-use asset and an interest expense on the corresponding lease liability. Due to replacing of lease expenses otherwise included under operating costs, by interest expense and depreciation, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) has been improved. A right-of-use asset has been recognised in the balance sheet, along with a corresponding lease liability, split between current and non-current liabilities. impairment review, • • • basis, 30 30 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 31 Notes to the Financial Statements For the year ended 30 June 2020 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 2020 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. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new, revised or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the group. Any new, revised or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. AASB 16 ‘Leases’ AASB 16 ‘Leases’ replaced AASB 117 ‘Leases’ along with three interpretations namely; determining whether an arrangement contains a lease, operating leases-incentives and evaluating the substance of transactions involving the legal form of a lease. AASB 16 ‘Leases’ provides lessees with a choice between two transition approaches. 1. Fully Retrospective Approach - Under this method, the financial statements are presented as if AASB 16 ‘Leases’ has always been applied. The impact of adoption is adjusted in the opening balance sheet of the earliest period presented and comparative amounts are reinstated for each prior period presented. The rate used to discount the cash flows should be the prevailing rate on the commencement date of the lease. 2. Modified Retrospective Method - The cumulative effect of adopting AASB 16 ‘Leases’ is recognised in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods are not restated. The Group has chosen this method as its method of transition. The new standard has been adopted by the Group using the modified retrospective approach with the cumulative effect of adopting AASB 16 being recognised in equity as an adjustment to the opening balance of retained earnings for the current period. In doing so, the Group has used the following practical expedients permitted by the standard when using the modified retrospective method: • • • the use of a single discount rate to a portfolio of leases, relying in previous assessments on whether leases are onerous as an alternative to performing an impairment review, the accounting for operating leases with remaining lease term of less than 12 months of initial application as a short-term lease and recognise lease rentals as an expense, • not carrying out transition adjustments for low value assets and accounting for same on a straight-line basis, • exclusion of initial direct costs in arriving at the right-of-use asset value, and • use of hindsight in determining the lease term where there are options to extend or terminate the lease. For contracts which are classified as leases under AASB 16 ‘Leases’, recognition of lease expenses on a straight-line basis and therefore being included in the operating costs, has been replaced with a depreciation charge for the right-of-use asset and an interest expense on the corresponding lease liability. Due to replacing of lease expenses otherwise included under operating costs, by interest expense and depreciation, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) has been improved. A right-of-use asset has been recognised in the balance sheet, along with a corresponding lease liability, split between current and non-current liabilities. Adslot 2020 Annual Report 31 Adslot 2020 Annual Report 31 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) (a) New or amended Accounting Standards and Interpretations adopted (Continued) In the statement of cash flows, lease payments have been separated in to both a principal component (included under financing activities) and an interest component (included under operating activities). There is no impact to the net cash flow for the period. The operating leases for the office premises in Sydney and Melbourne were classified as leases under AASB 16. Rental agreements for foreign entities did not fall into the category of leases under AASB 16 as the remaining lease term as at the initial adoption date of 1 July 2019, was less than 12 months. Further agreements for the hiring of printers did not qualify as leases as they are low value assets. On transition to AASB 16 the incremental borrowing rate applied to lease liabilities recognised under AASB 16 was 5.6%. The following is a reconciliation of total operating lease commitments as at 30 June 2019 to the lease liabilities recognised as at 1 July 2019. Total operating lease commitments disclosed as at 30 June 2019 Deduct: Low Value Assets Deduct: Leases with remaining lease term of less than 12 months Deduct: Variable Lease Payments not recognised Adjustment for lease incentive liability excluded in operating lease commitments Discounted using lessee’s incremental borrowing rate of 5.6% Lease Liability Recognised as at 1 July 2019 $ 2,838,515 (7,704) (185,122) (341,057) 482,424 (314,257) 2,472,799 Upon adoption of AASB 16 ‘Leases’, following amounts were recognised on 1 July 2019: • a make good provision of $151,266 which is the present value of estimated make good costs as at lease commencement date, • depreciation relating to make good costs up to 30 June 2019 $51,556, • net book value of make good costs as at 1 July 2019 $99,710, • • • lease liabilities of $2,472,799, reversal of existing lease incentive liability of $469,411 (merged with the right-of-use asset), right-of-use assets of $2,629,244 which included: the lease liability $2,472,799, less existing lease incentive liability of $469,411, the net book value of leasehold improvements of $526,145, • • • • make good costs $99,711 as at 1 July 2019. • unwinding of discount relating to make good costs up to 30 June 2019 $14,593, and • reversal of existing make good provision of $49,591 included under accrued expenses as of 30 June 2019. On the date of the initial application of AASB16 ‘Lease’, 1 July 2019, the impact to retained earnings of the Group was as follows: Expense/Expense reversal Depreciation relating to make good costs up to 30 June 2019 Unwinding of discount relating to make good costs up to 30 June 2019 Reversal of existing make good provision included under accrued expenses Total Other Equity Accumulated Losses Total Equity $ - - - - $ $ (51,556) (51,556) (14,593) 49,591 (16,558) (14,593) 45,591 (16,558) 32 32 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 33 The tables below highlight the impact of AASB 16 ‘Leases’ on the Group’s statement of profit or loss and other comprehensive income, the statement of financial position and the statement of cash flows for the financial year ending 30 June 2020. Consolidated Statement of Profit or Loss and Other Amounts Adjustments Comprehensive Income (Extract) 1,023,775 (604,389) 419,386 Lease - rental premises Other expenses Depreciation and amortisation expenses Interest Expense Loss after income tax expense Total comprehensive loss for the half-year Consolidated Statement of Financial Position (Extract) Amounts Adjustments under AASB 117 $ - 921,845 3,029,977 (16,469,579) (16,437,991) under AASB 117 $ 391,501 24,805,685 3,179,616 146,300 176,811 - - - 5,359,674 19,446,011 Amounts under AASB 16 $ 890,524 3,665,792 148,041 (16,617,725) (16,586,137) Amounts under AASB 16 $ 1,845,736 26,259,920 3,098,704 886,952 - - 960,915 175,095 6,978,613 19,281,307 $ (31,321) 635,815 148,041 148,146 148,146 $ 1,454,235 1,454,235 (80,912) (146,300) 886,952 (176,811) 960,915 175,095 1,618,939 (164,704) (133,359,824) 19,446,011 (164,704) (164,704) (133,524,528) 19,281,307 Non-Current Assets Property, plant & equipment Total Assets Current Liabilities Trade and other payables Lease incentive liability Lease Liability Non-Current Liabilities Lease incentive liability Lease Liability Provisions Total Liabilities Net Assets Equity Accumulated losses Total Equity The tables below highlight the impact of AASB 16 ‘Leases’ on the Group’s statement of profit or loss and other comprehensive income, the statement of financial position and the statement of cash flows for the financial year ending 30 June 2020. Consolidated Statement of Profit or Loss and Other Comprehensive Income (Extract) Lease - rental premises Other expenses Depreciation and amortisation expenses Interest Expense Loss after income tax expense Total comprehensive loss for the half-year Consolidated Statement of Financial Position (Extract) Non-Current Assets Property, plant & equipment Total Assets Current Liabilities Trade and other payables Lease incentive liability Lease Liability Non-Current Liabilities Lease incentive liability Lease Liability Provisions Total Liabilities Net Assets Equity Accumulated losses Total Equity Amounts under AASB 117 $ Adjustments $ Amounts under AASB 16 $ 1,023,775 (604,389) 419,386 921,845 3,029,977 - (16,469,579) (16,437,991) Amounts under AASB 117 $ 391,501 24,805,685 3,179,616 146,300 - 176,811 - - 5,359,674 19,446,011 (31,321) 635,815 148,041 148,146 148,146 890,524 3,665,792 148,041 (16,617,725) (16,586,137) Adjustments $ 1,454,235 1,454,235 (80,912) (146,300) 886,952 (176,811) 960,915 175,095 1,618,939 (164,704) Amounts under AASB 16 $ 1,845,736 26,259,920 3,098,704 - 886,952 - 960,915 175,095 6,978,613 19,281,307 (133,359,824) 19,446,011 (164,704) (164,704) (133,524,528) 19,281,307 Adslot 2020 Annual Report 33 Adslot 2020 Annual Report 33 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) (a) New or amended Accounting Standards and Interpretations adopted (Continued) Consolidated Statement of Financial Position (Extract) Cash Flows from Operating Activities Payments to trade creditors, other creditors and employees Interest paid Net cash outflow from operating activities Cash flows from financing activities Payments for Leased Assets Net cash outflow from financing activities Net increase (decrease) in cash held Amounts under AASB 117 $ (23,595,528) - (4,064,106) - 6,239,065 (2,115,966) Adjustments $ 825,761 (144,063) 681,698 (681,698) (681,698) Amounts under AASB 16 $ (22,769,767) (144,063) (3,382,408) (681,698) 5,557,367 - (2,115,966) growth is achieved. AASB Interpretation 23 Uncertainty over Income Tax Treatment Interpretation 23 clarifies how the recognition and measurement requirements of AASB 112 Income Taxes are applied where there is uncertainty over income tax treatments. The Group has adopted AASB Interpretation 23 Uncertainty over Income Tax Treatment in the 2020 financial year, which gives guidance on the accounting for uncertain tax provisions. The adoption of AASB Interpretation 23 has not resulted in a material change in relation to provisions for tax uncertainties held by the Group. 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. It is noted that Directors have considered the impact of the COVID-19 pandemic on accounting policies, judgements and estimates, as outlined in the applicable area in the Notes to the Financial Statements. 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, primarily from media agency holding companies and their subsidiaries in the US market. In December 2019 the Group successfully raised $6.4 million via a share placement, resulting in $5.4 million net cash inflows in the period under review. Inflows from financing activities of $5.6 million, combined with the net cash outflows from operating and investing activities of $7.7 million, resulted in net cash outflows of $2.1 million in the 2020 financial year. Management anticipate incurring further net cash outflows from operations until such time as sufficient revenue Based on the findings made by Innovation and Science Australia in relation to the FY16 R&D activities, the ATO amended the R&D Tax Incentive Offset for FY16. The ATO offset the $1.5 million relating to the disputed FY2016 R&D claim from the FY2019 R&D refund, with a net $0.3 million received in April 2020 for the FY2019 R&D claim. The Group continues to defend the legitimacy of its claim and has requested a review of the findings by the Administrative Appeals Tribunal (AAT). If successful, the $1.5 million will be refunded to the Group. The FY2020 R&D claim of $1.9m is expected to be received in the first half of the 2021 financial year. If a delay in expected growth in revenues, and/or a delay in payment of the FY2020 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 $6.2 million at 30 June 2020; • FY2020 R&D claim of $1.9m is expected to be received in the first half of FY2021; • Symphony licence fees which are largely recurring and predictable; • $0.7 million cash from the current COVID-19 related stimulus packages expected in the first half of • ongoing cost management initiatives, including current employee salary reductions in place in response FY2021; to the COVID-19 pandemic; • • • reduction to office space in each market, reducing the largest fixed cost of the business outside salaries; the opportunity to implement further cost reductions; and the Group has a proven track record of successfully raising capital from existing and new investors. As part of the directors’ consideration of the appropriateness of adopting the going concern basis in preparing the financial statements, a range of scenarios regarding the impact of the COVID-19 pandemic on the Group’s current and future earnings were critically reviewed. The scenarios are most sensitive to the assumptions made for Adslot Media in the USA where the greatest revenue growth is expected. 34 34 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 35 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, primarily from media agency holding companies and their subsidiaries in the US market. In December 2019 the Group successfully raised $6.4 million via a share placement, resulting in $5.4 million net cash inflows in the period under review. Inflows from financing activities of $5.6 million, combined with the net cash outflows from operating and investing activities of $7.7 million, resulted in net cash outflows of $2.1 million in the 2020 financial year. Management anticipate incurring further net cash outflows from operations until such time as sufficient revenue growth is achieved. Based on the findings made by Innovation and Science Australia in relation to the FY16 R&D activities, the ATO amended the R&D Tax Incentive Offset for FY16. The ATO offset the $1.5 million relating to the disputed FY2016 R&D claim from the FY2019 R&D refund, with a net $0.3 million received in April 2020 for the FY2019 R&D claim. The Group continues to defend the legitimacy of its claim and has requested a review of the findings by the Administrative Appeals Tribunal (AAT). If successful, the $1.5 million will be refunded to the Group. The FY2020 R&D claim of $1.9m is expected to be received in the first half of the 2021 financial year. If a delay in expected growth in revenues, and/or a delay in payment of the FY2020 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 $6.2 million at 30 June 2020; • • FY2020 R&D claim of $1.9m is expected to be received in the first half of FY2021; • Symphony licence fees which are largely recurring and predictable; • $0.7 million cash from the current COVID-19 related stimulus packages expected in the first half of FY2021; • ongoing cost management initiatives, including current employee salary reductions in place in response to the COVID-19 pandemic; reduction to office space in each market, reducing the largest fixed cost of the business outside salaries; the opportunity to implement further cost reductions; and the Group has a proven track record of successfully raising capital from existing and new investors. • • • As part of the directors’ consideration of the appropriateness of adopting the going concern basis in preparing the financial statements, a range of scenarios regarding the impact of the COVID-19 pandemic on the Group’s current and future earnings were critically reviewed. The scenarios are most sensitive to the assumptions made for Adslot Media in the USA where the greatest revenue growth is expected. Adslot 2020 Annual Report 35 Adslot 2020 Annual Report 35 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Business combinations (c) Going concern (Continued) The primary growth in revenue expected in the 2021 financial year is from increased Adslot Media trading fees. While all the major holding companies (the Group’s largest clients) are currently facing significant revenue decreases and responding with extensive cost reductions, the COVID-19 pandemic has also focused their strategic attention to automation and process improvement. This has enabled an acceleration of discussions with senior people about the role Adslot Media can play in the digital media booking workflow. Further it is possible that the major agency holding companies may seek to reduce operating costs including those associated with existing software solutions in response to the COVID-19 pandemic. This may see currently deployed software solutions such as Symphony come under greater pricing pressure in FY2021 from customers seeking to reduce costs. Conversely, Symphony is also expected to benefit from prospective clients seeking to improve workflow efficiencies especially through technology solutions. For example, Symphony is currently undergoing the first market implementation for the Omnicom Group in the Netherlands. While media spend globally reduced in the 2020 financial year, digital media (the group’s market), had lower decreases compared to other channels, including cinema, out-of-home and print media. It is noted that all markets in which the Group operates have experienced increased media trading from the March 2020 low. The Group is expected to receive $0.7 million in the first half of FY2021 under current government stimulus packages from the markets the Group operates in. The Group may be eligible for additional stimulus, such as JobKeeper 2.0 in FY2021. The full financial impacts of COVID-19 in Australia and across the globe are inherently uncertain. However as described above, the Group is well placed to respond to any opportunities. Accordingly, the directors believe there exists a reasonable expectation that the Group can continue to pay its debts as and when they fall due, and the financial report has been prepared on a going concern basis. Principles of consolidation Subsidiaries The consolidated financial statements comprise those of the Group, and the entities it controlled at the end of, or during, the financial year. The Group 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 24. 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 closing 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. 36 36 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 37 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 closing 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. Adslot 2020 Annual Report 37 Adslot 2020 Annual Report 37 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 Leasehold Improvements Receivables 33– 40% per annum 20 – 33% per annum 20 – 100% per annum 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. The Group makes use of a simplified approach in accounting for trade receivables and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses. The amount of the expected credit loss is recognised in profit or loss. Subsequent recoveries of amounts previously written off are credited against the allowance account. 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 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 Finance costs asset. 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 Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised future. 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 where the entity is subject to tax as part of the tax-consolidated group. 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. 38 38 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 39 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. 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 where the entity is subject to tax as part of the tax-consolidated group. 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. Adslot 2020 Annual Report 39 Adslot 2020 Annual Report 39 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) 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, are credited to share capital. 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 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 project. 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. 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. Domain name 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. 40 40 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 41 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. Adslot 2020 Annual Report 41 Adslot 2020 Annual Report 41 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Revenue recognition Leased assets and liabilities In line with AASB 16 ‘Leases’, the Group recognises a right-of-use asset and a corresponding lease liability at the commencement of a lease. The right-of-use asset is recognised at an amount equal to the initial measurement of the lease liability, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. The lease liability is measured at the present value of future lease payments comprising; fixed lease payments less incentives, variable lease payments, residual guarantees payable, payment of purchase options where exercise is reasonably certain and any anticipated termination penalties. The lease payments are discounted at the rate implicit in the lease, or where not readily determinable, at the entity’s incremental borrowing rate. For all new contracts, the Group considers whether a contract is, or contains a lease. A lease is defined as a contract or a part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration. To apply this definition, the Group assesses whether the contract meets three key evaluations as follows: • • • the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group; the Group has the right to obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use, considering its rights within the scope of the contract; and the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. When the liability is remeasured, the corresponding amount is reflected in the right-of-use asset. 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. The Group derives revenue from trading technology and services. To determine whether to recognise revenue, the Group follows a 5-step process: 1. 2. Identifying the contract with a customer Identifying the performance obligations 3. Determining the transaction price 4. Allocating the transaction price to the performance obligations 5. Recognising revenue when/as performance obligation(s) are satisfied The Group often enters into transactions involving a range of the Group’s products and services. In all cases, the total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand-alone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties. Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised services to its customers. The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as contract liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. Revenue is recognised for the major business activities as follows: Revenue from Trading Technology - Licence Fees Adslot and Symphony licence fees are derived by providing customers access to the Group’s technology platforms. The fee is based on either annual contracted amounts, the number of users, a tier system based on historical volumes traded on the platform, and/or resources allocated. The contracts are ongoing but cancellable with defined notice periods. The Group is expected to maintain its performance obligations throughout the contracted period for the client to achieve the benefits of the platforms. As per AASB 15, revenue is recognised over time; since the promise to grant a licence as a performance obligation is satisfied over time. The client simultaneously receives and consumes the benefit from the Group’s performance of providing access to the platforms. Revenue from Trading Technology – Trading Fees Adslot Publisher revenues are recognised over time. Only the portion of the media campaign that is retained by the Group for their services is recorded as revenue. This is typically a percentage of the total media transacted on the Adslot platform. Where media campaigns are realised over a period a time, the portion that extends beyond the reporting period is not taken up as revenue as the performance obligations have not been satisfied. Where the funds for these campaigns are prepaid by advertisers those amounts are treated as contract liabilities in the Consolidated Statement of Financial Position. As the fees are usage-based revenues the revenue is recognised over time when the usage occurs and the performance obligations are satisfied. Funds collected or collectable from advertisers and due to be repaid to publisher clients are disclosed in the accounts as publisher creditors and categorised under Trade and other payables in the Consolidated Statement of Financial Position. Symphony trading fees are charged for the use of the Symphony platform as a workflow solution. The fee is based on a percentage fee calculated from the total transacted value of campaigns. As per AASB 15, revenue is recognised over time when the usage occurs and the performance obligations are satisfied. 42 42 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 43 Revenue recognition The Group derives revenue from trading technology and services. To determine whether to recognise revenue, the Group follows a 5-step process: Identifying the contract with a customer Identifying the performance obligations 1. 2. 3. Determining the transaction price 4. Allocating the transaction price to the performance obligations 5. Recognising revenue when/as performance obligation(s) are satisfied The Group often enters into transactions involving a range of the Group’s products and services. In all cases, the total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand-alone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties. Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised services to its customers. The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as contract liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. Revenue is recognised for the major business activities as follows: Revenue from Trading Technology - Licence Fees Adslot and Symphony licence fees are derived by providing customers access to the Group’s technology platforms. The fee is based on either annual contracted amounts, the number of users, a tier system based on historical volumes traded on the platform, and/or resources allocated. The contracts are ongoing but cancellable with defined notice periods. The Group is expected to maintain its performance obligations throughout the contracted period for the client to achieve the benefits of the platforms. As per AASB 15, revenue is recognised over time; since the promise to grant a licence as a performance obligation is satisfied over time. The client simultaneously receives and consumes the benefit from the Group’s performance of providing access to the platforms. Revenue from Trading Technology – Trading Fees Adslot Publisher revenues are recognised over time. Only the portion of the media campaign that is retained by the Group for their services is recorded as revenue. This is typically a percentage of the total media transacted on the Adslot platform. Where media campaigns are realised over a period a time, the portion that extends beyond the reporting period is not taken up as revenue as the performance obligations have not been satisfied. Where the funds for these campaigns are prepaid by advertisers those amounts are treated as contract liabilities in the Consolidated Statement of Financial Position. As the fees are usage-based revenues the revenue is recognised over time when the usage occurs and the performance obligations are satisfied. Funds collected or collectable from advertisers and due to be repaid to publisher clients are disclosed in the accounts as publisher creditors and categorised under Trade and other payables in the Consolidated Statement of Financial Position. Symphony trading fees are charged for the use of the Symphony platform as a workflow solution. The fee is based on a percentage fee calculated from the total transacted value of campaigns. As per AASB 15, revenue is recognised over time when the usage occurs and the performance obligations are satisfied. Adslot 2020 Annual Report 43 Adslot 2020 Annual Report 43 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) (p) Revenue recognition (Continued) Rendering of services Service revenue is recognised at a point in time or over time based on when the performance obligations are met, and the customer can realise benefit from service received without further involvement from the Group. Symphony services revenue is derived as a once off Symphony activation fee or custom development work. The revenue is recognised at a point in time when the Group has completed its performance obligation and the customer has obtained the ability to direct the use of, and obtain substantially all of the remaining benefits from, the work carried out. Website development revenue is recorded based on project delivery revenue over time as the project is completed. 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 contract liabilities. As such revenue is recognised over time when the performance obligations are met and when the Group receives a right to payment for performance completed to date. Search Engine Optimisation and Search Engine Advertising attempts to improve search engine rankings of the client’s website or bid on certain keywords in order for their clickable ads to appear in search results. These are ongoing contracts and can be cancelled with 90 days’ notice. The Group needs to continuously manage these campaigns; as such the revenue is recognised over time as the clients simultaneously receive the service and the Group satisfies its performance obligations. Hosting revenue is derived for hosting the client’s websites in third party cloud servers managed by the Group. These contracts are ongoing and can be cancelled with 90 days’ notice. Clients may pay upfront annually. The Group needs to continually satisfy the performance obligations of hosting the site and provide customer support, as and when required. Therefore, revenue is recognised over time. For Domain Names Registration and SSL Certification at the time of initial activation the service has been transferred in full to the customer; and the customer is able to realise benefits from services received without further involvement from the Group. Furthermore, the Group separately prices and sells these products. There is no further performance obligation for the Group. As such revenue needs to be recognised at a point in time. 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 other income 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. Financial Instruments Recognition and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through the profit or loss statement, and which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Classification and initial measurement of financial assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Subsequent measurement of financial assets For the purpose of subsequent measurement, financial assets, other than those designated and effective as hedging instruments, are classified as financial assets at amortised cost. Classifications are determined by both: • The entity’s business model for managing the financial asset; and • The contractual cash flow characteristics of the financial assets. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as financial assets at fair value through profit and loss): they are held within a business model whose objective is to hold the financial assets and collect its • • contractual cash flows; and the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments as well as government bonds. Trade and other receivables and contract assets The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses. Trade and other receivables and contract assets are subject to review at least at each reporting date to identify expected credit losses. At reporting date and throughout the reporting period the Group did not have any other financial instruments other than trade and other receivables. 44 44 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 45 Financial Instruments Recognition and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through the profit or loss statement, and which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Classification and initial measurement of financial assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Subsequent measurement of financial assets For the purpose of subsequent measurement, financial assets, other than those designated and effective as hedging instruments, are classified as financial assets at amortised cost. Classifications are determined by both: • The entity’s business model for managing the financial asset; and • The contractual cash flow characteristics of the financial assets. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as financial assets at fair value through profit and loss): • • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows; and the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments as well as government bonds. Trade and other receivables and contract assets The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses. Trade and other receivables and contract assets are subject to review at least at each reporting date to identify expected credit losses. At reporting date and throughout the reporting period the Group did not have any other financial instruments other than trade and other receivables. Adslot 2020 Annual Report 45 Adslot 2020 Annual Report 45 Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Segment reporting 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. Officer. Earnings per share Basic earnings per share Basic earnings per share for continuing operations and total operations attributable to members of the Group are determined by dividing net profit after income tax from continuing operations and the net profit attributable to members of the Group 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. 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 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. Provisions, contingent assets and contingent liabilities Provisions for product warranties, legal disputes, onerous contracts or other claims are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. The timing or amount of the outflow may still be uncertain. Restructuring provisions are recognised only if a detailed formal plan for the restructuring exists and management has either communicated the plan’s main features to those affected or started implementation. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that the Group is virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. No liability is recognised if an outflow of economic resources as a result of present obligations is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote. 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. It is noted that directors have considered the impact of the COVID-19 pandemic on accounting policies, judgements and estimates where appropriate. 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. 46 46 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 47 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. Provisions, contingent assets and contingent liabilities Provisions for product warranties, legal disputes, onerous contracts or other claims are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. The timing or amount of the outflow may still be uncertain. Restructuring provisions are recognised only if a detailed formal plan for the restructuring exists and management has either communicated the plan’s main features to those affected or started implementation. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that the Group is virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. No liability is recognised if an outflow of economic resources as a result of present obligations is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote. 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. It is noted that directors have considered the impact of the COVID-19 pandemic on accounting policies, judgements and estimates where appropriate. 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. Adslot 2020 Annual Report 47 Adslot 2020 Annual Report 47 A receivable of $1,888,385 (2019: $2,051,661) has been recognised in relation to a research and development tax concession for the 2020 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. New standards and interpretations issued but not effective At the date of authorisation of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the AASB. None of these Standards or amendments to existing Standards have been adopted early by the Group. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and Interpretations not adopted in the current year have not been disclosed. Notes to the Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Research and development tax concessions (x) Critical accounting judgements and key sources of estimation uncertainty (Continued) 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 Group’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. At 30 June 2020 an assessment of impairment was performed and the Group considered if there was an impairment to goodwill and intangible assets. The impacts of COVID-19 on the business was taken into consideration in the assessment. Following a review of the carrying value of its intangible assets and in accordance with relevant accounting standards, goodwill was assessed to be impaired and a non-cash after tax impairment loss of $10.0m has been recognised in the financial results for the year ended 30 June 2020. The carrying amount of goodwill and intangible assets at the reporting date was $13,184,940 (2019: $22,886,434) and there was a goodwill impairment of $10,000,000 (2019: 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 $3,112,875 (2019: $3,792,752). 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 $207,270 (2019: $118,127). 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 $10,018,203 (2019: $9,600,762). Refer to Note 5 for further details. 48 48 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 49 Research and development tax concessions A receivable of $1,888,385 (2019: $2,051,661) has been recognised in relation to a research and development tax concession for the 2020 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. New standards and interpretations issued but not effective At the date of authorisation of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the AASB. None of these Standards or amendments to existing Standards have been adopted early by the Group. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and Interpretations not adopted in the current year have not been disclosed. Adslot 2020 Annual Report 49 Adslot 2020 Annual Report 49 Notes to the Financial Statements (Continued) Segment Information 2020 Operating segments 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) Statement of financial position Segment assets Segment liabilities APAC EMEA $ 8,758,112 (92,091) 846,718 2,814,369 2,554 $ 816,273 (77,277) 1,726 - - The Americas $ 213,482 (2,009,048) 2,979 - 3,290 Total $ 9,787,867 (2,178,416) 851,423 2,814,369 5,844 29,182,734 17,900,803 341,101 116,713 240,564 238,976 39,664,399 18,256,492 Provision for R&D claim for financial year 2015/2016 Other head office income/(expenses) not allocated in segment result 2019 Operating segments 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) APAC EMEA The Americas $ $ $ 8,711,221 (1,971,143) 251,096 4,109,086 23,208 477,541 (348,518) 1,228 - 3,784 650,255 (1,310,843) 6,573 - - Total $ 9,839,017 (3,630,504) 258,897 4,109,086 26,992 Statement of financial position Segment assets Segment liabilities 39,658,875 19,555,388 295,844 127,145 180,112 131,484 40,134,831 19,814,017 Segment revenue reconciles to total revenue from continuing operations as follows: Revenue Total segment revenue Head office revenue Interest revenue Total revenue from continuing operations (i) Refer to Note 3 for a description Revenue. 2020 $ 2019 $ 9,787,867 9,839,017 - 48,039 - 55,144 9,835,906 9,894,161 A reconciliation from segment result to operating profit before income tax is provided as follows: Loss before income tax from continuing operations (16,617,725) (7,042,755) Reportable segment assets are reconciled to total assets as follows: Segment Result Total segment result Interest revenue Other revenue Interest expenses Share option expenses Gain / (Loss) on foreign exchange Income tax benefit/(expense) Profit/ (Loss) on sale/write off of asset Impairment of Goodwill Segment assets Total segment assets Head office assets Intersegment eliminations Segment liabilities Total segment liabilities Head office liabilities Intersegment eliminations Total assets as per the statement of financial position Reportable segment liabilities are reconciled to total liabilities as follows: Total liabilities as per the statement of financial position 2020 $ 2019 $ (2,178,416) (3,630,504) 48,039 737,044 (148,041) (207,270) (28,549) (542) - (10,000,000) (1,527,734) (3,312,256) 55,144 377,468 (118,127) (32,263) 732 (3,083) - - - (3,692,122) 2020 $ 29,764,399 48,129,649 2019 $ 40,134,831 48,085,810 (51,634,128) (50,106,395) 26,259,920 38,114,246 2020 $ 18,256,492 2,265,740 2019 $ 19,814,017 491,016 (13,543,619) (11,787,907) 6,978,613 8,517,126 50 50 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 51 A reconciliation from segment result to operating profit before income tax is provided as follows: Segment Result Total segment result Interest revenue Other revenue Interest expenses Share option expenses Gain / (Loss) on foreign exchange Income tax benefit/(expense) Profit/ (Loss) on sale/write off of asset Impairment of Goodwill Provision for R&D claim for financial year 2015/2016 Other head office income/(expenses) not allocated in segment result 2020 $ 2019 $ (2,178,416) (3,630,504) 48,039 737,044 (148,041) (207,270) (28,549) (542) - (10,000,000) (1,527,734) (3,312,256) 55,144 377,468 - (118,127) (32,263) 732 (3,083) - - (3,692,122) Loss before income tax from continuing operations (16,617,725) (7,042,755) Reportable segment assets are reconciled to total assets as follows: Segment assets Total segment assets Head office assets Intersegment eliminations 2020 $ 29,764,399 48,129,649 (51,634,128) 2019 $ 40,134,831 48,085,810 (50,106,395) Total assets as per the statement of financial position 26,259,920 38,114,246 Reportable segment liabilities are reconciled to total liabilities as follows: Segment liabilities Total segment liabilities Head office liabilities Intersegment eliminations 2020 $ 18,256,492 2,265,740 (13,543,619) 2019 $ 19,814,017 491,016 (11,787,907) Total liabilities as per the statement of financial position 6,978,613 8,517,126 Adslot 2020 Annual Report 51 Adslot 2020 Annual Report 51 Notes to the Financial Statements (Continued) 2. Segment Information (Continued) The Group’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) USA Other countries Total 2020 $ 2019 $ Revenue Non-Current Assets Revenue Non-Current Assets 7,391,131 213,482 2,968,337 10,572,950 15,058,442 3,343 5,261 15,067,046 7,526,723 650,255 2,094,651 10,271,629 23,511,419 3,084 9,540 23,524,043 Revenues from external customers in the Group’s domicile, Australia, as well as its major markets the USA, have been identified on the basis of the customer’s geographical location. Non-current assets are allocated based on their physical location. 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 (2019: 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 Group’s total revenue. For the year to 30 June 2020, one customer accounted for 10% or more of revenue (2019: one). 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 Total other Income Total revenue and other income Grant Income R&D Tax Incentive - AusIndustry Cashflow Boost Grant - Australian Taxation Office JobKeeper - Australian Taxation Office Export Market Development Grants - Austrade Small Business Grant - UK Government Total Grant Income 2020 $ 8,115,100 1,672,767 9,787,867 48,039 9,835,906 737,044 737,044 407,336 200,000 97,500 14,251 17,957 737,044 2019 $ 8,038,425 1,800,592 9,839,017 55,144 9,894,161 377,468 377,468 366,444 - - - 11,024 377,468 10,572,950 10,271,629 Revenue derived from the two product lines are described as follows: Trading Technology Services Grant Income Comprises Adslot Media, a leading global media trading technology, and Symphony, market-leading workflow automation technology, purpose built for digital media agencies. Comprising marketing services that are provided by the Group’s Webfirm division to SME clients and project- based customisation of Trading Technology. Part of the Group qualified for Job Keeper in June 2020, recognising $97,500 for JobKeeper in the 2020 financial year, with the corresponding cash received in financial year 2021. The Group expects to receive JobKeeper payments for 60 Australian employees in the three months to September 2020. The Group will assess further eligibility for JobKeeper 2.0 in the 2021 financial year. The Group received $50,000 each for two of its Australian employer entities as a Cashflow Boost Grant in the financial year 2020. A further $50,000 each is expected in the financial year 2021. Since the Group has met all requirements to be eligible for the grant, the total $200,000 has been recognised in the financial year 2020. Cash for the US government stimulus under the US Paycheck Protection Program was received in the 2020 year in the form of a loan. The Group expects to apply for full forgiveness of the loan in the financial year 2021, as outlined in note 12. The forgiveness amount would be recognised as grant income when confirmation of forgiveness is received. 52 52 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 53 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 Total other Income Total revenue and other income Grant Income R&D Tax Incentive - AusIndustry Cashflow Boost Grant - Australian Taxation Office JobKeeper - Australian Taxation Office Export Market Development Grants - Austrade Small Business Grant - UK Government Total Grant Income 2020 $ 8,115,100 1,672,767 9,787,867 48,039 9,835,906 737,044 737,044 2019 $ 8,038,425 1,800,592 9,839,017 55,144 9,894,161 377,468 377,468 10,572,950 10,271,629 407,336 200,000 97,500 14,251 17,957 737,044 366,444 - - 11,024 - 377,468 Revenue derived from the two product lines are described as follows: Trading Technology Comprises Adslot Media, 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 Group’s Webfirm division to SME clients and project- based customisation of Trading Technology. Grant Income Part of the Group qualified for Job Keeper in June 2020, recognising $97,500 for JobKeeper in the 2020 financial year, with the corresponding cash received in financial year 2021. The Group expects to receive JobKeeper payments for 60 Australian employees in the three months to September 2020. The Group will assess further eligibility for JobKeeper 2.0 in the 2021 financial year. The Group received $50,000 each for two of its Australian employer entities as a Cashflow Boost Grant in the financial year 2020. A further $50,000 each is expected in the financial year 2021. Since the Group has met all requirements to be eligible for the grant, the total $200,000 has been recognised in the financial year 2020. Cash for the US government stimulus under the US Paycheck Protection Program was received in the 2020 year in the form of a loan. The Group expects to apply for full forgiveness of the loan in the financial year 2021, as outlined in note 12. The forgiveness amount would be recognised as grant income when confirmation of forgiveness is received. Adslot 2020 Annual Report 53 Adslot 2020 Annual Report 53 Notes to the Financial Statements (Continued) Expenses Income Tax Expense 2020 $ 2019 $ Loss before income tax includes the following specific expenses: a) Numerical reconciliation of income tax expense to prima facie tax benefit Depreciation and amortisation Amortisation – Software development costs Amortisation – Leasehold improvements Amortisation – Right of Use Assets Depreciation – Computer & Equipment Depreciation – Plant & equipment Total depreciation and amortisation Other charges against assets Impairment of trade receivables Provision for R&D Claim for Financial Year 2015/2016 Impairment of Goodwill 8 10 Employee benefits expense Total capitalised development wages Employee benefits included in Share based payment expense 2,814,369 - 799,168 48,237 4,018 4,109,086 163,354 - 90,090 5,453 3,665,792 4,367,983 19,565 1,527,734 10,000,000 7,654,417 4,562,586 202,861 3,489 - - 7,817,748 5,288,455 99,726 Total employee benefits 12,419,865 13,205,929 Defined contribution superannuation expense included in Employee benefit expense 806,565 840,297 Capitalised development wages (net of related grants) Capitalised development wages included in the R&D grant Total capitalised development wages Rental expense Foreign currency (gain) / loss included in Other expenses 3,112,875 1,449,711 4,562,586 419,386 28,549 3,792,752 1,495,703 5,288,455 1,024,336 32,264 Prima facie tax benefit on loss before income tax at 27.5% (2019: 27.5%) Loss before income tax 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 2020 $ 2019 $ (16,491,142) (6,932,241) (4,535,064) (1,906,366) 6,340 56,999 12,766 32,485 1,191,220 1,297,027 (3,280,505) (564,088) - 417,440 2,736,482 - 433,327 20,247 (126,583) (110,514) b) Movement in deferred tax balances Balance at Recognised in Profit & Acquired in Business Loss combination Net tax assets liabilities Deferred Deferred tax Balance at 30 June 2020 Trade and other receivables Property, plant and equipment Intangible assets Unused tax losses Trade and other receivables Property, plant and equipment Intangible assets Unused tax losses 1 July 2019 $ (125,957) 199 165,435 (39,677) 1 July 2018 $ (125,957) 199 165,435 (39,677) $ 10,496 (17) (13,786) 3,307 $ 10,496 (17) (13,786) 3,307 Net tax (assets) / liabilities - - - (36,370) 36,370 Balance at Recognised in Profit & Acquired in Business Loss combination Net tax assets liabilities Deferred Deferred tax Balance at 30 June 2019 $ (115,461) 182 151,649 (36,370) (36,370) $ (115,461) 182 151,649 (36,370) (36,370) $ - - - $ - - - (115,461) 182 151,649 $ - (115,461) 182 151,649 $ - $ - - - - - $ - - - - - Net tax (assets) / liabilities - - - (36,370) 36,370 54 54 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 55 Income Tax Expense a) Numerical reconciliation of income tax expense to prima facie tax benefit Loss before income tax Prima facie tax benefit on loss before income tax at 27.5% (2019: 27.5%) 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 2020 $ 2019 $ (16,491,142) (6,932,241) (4,535,064) (1,906,366) 6,340 56,999 12,766 32,485 1,191,220 1,297,027 (3,280,505) (564,088) - 417,440 2,736,482 - 433,327 20,247 (126,583) (110,514) b) Movement in deferred tax balances Trade and other receivables Property, plant and equipment Intangible assets Unused tax losses Balance at 1 July 2019 $ (125,957) 199 165,435 (39,677) Net tax (assets) / liabilities - - Recognised in Profit & Loss $ Acquired in Business combination $ Trade and other receivables Property, plant and equipment Intangible assets Unused tax losses Balance at 1 July 2018 $ (125,957) 199 165,435 (39,677) Recognised in Profit & Loss $ Acquired in Business combination $ Net tax (assets) / liabilities - - 10,496 (17) (13,786) 3,307 10,496 (17) (13,786) 3,307 - - - - - - - - - - Balance at 30 June 2020 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 2019 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 Adslot 2020 Annual Report 55 Adslot 2020 Annual Report 55 Notes to the Financial Statements (Continued) 5. Income Tax Expense (Continued) 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% 2019: 27.5%) 2020 $ 2019 $ (4,714,903) (6,121,877) 40,906,473 40,795,482 238,258 238,258 36,429,828 10,018,203 34,911,863 9,600,762 (i) During the period the Group made a one-off provision of $1,527,734 for the part repayment of the FY16 R&D claim. In December 2019 the Group was advised by Innovation & Science Australia that the preliminary decision regarding ineligible activities within the FY16 R&D claim was upheld. The Group continues to appeal these findings and defend the legitimacy of its claim and has requested a review of the findings by the Administrative Appeals Tribunal (AAT). Based on the findings made by Innovation and Science Australia in relation to the FY16 R&D activities, the R&D Tax Incentive Offset for FY16 was offset against the FY2019 R&D refund of $2.0 million, with the net balance of the FY2019 R&D refund paid in April 2020. In the event the Group is successful in overturning the AusIndustry decision, this provision will be reversed. The $3.4 million R&D grant receivable includes $1.5 million of the FY19 R&D receivable (offsetting the FY16 R&D provision) and $1.9 million for the FY20 R&D grant receivable. The average age of the Group’s trade debtors is 50 days (2019: 40 days). The increase in debtor days is due to recent collection delays experienced from our overseas clients resulting from COVID-19 disruptions. In response to these disruptions, management have implemented more frequent trade debtor reviews and new processes to proactively manage trade debtors and minimise risk to collection. The increase in the Allowance for impairment relates primarily to an ongoing collection issue unrelated to the COVID-19 pandemic. (a) Ageing of trade debtors not impaired The Group 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 $1,296,568 (2019: $1,683,516) have not been recognised as they have been offset with deferred tax assets of the same value. Dividends The Group did not declare any dividends in the current year or prior year. There are no franking credits available to shareholders of the Group. 0 – 30 days 31 – 60 days 61 – 90 days Over 91 days Cash and Cash Equivalents Cash at bank and on hand Cash held on behalf of Publishers 2020 $ 4,972,001 1,188,439 6,160,440 2019 $ 5,775,127 2,390,417 8,165,544 Included in the Cash at Bank is $528,801 (2019: $509,605) of funds held on term deposit as guarantee for our corporate credit card facilities and for the benefit of landlords under office lease agreements. Trade and Other Receivables Current: Trade debtors Less: Allowance for impairment Trade debtors not impaired Research and Development grant receivable Provision for R&D Claim for Financial Year 2015/2016 (i) Other receivables Prepayments 2020 $ 2,639,552 (19,085) 2,620,467 3,416,119 (1,527,734) 313,859 209,723 2019 $ 4,260,637 (2,782) 4,257,855 1,887,381 - 56,165 223,258 5,032,434 6,424,659 1,178,253 3,034,440 2020 $ 623,060 363,769 455,385 2,620,467 2020 $ 2,782 19,085 (2,782) 19,085 2019 $ 81,287 136,628 1,005,500 4,257,855 2019 $ 2,370 2,782 (2,370) 2,782 (b) Movement in the provision for impairment Balance at beginning of the year Impairment recognised during the year Amounts written off as uncollectible Balance at the end of the year In determining the recoverability of a trade receivable, the Group 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. While collection delays have been experienced, there has not been an increase in defaults resulting from COVID-19 disruptions to date. Accordingly, the directors believe that there is no further provision required in excess of the allowance for impairment. Fair value of receivables impairment. Fair value of receivables at year end is measured to be the same as receivables net of the allowance for 56 56 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 57 (i) During the period the Group made a one-off provision of $1,527,734 for the part repayment of the FY16 R&D claim. In December 2019 the Group was advised by Innovation & Science Australia that the preliminary decision regarding ineligible activities within the FY16 R&D claim was upheld. The Group continues to appeal these findings and defend the legitimacy of its claim and has requested a review of the findings by the Administrative Appeals Tribunal (AAT). Based on the findings made by Innovation and Science Australia in relation to the FY16 R&D activities, the R&D Tax Incentive Offset for FY16 was offset against the FY2019 R&D refund of $2.0 million, with the net balance of the FY2019 R&D refund paid in April 2020. In the event the Group is successful in overturning the AusIndustry decision, this provision will be reversed. The $3.4 million R&D grant receivable includes $1.5 million of the FY19 R&D receivable (offsetting the FY16 R&D provision) and $1.9 million for the FY20 R&D grant receivable. The average age of the Group’s trade debtors is 50 days (2019: 40 days). The increase in debtor days is due to recent collection delays experienced from our overseas clients resulting from COVID-19 disruptions. In response to these disruptions, management have implemented more frequent trade debtor reviews and new processes to proactively manage trade debtors and minimise risk to collection. The increase in the Allowance for impairment relates primarily to an ongoing collection issue unrelated to the COVID-19 pandemic. (a) Ageing of trade debtors 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 Balance at the end of the year 2020 $ 1,178,253 623,060 363,769 455,385 2,620,467 2020 $ 2,782 19,085 (2,782) 19,085 2019 $ 3,034,440 81,287 136,628 1,005,500 4,257,855 2019 $ 2,370 2,782 (2,370) 2,782 In determining the recoverability of a trade receivable, the Group 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. While collection delays have been experienced, there has not been an increase in defaults resulting from COVID-19 disruptions to date. 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. Adslot 2020 Annual Report 57 Adslot 2020 Annual Report 57 Notes to the Financial Statements (Continued) Property, Plant and Equipment Intangible Assets Leasehold improvements – at cost Less: Accumulated amortisation Right of use asset – at cost Less: Accumulated depreciation Plant and equipment – at cost Less: Accumulated depreciation Computer equipment – at cost Less: Accumulated depreciation Total carrying amount of property, plant and equipment 2020 $ 7,746 (7,746) - 2,616,195 (799,168) 1,817,027 95,151 (88,435) 6,716 450,125 (428,132) 21,993 1,845,736 2019 $ 816,061 (289,915) 526,146 - - - 93,119 (84,527) 8,592 446,030 (379,529) 66,501 601,239 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: Carrying amount at 30 June 2020 7,984,734 38,267 - 5,161,939 13,184,940 2020 Carrying amount at 1 July 2019 AASB 16 Adjustment (note 1(a)) Additions Lease modifications Depreciation / amortisation expense Net foreign exchange differences Carrying amount at 30 June 2020 2019 Carrying amount at 1 July 2018 Additions Disposals/ Write Offs Depreciation / amortisation expense Net foreign exchange differences Carrying amount at 30 June 2019 Right of Use Assets Leasehold Improvements Plant and Equipment Computer Equipment $ 2,629,244 - (13,049) (799,168) - 1,817,027 $ 526,145 (526,145) - - - - - $ 8,593 - 2,009 - (4,018) 132 6,716 $ 66,501 - 3,835 - (48,237) (106) 21,993 Leasehold Improvements Plant and Equipment Computer Equipment $ 689,499 - - (163,354) - 526,145 $ 11,253 2,757 - (5,453) 36 8,593 $ 132,081 30,257 (6,059) (90,090) 312 66,501 Total $ 601,239 2,103,099 5,844 (13,049) (851,423) 26 1,845,736 Total $ 832,833 33,014 (6,059) (258,897) 348 601,239 Internally Developed Software $ Domain Name $ Intellectual Property $ Goodwill $ Total $ Opening net book amount 7,686,228 38,267 15,161,939 22,886,434 3,112,875 (2,814,369) - - - - - - 3,112,875 (2,814,369) (10,000,000) (10,000,000) - - - - - Carrying amount at 30 June 2020 7,984,734 38,267 5,161,939 13,184,940 Year ended 30 June 2020 Additions Amortisation Impairment At 30 June 2020 Cost Accumulated amortisation and impairment 18,513,064 38,267 29,045,251 15,161,939 62,758,521 (10,528,330) - (29,045,251) (10,000,000) (49,573,581) Internally Developed Software $ Domain Name $ Intellectual Property $ Goodwill $ Total $ Year ended 30 June 2019 Opening net book amount 6,462,835 38,267 1,539,727 15,161,939 23,202,768 Additions Amortisation 3,792,752 (2,569,359) - - - (1,539,727) - - 3,792,752 (4,109,086) Carrying amount at 30 June 2019 7,686,228 38,267 - 15,161,939 22,886,434 At 30 June 2019 Cost Accumulated amortisation and impairment 15,400,189 38,267 29,045,251 15,161,939 59,645,646 (7,713,961) - (29,045,251) - (36,759,212) Carrying amount at 30 June 2019 7,686,228 38,267 - 15,161,939 22,886,434 58 58 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 59 Intangible Assets Internally Developed Software $ Domain Name $ Intellectual Property $ Goodwill $ Total $ Year ended 30 June 2020 Opening net book amount 7,686,228 38,267 Additions Amortisation Impairment 3,112,875 (2,814,369) - - - - Carrying amount at 30 June 2020 7,984,734 38,267 - - - - - 15,161,939 22,886,434 - - 3,112,875 (2,814,369) (10,000,000) (10,000,000) 5,161,939 13,184,940 At 30 June 2020 Cost Accumulated amortisation and impairment 18,513,064 38,267 29,045,251 15,161,939 62,758,521 (10,528,330) - (29,045,251) (10,000,000) (49,573,581) Carrying amount at 30 June 2020 7,984,734 38,267 - 5,161,939 13,184,940 Internally Developed Software $ Domain Name $ Intellectual Property $ Goodwill $ Total $ Year ended 30 June 2019 Opening net book amount 6,462,835 38,267 1,539,727 15,161,939 23,202,768 Additions Amortisation 3,792,752 (2,569,359) - - - (1,539,727) - - 3,792,752 (4,109,086) Carrying amount at 30 June 2019 7,686,228 38,267 - 15,161,939 22,886,434 At 30 June 2019 Cost Accumulated amortisation and impairment 15,400,189 38,267 29,045,251 15,161,939 59,645,646 (7,713,961) - (29,045,251) - (36,759,212) Carrying amount at 30 June 2019 7,686,228 38,267 - 15,161,939 22,886,434 Adslot 2020 Annual Report 59 Adslot 2020 Annual Report 59 Notes to the Financial Statements (Continued) 10. Intangible Assets (Continued) Internally Developed Software Internally developed software represents a number of software platforms developed within the Group. The following table shows the portion of platform development costs that are capitalised and expensed for the current financial year, 2020: Platform Capitalised Wages R&D grants offsetting capitalised wages Net Capitalised Wages Adslot Publisher and Marketplace Symphony $ 1,534,726 3,027,860 4,562,586 $ (624,144) (825,567) (1,449,711) $ 910,582 2,202,293 3,112,875 The following table shows the portion of platform development costs that are capitalised and expensed for the prior financial year, 2019: Platform Capitalised Wages R&D grants offsetting capitalised wages Net Capitalised Wages Adslot Publisher and Marketplace Symphony $ 1,592,262 3,696,193 5,288,455 $ (577,515) (918,188) (1,495,703) $ 1,014,747 2,778,005 3,792,752 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 (2019: $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 (2019: $5,932,006) of the opening balance relates to this “CAP” technology. Accumulated amortisation of this asset as at 30 June 2020 was $5,932,006 (2019: $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 (2019: $6,466,517) in the opening balance and attached to the Adslot CGU. Accumulated amortisation of this asset as at 30 June 2020 was $6,466,517 (2019: $6,466,517). 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 (2019: $16,191,496). Accumulated amortisation of this asset at 30 June 2020 was $16,191,496 (2019: $16,191,496). This asset has been fully amortised. 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 (2019: $455,231). Accumulated amortisation of this asset at 30 June 2020 was $455,231 (2019: $455,231). This asset has been fully amortised. 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 Group’s ongoing commitment to research and development of the Core IP. 60 60 Adslot 2020 Annual Report Adslot 2020 Annual Report The Goodwill balance relating to the acquisition of Facilitate has an attributed fair value of $5,161,939 (2019: Goodwill $15,161,939) and has 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 Adslot and Symphony CGUs (b) Impairment testing and key assumptions 2020 2019 Intangible assets with indefinite useful lives $ - Goodwill $ 15,161,939 Intangible assets with indefinite useful lives $ - Goodwill $ 5,161,939 The Group tests whether goodwill and other intangible assets have suffered any impairment in accordance with the Group’s accounting policies. In addition, directors have considered the impact on accounting policies, judgements and estimates in light of the impact of the COVID-19 pandemic. 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 a non-cash impairment of $10.0 million. The directors’ determination of fair value using a market-based approach is the market capitalisation of the Group, 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 Group’s share price (ASX: ADS) in the months leading up to 30 June 2020; • 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 Group’s directors appointed an independent expert to review the approach adopted by management in assessing the carrying value of the intangible assets of the Group as at 30 June 2018. The review supported the selection of methodology and the assessment of the value of the Group under the primary quoted security price approach. The director’s determined the same methodology be adopted for the tests at 30 June 2020. (c) Sensitivity analysis The Group’s share price forms the basis of the market-based approach. A material adverse change in the Group’s share price would likely result in the carrying amount exceeding the recoverable amount. While headroom exists under the market-based approach using the year end share price of $0.018, the results from the market-based approach were revisited in light of the impact of the COVID-19 pandemic on Australian financial markets and the Group’s share price in the 2020 financial year. The COVID-19 pandemic developed rapidly in early 2020, impacting the Australian stock market and Adslot Limited’s share price. The measures taken to contain the virus continue to have adverse effects on economic activity and disrupt businesses. Due to ongoing increased uncertainty resulting from the COVID-19 pandemic, the directors widened the range of reasonably possible changes in the Adslot Limited share price assumptions. Sensitivity Analysis has been performed, using the share price low of $0.007 on 27 March 2020 and the 31 March 20 closing share price of $0.010. With all other elements of the 30 June calculation remaining equal, this results in a significant deficit fair value over carrying value of the intangible assets at each share price. Taking into consideration the lows in March 2020, the closing balance at the end of March 2020, the average April 20 share price of $0.015, and the 30 June 2020 year end share price, a discounted share price in the range of $0.010 to $0.012 has been used as the more prudent base for the impairment testing, representing impairment ranges from $8 million to $12 million. There are no other material sensitivities involved in the directors’ determination of fair value using a market based approach. Adslot 2020 Annual Report 61 Goodwill The Goodwill balance relating to the acquisition of Facilitate has an attributed fair value of $5,161,939 (2019: $15,161,939) and has 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 Adslot and Symphony CGUs 2020 2019 Intangible assets with indefinite useful lives $ - Goodwill $ 5,161,939 Goodwill $ 15,161,939 Intangible assets with indefinite useful lives $ - (b) Impairment testing and key assumptions The Group tests whether goodwill and other intangible assets have suffered any impairment in accordance with the Group’s accounting policies. In addition, directors have considered the impact on accounting policies, judgements and estimates in light of the impact of the COVID-19 pandemic. 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 a non-cash impairment of $10.0 million. The directors’ determination of fair value using a market-based approach is the market capitalisation of the Group, 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 Group’s share price (ASX: ADS) in the months leading up to 30 June 2020; • • 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 Group’s directors appointed an independent expert to review the approach adopted by management in assessing the carrying value of the intangible assets of the Group as at 30 June 2018. The review supported the selection of methodology and the assessment of the value of the Group under the primary quoted security price approach. The director’s determined the same methodology be adopted for the tests at 30 June 2020. (c) Sensitivity analysis The Group’s share price forms the basis of the market-based approach. A material adverse change in the Group’s share price would likely result in the carrying amount exceeding the recoverable amount. While headroom exists under the market-based approach using the year end share price of $0.018, the results from the market-based approach were revisited in light of the impact of the COVID-19 pandemic on Australian financial markets and the Group’s share price in the 2020 financial year. The COVID-19 pandemic developed rapidly in early 2020, impacting the Australian stock market and Adslot Limited’s share price. The measures taken to contain the virus continue to have adverse effects on economic activity and disrupt businesses. Due to ongoing increased uncertainty resulting from the COVID-19 pandemic, the directors widened the range of reasonably possible changes in the Adslot Limited share price assumptions. Sensitivity Analysis has been performed, using the share price low of $0.007 on 27 March 2020 and the 31 March 20 closing share price of $0.010. With all other elements of the 30 June calculation remaining equal, this results in a significant deficit fair value over carrying value of the intangible assets at each share price. Taking into consideration the lows in March 2020, the closing balance at the end of March 2020, the average April 20 share price of $0.015, and the 30 June 2020 year end share price, a discounted share price in the range of $0.010 to $0.012 has been used as the more prudent base for the impairment testing, representing impairment ranges from $8 million to $12 million. There are no other material sensitivities involved in the directors’ determination of fair value using a market based approach. Adslot 2020 Annual Report 61 Adslot 2020 Annual Report 61 Notes to the Financial Statements (Continued) 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: Contract liabilities (i) Current: Short term loan (ii) 2020 $ 218,716 2019 $ 518,498 2,381,870 5,154,892 498,118 865,398 3,098,704 6,538,788 2020 $ 527,258 158,352 685,610 2019 $ 374,781 - 374,781 (i) Contract liabilities 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. (ii) In May, the Group’s US subsidiary Adslot Inc applied for and received a Paycheck Protection Program loan through HSBC USA. It is a no fee loan provided by the US Federal Government for businesses impacted by COVID-19. The loan is for a two-year period, at 1.00% fixed interest rate and the loan payments deferred for the first six months. No collateral or guarantees were required. The full loan amount is available forgiveness provided the loan is utilised for allowable expenditure. The Group expects to apply for full forgiveness in the financial year 2021. The proceeds from borrowings disclosed in the Consolidated Statement of Cash Flows is at historical exchange rate at the day of the receipt of loan, while the amount included in the Consolidated Statement of Financial Position is at the exchange rate as at 30 June 2020. Lease Liabilities Current: Lease incentive liability Current: Lease liability Non-current: Lease incentive liability Non-current: Lease liability 2020 $ 2019 $ - 146,300 886,952 - - 323,110 960,915 - Current year (2020) represents lease liabilities as per AASB 16 and prior year (2019) represents lease liabilities as per AASB 117. Refer Note 1 (a) for further information. Lease payments not recognised as a liability The Group has elected not to recognise a lease liability for short term leases (leases of expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line basis. At 30 June 2020 short term and low value leases that were not recognised as a liability represented a total commitment of $ 176,483 for the Group. Provisions Current: Employee benefits Non-current: Employee benefits Non-current: Provision for make good costs (i) (i) Refer Note 1 (a) for further information. Contributed equity 2020 $ 634,916 500,051 175,095 675,146 2019 $ 658,736 439,041 - 439,041 Ordinary Shares – Fully Paid 1,843,875,994 1,587,875,994 151,866,361 145,838,216 2020 Number 2019 Number 2020 $ 2019 $ 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. 01-Jul-18 Balance (including Treasury shares) 1,288,006,269 (2,622,047) 138,699,400 Movements in Paid-Up Capital Date Details 09-Aug-18 Share Placement 19-Sep-18 Share Placement 09-May-19 Share Placement 30-Jun-19 Less: Treasury shares 30-Jun19 Balance 10-Dec-19 Share Placement 29-Jan-20 Share Placement 30-Jun-20 Less: Treasury shares 30-Jun-20 Balance 01-Jul-19 Balance (including Treasury shares) Value $ 2,852,695 531,858 3,766,730 Number of shares Number Issue price Capital raising costs $ $ 118,000,000 22,000,000 160,000,000 1,588,006,269 (130,275) 1,587,875,994 1,588,006,269 226,000,000 30,000,000 1,844,006,269 (130,275) 1,843,875,994 $0.025 $0.025 $0.025 (97,305) (18,142) (233,270) (2,970,764) 145,850,683 - (12,467) (2,970,764) 145,838,216 (2,970,764) 145,850,683 $0.025 $0.025 (347,127) (24,728) 5,302,573 725,772 (3,342,619) 151,878,828 - (12,467) (3,342,619) 151,866,361 62 62 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 63 Provisions Current: Employee benefits Non-current: Employee benefits Non-current: Provision for make good costs (i) (i) Refer Note 1 (a) for further information. Contributed equity 2020 $ 634,916 500,051 175,095 675,146 2019 $ 658,736 439,041 - 439,041 Ordinary Shares – Fully Paid 1,843,875,994 1,587,875,994 151,866,361 145,838,216 2020 Number 2019 Number 2020 $ 2019 $ 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 Number of shares Number Issue price $ Capital raising costs $ Value $ 01-Jul-18 Balance (including Treasury shares) 1,288,006,269 (2,622,047) 138,699,400 09-Aug-18 Share Placement 19-Sep-18 Share Placement 09-May-19 Share Placement 30-Jun-19 Less: Treasury shares 30-Jun19 Balance 01-Jul-19 Balance (including Treasury shares) 10-Dec-19 Share Placement 29-Jan-20 Share Placement 30-Jun-20 Less: Treasury shares 30-Jun-20 Balance 118,000,000 22,000,000 160,000,000 1,588,006,269 (130,275) 1,587,875,994 1,588,006,269 226,000,000 30,000,000 1,844,006,269 (130,275) 1,843,875,994 $0.025 $0.025 $0.025 (97,305) (18,142) (233,270) 2,852,695 531,858 3,766,730 (2,970,764) 145,850,683 - (12,467) (2,970,764) 145,838,216 (2,970,764) 145,850,683 $0.025 $0.025 (347,127) (24,728) 5,302,573 725,772 (3,342,619) 151,878,828 - (12,467) (3,342,619) 151,866,361 Adslot 2020 Annual Report 63 Adslot 2020 Annual Report 63 Notes to the Financial Statements (Continued) 15. Contributed equity (Continued) Treasury Shares 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(d). Shares are 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 Group. The Employee Share Ownership Plan (ESOP) has now been discontinued and the balance shares held by the Trust is an excess balance. Treasury Shares movements during the financial year are summarised below: Issue Type Issue or Acquisition Date Employee ESOP 01/05/15 Issue Price $ 0.090 Balance at beginning of the year (Number) Issued during the year (Number) Transfers during the year (Number) 130,275 130,275 - - - - Balance at end of the year (Number) 130,275 130,275 Options movements during the financial year are summarised below: Issue Type 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) Ordinary options Ordinary options Ordinary options Ordinary options Ordinary options Ordinary options Ordinary options Ordinary options Ordinary options Ordinary options 04/10/21 25/11/21 25/02/22 15/05/22 27/05/22 30/01/23 02/09/23 12/12/23 15/12/22 29/01/24 0.073 3,000,000 0.060 5,600,000 0.035 23,500,000 0.034 11,400,000 0.036 4,000,000 0.060 0.041 0.045 0.044 0.032 5,800,000 - - - - - - - - - - - - - - - (750,000) 11,900,000 (200,000) 4,000,000 8,000,000 8,000,000 - - - 53,300,000 31,900,000 (950,000) - - - - - - - - - - - Balance at end of the year (Number) 3,000,000 5,600,000 23,500,000 11,400,000 4,000,000 5,050,000 11,700,000 4,000,000 8,000,000 8,000,000 84,250,000 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 expenses - third Party (i) Share based payment expense - employees Closing balance Foreign currency translation reserve Opening balance Movement on currency translation Closing balance (i) Refer Equity Based Payments on Note 21 2020 $ 693,619 245,855 939,474 434,882 - - 51,467 207,270 693,619 2019 $ 434,882 214,267 649,149 605,978 (105,000) (184,223) 118,127 434,882 214,267 31,588 245,855 106,676 107,591 214,267 The Share-based payments reserve is used to record the value of options accounted for in accordance with AASB 2: 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. 64 64 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 65 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 expenses - third Party (i) Share based payment expense - employees Closing balance Foreign currency translation reserve Opening balance Movement on currency translation Closing balance (i) Refer Equity Based Payments on Note 21 2020 $ 693,619 245,855 939,474 434,882 - - 51,467 207,270 693,619 2019 $ 434,882 214,267 649,149 605,978 (105,000) (184,223) 118,127 434,882 214,267 31,588 245,855 106,676 107,591 214,267 The Share-based payments reserve is used to record the value of options accounted for in accordance with AASB 2: 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. Adslot 2020 Annual Report 65 Adslot 2020 Annual Report 65 Notes to the Financial Statements (Continued) Earnings Per Share (a) Basic earnings per share 2020 Cents 2019 Cents Directors The following persons were directors of the Group during the financial year: Key Management Personnel Disclosures Loss attributable to the ordinary equity holders of the Group (0.96) (0.49) (b) Diluted earnings per share Loss attributable to the ordinary equity holders of the Group (0.96) (0.49) 2020 $ 2019 $ Mr Andrew Barlow (Executive Chairman) (i) Mr Adrian Giles (Non-Executive Director) Ms Sarah Morgan (Non-Executive Director) Mr Andrew Dyer (Non-Executive Director) Mr Ben Dixon (Executive Director & CEO) Mr Quentin George (Non-Executive Director) (ii) Other key management personnel (c) Reconciliation of earnings used on calculating earnings per share (i) Loss from continuing operations attributable to the members of the Group used on calculating basic and diluted earnings per share (16,617,725) (7,042,755) of the Group, directly or indirectly, during the financial year: The following persons also had authority and responsibility for planning, directing and controlling the activities (d) Weighted average number of shares used as the denominator 2020 Number 2019 Number Name Ms Felicity Conlan Mr Tom Peacock Position Chief Financial Officer and Company Secretary Chief Commercial Officer Weighted average number of shares on issue used in the calculation of basic EPS 1,725,848,672 1,432,078,391 Key management personnel compensation (e) Weighted average number of shares used as the denominator Weighted average number of shares on issue used in the calculation of diluted EPS 1,725,848,672 1,432,078,391 (i) During 2019 and 2018 there were no discontinued operations or values attributable to minority interests. 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. 2020 Number 2019 Number 72,438,525 50,428,767 Contingencies No contingent assets and liabilities are noted. Remuneration of auditors During the year the following fees were paid/payable to the auditor of the Group: 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 Group: Other services Taxation compliance, GroupM compliance audit and taxation advice (Research and Development grant, JobKeeper grant and transfer pricing) 2020 $ 2019 $ 109,000 115,000 93,911 96,503 202,911 211,503 2020 $ 933,089 71,194 11,586 12,924 2019 $ 1,333,764 81,429 24,764 148,452 1,028,793 1,588,409 Short-term employee benefits Post-employment benefits Other long-term employee benefits Share based payments Total compensation (a) (2019: 9). Business Acquisitions: (i) On 28 July 2020, Mr Barlow reverted to a Non-Executive Chairman role (ii) Mr George resigned on 16 July 2019 (a) There were 8 key management personnel throughout 2020, some of whom have a part year of service There were no related party transactions during the year ended 30 June 2020. Transactions with Directors and their personally related entities: During the year the Company earned revenue of $ 28,242 from a company requiring web development and marketing services related to Mr. Adrian Giles on normal commercial terms and conditions. There were no other transactions with Directors and their personally related entities for the financial years ending 30 June 2020 and 30 June 2019. 66 66 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 67 Key Management Personnel Disclosures Directors The following persons were directors of the Group during the financial year: Mr Andrew Barlow (Executive Chairman) (i) Mr Adrian Giles (Non-Executive Director) Ms Sarah Morgan (Non-Executive Director) Mr Andrew Dyer (Non-Executive Director) Mr Ben Dixon (Executive Director & CEO) Mr Quentin George (Non-Executive Director) (ii) 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 Mr Tom Peacock Position Chief Financial Officer and Company Secretary Chief Commercial Officer Key management personnel compensation Short-term employee benefits Post-employment benefits Other long-term employee benefits Share based payments Total compensation (a) 2020 $ 933,089 71,194 11,586 12,924 2019 $ 1,333,764 81,429 24,764 148,452 1,028,793 1,588,409 (i) On 28 July 2020, Mr Barlow reverted to a Non-Executive Chairman role (ii) Mr George resigned on 16 July 2019 (a) There were 8 key management personnel throughout 2020, some of whom have a part year of service (2019: 9). Business Acquisitions: There were no related party transactions during the year ended 30 June 2020. Transactions with Directors and their personally related entities: During the year the Company earned revenue of $ 28,242 from a company requiring web development and marketing services related to Mr. Adrian Giles on normal commercial terms and conditions. There were no other transactions with Directors and their personally related entities for the financial years ending 30 June 2020 and 30 June 2019. Adslot 2020 Annual Report 67 Adslot 2020 Annual Report 67 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 Group 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 Group 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 were paid or payable by the recipient on receipt of the right. The rights carried 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 Group. These shares were forfeited with the departure of Mr Lowe during the financial year 2019. The following table shows movement in the Rights over Shares for the financial year 2019: Issue Date $ $ (Number) (Number) (Number) (Number) (Number) Valuation Price year Balance at start of the Granted Vested during the during the Forfeited during the Balance at end of the year year year year 64,500 66,000 73,000 63,500 3,000,000 4,000,000 5,000,000 5,000,000 267,000 17,000,000 - - - - - - - - - - 3,000,000 4,000,000 5,000,000 5,000,000 17,000,000 - - - - - Required VWAP Price 0.20 0.30 0.40 0.50 Escrow Required from award 2 years - - - 8-Oct-2012 8-Oct-2012 8-Oct-2012 8-Oct-2012 Total 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 Group 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 Group. 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 Group. Notes to the Financial Statements (Continued) Share Based Payments Employee Share Option Plan (ESOP) In November 2012 the Group 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 were available to be issued to eligible employees and was subject to a two-year service period and if this service period is not met, the rights to shares were to be forfeited by the eligible employee. Shares held by the Trust under the scheme had voting and dividend rights and had the right to participate in further issues pro-rata to all ordinary shareholders. ESOP rights to shares were 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. As such there have been no new ESOP rights granted since the end of financial year 2015. All remaining ESOP shares were vested and transferred to the employees; and the plan concluded during the 2019 financial year. The following tables shows the movement of share-based compensation to employees under the ESOP for the financial year 2019. 2019 2019 Grant Date Escrow End Date Valuation Price $ 15/06/14 15/06/15 15/06/14 2016-2018 0.105 0.105 Total 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) 250,000 750,000 1,000,000 - - - - (250,000) (750,000) (1,000,000) $0.105 - - - - - - - - - - - - - Weighted average share price $0.105 Weighted average remaining contractual life at 30 June 2019 (days) Performance Rights over Shares At the November 2014 Annual General Meeting the shareholders approved 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 were paid or payable by the recipient on receipt of the right. The rights carried no voting rights. All rights were subject to service periods which required the employees remain an employee of the Group. The Performance Rights over Shares Plan was replaced by the Incentive Option Plan in financial year 2018 and no new Performance Rights granted during since then. With the transfer of the final rights, Plan concluded during the 2019 financial year. The following table shows grants of share-based compensation to directors and senior management under the Performance Rights over Shares Plan during the 2019 financial year: 2019 Grant Date Assessment period Valuation Price $ Balance at start of the year Granted during the year Transferred 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) 01/09/16 2 years 0.125 2,125,000 Total 2,125,000 - - (1,925,000) (200,000) (1,925,000) (200,000) - - - - 68 68 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 69 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 Group 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 Group 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 were paid or payable by the recipient on receipt of the right. The rights carried 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 Group. These shares were forfeited with the departure of Mr Lowe during the financial year 2019. The following table shows movement in the Rights over Shares for the financial year 2019: 2019 Required VWAP Price Issue Date $ 8-Oct-2012 8-Oct-2012 8-Oct-2012 8-Oct-2012 Total 0.20 0.30 0.40 0.50 Escrow Required from award 2 years - - - Employee Option Plan Valuation Price Balance at start of the year Granted during the year Vested during the year Forfeited during the year Balance at end of the year $ (Number) (Number) (Number) (Number) (Number) 64,500 66,000 73,000 63,500 3,000,000 4,000,000 5,000,000 5,000,000 267,000 17,000,000 - - - - - - - - - - 3,000,000 4,000,000 5,000,000 5,000,000 17,000,000 - - - - - 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 Group 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 Group. 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 Group. Adslot 2020 Annual Report 69 Adslot 2020 Annual Report 69 Notes to the Financial Statements (Continued) 21. Share Based Payments (continued) The following table shows grants and movements of share-based compensation to employees under the Employee Option Plan during the current financial year: 2020 Exercise Price Balance at start of the year Granted during the year Exercised during the year Lapsed during the year Forfeited during the year Balance at end of the year Vested and exercisable at the end of the year $ (Number) (Number) (Number) (Number) (Number) (Number) (Number) Grant Date Expiry Date 05/10/17 04/10/21 0.073 3,000,000 26/11/17 25/11/21 0.060 5,600,000 26/02/18 25/02/22 0.035 23,500,000 16/05/18 15/05/22 0.034 11,400,000 28/05/18 27/05/22 0.036 4,000,000 30/01/19 30/01/23 0.060 5,800,000 - - - - - - 03/09/19 02/09/23 0.041 13/12/19 12/12/23 30/01/20 29/01/24 0.045 0.032 - 11,900,000 - - 4,000,000 8,000,000 Total 53,300,000 23,900,000 Weighted average exercise price $0.042 $0.039 - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,000,000 3,000,000 5,600,000 5,600,000 23,500,000 23,500,000 11,400,000 11,400,000 4,000,000 4,000,000 (750,000) 5,050,000 2,650,000 (200,000) 11,700,000 - - - 4,000,000 2,000,000 8,000,000 - (950,000) 76,250,000 52,150,000 $0.056 $0.041 $0.041 The options are valued using the Black-Scholes pricing model. The model inputs for options granted during the year ended 30 June 2019 included: Model Input Grant Date Expiry Date Exercise Price $ 5-day VWAP at Grant Date $ Expected Volatility Risk Free Interest rate Equity Based Payments OP # 19-1 31/01/19 30/01/23 0.060 0.041 92.93% 0.99% During the financial year the Group granted 8,000,000 new Options under mandate to Peloton Capital Pty Ltd as consideration for corporate advisory services provided. The exercise price of the Options are $0.044 (175% premium to the December 2019 placement price of $0.025 - announced to the ASX on 4 December 2019). The Options were vested on issue and have an expiry date of 15 December 2022. Grant Date Expiry Date Balance at Granted Exercised Lapsed Forfeited Balance at Exercise start of the during during the during the during the end of the at the end of Price year the year year year year year the year $ (Number) (Number) (Number) (Number) (Number) (Number) (Number) 30/01/20 15/12/22 0.044 - 8,000,000 - - - 8,000,000 8,000,000 Vested and exercisable The options are valued using the Black-Scholes pricing model. The model inputs for options granted during the year ended 30 June 2020 included: The options are valued using the Black-Scholes pricing model. The model inputs for options granted were: Model Input Grant Date Expiry Date Exercise Price $ 5-day VWAP at Grant Date $ Expected Volatility Risk Free Interest rate EOP # 20-1 30/01/20 15/12/22 0.044 0.032 63.79% 0.88% Model Input Grant Date Expiry Date Exercise Price $ 5-day VWAP at Grant Date $ Expected Volatility Risk Free Interest rate 2019 OP # 20-1 OP # 20-2 OP # 20-3 03/09/19 02/09/23 0.041 0.028 62.60% 0.99% 13/12/19 12/12/23 30/01/20 29/01/24 0.045 0.031 0.032 0.032 61.60% 63.79% 0.88% 0.88% Exercise Price Balance at start of the year Granted during the year Exercised during the year Lapsed during the year Forfeited during the year Balance at end of the year Vested and exercisable at the end of the year $ (Number) (Number) (Number) (Number) (Number) (Number) (Number) Grant Date Expiry Date 05/10/17 04/10/21 0.073 3,000,000 26/11/17 25/11/21 0.060 5,800,000 26/02/18 25/02/22 0.035 23,500,000 16/05/18 15/05/22 0.034 12,700,000 28/05/18 27/05/22 0.036 4,000,000 - - - - - 31/01/19 30/01/23 0.060 - 5,800,000 Total 49,000,000 5,800,000 Weighted average exercise price $0.040 $0.060 - - - - - - - - - - - - - - - - - 3,000,000 (200,000) 5,600,000 - - - 23,500,000 23,500,000 (1,300,000) 11,400,000 11,400,000 - - 4,000,000 3,000,000 5,800,000 - (1,500,000) 53,300,000 37,900,000 $0.037 $0.042 $0.035 70 70 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 71 The options are valued using the Black-Scholes pricing model. The model inputs for options granted during the year ended 30 June 2019 included: Model Input Grant Date Expiry Date Exercise Price $ 5-day VWAP at Grant Date $ Expected Volatility Risk Free Interest rate Equity Based Payments OP # 19-1 31/01/19 30/01/23 0.060 0.041 92.93% 0.99% During the financial year the Group granted 8,000,000 new Options under mandate to Peloton Capital Pty Ltd as consideration for corporate advisory services provided. The exercise price of the Options are $0.044 (175% premium to the December 2019 placement price of $0.025 - announced to the ASX on 4 December 2019). The Options were vested on issue and have an expiry date of 15 December 2022. Exercise Price Balance at start of the year Granted during the year Exercised during the year Lapsed during the year Forfeited during the year Balance at end of the year Vested and exercisable at the end of the year $ (Number) (Number) (Number) (Number) (Number) (Number) (Number) Grant Date Expiry Date 30/01/20 15/12/22 0.044 - 8,000,000 - - - 8,000,000 8,000,000 The options are valued using the Black-Scholes pricing model. The model inputs for options granted were: Model Input Grant Date Expiry Date Exercise Price $ 5-day VWAP at Grant Date $ Expected Volatility Risk Free Interest rate EOP # 20-1 30/01/20 15/12/22 0.044 0.032 63.79% 0.88% Adslot 2020 Annual Report 71 Adslot 2020 Annual Report 71 Notes to the Financial Statements (Continued) Cash Flow reconciliation Reconciliation of Net Cash Flows from Operating Activities to Loss for the year Loss for the year after income tax Add/(less) non-cash and other items Adjustment from adoption of AASB 15 (movement in contract liabilities) Depreciation and amortisation Cash based: depreciated leasehold fitout Impairment of Goodwill Share based payment Provision for impairment of 2016 R&D receivables Impairment of receivables (Profit)/Loss on asset write off Unrealised foreign currency loss / (gain) 2020 $ 2019 $ (16,617,725) (7,042,755) - 3,665,792 - 10,000,000 207,270 1,527,734 19,565 - 3,009 (85,125) 4,367,983 (146,300) - 118,127 - 3,489 3,083 (31,327) Movements in receivables relating to investing activities 1,171,950 (1,036,515) 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 (151,812) (952,734) (3,208,191) 3,692,199 (3,382,408) (1,109,875) 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 23(d) and interest rate risk is covered in Note 23(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. Financial Assets 7,473,794 310,516 159,241 63,779 47,189 2,746 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. 72 72 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 73 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) 2020 $ 2019 $ 6,160,440 8,165,544 5,032,434 6,424,659 11,192,874 14,590,203 2020 $ 2019 $ 3,140,929 6,538,788 (c) Liquidity risk Financial liabilities Trade and other payables terms of the obligations. (d) Foreign currency risk 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 Most of the Group’s financial assets and liabilities 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 Foreign currency exposure is monitored by the Board on a periodic 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 USD A$ GBP A$ EUR A$ NZD A$ CNY A$ MYR A$ Financial Assets 5,093,083 342,619 332,667 27,660 54,587 2,035 Financial Liabilities (3,013,410) (594,247) (175,353) (3,655) (28,754) - 2,079,673 (251,628) 157,314 24,005 25,833 2,035 Ringgit (MYR). closing rate: 30 June 2020 Total Exposure 30 June 2019 Financial Liabilities (4,670,052) (365,601) (105,015) (6,511) (34,406) - Total Exposure 2,803,742 (55,085) 54,226 57,268 12,783 2,746 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) (c) Liquidity risk Financial liabilities Trade and other payables 2020 $ 6,160,440 5,032,434 2019 $ 8,165,544 6,424,659 11,192,874 14,590,203 2020 $ 3,140,929 2019 $ 6,538,788 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 financial assets and liabilities 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 periodic 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: USD A$ GBP A$ EUR A$ NZD A$ CNY A$ MYR A$ 30 June 2020 Financial Assets 5,093,083 342,619 332,667 27,660 54,587 2,035 Financial Liabilities (3,013,410) (594,247) (175,353) (3,655) (28,754) - Total Exposure 30 June 2019 2,079,673 (251,628) 157,314 24,005 25,833 2,035 Financial Assets 7,473,794 310,516 159,241 63,779 47,189 2,746 Financial Liabilities (4,670,052) (365,601) (105,015) (6,511) (34,406) - Total Exposure 2,803,742 (55,085) 54,226 57,268 12,783 2,746 Adslot 2020 Annual Report 73 Adslot 2020 Annual Report 73 Notes to the Financial Statements (Continued) 23. Financial Risk Management (Continued) (f) Net fair value of financial assets and liabilities 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 2020 (30 June 2019:10%). 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 2020 USD A$ GBP A$ EUR A$ +10% NZD A$ CNY A$ MYR A$ Total A$ Impact on Profit (174,825) 38,265 (13,666) - - (185) (150,411) Impact on Reserves (14,236) (15,390) (635) Impact on Equity (189,061) 22,875 (14,301) (2,182) (2,182) (2,348) (2,348) - (34,791) (185) (185,202) 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. Parent Entity Information The following details of information are related to the parent entity, Adslot Ltd, at 30 June 2020. This information has been prepared using consistent accounting policies as presented in Note 1. 30 June 2019 Impact on Profit (250,745) 15,674 (6,185) - Impact on Reserves (4,141) (10,666) 1,255 Impact on Equity (254,886) 5,008 (4,930) (357) (805) (250) (241,863) - (19,563) (1,162) (250) (261,426) 30 June 2020 Impact on Profit USD A$ GBP A$ EUR A$ CNY A$ 213,675 (46,768) 16,703 - - Impact on Reserves 17,400 18,809 776 Impact on Equity 231,075 (27,959) 17,479 2,667 2,667 2,870 2,870 MYR A$ 226 Total A$ 183,836 - 42,522 226 226,358 (5,206) (5,206) -10% NZD A$ 30 June 2019 Impact on Profit 306,466 (19,157) 7,560 - Impact on Reserves 5,061 13,037 (1,535) Impact on Equity 311,527 (6,120) 6,025 6,363 6,363 437 983 305 295,611 - 23,909 1,420 305 319,520 (e) Cash flow and interest rate risk 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: (cid:3) 30 June 2020 +1% $ 34,017 -1% $ (29,447) 30 June 2019 30,800 (28,163) This is mainly attributable to the Group’s exposure to interest rate on its bank balances bearing interest. 74 74 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 75 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 2020 $ 2019 $ 2,081,735 3,630,511 45,750,149 44,463,013 47,831,884 48,093,524 962,435 1,136,010 2,098,445 306,357 323,111 629,468 151,878,829 145,850,683 693,617 434,880 (106,839,007) (98,821,507) 45,733,439 47,464,056 (8,000,943) (7,118,262) (8,000,943) (7,118,262) Related Party Transactions Other than the transactions disclosed in Note 20 relating to key management personnel, there have been no related party transactions that have occurred during the current or prior financial year. (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. Parent Entity Information The following details of information are related to the parent entity, Adslot Ltd, at 30 June 2020. 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 2020 $ 2,081,735 2019 $ 3,630,511 45,750,149 44,463,013 47,831,884 48,093,524 962,435 1,136,010 2,098,445 306,357 323,111 629,468 151,878,829 145,850,683 693,617 434,880 (106,839,007) (98,821,507) 45,733,439 47,464,056 (8,000,943) (7,118,262) (8,000,943) (7,118,262) Related Party Transactions Other than the transactions disclosed in Note 20 relating to key management personnel, there have been no related party transactions that have occurred during the current or prior financial year. Adslot 2020 Annual Report 75 Adslot 2020 Annual Report 75 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 and accompanying notes, as set out on pages 31 to 76 are in accordance with the Corporations Act 2001 (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 Company’s financial position as at 30 June 2020 and of its performance, as represented by the results of its operations and its cash flows, for the financial year ended on that (c) the Company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. date; and 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 17 to 24 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. Notes to the Financial Statements (Continued) Events Subsequent to Reporting Date The Company granted the following unlisted share options: • 25,625,000 options issued to employees as outlined in the Appendix 3G lodged on 22 July 2020. • 18,000,000 options granted to Mr Ben Dixon, CEO and executive director as outlined in the ASX release on 12 August 2020. and: COVID-19 Pandemic The outbreak of the coronavirus pandemic in early 2020 has had an adverse impact on the business across all geographic regions. It is not practicable to estimate the duration or potential quantum of the impact of the health and economic crisis, after the reporting date. The situation continues to develop and any further impact will be dependent on any measures imposed by the Australian Government and other Governments around the world including restrictions on social and work environments and economic stimulus. Other than the above, there has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in future years. 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 Service Co., Ltd Facilitate Digital Limited Facilitate Digital Trust Facilitate Digital, LLC Facilitate Digital UK Limited Facilitate Digital Deutschland GmbH Country of Incorporation Ordinary Share Consolidated Equity Interest 2020 % 2019 % 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 Equity interests in all controlled entities are by way of ordinary shares. Andrew Barlow Chairman Adslot Ltd 25 August 2020 76 76 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 77 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 and accompanying notes, as set out on pages 31 to 76 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 Company’s financial position as at 30 June 2020 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 17 to 24 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 25 August 2020 Adslot 2020 Annual Report 77 Adslot 2020 Annual Report 77 78 78 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 79 Adslot 2020 Annual Report 79 Adslot 2020 Annual Report 79 80 80 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 81 Adslot 2020 Annual Report 81 Adslot 2020 Annual Report 81 Corporate Governance Statement In accordance with Listing Rule 4.10.3, Adslot’s Corporate Governance Statement can be found at http://www.adslot.com/investor-relations/governance/ 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 13 August 2020. 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 (19,231 shares): Twenty largest shareholders The names of the twenty largest holders of quoted shares are: NATIONAL NOMINEES LIMITED MR PETER DIAMOND + MRS DIANA DIAMOND J P MORGAN NOMINEES AUSTRALIA PTY LIMITED DAWNIE DIXON PTY LTD J & M BARLOW PENSION FUND INVIA CUSTODIAN PTY LIMITED MR ANDREW BARLOW CAPITAL ACCRETION PTY LTD ZERO NOMINEES PTY LTD AMBLESIDE VENTURES PTY LTD SAPEAME PTY LTD CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED STOCK RANGE PTY LTD HILLBOI NOMINEES PTY LTD CHARMED5 PTY LTD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 MR PETER STANKOVIC 18 19 MR VLADIMIR ANTHONY VITEZ & MS CATHERINE MARY DOWLAN 20 MR ANTONY ANDREW SHEIL G & D DIXON INVESTMENTS PTY LTD Total Top 20 holders of Ordinary Shares Remaining holders balance 207 313 453 1,168 870 3,011 1,321 22,941 1,038,457 3,616,350 44,871,461 1,794,457,060 1,844,006,269 9,571,070 Listed Ordinary Shares Number of Shares % of Shares 225,372,208 200,000,000 139,394,209 86,046,522 60,440,000 60,252,850 58,352,668 34,235,296 33,500,000 33,091,710 30,700,000 27,659,170 21,382,837 19,764,704 19,540,512 17,055,000 15,500,000 12,302,184 11,000,000 10,773,499 1,116,363,369 727,642,900 12.22 10.85 7.56 4.67 3.28 3.27 3.16 1.86 1.82 1.79 1.66 1.50 1.16 1.07 1.06 0.92 0.84 0.67 0.60 0.58 60.54 39.46 Corporate Directory Directors Mr Andrew Barlow – Non-Executive Chairman Mr Ben Dixon – Executive Director Mr Adrian Giles – 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 5 727 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: ADS Website www.adslot.com Registered Office Adslot Ltd Level 2, 419 Collins Street, Melbourne, VIC 3000 Australia Phone: + 61 3 8695 9100 Head Office Adslot Ltd Level 2, 419 Collins Street, Melbourne, VIC 3000 Australia Phone: + 61 3 8695 9100 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 Office 79 Madison Avenue New York, NY 10016 United States of America European Offices 10 John Street London, WCIN 2EB United Kingdom 8th Floor 33 Theatinerstrasse 11 80333 Munchen Bayern Germany Classes of Shares - Adslot Ltd has only one class of share on issue, being fully paid ordinary shares. Substantial Shareholders Peter Diamond Private Portfolio Managers Pty Ltd Geoff Dixon Jencay Capital Pty Ltd Shares 200,000,000 115,781,145 107,599,566 93,545,083 % Shares 10.85 6.28 5.84 5.07 Voting Rights - All ordinary shares carry one vote per share without restrictions. 82 82 Adslot 2020 Annual Report Adslot 2020 Annual Report Adslot 2020 Annual Report 83 Corporate Directory Directors Mr Andrew Barlow – Non-Executive Chairman Mr Ben Dixon – Executive Director Mr Adrian Giles – 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 5 727 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: ADS Website www.adslot.com Registered Office Adslot Ltd Level 2, 419 Collins Street, Melbourne, VIC 3000 Australia Phone: + 61 3 8695 9100 Head Office Adslot Ltd Level 2, 419 Collins Street, Melbourne, VIC 3000 Australia Phone: + 61 3 8695 9100 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 Office 79 Madison Avenue New York, NY 10016 United States of America European Offices 10 John Street London, WCIN 2EB United Kingdom 8th Floor 33 Theatinerstrasse 11 80333 Munchen Bayern Germany Adslot 2020 Annual Report 83 Adslot 2020 Annual Report 83 adslot.com
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