2020
Annual Report
For personal use only C O R P O R A T E D I R E C T O R Y
DIRECTORS
Mr Stephen Belben
Non-Executive Chairman
SHARE REGISTER
Computershare Investor Services Pty Limited
Level 11, 172 St Georges Terrace
Perth WA 6000
Mr Mathew Ratty
Managing Director and Chief Executive Officer
Telephone: +61 8 9323 2000
Facsimile: +61 8 9323 2033
Mr Renaud Besnard
Non-Executive Director
Mr Mark McConnell
Non-Executive Director
Mr Andrew Stott
Non-Executive Director
COMPANY SECRETARY
Ms Susan Hunter
SECURITIES EXCHANGE LISTING
Adveritas Limited shares are listed on the
Australian Securities Exchange
(ASX: AV1)
SOLICITORS
Steinepreis Paganin
Level 4, The Read Building
16 Milligan Street
Perth WA 6000
PRINCIPAL AND REGISTERED OFFICE
Suite 10, 16 Brodie Hall Drive
Bentley WA 6102
Telephone: +61 8 9473 2500
Facsimile: +61 8 9473 2501
BANKERS
Commonwealth Bank of Australia Limited
150 St Georges Terrace
Perth WA 6000
AUDITORS
Ernst & Young
The EY Building
11 Mounts Bay Road
Perth WA 6000
2
ADVERITAS ANNUAL REPORT 2020For personal use only T A B L E O F C O N T E N T S
Letter to shareholders
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statement of Profit and Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
ASX Additional Information
Page
2
4
25
26
27
28
29
30
71
72
79
1
ADVERITAS ANNUAL REPORT 2020For personal use only L E T T E R T O
S H A R E H O L D E R S
Mathew J. Ratty
Chief Executive Officer
Stephen Belben
Non-Executive Chairman
Dear Shareholder,
Firstly, we would like to thank you for your loyalty and support throughout the financial year. Together, we successfully raised $13.9
million to fund our Company. This achievement is particularly noteworthy given the impact COVID-19 has had on the economy
and businesses globally. We are extremely proud of our dedicated team of employees who, together with the Board and senior
management, voluntarily reduced their salaries over the period April – July. This greatly assisted the Company in weathering the
early months of COVID-19 when uncertainty was at its highest.
The enterprise-level down approach we adopted last year, whereby the main focus was on engaging marquee clients in multiple
jurisdictions, has validated our proprietary TrafficGuard technology and has enabled us to build brand equity. We have successfully
secured contracts with major global enterprises after thorough due diligence processes in which TrafficGuard was compared
to a number of well established anti-fraud offerings. This has not only given us confidence that TrafficGuard is a world-leading
technology, it has encouraged us to widen our focus and expand our reach. To that end, we have recently adopted a “three by
three” sales model which incorporates three pricing models and three routes to market.
Our three pricing models are:
• Freemium: fraud detection only, free of charge up to $2,500 of reported Google AdWord spend. Should the client seek fraud
prevention, they must move to one of our fee-paying pricing models.
• Land & Expand: relatively low-priced monthly contracts for detection and prevention services. These contracts include additional
charges for usage above agreed maximum volumes.
• Long-dated Contracts: clients typically receive a 12-month (or longer) contract for detection and prevention services. Although
the monthly fee is higher than under the Land & Expand model, the fee on a data usage basis is more economical. Under
this model, our customer success team work closely with our clients to assist them in optimising their advertising spend and
improving their return on investment.
The Company’s three routes to market are:
• Mass Market through the Freemium product offering and sector marketing activity.
• Direct Sales through the Company’s employed salesforce.
• Third Party Distribution through partnerships with Ad Agencies, Campaign Management Platforms and Marketplace Services.
Our “three by three” model works along-side our Referral Partner Program which rewards Ad Agencies (or other third parties) for
introducing their clients to TrafficGuard.
Since launching all elements of our “three by three” model in April 2020, we have gained strong traction across all marketing
channels and pricing models.
The addressable market for our Freemium offering is very large, comprising essentially any company that advertises via Google
AdWords. We are pleased to have already recognised our first revenues from the conversion of Freemium subscribers to paying
Land & Expand customers.
Enterprise-level sales pipelines continue to build, driven by both the direct sales team and introductions from the Referral Partner
Program. Prospective enterprise-level customers that are currently running TrafficGuard trials are from high spending verticals,
including:
Insurance,
•
• Money Transfer apps,
• On demand services,
• Retail,
• Automotive and
• Betting agencies.
2
ADVERITAS ANNUAL REPORT 2020For personal use only There has been strong interest in our Referral Partner Program with a number of Ad Agencies having observed TrafficGuard’s
powerful results, motivating them to introduce TrafficGuard to their wider client base.
We view parties that work with us through our Referral Partner Program as strategic partners because they can provide us with
significant sales leverage by introducing TrafficGuard to multiple new potential customer relationships. Other potential strategic
partners include domain name registries, who typically have tens of thousands of digital clients and who are actively looking for new
product cross-sell opportunities, which may include TrafficGuard.
Discussions with multiple agencies are underway and we are planning to trial new strategic partnerships with digital agencies and
domain name registries in the second half of the 2020 calendar year.
Ad Fraud Prevention Market
Digital ad fraud was forecast to have cost businesses US $42bn in 2019 and this forecast was set to rise to $100bn by 2023.
Inadequacy of existing fraud management solutions is still evident from the volumes of fraud detected by TrafficGuard. Existing
anti-fraud tools predominantly report on fraud rather than actually prevent it. As fraud forecasts and fraud-related litigation make
headlines in marketing trade press, it is clear that there is an increasing dissatisfaction with the status quo and growing demand for
a more sophisticated approach.
In other industries fraud and security are managed by independent specialists. In digital advertising, the provision of independent
fraud protection is now rapidly becoming accepted as an anti-fraud model. We are delighted that TrafficGuard is gaining its
position as the fraud prevention solution of choice for the global digital advertising sector.
We are excited to be the first ad fraud prevention specialists with our unique triple layered protection. TrafficGuard is comprised of
multiple layers of scoring, algorithms, thresholds and machine learning, applied to the impression, click, install and post-install event.
Outlook
We are still young in our journey. However, the ad fraud prevention market is ripe with opportunities and we believe that our future
looks positive as we focus on driving revenue growth using our “three by three” model.
Our mission is to “drive trust and transparency in the digital marketing ecosystem” and by doing this, our clients get access
to accurate data which allows them to make better decisions on where to optimise their advertising spend. We are committed to
this mission and will continue to invest in research and development initiatives, our people, and any other areas which will drive
sustainable long-term value for both out clients and our shareholders.
We look forward to a strong year of growing our Company and we thank you again for your support.
Yours sincerely,
Mathew J. Ratty
Stephen Belben
Chief Executive Officer
Non-Executive Chairman
3
ADVERITAS ANNUAL REPORT 2020For personal use only The directors present their report together with the consolidated financial report of Adveritas Limited (Adveritas or Company) and
its controlled entities (collectively referred to as the Group) for the financial year ended 30 June 2020 and the independent auditor’s
report thereon.
DIRECTORS
The names and details of the Company’s directors in office during the financial year and until the date of this report are set out
below. Directors were in office for this entire period unless stated otherwise.
MR STEPHEN BELBEN
Non-Executive Chairman
Mr Belben has over 20 years’ experience in both executive and non-executive director roles, at a number of public and private
companies. This experience follows 9 years as a senior partner at Ernst & Young, specialising in corporate and assurance work in
Australia. Whilst at Ernst & Young, Mr Belben was appointed the national partner in charge of one of the firm’s largest Industry Group’s
where he was responsible for the development and servicing of a major client base in that sector in Australia.
During the last three years, Mr Belben has not served as a director of any other ASX listed company.
Mr Belben is a Chartered Accountant and holds a Bachelor of Accountancy degree and a Bachelor of Commerce Honours degree.
MR MATHEW RATTY
Managing Director and Chief Executive Officer
Mr Ratty is an experienced investor focused on Australian and US equity and debt markets. He has extensive experience across
capital raising advice, seed investment negotiation, corporate strategy and financial modelling.
He is the co-founder of MC Management Group Pty Ltd, a venture capital firm operating in domestic and international debt and
equity markets. At MC Management Group Pty Ltd, which is a substantial shareholder the Company, Mr Ratty holds the position of
Head of Investment and is responsible for negotiating deal structures and asset pricing for companies in the healthcare, financial
and technology space.
Prior to this, Mr Ratty was a director and analyst at property development and equity company, Gladstone Bridge.
During the last three years Mr Ratty has also served as a Non-Executive Director of medical technology company, Admedus Limited
(ASX: AHZ). He resigned from this position on 20 May 2018.
Mr Ratty holds a Bachelor of Commerce (Property and Finance) with first class honours in finance from Curtin University of
Technology.
MR RENAUD BESNARD
Non-Executive Director
Mr Besnard is a senior marketing executive currently based in San Francisco. Mr Besnard’s roles have included Vice President, Growth
lab at PayPal, Senior Director of Global Growth and Product Marketing at Twitter, and Director of Marketing for Asia-Pacific (excl.
India) at Uber Technologies Inc. Prior to joining Uber, Mr Besnard was a long-standing Google executive, having spent almost 10
years in senior positions in Europe and Asia.
Mr Besnard is very experienced at developing and executing marketing strategies and leading global growth marketing and global
product marketing campaigns across consumer and advertiser audiences.
During the last three years, Mr Besnard has not served as a director of any other ASX listed company.
Mr Besnard holds a Bachelor degree in Commerce from ESSCA Business School (France), a Masters in International Business from
the University of Manchester (UK) and an MBA from the University of Oxford (UK).
MR MARK MCCONNELL
Non-Executive Director
Mr McConnell is a successful business developer whose skills cover the areas of business strategy, investor relations, capital raising
and innovation. He has extensive experience in both listed and unlisted technology companies in Australia and abroad. He co-
founded the Citadel Group Limited (ASX: CGL) in 2007, a leading software and technology company that specialises in secure
enterprise information management.
Mr McConnell currently serves as the Chef executive Officer of Citadel Group Limited and is a non-executive director of Viva Leisure
Limited (ASX: VVA). Mr McConnell also acts as an advisor to HOF Capital, a global technology investment firm that leverages its
extensive networks to help founders build successful businesses.
Mr McConnell has a Bachelor of Science, a Graduate Diploma of Employment Relations, a Graduate Diploma of Logistics
Management, and a Masters of Business Administration. He is also a Fellow of the Australian Institute of Company Directors (FAICD).
4
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only MR ANDREW STOTT
Non-Executive Director
Mr Stott has significant experience in global technology mergers and acquisitions for listed and unlisted companies. He is originally
from the UK and worked in London and New York before moving to Singapore in 2012 to open the offices of an international tech-
focussed law firm. Mr Stott became the Asia managing partner, and regional head of corporate and advised on in excess of
US$20bn in transactions in Asia, Australia, Europe and the USA. Mr Stott established his own advisory firm in early 2018 and has
been working as a consultant to Adveritas since August 2018, helping implement its expansion strategy through relationships with
internationally based customers and partners.
Until June 2018, Mr Stott was also a Board member of the Asia Video Industry Association (AVIA), an industry lobbying association
representing the video industry in Asia. AVIA’s 130-member organisations include leading advertising and marketing agencies,
media groups, government regulatory bodies, telecom companies, new media service providers and network enablers.
During the last three years, Mr Stott has not served as a director of any other ASX listed company.
Mr Stott holds an LLB Degree in Law and is a solicitor of the courts of England and Wales.
INTERESTS IN THE SECURITIES OF THE COMPANY AND RELATED BODIES CORPORATE
As at 30 June 2020 and as of the date of this report, the interests of the directors in the securities of the Company were as follows:
As at 30 June 2020
As at the date of this report
Ordinary
shares
Share options
Performance
Rights
Ordinary
shares
Share options
Performance
Rights
720,000
840,000
-
720,000
840,000
-
17,780,544
3,999,092
11,250,000
17,780,544
3,999,092
11,250,000
-
1,250,000
M. McConnell
25,032,593
10,282,778
A. Stott
500,000
1,350,000
-
-
-
-
750,000
25,032,593
10,282,778
500,000
1,350,000
-
-
-
S. Belben
M. Ratty
R. Besnard
COMPANY SECRETARY
Ms Susan Hunter has over 23 years’ experience in the corporate finance industry and has extensive experience in Company
Secretarial and Non-Executive Director roles on ASX, AIM and TSX listed companies.
Ms Hunter holds a Bachelor of Commerce degree from the University of Western Australia majoring in Accounting and Finance, is a
Member of the Australian Institute of Chartered Accountants, a Fellow of the Financial Services Institute of Australasia and a Member
of the Australian Institute of Company Directors. She is also a Fellow of the Institute of Chartered Secretaries and Administrators and
Chartered Secretaries Australia.
DIVIDENDS
The directors do not recommend the payment of a dividend and no amount has been paid or declared by way of a dividend to the
date of this report.
PRINCIPAL ACTIVITIES
The Company’s principal activity during the year was the provision of comprehensive digital advertising fraud prevention services
through its SaaS (software as a service) product, TrafficGuard®.
5
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only
OPERATING AND FINANCIAL REVIEW
SALES MODEL
During the first half of the financial year, the Group deployed multiple sales strategies to drive revenue growth which resulted in a
number of key clients being secured, including Go-Jek and MUV (subsidiary of global agency holding group WPP Plc). Sales and
marketing initiatives also resulted in key clients, Rappi and MUV, subsequently upgrading their contracts which not only highlighted
client satisfaction but also demonstrated the upsell potential across the Group’s client portfolio.
To further optimise the Group’s sales strategies and maximise revenue growth, it adopted a “three by three” sales model which was
launched on 1 April 2020 and incorporates three pricing models and three routes to market.
The three pricing models are:
1. Freemium
The Freemium offering was launched to create a significantly expanded sales funnel with substantial upsell potential. The
offering comprises TrafficGuard’s detection only service free-of-charge. The strategy is to make this service widely available
with the potential to upsell to TrafficGuard’s fraud prevention services.
2.
Land and expand
From the Freemium model, clients may elect to upgrade and subscribe to TrafficGuard’s fraud prevention service. They will
then fall within the “land and expand” model, which involves paying a fixed monthly SaaS fee, with additional charges for
excess data usage.
3. Long-dated contracts
Once clients fall within the “land and expand” model, there is potential to upgrade their contract to a long-dated contract
model which provides benefits to the client on a per data usage cost basis.
The three routes to market include:
1. Mass market: accessed through Freemium offering.
2.
3.
Direct sales: through the direct sales force located in Asia Pacific (APAC), the United Kingdom, North America and Latin
America (LATAM).
Third party distribution: through integrations with Campaign Management Platforms, ad agencies and marketplace services
to provide even more options for businesses to find and activate TrafficGuard.
Since launching its three by three model, the Group has been gaining strong traction across all marketing channels and pricing
models. In particular, a high level of interest in TrafficGuard’s Google Pay-Per-Click anti-fraud offering has been noted. By the end
of the financial year, the Group had received over 540 Freemium subscribers and a number of those subscribers had converted to
“land and expand” customers.
IMPACT OF COVID-19
The global COVID-19 pandemic impacted the Company’s revenue in the following ways:
•
temporary suspension of services to clients at their request;
•
temporary reduction of monthly licence fees to assist struggling clients;
• potential clients requesting to defer final contract negotiations until they have a better understanding of the impact of COVID-19
on their businesses; and
• opportunities to market TrafficGuard were curtailed due to the cancellation of trade shows and events, the imposition of
domestic and international travel restrictions, and the ceasing of face to face meetings.
In response to the global COVID-19 pandemic, the Group delayed (where possible) and curtailed expenditure in a number of
areas including, in particular, advertising, marketing and public relations. Most importantly, employees across the Company’s global
operations voluntarily agreed to a temporary reduction in their salaries from 1 April to 31 July. In addition, Board fees were reduced
to nil, the CEO salary was reduced by 50% and the salaries of other members of senior management were reduced by 30%. These
reductions were made without there being any obligation on the Company to repay the forgone amounts.
6
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only
CAPITAL RAISED
During the year, the Group successfully raised $13.9 million (before costs) as follows:
• August 2019: Placement at $0.10 per share to institutional and strategic investors, including directors Mathew Ratty and Mark
McConnell, to raise $2.87 million. The directors’ participation in this placement was $1.3 million.
• December 2019: Placement at $0.17 per share to institutional and strategic investors, including directors Mathew Ratty and Mark
McConnell, to raise $3.5 million. The directors’ participation in this placement was $0.5 million.
• February 2020: 1.3 million options were exercised to raise $145k.
• March 2020: In response to CODID-19 concerns, a placement at $0.055 per share to institutional and strategic investors, including
director Mathew Ratty, was completed to raise $1.87 million. Mr Ratty’s participation in this placement was $150k.
• June 2020: Placement at $0.075 per share to institutional and strategic investors, including director Mark McConnell, to raise $4.5
million. Mark McConnell’s participation in this placement is $2 million and is expected to be received by the Group in September
once shareholders have approved the issue of shares to Mr McConnell.
• June 2020: A Share Purchase Plan (SPP) was offered to eligible shareholders to raise up to $2 million at $0.075 per share, the
same price at which shares were placed with institutional and strategic investors. The SPP closed 50% over subscribed to raise
$3.07 million.
UPDATE ON MPIRE NETWORK TRANSACTION
On 31 July 2018, the Group disposed of 90% of its interest in the performance-marketing business, Mpire Network Inc, to ClearPier Inc.
As part of the disposal process, the Group agreed to licence its nxus and TrafficGuard products to Mpire Network Inc for a minimum
term of 1 year, commencing on 1 August 2018. The initial term of the licencing agreements came to an end on 31 July 2019, and under
the terms of the agreements, they were automatically renewed for a further 12-months unless terminated 30 days before the end
of the initial term. Mpire Network Inc did not provide a termination notice to the Group. However, after the second term commenced,
Mpire Network Inc disputed the renewal mechanism.
In addition, ClearPier Inc has failed to pay the deferred component of the purchase consideration for Mpire Network Inc in
accordance with the terms of the Sale and Purchase Agreement.
The Group has instructed its legal counsel to take the required action prescribed by the underlying agreements to resolve the
disputes and recover the balances owing to it. For accounting purposes. the Group has adopted a highly conservative stance
in relation to the balances owing and has recognised an expected credit loss of $848k, being the total of the SaaS licence fees
outstanding ($280k) and the deferred consideration receivable ($568k). The Group also decided to write down its remaining
investment in Mpire Network Inc to nil.
7
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only FINANCIAL SUMMARY
Note
FY 2020
FY 2019
Revenue from software as a service
Grant income
Profit on disposal of performance marketing business
JobKeeper and Cash Flow Booster stimulus income
Foreign exchange gains
Sundry income
Other income
Server hosting costs
Administration, marketing and occupancy costs
Compliance and consultancy costs
Employment costs
Expected credit loss and bad debts expense
Finance costs
Overheads
Foreign exchange losses
Depreciation
Impairment loss
Expected credit loss – deferred consideration
1
2
3
4
$
$
1,227,213
643,579
1,287,433
-
305,000
-
21,429
955,868
594,698
-
160,854
66,317
1,613,862
1,777,737
(2,119,094)
(1,364,491)
(1,262,456)
(1,156,668)
(883,354)
(707,811)
(5,506,082)
(5,235,288)
(279,343)
(41,463)
(54,245)
-
(10,104,574)
(8,505,721)
(50,325)
-
(136,342)
(39,191)
(113,525)
(567,869)
-
-
Share based payments (refer to Note 17 to the financial statements)
(1,343,842)
(503,233)
Other expenses
Loss before tax
Income tax expense
Loss after tax - continuing operations
Profit after tax - discontinued operations
Loss after tax for the Group
(2,211,903)
(542,424)
(9,475,402)
(6,628,829)
(11,957)
(17,591)
(9,487,359)
(6,644,420)
-
92,223
(9,487,359)
(6,552,197)
During the previous financial year, the Company’s revenue stream transitioned from performance marketing to software
as a service. The revenue earned from performance marketing in FY19 is included in the profit after tax from discontinued
operations.
Grant income relates to the Group’s research and development expenditure incurred in FY19 and FY18 respectively.
Server hosting costs increased in FY20 as a result of the increase in enterprise-level clients.
As part of the Group’s sales and marketing initiatives, a number of personnel were recruited during the year to enable the key
areas of North America, Latin America, Asia Pacific and the United Kingdom to be effectively targeted.
Notes
1.
2.
3.
4.
8
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes in the Group’s state of affairs during the course of the 2020 financial year.
SIGNIFICANT EVENTS AFTER BALANCE DATE
No event has arisen since 30 June 2020 that would be likely to materially affect the operations of the Group, or its state of affairs
which has not otherwise been disclosed in this financial report.
LIKELY DEVELOPMENTS AND EXPECTED FUTURE RESULTS
The Group is focused on driving revenue in multiple ways:
• by expanding its Freemium pipeline through increased digital marketing across multiple platforms and by deploying strategic
partnerships with agencies and domain name registries;
• by driving Freemium subscriber conversions through content marketing, bundled offerings and the introduction of direct sales
contact;
• by actively pursuing upgrades of “land and expand” customers to larger and longer-dated contracts; and
• by converting targets in Enterprise-level pipeline into customers.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Group is not subject to any particular or specific environmental regulation in any of the jurisdictions in which it operates and
therefore is not required to present further details in relation to environmental regulation.
SHARE OPTIONS
UNISSUED SHARES
As at 30 June 2020, there were 62,246,109 unissued ordinary shares under options (30 June 2019: 64,446,334). Refer to the
remuneration report and Note 17 for further details of the unissued ordinary shares under options outstanding.
Expiry Date
25 August 2020
24 December 2020
25 October 2021
27 March 2022
19 August 2021
21 November 2021
Exercise
Price
$0.45
$0.15
$0.10
$0.20
$0.15
$0.20
Number
on issue
500,000
2,650,000
55,496,109
3,000,000
400,000
200,000
62,246,109
As at the date of this report, 500,000 options with the expiry date of 25 August 2020 had expired leaving 61,746,109 options on issue.
Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body
corporate.
SHARES ISSUED AS A RESULT OF THE EXERCISE OF OPTIONS
During the financial year, 1,300,225 options were exercised to acquire ordinary shares (2019: 4,500).
9
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only PERFORMANCE RIGHTS
UNISSUED SHARES
As at 30 June 2020 there were 26,600,000 unissued ordinary shares under performance rights (30 June 2019: 8,250,000). Refer to
the remuneration report and Note 17 for further details of the performance rights outstanding.
Holders of performance rights do not have any right, by virtue of the performance right, to participate in any share issue of the
Company or any related body corporate.
SHARES ISSUED AS A RESULT OF THE CONVERSION OF PERFORMANCE RIGHTS
During the financial year no performance rights were converted into ordinary shares (2019: 33,332).
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
The Company has agreed to indemnify all the directors of the Company for any liabilities to another person (other than the
Company or related body corporate) that may arise from their position as directors of the Company and its controlled entities,
except where the liability arises out of conduct involving a lack of good faith.
During the financial year, the Company paid a premium in respect of a contract insuring the directors and officers of the Company
against any liability incurred in the course of their duties to the extent permitted by the Corporations Act 2001. The contract of
insurance prohibits disclosure of the nature of the liability and the amount of the premium.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Group has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit
engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been
made to indemnify Ernst & Young during or since the financial year.
DIRECTORS’ MEETINGS
The number of meetings of directors held by the Company during the year and the number of meetings attended by each director
were as follows:
Number of meetings held
11
S. Belben
M. Ratty
R. Besnard
M. McConnell
A. Stott
Number of meetings
eligible to attend
Number of meetings
attended
11
11
11
11
11
11
11
8
8
11
COMMITTEE MEMBERSHIP
Due to the Company’s relatively small size and board structure, separate Remuneration and Audit Committees have not been
constituted. The full board of directors assumes responsibility for any such matters as outlined in the Company’s corporate
governance plan.
NON-AUDIT SERVICES
The following non-audit services were provided by the Group’s auditor, Ernst & Young Australia, during the year and Ernst & Young
Australia received or is due to receive the following amounts for the provision of such services:
Tax compliance services
$
39,111
The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence
imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means the auditor’s
independence was not compromised.
10
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only
AUDITOR INDEPENDENCE
Section 307C of the Corporations Act 2001 requires the Company’s auditors, Ernst & Young Australia, to provide the directors of the
Company with an Independence Declaration in relation to the audit of the Financial Report. The directors received the Independence
Declaration set out on page 25 for the year ended 30 June 2020.
REMUNERATION REPORT (AUDITED)
This remuneration report for the year ended 30 June 2020 outlines the remuneration arrangements of the Group in accordance with
the requirements of the Corporations Act 2001 (Cth), as amended (the Act) and its regulations. This information has been audited
as required by section 308(3C) of the Act.
The remuneration report is presented under the following sections:
1.
2.
3.
4.
5.
6.
1.
Introduction
Remuneration governance
Remuneration outcomes
Executive contracts
Additional disclosures relating to performance rights, options and shares
Other transactions and balances with key management personnel and their related parties
INTRODUCTION
The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined
as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group,
directly or indirectly, including any director (whether executive or otherwise) of the parent entity.
The list below outlines the KMP of the Group during the financial year ended 30 June 2020. Unless otherwise indicated, the
individuals were KMP for the entire financial year.
For the purposes of this report, the term “executive” indicates the executive directors and senior executives of the Group.
Non-Executive Directors (NEDs)
S. Belben
Non-Executive Chairman
R. Besnard Non-Executive Director
M. McConnell Non-Executive Director
A. Stott
Non-Executive Director
Executive Directors
M. Ratty
Managing Director and Chief Executive Officer
Senior Executives
L. Taylor
Chief Operations Officer
F. Muir
Chief Financial Officer
S. Hunter
Company Secretary
D. Cox
Chief Revenue Officer
E. Rosenburg Vice President of Sales North America, resigned 2 October 2019
J. Linden
Vice President of Sales North America, appointed 10 January 2020
2.
REMUNERATION GOVERNANCE
2(a) Remuneration Philosophy
The performance of the Group depends upon the quality of the directors and executives. The philosophy of the Group in
determining remuneration levels is to:
-
-
-
set competitive remuneration packages to attract and retain high calibre employees;
link rewards to shareholder value creation; and
establish appropriate, demanding performance hurdles for variable executive remuneration.
11
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only REMUNERATION REPORT (AUDITED) (CONTINUED)
2(b) Remuneration Committee
The current size of the Group and structure of the board of directors does not warrant a separate remuneration committee.
The board of directors as a whole (Board) is currently responsible for determining and reviewing compensation
arrangements for directors and executives. Directors are excluded from discussions and voting on their own remuneration
arrangements.
The Board assesses the appropriateness of the nature and amount of remuneration of directors and executives on a periodic
basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder
benefit from the retention of a high quality Board and executive team.
2(c) Remuneration Structure: Non-Executive Director Remuneration
Fixed Remuneration
In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration
is separate and distinct.
The Board seeks to set aggregate remuneration of non-executive directors at a level that provides the Group with the ability
to attract and retain high calibre directors, whilst incurring a cost that is acceptable to shareholders.
The ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to
time by a general meeting. The aggregate remuneration set pursuant to Adveritas Limited’s constitution is $500,000 per year,
which may be varied by shareholders in general meeting.
The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned
amongst directors is reviewed annually. The Board does not currently seek external remuneration advice.
Each director receives a fee for being a director of the Company.
Options
No options were issued to directors in the current year (2019: 750,000 options to each non-executive director).
2(d) Remuneration Structure: Executive Director and Senior Executive Remuneration
(i) Objective
The Group aims to reward executives with a level and mix of remuneration commensurate with their position and
responsibilities so as to:
•
•
•
•
Reward executives;
Align the interests of executives with those of shareholders;
Link reward with strategic goals and performance of the Group; and
Ensure total remuneration is competitive by market standards.
(ii) Principles of Compensation
Compensation levels for employees of the Group are competitively set to attract and retain appropriately qualified and
experienced senior executives. Executive remuneration and other terms of employment are reviewed annually by the
Board having regard to the performance, relevant comparative information and expert advice if required.
(iii) Structure
Remuneration consists of the following key elements:
•
•
Fixed Remuneration (base salary, superannuation and non-monetary benefits);
Variable Remuneration
o Short-term incentives
o Long-term incentives
The Board establishes the proportion of fixed and variable remuneration for each executive.
Fixed Remuneration
The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position
and is competitive in the market. The Board periodically reviews fixed remuneration when extending or otherwise amending
the employment contracts of key executives. This review takes into account the overall performance of the executive and
of the Group. The Board considers the executive’s performance of the specific duties and tasks set out in their employment
contracts which were included based on the general nature of the executive’s role together with any specific requirements
from the Board.
Executives may be given the flexibility to receive their remuneration in a variety of forms including cash and fringe benefits. It is
intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Group.
12
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only REMUNERATION REPORT (AUDITED) (CONTINUED)
Variable Remuneration – short-term incentive
The objective of short-term incentives is to link the achievement of the Group’s operational targets with the remuneration
received by the executives charged with meeting those targets. Operational targets are set periodically by the Board and
include matters such as the funding of the Company, the timing of technological developments and the implementation of
sales and marketing strategies.
From time to time cash bonuses (short-term incentives) are paid where an executive has met a short-term objective of
the Group. Such bonuses are paid when specific criteria which are set by the Board are met. These criteria are linked to the
operational targets set by the Board. In some instances, cash bonuses are paid when the Board determines that an executive
has made contributions that are significant and beyond the normal expectations of their role. In making such determinations,
the Board will consider a number of factors including the area of the business that has been impacted by the executive’s
contributions and the alignment of these contributions to the Group’s overall strategy.
Variable Remuneration – long-term incentive
Long-term incentives are delivered in the form of options and performance rights.
Performance rights and options are generally issued in accordance with the terms and conditions of the Adveritas
Performance Rights and Options Plan (Plan) that has been approved by the Company’s shareholders.
Pursuant to the listing rules of the Australian Securities Exchange (Listing Rules), the Company’s shareholders are required
to re-approve the Plan and all unallocated securities issuable under it every three years. The Company’s current Plan was
approved by shareholders at the 2018 AGM.
The key features of the Plan are as follows:
• The Company’s board of directors (Board) may, from time to time, in its absolute discretion, make a written offer to any
eligible participant to apply for options or performance rights (Awards), upon the terms set out in the Plan and upon such
additional terms and conditions as the Board determines.
• An Award may be made subject to vesting conditions as determined by the Board in its discretion and as specified in the
offer for the Awards.
• The Board may in its absolute discretion resolve to waive any of the vesting conditions applying to Awards due to special
circumstances arising in relation to the eligible participant; or the Company passing a resolution for voluntary winding up;
or an order is made for the compulsory winding up of the Company.
• Where a change of control occurs, vesting conditions are deemed to be automatically waived.
• An Award will lapse upon the earlier of:
o an unauthorised dealing, or hedging of the Award;
o a vesting condition in relation to the Award is not satisfied by its due date, or becomes incapable of satisfaction, as
determined by the Board in its absolute discretion;
o in respect of unvested Awards, the recipient of the unvested Awards ceases to be an eligible participant;
o in respect of vested Awards, the recipient of the vested Awards ceases to be an eligible participant and the Award
granted is not exercised within a one (1) month period (or such later date as the Board determines) of the date that
person ceases to be an eligible participant;
o the Board deems that an Award lapses due to fraud, dishonesty or other improper behaviour of the eligible participant;
o the Company undergoes a change of control or a winding up resolution or order is made and the Board does not
exercise its discretion to vest the Award; and
o the expiry date of the Award.
• The Board may, in its discretion, determine at any time up until exercise of Awards, that a restriction period will apply to
some or all of the shares issued to an eligible participant on exercise of those Awards (Restriction Period). In addition, the
Board may, in its sole discretion, having regard to the circumstances at the time, waive any such Restriction Period.
• There are no participation rights or entitlements inherent in the Awards and eligible participants will not be entitled to
participate in new issues of capital offered to shareholders during the currency of the Awards without exercising the Award.
In the event that an offer of an Award to an executive will result in the maximum Awards allowed under the Plan being
exceeded, the offer will not be covered by ASIC Class Order 14/1000 and the Company will be required to address the
secondary sale requirements of any shares issued upon exercise of the Award. This includes the Company lodging a cleansing
notice under Section 708A(5) of the Corporations Act 2001 (Cth) or a prospectus under Section 708A(11) of the same Act.
During the current year, nil options and 6,750,000 performance rights were granted to executives (2019: 1,750,000 options and
14,850,000 performance rights).
The exercise price and vesting conditions of options awarded to executives and the vesting conditions of performance rights
awarded to executives is determined so as to ensure that these options and performance rights only have value if there is an
increase in shareholder wealth over time.
2(e) Remuneration Report Approval at 2019 Annual General Meeting
The remuneration report of Adveritas Limited for the year ended 30 June 2019 was approved by shareholders at the 2019 AGM.
13
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only REMUNERATION REPORT (AUDITED) (CONTINUED)
3.
REMUNERATION OUTCOMES
Remuneration of Key Management Personnel
In response to the global COVID-19 pandemic, with effect from 23 March 2020, Non-Executive Director fees were reduced to
nil, the salary of Mr Ratty was reduced by 50% and the salaries of senior executives employed by the Company were reduced
by 30%. These reductions were made without there being any obligation on the Group to repay the forgone amounts.
Short-term benefits
Post-
employment
Long-term
benefits Share-based payments
Salary & fees
Commission
/ Bonus
Termination
benefits
Non-
monetary
benefits
$
42,725
60,165
28,483
40,110
28,483
13,824
31,084
14,991
$
-
-
-
-
-
-
-
-
227,580
100,000
235,044
185,000
358,355
100,000
364,134
185,000
242,483
243,983
25,000
25,000
-
11,868
-
227,783
-
5,658
101,970
105,642
72,373
58,838
268,497
123,978
86,644
60,842
103,332
-
875,298
838,592
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,000
25,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
40,331
-
73,455
-
-
-
-
-
-
-
-
-
-
-
-
-
113,786
1,233,654
125,000
-
1,202,726
210,000
113,786
Non-Executive Directors
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
S. Belben 9
R. Besnard 9
M. McConnell 1 9
A. Stott 1, 9
Executive Directors
M. Ratty 2, 7, 9
Total Directors
Senior Executives
L. Taylor 3, 8, 9
L. Hunter 4
J. Dutton 5, 9
T. Allison 6
F. Muir 9
S. Hunter 10
D. Cox 9
E. Rosenberg 11
J. Linden 12
Total Senior
Executives
Total
14
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Super
$
4,059
5,716
2,706
3,810
2,706
1,313
-
-
20,691
22,621
30,162
33,460
20,938
20,728
-
2,881
-
-
-
-
9,687
10,036
-
-
20,879
11,778
-
-
-
-
51,504
45,423
81,666
78,883
Long service
leave
Performance
Rights
Options
$
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
$
-
51,803
-
51,803
-
Total
$
46,784
117,684
31,189
95,723
31,189
51,803
66,940
-
51,803
31,084
66,794
2,733
544,645
828
5,303
2,733
544,645
-
-
-
895,649
448,796
1,035,895
828
5,303
207,212
795,937
8,268
4,671
393,641
88,316
-
-
-
-
690,151
382,698
-
55,080
-
14,922
316,160
-
-
5,957
14,922
-
-
-
5,658
117,614
130,600
72,373
58,838
-
-
-
-
-
-
-
-
-
33,845
8,936
333,459
-
-
-
-
-
22,383
158,385
-
-
-
-
86,644
60,842
103,332
-
-
-
-
-
-
-
-
-
-
-
1,302
246
-
-
-
-
9,570
427,306
14,893
1,403,572
4,917
88,316
52,227
1,168,261
12,303
5,745
971,951
14,893
2,439,467
93,619
259,439
1,964,198
Performance
related
%
-
-
-
-
-
-
-
-
72
42
62
50
61
30
-
-
-
5
-
-
5
11
-
-
13
14
-
-
-
-
14
46
29
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only REMUNERATION REPORT (AUDITED) (CONTINUED)
3.
REMUNERATION OUTCOMES (CONTINUED)
Notes
1. Mr McConnell and Mr Stott were appointed as non-executive directors on 26 February 2019.
2.
3.
Mr Ratty was appointed as permanent Chief Executive Officer on 9 November 2018. Mr Ratty had previously served as the
interim Chief Executive Officer.
Mr Taylor was appointed as Chief Operations Officer on 20 August 2018. Mr Taylor had previously served as the Chief
Technology Officer.
4. Mr Hunter resigned as Chief Operating Officer on 18 July 2018.
5. Mr Dutton’s employment ceased on 21 May 2019.
6.
7.
8.
9.
Mr Allison resigned on 15 June 2018. Salary and fees comprise consultancy fees charged by Mr Alison subsequent to his
resignation.
The bonuses paid to Mr Ratty in the current year relate successfully raising capital, securing Tier 1 clients, expanding the
US sales team and driving the business such that the Company’s share price achieved targeted level. In the prior year,
the bonuses paid related to the sale of the performance marketing business and the successful completion of a rights
issue and placement to raise additional capital.
The bonuses paid to Mr Taylor in the current and prior year relate to the successful achievement of key technical
milestones.
Refer to section 5 below and Note 17 for further information on the vesting conditions attached to the options and
performance rights granted.
10. Ms Hunter provides company secretarial services through Hunter Corporate Pty Ltd, an entity controlled by her.
11. Mr Rosenberg resigned on 2 October 2019.
12. Mr Linden commenced employment on 10 January 2020.
15
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only
REMUNERATION REPORT (AUDITED) (continued)
4.
EXECUTIVE CONTRACTS
Remuneration arrangements for executives are formalised in the employment agreements. The following outlines the details
of the contracts with executives:
Mathew Ratty, Managing Director and Chief Executive Officer
Mr Ratty’s current employment agreement commenced on 9 November 2018 (Mr Ratty held the position of Interim CEO up to
this date). The term of Mr Ratty’s contract was extended from 30 June 2021 to 30 June 2023 on 3 July 2020.
Details
• Remuneration:
Annual base salary of $265,000 (plus statutory superannuation). With effect from 23 March 2020, Mr Ratty agreed to
forego 50% of his base salary until 31 July 2020 as part of the Group’s COVID cost-cutting measures. On 3 July 2020, Mr
Ratty’s contract was varied to increase the annual base salary to $290,000 (plus statutory superannuation) with effect
from 1 August 2020.
• Performance related bonuses – short term incentive:
At the Board’s discretion, a cash bonus may be paid to Mr Ratty in relation to the successful completion of various
milestones periodically set by the Board. The cash bonus is not to exceed 50% of the annual salary in the financial year the
bonus is earnt.
• Performance related bonuses – long term incentive:
The following performance rights have been issued to Mr Ratty
Milestones to be achieved
First 3 Tier 1 clients in USA
First 3 Tier 1 clients in Latin America (LATAM)
First 3 Tier 1 clients in Asia Pacific (APAC)
First 10 clients that sign on using TrafficGuard
First 3 “Tier 1” clients who the Board consider to be enterprise level
i.e. > 1 billion clicks per month
First achievement of revenue producing twelve-month contracts to the
amount of $1m
First achievement of revenue producing twelve-month contracts to the
amount of $3m
First achievement of revenue producing twelve-month contracts to the
amount of $5m
First achievement of break-even cash flow in a financial year
First achievement of audited $1m EBITDA
First achievement of audited $3m EBITDA
Date by which
milestone is to be
achieved
Quantum of performance
rights to vest upon
achievement of milestone
30 June 2021
30 June 2021
30 June 2021
30 June 2021
30 June 2021
1,000,000
1,000,000
1,000,000
250,000
500,000
30 June 2021
500,000
30 June 2021
1,000,000
30 June 2021
1,500,000
30 June 2021
30 June 2021
30 June 2021
1,000,000
1,500,000
2,000,000
11,250,000
• Termination:
The agreement may be terminated:
• by the Company without cause by giving twelve months’ notice, or immediately with payment in lieu of notice;
• by the Company giving one months’ notice if Mr Ratty is unable to perform his duties due to illness, accident or
incapacitation, for six consecutive months or a period aggregating more than six months in any twelve-month
period; or
• by the Company immediately without notice following material breach or in the case of misconduct; or
• by Mr Ratty without cause by giving three months’ notice or immediately if the Company commits any serious or
persistent breach of the agreement.
• Other:
The agreement includes other general industry standard provisions for a senior executive.
16
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only REMUNERATION REPORT (AUDITED) (continued)
4.
EXECUTIVE CONTRACTS (CONTINUED)
Luke Taylor, Chief Operations Officer
Mr Taylor’s current employment agreement commenced on 20 August 2018 (Mr Taylor held the position of Chief Technology
Officer up to this date) and the term was extended from 30 June 2021 to 30 June 2023 on 5 July 2020.
Details
•
Remuneration:
The annual base salary of $250,000 (plus statutory superannuation) was increased to $275,000 (plus statutory
superannuation) on 21 November 2019. With effect from 23 March 2020, Mr Taylor agreed to forego 30% of his base salary
until 31 July 2020 as part of the Group’s COVID cost-cutting measures.
• Performance related bonuses – short term incentive:
A cash bonus may be paid at any time during the term of the agreement conditional upon the achievement of key
performance indicators set by the Chief Executive Officer. The cash bonus is not to exceed 25% of the annual salary in the
financial year the bonus is earnt
• Performance related bonuses – long term incentive:
The following performance rights have been issued to Mr Taylor
Milestones to be achieved
First 3 Tier 1 clients in USA
First 3 Tier 1 clients in Latin America (LATAM)
First 3 Tier 1 clients in Asia Pacific (APAC)
First 10 clients that sign on using TrafficGuard
First 3 “Tier 1” clients who the board consider to be enterprise level
i.e. > 1 billion clicks per month
First achievement of revenue producing twelve month contracts to the
amount of $1m
First achievement of revenue producing twelve month contracts to the
amount of $3m
First achievement of revenue producing twelve month contracts to the
amount of $5m
First achievement of break-even cash flow in a financial year
First achievement of audited $1m EBITDA
First achievement of audited $3m EBITDA
Date by which
milestone is to be
achieved
Quantum of performance
rights to vest upon
achievement of milestone
30 June 2021
30 June 2021
30 June 2021
30 June 2021
30 June 2021
30 June 2021
30 June 2021
1,000,000
1,000,000
1,000,000
200,000
400,000
400,000
800,000
30 June 2021
1,200,000
30 June 2021
30 June 2021
30 June 2021
800,000
1,200,000
1,600,000
9,600,000
• Termination:
The agreement may be terminated:
• by the Company without cause by giving six months’ notice, or immediately with payment in lieu of notice;
• by the Company giving one months’ notice if Mr Taylor is unable to perform his duties due to illness, accident or
incapacitation, for six consecutive months or a period aggregating more than six months in any twelve-month
period; or
• by the Company immediately without notice following material breach or in the case of misconduct; or
• by Mr Taylor without cause by giving three months’ notice or immediately if the Company commits any serious or
persistent breach of the agreement.
• Other:
The agreement includes other general industry standard provisions for a senior executive.
17
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only REMUNERATION REPORT (AUDITED) (CONTINUED)
4.
EXECUTIVE CONTRACTS (CONTINUED)
David Cox, Chief Revenue Officer
Mr Cox’s current employment agreement commenced on 26 April 2019 and has no fixed term. Mr Cox held the position of
Managing Director, APAC Sales from 19 November 2018 to 25 April 2019.
Details
•
Remuneration:
• Annual base salary of $250,000 plus statutory superannuation. With effect from 23 March 2020, Mr Cox agreed to
forego 30% of his base salary until 31 July 2020 as part of the Group’s COVID cost-cutting measures.
• A maximum override commission of 1.5% of revenue received from TrafficGuard SaaS that is attributable to the
sales efforts of the Mr Cox’s subordinates; and
• a maximum commission of 7.5% of the total value received from every new client agreement that is attributable to
Mr Cox’s sales efforts.
• Long term incentives:
On 26 February 2020, Mr Cox was awarded 750,000 performance rights which will vest 2 years from date of issue provided
Mr Cox remains a full-time employee of the Group.
In addition, if Mr Cox achieves the milestones listed below within 24 months of commencement of his employment
agreement, he will be offered the following options:
Milestones
Upon achievement of annualised contract revenue of US$3 million
Upon achievement of annualised contract revenue of US$5 million
Upon achievement of annualised contract revenue of US$7 million
Upon achievement of annualised contract revenue of US$10 million
Upon achievement of annualised contract revenue of US$15 million
Quantum of unlisted options upon
achievement of milestone
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
5,000,000
The exercise price of the options will be based on the 5-day VWAP at the time the offer is made.
• Termination:
The agreement may be terminated:
• by either party without cause by giving one months’ notice, or in the case of the Company, immediately with
payment in lieu of notice;
• by the Company by giving one months’ notice if Mr Cox is unable to perform his duties due to illness, accident or
incapacitation, for two consecutive months or a period aggregating more than two months in any twelve-month
period; or
• by the Company by giving one months’ notice if Mr Cox commits any serious breach under the agreement that is
not remedied within fourteen days; or
• by the Company immediately without notice following material breach or in the case of misconduct; or
• by Mr Cox if at any time the Company commits any serious or persistent beach which is not remedied within
twenty eight days.
• Other:
The agreement includes other general industry standard provisions for a senior executive.
18
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only REMUNERATION REPORT (AUDITED) (CONTINUED)
4.
EXECUTIVE CONTRACTS (CONTINUED)
James Linden, Vice President of Sales North America (appointed 10 January 2020)
Mr Linden’s employment agreement commenced on 10 January 2020 and has no fixed term.
Details
• Remuneration:
• Annual base salary of US$150,000 plus social security and medical insurance. With effect from 1 April 2020,
Mr Linden agreed to forego 5% of his base salary until 31 July 2020 as part of the Group’s COVID cost-cutting
measures.
• Commission of 7.5% of sales primarily introduced by Mr Linden.
• Termination:
The agreement may be terminated at any time by either party with or without cause and with or without notice.
• Other:
The agreement includes other general industry standard provisions for a senior executive.
Fiona Muir, Chief Financial Officer
Ms Muir’s employment agreement commenced on 25 June 2018 and has no fixed term.
Details
• Remuneration:
Ms Muir fulfils the role of Chief Financial Officer on a part time basis and is remunerated pro-rata based on an annual base
salary of $230,000 plus statutory superannuation. With effect from 1 April 2020, Ms Muir agreed to forego 30% of her base
salary until 31 July 2020 as part of the Group’s COVID cost-cutting measures.
• Termination:
The agreement may be terminated:
• by Ms Muir with one months’ notice, unless the Company is in breach of a material term of the agreement, in
which case Ms Muir may terminate it immediately;
• by the Company with one months’ notice or payment in lieu of notice;
• by the Company immediately without notice following material breach or in the case of misconduct
• Other:
The agreement includes other general industry standard provisions for a senior executive.
Susan Hunter, Company Secretary
Ms Hunter provides company secretarial services through Hunter Corporate Pty Ltd. The agreement with Hunter Corporate Pty
Ltd commenced on 24 September 2017 and has no fixed term.
Details
• The Company pays a monthly fee together with any out of pocket expenses. The monthly retainer is based on standard
market rates. In the event assistance is required outside of the normal company secretarial role, the Company is charged
an additional fee based on the hours worked by Ms Hunter.
• The agreement may be terminated by the Company of Hunter Corporate by giving two months’ notice.
Eric Rosenberg, Vice President of Sales North America (resigned 2 October 2019)
Mr Rosenburg’s employment agreement commenced on 29 April 2019 and had no fixed term. Mr Rosenberg resigned on 2
October 2019. Mr Rosenberg’s annual base salary was US$250,000 plus social security and medical insurance. In addition, Mr
Rosenberg was entitled to commission of 7.5% of sales primarily introduced by him.
The agreement with Mr Rosenberg was capable of being terminated at any time by either party with or without cause and
with or without notice.
19
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only REMUNERATION REPORT (AUDITED) (CONTINUED)
4.
EXECUTIVE CONTRACTS (CONTINUED)
James Dutton, Managing Director, Asia Pacific (employment ceased on 21 May 2019)
Mr Dutton’s employment agreement commenced on 5 December 2017 and had no fixed term. Mr Dutton’s employment
agreement was terminated on 21 May 2019. Mr Dutton’s annual base salary was SGD250,000 and he was entitled to
two performance-based bonuses of up to SGD35,000 and SGD100,000 upon the achievement of pre-determined key
performance indicators.
The agreement with Mr Dutton was capable of being terminated:
• by either party without cause by giving three months’ notice, or in the case of the Company, immediately with payment in
lieu of notice;
• by the Company by giving one months’ notice if Mr Dutton was unable to perform his duties due to illness, accident or
incapacitation, for two consecutive months or a period aggregating more than two months in any twelve-month period;
• by the Company by giving one months’ notice if Mr Dutton committed any serious breach under the agreement that was
not remedied within fourteen days; or
• by the Company summarily without notice following material breach of the agreement or in the case of misconduct; or
• by Mr Dutton if at any time the Company committed any serious or persistent beach which was not remedied within
twenty eight days.
Lee Hunter, Chief Operations Officer (resigned on 18 July 2018)
Mr Hunter’s employment agreement commenced on 20 March 2018 (Mr Hunter held the position of CEO up to this date) and
had no fixed term. Mr Hunter resigned from the Company on 18 July 2018. Mr Hunter’s annual base salary was $240,000 plus
statutory superannuation. A performance-based incentive relating to the sale and leaseback of the Company’s TrafficGuard
SaaS product was not realised at the time of Mr Hunter’s resignation.
The agreement with Mr Hunter was capable of being terminated:
• by the Company without cause by giving six months’ notice, or immediately with payment in lieu of notice;
• by the Company giving one months’ notice if Mr Hunter is unable to perform his duties due to illness, accident or
incapacitation, for two consecutive months or a period aggregating more than two months in any twelve month period; or
• by the Company by giving one months’ notice following any serious or persistent breach of this agreement; or
• by Mr Hunter without cause by giving six months’ notice or immediately if the Company commits any serious breach of the
agreement.
Key management personnel have no entitlement to termination payments in the event of removal for misconduct.
5. ADDITIONAL DISCLOSURES RELATING TO PERFORMANCE RIGHTS, OPTIONS AND SHARES
Performance Rights
Performance rights do not carry any voting or dividend rights and can only be converted until their expiry date once the
vesting conditions have been met.
The tables below disclose the movement in performance rights held by key management personnel during the current and
prior year.
Number of performance rights
Opening balance
Granted during
the year
Vested during
the year
Converted into
ordinary shares
during the year
Closing balance
8,250,000
3,000,000
1,250,000
6,600,000
3,000,000
1,000,000
-
750,000
-
-
-
-
11,250,000
9,600,000
750,000
2020
Executive directors
M. Ratty
Executives
L. Taylor
D. Cox
20
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only REMUNERATION REPORT (AUDITED) (CONTINUED)
5.
ADDITIONAL DISCLOSURES RELATING TO PERFORMANCE RIGHTS, OPTIONS AND SHARES
(CONTINUED)
Performance Rights (continued)
Number of performance rights
Opening balance
Granted during
the year
Vested during
the year
Converted into
ordinary shares
during the year
Closing balance
2019
Executive directors
M. Ratty
Executives
L. Taylor
-
-
8,250,000
6,600,000
-
-
-
-
8,250,000
6,600,000
The tables below disclose the fair values of performance rights granted to key management personnel during the current and
prior year.
2020
M. Ratty
L. Taylor
D. Cox
Grant date
Number
granted
Fair
value per
performance
right at grant
date (cents)
Class P
13/11/2019
1,000,000
Class Q
13/11/2019
1,000,000
Class R
13/11/2019
1,000,000
17.49
17.49
17.49
Grant date
Number
granted
20/11/2019
1,000,000
20/11/2019
1,000,000
20/11/2019
1,000,000
Fair
value per
performance
right at grant
date (cents)
20.99
20.99
20.99
Grant date
Number
granted
Fair
value per
performance
right at grant
date (cents)
Class S
23/01/2020
750,000
21.99
3,000,000
3,000,000
750,000
2019
M. Ratty
L. Taylor
Grant date
Number
granted
Class H
26/06/2019
250,000
Class I
26/06/2019
500,000
Class J
26/06/2019
500,000
Class K
26/06/2019
1,000,000
Class L
26/06/2019
1,500,000
Class M
26/06/2019
1,000,000
Class N
26/06/2019
1,500,000
Class O
26/06/2019
2,000,000
Fair
value per
performance
right at grant
date (cents)
12.49
12.49
12.49
12.49
12.49
9.37
6.25
6.25
Grant date
Number
granted
25/01/2019
200,000
25/01/2019
400,000
25/01/2019
400,000
25/01/2019
800,000
25/01/2019
1,200,000
25/01/2019
800,000
25/01/2019
1,200,000
25/01/2019
1,600,000
Fair
value per
performance
right at grant
date (cents)
9.99
9.99
9.99
9.99
9.99
7.49
5.00
5.00
8,250,000
6,600,000
21
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only
REMUNERATION REPORT (AUDITED) (CONTINUED)
5.
ADDITIONAL DISCLOSURES RELATING TO PERFORMANCE RIGHTS, OPTIONS AND SHARES
(CONTINUED)
Performance Rights (continued)
Details of the vesting conditions, expiry dates and status of the performance rights held by key management personnel on 30
June 2020 are set out below:
Tranche
Vesting Condition
Number
Expiry date
Class H
First 10 clients that sign on using TrafficGuard
450,000
30 June 2021
Class I
First 3 Tier 1 Clients who the Board consider to be enterprise
level i.e. > 1 billion clicks per month
900,000
30 June 2021
Class J
First achievement of revenue producing twelve-month
contracts to the amount of $1m
900,000
30 June 2021
Status at
30 June 2020
Vested, not yet
converted into
ordinary shares
Vested, not yet
converted into
ordinary shares
Vested, not yet
converted into
ordinary shares
Class K
Class L
First achievement of revenue producing twelve-month
contracts to the amount of $3m
First achievement of revenue producing twelve-month
contracts to the amount of $5m
1,800,000
30 June 2021
Not yet vested
2,700,000
30 June 2021
Not yet vested
Class M
First achievement of break-even cash flow in a financial
year
1,800,000
30 June 2021
Not yet vested
Class N
First achievement of audited $1m earnings before interest
tax, depreciation and amortization (EBITDA)
2,700,000
30 June 2021
Not yet vested
Class O
First achievement of audited $3m EBITDA
3,600,000
30 June 2021
Not yet vested
Class P
First 3 Tier 1 clients in USA
2,000,000
30 June 2021
Not yet vested
Class Q
First 3 Tier 1 clients in LATAM
2,000,000
30 June 2021
Not yet vested
Class R
First 3 Tier 1 clients in APAC
2,000,000
30 June 2021
Not yet vested
Class S
Executive continues to be a full-time employee of the Group
at 26 February 2022.
750,000
25 April 2022
Not yet vested
Options awarded, vested and lapsed during the year
Share options do not carry any voting or dividend rights, and can only be exercised once the vesting conditions, if any, have
been met, and only until the expiry date.
No options were granted to key management personnel during the current year. 1,000,000 options held by key management
personnel expired during the current year. The options had an exercise price of $0.45.
The table below discloses the number of share options granted, vested or lapsed during the prior year and includes only
options granted as part of remuneration to key management personnel.
22
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only REMUNERATION REPORT (AUDITED) (CONTINUED)
5.
ADDITIONAL DISCLOSURES RELATING TO PERFORMANCE RIGHTS, OPTIONS AND SHARES
(CONTINUED)
Options
granted
during the
2019
year Grant date
#
Non-Executive Directors
Fair value
per option
at grant
date
$
Vesting
date
Exercise
price Expiry date
Number
vested
during
year
Number
lapsed
during
year
Value of
options
granted
during
year
Value of
options
exercised
during
year
$
#
#
$
S. Belben
750,000
26/06/19
0.07
26/06/19
0.20
27/03/22
750,000
R. Besnard
750,000
26/06/19
0.07
26/06/19
0.20
27/03/22
750,000
M. McConnell
750,000
26/06/19
0.07
26/06/19
0.20
27/03/22
750,000
A. Stott
750,000
26/06/19
0.07
26/06/19
0.20
27/03/22
750,000
Senior Executive
D. Cox 1
J. Dutton 1
F. Muir 1
750,000
17/12/18
0.06
24/12/19
500,000
17/12/18
0.06
24/12/19
500,000
17/12/18
0.06
24/12/19
0.15
0.15
0.15
24/12/20
24/12/20
24/12/20
-
-
-
-
-
-
-
-
51,803
51,803
51,803
51,803
41,682
500,000
27,788
-
27,788
Notes
1.
The value of options granted during the prior year shown above is the value at grant date of all the options granted to those
executives. The options vest if the executives continue to be employed by the Group on 24 December 2019. The value of these
options that has been included in the executives’ remuneration at section 3 above is the value attributable to the relevant
financial year.
Option holdings of KMP
The table below discloses all options held directly, indirectly and beneficially by key management personnel.
Balance at
1 July 2019
Granted as
remuneration
Lapsed
Net change
other
Balance at
30 June 2020
Exercisable
Not
exercisable
Non-Executive Directors
S. Belben
R. Besnard
1,340,000
1,250,000
M. McConnell1
10,277,778
A. Stott
1,350,000
Executive Directors
M. Ratty 1
3,946,242
Senior Executives
F. Muir
D. Cox
Total
500,000
750,000
19,414,020
-
-
-
-
-
-
-
-
(500,000)
-
-
-
-
-
840,000
840,000
1,250,000
1,250,000
5,000
10,282,778
10,282,778
1,350,000
1,350,000
(500,000)
552,850
3,999,092
3,999,092
-
-
-
-
500,000
500,000
750,000
750,000
(1,000,000)
557,850
18,971,870
18,971,870
-
-
-
-
-
-
-
-
Notes
1.
During the year, Mr McConnell and Mr Ratty purchased listed options on market.
$
-
-
-
-
-
-
-
23
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only
REMUNERATION REPORT (AUDITED) (CONTINUED)
5.
ADDITIONAL DISCLOSURES RELATING TO PERFORMANCE RIGHTS, OPTIONS AND SHARES
(CONTINUED)
Share holdings of KMP
The table below discloses the shares held directly, indirectly and beneficially by key management personnel.
Balance at
1 July 2019
Granted as
remuneration
On conversion of
performance rights
Net change other
Balance at
30 June 2020
Non-Executive Directors
S. Belben 1
M. McConnell 2
A. Stott
Executive Directors
320,000
11,777,779
500,000
M. Ratty 3
10,482,682
Senior Executives
L. Taylor
Total
Notes
5,203,782
28,284,243
-
-
-
-
-
-
-
-
-
-
-
-
400,000
720,000
13,254,814
25,032,593
-
500,000
7,297,862
17,780,544
-
5,203,782
20,952,676
49,236,919
1. Mr Belben acquired 400,000 shares pursuant to the Company’s Share Purchase Plan which closed in June 2020.
2.
3.
Mr McConnell acquired 10,000,000 shares as part of a share placement carried out in August 2019 and he acquired a
further 1,470,589 shares as part of a share placement carried out in December 2019. Mr McConnell also acquired 1,784,225
shares on market.
Mr Ratty acquired 3,000,000 shares as part of a share placement carried out in October 2019, 1,470,589 shares as part of
a share placement carried out in December 2019 and 2,727,273 shares as part of a share placement carried out in March
2020. Mr Ratty also acquired 100,000 shares on market.
6.
OTHER TRANSACTIONS AND BALANCES WITH KEY MANAGEMENT PERSONNEL AND THEIR RELATED
PARTIES
During the current year, Adveritas Limited continued its consultancy agreement with 13811 Advisory Pte Ltd, a company of which
Mr Stott is the CEO and founder. The consultancy services include the provision of promotion and marketing services. Under
the agreement, Mr Stott was entitled to consultancy fees of SGD 3,000 per month for the period 1 Jul 2019 to 31 December 2019,
and $5,000 per month for the period 1 January 2020 to 30 June 2020.
Signed in accordance with a resolution of the directors:
Stephen Belben
Non-Executive Chairman
Perth, Western Australia
Dated this 28th day of August 2020
24
DIRECTORS’ REPORTADVERITAS ANNUAL REPORT 2020For personal use only
A U D I T O R ’ S I N D E P E N D E N C E D E C L A R A T I O N
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Auditor’s independence declaration to the directors of Adveritas Limited
As lead auditor for the audit of the financial report of Adveritas Limited for the financial year ended 30
June 2020, I declare 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.
This declaration is in respect of Adveritas Limited and the entities it controlled during the financial year.
Ernst & Young
Mark P Cunningham
Partner
28 August 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
MC:TGF:ADVERITAS:007
25
ADVERITAS ANNUAL REPORT 2020For personal use only
C O N S O L I D A T E D S T A T E M E N T O F P R O F I T A N D L O S S A N D O T H E R
C O M P R E H E N S I V E I N C O M E
For the year ended 30 June 2020
Continuing Operations
Revenue from contracts with customers
Other income
Overheads
Server hosting costs
Administration costs
Compliance costs
Consultancy costs
Employment costs
Occupancy costs
Marketing costs
Expected credit losses and bad debts expense
Finance costs
Other Expenses
Foreign exchange losses
Depreciation
Impairment loss
Expected credit loss: deferred consideration
Share based payments
Loss before income tax
Income tax expense
Loss for the year from continuing operations
attributable to the members of Adveritas Limited
Discontinued Operations
Profit after tax for the year from discontinued operations
Loss for the year
attributable to the members of Adveritas Limited
Other comprehensive income net of tax
Items that may be reclassified to profit or loss
Note
2020
$
2019
$
4
5(a)
1,227,213
1,613,862
643,579
1,777,737
5(b)
5(c)
5(d)
5(e)
5(f)
5(g)
5(h)
5(i)
11
17
6
14
(2,119,094)
(1,364,491)
(448,140)
(486,317)
(322,646)
(276,479)
(560,708)
(431,332)
(5,506,082)
(5,235,288)
(70,086)
(278,327)
(744,230)
(392,024)
(279,343)
(54,245)
(41,463)
-
(10,104,574)
(8,505,721)
(50,325)
(136,342)
(113,525)
(567,869)
-
(39,191)
-
-
(1,343,842)
(503,233)
(2,211,903)
(542,424)
(9,475,402)
(6,626,829)
(11,957)
(17,591)
(9,487,359)
(6,644,420)
-
92,223
(9,487,359)
(6,552,197)
Exchange differences on translation of foreign operations
24,564
3,627
Total comprehensive loss for the year
attributable to the members of Adveritas Limited
(9,462,795)
(6,548,570)
Loss per share attributable to members of Adveritas Limited
Basic loss per share – total operations
Basic loss per share – continuing operations
Diluted loss per share – total operations
Diluted loss per share – continuing operations
24
24
24
24
Cents
(4.68)
(4.68)
(4.68)
(4.68)
Cents
(5.03)
(5.10)
(5.03)
(5.10)
The Consolidated Statement of Profit and Loss and Other Comprehensive Income is to be read in conjunction with the notes to the
consolidated financial statements.
26
ADVERITAS ANNUAL REPORT 2020For personal use only C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N
For the year ended 30 June 2020
Note
2020
$
2019
$
7
8
8
9
10
11
12
13
10
10
13
15
18
16
16
8,351,840
2,046,991
401,058
163,487
545,163
146,248
8,916,385
2,738,402
-
255,607
38,104
606,322
-
34,000
678,426
59,957
-
113,525
34,000
463,089
9,594,811
3,201,491
769,873
550,862
90,597
1,411,332
557,678
46,664
604,342
696,799
326,254
-
1,023,053
-
33,952
33,952
2,015,674
1,057,005
7,579,137
2,144,486
39,941,684
26,305,580
(37,569,619)
(28,082,260)
5,166,535
3,905,193
40,537
15,973
7,579,137
2,144,486
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Prepayments
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Trade and other receivables
Plant and equipment
Right-of-use assets
Investments
Goodwill
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Provisions
Lease liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Lease liabilities
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Accumulated losses
Share based payment reserve
Foreign currency translation reserve
TOTAL EQUITY
The Consolidated Statement of Financial Position is to be read in conjunction with the notes to the consolidated financial
statements.
27
ADVERITAS ANNUAL REPORT 2020For personal use only C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
For the year ended 30 June 2020
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Note
2020
$
2019
$
877,422
1,080,608
(9,536,248)
(9,003,613)
Research and development grant income received
5(a)
1,287,433
955,868
Other income received
Interest received
177,187
15,676
Interest expense on lease liabilities
10
(54,245)
Income tax refund received
Income tax paid
-
-
41,981
22,613
(943)
20,378
(43,501)
Net cash flows used in operating activities
7
(7,232,775)
(6,926,609)
Cash flows from investing activities
Purchase of plant and equipment
Proceeds on disposal of plant and equipment
Proceeds on disposal of controlled entity
Payment of withholding tax
Cash disposed of on sale of controlled entity
(14,969)
(28,362)
-
29,458
-
-
904
557,201
(38,669)
(348,192)
14
14
Net cash flows generated by / (used in) investing activities
14,489
142,882
Cash flows from financing activities
Proceeds from issue of shares
Share issue costs paid
Advances received under debtor financing facility
13,974,428
4,725,826
(387,310)
(263,247)
-
61,398
Lease liability payments
10
(59,101)
-
Net cash flows provided by financing activities
13,528,017
4,523,977
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
6,309,731
(2,259,750)
2,046,991
4,231,884
(4,882)
74,857
Cash and cash equivalents at the end of the year
7
8,351,840
2,046,991
The Consolidated Statement of Cash Flows is to be read in conjunction with the notes to the consolidated financial statements.
28
ADVERITAS ANNUAL REPORT 2020For personal use only C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y
For the year ended 30 June 2020
Contributed
equity
Accumulated
losses
Share based
payments
reserve
Foreign
currency
translation
reserve
Total equity
$
$
$
$
$
Balance at 1 July 2019
26,305,580
(28,082,260)
3,905,193
15,973
2,144,486
Loss for the year
Other comprehensive income
Foreign exchange differences arising
on translation of foreign operations
Total comprehensive income /
(expenditure) for the year
Transactions with equity holders in
their capacity as owners
Ordinary shares issued
Share issue costs
Share based payments expense
-
-
-
(9,487,359)
-
(9,487,359)
14,136,089
(499,985)
-
13,636,104
-
-
-
-
-
-
-
-
-
1,261,342
1,261,342
-
(9,487,359)
24,564
24,564
24,564
(9,462,795)
-
-
-
-
14,136,089
(499,985)
1,261,342
14,897,446
Balance at 30 June 2020
39,941,684
(37,569,619)
5,166,535
40,537
7,579,137
Balance at 1 July 2018
22,586,507
(21,491,395)
2,658,453
12,346
3,765,911
Loss for the year
-
(6,552,197)
Other comprehensive income
Foreign exchange differences arising
on translation of foreign operations
Total comprehensive income /
(expenditure) for the year
Transactions with equity holders in
their capacity as owners
Ordinary shares issued
Share issue costs
Share based payments expense
Shares issued on vesting of
performance rights
-
-
-
(6,552,197)
4,797,082
(1,091,339)
-
13,330
-
-
-
-
Withholding tax on dividends paid
-
(38,668)
-
-
-
-
-
1,260,070
(13,330)
-
3,719,073
(38,668)
1,246,740
-
(6,552,197)
3,627
3,627
3,627
(6,548,570)
-
-
-
-
-
-
4,797,082
(1,091,339)
1,260,070
-
(38,669)
4,927,144
Balance at 30 June 2019
26,305,580
(28,082,260)
3,905,193
15,973
2,144,486
The Consolidated Statement of Changes in Equity is to be read in conjunction with the notes to the consolidated financial
statements.
29
ADVERITAS ANNUAL REPORT 2020For personal use only
1. CORPORATE INFORMATION
The consolidated financial report of Adveritas Limited (Adveritas or Company) and its controlled entities (collectively
referred to as the Group) for the year ended 30 June 2020 was authorised for issue in accordance with a resolution of the
directors on 27 August 2020.
Adveritas is a for-profit company limited by shares incorporated and domiciled in Australia whose shares are publicly traded
on the Australian Securities Exchange. The Group’s registered office is in Bentley, Western Australia.
The nature of operations and principal activities of the Group are the creation of innovative software solutions that leverage
big data to drive business performance. TrafficGuard, is the Group’s first commercially available software as a service.
Information on the Group’s corporate structure and related party relationships is provided in Note 21.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This note provides a summary of the significant accounting policies adopted in the preparation of this consolidated financial
report. These policies have been consistently applied to all the years presented, unless otherwise stated.
(a) Basis of Preparation
The consolidated financial report has been prepared on a historical cost basis and is presented in Australian dollars.
(b) Statement of Compliance
The consolidated financial statements have been prepared in accordance with the requirements of the Corporations
Act 2001, Australian Accounting Standards and other authoritative pronouncements issued by the Australian Accounting
Standards Board and comply with the International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB).
(c) Changes in accounting policies, disclosures, standards and interpretations
i.
Accounting Standards and Interpretations issued but not yet adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective
and have not been adopted by the Group for the annual reporting period ended 30 June 2020 are outlined below.
Amendments to AASB 3: Definition of a Business
In October 2018, the AASB issued amendments to the definition of a business in AASB 3 Business Combinations to
help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum
requirements for a business, remove the assessment of whether market participants are capable of replacing any
missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the
definitions of a business and of outputs, and introduce an optional fair value concentration test.
Since the amendments apply prospectively to transactions or other events that occur on or after the date of first
application, the Group will not be affected by these amendments on the date of transition.
Application date of standard: 1 January 2020 Application date for the Group: 1 July 2020
Impact on the Consolidated Financial Statements: The Group does not anticipate any impact on its consolidated
financial statements.
Amendments to AASB 101 and AASB 108: Definition of Material
In October 2018, the AASB issued amendments to AASB 101 Presentation of Financial Statements and AASB 108 Accounting
Policies, Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and to
clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or
obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements, which provide financial information about a specific
reporting entity.’
Application date of standard: 1 January 2020 Application date for the Group: 1 July 2020
Impact on the Consolidated Financial Statements: The Group does not anticipate any impact on its consolidated
financial statements.
30
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Changes in accounting policies, disclosures, standards and interpretations (continued)
ii. New standards, interpretation and amendments adopted by the Group
The new standards, interpretations and amendments adopted by the Group in the current year are set out below.
The Group has not early adopted any of the accounting standards that have been issued but are not yet effective as of
balance date.
(a) AASB 16 Leases
The Group applies, for the first time, AASB16 Leases.
AASB 16 supersedes AASB 117 Leases and AASB Interpretation 4 Determining whether and Arrangement contains a
Lease. AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of the leases
and requires leases to account for all leases under a single on-balance sheet model.
The Group adopted AASB 16 using the modified retrospective method of adoption with the date of initial application
of 1 July 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially
applying the standard recognised at the date of initial application.
The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts
that were previously identified as leases at the date of initial application (1 July 2019).
The Group also elected to use the practical expedient for lease contracts that, at the commencement date of
applying AASB 16, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’),
and lease contracts for which the underlying asset is of low value (‘low-value assets’).
The effect of adopting AASB 16 as at 1 July 2019 was as follows:
Assets
Right-of-use assets
Total assets
Liabilities
Interest bearing liabilities
Total liabilities
Total equity adjustment
Retained earnings
Increase /
(Decrease)
$
707,376
707,376
707,376
707,376
-
-
Nature of the effect of adoption of AASB 16
The Group has lease contracts for office premises and various items of office equipment. Before the adoption of
AASB 16, the Group, as the lessee, classified each of its leases at inception as either a finance lease or an operating
lease. A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to
ownership of the leased asset to the Group, otherwise it was classified as an operating lease. Finance leases were
capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at
the present value of the minimum lease payments.
For leases classified as finance leases, lease payments were apportioned between interest (recognised as finance
costs) and a reduction of the lease liability. For leases classified as operating leases, the leased property was not
capitalised and the lease payments were recognised as an expense in profit or loss on a straight-line basis over the
lease term.
Upon adoption of AASB 16, the Group applied a single recognition and measurement approach for all leases, except
for short-term leases and leases of low-value assets (assets with value less than $5,000). The standard provides
specific transition requirements and practical expedients, which have been applied by the Group.
31
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Changes in accounting policies, disclosures, standards and interpretations (continued)
(ii) New standards, interpretation and amendments adopted by the Group (continued)
(a) AASB 16 Leases (continued)
Nature of the effect of adoption of AASB 16 (continued)
Leases previously classified as finance leases
As at the date of application of AASB 16, the Group did not have any leases classified as finance leases.
Leases previously classified as operating leases
The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating
leases, except for short-term leases and leases of low-value assets. The Group has elected to present the right of
use assets separately and the lease liabilities as part of interest-bearing liabilities in the Consolidated Statement
of Financial Position. The right-of-use assets were recognised based on the amount equal to the lease liabilities.
Lease liabilities were recognised based on the present value of the remaining lease payments over the lease term,
discounted using the incremental borrowing interest rate at the date of initial application.
The Group also applied the available practical expedients wherein it:
• Applied the short-term leases exemptions to leases with a lease term that ends within 12 months at the date of
initial application
• Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application
• Elected not to separate non-lease components from lease components, and instead account for the lease
component and any associated non-lease components as a single lease component
The lease liabilities recognised at 1 July 2019 can be reconciled to the operating lease commitments as of 30 June
2019 as follows:
Operating lease commitments as at 30 June 2019
Less:
Impact of discounting lease commitments at the incremental borrowing rate of 8.03%
Commitments relating to short-term and low value leases
Add:
In substance fixed lease payments
Lease liabilities as at 1 July 2019
$
554,726
(67,582)
(4,545)
224,777
707,376
Summary of new accounting policies upon adoption of AASB 16
Set out below are the new accounting policies of the Group upon adoption of AASB 16:
• Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying
asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets
includes the amount of lease liabilities recognised, initial direct costs incurred, estimates of costs to be incurred
by the group in restoring the underlying asset to the condition required by the terms and conditions of the lease,
and lease payments made at or before the commencement date less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised
right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the
lease term. Right-of-use assets are subject to impairment.
• Lease Liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value
of lease payments to be made over the lease term. The lease payments include fixed payments (including
in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also
include the exercise price of a purchase option reasonably certain to be exercised by the Group, and payments
of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The
variable lease payments that do not depend on an index or a rate are recognised as an expense in the period on
which the event or condition that triggers the payment occurs.
32
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Changes in accounting policies, disclosures, standards and interpretations (continued)
(ii) New standards, interpretation and amendments adopted by the Group (continued)
(a) AASB 16 Leases (continued)
Summary of new accounting policies upon adoption of AASB 16 (continued)
• Lease Liabilities (continued)
In calculating the present value of lease payments, the Group its incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease agreement is not readily determinable. After the
commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced
for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.
• Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of property, plant and
equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do
not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of
office equipment that are considered of low value (i.e., below $5,000). Lease payments on short-term leases and
leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.
• Significant judgement in determining the lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods
covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an
option to terminate the lease, if it is reasonably certain not to be exercised.
The Group has the option, under its lease to lease the assets for additional terms of five years. The Group applies
judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all
relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date,
the Group reassesses the lease term if there is a significant event or change in circumstances that is within its
control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business
strategy).
The Group included the renewal period as part of the lease term for its lease of property due to the significance
of this asset to its operations. The lease has a short non-cancellable period (i.e., three to five years) and there will
be a significant negative effect on the Company’s operations if a replacement is not readily available.
For month-by-month leases, the Group has determined it is not reasonably certain that extension options will be
exercised. These have been considered short-term leases and the short-term lease exemption has been applied.
Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the
movements during the period:
As at 1 July 2019
Depreciation expense
Interest expense
Lease payments
As at 30 June 2020
Right-of-use asset
Lease Liability
Property
Property
$
$
707,376
707,376
(101,054)
-
-
-
54,245
(113,346)
606,322
648,275
33
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Changes in accounting policies, disclosures, standards and interpretations (continued)
(ii) New standards, interpretation and amendments adopted by the Group (continued)
(a) AASB 16 Leases (continued)
Summary of new accounting policies upon adoption of AASB 16 (continued)
Set out below, are the amounts recognised in profit and loss:
Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Rent expense – short-term assets
Rent expense – lease of low-value assets
Total amounts recognised in profit and loss
Set below is the impact on the Consolidated Statement of Cash Flows:
Operating lease payments – decreased
Net cash flows from operating activities
Payment of lease liability - increased
Net cash flows from financing activities
Net cash flow impact
Consolidated
30 June
2020
30 June
2019
$
101,054
54,245
34,672
1,500
191,471
$
-
-
-
-
-
Consolidated
30 June
2020
$
(59,101)
(59,101)
59,101
59,101
-
30 June
2019
$
-
-
-
-
-
(b) AASB Interpretation 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects
the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it
specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The
Interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments separately
• The assumptions an entity makes about the examination of tax treatments by taxation authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
• How an entity considers changes in facts and circumstances
An entity has to determine whether to consider each uncertain tax treatment separately or together with one or
more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to
be followed. The Group applies significant judgement in identifying uncertainties over income tax treatments. Since
the Group operates in a multinational environment, it assessed whether the Interpretation had an impact on its
consolidated financial statements.
Upon adoption of the Interpretation, the Group considered whether it had any uncertain tax positions, particularly
those relating to transfer pricing. The Company’s and the subsidiaries’ tax filings in different jurisdictions include
deductions related to transfer pricing and the taxation authorities may challenge those tax treatments. The Group
determined, based on its tax compliance and transfer pricing study that it is probable that its tax treatments
(including those for the subsidiaries) will be accepted by the taxation authorities. Consequently, the interpretation
did not have an impact on the consolidated financial statements of the Group.
34
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) Basis of Consolidation
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee
if and only if the Group has:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
• Exposure, or rights, to variable returns from its involvement with the investee
• The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption, and when
the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee, including:
• The contractual arrangement(s) with the other vote holders of the investee
• Rights arising from other contractual arrangements
• The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes
to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over
the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date
the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the
parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit
balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting
policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and
cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-
controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any
investment retained is recognised at fair value.
(e) Segment Reporting
An operating segment is a component of an entity that engages in business activities from which it may earn revenues
and incur expenses (including revenues and expenses relating to transactions with other components of the same
entity), whose operating results are regularly reviewed by the entity’s chief operating decision makers to make decisions
about resources to be allocated to the segments and assess their performance and for which discrete financial
information is available. This includes start-up operations which are yet to earn revenues.
Operating segments have been identified based on the information presented to the chief operating decision makers,
being the executive management team.
Information about other business activities are combined and disclosed in a separate category called “other”.
(f) Foreign Currency Translation
i.
Functional and presentation currency
Items included in the financial statements of each Group company are measured using the currency of the primary
economic environment in which the entity operates (“the functional currency”). The consolidated financial statements
are presented in Australian dollars, which is the parent’s functional and presentation currency. For each entity, the Group
determines the functional currency and items included in the financial statements of each entity are measured using
that functional currency.
ii.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of
the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are
recognised in profit or loss.
35
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Foreign Currency Translation (continued)
iii. Group companies
On consolidation, the assets and liabilities of foreign operations are translated into Australian dollars at the rate of
exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates
prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation purposes are
recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive
income relating to that particular foreign operation is recognised in profit or loss. Any goodwill arising on the acquisition
of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the
acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the
reporting date.
(g) Plant and Equipment
All plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item
can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised
when replaced. All other repairs and maintenance are charged to the profit or loss during the reporting period in which
they are incurred.
Depreciation is calculated over the estimated useful life of the asset as follows:
Plant and equipment
Leasehold improvements
Office equipment
Computer software and hardware
Method
Useful Lives
Straight Line
1.5 – 2.5 years
Straight Line
the term of the lease
Straight Line
Straight Line
2 – 10 years
1.5 – 4 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is
greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit
or loss.
(h) Impairment of non-financial assets
Non-financial assets comprise of plant and equipment and goodwill. Non-financial assets other than goodwill are
tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be
recoverable. Goodwill is tested for impairment annually. 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 of disposal) and value in use. For the purposes of assessing impairment, assets are grouped together 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). Impairment losses relating to goodwill cannot be
reversed in future periods.
(i) Cash and Cash Equivalents
Cash and short-term deposits in the Consolidated Statement of Financial Position comprise cash at banks and on hand
and short-term deposits with a maturity of three months or less.
For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and short-term
deposits as defined above, net of outstanding bank overdrafts.
(j) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation.
Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate
asset but only when the reimbursement is virtually certain.
36
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Provisions (continued)
The expense relating to any provision is presented in the consolidated statement of profit and loss and other
comprehensive income net of any reimbursement.
If the effect of the time value of money is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due
to the passage of time is recognised as a finance cost.
(k) Revenue from contracts with customers
The Group has been in the business of providing its fraud mitigation software as a service to its customers.
Revenue from contracts with customers is recognised over time as the service is delivered to the customer,
at an amount that reflects the consideration to which the Group is entitled under the terms of the contract for
that service. The Group has concluded that it is the principal in its revenue arrangements because it controls
the service before delivering it to the customer.
The Group’s performance obligation is the delivery of its software as a service to the customer over the period
of time that was agreed upon with the customer. The customer is required to pay the consideration agreed
upon in the service contract. The normal credit term is 30 to 60 days upon delivery of the service.
Contracts with customers may include a variable consideration in addition to the fixed monthly fee. The
variable consideration comprises a fee for each block of transactions that exceeds the transaction allowance
included in the fixed monthly fee. The variable consideration is recognised at the point in time when it can be
reliably estimated and the constraint applied.
Taxes collected from customers and remitted to government authorities are excluded from revenue.
Contract balances
Contract assets
A contract asset is the right to consideration in exchange for services transferred to the customer. If the Group
performs by transferring services to a customer before the customer pays consideration or before payment is
due, a contract asset is recognised for the earned consideration that is conditional.
Trade receivables
A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e. only the
passage of time is required before payment of the consideration is due). Refer further to the accounting policy
on financial assets (Note 2(t)) for details on initial recognition, subsequent measurement and impairment.
Contract liabilities
A contract liability is the obligation to transfer services to a customer for which the Group has received
consideration (or an amount of consideration is due) from the customer. If a customer pays consideration
before the Group transfers goods or services to the customer, a contract liability is recognised when the
payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue
when the Group performs under the contract.
Cost to obtain a contract
The Group pays sales commission to its employees for pre-determined milestones in relation to sales of
is software services. The Group has elected to apply the optional practical expedient for costs to obtain a
contract which allows the Group to immediately expense sales commissions because the amortisation period
of the asset that the Group otherwise would have used is one year or less.
(l) Government grants
Government grants are recognised as other income where there is reasonable assurance that the grant will
be received and all attached conditions will be complied with.
(m) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is their fair value at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses.
Internally generated intangibles are not capitalised and the related expenditure is reflected in profit or loss in
the period in which the expenditure is incurred.
37
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m) Intangible assets (continued)
The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are
amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible
asset may be impaired. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment
annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to
determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is
made on a prospective basis.
(n) Non-current assets held for sale and discontinued operations
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered
principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups
classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell
are the incremental costs directly attributable to the disposal of an asset (disposal group), excluding finance costs and
income tax expense.
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or
disposal group is available for immediate sale in its present condition.
Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made
or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset and the sale
expected to be completed within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.
Assets and liabilities classified as held for sale are presented separately as current items in the consolidated statement
of financial position.
A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or
is classified as held for sale, and:
• represents a separate major line of business or geographical area of operations; and
• is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of
operations; or
• is a subsidiary acquired exclusively with a view to resale
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as
profit or loss after tax from discontinued operations in the statement of profit or loss.
(p) Employee Benefits
Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled wholly within
12 months after the end of the period in which the employees render the related service are recognised in respect of
employees services up to the end of the reporting period and are measured at the amounts expected to be paid when
the liabilities are settled.
Long service leave
The liability for long service leave is recognised and measured as the present value of expected future payments to
be made in respect of services provided by employees up to the reporting date. Consideration is given to expected
future wage and salary levels, experience of employee departures and periods of service. Expected future payments
are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and
currencies that match, as closely as possible, the estimated future cash outflows.
(q) Income Tax
Current Tax
Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable
profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively
enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent
that it is unpaid (or refundable).
Deferred Tax
Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences
arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements
and the corresponding tax base of those items.
38
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(q) Income Tax (continued)
Deferred Tax (continued)
In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised
to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary
differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not
recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other
than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a
deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches,
associates and joint ventures except where the Group is able to control the reversal of the temporary differences and
it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from
deductible temporary differences associated with these investments and interests are only recognised to the extent that
it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences
and they are expected to reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the
asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted by reporting date.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner
in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and
the Company / Group intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax for the period
Current and deferred tax is recognised as an expense or income in the consolidated statement of profit and loss and
other comprehensive income except when it relates to items credited or debited directly to equity, in which case the
current and deferred tax is also recognised directly in equity.
(r) Contributed Equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
(s) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as
part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated
statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.
(t) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.
(u) Financial Assets
Initial recognition and measurement
Financial assets within the scope of AASB 9 are classified, at initial recognition, as subsequently measured at amortised
cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification
depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
The classification of financial assets that are debt instruments at initial recognition depends on the financial asset’s
contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade
receivables that do not contain a significant financing component or for which the Group has applied the practical
expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair
value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or
for which the Group has applied the practical expedient are measured at the transaction price determined under AABS
15. Refer to the accounting policy on revenue at Note 2(k).
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give
rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This
assessment is referred to as the SPPI test and is performed at an instrument level.
39
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(u) Financial Assets (continued)
Initial recognition and measurement (continued)
Financial assets at amortised cost
This category is the most relevant category to the Group. The Group measures financial assets at amortised cost if both
of the following conditions are met:
• The financial asset is held within a business model with the objective to hold financial assets in order to collect
contractual cash flows; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject
to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost include trade and other receivables.
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments
designated at fair value through OCI when they meet the definition of equity under AASB 132 Financial Instruments:
Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income
in the statement of profit or loss when the right of payment has been established, except when the Group benefits from
such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI.
Listed equity instruments that are designated at fair value through OCI are not subject to impairment assessment.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
• Financial assets at amortised cost (debt instruments)
• Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
• Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon
derecognition (equity instruments)
• Financial assets at fair value through profit or loss
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is
primarily derecognised (i.e. removed from the Group’s consolidated statement of financial position) when:
• The rights to receive cash flows from the asset have expired; or
• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a)
the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred
nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither
transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the
Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group
also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that
reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of consideration that the Group could be required to
repay.
Impairment of financial assets
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value
through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the
contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective
interest rate.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk
since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the
next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit
risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure,
irrespective of the timing of the default (a lifetime ECL).
40
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(u) Financial Assets (continued)
Financial assets at amortised cost
For contract assets, trade and other receivables, the Group applies a simplified approach in calculating ECLs. Therefore,
the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at
each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience,
adjusted for forward-looking factors specific to the debtors and the economic environment.
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain
cases, the Group may also consider a financial asset to be in default when internal or external information indicates
that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit
enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering
the contractual cash flows.
(v) Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, or as
loans and borrowings, or as payables or as derivatives designated as hedging instruments in an effective hedge, as
appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
Subsequent measurement
The measurement of financial liabilities depends on their classification. The Group’s only financial liabilities are trade and
other payables.
Trade and other payables represent liabilities for goods or services provided to the Group prior to the end of the financial
year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other
payables are subsequently measured at amortised cost using the effective interest method and are presented as
current liabilities unless payment is not due within 12 months after the reporting period.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition
of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is
recognised in the consolidated statement of profit and loss and other comprehensive income.
(w) Share-based payments
Consultants and employees (including senior executives) of the Group receive payment or remuneration in the form
of share-based payments, whereby the consultants or the employees render services as consideration for equity
instruments (equity-settled transactions).
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an
appropriate valuation model, further details of which are given in Note 17.
The cost of is recognised in the share based payments expense (Note 17), together with a corresponding increase in
equity, over the period in which the performance and / or service conditions are fulfilled.
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects
the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments
that will ultimately vest. The expense or credit in the statement of profit or loss for a period represents the movement in
cumulative expense recognised as at the beginning and end of that period.
Service and non-market performance conditions are not taken into account when determining the grant date fair value
of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number
of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair
value. Any other conditions attached to an award, but without an associated service requirement, are considered to be
non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate
expensing of an award unless there are also service and/or performance conditions.
No expense is recognised for awards that do not ultimately vest because non-market performance and/or service
conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as
vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/
or service conditions are satisfied.
41
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(w) Share-based payments (continued)
If the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not
been modified. An additional expense is recognised for any modification that increases the total fair value of the share
based arrangement, or is otherwise beneficial to the recipient, as measured at the date of modification.
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not
yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award
and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if
they were a modification of the original award, as described in the previous paragraph.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted loss
per share (further details are given in Note 24).
(x) Earnings / loss per share
Basic earnings / loss per share is calculated as net profit or loss attributable to members of the Company, adjusted to
exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares
of the Company, adjusted for any bonus element.
Diluted loss per share is calculated as net profit or loss attributable to members of the Company, adjusted for:
• costs of servicing equity (other than dividends);
• the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been
recognised as expenses; and
• other non-discretionary changes in revenues or expenses during the period that would result from the dilution of
potential ordinary shares;
divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any
bonus element.
(y) Significant accounting judgements, estimates and assumptions
The directors made estimates and judgements during the preparation of these consolidated financial statements
regarding assumptions about current and future events affecting transactions and balances.
These estimates and judgements are based on the best information available at the time of preparing the consolidated
financial statements, however as additional information is known then the actual results may differ from the estimates.
The significant estimates and assumptions made have been described below:
Revenue from contracts with customers
The Group applied the following judgements that significantly affect the determination of the amount and timing of
revenue from contracts with customers:
• The Group determined that revenue from its fraud mitigation software service is to be recognised over time because
the customer simultaneously receives and consumes the benefits provided by the Group.
• The Group has determined that it is the principal in its agreements with its customers because it has control over the
service before delivering it to the customer, it is primarily responsible for fulfilling the promise to deliver the service, and
it is responsible for establishing the price for the service to be delivered.
• Certain contracts with customers contain a variable consideration in relation to each block of transactions that
exceeds the transaction allowance included in the fixed monthly fee. The Group is required to use either the expected
value method or the most likely amount method based on which method better predicts the amount of consideration
to which it will be entitled. The Group has determined that the most likely amount method is appropriate.
Share-based payments
The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at
the date at which they are granted. Estimating fair value for share-based payment transactions requires determining
the most appropriate valuation model, which is dependent on the terms and conditions of the grant. The estimate also
requires making assumptions about the most appropriate inputs to the valuation model, including the expected life of the
share option, volatility and dividend yield. The assumptions and models used for estimating fair value for share-based
payment transactions are disclosed in Note 17.
Income Taxes
Judgement is required in assessing whether deferred tax assets are recognised in the consolidated statement of
financial position. Deferred tax assets are recognised only when it is considered more likely than not that they will be
recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation of
future taxable profits depend on management’s estimates of future cash flows. Judgements are also required about the
application of income tax legislation.
42
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(y) Significant accounting judgements, estimates and assumptions (continued)
Income Taxes (continued)
The Group estimates that it has $22,105,103 (2019: 12,755,519) of tax losses carried forward. Although these losses do not
expire, they may not be capable of being used to offset taxable income elsewhere in the Group. The Group has neither
taxable temporary differences nor tax planning opportunities available that could partly support the recognition of these
losses as deferred tax assets. On this basis, the Group has determined that it cannot recognise deferred tax assets in
respect of the tax losses carried forward.
Further details on taxes are disclosed in Note 6.
Impairment of non-financial assets
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated
at Note 2(h). Impairment tests for other non-financial assets are performed only when impairment indicators have been
identified.
Impairment exists when the carrying value of an asset or cash-generating unit exceeds its recoverable amount, which
is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on
available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices
less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model.
The cash flows are derived from the budget for the next two years. The assumptions used in the budget, such as growth
rates, and the discount rate used are subject to judgement and estimates.
The Group has assessed the goodwill recognised in relation to its FY 2016 acquisition of its Croatian subsidiary, Appenture
d..o.o, has concluded that this goodwill has not suffered any impairment. The Group has also assessed the right-of-use
asset it recognised as a consequence of adopting AASB 16: Leases in the current year and has concluded that the right-
of-use asset has not suffered any impairment. Consequently, no impairment losses have been recognised in the current
year (2019: Nil).
Provision for expected credit losses of trade receivables and contract assets
The Group uses a provision matrix to calculate ECLs for trade and other receivables and contract assets. The provision
rates are based on days past due and adjusted for forward looking expectations.
(z) Going Concern
The consolidated financial statements have been prepared on a going concern basis which contemplates the continuity
of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of
business.
During the year ended 30 June 2020, the Group incurred a net loss after tax of $9,487,359 and a net cash outflow from
operating activities of $7,232,775. The cash and cash equivalents balance at 30 June 2020 was $8,351,840. The Group’s
net current asset position at 30 June 2020 was $7,505,053.
The ability of the Group to pay its trade creditors, continue its planned activities and maintain its going concern status is
dependent on the Group generating sufficient revenues and raising additional funds, as required. As at the date of this
report, the directors are satisfied that there are reasonable grounds to believe that the Group will be able to operate as
a going concern by raising further funds as required. In forming this view, the directors have considered the ability of the
Company to raise funds by way of a capital raising.
There are inherent uncertainties associated with the successful completion of a capital raising. Should the directors not
be able to manage these inherent uncertainties and successfully secure funding, there would be significant uncertainty
as to whether the Group would be able to meet its debts as and when they fall due and therefore continue as a going
concern.
These consolidated financial statements do not include any adjustments relating to the recoverability or classification of
recorded asset amounts nor to the amounts or classifications of liabilities that might be necessary should the Group not
be able to continue as a going concern.
(aa) Impact of COVID-19 pandemic
In preparing the consolidated financial statements, the Group has considered the impact of COVID-19 pandemic.
Amounts received from the Federal Government in the form of JobKeeper and Cash Flow Booster payments have been
recognised as other income in the consolidated statement of profit and loss and other comprehensive income, and
have been separately disclosed in Note 5(a) to the consolidated financial statements. The impact of COVID-19 was
considered and assessed as not having a material impact in determining expected credit losses, provisions for employee
entitlements and other provisions, including impairment assessments.
43
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 3. SEGMENT INFORMATION
The Group disposed of its performance marketing business on 31 July 2018. Consequently, the performance marketing
operations were designated as a discontinued operation in the financial information reported for the prior period.
The Group’s operating segments comprise:
• Technology: responsible for the development and maintenance of the Group’s proprietary software offerings. These
activities are conducted primarily at the Group’s Australian head office and at its office in Croatia; and
• Sales and marketing: responsible for deploying the Group’s sales and marketing initiatives and for providing ongoing
customer service. These activities are carried out by sales and marketing personnel and consultants located in Australia,
Singapore, England, Latin America and the United States,
Costs allocated to the “other” segment include:
• Occupancy costs and general office administration costs for the Perth head office; and
• Employment costs relating to corporate and management team located in Perth.
In the prior year, the sales and marketing segment was not presented separately, it was included in the “other” segment. Due
to the increase in the Group’s sales and marketing initiatives in the current year, the sales and marketing segment has been
separately presented. In addition, the prior year segment results, assets and liabilities have been restated to present the sales
and marketing segment separately from the “other” segment.
The board of directors review internal management reports on a monthly basis that are consistent with the information
provided in the Consolidated Statement of Profit and Loss and Other Comprehensive Income, Consolidated Statement of
Financial Position and Consolidated Statement of Cash Flows. As a result, no reconciliation is required because, in aggregate,
the information as presented is what is used by the board to make strategic decisions. No operating segments have been
aggregated.
Segment results for the year ended 30 June 2020
Revenue
Other income
Overheads
Other expenses
EBITDA
Reconciliation of reportable segment loss
EBITDA
Interest income
Interest expense
Depreciation
Income tax expense
Loss after income tax
Technology
$
-
Sales and
marketing
$
1,227,213
Other
Consolidated
$
-
$
1,227,213
1,287,433
-
312,187
1,599,620
(5,041,781)
(2,603,690)
(2,404,858)
(10,050,329)
-
-
(2,075,561)
(2,075,561)
(3,754,348)
(1,376,477)
(4,168,232)
(9,299,057)
(3,754,348)
(1,376,477)
(4,168,232)
(9,299,057)
-
(33,115)
(92,502)
(11,957)
-
-
14,242
14,242
(21,130)
(54,245)
(1,855)
(41,985)
(136,342)
-
-
(11,957)
(3,891,922)
(1,378,332)
(4,217,105)
(9,487,359)
44
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
3. SEGMENT INFORMATION (CONTINUED)
Segment results for the year ended 30 June 2019
Technology
Sales and
marketing
Other
Consolidated
$
-
962,617
-
$
643,579
23,121
-
$
-
606,809
160,854
$
643,579
1,592,547
160,854
(4,164,105)
(1,617,756)
(2,723,860)
(8,505,721)
-
(503,233)
(503,233)
(3,201,488)
(951,056)
(2,459,430)
(6,611,974)
(3,201,488)
(951,056)
(2,459,430)
(6,611,974)
-
-
-
-
24,336
24,336
-
(33,452)
(3,085)
(2,654)
(17,591)
-
-
-
(39,191)
(17,591)
(3,252,531)
(954,141)
(2,437,748)
(6,644,420)
Technology
Sales and
marketing
Other
Consolidated
$
888,392
1,111,046
$
$
$
329,573
8,376,846
9,594,811
172,592
732,035
2,015,673
Technology
Sales and
marketing
Other
Consolidated
$
508,774
701,334
$
$
$
203,667
2,489,050
3,201,491
81,835
273,836
1,057,005
Revenue
Other income
Foreign exchange gains
Overheads
Other expenses
EBITDA
Reconciliation of reportable segment loss
EBITDA
Interest income
Interest expense
Depreciation
Income tax expense
Loss after income tax
Segment assets and liabilities at 30 June 2020
Assets
Liabilities
Segment assets and liabilities at 30 June 2019
Assets
Liabilities
Geographic information
Revenue from external customers by customer location:
Australia
Foreign countries (refer to note 4.1.for further details)
Total
Consolidated
2020
$
2,193
1,225,020
1,227,213
2019
$
-
643,579
643,579
Included in revenue from foreign countries is revenue arising from sales shown in the sales and marketing segment from one
customer which amounted to $408,613 (2019: $572,560).
45
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 3. SEGMENT INFORMATION (CONTINUED)
Geographic information (continued)
Non-current operating assets by location
Australia
United States
Asia Pacific
Other
Total
Non-current assets for this purpose consist of property, plant and equipment and goodwill.
4. REVENUE FROM CONTRACTS WITH CUSTOMERS
4.1 DISAGGREGATED REVENUE INFORMATION
Set out below is the disaggregation of the Group’s revenue from contracts with customers:
Consolidated
2020
$
2019
$
69,387
87,695
1,417
10
1,290
1,969
2,506
1,787
72,104
93,957
Consolidated
2020
$
2019
$
Revenue by type of goods or services
Revenue from the sale of software as a service
1,227,213
643,579
Total revenue from contracts with customers
1,227,213
643,579
Revenue by timing of revenue recognition
Services transferred over time
1,227,213
643,579
Total revenue from contracts with customers
1,227,213
643,579
Revenue by geographical region
North America
Latin America
Asia Pacific
Middle East
Other
337,352
542,033
344,679
344
2,805
572,560
53,633
9,214
8,171
-
Total revenue from contracts with customers
1,227,213
643,579
46
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 5. OTHER INCOME, OVERHEADS AND OTHER EXPENSES
This note provides a breakdown of the significant items included in ‘other income’, ‘overheads’ and ‘other expenses’ shown in
the Consolidated Statement of Profit and Loss and Other Comprehensive Income.
(a)
Other income
Research and development grant 1
Profit on disposal of controlled entity (refer to Note 14)
Interest income
JobKeeper and Cash Flow Booster stimulus income
Foreign exchange gains
Miscellaneous income
(b)
Administration costs
IT costs
Office and general administration costs
Corporate travel
(c) Compliance costs
Accounting fees
ASX compliance fees
Audit and tax compliance fees
Regulatory body fees
(d) Consultancy costs
Legal
Investor relations
Other
(e)
Employment costs
Salaries and wages 2
Ancillary employment costs
Other
(f)
Marketing costs
Advertising and marketing materials
Travel, entertainment, trade shows and events
Public relations
Consolidated
2020
$
1,287,433
-
14,242
305,000
-
7,187
2019
$
955,868
594,698
24,336
-
160,854
41,981
1,613,862
1,777,737
223,353
247,009
151,533
73,254
448,140
10,579
183,652
121,989
6,426
148,761
90,547
486,317
11,160
137,992
116,737
10,590
322,646
276,479
426,149
83,926
50,633
560,708
184,770
137,167
109,395
431,332
4,537,449
4,136,461
914,654
53,979
797,717
301,110
5,506,082
5,235,288
236,393
254,209
253,628
744,230
184,976
108,011
99,037
392,024
47
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
5. OTHER INCOME, OVERHEADS AND OTHER EXPENSES (CONTINUED)
(g)
Expected credit losses and bad debt expense
Trade receivables written off as a bad debt
Trade receivables: expected credit loss allowance recognised
Trade receivables: expected credit loss allowance reversed
(h)
Finance costs
Interest expense on lease liabilities (refer to Note 10)
(i)
Depreciation
Depreciation of property, plant and equipment
Depreciation of right-of-use asset
Consolidated
2020
$
35,312
279,343
(35,312)
279,343
54,245
54,245
35,288
101,054
136,342
2019
$
5,860
35,603
-
41,463
-
-
39,191
-
39,191
1. The research and development grant income has been received from the Australian government as the Group has
undertaken qualifying research and development activities within Australia. Grant income is recognised when the funds are
received whilst research and development expenses are recognised when incurred. The grant income recognised in the
current year relates to FY19 research and development activities and was received in January 2020.
2. Refer to Note 25 for further detail on director and executive remuneration.
6.
INCOME TAX EXPENSE
Major components of income tax expense for the year are:
Income statement
Current income tax
Current income tax charge
Adjustments in respect of previous years:
- Under provision for income tax in previous years
Deferred income tax
Deferred income tax charge relating to origination and reversal of temporary
differences
Consolidated
2020
$
2019
$
11,957
6,138
-
-
11,453
-
Income tax expense reported in income statement
11,957
17,591
48
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 6.
INCOME TAX EXPENSE (CONTINUED)
Reconciliation
A reconciliation of income tax expense / (benefit) applicable to accounting loss before income tax at the statutory income
tax rate to income tax expense at the Company’s effective income tax rate for the year is as follows:
Consolidated
2020
$
2019
$
Accounting loss before tax from continuing operations
(9,475,402)
(6,626,829)
Accounting profit before tax from discontinued operations
-
25,970
(9,475,402)
(6,600,859)
Income tax benefit at the statutory income tax rate of 27.5% (2019: 27.5%)
(2,605,736)
(1,815,236)
Adjusted for:
Under / (over) provision for income tax in previous years
-
(54,802)
Non-deductible share-based payment expenses
Non-deductible entertainment expenses
Non-deductible impairment loss
Non-deductible expected credit loss (deferred consideration)
Other non-deductible expenses
Profit on disposal of controlled entity
Non-assessable grant income
Other non-assessable amounts
Difference between the Australian statutory income tax rate and the statutory
income tax rate applicable to foreign operations
Tax losses and temporary differences not recognised as a deferred tax asset
(Australian tax: $2,242,875 (FY19: $1,930,464, Canadian tax: Nil (FY19: $19,653),
Singapore tax: $33,974 (FY19: $130,998) USA tax: $209,763 (FY19: $23,821))
Income tax expense reported in income statement
Income tax benefit attributable to discontinued operation
369,557
3,324
31,219
156,164
13,561
138,389
3,088
-
-
10,209
-
(163,542)
(354,044)
(269,222)
(83,875)
-
(4,824)
(2,483)
2,486,611
2,104,936
11,957
(48,663)
11,957
-
11,957
17,591
(66,254)
(48,663)
Tax Consolidation
The Company and its 100% owned Australian incorporated subsidiaries formed a tax consolidated group with effect from 1
July 2015.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Revenue losses
Capital losses
Temporary differences
Consolidated
2020
$
2019
$
17,378,719
11,993,184
339,111
762,336
4,387,273
2,157,326
22,105,103
14,912,845
Unrecognised tax losses at 27.5% (2019: 27.5%)
6,078,903
3,507,768
49
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
6.
INCOME TAX EXPENSE (CONTINUED)
Tax losses do not expire under current Australian legislation. Tax losses relating to foreign jurisdictions amount to $1,881,122
(2019: $1,019,717).
Deferred tax assets have not been recognised in respect of tax losses or temporary differences because it is not certain that
future taxable profit will be available in the near term against which the Group can utilise the benefits.
Availability of Tax Losses
The availability of the Group’s tax losses for future periods is uncertain and will be dependent on strict requirements being
satisfied with respect to continuity of ownership and the same business test imposed by income tax legislation.
The recoupment of tax losses as at 30 June 2020 is contingent upon the following:
• entities in the Group deriving future assessable income of a nature and of an amount sufficient to enable the benefit from
the losses to be realised;
•
•
the conditions for deductibility imposed by income tax legislation continuing to be complied with; and
there being no changes in income tax legislation which would adversely affect the entities from realising the benefit from
the losses.
7. CASH AND CASH EQUIVALENTS
For the purpose of the Consolidated Statement of Financial Position and the Consolidated Statement of Cash Flows, cash and
cash equivalents comprise the following at 30 June:
Cash at bank and on hand
Consolidated
2020
$
2019
$
8,351,840
2,046,991
The Group’s cash is mainly held with a banking institution in Australia with a AA credit rating. Cash at bank earns interest at
floating rates based on daily at call bank deposit and savings rates.
Reconciliation from the loss after tax to the net cash flows from operations
Net loss
Adjustments for non-cash items:
Depreciation
Profit on disposal of controlled entity
Loss / (profit) on disposal of plant and equipment
Share based payments
Unrealised foreign exchange differences
Impairment loss
Expected credit loss: trade receivables
Expected credit loss: deferred consideration
Changes in assets and liabilities:
Increase in trade receivables1
(Increase) / decrease in other receivables
Increase in prepayments
Increase / (decrease) in trade and other payables 1
Increase in provision for employee entitlements
Decrease in provision for income tax
Net cash generated by operating activities
Consolidated
2020
$
2019
$
(9,487,359)
(6,552,197)
136,342
39,191
-
1,572
1,343,842
29,693
113,525
244,030
567,869
(314,478)
(127,450)
(17,239)
39,559
237,319
-
(594,697)
(904)
503,233
(154,711)
-
35,603
-
(133,794)
1,559
(73,513)
(21,564)
96,971
(71,786)
(7,232,775)
(6,926,609)
1. Movement is stated after adjusting for the effects of movements in foreign exchange rates from the beginning of the
financial year to the end of the financial year.
50
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 8. TRADE AND OTHER RECEIVABLES
CURRENT
Trade receivables (a)
Allowance for expected credit losses (b)
Net trade receivables
Deferred consideration receivable
Allowance for expected credit losses (b)
Net deferred consideration receivable (refer to Note 14)
Income tax refund receivable
JobKeeper and Cash Flow Booster funding receivable
Sundry receivables
Deposits
GST receivables
Other receivables
NON-CURRENT
Deferred consideration receivable
Consolidated
2020
$
2019
$
465,934
151,457
(279,633)
(35,603)
186,301
115,854
567,869
341,720
(567,869)
-
-
341,720
21,358
135,000
2,013
35,966
20,420
214,757
33,580
-
2,802
35,984
15,223
87,589
401,058
545,163
-
-
255,607
255,607
(a) Trade receivables
Trade receivables are amounts due from customers for the sale of the Group’s software as a service. Trade receivables
are generally due for settlement within 30-60 days and are therefore classified as current assets. The Group’s accounting
policies for trade receivables are outlined in Notes 2(k) and 2(u).
(b) Allowance for expected credit losses
The movement in the allowance for expected credit losses is set out below:
Allowance for expected credit losses: trade receivables
Balance at 1 July
Allowance for expected credit losses recognised
Trade receivables written off as bad debts
Balance at 30 June
Allowance for expected credit losses: deferred consideration
Balance at 1 July
Allowance for expected credit losses recognised
Balance at 30 June
Consolidated
2020
$
35,603
279,633
(35,603)
279,633
-
567,869
567,869
2019
$
-
35,603
-
35,603
-
-
-
51
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 8. TRADE AND OTHER RECEIVABLES (CONTINUED)
(b) Allowance for expected credit losses (continued)
The current year allowance for expected credit losses on trade receivables relates to amounts owing by Mpire Network
Inc, and the current year allowance for expected credit losses on the deferred consideration receivable relates to
amounts owing by ClearPier Inc.
As part of the process whereby the Group disposed of 90% of Mpire Network Inc to ClearPier Inc, the Group agreed to
licence its nxus and TrafficGuard products to Mpire network Inc for a minimum term of 1 year, commencing on 1 August
2018. The initial term of the licencing agreements came to an end on 31 July 2019, and under the terms of the agreements,
they automatically renewed for a further 12-months unless terminated 30 days before the end of the initial term. Mpire
Network Inc did not provide a termination notice to the Group. However, after the second term commenced, Mpire
Network Inc disputed the renewal mechanism and failed to pay a number of invoices relating to the second term of the
licencing agreements. In addition, ClearPier Inc has defaulted on settling the deferred consideration in accordance with
the Sale and Purchase Agreement.
The Group instructed its legal counsel to take the required action prescribed by the underlying agreements to recover the
amounts owing to the Group and it has conservatively recognised expected credit losses of 100% of the balances owing
to it.
(c) Fair values of trade and other receivables
The fair value of trade and other receivables is assumed to approximate their carrying amounts due to their relatively
short-term in nature.
(d) Impairment and risk exposure
Information about the impairment of trade and other receivables, their credit quality and the Group’s exposure to credit
risk, foreign currency risk and interest rate risk can be found in Note 19.
9. PLANT AND EQUIPMENT
Consolidated: 2020
Leasehold
improvements
Computer
Equipment
Office
Equipment
$
$
$
Total
$
Cost
80,393
127,350
84,967
292,710
Accumulated depreciation
(62,033)
(111,696)
(80,877)
(254,606)
Carrying amount at 30 June 2020
18,360
15,654
4,090
38,104
Reconciliation
Carrying amount at 1 July 2019
34,439
Additions
Disposals
Impact of foreign exchange
Depreciation
Carrying amount at 30 June 2020
-
-
-
(16,079)
18,360
16,446
13,395
-
-
(14,187)
15,654
9,072
2,804
59,957
16,199
(2,842)
(2,842)
78
78
(5,022)
(35,288)
4,090
38,104
52
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 9. PLANT AND EQUIPMENT (CONTINUED)
Consolidated: 2019
Leasehold
improvements
Computer
Equipment
Office
Equipment
$
$
$
Total
$
Cost
80,393
113,954
85,409
279,756
Accumulated depreciation
(45,954)
(97,508)
(76,337)
(219,799)
Carrying amount at 30 June 2019
34,439
16,446
9,072
59,957
Reconciliation
Carrying amount at 1 July 2018
Additions
Impact of foreign exchange
Depreciation
50,517
-
-
12,350
19,482
-
(16,078)
(15,386)
Carrying amount at 30 June 2019
34,439
16,446
Refer to Note 2(g) for further details on the Group’s accounting policies for plant and equipment.
7,837
8,881
81
(7,727)
9,072
70,704
28,363
81
(39,191)
59,957
10. RIGHT OF USE ASSETS
The Group is the lessee in lease contracts for office premises and various items of office equipment. Leases of office premises
generally have lease terms of between 1 and 10 years, while office equipment generally has a lease term between 1 and 2
years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Group is
restricted from assigning and subleasing the leased assets.
In the case of leases of office premises and low value office equipment with lease terms of 12 months or less, the Group has
applied the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions under AAS16 on leases. In the case of
leases of office premises with lease terms over 12 months, the Group has recognised a right-of-use asset and an associated
lease liability.
Set out below are the carrying amounts of right-of-use assets recognised on adoption of AASB 16 on 1 July 2019, and the
movements during the year:
As at 1 July 2019
Depreciation expense
At 30 June 2020
Office Premises
$
707,376
(101,054)
606,322
Set out below are the carrying amounts of lease liabilities recognised on adoption of AASB 16 on 1 July 2019, and the
movements during the year:
As at 1 July 2019
Interest expense
Lease payments
At 30 June 2020
Current lease liabilities
Non-current lease liabilities
$
707,376
54,245
(113,346)
648,275
90,597
557,678
648,275
53
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
10. RIGHT OF USE ASSETS (CONTINUED)
The following are the amounts recognised in profit or loss in relation to leased assets:
Right-of-use-assets
Depreciation of right-of-use-assets
Interest expense on lease liabilities associated with right-of-use-assets
Short term or low value asset leases
Included in occupancy costs
Rent expense - short-term lease
Included in administration costs
Rent expense - low-value assets
Total amount recognised in profit or loss
Consolidated
2020
$
101,054
54,245
34,672
1,500
191,471
2019
$
-
-
-
The Group had total cash outflows for leases of $113,346 in the current year (2019: nil).
The Group has a lease contract that includes extension and termination options. These options are negotiated by
management to provide flexibility in managing the leased-asset portfolio and align with the Group’s business needs.
Management exercises significant judgement in determining whether these extension and termination options are reasonably
certain to be exercised (Note 2(c)(ii)(a).
11.
INVESTMENTS
Unlisted equity investment
Consolidated
2020
$
-
-
2019
$
113,525
113,525
Pursuant to the sale of its performance marketing business on 31 July 2018, the Group retains a 10% equity interest in Mpire
Network Inc. During the current year, the Group considered a number of factors relating to its investment in Mpire Network Inc
which resulted in the value of this investment being estimated to be nil.
12. TRADE AND OTHER PAYABLES
Trade payables
Statutory liabilities
Other payables
Consolidated
2020
$
503,735
119,693
146,445
769,873
2019
$
372,637
165,689
158,473
696,799
Trade and other payables are non-interest bearing and are unsecured. Balances are usually settled within 30 days of
recognition.
The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their short-term
nature.
54
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
13. PROVISIONS
CURRENT
Employee benefits
Other provisions
NON-CURRENT
Employee benefits
Consolidated
2020
$
478,229
72,633
550,862
2019
$
326,254
-
326,254
46,664
33,952
The current provision for employee benefits relates to the Group’s liability for annual leave and long service leave. The non-
current provision for employee benefits relates only to the Group’s liability for long service leave.
Movement in the provisions for employee benefits for continuing operations is as follows:
Consolidated
2020
2019
Annual leave
Long service
leave
Annual leave
Long service
leave
$
227,838
294,658
(9,331)
(161,541)
351,624
$
132,368
48,041
$
155,365
313,010
-
(57,684)
(7,140)
(182,853)
$
103,873
28,495
-
-
173,269
227,838
132,368
351,624
-
126,605
46,664
227,838
-
98,416
33,952
Balance at 1 July
Amounts provided for during the year
Unused leave balances paid during the year
Leave taken during the year
Balance at 30 June
The balance is spilt as follows:
Current potion
Non-current portion
14. DISCONTINUED OPERATION
On 31 July 2018, the Group disposed of 90% of its equity interest in Mpire Network Inc, to ClearPier Inc for a cash consideration
of US$666,817, of which U$370,454 was received upfront and US$296,363 was deferred. The purchase consideration also
included a maximum of US$4,445,442) under a 3 year profit share agreement. In addition, under the terms of the Sale and
Purchase Agreement, the Group is due to receive a working capital adjustment amount of US$163,158.
A pre-tax profit of $594,698 was recognised in the FY19 consolidated statement of profit or loss and other comprehensive
income.
The deferred consideration and working capital adjustment amounts owing have been classified as follows:
Current trade and other receivables (net of expected credit losses)
Non-current trade and other receivables
Consolidated
2020
$
-
-
-
2019
$
341,719
255,607
597,326
55
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
14. DISCONTINUED OPERATION (CONTINUED)
The results of the discontinued operation are presented below:
Revenue
Cost of services rendered
Gross Profit
Administration costs
Compliance costs
Consultancy costs
Employment costs
Occupancy costs
Marketing costs
Bad and doubtful debts expense
Foreign exchange differences
Finance costs
Depreciation
Overheads
Profit before income tax
Income tax benefit
Profit for the year
The net cash flows generated from the sale of Mpire Network Inc were as follows:
Cash proceeds received: upfront purchase consideration
Cash proceeds received: deferred purchase consideration
Cash sold as part of the disposal of Mpire Network
The net cash flows incurred by Mpire Network Inc were as follows:
Operating activities
Investing activities
Financing activities
Net cash (outflow) / inflow
56
2020
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2020
$
-
29,458
2019
$
564,386
(339,079)
225,307
(21,689)
(12,931)
(6,446)
(99,656)
(6,444)
(1,905)
13,524
(62,848)
(943)
-
(199,338)
25,969
66,254
92,223
2019
$
500,000
57,201
-
(348,192)
29,458
209,009
2020
$
-
-
-
-
2019
$
(102,509)
-
274,053
171,544
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 15. CONTRIBUTED EQUITY
(a) Issued capital
Ordinary shares, fully paid
Consolidated
2020
$
2019
$
39,941,684
26,305,580
Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of
shares held and in proportion to the amount paid up on the shares held. At shareholder meetings, each ordinary share
is entitled to one vote in proportion to the paid-up amount of the share when a poll is called, otherwise each shareholder
has one vote on a show of hands.
(b) Movements in share capital
Number
2020
$
Number
2019
$
Shares on issue at 1 July
158,898,924
26,305,580
88,797,667
22,586,507
Shares issued on conversion of Class D
Performance Rights
-
-
Shares issued on exercise of options
1,300,225
145,023
33,332
4,500
13,330
450
Shares issued pursuant to an Entitlements
Issue
Shares issued pursuant to a placement at
$0.055 per share 1
Shares issued pursuant to a placement at
$0.075 per share 1
Shares issued pursuant to a placement at
$0.075 per share 1
Shares issued pursuant to a placement at
$0.165 per share 1
Shares issued pursuant to a placement at
$0.17 per share 1
-
-
53,278,600
2,397,537
33,975,543
1,868,655
-
-
33,333,333
2,500,000
3,333,334
250,000
28,710,000
2,871,000
-
-
-
-
12,592,968
2,077,840
Shares issued pursuant to a Share Purchase
Plan
40,928,222
3,069,601
20,706,759
3,520,149
-
-
-
-
Shares issued as consideration for
placement services
Shares issued as consideration for investor
relations services
Share issue costs 2
1,439,286
79,161
858,523
71,256
1,094,116
82,500
-
(499,985)
-
-
-
(1,091,340)
Shares on issue at 30 June
320,386,408
39,941,684
158,898,924
26,305,580
1. Placements were made to sophisticated and professional investors.
2. Share issue costs is made up as follows:
Share issue costs paid during the year
Consolidated
2020
$
2019
$
(387,310)
(263,247)
Share issue costs included in trade and other payables at balance date
(33,514)
-
Fair value of options issued as consideration for underwriting services
-
(756,837)
Fair value of shares issued as consideration for placement services
(79,161)
(71,256)
(499,985)
(1,091,340)
57
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
15. CONTRIBUTED EQUITY (CONTINUED)
(c) Capital Risk Management
The Group’s objective when managing capital is to safeguard its ability to continue as a going concern, so that it can
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to
reduce the cost of capital.
No changes were made in the objectives, policies or processes for managing capital during the years ended 30 June
2020 and 30 June 2019.
Trade and other payables (Note 12)
Lease liabilities (Note 10)
Less: cash and cash equivalents (Note 7)
Net (Debt) / Capital
Equity
Total Capital
Capital and net debt
Gearing ratio
Consolidated
2020
$
769,873
648,275
1,418,148
2019
$
696,799
-
696,799
(8,351,840)
(2,046,991)
(6,933,692)
(1,350,192)
39,941,684
26,305,580
39,941,684
26,305,580
33,007,992
24,955,388
(21%)
(5%)
58
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 16. RESERVES
Foreign currency translation reserve
Consolidated
2020
$
40,537
2019
$
15,973
Share based payments reserve
5,166,535
3,905,193
Foreign currency translation reserve
Balance at beginning of year
Foreign exchange differences arising on translation of foreign operations
Balance at end of year
Share based payments reserve
Balance at beginning of year
Fair value of options issued to directors
Fair value of options issued as consideration for underwriting services
Fair value of options issued as consideration for investor relations services
Fair value of options issued as consideration for consultancy services
Fair value of options issued to staff
15,973
24,564
40,537
12,346
3,627
15,973
3,905,193
2,658,453
-
-
-
-
28,625
207,214
756,837
65,004
33,345
-
Fair value of Class D Performance Rights converted into ordinary shares
-
(13,330)
Fair value of Class H Performance Rights recognised
Fair value of Class I Performance Rights recognised
Fair value of Class J Performance Rights recognised
Fair value of Class K Performance Rights recognised
Fair value of Class L Performance Rights recognised
Fair value of Class M Performance Rights recognised
Fair value of Class N Performance Rights recognised
Fair value of Class O Performance Rights recognised
Fair value of Class P Performance Rights recognised
Fair value of Class Q Performance Rights recognised
Fair value of Class R Performance Rights recognised
Fair value of Class S Performance Rights recognised
Employee share scheme expense
Employee option scheme expense
47,461
94,924
94,924
95,054
101,317
32,779
21,776
7,027
147,615
147,615
147,615
226,586
7,554
60,470
3,745
7,489
7,489
14,980
22,469
11,234
11,234
14,980
-
-
-
-
18,996
85,054
Balance at end of year
5,166,535
3,905,193
Nature and purpose of reserves
Foreign currency reserve
The foreign currency translation reserve is used to recognise foreign currency exchange differences arising on translation of
functional currency to presentation currency for foreign operations.
Share-based payments reserve
The share-based payments reserve is used to recognise the fair value of equity-settled share-based payments provided to
employees, consultants and other third parties.
59
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
17. SHARE BASED PAYMENTS
The share-based payments expense recognised during the year is comprised as follows:
Options granted to non-executive directors
Options granted as consideration for investor
relations services
Options granted as consideration for consultancy
services
Options granted under employee option plan 1
2020
Number
granted
-
-
-
-
Options granted under employee option plan 1
600,000
$
-
-
-
60,470
28,624
Shares issued as consideration for investor
relations services
1,094,116
82,500
2019
Number
granted
$
3,000,000
207,214
1,000,000
65,004
600,000
2,850,000
-
-
33,345
85,054
-
-
Performance rights granted (classes H – O) 1
-
495,258
14,850,000
93,620
Performance rights granted (classes P - R) 1
Performance rights granted (classes S) 1
Shares issued under employee share plan 1
6,000,000
5,750,000
-
442,847
226,590
7,553
1,343,842
-
-
-
-
-
18,996
503,233
Notes
1. There are vesting conditions attached to these securities. The fair value at grant date is recognised over the vesting period.
(a) Options
The movement in options during the year is set out below:
2020
2019
Fair value
per option at
grant date
(cents)
Number
64,446,334
-
-
-
-
-
-
4.76
7.78
-
-
-
-
-
-
400,000
200,000
(1,300,225)
-
(1,500,000)
62,246,109
Fair value
per option at
grant date
(cents)
-
4.87
6.50
5.56
6.91
5.56
-
-
-
Number
2,000,000
39,958,961
15,541,873
1,000,000
600,000
3,000,000
2,850,000
-
-
(4,500)
(500,000)
-
64,446,334
Opening balance
free attaching options granted with an
entitlements issue 1
options granted via underwriting service
agreement 2
options granted pursuant to investor
relations agreement
options granted pursuant to consultancy
agreement
options granted to non-executive directors
options granted under employee option plan
options granted under employee option plan
options granted under employee option plan
Exercised during the year
Lapsed during the year
Expired during the year
Closing balance
Notes
1. These options have been allocated a nil fair value given they were free attaching options which were issued in
conjunction with ordinary share as part of an entitlements issue.
2. The fair value of these options has been recognised as a share issue cost and allocated against contributed equity.
60
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
17. SHARE BASED PAYMENTS (CONTINUED)
(a) Options (continued)
The fair value of options granted during the year was $34,607 (2019: $1,220,791, excluding free attaching options).
The options were valued at grant date using the Black-Scholes model and took into account the following assumptions:
Number granted
Exercise price
Expiry date
Dividend yield
Expected volatility
Risk-free interest rate
Tranche 1
Tranche 2
400,000
200,000
$0.15
$0.20
19/08/2021
21/11/2021
0.00%
107.99%
0.87%
0.00%
101.02%
0.79%
The weighted average remaining contractual life for the share-based payment options outstanding as at 30 June 2020
was 1.23 years (30 June 2019: 2.24 years).
The exercise price for share based payment options outstanding as at the end of the period was a range of $0.10 to
$0.45 (30 June 2019: $0.10 to $0.45).
Holders of options do not have any voting or dividend rights in relation to the options.
(b) Performance Rights
The following table illustrates the movement in performance rights during the year:
Opening
balance at 1
July 2019
Granted
during the
year
Converted
into ordinary
shares during
the year
Lapsed during
the year
Closing
balance at 30
June 2020
Number
Number
Number
Number
Number
Class H
Class I
Class J
Class K
Class L
Class M
Class N
Class O
Class P
Class Q
Class R
Class S
450,000
900,000
900,000
1,800,000
2,700,000
1,800,000
2,700,000
3,600,000
-
-
-
-
-
-
-
-
-
-
-
-
2,000,000
2,000,000
2,000,000
5,750,000
14,850,000
11,750,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
450,000
900,000
900,000
1,800,000
2,700,000
1,800,000
2,700,000
3,600,000
2,000,000
2,000,000
2,000,000
5,750,000
26,600,000
61
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 17. SHARE BASED PAYMENTS (CONTINUED)
(b) Performance Rights (continued)
The vesting conditions, performance milestones and expiry dates attached to the performance rights granted during the
year are set out below:
Tranche
Vesting Condition
Expiry date
Class P
These performance rights vest on achievement of the first 3 Tier 1 clients in USA
30 June 2021
Class Q
These performance rights vest on achievement of the first 3 Tier 1 clients in Latin America
30 June 2021
Class R
These performance rights vest on achievement of the first 3 Tier 1 clients in APAC
30 June 2021
Class S
These performance rights vest provided the employee remains a full-time employee of
the Group 2 years from date of issue
25 April 2022
Tier 1 client means any client which is considered an enterprise level client generating revenue of at least $5,000 per
month over the course of a contract which has a minimum 12 month term.
The fair value of performance rights granted during the year was $2,218,844 (2019: $1,280,158).
The performance rights were valued at grant date using the Black-Scholes model and took into account the following
assumptions:
Classes P-R Classes P-R
Class S
Cass S
Cass S
Cass S
Cass S
Number granted
3,000,000
3,000,000
1,500,000
1,000,000
1,500,000
1,000,000
750,000
Exercise price
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Expiry date
30/06/2021
30/06/2021 25/04/2022 25/04/2022 25/04/2022 25/04/2022 25/04/2022
Dividend yield
0.00%
0.00%
0.00%
Expected volatility
97.55%
96.24%
92.34%
0.00%
92.18%
0.00%
91.78%
0.00%
91.26%
0.00%
91.18%
Risk-free interest
rate
0.75%
0.84%
0.88%
0.89%
0.80%
0.77%
0.74%
Holders of performance rights do not have any voting or dividend rights in relation to the performance rights.
(c) Employee Incentive Share Plan
Under the Employee Incentive Share Plan, eligible employees may be granted up to $1,000 of fully paid ordinary shares
in the Company annually for no cash consideration. The number of shares issued to participants in the scheme is
calculated at $1,000 divided by the weighted average closing price of the Company’s share price based on the closing
ASX market prices over the five trading days before, but not including, the issue date, rounded down to the nearest whole
number.
There were no shares issued under the plan in the current year (2019: nil).
(d) Employee Incentive Option Plan
Under the Employee Incentive Option Plan, eligible employees may be granted options in the Company to recognise
work undertaken by the employees and to incentivise them further. The exercise price of options issued under the plan is
calculated so as to ensure that the options only have value if there is an increase in shareholder wealth over time.
During the current year, 600,000 options were granted to employees under the plan (2019: 2,850,000).
18. ACCUMULATED LOSSES
Accumulated losses at the beginning of financial year
Net loss for the year
Withholding tax on intragroup dividend payment
Accumulated losses at the end of financial year
62
Consolidated
2020
$
2019
$
(28,082,260)
(21,491,395)
(9,487,359)
(6,552,197)
-
(38,668)
(37,569,619)
(28,082,260)
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 19. FINANCIAL ASSETS AND FINANCIAL LIABILITIES
(a) Financial assets (other than cash and cash equivalents)
Financial assets at amortised cost
Trade and other receivables (Note 8)
Consolidated
2020
$
2019
$
773,966
800,770
Financial asset at fair value through other comprehensive income
Unlisted investments (Note 11)
-
113,525
Total financial assets (other than cash and cash equivalents)
773,966
914,295
Total current
Total non-current
(b) Financial liabilities
Financial liabilities at amortised cost
Trade and other payables (Note 12)
Interest bearing liabilities
Lease liabilities (Note 10)
Total financial liabilities
Total current
Total non-current
773,966
-
773,966
545,163
369,132
914,295
Consolidated
2020
$
2019
$
503,735
372,637
648,275
-
1,152,010
372,637
594,332
557,678
1,152,010
372,637
-
372,637
(c) Financial instruments risk management objectives and policies
The Group’s principal financial assets include trade and other receivables, and cash and short-term deposits derived
directly from its operations. The Group also holds a minority 10% equity investment in an unlisted entity in respect of which
an impairment loss of $113,525 was recognised in the current year. The Group’s principal financial liabilities comprise
trade and other payables and interest-bearing lease liabilities. The main purpose of these financial liabilities is to finance
the Group’s operations.
The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the
management of these risks and are responsible for ensuring that financial risks are identified, measured and managed
in accordance with the Group’s policies and risk objectives. The Board of Directors reviews and agrees policies for
managing each of these risks, which are summarised below.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity
price risk. Financial instruments affected by market risk include trade and other receivables, unlisted equity investments,
trade and other payables and interest-bearing lease liabilities.
63
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 19. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(c) Financial instruments risk management objectives and policies (continued)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates is negligible given
that the terms of lease liability that has been recognised have been agreed upfront and are in place until 30 June 2021.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates
primarily to the Group’s operating activities (when revenue or expense is denominated in a foreign currency) and the
Group’s net investments in foreign subsidiaries.
The only material financial instruments denominated in a foreign currency held by the Group are cash amounts
denominated in United States Dollars (USD), certain trade and other receivables denominated in USD and certain trade
payables denominated in USD.
A summary of the AUD equivalent of the Group’s USD denominated financial instruments at the reporting date is as
follows:
Cash and cash equivalents
Trade and other receivables
Trade payables
Net exposure
Consolidated
2020
$
313,783
184,279
2019
$
251,433
713,181
(356,200)
(339,714)
141,862
624,900
The sensitivity analysis below relates to the foreign currency risk exposures in existence at the reporting date. The
following table demonstrates the sensitivity to a reasonably possible change in AUD / USD exchange rates, with all other
variables held constant.
Effect on loss before tax
Effect on pre-tax equity
(Higher)/Lower
Higher/(Lower)
2020
$
15,605
2019
$
68,739
2020
$
15,605
2019
$
68,739
(15,605)
(68,739)
(15,605)
(68,739)
+11%
-11%
Translation risk
All USD denominated balance sheet accounts are converted to AUD at spot rate at year end. Group net assets are
therefore sensitive to the exchange rate at year end. The following table demonstrates the sensitivity to a reasonably
possible change in AUD / USD exchange rates, with all other variables held constant.
Effect on net group assets
before Australian group tax
Effect on equity before
Australian group tax
(Higher) / Lower
Higher / (Lower)
2020
$
2019
$
2020
$
2019
$
833,705
235,893
833,705
235,893
(833,705)
(235,893)
(833,705)
(235,893)
+11%
-11%
64
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
19. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(c) Financial instruments risk management objectives and policies (continued)
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily in relation to trade
and other receivables) and from its financing activities, including deposits with banks and financial institutions, foreign
exchange transactions and other financial instruments.
i. Trade receivables and contract assets
Customer credit risk is managed by the Group’s established policy, procedures and control relating to customer credit
risk management. Credit quality of the customer is assessed based on the customer’s financial position, past working
experience with the customer (if any) and any other applicable factors. Individual credit limits are defined in accordance
with this assessment. Outstanding customer receivables are regularly monitored and followed up accordingly. At 30 June
2020, the Group had 11 customers (2019: 6) of whom 3 owed more than $428,000 and accounted for 91% of all trade
receivables outstanding.
An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit
losses. The provision rates are generally based on days past due after considering any other relevant forward-looking
information. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial
assets disclosed in Note 8. The Group does not hold collateral as security. The Group evaluates the concentration of
risk with respect to trade receivables as low, as its customers are located in different jurisdictions and operate in largely
independent markets.
Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix:
30 June 2020
Days past due
Total
Current
30 days
30-60 days
61-90 days
> 90 days
$
Total gross carrying amount
465,934
184,122
Expected credit loss rate
Expected credit loss
(279,633)
0%
-
Net carrying amount
186,301
184,122
$
-
0%
-
-
$
2,179
0%
-
2,179
$
-
0%
-
-
$
279,633
100%
(279,633)
-
30 June 2019
Days past due
Total
Current
30 days
30-60 days
61-90 days
> 90 days
$
$
$
$
Total gross carrying amount
151,457
79,353
22,326
19,655
26,626
Expected credit loss rate
Expected credit loss
(35,603)
0%
-
0%
-
46%
100%
(8,977)
(26,626)
$
3,497
0%
-
Net carrying amount
115,854
79,353
22,326
10,678
-
3,497
The credit risk associated with the deferred consideration receivable (Note 8) is assessed in the same manner as trade
receivables.
Impairment of the deferred consideration receivable is assessed regularly. Management analyse the probability of
default on the obligation to determine whether any expected credit loss is to be recognised. During the current year, an
expected credit loss of $567,869 was recognised.
.
65
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 19. FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(c) Financial instruments risk management objectives and policies (continued)
Credit risk (continued)
i. Trade receivables and contract assets (continued)
At 30 June, the exposure to credit risk for trade receivables and contract assets by geographic region was as follows:
North America
Latin America
Asia Pacific
Middle East
Other
Consolidated
2020
$
99,942
119,117
52,295
-
3,921
2019
$
49,834
53,394
5,496
3,497
3,633
275,275
115,854
At 30 June, the exposure to credit risk for trade receivables and contract assets by type of counterparty was as follows:
End-user customers
Consolidated
2020
275,275
275,275
2019
115,854
115,854
ii. Cash and cash equivalents
The Group held cash and cash equivalents of $8,351,840 at 30 June 2020 (2019: $2,046,991). All cash and cash
equivalents are held with banks which the Group considers to be low risk.
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and funding to ensure that the Group can meet its
obligations when due. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial assets and liabilities.
The Group holds the majority of its financial assets (excluding cash) as trade receivables with reputable customers who
have had no significant payment issues in the past and hence, does not have any material liquidity risk at the reporting
date.
The Group monitors rolling forecasts of liquidity reserves on the basis of expected cash flow.
66
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
For the year ended 30 June 2020
19. FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
(c) Financial instruments risk management objectives and policies (continued)
Liquidity (continued)
Exposure to liquidity risk
The following tables compare the carrying amounts at balance date to the remaining contractual liabilities at various
maturities at balance date The contractual amounts are gross, undiscounted, include any contractual interest payments
and exclude the impact of netting arrangements:
30 June 2020
Non-derivative
financial liabilities
Trade payables
Lease liabilities
30 June 2019
Non-derivative
financial liabilities
Contractual cash flows
Carrying
amount
$
Total
$
12 months
or less
$
503,735
648,275
1,152,010
503,735
808,837
1,312,572
503,735
127,474
631,209
1-2 years
2-5 years
5-10 years
$
-
$
-
263,485
263,485
417,878
417,878
$
-
-
-
Contractual cash flows
Carrying
amount
$
Total
$
12 months
or less
$
1-2 years
2-5 years
5-10 years
$
-
-
-
$
-
-
-
$
-
-
-
Trade payables
372,637
372,637
372,637
Lease liabilities
-
-
-
372,637
372,637
372,637
Fair values
Fair values of financial assets and liabilities have been assessed as being equivalent to their carrying values.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The carrying amount of financial assets and financial liabilities recorded in the financial statements approximate their fair
values. The carrying amount of lease liabilities recorded in the financial statements approximate their fair values and are
all classified as level 3 instruments per the below valuation methodology.
For financial instruments carried at fair value, the Group uses various methods in estimating fair value. The methods
comprise:
• Level 1 – the fair value is calculated using quoted prices in an active market.
• Level 2 – the fair value is estimated using inputs other than quoted prices included in the Level 1 that are observable for
the asset or liability, either directly (as prices) or indirectly (derived from prices).
• Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data.
67
ADVERITAS ANNUAL REPORT 2020For personal use only 20. COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments – Group as lessee
Future minimum rentals payable under non-cancellable operating leases are as follows:
Within one year
After one year but not more than five years
More than five years
Consolidated
2020
$
2,845
-
-
2019
$
85,439
315,871
153,416
2,845
554,726
(b) Property, Plant and Equipment Commitments
At balance date the Group had no contractual obligations to purchase plant and equipment (2019: nil).
(c) Contingent Liabilities
At balance date the Group had no pending legal claims or other contingent liabilities (2019: nil).
21. GROUP STRUCTURE AND RELATED PARTY DISCLOSURES
a) Group structure
The consolidated financial statements include the financial statements of Adveritas Limited (the parent entity) and the
entities listed in the following table.
Livelynk Group Pty Ltd 1
TrafficGuard Pty Ltd 2
TrafficGuard APAC Pte Ltd 2
TrafficGuard US Inc 2
Mpire Network Inc. 2
Appenture d.o.o 2
Country of incorporation
% Equity interest
2020
2019
Australia
Australia
Singapore
United States
Canada
Croatia
100
100
100
100
10
100
100
100
100
100
10
100
1 equity interest is held directly by Adveritas Limited.
2 equity interest is held directly by Livelynk Group Pty Ltd.
b) Transactions with related parties
During the current year, Adveritas Limited continued its consultancy agreement with 13811 Advisory Pte Ltd, a company
of which Mr Stott is the CEO and founder. The consultancy services include the provision of promotion and marketing
services. Under the agreement, Mr Stott was entitled to consultancy fees of SGD 3,000 per month for the period 1 Jul 2019
to 31 December 2019, and $5,000 per month for the period 1 January 2020 to 30 June 2020. At 30 June 2020, an amount
of $5,000 was owing to 13811 Advisory Pte Ltd (2019: $6,807).
c) Guarantees
None of the entities within the Group are guarantors.
68
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only
22. EVENTS AFTER BALANCE SHEET DATE
No event has arisen since 30 June 2020 that would be likely to materially affect the operations of the Group, or its state of
affairs which has not otherwise been disclosed in this financial report.
23. AUDITORS’ REMUNERATION
Remuneration of the Group’s auditor, Ernst and Young, was as follows:
Audit or review of the consolidated financial report
Tax compliance services provided
Consolidated
2020
$
98,186
39,111
137,297
2019
$
63,228
48,282
111,510
24. LOSS PER SHARE
Basic loss per share is calculated by dividing the loss for the year attributable to ordinary equity holders of the Company by
the weighted average number of ordinary shares on issue during the year.
Diluted loss per share is calculated by dividing the loss attributable to ordinary equity holders of the Company by the
weighted average number of ordinary shares on issue during the year plus the weighted average number of ordinary shares
that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
The following table reflects the data used in the calculation of the basic and diluted loss per share:
2020
2019
Number
Number
Weighted average number of ordinary shares used in the calculation of basic loss per
share
202,864,250
130,226,820
Weighted average number of ordinary shares used in the calculation of diluted loss
per share
Profit / (loss) attributable to ordinary equity holders of Adveritas Limited
Continuing operations
Discontinued operations
202,864,250
130,226,820
$
$
(9,487,359)
(6,644,420)
-
92,233
Loss attributable to ordinary equity holders of Adveritas Limited for basic and diluted
loss
(9,487,359)
(6,552,197)
Basic earnings loss per share
Basic loss per share – continuing operations
Basic earnings per share – discontinued operations
Diluted loss per share
Diluted loss per share – continuing operations
Diluted earnings per share – discontinued operations
Cents
(4.68)
(4.68)
-
(4.68)
(4.68)
-
Cents
(5.03)
(5.10)
0.07
(5.03)
(5.10)
0.07
Classification of securities as ordinary shares
The Company has only one category of ordinary shares included in basic loss per share.
Classification of securities as potential ordinary shares
No securities have been classified as dilutive potential ordinary shares on issue in the current year because the options and
performance rights on issue are considered anti-dilutive on the basis that their inclusion in the calculation would reduce the
loss per share.
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and
the date of authorisation of these consolidated financial statements.
69
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only 25. DIRECTORS AND EXECUTIVE DISCLOSURE
Compensation of Key Management Personnel
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share based payments
Consolidated
2020
$
2019
$
1,358,654
1,526,512
81,666
12,303
986,844
2,439,467
78,833
5,745
353,058
1,964,198
26. PARENT ENTITY INFORMATION
The following information relates to the legal parent entity of the Group, being Adveritas Limited. The information presented
has been prepared using consistent accounting policies as presented in Note 2.
As at 30 June
As at 30 June
2020
$
2019
$
8,001,957
1,770,386
2,538
10,212,756
8,004,495
11,983,142
471,463
5,874
477,337
217,817
56,374
274,191
7,527,158
11,708,951
36,709,582
23,073,478
3,852,389
2,591,047
(33,034,813)
(13,955,574)
7,527,158
11,708,951
(19,079,239)
(2,447,350)
-
-
(19,079,239)
(2,447,350)
Financial Position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Share based payment reserve
Accumulated losses
Total equity
Financial Performance
Loss for the year
Other comprehensive income
Total comprehensive loss
70
ADVERITAS ANNUAL REPORT 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 30 June 2020For personal use only D I R E C T O R S ’ D E C L A R A T I O N
For the year ended 30 June 2020
In the directors’ opinion:
(a)
The consolidated financial statements and notes of Adveritas Limited set out on pages 26 to 70 are in accordance with the
Corporations Act 2001, including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements, and
(ii) giving a true and fair view of the Group’s consolidated financial position as at 30 June 2020 and its performance for the
financial year ended on that date, and
(b)
Note 2(b) confirms that the consolidated financial statements also comply with the International Financial Reporting
Standards as issued by the International Accounting Standards Board.
(c)
Subject to Note 2(z), there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
This declaration has been made after receiving the declarations required to be made to the directors by the chief executive officer
and chief financial officer in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2020.
On behalf of the board
Stephen Belben
Non-Executive Chairman
Perth, Western Australia
Dated this 28th day of August 2020
71
ADVERITAS ANNUAL REPORT 2020For personal use only
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Independent auditor's report to the members of Adveritas Limited
Report on the audit of the financial report
Opinion
We have audited the financial report of Adveritas Limited (the Company) and its subsidiaries (collectively
the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the
consolidated statement of profit and loss and other comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial
statements, including a summary of significant accounting policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
a.
b.
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2020
and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants
(including Independence Standards) (the Code) that are relevant to our audit of the financial report in
Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Material uncertainty related to going concern
We draw attention to Note 2(z) in the financial report, which describes the principal conditions that raise
doubt about the consolidated entity’s ability to continue as a going concern. These events or conditions
indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to
continue as a going concern. Our opinion is not modified in respect of this matter.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
MC:TGF:ADVERITAS:008
72
ADVERITAS ANNUAL REPORT 2020For personal use only
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going
Concern section, we have determined the matters described below to be the key audit matters to be
communicated in our report. For each matter below, our description of how our audit addressed the
matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
1. Share-based payment expense
Why significant
How our audit addressed the key audit matter
As disclosed in Notes 16 and 17 to the financial
report, the Group has awarded share-based
payments to employees, directors and consultants
during the year, contributing to a total share-
based payment expense of $1,343,842.
As part of our audit procedures, we assessed
the Group’s share based-payment expense
calculations to determine whether the balances
were calculated in accordance with Australian
Accounting Standards.
Due to the complex and judgmental estimates such
as volatility, used in determining the valuation of
the share-based payments, we considered the
Group’s calculation of the share-based payment
expense to be a key audit matter.
We involved our valuation specialists to assess
the Group’s calculation of the fair value of
share-based payment issued during the year,
including the key assumptions used.
We also assessed the adequacy of the
presentation and disclosures in Notes 16 and 17
of the financial report.
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2. Allowance for expected credit losses
Why significant
How our audit addressed the key audit matter
As part of our audit procedures, we read the
share sale agreement and the revenue
agreements entered into by the Group.
We assessed whether the allowance for
expected credit losses were calculated in
accordance with the requirements of AASB 9
Financial Instruments.
We also assessed the adequacy of the disclosure
in the financial report.
As disclosed in Note 14 to the financial report, the
Group completed the sale of 90% of the shares in
Mpire Network Inc. (“MPN”) to ClearPier Inc.
(“CPI”) on 31 July 2018. As part of the disposal
process, the Group agreed to licence its nxus and
TrafficGuard products to MPN for a minimum term
of 1 year, commencing on 1 August 2018. The
contracts automatically renewed on 1 August
2019 in accordance with the terms of the
contract.
Subsequent to the commencement of the second
year of the contracts, MPN disputed the renewal
mechanism and has failed to pay a number of
invoices relating to the second year of the
contracts.
In addition, CPI has failed to pay the deferred
component of the purchase consideration for MPN
in accordance with the terms of the share sale
agreement.
As disclosed in note 8, the Group has recognised
an allowance for expected credit loss of $279,633
in respect of the trade receivable outstanding
from MPN at 30 June 2020, and an allowance for
expected credit loss of $567,869 in respect of the
deferred consideration receivable from CPI.
Due to the significant judgement required in
determining the allowance for expected credit
losses, we considered the allowance for expected
credit loss to be a key audit matter.
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3. Revenue from contracts with customers
Why significant
How our audit addressed the key audit matter
Revenue is a key metric by which the performance
of the Group is assessed. Australian Accounting
Standard AASB 15 Revenue from Contracts with
Customers (“AASB 15”) applied to the Group for
the first time from 1 July 2018.
The Group is in the business of providing its fraud
mitigation software, namely TrafficGuard, as a
service to its customers on monthly fee basis.
The Group’s disclosures relating to revenue
recognition are included in the summary of
accounting policies in Note 2(k) of the financial
report.
This was considered a key audit matter given the
significance of revenue to the financial report.
As part of our audit procedures, we selected a
sample of revenue transactions and agreed the
revenue recognised to signed agreements and
cash receipts.
On a sample basis we assessed whether
performance obligations were met where
revenue was recognised with reference to the
contract.
We assessed when those same performance
obligations were met, to determine whether
revenue was recognised in the correct period.
We also considered the adequacy of the
associated disclosures set out in the financial
report for compliance with AASB 15.
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Information other than the financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2020 Annual Report other than the financial report and our auditor’s report
thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date
of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the
date of this auditor’s report.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report and
our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
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►
►
►
►
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
►
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
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Report on the audit of the remuneration report
Opinion on the remuneration report
We have audited the Remuneration Report included in pages 8 to 25 of the directors' report for the year
ended 30 June 2020.
In our opinion, the Remuneration Report of Adveritas Limited for the year ended 30 June 2020, complies
with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Ernst & Young
Mark P Cunningham
Partner
Perth
28 August 2020
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A S X A D D I T I O N A L I N F O R M A T I O N
The following additional information is required by the Australian Securities Exchange. The information is current as at 14 September
2020.
CORPORATE GOVERNANCE
The Board of Adveritas Limited is committed to achieving and demonstrating the highest standards of Corporate Governance.
The Board is responsible to its Shareholders for the performance of the Company and seeks to communicate extensively with
Shareholders. The Board believes that sound Corporate Governance practices will assist in the creation of Shareholder wealth and
provide accountability. In accordance with ASX Listing Rule 4.10.3, the Company has elected to disclose its Corporate Governance
policies and its compliance with them on its website, rather than in the Annual Report. Accordingly, information about the Company’s
Corporate Governance practices is set out on the Company’s website at www.adveritas.com.au/about-us/corporate-governance.
SECURITY HOLDING
The security holding information outlined below is current as at 14 September 2020.
1.
SUBSTANTIAL SHAREHOLDERS
Substantial shareholders in the Company and the number of equity securities over which the substantial shareholder has a
relevant interest as disclosed in substantial holding notices provided to the Company are listed below:
Details set out in substantial shareholder notice
Holder name
Number of shares
Voting interest
MC Management Group Pty Ltd
Mera Vale No. 4 Pty Ltd
Regal Funds Management Pty Ltd
6,551,676
25,032,593
26,666,667
8.94%
10.38%
9.54%
Date of lodgement
of notice
05/09/2017
05/05/2020
30/06/2020
2. NUMBER OF HOLDERS OF EACH CLASS OF EQUITY SECURITY
Ordinary fully paid shares
There are 1,404 holders of the 322,636,409 ordinary fully paid shares on issue.
Each shareholder is entitled to one vote per share. In accordance with the Company’s constitution, on a show of hands every
number present in person or by proxy or attorney or duly authorised representative has one vote. On a poll every member
present in person or by proxy or attorney or duly authorised representative has one vote for every fully paid ordinary share
held.
Listed Options
There are 217 holders of the 55,496,109 listed options on issue.
Unlisted Options
There are 12 holders of the 6,250,000 unlisted options on issue.
There are no voting rights attached to these options.
Performance Rights
There are 9 holders of the 26,600,000 unlisted performance rights on issue.
There are no voting rights attached to these performance rights.
3.
RESTRICTED SECURITIES
As at 14 September 2020, there are 75,640 ordinary shares that were issued pursuant to the Company’s Incentive Share Plan
that are under voluntary escrow until the earlier of 28 September 2020 and the employee leaving the Company.
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4. DISTRIBUTION SCHEDULES
Shareholders
Spread of holders
Nil Holding
1
1,001
5,001
–
–
–
1,000
5,000
10,000
10,001
– 100,000
Over 100,000
Total on register
Listed Option Holders
Spread of holders
Nil Holding
1
1,001
5,001
10,001
–
–
–
–
1,000
5,000
10,000
100,000
Over 100,000
Total on register
Unlisted Option Holders
Spread of holders
Nil Holding
1
1,001
5,001
10,001
–
–
–
–
1,000
5,000
10,000
100,000
Over 100,000
Total on register
Performance Right Holders
Spread of holders
Nil Holding
1
1,001
5,001
10,001
–
–
–
–
1,000
5,000
10,000
100,000
Over 100,000
Total on register
80
Number of
Shareholders
Number of
Shares
-
59
175
161
688
321
-
12,085
609,361
1,343,407
27,757,546
292,914,010
1,404
322,636,409
Number of
Option Holders
Number of
Options
-
10
24
14
94
75
217
-
4,228
81,471
103,761
3,778,024
51,528,625
55,496,109
Number of
Option Holders
Number of
Options
-
-
-
-
-
12
12
-
-
-
-
-
6,250,000
6,250,000
Number of
Performance
Rights Holders
Number of
Performance
Rights
-
-
-
-
-
9
9
-
-
-
-
-
26,600,000
26,600,000
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5.
TOP 20 SHAREHOLDERS
Holder name
Number
% of issued
capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
15
17
18
19
CS THIRD NOMINEES PTY LIMITED
MERA VALE NO 4 PTY LTD
DAWS & SONS PTY LTD
MC MANAGEMENT GROUP PTY LTD
ADMAN LANES PTY LTD
HAPPY ROTTNEST PTY LTD
MR LUKE TAYLOR
DAWS & SON PTY LTD
UNAVAL NOMINEES PTY LTD
LEO BARRY PTY LTD
MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
RIGI INVESTMENTS PTY LIMITED
BPCULTRA PTY LTD
25,362,667
23,248,368
22,366,667
15,197,862
10,000,000
6,666,667
6,200,000
5,882,353
5,563,247
4,762,515
4,525,748
3,563,229
3,500,000
3,410,000
MS SUSAN MARGARET FORRESTER + MR BRUCE FORRESTER
3,000,000
MR JOHN PETER WHITLEY
UPSKY EQUITY PTY LTD
MR LEO DAVID BARRY
SHANAHAN GROUP PROPERTIES NO1 PTY LTD
20
MR JOHN CAPPELLO
3,000,000
2,895,787
2,738,631
2,727,273
2,610,400
7.86
7.21
6.93
4.71
3.10
2.07
1.92
1.82
1.72
1.48
1.40
1.10
1.08
1.06
0.93
0.93
0.90
0.85
0.85
0.81
6. MARKETABLE PARCELS
There are 121 shareholders with less than a marketable parcel of $500 based on a share price of 14.5 cents.
7. ON-MARKET BUY-BACK
The Company is not currently undertaking an on-market buy-back.
157,221,414
48.73
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Adveritas Limited
Suite 10, 16 Brodie Hall Drive
Bentley WA 6102
+61 8 9473 2500
ABN: 88 156 377 141
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