Aquis Entertainment
Annual Report 2018

Plain-text annual report

AQUIS ENTERTAINMENT LIMITED ABN 48 147 411 881 ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018 CONTENTS Financial Statements Corporate Governance Statement Shareholder Information Corporate Directory 3 48 62 64 Page 2 of 64AQUIS ENTERTAINMENT LIMITED ABN 48 147 411 881 Financial Statements for the Financial Year Ended 31 December 2018 Page 3 of 64 AQUIS ENTERTAINMENT LIMITED DIRECTORS’ REPORT The Directors present their report together with the consolidated financial statements for the financial year ended 31 December 2018. The consolidated financial statements comprise the financial statements of Aquis Entertainment Limited (“Aquis” or “Company”) and its controlled entities (together referred to as the “Group” or “Consolidated Entity”). 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: Tony Fung Justin Fung Alex Chow Russell Shields Jessica Mellor Allison Gallaugher Current Directors Tony Fung (Chairman) Chairman Non-Executive Director (resigned 14 May 2018) Non-Executive Director Non-Executive Director Executive Director & CEO (to 31 December 2018) (resigned 21 February 2019) Executive Director (appointed 28 June 2018) & CEO (Acting) (from 1 January 2019) Mr Tony Fung is the ultimate owner and controller of the Aquis Group. He has significant experience in corporate finance and company administration, including running Sun Hung Kai & Co. Ltd, a leading Hong Kong-based non- bank financial and securities holding company. Mr Fung has significant property investments in Hong Kong and also in Australia. Alex Chow (Independent Non-Executive Director) Mr Chow Yu Chun, Alexander, is a senior non-executive director with over 35 years of experience in commercial, financial and investment management in Hong Kong and Mainland China. He has served as an Independent Non- executive Director of Top Form International Limited since February 1993 and was a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants until January 2019. Mr. Chow is also currently an independent non-executive director of Playmates Toys Limited, China Strategic Holdings Limited and Symphony Holdings Ltd, each of which are listed on the Hong Kong Stock Exchange. Mr Chow is the Chair of the Audit and Risk Committee And a member of the Remuneration and Nomination Committee. Russell Shields (Independent Non-Executive Director) Russell Shields is a senior non-executive director with more than 35 years’ experience in the financial services industry. He was Chairman Queensland and Northern Territory of ANZ Bank for 6 years. Prior to joining ANZ, Mr Shields held senior executive roles in Australia and Asia with HSBC including Managing Director Asia Pacific – Transport, Construction and Infrastructure and State Manager Queensland, HSBC Bank Australia. He is currently a non-executive director of ASX-listed Eclipx Group Limited, was a non-executive director of Retail Food Group Limited (December 2015 to October 2018) and was Chairman of Onyx Property Group Limited until December 2015. Mr Shields is the Chair of the Remuneration and Nomination Committee and a member of the Audit and Risk Committee. Jessica Mellor (Executive Director to 21 February 2019 & CEO to 31 December 2018) Jessica Mellor is a seasoned project manager with experience spanning major infrastructure projects, residential and commercial development and funds management. Ms Mellor was involved in major infrastructure projects with Leighton Contractors in Queensland before moving into residential development and later funds management. Ms Mellor joined the greater Aquis Group in 2013 where she a played key leadership role in the groups’ ambitious Yorkeys Knob project in Cairns and following the acquisition of Casino Canberra was appointed as Executive Director, Strategy and Project Development. Ms Mellor was appointed as Chief Executive Officer of Aquis Entertainment Limited and Casino Canberra on 4 October 2017. Ms Mellor ceased her CEO duties from 31 December 2018 and resigned as director effective from 21 February Page 4 of 642019. Allison Gallaugher (Executive Director, Financial Controller & Acting CEO from 1 January 2019) Allison Gallaugher is a Chartered Accountant with over 20 years experience in the accounting industry, advising a range of local and international listed and unlisted companies, across a broad range of industries. Ms Gallaugher held senior management positions including at a top 5 accounting firm in Sydney, before returning to Canberra where she joined the leading boutique accounting firm as an advisor to many of Canberra’s largest businesses, predominantly in the property and development industry. Ms Gallaugher’s experience spans the full range of business advisory, taxation and audit fields. Most recently, Ms Gallaugher was the Financial Controller of a large club group, before joining Aquis on 24 March 2017 as Financial Controller. Ms Gallaugher was appointed as a director on 28 June 2018 and as acting Chief Executive Officer effective from 1 January 2019. Company Secretary The Company Secretary in office at the end of the reporting period was Company Matters practitioner, Louise Sheppard. Louise is an experienced company secretary whose professional experience spans three decades. Louise’s commercial career began at AMP where she worked both in Australia and the UK across several financial services finance and project roles. Thereafter she worked for ABN AMRO in what would today be recognised as an AML/CTF equivalent compliance officer role. Louise has also held compliance and company secretarial roles at Babcock & Brown, and most recently was the Secretarial Governance Manager at Origin Energy Limited. INTERESTS IN SHARES AND OPTIONS As at the date of this report, the interests of the Directors in the ordinary shares of Aquis were: Directors Ordinary Shares Unlisted Options T Fung A Chow R Shields A Gallaugher 163,871,874 - - - - - - - NATURE OF OPERATIONS AND PRINCIPAL ACTIVITIES The principal activity of the Consolidated Entity during the year was entertainment, gaming and leisure through the ownership of Casino Canberra. OPERATING AND FINANCIAL REVIEW Operating results for the Year The operating result for the consolidated entity for the year to 31 December 2018 was a loss of $3,396,832 (2017: loss $13,811,804, included in the 2017 loss is a $5,498,173 write down of deferred tax assets). Operating revenue for the year amounted to $26,032,797, an 0.45% decrease from the 2017 result ($26,150,567). Earnings before Interest Tax Depreciation and Amortisation (EBITDA) for the year was a profit of $625,885 (2017: loss $4,702,327). Strategy Aquis has a clear strategy to develop and manage quality destination integrated resorts in underserved areas of Australia. Casino Canberra is the first such investment and has been used to demonstrate the Company’s ability to significantly improve an underperforming operation by a combination of leadership and targeted investment in the business. Page 5 of 64Strategy (continued) Aquis advanced its strategy during the year by: Focused marketing activities to capitalise on the refurbishment of the Casino Canberra property in 2016;   Continuing to improve the operations of Casino Canberra by engaging experienced management who are  focussed on improving revenue and customer service standards; Implementation of a cost control program to reduce expenditure and streamline efficiencies in business processes to improve economies of scale;  Ongoing consideration of alternative and complementary business lines; and  Ongoing liaison with the ACT Government, in relation to the proposal for the development of a world-class integrated entertainment precinct in the heart of Canberra’s CBD. The current status of this proposal is discussed further in the Future Developments, Prospects and Business Strategies section of this report. Operations Revenue from operations for the year decreased 0.45% from the prior year to $26,032,797 in 2018 compared to $26,150,567 in 2017. The result was driven by a 0.87% increase in gaming revenue and a 12% decrease in food and beverage and other sales. Operating expenses including payroll related expenses decreased by 17.7% for the year, with the major decreases being in payroll and marketing expenses. The reduction in payroll expenditure was a result of more efficient use of the workforce, combined with inter-departmental restructuring to better align teams to leaders. The marketing reduction was a result of refinement of the operation of our VIP program expenses. 2017 saw the first full year of operation of the refurbished gaming floor. Throughout the year, Casino Canberra maintained its focus on improving awareness the brand to increase visitation, improving VIP offerings to increase market share, together with a cost reduction program to increase profitability. Toward the end of the year, the increase in visitation rates as a result of the marketing efforts reduced volatility and produced an overall improvement in hold rates, which is expected to continue and stabilise over the coming year as record visitation rates are maintained via new and continuing marketing initiatives. Financial position At 31 December 2018, the Group had cash reserves of $4,676,086 (2017: $4,658,166) and unused borrowing facilities of $3,071,317. Following the end of the financial year no further drawdowns have been made and the group has forecast a positive net cashflow for the financial year. The balance sheet at 31 December 2018 shows a net asset deficit of $16,651,690 (2017: $13,254,858 deficit) as a result of the loss incurred during the financial year and the de-recognition of the deferred tax asset representing carry forward tax losses. Outlook Directors are confident of the outlook for Aquis. The completion of the refurbishment of Casino Canberra has proven the ability to attract new and existing customers. The casino’s highly experienced operations leadership team continue to execute the vision of attracting and servicing quality players from Australia and overseas. Several internal restructures to improve the alignment of teams within the group has resulted in better efficiency in our workforce. Our Business Development team have focused on mining of the existing customer database over the year, solidifying the efforts of the past several years which were spent building its size and quality. This focus allowed for a decrease in expenditure, resulting in a profitable VIP sector for the year. Legislation has been enacted to allow 200 electronic gaming machines (EGM’s) to operate within the casino; planning continues for the redevelopment of Casino Canberra discussions with the Government will continue throughout 2019 surrounding the details of the legislated requirements for the EGM’s to enable planning for the future. The Board has agreed to and recommended to shareholders a transaction for the major shareholder to sell the majority of their shares to a new investor; this is discussed in further detail in the Future Developments, Prospects and Business Strategies section of this report. The Board will work together with the proposed new shareholder to progress the transaction, which will bring great opportunities to the business, particularly in the VIP sector. Employees The number of people employed by the Consolidated Entity at the reporting date was 253. 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. Page 6 of 64Directors’ and committee meetings The number of meetings of the Company’s Board of Directors held during the period and the number of meetings attended by each Director was: Director Board Meetings Audit & Risk Remuneration & Nomination Eligible to Attend Attended Eligible to Attend Attended Eligible to Attend Attended T Fung J Fung1 A Chow R Shields J Mellor2 A Gallaugher3 1Resigned 14 May 2018 2Resigned 21 February 2019 3Appointed 28 June 2018 3 3 3 3 3 2 3 2 3 3 3 2 n/a 2 2 2 n/a n/a n/a 1 2 2 n/a n/a n/a n/a 2 2 n/a n/a n/a n/a 2 2 n/a n/a SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Company during the year, other than disclosed in this report. SIGNIFICANT EVENTS AFTER BALANCE DATE Other than as set out in this report and the attached financial statements, no matters or circumstances have arisen since 31 December 2018, which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in subsequent financial years. INDEMNIFICATION OF OFFICERS The Company is required to indemnify Directors, and other officers of the Company against certain liabilities which they may incur as a result of or by reason of (whether solely or in part) being or acting as an officer of the Company. During the financial year, the Company paid a premium to insure the Directors against potential liabilities for costs and expenses incurred by them in defending legal proceedings arising from their conduct while acting in the capacity of Director of the Company other than conduct involving wilful breach of duty in relation to the Company. The amount of the premium is not disclosed as it is considered confidential. The Company provides no indemnity to any auditor. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to which the consolidated entity is a party for the purpose of taking responsibility on behalf of the consolidated entity or any part of those proceedings. ENVIRONMENTAL REGULATIONS The Directors are mindful of the regulatory regime in relation to the impact of the organisation’s activities on the environment. There have been no known breaches of any environmental regulation by the Consolidated Entity during the financial period. Page 7 of 64FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES Aquis is an entertainment, gaming and leisure company which currently operates a casino business in Canberra. On 21 December 2018, the company announced that it had entered into a binding Implementation Deed (and related documentation) with Blue Whale Entertainment Pty Limited (Blue Whale), a company owned and controlled by Mr Michael Gu, the Group CEO of iProsperity Group, and Aquis Canberra Holdings (Aus) Pty Limited (ACH). The transaction contemplates Blue Whale’s acquisition of the outstanding convertible loan and 137.0 million shares held by ACH. Pursuant to the transaction, ACH will transfer: - - 137,004,377 AQS shares to Blue Whale; and  Its convertible loan with the company to Blue Whale, following which Blue Whale will forgive a minimum  of $2.0 million of the convertible loan and then immediately convert the balance of the convertible loan  to AQS shares at a conversion price of $0.20 per share and subject to a cap.  The above transfers will result in Blue Whale replacing ACH as the controlling shareholder of the company with a shareholding of up to a maximum of 86.99% of Aquis’ share capital. Blue Whale also grants ACH a put option in respect of its remaining 26,867,497 shares, pursuant to which ACH may elect to sell those shares to Blue Whale after approximately 3 years should such shares not have a value of more than $4 million at that time. The transaction is subject to shareholder approval by the independent shareholders of Aquis and ACT gaming regulatory approvals. Blue Whale may also terminate the agreements if certain limited material adverse events occur. The Extraordinary General Meeting (EGM) to seek the approval of the independent shareholders is to be held on 21 March 2019. ACT Government regulatory approval is expected to take approximately 3-6 months to complete. An independent expert provided a favourable opinion on his review of the transaction and there are no other proposals which are superior to the Blue Whale offer, so the independent directors of Aquis unanimously recommend that the independent shareholders vote in favour of the proposed transactions, Following completion of the proposed transaction, it is anticipated that the company will work with Blue Whale to achieve further cost efficiencies and to work on opportunities for the future with VIP markets and look at options available regarding a redevelopment of the precinct, in order to operate the 200 electronic gaming machines for which the legislation was passed in the last year. . SHARE OPTIONS As at the date of this report, there were no unissued ordinary Aquis shares under option (2017: nil). Accordingly, during the financial year and to the date of this report no options were exercised No options have been issued in the period since year end to the date of this report. INDEPENDENT PROFESSIONAL ADVICE Directors of the Company are expected to exercise considered and independent judgement on matters before them and may need to seek independent professional advice. A director with prior written approval from the Chairman may, at their responsibilities. the Company’s expense, obtain independent professional advice to properly discharge NON-AUDIT SERVICES There were no non-audit services provided by the entity’s auditors, RSM Australia Partners during the financial year. AUDITOR INDEPENDENCE A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is attached. Page 8 of 64REMUNERATION REPORT (AUDITED) This Remuneration Report forms part of the Directors’ Report and has been prepared in accordance with Section 300A of the Corporations Act 2001 and has been audited as required by Section 308(3C) of that Act. The Remuneration Report is set out under the following key headings: A B C D E Introduction Principles used to determine the nature and amount of remuneration Remuneration details Service agreements Other KMP disclosures A. Introduction The Remuneration Report sets out information relating to the remuneration of the non-executive Directors, executive Directors and senior management of the Company - collectively termed Key Management Personnel (KMP). The KMP are the persons primarily accountable for planning, directing and controlling the affairs of the Company. For the purposes of this report the executive Directors and senior management are referred to as Executives. Details of KMP for whom remuneration disclosures are included in this Report are as follows: Current Non-Executive Directors T Fung A Chow R Shields Chairman Non-Executive Director Non-Executive Director Current Executives Name J Mellor A Gallaugher Role Relevant Dates Chief Executive Officer Director CEO to 31 December 2018 Resigned 21 February 2019 Financial Controller Director Chief Executive Officer (Acting) Appointed 24 March 2017 Appointed 28 June 2018 Appointed 1 January 2019 R Bach Vice President & General Manager Appointed 2 July 2015 Previous Directors and Executives Name J Fung Role Relevant Dates Non-Executive Director Resigned 14 May 2018 Except where otherwise stated, KMP held office from the commencement of the year. B. Principles used to determine the nature and amount of remuneration Aquis’ corporate goal is to develop and manage quality integrated resorts in Australia. To achieve this, the Group has sought to engage and retain experienced and talented Directors and Executives. The Group therefore aims to offer Directors and Executives a competitive remuneration package which reflects individual duties and responsibilities. The remuneration approach seeks to align Executive reward with the achievement of strategic objectives and the creation of value for shareholders. The Remuneration Committee will be responsible for determining and reviewing on-going remuneration arrangements for its Directors and Executives. This Committee may seek advice of external remuneration consultants in conducting its duties. Further information regarding the Committee is set out in the Corporate Governance Statement. The Group has established differing remuneration structures for Non-Executive Directors and Executives. Page 9 of 64Non-Executive Directors Fees and payments to the Non-Executive Directors reflect the demands which are made on, and the responsibilities of, these Directors. Non-Executive Director fees comprise a base salary plus statutory superannuation. Non-Executive Directors are not entitled to receive share based payments or other performance based incentives. ASX listing rules require the aggregate non-executive directors remuneration be determined periodically by a general meeting. The most recent determination was at the Annual General Meeting held on 26 November 2015, where the shareholders approved an aggregate remuneration pool of $600,000. Executives Aquis aims to reward executives with a remuneration structure based on their position and responsibility, which has both fixed and variable components. Fixed remuneration Fixed remuneration aims to provide a base level of remuneration and is determined with reference to available market data, the scope of the executive’s responsibilities and their experience and qualifications. Fixed remuneration, consists of base salary, superannuation and complementary privileges at Casino Canberra, and may include other benefits where Executives may elect to sacrifice part of their salary to be contributed towards any non-cash benefit including motor vehicles, accommodation costs etc. Fixed remuneration for Executives is reviewed annually and approved by the Remuneration Committee. Performance based remuneration Short term incentives The performance based component of Executive remuneration aligns the strategies set by the Board with the individual targets of the Executives responsible for implementing those strategies. Executives are entitled to receive short term incentives based on service and on the achievement of Key Performance Indicators. Long term incentive plan At the Annual General Meeting of the Company held on 31 May 2017, Shareholders approved the implementation of the Aquis Entertainment Limited Share Rights Plan (Plan). Under the Plan, Participants may become entitled to receive Rights (which are entitlements on vesting to fully paid ordinary shares in Aquis Entertainment Limited). The Rights would be granted for no monetary consideration and have no exercise price, unless otherwise determined by the Board. One vested Right is an entitlement to one Share. The Plan allows for three kinds of Rights, being: • • • Performance Rights which vest when performance conditions have been satisfied, Retention Rights which vest after the completion of a period of service, and Restricted Rights which are vested but subject to disposal restrictions. At the date of this report, no Rights have been issued pursuant to the Plan. Consolidated entity performance and link to remuneration Remuneration for certain individuals is directly linked to performance of the consolidated entity. A portion of short term incentive payments are dependent on achieving defined KPI’s. For the 2018 year, the KPI’s were set by the Board and related to the achievement of revenue and profitability outcomes. These outcomes were to be driven by the Board’s strategy to improve the overall product offered to customers including service standards and marketing programs. Improvements in revenue generating capability and profitability will form the basis of providing long term earnings growth for Casino Canberra and consequently for shareholder value growth. Page 10 of 64C. Details of remuneration Remuneration received or receivable by Key Management Personnel during the reporting period was as follows. Post- employment benefits super - annuation Share based payment Total Performance based remuneration Remun- eration at risk - STI $ $ $ $ % % - - - 9,975 34,833 17,381 21,655 83,844 - - - - - - - - - - 105,000 114,975 489,125 385,805 230,743 1,325,648 - - - - - 27% 15% - - - - - 27% 15% Post- employment benefits super - annuation Share based payment Total Performance based remuneration Remun- eration at risk - STI $ $ $ $ % % - - - - 9,856 34,712 19,616 8,034 10,870 83,088 - - - - - - - - - - - - - 104,583 113,606 578,366 384,273 126,699 144,155 1,451,682 - - - - - 19% 16% - 13% - - - - - 19% 16% - 13% Short-term benefits Key management personnel 2018 T Fung J Fung1 A Chow R Shields J Mellor R Bach A Gallaugher2 Fees and/or salary $ - - 105,000 105,000 391,892 210,577 175,000 Cash, profit sharing / other bonuses $ - - - - - 105,290 34,088 Other - - - - 62,400 52,557 - Totals 987,469 139,378 114,957 1 Resigned 14 May 2018 2 Appointed as Director from 28 June 2018 Short-term Benefits Key management personnel 2017 T Fung R Or Ching Fai1 J Fung A Chow R Shields4 J Mellor R Bach G Gill2 A Gallaugher3 Fees and/or salary $ Cash, profit sharing / other bonuses $ Other - - - 104,583 103,750 368,754 250,000 107,787 114,423 - - - - - 112,500 62,500 - 18,862 - - - - - 62,400 52,157 10,878 - Totals 1,049,297 193,862 125,435 1 Resigned 31 December 2017 2 Resigned 12 May 2017 3 Appointed 24 March 2017 4 Committee Chair from 1 February 2017 D. Service agreements Non-Executive Directors Each Director has signed a letter of appointment which sets out the conditions of the appointment including the remuneration for the position. The Chairman and Vice Chairman have each elected to receive no remuneration for performing their Director roles. The remaining Non-Executive Directors are entitled to the following remuneration:  A base fee of $80,000 per annum    Statutory superannuation where required by law. $20,000 per annum for acting as the Chair of a Board Committee and $5,000 per annum for serving on a Board Committee. Page 11 of 64Executives Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name Title Jessica Mellor Rhiannon Bach Allison Gallaugher Chief Executive Officer VP and General Manager Financial Controller & Acting CEO2 Commencement Date 23 December 2014 Term of Agreement Open1 Annual Salary $450,000 23-Apr-15 Open $250,000 24-Mar-18 Open $175,000 ($192,500 from 7 January 2019) Superannuation Statutory superannuation Statutory superannuation Statutory superannuation Bonus Maximum annual bonus = 50% of Remuneration comprising: • Guaranteed amount of 50% of the maximum annual potential bonus and • Amount up to 50% of the maximum annual potential bonus as determined at the absolute discretion of the Board subject to KPI’s agreed between the Executive and the Chair of the Remuneration Committee. • No bonus payment if Executive gives notice of termination prior to the payment date or if terminated for cause Maximum annual bonus = 20% of Remuneration as determined at the absolute discretion of the Board subject to KPI’s agreed between the Executive and the Chair of the Remuneration Committee. No bonus payment if Executive gives notice of termination prior to the payment date or if terminated for cause Post-employment restraint Company may impose restraint for various periods up to12 months and for various regions Termination Period 6 months either party 3 months either party 2 months either party 1 Resigned effective 21 February 2019, CEO duties cease 31 December 2018 2 Appointed acting CEO from 1 January 2019 Page 12 of 64E. Other KMP disclosures Movements in share holdings The movement during the year in the number of ordinary shares in the Company held directly, indirectly or beneficially by each key management person, including their related parties, follows: Name 2018 T Fung J Fung3 Name 2017 Opening Balance1 Acquired on Market Disposed Closing Balance2 163,871,874 163,871,874 Opening Balance1 - - - 163,871,874 - 163,871,874 Acquired on Market Disposed Closing Balance2 T Fung J Fung3 1 Opening balance includes balance at beginning of the period or at date of appointment 2 Closing balance includes balance at end of the period or at date of resignation 3 Interest held as related party to Mr T Fung 163,871,874 163,871,874 - - - 163,871,874 - 163,871,874 Other than as detailed in the table above, no shares were held in the Company either directly, indirectly or beneficially by any key management personnel. b) Movement in option holdings There were no options over ordinary shares in the Company held directly, indirectly or beneficially by key management personnel. Loans to directors and executives There were no loans to directors or executives at balance date. Other transactions and balances with directors and executives There were no other transactions with Directors or executives during the financial year. At the reporting date, the Group had loans outstanding from entities related to Mr Tony Fung totalling $35.5 million (2017: $36.8 million) inclusive of accrued interest. End of audited remuneration report Signed in accordance with a resolution of the directors. Russell Shields Director Brisbane 27 February 2019 Page 13 of 64AQUIS ENTERTAINMENT LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 31 December 2018 Revenue and other income Revenue Other income Total revenue and other income Expenses from continuing operations: Casino taxes Employee benefit expenses Other operating expenses Finance charges Depreciation Amortisation Loss before income tax Income tax expense / (benefit) Consolidated Note 2018 $ 2017 $ 3 3 4 4 4 4 5 26,032,797 378,434 26,150,567 473,710 26,411,231 26,624,277 (2,867,390) (16,400,518) (6,517,438) (2,254,424) (1,742,658) (25,635) (2,669,047) (18,500,315) (10,157,242) (1,834,813) (1,750,856) (25,635) (3,396,832) (8,313,631) - (5,498,173) Loss attributable to members of the consolidated entity (3,396,832) (13,811,804) Other comprehensive income for the year, net of tax - - Total comprehensive loss for the year attributable to the members of the consolidated entity (3,396,832) (13,811,804) Basic and diluted earnings per share (cents per share) 6 (1.83) (7.46) The accompanying notes form part of these financial statements. Page 14 of 64AQUIS ENTERTAINMENT LIMITED STATEMENT OF FINANCIAL POSITION as at 31 December 2018 Consolidated Note 2018 $ 2017 $ CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets NON-CURRENT ASSETS Property, plant and equipment Intangible assets Financial assets at fair value through other comprehensive income Other non-current assets Total non-current assets TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Employee benefit provisions Total current liabilities NON-CURRENT LIABILITIES Employee benefit provisions Loans and borrowings Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserve Accumulated losses TOTAL EQUITY 7 8 9 10 11 12 13 10 14 15 15 16 17 17 18 4,676,086 118,319 172,746 1,172,688 6,139,839 4,658,166 58,910 335,634 1,299,615 6,352,325 12,003,595 1,868,177 13,433,742 1,893,812 4,106 74,322 4,106 966,200 13,950,200 16,297,860 20,090,039 22,650,185 4,352,234 690,517 5,042,751 4,452,358 719,911 5,172,269 40,726 31,658,252 27,579 30,705,195 31,698,978 30,732,774 36,741,729 35,905,043 (16,651,690) (13,254,858) 4,167,952 6,677,725 (27,497,367) 4,167,952 6,939,271 (24,362,081) (16,651,690) (13,254,858) The accompanying notes form part of these financial statements Page 15 of 64AQUIS ENTERTAINMENT LIMITED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2018 Share capital Reserve Accumulated losses $ $ $ Total $ Balance at 1 January 2017 Equity component of convertible debt Loss attributable to members of the company Balance at 31 December 2017 Balance at 1 January 2018 Equity component of convertible debt Loss attributable to members of the company Balance at 31 December 2018 4,167,952 - - 4,167,952 6,367,984 571,287 - 6,939,271 (10,550,277) - (13,811,804) (14,341) 571,287 (13,811,804) (24,362,081) (13,254,858) - - 4,167,952 (261,546) - 6,677,725 261,546 (3,396,832) - (3,396,832) (27,497,367) (16,651,690) The accompanying notes form part of these financial statements Page 16 of 64AQUIS ENTERTAINMENT LIMITED STATEMENT OF CASH FLOWS for the year ended 31 December 2018 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Interest paid Consolidated 2018 $ 2017 $ 28,618,396 (27,216,734) 49,537 (1,367) 26,602,924 (29,835,937) 47,190 (7,789) Net cash provided by (used in) operating activities 19 1,449,832 (3,193,612) CASH FLOWS FROM INVESTING ACTIVITIES Plant and equipment Proceeds from sale of assets Dividend received Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings Repayment of borrowings (189,271) 57,119 240 (131,912) (432,789) - 178 (432,611) 300,000 (1,600,000) 4,100,000 (1,000,000) Net cash (used in) provided by financing activities (1,300,000) 3,100,000 Net increase (decrease) in cash held Cash at beginning of the period Cash at end of the period 7 17,920 4,658,166 4,676,086 (526,223) 5,184,389 4,658,166 The accompanying notes form part of these financial statements Page 17 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 1. Statement of significant accounting policies The financial report covers the consolidated group of Aquis Entertainment Limited (“Aquis” or “Company”) and its controlled entities (together referred to as the “Consolidated Entity” or “Group). Aquis is a for-profit company limited by shares incorporated and domiciled in Australia. The Company’s shares are publicly traded on the Australian Securities Exchange (ASX: AQS). The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, investment properties, certain classes of property, plant and equipment and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgements in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2 Functional and presentation currency The Company’s functional and presentation currency is Australian dollars. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 25. Summary of accounting policies The following is a summary of the material accounting policies adopted by the Company in the preparation of the financial statements. (a) Principles of consolidation Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. A list of subsidiaries is contained at Note 25. All controlled entities have a December year end. All inter-company balances and transactions between entities in the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Page 18 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 1. Statement of significant accounting policies (continued) Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit. (b) Revenue recognition The consolidated entity recognises revenue as follows: Gaming Revenue Gaming Revenue is the net of gaming wins and losses. Sale of goods Sale of goods revenue is recognised at the point of sale, which is where the customer has taken delivery of the goods, the risks and rewards are transferred to the customer and there is a valid sales contract. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. (c) Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the Statement of Profit or Loss and Other Comprehensive Income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Page 19 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 1. Statement of significant accounting policies (continued) (d) Goods & services tax Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Goods & Services Tax (GST) receivable from, or payable to, the Australian Taxation Office has been accounted for and included as part of receivables or payables in the Statement of Financial Position. Cash flows are presented in the Statement of Cash Flows on a gross basis except for the GST component of investing activities, which are disclosed as an operating cash flow. (e) Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is current when: it is expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is current when: it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. (f) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. (g) Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any provision for impairment. (h) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Page 20 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 1. Statement of significant accounting policies (continued) (i) Property, plant and equipment Land and buildings are shown at fair value, based on periodic, at least every 3 years, valuations by external independent valuers, less subsequent depreciation and impairment for buildings. The valuations are undertaken more frequently if there is a material change in the fair value relative to the carrying amount. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Increases in the carrying amounts arising on revaluation of land and buildings are credited in other comprehensive income through to the revaluation surplus reserve in equity. Any revaluation decrements are initially taken in other comprehensive income through to the revaluation surplus reserve to the extent of any previous revaluation surplus of the same asset. Thereafter the decrements are taken to profit or loss. Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Buildings Plant and equipment 10-40 years 3-20 years The assets’ residual values and useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are included in the income statement. (j) Investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless, an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, it's carrying value is written off. Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the consolidated entity intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition. Page 21 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 1. Statement of significant accounting policies (continued) Impairment of financial assets The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12- month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss. (k) Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the de-recognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. (l) Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value- in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. (m) Provisions Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result of a past event, it is probable the consolidated entity will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Page 22 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 1. Statement of significant accounting policies (continued) (n) Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. 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 corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. (o) Trade and other payables Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Company (p) Borrowings Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in the Statement of Profit or Loss and Other Comprehensive Income over the period of the borrowing using the effective interest rate method. (q) Contributed equity Ordinary share capital is recognised at the fair value of the consideration received. Any transaction costs arising on the issue of shares are recognised (net of tax) directly in equity as a reduction of the share proceeds received. (r) Earnings per share (EPS) Basic earnings per share Basic earnings per share is calculated by dividing the loss attributable to equity holders of the Company, excluding any costs of servicing equity other than shares, by the weighted average number of shares outstanding during the financial year, adjusted for any bonus elements in Shares issued during the year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential shares. Page 23 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 1. Statement of significant accounting policies (continued) (s) New or amended accounting standards and interpretation adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB 9 Financial Instruments The consolidated entity has adopted AASB 9 from 1 January 2018. The standard introduced new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading or contingent consideration recognised in a business combination) in other comprehensive income ('OCI'). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available. The impact of adoption was not material. AASB 15 Revenue from Contracts with Customers The consolidated entity has adopted AASB 15 from 1 January 2018. The standard provides a single comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. This is described further in the accounting policies below. Credit risk is presented separately as an expense rather than adjusted against revenue. Contracts with customers are presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Customer acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contract period. The impact of adoption was not material . Page 24 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 1. Statement of significant accounting policies (continued) (t) New accounting standards and interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 31 December 2018. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The consolidated entity will adopt this standard from 1 January 2019, the impact of its adoption is not expected to be material. (u) Going concern The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business. As disclosed in the financial statements, the consolidated entity incurred a loss of $3,396,832 (2017: $13,811,804 loss), had net cash inflows from operating activities of $1,449,832 (2017: outflows of $3,193,612) and negative net assets of $16,651,690 (2017: $13,254,858) for the year ended 31 December 2018. The Directors believe that there are reasonable grounds to believe that the consolidated entity will be able to continue as a going concern, after consideration of the following factors: • • • • The consolidated entity has unused financing facilities of $3.07 million at the balance date. This facility is sufficient to meet the cash flow requirements for the consolidated group. The 2019 forecast cash flow is positive. The Company’s major shareholder (Aquis Capital H K Limited through Aquis Canberra Holdings Pty Ltd) has provided the Directors with an undertaking to provide financial support to the consolidated entity should it be required; a current approved facility is in place with the shareholder as detailed above for this purpose. Following the anticipated approval by the independent shareholders regarding the proposed transaction (note 26), the company will be debt free. Page 25 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 1. Statement of significant accounting policies (continued) Accordingly, the Directors believe that the going concern basis is the appropriate basis for the preparation of the financial report. If for any reason the consolidated entity is unable to continue as a going concern, it would impact on the consolidated entity’s ability to realise assets at their recognised values and to extinguish liabilities in the normal course of business at the amounts stated in the consolidated financial statements. The financial report does not include any adjustments relating to the amounts or classification of recorded assets or liabilities that might be necessary if the consolidated entity does not continue as a going concern. 2. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below Impairment of Intangibles The consolidated entity assesses impairment of intangible assets at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating unit to which the intangible is allocated. The assumptions and methodology used to assess the recoverable amount are set out in Note 12. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Management judgement is required to determine the amount of deferred tax assets that can be recognised based upon the likely timing and level of future taxable profits Employee benefits provision As discussed in note 1, the liability for employee benefits expected to be wholly settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. Estimation of useful lives of assets The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Page 26 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 Consolidated 3. Revenue and other income Revenue Revenue from services Revenue from sale of goods Total revenue Other income Interest Other revenue Total other income 4. Expenses from continuing operations (a) Other operating expenses  Cost of sales Annual casino licence fee Business development Repairs & maintenance Utilities Insurance Printing & stationery Marketing, promotion and associated costs Legal, accounting and consultants Travel and associated costs Gaming supplies Rates and taxes Computer supplies Contracts Uniform replacement and cleaning Other expenses Total other operating expenses (b) Finance charges  Interest – 3rd parties Interest – related parties Total finance charges (c) Depreciation  Buildings Plant and equipment Total depreciation (d) Amortisation   Casino licence and fees 2018 $ 23,700,065 2,332,732 26,032,797 49,536 328,898 378,434 747,115 891,877 122,086 349,652 485,727 185,359 30,654 1,571,840 406,196 61,164 162,807 140,077 257,925 - 87,423 1,017,536 6,517,438 1,367 2,253,057 2,254,424 1,047,558 695,100 1,742,658 2017 $ 23,495,712 2,654,855 26,150,567 47,190 426,520 473,710 826,433 891,877 - 375,085 461,177 169,510 53,152 4,960,377 288,520 114,071 238,536 135,470 240,070 133,768 78,522 1,190,674 10,157,242 7,789 1,827,024 1,834,813 1,047,599 703,257 1,750,856 25,635 25,635 Page 27 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 5. Income tax (a) The components of income tax expense comprise Current tax Deferred tax (b) The prima facie tax on loss from ordinary activities before income tax is reconciled to the income tax as follows: Net profit/(loss) Prima facie income tax on the loss from Ordinary activities at 30% (2017: 30%) Tax effect of permanent differences: Non-deductible amortisation Non-deductible interest expense Sundry items De-recognition of DTA on accruals De-recognition of DTA on CY tax losses De-recognition of DTA on arising from tax consolidation De-recognition of DTA on prior year tax losses Adjustment recognised for prior periods Income tax attributable to entity (c) Unused tax losses and temporary differences for which no deferred tax asset has been recognised at 30% Net deferred tax assets at beginning Charged to income statement current year Net deferred tax assets at end of the year 6. Earnings per share Consolidated 2018 $ - - - 2017 $ 5,498,173 - 5,498,173 (3,396,832) (8,313,631) (1,019,050) (2,494,089) 7,691 469,428 29,905 331,470 180,556 - - - - - - - 7,691 267,336 17,708 9,973 1,628,018 521,890 5,498,173 41,473 5,498,173 5,498,003 (5,498,003) - Basic and diluted earnings per share (cents per share) (1.83) (7.46) Weighted average number of ordinary shares outstanding during the period used in the calculation of basic and diluted EPS 185,141,050 185,141,050 Options are considered potential ordinary shares. For the years ended 31 December 2018 and 31 December 2017, their conversion to ordinary shares would have had the effect of reducing the loss per share (from continuing operations). Accordingly, the options were not included in the determination of diluted earnings per share for that period. No. No. Page 28 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 7. Cash and cash equivalents Cash at bank and on hand Consolidated 2018 $ 2017 $ 4,676,086 4,658,166 Pursuant to the Deed between the ACT Gambling and Racing Commission, the Company and the Australian Capital Territory dated 23 December 2014, the Company is required to maintain at all times a minimum of $3 million in liquid assets that are not otherwise used in the day to day operations of the business unless with the prior written consent of the Commission. 8. Trade and other receivables Trade receivables Other receivables Total 9. Inventories Consumable stores - at cost Goods for resale – at cost Total 10. Other assets Current Prepaid casino licence fee Prepayments and deferrals Other Non-current Prepaid casino licence fee 112,888 5,431 118,319 105,644 67,102 172,746 46,021 12,889 58,910 206,471 129,163 335,634 891,877 214,793 66,018 1,172,688 891,877 329,883 77,855 1,299,615 74,323 966,200 In February 2015, the consolidated entity prepaid 5 years of annual casino licence fees to the ACT Gambling and Racing Commission. The fees totalled $4,459,385 and are amortised on a straight line basis. The amount of the prepayment that is to be amortised over the following 12 months is treated as a current asset. The remainder of the prepayment is treated as a non-current asset. The recoverable value of the prepayment is reviewed annually for potential impairment (refer Note 12). Page 29 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 11. Property plant and equipment Building and leasehold improvements Building at cost Accumulated depreciation Accumulated impairment Plant and equipment Plant and equipment at cost Accumulated depreciation Accumulated impairment Plant and equipment – work in progress Consolidated 2018 $ 28,196,319 (11,094,717) (8,223,418) 8,878,184 5,202,535 (2,202,004) (1,120) 126,000 3,125,411 2017 $ 28,196,319 (10,047,159) (8,223,418) 9,925,742 5,158,846 (1,512,742) (138,104) - 3,508,000 Balance 12,003,595 13,433,742 Movements in property plant and equipment: Building and leasehold improvements Opening written down value Depreciation Carrying value at 31 December Plant and equipment Opening written down value Additions Addition – work in progress Transfer cost of chips to PP&E * Loss on disposal of plant and equipment Depreciation expense Carrying value at 31 December 9,925,742 10,973,340 (1,047,558) (1,047,598) 8,878,184 9,925,742 3,508,000 3,778,469 189,271 126,000 - (2,760) (695,100) 3,125,411 67,726 - 365,063 - (703,258) 3,508,000 * Gaming chips in use have previously been classed as inventories – consumable stores. During 2017, gaming chips in use have been more appropriately reclassified as Property & Plant & Equipment. Page 30 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 12. Intangible assets Casino Licence and associated costs At cost Accumulated amortisation and impairment Carrying value at 31 December Movements in intangible assets Opening written down value Amortisation Carrying value at 31 December Consolidated 2018 $ 2017 $ 19,000,000 (17,131,823) 19,000,000 (17,106,188) 1,868,177 1,893,812 1,893,812 (25,635) 1,868,177 1,919,447 (25,635) 1,893,812 The Casino Canberra licence is tested annually for impairment. Casino Canberra is considered a cash-generating unit (CGU) for the purpose of impairment testing. The recoverable value of the casino CGU was based on its fair value less costs to sell. The fair value less costs to sell of the CGU was determined to be higher than its carrying value at 31 December 2018 of $13,956,538 (2017: $16,275,879) and accordingly no impairment loss was recognised. Fair value less costs to sell was determined by discounting the future cash flows generated from the continuing use of the CGU for five years and a terminal growth rate thereafter and adjusting the result for the likely costs to sell the CGU. The calculation of the fair value less costs of disposal was based on the following key assumptions. Cash flows are based primarily on a five-year forecast extrapolated using average annual growth rates of approximately 2 – 2.5% (2017: 2 – 2.5%). A post-tax discount rate of 13.1% (2017:13.1%) was applied in determining the recoverable amount of the unit. The discount rate was determined by using the weighted average cost of capital applicable to the CGU. Forecast after tax cash flow was based on expectations of future outcomes based on actual results achieved during the first full year of operations post refurbishment of the casino. Sensitivity Judgements and estimates have been applied in respect of impairment testing of the CGU. Should these judgements and estimates not occur the resulting carrying amount may decrease. The key sensitivities are as follows: o Revenue would need to decrease by more than 8% (2017: 5%) from the forecast levels (with all other assumptions remaining constant) before the carrying value of the CGU would need to be impaired, o Expenses would need to increase by more than 9% (2017: 5%) from the forecast levels (with all other assumptions remaining constant) before the carrying value of the CGU would need to be impaired, The discount rate would be required to increase to approximately 27% (2017: 44%) (with all other assumptions remaining constant) before the carrying value of the CGU would need to be impaired. o 13. Financial assets at fair value through other comprehensive income Listed equities – at fair value 4,106 4,106 The fair values of listed investments are determined by reference to published price quotations in an active market. Page 31 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 14. Trade and other payables Current unsecured: Trade payables Annual leave Sundry payables and accrued expenses Total payables (unsecured) Consolidated 2018 $ 388,559 1,031,948 2,931,727 2017 $ 467,524 1,060,494 2,924,340 4,352,234 4,452,358 Trade and other payables are non-interest bearing and have maturity dates of less than 90 days. The fair value of the liabilities is determined in accordance with the accounting policies disclosed in Note 1. 15. Employee benefit provisions Long Service Leave Movement in the provision was as follows: Opening balances: Add: Entitlements Less: Payments Closing balances: Presented in the statement of financial position as: Current Non-current Total 16. Loans and borrowings 731,243 747,490 747,490 43,613 (59,860) 731,243 690,517 40,726 731,243 702,598 100,834 (55,942) 747,490 719,911 27,579 747,490 Interest bearing loans from related party (unsecured) 31,658,252 30,705,195 The fair value of the loan has been divided into its debt and equity component as follows: Presented in the statement of financial position as: Borrowings Equity 31,658,252 6,677,725 38,335,977 30,705,195 6,939,271 37,644,466 Page 32 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 16. Loans and borrowings (continued) Financing facilities: At the Company’s Annual General Meeting on 31 May 2016, shareholders passed a resolution to enter into the Amended Loan Conversion Deed between the Company and major shareholder Aquis Canberra Holdings Pty Ltd. The Deed (and related amended loan agreements entered into by the Company) consolidated all existing loans from multiple lenders into a single loan. As a result of entering into the deed, all loan facilities on foot at 31 May 2016 are now classified as non-current in the Company’s Statement of Financial Position. Key terms of the financing facility are as follows:    Facility limit is for a capital value $36,450,000 The Loan Agreement matures on 25 August 2024 (Maturity Date); Interest is payable on the balance of the new loan at an interest rate of the lower of: BSY + 2% per annum; and the Reserve Bank of Australia's indicator lending rate for small business; variable; residential secured and term rates. Interest will accrue monthly and will be capitalised on the last day of each month.   Capitalised interest is in addition to the capital value of the facility (i.e. the accrued interest does not form part of the balance of the facility limit).  Repayment/conversion: the outstanding amount under the loan agreement may be repaid in any of the following ways:  at the sole election of Aquis Canberra Holdings under the Amended Loan Conversion Deed, by conversion into Shares at a conversion price of $0.20 per Share, provided that the Company is not required to issue Shares to the extent that conversion would result in either:   Aquis Canberra Holdings and its associates having voting power in the Company in the issue of greater than 250,000,000 Shares; or excess of 89.59%;  the Company prepays to Aquis Canberra Holdings all or any part of the amount outstanding on the new loan in cash at any time up to the date that is 5 Business Days before the Maturity Date. The Loan represents a compound financial instrument comprising elements of debt (the contractual obligation to pay cash to the lender) and equity (the lender’s option to convert the liability into fully paid ordinary shares). Accordingly, the initial carrying amount of the loan has been allocated to its debt and equity components by assigning to equity the residual amount after deducting the amount separately determined for the carrying value of the liability from the fair value of the instrument as a whole. The carrying amount of the liability has been determined by measuring the fair value of a similar liability that does not have an associated equity component. The facility limit is $36,450,000 in principal; interest is capitalised in addition to the facility limit. Page 33 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 16. Loans and borrowings (continued) The fair value of the Loan has been divided into its debt and equity components as follows: Breakdown of the financing facilities: Principal (limit $36,450,000) Interest capitalised Movement during the year: Balance at the beginning of the year Drawdowns Repayments Interest Balance at the end of the year 17. Contributed equity Consolidated 2018 $ 2017 $ 33,378,683 5,218,840 38,597,523 34,678,683 2,965,783 37,644,466 37,644,466 300,000 (1,600,000) 2,253,057 38,597,523 32,717,443 4,100,000 (1,000,000) 1,827,023 37,644,466 (a) Fully paid ordinary shares 4,167,952 4,167,952 The share capital of the Company consists only of fully paid ordinary shares, which do not have a par value. All shareholders participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholders' meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Balance at the beginning and end of the reporting date 4,167,952 4,167,952 In accordance with the reverse acquisition procedure, the equity balance recognised in the consolidated financial statements in 2015 was the equity balance of the legal subsidiary Aquis Canberra Pty Ltd immediately before the business combination. The amount recognised as contributed equity in the consolidated financial statements in 2015 was determined by adding the cost of the acquisition to the contributed equity of the legal subsidiary ACPL. Balance at the beginning and end of the reporting date 185,141,050 185,141,050 No. No. (b) Reserves Opening balance Equity component of convertible debt Balance at 31 December Consolidated 2018 $ 6,939,271 (261,546) 6,677,725 2017 $ 6,367,984 571,287 6,939,271 Page 34 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 18. Accumulated losses Opening balance Comprehensive loss for the period Balance at 31 December 19. Cash flow information Consolidated 2018 $ 2017 $ (24,362,081) (3,135,286) (10,550,277) (13,811,804) (27,497,367) (24,362,081) Reconciliation of cash flow from operations with Loss after income tax: Loss from ordinary activities after income tax Non-cash flows from ordinary activities: Depreciation and amortisation Profit on disposal Interest on loan Casino licences Dividends received Employee provisions – current Employee provisions – non-current Changes in operating assets and liabilities: (Increase)/Decrease in receivables (Increase)/Decrease in inventory Decrease / (Increase) in other assets Decrease / (Increase) in deferred tax asset (Decrease)/Increase in creditors and accruals (3,396,832) (13,811,804) 1,768,294 (54,359) 2,253,057 891,877 (240) (57,940) 13,147 (58,706) 162,889 126,784 - (198,139) 1,776,491 - 1,827,023 891,879 (178) 30,661 14,231 26,182 330,074 17,604 5,498,003 206,222 Cash flows from operations (1,449,832) (3,193,612) 20. Financial instruments a) General objectives, policies and processes The consolidated entity’s financial instruments consist mainly of deposits with banks, accounts receivable, accounts payable and loans from related parties. The consolidated entity’s business exposes it to market risk (interest rates), credit risk and liquidity risk. The Board has overall responsibility for the determination of the Company’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company’s finance function. The Company’s risk management objectives are therefore designed to minimise the potential impacts of these risks on the results of the Company where such impacts may be material. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. Page 35 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 20. Financial instruments (continued) (b) Credit risk The Company has exposure to credit risk on the receivables in the balance sheet. However, the Company has no significant concentrations of credit risk. The Company has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history, and as such collateral is not requested. Cash at bank is held with the ANZ Banking Group Limited, The maximum exposure to credit risk at balance date is as follows: Consolidated Cash at bank Trade and other receivables 2018 $ 2017 $ 4,676,086 4,658,166 118,319 58,910 4,794,405 4,717,076 (c) Liquidity risk The consolidated entity manages liquidity risk by monitoring forecast cash flows. Maturity analysis - 2018 Carrying amount < 6 months 6-12 months 1-3 years > 3 years Financial liabilities Trade creditors $ $ 388,559 388,559 Loans and borrowings 31,658,252 - Other creditors and accruals 2,931,726 2,931,726 Total 34,978,537 3,312,285 $ - - - - $ - - - - $ - 31,658,252 - 31,658,252 Intercompany working capital loans have no fixed repayment date. Parties to the loans have agreed that repayments will not be called to the detriment of any other group company and at the date of this report no notices have been issued in relation to repayment of any working capital loans. Parties have agreed that there will be no repayments called within the next 13 months. Maturity analysis - 2017 Carrying amount $ < 6 months $ 6-12 months $ 1-3 years > 3 years $ $ Financial liabilities Trade creditors 467,524 467,524 Loans and borrowings 30,705,195 - Other creditors and accruals 2,924,340 2,924,340 Total 34,097,059 3,391,864 - - - - - - - - - 30,705,195 - 30,705,195 Page 36 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 20. Financial instruments (continued) (d) Market risk Market risk arises from the use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). (i) Interest rate risk The Company’s exposure to market interest rates relates to both the Company’s long-term (interest bearing) loan obligation as set out in note 16 and the company’s future cash flows from its cash holdings. The Company’s exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out in the tables below: Fixed / floating interest rate maturing Within 1 year 1 to 5 years Non-interest bearing Total Weighted average effective interest rate At 31 December 2018 Financial assets % $ $ $ $ Cash & cash equivalents 1.5% 3,648,897 Trade & other receivable Total financial assets Financial liabilities Trade creditors Loans and borrowings 5% Total financial liabilities - 3,648,897 - - - - - - - 1,027,189 4,676,086 118,319 118,319 1,145,508 4,794,405 388,559 388,559 32,958,252 - 32,958,252 32,958,252 388,559 33,346,811 At 31 December 2017 Financial assets Cash & cash equivalents 1.5% 3,294,955 Trade & other receivable Total financial assets Financial liabilities Trade creditors Loans and borrowings 5% Total financial liabilities - 3,294,955 - - - - - - - 1,363,211 4,658,166 58,910 58,910 1,422,121 4,717,076 467,524 467,524 30,705,195 - 30,705,195 30,705,195 467,524 31,172,719 Page 37 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 20. Financial instruments (continued) ii) Net fair values The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements. iii) Sensitivity analysis The group has performed sensitivity analysis relating to its exposure to interest rate risk at balance date. The sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. Interest rate sensitivity analysis At 31 December 2018, the effect on profit and equity as a result of changes in the interest rate, with all other variables remaining constant would be as follows: Consolidated 2018 $ 2017 $ (560,187) 633,165 (548,205) 614,104 (560,187) 633,165 (548,205) 614,104 Change in profit: Increase in interest rate by 2% Decrease in interest rate by 2% Change in equity Increase in interest rate by 2% Decrease in interest rate by 2% (ii) Other price risk The Company is not subject to other price risk 21. Key management personnel disclosures (a) Key management personnel Directors T Fung J Fung A Chow R Shields J Mellor A Gallaugher Executives J Mellor R Bach A Gallaugher Chairman (appointed 7 Aug 2016) Non-Executive Director (appointed 7 Aug 2016, resigned 14 May 2018) Non-Executive Director (appointed 7 Sept 2016) Non-Executive Director (appointed 7 Aug 2016) Executive Director (appointed 14 Aug 2016, resigned 21 February 2019) Executive Director (appointed 28 Jun 2018) Senior Executive to 14 July 2015, appointed CEO 4 October 2016 to 31 December 2018 VP and General Manager appointed 2 July 2015 Financial Controller appointed 24 March 2017, CEO (Acting) appointed from 1 Jan 2019 Page 38 of 64 AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 21. Key management personnel disclosures (continued) Transactions with key management personnel Key management personnel remuneration includes the following: Consolidated Short term employee benefits: Other benefits Post-employment benefits: Total remuneration Further details are included in the Remuneration Report. 22. Related party transactions (a) Controlling entities 2018 $ 1,126,847 114,957 83,844 2017 $ 1,243,159 125,435 83,088 1,325,648 1,451,682 The ultimate parent is TF Reef – Canberra Holdings Limited (incorporated in BVI). The ultimate Australian parent entity is Aquis Canberra Holdings (Aus) Pty Ltd (b) Key management personnel Disclosures relating to KMP are included in Note 21 and the Remuneration report. (c) Transaction with related parties The Group received loans from related parties during the year. Details of the loans are set out at Note 16. 23. Contingent liabilities Pursuant to the Deed between the ACT Gambling and Racing Commission, CCL and the Australian Capital Territory dated 23 December 2014, CCL granted the Commission and the Territory:   First ranking mortgage over the casino land and First ranking security interest over all other property. CCL can replace the mortgage with a bank guarantee for $3 million should it raise debt finance in connection with improvements or redevelopment of the business. 24. Investment in controlled entities Interests in controlled entities are set out below. All entities are incorporated and domiciled in Australia. Name Principal Activity Aquis Canberra Pty Ltd Gaming and entertainment Incorporated Ownership Interest 2017 100% 2018 100% Australia Casino Canberra Limited1 Gaming and entertainment Australia 100% 100% 1 Shares held by ACPL Page 39 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 25. Parent entity information Statement of financial position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity 2018 $ 30,551,588 9,556 30,561,144 (355,659) (31,658,252) (32,013,911) (1,452,767) 4,727,776 6,805,438 (12,985,981) (1,452,767) 2017 $ 32,456,965 13,658 32,470,623 (157,256) (30,705,195) (30,862,451) 1,608,172 4,727,776 7,066,984 (10,186,588) 1,608,172 Statement of profit or loss and other comprehensive income Income (Loss) for the year 1,804 (3,060,938) 1,112 (3,132,448) Commitments for the parent entity are the same as those for the consolidated entity and are set out at Note 21. The parent entity has not entered into a deed of cross guarantee nor are there any contingent liabilities at year end. 26. Future developments On 21 December 2018, the company announced that it had entered into a binding Implementation Deed (and related documentation) with Blue Whale Entertainment Pty Limited (Blue Whale), a company owned and controlled by Mr Michael Gu, the Group CEO of iProsperity Group, and Aquis Canberra Holdings (Aus) Pty Limited (ACH). The transaction contemplates Blue Whale’s acquisition of the outstanding convertible loan and 137.0 million shares held by ACH. Pursuant to the transaction, ACH will transfer: - 137,004,377 AQS shares to Blue Whale; and - Its convertible loan with the company to Blue Whale, following which Blue Whale will forgive a minimum of $2.0 million of the convertible loan and then immediately convert the balance of the convertible loan to AQS shares at a conversion price of $0.20 per share and subject to a cap. The above transfers will result in Blue Whale replacing ACH as the controlling shareholder of the company with a shareholding of up to a maximum of 86.99% of Aquis’ share capital. Blue Whale also grants ACH a put option in respect of its remaining 26,867,497 shares, pursuant to which ACH may elect to sell those shares to Blue Whale after approximately 3 years should such shares not have a value of more than $4 million at that time. Page 40 of 64AQUIS ENTERTAINMENT LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2018 26. Future developments (continued) The transaction is subject to shareholder approval by the independent shareholders of Aquis and ACT gaming regulatory approvals. Blue Whale may also terminate the agreements if certain limited material adverse events occur. The Extraordinary General Meeting (EGM) to seek the approval of the independent shareholders is to be held on 21 March 2019. ACT Government regulatory approval is expected to take approximately 3-6 months to complete. 27. Subsequent events Other than as disclosed in this report, there has not arisen in the interval between the end of the reporting period and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to significantly affect the operations of the entity, the results of those operations or the state of affairs of the Company in future financial years. 28. Segment information The consolidated entity has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The consolidated entity operates in a single operating segment: that of the gaming and entertainment industry in Australia. 29. Auditor information The following fees were paid or payable for services provided by the Group’s auditors: Audit of the financial statements RSM Australia Partners 30. Company information The registered office and principal place of business is as follows: 21 Binara Street Canberra ACT 2601 2018 $ 2017 $ 139,250 141,730 31. Authorisation of financial statements The consolidated financial statements for the year ended 31 December 2018 (including comparatives) were approved and authorised for issue by the Board of Directors on 27 February 2019. Page 41 of 64AQUIS ENTERTAINMENT LIMITED DIRECTORS’ DECLARATION The Directors of the company declare that: 1. the financial statements and notes are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and b. give a true and fair view of the financial position as at 31 December 2018 and of the performance for the year ended on that date of the company and consolidated group; 2. the Chief Executive Officer and Financial Controller have each declared that: a. b. c. the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; the financial statements and notes for the financial year comply with the Accounting Standards; and the financial statements and notes for the financial year give a true and fair view; 3. 4. in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Note 1 confirms that the consolidated financial statements also comply with International Financial Reporting Standards Signed in accordance with a resolution of the Directors. Allison Gallaugher Director Canberra 27 February 2019 Page 42 of 64AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Aquis Entertainment Limited for the year ended 31 December 2018, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Canberra, Australia Capital Territory Dated: 27 February 2019 RODNEY MILLER Partner Page 43 of 64INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AQUIS ENTERTAINMENT LIMITED Opinion We have audited the financial report of Aquis Entertainment Limited (the “Company”) and its subsidiaries (the “Group”), which comprises the consolidated statement of financial position as at 31 December 2018, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and 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: (i) giving a true and fair view of the Group’s financial position as at 31 December 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Page 44 of 64Key Audit Matters (Continued) Key Audit Matter How our audit addressed this matter Recognition of Revenue – Refer to Note 3 in the financial statements Revenue for the year ended 31 December 2018 was $26.4million. Our audit procedures in relation to the recognition of revenue included: Revenue is considered to be a Key Audit Matter because, while it is not judgmental, it involves the in transfer of significant volumes of cash circumstances where there is no immediate paper trail. There is potential for management override to achieve revenue targets via manual journal entries posted to revenue. Revenue could be inaccurately stated as a result. Our procedures were designed to corroborate our assessment that revenue should be closely aligned to cash banked and identify manual adjustments that are made to revenue for further testing. • • Assessing whether the Group’s revenue recognition policies were in compliance with Australian Accounting Standards. Evaluating the operating effectiveness, of management’s controls related to revenue recognition. • Using data extracted from the accounting system, we tested the appropriateness of journal entries impacting revenue. • We the verified recognition and measurement of revenue by tracing a sample of transactions throughout the year from the table performance reports to the monthly summary reports and then back to the cash desk, to verify the accuracy of reported revenue. Impairment of Intangible Assets – Refer to Note 12 in the financial statements At 31 December 2018 the Group has intangible assets with a carrying value of $1.9 million. This is the Casino licence and its associated costs. We focused on this area due to the size of the intangible balance, and because the directors’ assessment of the ‘fair value less cost to sell’ of the cash generating unit (“CGU”), Casino Canberra (Casino) involves judgements about the future underlying cash flows of the business and the discount rates applied to them. the year ended 31 December 2018 impairment For management have performed an assessment over the intangible balance by: • expenses calculating the fair value less cost to sell for the Casino using a discounted cash flow flows model. This model used cash (revenues, capital expenditure) for the Casino for 5 years, with a terminal growth rate applied to the 5th year. These cash flows were then discounted to net present value using the Group’s weighted average cost of capital (WACC); and and Our audit procedures in relation to management’s impairment assessment included: • Updating our of management’s annual impairment testing process. understanding • the Assessing management’s determination that intangible asset should be allocated to a single CGU, the Casino, based on the Group’s the nature of business and the manner in which results are monitored and reported. • We assessed the forecasts underlying the impairment review and agreed to budgets approved by the Board, reviewing these against actual performance and historic also accuracy performed sensitivity analysis on earnings multiples and growth rates applied to cash flows to determine the extent of headroom for the Casino. forecasting. We of • We agreed other key assumptions such as discount rates and revenue growth to supporting evidence and corroborated these to industry averages/trends. Page 45 of 64Key Audit Matters (Continued) Key Audit Matter How our audit addressed this matter Impairment of Intangible Assets – Refer to Note 12 in the financial statements (continued) • comparing the resulting fair value less cost to sell of the Casino to the respective book value. Management also performed a sensitivity analysis over the calculations, by varying the assumptions used (growth rates, terminal growth rate and WACC) to assess the impact on the valuations. Other Information • We compared the cash flow projections to historic performance and observable trends and corroborated the reasons for deviations third party evidence as appropriate. to The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 31 December 2018, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. 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 ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Page 46 of 64Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 7 to 11 of the directors' report for the year ended 31 December 2018. In our opinion, the Remuneration Report of Aquis Entertainment Limited, for the year ended 31 December 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS Canberra, Australia Capital Territory Dated: 27 February 2019 RODNEY MILLER Partner Page 47 of 64AQUIS ENTERTAINMENT LIMITED ACN 147 411 881 (Company) CORPORATE GOVERNANCE STATEMENT This Corporate Governance Statement is current as at 9 April 2019 and has been approved by the Board of Directors on that date. This Corporate Governance Statement discloses the extent to which the Company follows the recommendations set by the ASX Corporate Governance Council in its publication Corporate Governance Principles and Recommendations (Recommendations). The Recommendations are not mandatory; however, the Recommendations that will not be followed have been identified and reasons provided for not following them along with what (if any) alternative governance practices the Company intends to adopt in lieu of the recommendation. The Company has adopted a Corporate Governance Plan which provides the written terms of reference for the Company’s corporate governance duties. The Company’s Corporate Governance Plan is available on the Company’s website at www.aquisentertainment.com. RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION Principle 1: Lay solid foundations for management and oversight Recommendation 1.1 A listed entity should have and disclose a charter which sets out the respective roles and responsibilities of the Board, the Chair and management, and includes a description of those matters expressly reserved to the Board and those delegated to management. Yes responsibilities of The Company has a Board Charter which sets out the respective roles and the Chair and management, and includes a description of those matters expressly reserved to the Board and those delegated to management. A copy of the Charter can be viewed on the Company’s website. the Board, Page 48 of 64 RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION Recommendation 1.2 A listed entity should: (a) undertake appropriate checks before appointing a forward to security holders a person, or putting candidate for election, as a Director; and (b) provide security holders with all material information relevant to a decision on whether or not to elect or re- elect a Director. Yes The Company:  undertakes appropriate checks including character references, criminal history and insolvency checks before appointing or putting forward to security holders a candidate for election, as a Director; and security holders are provided with all material information relevant to a decision on whether or not to elect or re-elect a Director. The information is included in the Company’s Annual Reports, Notices of Meeting and website.  Recommendation 1.3 A listed entity should have a written agreement with each Director and senior executive setting out the terms of their appointment. Recommendation 1.4 The company secretary of a listed entity should be accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board. Recommendation 1.5 A listed entity should: (a) have a diversity policy which includes requirements for the Board or a relevant committee of the Board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s progress in achieving them; (b) disclose that policy or a summary or it; and (c) disclose as at the end of each reporting period: Yes Yes Yes Yes The Company has written agreements with each Director and senior executive setting out the terms of their appointment. The Board Charter establishes that the Company Secretary is accountable directly to the Board through the Chair on all matters to do with the proper functioning of the Board. Aquis Entertainment acknowledges the positive outcomes that can be achieved through a diverse workforce and recognises and utilises the diverse skills and talent from its directors, officers and employees. To this end the Company has developed a diversity policy which can be viewed on the Company’s website. The Remuneration & Nomination Committee is responsible for reviewing and making recommendations to the Board on the effectiveness of the Diversity Policy. The Committee has set a high level diversity target only for 2019 (40% female and 60% male staff) due to the uncertainty around the impact of the corporate transaction which was approved at an EGM on 21 March 2019. Page 49 of 64 RECOMMENDATIONS (3RD EDITION) (i) the measurable objectives for achieving gender diversity set by the Board in accordance with the entity’s diversity policy and its progress towards achieving them; and COMPLY Yes (ii) either: (A) the respective proportions of men and women on the Board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or (B) if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in the Workplace Gender Equality Act. EXPLANATION At 31 March 2019, the respective proportions of men and women on the Board, in senior executive positions and across the whole organisation were as follows: Board (including the Executive Director) Senior Executives (excl. Executive Directors)1 Management – Casino Canberra (excl. Exec Directors and Senior Executives) Staff Total Female Male Total 1 1 2 94 98 3 - 5 4 1 7 127 135 221 233 42% 58% 1 For the purposes of this statement, Senior Executives are defined as Key Management Personnel (excluding Directors). Recommendation 1.6 A listed entity should: (a) have and disclose a process for periodically evaluating the performance of the Board, its committees and individual Directors; and (b) disclose, in relation to each reporting period, whether a the performance evaluation was undertaken in reporting period in accordance with that process. Yes Yes The Board Charter establishes the requirement and process to conduct an annual evaluation of the performance of the Board, its committees and individual Directors. The Remuneration & Nomination Committee is responsible for the conduct of the evaluation. A Board performance evaluation was undertaken during the 2018 financial year. Page 50 of 64RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION Recommendation 1.7 A listed entity should: (a) have and disclose a process for periodically evaluating the performance of its senior executives; and (b) disclose, in relation to each reporting period, whether a the performance evaluation was undertaken in reporting period in accordance with that process. Principle 2: Structure the Board to add value Recommendation 2.1 The Board of a listed entity should: Yes Yes The Board is responsible for reviewing the performance of senior management against strategies established by the Board. To this end the Board e s t a b l i s h e s a n n u a l KPI’s against which the performance of its senior executives are assessed. The KPI’s are set for the calendar year and are reviewed in January annually. A performance evaluation of executives against KPI’s set for the 2018 financial year has been conducted. (a) have a nomination committee which: Yes (i) has at least three members, a majority of whom are independent Directors; and (ii) is chaired by an independent Director, The Remuneration and Nomination Committee has three members the majority of whom are independent Directors. The Committee is chaired by an independent Director. The names of the Committee Members are as follows: and disclose: (iii) the charter of the committee; (iv) the members of the committee; and (v) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a nomination committee, disclose that fact and the processes it employs to address Board succession issues and to ensure that the Board has the appropriate experience, independence and knowledge of the entity to enable it to discharge its duties and responsibilities effectively balance skills, of  Mr Russell Shields (Chair)  Mr Tony Fung  Mr Alex Chow A copy of the Committee Charter may be viewed on the Company’s website. The qualifications and experience of the members of the Committee are set out on the Company’s website and in the Annual Reports. The number of times the committee met throughout a period and the individual attendances of the members at those meetings are disclosed in the Annual Report. Page 51 of 64 RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION Recommendation 2.2 A listed entity should have and disclose a Board skills matrix setting out the mix of skills and diversity that the Board currently has or is looking to achieve in its membership. Yes The Remuneration and Nomination Committee has developed a Board Skills Matrix to assist in identifying the experience, skills, expertise and diversity required for the Board to discharge its mandate to maintain the necessary mix of expertise. Key skills held by Board members financing and administration, banking, finance, property development, business strategy and business management. include: corporate The Board is of the view that at this stage of its development the current directors possess an appropriate mix of skills, experience, expertise and diversity to enable the Board to discharge its responsibilities and deliver the company’s strategic priorities. To the extent that skills are not directly represented on the Board, they are augmented through management and external advisors. Recommendation 2.3 A listed entity should disclose: (a) the names of the Directors considered by the Board to Yes be independent Directors; The names of the Directors considered to be independent are as follows: Governance if a Director has an interest, position, association or relationship of the type described in Box 2.3 of the ASX Corporate and Recommendation (3rd Edition), but the Board is of the opinion that it does not compromise the independence of the Director, the nature of the interest, position, association or in question and an explanation of why the Board is of that opinion; and relationship Principles  Mr Alex Chow  Mr Russell Shields Yes The names of the Directors who are not considered independent a r e :  Mr Tony Fung  Ms Allison Gallaugher Page 52 of 64RECOMMENDATIONS (3RD EDITION) (c) the length of service of each Director COMPLY Yes EXPLANATION Ms Gallaugher was appointed on 28 June 2018. Mr Chow was formally appointed on 7 September 2015. All other Directors were appointed with effect from 7 August 2015. Recommendation 2.4 A majority of the Board of a listed entity should be independent Directors. Recommendation 2.5 The Chair of the Board of a listed entity should be an independent Director and, in particular, should not be the same person as the CEO of the entity. Recommendation 2.6 A listed entity should have a program for inducting new Directors and providing appropriate professional development opportunities for continuing Directors to develop and maintain the skills and knowledge needed to perform their role as a Director effectively. Yes At the date of this report, the Board comprises f o u r members, t wo of whom are independent and t w o of whom are non- independent Directors. The Company considers this to be an appropriate balance given its majority shareholder and the importance to the company at this time to have the Chief Executive Officer who is an Executive Director, who is not considered independent. No Yes The Chair of the Board is Mr Tony Fung who is also the owner of the majority shareholder and therefore is not independent. Mr Fung is a highly experienced Director and Chairman. The Company considers that, reflective of the majority shareholding, the Board will function more effectively with Mr Fung as Chairman. The Company has an induction program for new Directors and encourages ongoing professional development of directors and senior management. Page 53 of 64 RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION Principle 3: Act ethically and responsibly Recommendation 3.1 A listed entity should: (a) have a code of conduct for its Directors, senior Yes executives and employees; and The Company has a Code of Conduct for its Directors, senior executives and employees. (b) disclose that code or a summary of it. A copy of the Code of Conduct may be viewed on the Company’s website. Principle 4: Safeguard integrity in financial reporting Recommendation 4.1 The Board of a listed entity should: (a) have an audit committee which: (i) (ii) has at least three members, all of whom are non- executive Directors and a majority of whom are independent Directors; and is chaired by an independent Director, who is not the Chair of the Board, and disclose: (iii) (iv) (v) the charter of the committee; the relevant qualifications and experience of the members of the committee; and in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its financial Yes The Audit and Risk Management Committee has three members the majority of whom are independent Directors. The Committee is chaired by an independent Director. The names of the Committee Members are as follows:  Mr Alex Chow (Chair)  Mr Tony Fung  Mr Russell Shields and A copy of the Committee Charter may be viewed on the Company’s website. The qualifications and experience of the members of the Committee are set out on the Company’s website and in the Annual Report. The number of times the committee met throughout a period and the individual attendances of the members at those meetings are disclosed in the Annual Report. Page 54 of 64 RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. Recommendation 4.2 The Board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Recommendation 4.3 Yes The Audit and Risk Management Charter requires the CEO and CFO to provide to the Board prior to the Company’s financial statements being approved, a declaration that the financial records have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit. Yes The Shareholder Communications Policy of the Company states that the external auditor will attend the AGM and will be available to answer questions from security holders relevant to the audit. Page 55 of 64 RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION Principle 5: Make timely and balanced disclosure Recommendation 5.1 A listed entity should: (a) have a written policy for complying with its continuous Yes disclosure obligations under the Listing Rules; and (b) disclose that policy or a summary of it. Principle 6: Respect the rights of security holders The Company has a Disclosure Policy which sets out the process by which the Company complies with its continuous disclosure obligations under the Listing Rules. A copy of the Policy may be viewed on the Company’s website. Recommendation 6.1 A listed entity should provide information about itself and its governance to investors via its website. Recommendation 6.2 A listed entity should design and implement an investor relations program two-way communication with investors. facilitate effective to Recommendation 6.3 A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of security holders. Yes Yes Yes The Company’s Corporate Governance Statement, Charters and Corporate Governance Policies are included on its website. The Company has a Shareholder Communication policy which is aimed at facilitating effective two-way communication with investors. A copy of the Policy can be viewed on the Company’s website. The Shareholder Communications Policy sets out the policies and processes the Company’s has facilitate and encourage participation at meetings of security holders. in place to Page 56 of 64 Recommendation 6.4 A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. Yes the Shareholder Communications Policy establishes The Company’s commitment to receive communications from, and send communications to, the entity and its security registry electronically. Page 57 of 64 RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION Principle 7: Recognise and manage risk Recommendation 7.1 The Board of a listed entity should: (a) have a committee or committees to oversee risk, each Yes of which: (i) has at least three members, a majority of whom are independent Directors; and (ii) is chaired by an independent Director, and disclose: (iii) (iv) (v) the charter of the committee; the members of the committee; and as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the process it employs for overseeing the entity’s risk management framework. The Audit and Risk Management Committee has three members the majority of whom are independent Directors. The Committee is chaired by an independent Director. A copy of the Committee Charter may be viewed on the Company website. The names of the Committee Members are as follows:  Mr Alex Chow (Chair)  Mr Tony Fung  Mr Russell Shields The qualifications and experience of the members of the Committee are set out on the Company’s website and in the Annual Report. The number of times the committee met throughout a period and the individual attendances of the members at those meetings are disclosed in the Annual Report. Recommendation 7.2 The Board or a committee of the Board should: Yes (a) review the entity’s risk management framework with management at least annually to satisfy itself that it continues to be sound; and (b) disclose in relation to each reporting period, whether such a review has taken place. The Audit and Risk Management Committee Charter tasks the Committee with the responsibility for reviewing and monitoring the Company’s risk management framework to provide assurance that major business risks are identified, consistently assessed and appropriately addressed. The Charter requires the Committee to undertake a risk management framework with management (at least once annually) to satisfy review of the Company’s Page 58 of 64RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION Recommendation 7.3 A listed entity should disclose: (a) if it has an internal audit function, how the function is structured and what role it performs; or (b) if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually risk management and internal control processes. improving the effectiveness of its itself that Aquis Entertainment’s risk management framework continues to be sound, to determine whether there have been any changes in the material business risks the entity faces and to ensure that they remain with the risk appetite set by the Board. During the year the Audit Committee conducted various risk reviews of aspects of the operations and completed a review of the Company’s risk management framework and risk registers. No The Company does not have an Internal Audit function. The Board is of the view that the Company’s’ size and scale does not currently support an independent internal audit function. The Board from time to time may utilise external parties to undertake internal audit control reviews. framework. The Audit and Risk Management Committee Charter sets out the processes the Committee employs to oversee the Company’s risk operational management subsidiary, Casino Canberra Limited, also maintains a robust risk management framework related to all operational matters as required under the relevant casino legislation. This includes the maintenance of a risk register identifying relevant operational risks and risk management procedures where appropriate. recording proposed The Company’s solutions and Recommendation 7.4 A listed entity should disclose whether it has any material exposure social sustainability risks and, if it does, how it manages or intends to manage those risks. to economic, environmental and Yes The Company’s exposure to economic, environmental and social sustainability risks and the way it manages or intends to manage mitigate those risks is set out in the Annual Report. Page 59 of 64 RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION Principle 8: Remunerate fairly and responsibly Recommendation 8.1 The Board of a listed entity should: (a) have a remuneration committee which: (i) has at least three members, a majority of whom are independent Directors; and (ii) is chaired by an independent Director, and disclose: (iii) (iv) (v) the charter of the committee; the members of the committee; and as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for Directors and senior executives and ensuring that such remuneration is appropriate and not excessive. The Remuneration and Nomination Committee has three members the majority of whom are independent Directors. The Committee is chaired by an independent Director. The names of the Committee Members are as follows:  Mr Russell Shields (Chair)  Mr Tony Fung  Mr Alex Chow A copy of the Committee Charter may be viewed on the Company’s website. The qualifications and experience of the members of the Committee are set out on the Company’s website and in the Annual Report. The number of times the committee met throughout a period and the individual attendances of the members at those meetings are disclosed in the Annual Report. Recommendation 8.2 A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive Directors and the remuneration of executive Directors and other senior executives and ensure that the different roles and responsibilities of non-executive Directors compared to executive Directors and other senior executives are Yes The Remuneration and Nomination Committee is tasked with developing policies and practices regarding the remuneration of non-executive Directors and the remuneration of executive Directors and other senior executives and ensure that the different roles and responsibilities of non-executive Directors compared to executive Directors and other senior executives are reflected in the level and composition of their remuneration. Page 60 of 64 RECOMMENDATIONS (3RD EDITION) COMPLY EXPLANATION reflected in the level and composition of their remuneration. These policies and practices are disclosed in the Company’s Annual Report. Recommendation 8.3 A listed entity which has an equity-based remuneration scheme should: Yes (a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (b) disclose that policy or a summary of it. The Company has established an equity–based remuneration scheme (Plan). The Plan rules specifically prohibit participants from entering into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the Plan. The Company’s Securities Trading Policy also prohibits participants in any such scheme from entering into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme. A copy of the Securities Trading Policy can be viewed on the Company’s website. Page 61 of 64SHAREHOLDER INFORMATION AT 31 MARCH 2019 Shareholder Information required by the Australian Securities Exchange Limited (ASX) Listing Rules and not disclosed elsewhere in the Report is set out below. 1. Twenty Largest Shareholders Name AQUIS CANBERRA HOLDINGS (AUS) PTY LTD MR HONGHAO SUN MR PAUL JOSEPH MANKA MR THOMAS JON PICKETT LANDSEC PTY LTD TARALAKE PTY LTD LANDSEC PTY LTD MR DENIS MUDDLE MR JOHN HAMILTON MRS JODIE LEE MAXTED CHANCERY HOLDINGS PTY LTD LIFE IN VERSE PTY LTD MR PENGLIANG SHI CONFIDO SUPERANNUATION PTY LTD MR GARY STANLEY SWIFT & MRS KAYLEEN LESLIE SWIFT MR ANTHONY JOHN THOMAS DENNIS & MRS SELINA JAY DENNIS MR ROBERT CAMERON GALBRAITH AE ELECTRONICS PTY LTD MR CHENJUN JIANG MISS JINAN ZHAI MISS XIAOYING DAI No. of Shares % 163,871,874 88.512% 1,500,000 0.810% 1,325,079 0.716% 1,200,000 0.648% 797,999 0.431% 790,329 0.427% 646,800 0.349% 500,000 0.270% 449,000 0.243% 437,154 0.236% 400,000 0.216% 268,000 0.145% 239,366 0.129% 224,765 0.121% 220,000 0.119% 200,000 0.108% 200,000 0.108% 160,000 0.086% 152,084 0.082% 150,000 0.081% 150,000 0.081% Total Securities of Top 20 Holdings 173,882,450 93.919% 2. Distribution of Shareholders Quoted Securities Range 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 and above Totals Total Holders Shares % Issued Capital 9 7 95 344 26 481 1,790 21,429 919,118 9,677,562 174,521,151 185,141,050 0.001 0.012 0.496 5.227 94.264 100.000 Page 62 of 643. Substantial Shareholders The number of securities held by substantial shareholders and their associates are set out below: Fully paid Ordinary Shares Name Number % AQUIS CANBERRA HOLDINGS (AUS) PTY LTD 163,871,874 88.512% 4. Voting Rights Ordinary Shares Every holder of ordinary shares has the right to receive notices of, to attend and to vote at general meetings of the Company. On a show of hands every shareholder present at a meeting in person or by proxy, attorney or representative is entitled to one vote and upon a poll each share is entitled to one vote. 5. Use of Cash and Convertible Assets During the period from admission to the official list of the Australian Stock Exchange to the date of this statement, the Company has used cash and assets readily convertible to cash in a manner consistent with its business activities. The company is involved in the ownership and management of gaming and waging assets in Australia. Page 63 of 64CORPORATE DIRECTORY Company Aquis Entertainment Limited ABN 48 147 411 881 21 Binara Street Canberra ACT 2601 www.aquisentertainment.com Registered Office and Place of Business 21 Binara Street Canberra ACT 2601 Telephone: +61 2 6257 7074 Facsimilie: +61 2 6257 7079 Directors Mr Tony Fung (Chairman) Mr Alex Chow (independent Non-executive Director) Mr Russell Shields (Independent Non-executive Director) Ms Allison Gallaugher (Acting Chief Executive Officer & Executive Director) Company Secretary Ms Louise Sheppard Auditors RSM Australia Partners GPO Box 200 Canberra ACT 2601 Share Registry Boardroom Pty Limited GPO Box 3993 Sydney NSW 2001 Stock Exchange Listing Australian Securities Exchange Limited Home Exchange – Melbourne ASX code: AQS Page 64 of 64

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