archTIS
Annual Report 2018

Plain-text annual report

archTIS Limited ABN 79 123 098 671 Annual Report 30 June 2018 archTIS Limited ABN 79 123 098 671 Corporate directory 30 June 2018 Directors Company secretary Registered office Principal place of business Share register Auditor Accountants Solicitors Bankers Stephen Smith Daniel Lai Bruce Talbot Leanne Graham Wayne Zekulich Baden Bowen Level 3, archTIS House 10 National Circuit Barton ACT 2600 Level 3, archTIS House 10 National Circuit Barton ACT 2600 Automic Level 2, 267 St Georges Terrace Perth, WA 6000 RSM Australia Pty Ltd Equinox Building 4, Level 2 70 Kent Street Deakin, ACT 2600 mgi Joyce Dickson Level 1, 65 Canberra Avenue Griffith, ACT 2603 Steinepreis Paganin 16 Milligan Street, Perth, WA 6000 Westpac Banking Corporation 6-8 Wollongong Street Fyshwick, ACT 2609 Stock exchange listing archTIS Limited shares are listed on the Australian Stock Exchange (ASX: AR9) Website www.archtis.com Corporate Governance Statement https://www.archtis.com/company/investor-relations/ Page 2 of 44 archTIS Limited ABN 79 123 098 671 Directors' report 30 June 2018 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity') consisting of archTIS Limited (referred to hereafter as the 'company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2018. Directors The following persons were directors of archTIS Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Stephen Smith (Appointed 1 February 2018) Daniel Lai Bruce Talbot Leanne Graham (Appointed 1 February 2018) Wayne Zekulich (Appointed 1 February 2018) Phillip Dean (Resigned 1 February 2018) James Hyndes (Resigned 1 February 2018) Darren Patterson (Resigned 31 July 2017) Principal activities During the financial year the principal continuing activities of the consolidated entity consisted of: - Development of secure information management and collaboration software and appliance solutions. - Consulting and solutions services for secure information sharing and inter-organisational collaboration. Dividends There have been no dividends paid or declared since the start of the financial year. Review of operations The loss for the consolidated entity after providing for income tax and non-controlling interest amounted to $2,091,466 (30 June 2017: $1,132,202). The consolidated entity focused on product research and development with a consequent reduction in consulting and services revenues. In April 2018 the company changed its status to a public company limited by shares, adopted a new constitution and changed its name to archTIS Limited. In order to meet the funding requirements of the future research and development, the directors raised $5,533,686 during the year and commenced the process to undertake an initial public offer (IPO) in August 2018 to raise additional capital of $8,000,000. The IPO was successfully completed in September 2018 and the company was listed on the Australian Stock Exchange on 21 September 2018. During the year the company capitalised costs related to its product development that are expected to be recouped in the future. A successful conclusion from research and development is inherently risky. The company is focused on bringing its product to the market in a timely and cost effective manner. Significant changes in the state of affairs In April 2018 the company changed its status to a public company limited by shares, adopted a new constitution and changed its name to archTIS Limited. In May 2018 the parent entity acquired 100% of the ordinary shares of archTIS Solutions Pty Ltd for the total consideration of $10 and 100% of the ordinary shares of archTIS Services Pty Ltd for the total consideration of $10. Neither company commenced operations prior to 30 June 2018. There were no other significant changes in the state of affairs of the consolidated entity during the financial year. Matters subsequent to the end of the financial year In July 2018 the company commenced the process to undertake an initial public offer in August 2018 to raise additional capital of $8,000,000. The capital raise was fully subscribed and the investment funds have been received. The company was listed on the Australian Stock Exchange on 21 September 2018. In July 2018 share options at 1.9% of capital were issued and in September 2018 the lead managers of the initial public offer were issued share options at 6% of capital. In August 2018 archTIS Solutions Pty Ltd, a subsidiary of the parent entity established an office in the Czech Republic. archTIS Solutions Pty Ltd will engage and manage a software development team based in the Czech Republic. The company's Product Manager and Product Requirements, Learning, Marketing and Capability Development Manager have relocated to the Czech Republic to manage and lead the development team. There has not been any other matter or circumstance occurring subsequent to the end of the financial year that has 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 future financial years. Likely developments and expected results of operations Information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity. Environmental regulation The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. Page 3 of 44 archTIS Limited ABN 79 123 098 671 Directors' report 30 June 2018 Information about the directors The names and particulars of the directors of the company during or since the end of the financial year are: Name: Title: Qualifications: Experience and expertise: Stephen Smith Non-Executive Chairman LLM (London) Stephen Smith is a former Australian politician who was a member of the House of Representatives from 1993 to 2013. He served as a minister in the Rudd and Gillard Governments, including as Minister for Foreign Affairs (2007‑2010), Minister for Trade (2010), and Minister for Defence (2010‑2013). He was appointed Winthrop Professor of International Law at the University of Western Australia in 2014. He has served as a member of the Ernst & Young Oceania Government and Public Sector Advisory Board and was a Board member of Hockey Australia. He is currently a member of the Board of the LNG Marine Fuel Institute and the board of the Perth USAsia Centre. Other current directorships: None Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: None None None 1,080,000 Name: Title: Qualifications: Experience and expertise: Daniel Lai Chief Executive Officer BCom (UC) Daniel is a founding member of the Company and has successfully developed the business with its partners to be recognised by the Australian and United States Departments of Defence as a thought leader in information sharing strategies. Daniel has extensive experience in successfully delivering outcomes as part of a senior executive team for government and for multi-national software companies. Most importantly, Daniel has direct experience of successfully implementing organisational change in rapidly evolving business environments Other current directorships: None Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: None None None 7,284,252 Ordinary shares 1,800,000 Name: Title: Qualifications: Experience and expertise: Bruce Talbot Chief Technology Officer MBT (UNSW) AdvDip CompEng AdvDip RadarEng Dip ElectEng MAICD. Bruce served with the Royal Australian Air Force, and has worked with government agencies with sensitive data management requirements, as well as private sector roles working with clients within the Australian Federal Government, State Governments and large strategic corporate accounts. He has been involved in systems architectures, Security Management, Application Management and Delivery and Information Management for his entire career. Other current directorships: None Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: None None 7,396,436 ordinary shares 1,080,000 Name: Title: Qualifications: Experience and expertise: Leanne Graham Non-Executive Director Leanne Graham has over 30 years of executive sales and technology experience, having founded a number of successful software development businesses as well as serving as the former New Zealand General Manager of ASX listed company, Xero. Leanne is the former CEO of GeoOp Ltd. She led the company through multiple rounds of capital raising, listing on the New Zealand Stock Exchange, growing to over 40 staff with customers in 34 countries and $1 million annualised monthly subscription revenues. Page 4 of 44 archTIS Limited ABN 79 123 098 671 Directors' report 30 June 2018 Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Name: Title: Qualifications: Experience and expertise: Chair and Non-Executive Director of VPCL Limited (since October 2015) and Non-Executive Directior of BidEnergy Limited (since July 2016) Executive Director and CEO of GeoOp Ltd (resigned May 2016) None 50,000 Ordinary shares 540,000 Wayne Zekulich Non-Executive Director BBus (WAIT), FCA Wayne is a consultant with extensive banking and investment banking experience covering mergers and acquisitions, arranging and underwriting financings and debt and equity capital markets. Wayne is a member of the Curtin Business School of Accounting Advisory Board and the John Curtin Gallery Board, a member of the University of Western Australia Audit Committee and a Board member of ARTrinsic Inc. Non-Executive Director of Cleveland Mining Limited (from February 2015 to January 2016). Other current directorships: None Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: None 100,000 ordinary shares 540,000 Name: Title: Qualifications: Experience and expertise: Phillip Dean Commercial Manager BSc (ANU) Phillip's career spans 35 years in government and in the IT industry. This experience includes many tears working as a supplier to the Department of Defence, as well as within the Department, and as a Ministerial staffer. Phillip joined the Board in September 2007 and resigned in February 2018. Other current directorships: None None Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: None Not applicable as no longer a director Not applicable as no longer a director Name: Title: Qualifications: Experience and expertise: James Hyndes Former Non-Executive Director BA Asian Studies BEc (ANU) GradDip AppFinInv James is an Investment Banker. He joined the Board in a non-executive capacity in 2014 and resigned in February 2018. James is Founding Director of a private investment company and formerly a senior executive with major investment banks. Non-Executive Director of US Residential Limited (from November 2016 to December 2017) Other current directorships: None Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: None Not applicable as no longer a director Not applicable as no longer a director Name: Title: Qualifications: Experience and expertise: Darren Patterson Former Non-Executive Director MBA (Chicago) BCompSc (UTS) Darren joined the Board in December 2016 and resigned in July 2017. He is a senior executive with both start-up and blue-chip technology companies. Other current directorships: None None Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: None Not applicable as no longer a director Not applicable as no longer a director Company secretary Baden Bowen, BCom (UWA) FCA, has held the role of Company Secretary since November 2017. He is currently Company Secretary of CannPal Animal Therapeutics Limited and Sapien Cyber Limited. Baden is a Fellow of Chartered Accountants Australia and New Zealand. Page 5 of 44 archTIS Limited ABN 79 123 098 671 Directors' report 30 June 2018 Meetings of directors The number of meetings of the company's Board of Directors ('the Board') and of each Board committee held during the year ended 30 June 2018, and the number of meetings attended by each director were: Attended 4 Stephen Smith 20 Daniel Lai 20 Bruce Talbot 5 Leanne Graham 4 Wayne Zekulich 16 Phillip Dean 16 James Hyndes Darren Patterson 0 *Held: represents the number of meetings held during the time the director held office. Held* 5 20 20 5 5 16 16 0 Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: ● ● ● ● ● ● Principles used to determine the nature and amount of remuneration Details of remuneration Service agreements Share-based compensation Additional information Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the consolidated entity's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: ● ● ● ● competitiveness and reasonableness acceptability to shareholders performance linkage / alignment of executive compensation transparency The Board is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The Board has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the consolidated entity. The reward framework is designed to align executive reward to shareholders' interests. The Board have considered that it should seek to enhance shareholders' interests by: ● ● ● having economic profit as a core component of plan design focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing attracting and retaining high calibre executives Additionally, the reward framework should seek to enhance executives' interests by: ● ● ● rewarding capability and experience reflecting competitive reward for contribution to growth in shareholder wealth providing a clear structure for earning rewards In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and payments are reviewed annually by the Board. The Board may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. The chairman's fees are determined independently to the fees of other non- executive directors based on comparative roles in the external market. The chairman is not present at any discussions relating to the determination of his own remuneration. Non-executive directors receive share options but no other incentives. Executive remuneration The consolidated entity aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. Page 6 of 44 archTIS Limited ABN 79 123 098 671 Directors' report 30 June 2018 The executive remuneration and reward framework has four components: ● ● ● ● base pay and non-monetary benefits short-term performance incentives share-based payments other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Board based on individual and business unit performance, the overall performance of the consolidated entity and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the consolidated entity and provides additional value to the executive. The short-term incentives ('STI') program is designed to align the targets of the business units with the performance hurdles of executives. STI payments are granted to executives based on specific annual targets and key performance indicators ('KPI's') being achieved. KPI's include profit contribution, customer satisfaction, leadership contribution and product management. The long-term incentives ('LTI') include long service leave and share-based payments. Shares are awarded to executives over a period of three years based on long-term incentive measures. These include increase in shareholders value relative to the entire market and the increase compared to the consolidated entity's direct competitors. The Board reviewed the long-term equity-linked performance incentives specifically for executives during the year ended 30 June 2018. Consolidated entity performance and link to remuneration Remuneration for certain individuals is directly linked to the performance of the consolidated entity. A portion of cash bonus and incentive payments are dependent on defined earnings per share targets being met. The remaining portion of the cash bonus and incentive payments are at the discretion of the Board. Refer to the section 'Additional information' below for details of the earnings and total shareholders return for the last five years. The Board is of the opinion that the continued improved results can be attributed in part to the adoption of performance based compensation and is satisfied that this improvement will continue to increase shareholder wealth if maintained over the coming years. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables. The key management personnel of the consolidated entity consisted of the following directors of archTIS Limited: ● ● ● ● ● Stephen Smith - Non-Executive Chairman Leanne Graeme - Non-Executive Director Wayne Zekulich - Non-Executive Director Daniel Lai - Executive Director and Chief Executive Officer Bruce Talbot - Executive Director and Chief Technical Officer And the following persons: ● ● ● ● ● Phillip Dean - Commercial Manager Martin Tuček - Product Manager Deborah Tuček - Product Requirements, Learning, Marketing and Capability Development Manager Gregory Ginnivan - Senior Account Executive Matthew Kluken - Senior Account Executive There are no changes since the end of the reporting period. Page 7 of 44 Post-employment benefitsLong-term benefitsCash salary and feesCash bonusNon-monetarySuper-annuationLong service leaveEquity-settled sharesEquity-settled optionsTotal2018$$$$$$$$Non-Executive Directors:Stephen Smith21 February 2018 to 30 June 201825,000 - - 2,375 - - 15,578 42,953 Leanne Graeme21 February 2018 to 30 June 201820,833 - - - - - 7,789 28,622 Wayne Zekulich21 February 2018 to 30 June 201816,667 - - 1,583 - - 7,789 26,039 James Hyndes1 July 2017 to 21 February 201822,500 - - - - - 15,578 38,078 Darren Patterson1 July 2017 to 31 July 2017- - - - - - - - Executive Directors:- Daniel Lai1 July 2017 to 30 June 2018219,221 - - 17,343 3,001 - 25,963 265,528 Bruce Talbot1 July 2017 to 30 June 2018250,372 - - 20,302 ( 30,372)- 15,578 255,880 Other Key Management personnel:- Phillip Dean1 July 2017 to 30 June 2018200,054 - - 17,105 3,001 - 15,578 235,738 Martin Tuček1 July 2017 to 30 June 2018166,340 - - 15,943 - - - 182,283 Deborah Tuček1 July 2017 to 30 June 2018150,000 - - 14,250 - - - 164,250 Gregory Ginnivan14 May 2018 to 30 June 201811,196 - - 1,060 - - - 12,256 Matthew Kluken7 March 2018 to 30 June 201841,036 - - 3,888 - - - 44,924 Total1,123,219 - - 93,849 ( 24,370)- 103,853 1,296,551 PeriodShort-term benefitsShare-based paymentsarchTIS Limited ABN 79 123 098 671 Directors' report 30 June 2018 The proportion of remuneration linked to performance and the fixed proportion are as follows: Cash bonuses are dependent on meeting defined performance measures. The amount of the bonus is determined having regard to the satisfaction of performance measures and weightings as described above in the section 'Consolidated entity performance and link to remuneration'. The maximum bonus values are established at the start of each financial year and amounts payable are determined in the final month of the financial year by the Chief Executive Officer. The proportion of the cash bonus paid/payable or forfeited is as follows: Page 8 of 44 Post-employment benefitsLong-term benefitsPeriodCash salary and feesCash bonusNon-monetarySuper-annuationLong service leaveEquity-settled sharesEquity-settled optionsTotal2017$$$$$$$$Non-Executive Directors:James Hyndes1 July 2016 to 30 June 201712,500 - - - - 227,951 - 240,451 Darren Patterson1 December 2016 to 30 June 2017102,000 - - - - - - 102,000 Executive Directors:- Daniel Lai1 July 2016 to 30 June 2017189,052 - - 17,105 3,001 - - 209,158 Bruce Talbot1 July 2016 to 30 June 2017189,052 - - 17,105 3,001 - - 209,158 Phillip Dean1 July 2016 to 30 June 2017189,052 - - 17,105 3,001 - - 209,158 Total681,656 - - 51,315 9,003 227,951 - 969,925 Short-term benefitsShare-based paymentsName201820172018201720182017Non-Executive Directors:Stephen Smith100%-----Leanne Graeme100%-----Wayne Zekulich100%-----James Hyndes100%100%----Darren Patterson100%100%----Executive Directors:Daniel Lai100%100%----Bruce Talbot100%100%----Other Key Management personnel:Phillip Dean100%100%Martin Tuček100%100%----Deborah Tuček100%100%----Gregory Ginnivan85%---15%-Matthew Kluken95%-5%---Fixed remunerationAt risk - STIAt risk - LTIName2018201720182017Executive Directors:Daniel Lai----Bruce Talbot----Other Key Management personnel:Phillip Dean----Martin Tuček----Deborah Tuček----Gregory Ginnivan----Matthew Kluken0%-100%-Cash bonus paid/payableCash bonus forfeited archTIS Limited ABN 79 123 098 671 Directors' report 30 June 2018 Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Daniel Lai Executive Director and Chief Executive Officer 15 December 2007 On-going Base salary for the year ending 30 June 2019 of $180,054 plus superannuation, to be reviewed annually by the Board. Directors' fee for the year ending 30 June 2019 of $50,000 plus superannuation. 6 month termination notice by either party, non-solicitation and non-compete clauses. Bruce Talbot Executive Director and Chief Technical Officer 15 December 2007 On-going Base salary for the year ending 30 June 2019 of $180,054 plus superannuation, to be reviewed annually by the Board. Directors' fee for the year ending 30 June 2019 of $50,000 plus superannuation. 6 month termination notice by either party, non-solicitation and non-compete clauses. Phillip Dean Commercial Manager 15 December 2007 On-going Base salary for the year ending 30 June 2019 of $180,054 plus superannuation, to be reviewed annually by the Board. 6 month termination notice by either party, non-solicitation and non-compete clauses. Martin Tuček Product Manager 18 March 2013 On-going Base salary for the year ending 30 June 2019 of $200,000 plus superannuation, to be reviewed annually by the CEO, Share option bonus of 20%-60% as per Board approval and KPI achievement, 4 weeks termination notice by either party, non-solicitation and non-compete clauses. Deborah Tuček Product Requirements, Learning, Marketing and Capability Development Manager 18 March 2013 On-going Base salary for the year ending 30 June 2019 of $200,000 plus superannuation, to be reviewed annually by the CEO, Share option bonus of 20%-60% as per Board approval and KPI achievement, 4 weeks termination notice by either party, non-solicitation and non-compete clauses. Gregory Ginnivan Senior Account Executive 14 May 2018 On-going Base salary for the year ending 30 June 2019 of $220,000 plus superannuation, to be reviewed annually by the CEO, Share option bonus of 15% as per KPI achievement, 4 weeks termination notice by either party, non- solicitation and non-compete clauses. Matthew Kluken Senior Account Executive 7 March 2018 On-going Base salary for the year ending 30 June 2019 of $175,000 plus superannuation, to be reviewed annually by the CEO, cash bonus of as per KPI achievement, 4 weeks termination notice by either party, non-solicitation and non- compete clauses. Key management personnel have no entitlement to termination payments in the event of removal for misconduct Share-based compensation Issue of shares No shares were issued to directors and other key management personnel as part of compensation during the year ended 30 June 2018. Page 9 of 44 archTIS Limited ABN 79 123 098 671 Directors' report 30 June 2018 Options The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Options granted carry no dividend or voting rights. All options were granted over unissued fully paid ordinary shares in the company. The number of options granted was determined having regard to the satisfaction of performance measures and weightings as described above in the section 'Consolidated entity performance and link to remuneration'. Options vest based on the provision of service over the vesting period whereby the executive becomes beneficially entitled to the option on vesting date. Options are exercisable by the holder as from the vesting date. There has not been any alteration to the terms or conditions of the grant since the grant date. There are no amounts paid or payable by the recipient in relation to the granting of such options other than on their potential exercise. There were no options over ordinary shares granted, exercised and lapsed for directors and other key management personnel as part of compensation during the year ended 30 June 2018 Additional information The earnings of the consolidated entity for the five years to 30 June 2018 are summarised below: Sales revenue EBITDA EBIT Profit (loss) after income tax Profit (Loss) per share (cents) Share price (at 30 June) 2018 $ 573,827 ( 2,004,394) ( 2,065,309) ( 2,091,466) ( 2.50) N/A 2017 $ 1,515,961 ( 1,019,082) ( 1,082,709) ( 1,132,202) ( 3.69) N/A 2016 $ 4,179,667 1,068,214 990,696 349,009 1.38 N/A 2015 $ 2,955,734 309,877 255,834 87,325 .36 N/A 2014 $ 1,871,550 ( 99,771) ( 121,822) ( 123,834) ( .54) N/A Additional disclosures relating to key management personnel Shareholding The number of shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Ordinary shares Non-Executive Directors: James Hyndes (Retired 21 February 2018) Executive Directors: Daniel Lai Bruce Talbot Other Key Management personnel: Phillip Dean Martin Tuček Deborah Tuček Total Balance at the start of the year Received as part of remuneration Additions Disposals /other Balance at the end of the year 2,787,129 7,284,252 7,346,436 7,284,252 240,000 240,000 25,182,069 - - - - - - - - - - - - - - - - - - - - - 2,787,129 7,284,252 7,346,436 7,284,252 240,000 240,000 25,182,069 Page 10 of 44 Number of options grantedGrant dateVesting date and exercisable dateExpiry dateExercisepriceFair value per option at grant dateNameNon-Executive Directors:Stephen Smith1,080,000 01-Feb-1801-Feb-1801-Feb-21$0.120$0.106Leanne Graeme540,000 01-Feb-1801-Feb-1801-Feb-21$0.120$0.106Wayne Zekulich540,000 01-Feb-1801-Feb-1801-Feb-21$0.120$0.106James Hyndes (retired 21 Feb 2018)1,080,000 01-Feb-1801-Feb-1801-Feb-21$0.120$0.106Executive Directors:Daniel Lai1,800,000 01-Feb-1801-Feb-1801-Feb-21$0.120$0.106Bruce Talbot1,080,000 01-Feb-1801-Feb-1801-Feb-21$0.120$0.106Other Key Management personnel:Phillip Dean1,080,000 01-Feb-1801-Feb-1801-Feb-21$0.120$0.106 archTIS Limited ABN 79 123 098 671 Directors' report 30 June 2018 Option holding The number of options over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year Options over ordinary shares Non-Executive Directors: Stephen Smith Leanne Graeme Wayne Zekulich James Hyndes (retired 21 February 2018) Darren Patterson Executive Directors: Daniel Lai Bruce Talbot Other Key Management personnel: Phillip Dean Total - - - - - - - - - 1,080,000 540,000 540,000 1,080,000 - 1,800,000 1,080,000 1,080,000 7,200,000 - - - - - - - - - - - - - - - - - - 1,080,000 540,000 540,000 1,080,000 - 1,800,000 1,080,000 1,080,000 7,200,000 Other transactions with key management personnel and their related parties During the financial year, there were no other transactions with key management personnel and their related parties. This concludes the remuneration report, which has been audited. Shares under option Unissued ordinary shares of archTIS Limited under option at the date of this report are as follows: Grant date 10 October 2017 1 February 2018 22 May 2018 6 July 2018 6 September 2018 Expiry date 10 October 2022 1 February 2021 1 July 2023 5 July 2021 6 September 2022 Exercise price Number of options $0.1020 4,289,880 $0.1200 7,500,000 $0.2000 1,200,000 $0.2000 1,600,000 $0.2400 5,000,000 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate. Shares issued on the exercise of options No ordinary shares of archTIS Limited were issued during the year ended 30 June 2018 and up to the date of this report on the exercise of options granted. Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor. During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. Proceedings on Behalf of Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 27 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Page 11 of 44 archTIS Limited ABN 79 123 098 671 Directors' report 30 June 2018 The directors are of the opinion that the services as disclosed in note 27 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. Officers of the company who are former partners of RSM There are no officers of the company who are former partners of RSM. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. Auditor RSM continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001 On behalf of the Directors: Stephen Smith Chairman 27 September 2018 Perth, WA Page 12 of 44 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of archTIS Limited for the year ended 30 June 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, Australian Capital Territory Dated: 27 September 2018 RODNEY MILLER Partner Page 13 of 44 archTIS Limited ABN 79 123 098 671 General information 30 June 2018 The financial statements cover archTIS Limited as a consolidated entity consisting of archTIS Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is archTIS Limited's functional and presentation currency. archTIS Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are: Level 3, archTIS House 10 National Circuit Barton, ACT 2600 A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 27 September 2018. The directors have the power to amend and reissue the financial statements. Financial report Contents: Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors' declaration Independent auditor's review report to the members of archTIS Limited Shareholder information Page 15 16 17 18 19 41 42 44 Page 14 of 44 archTIS Limited ABN 79 123 098 671 Statement of profit or loss and other comprehensive income for the year ended 30 June 2018 Continuing operations Rendering of services Sale of goods Share of profits of associates accounted for using the equity method Revenue Cost of goods sold Gross profit Income from research and development claim Other operating income Employee benefits expense Contractors and sub-contractors Superannuation Share based payments Depreciation and amortisation expense Consultancy fees Advertising expense Accountancy expense Lease expense Other expenses Development - capitalised Operating profit Interest earned Interest and finance charges paid/payable Profit (loss) before tax from continuing operations Income tax benefit (expense) Profit (loss) for the year from continuing operations Other comprehensive income Profit (loss) for the year Consolidated Note 2018 $ 2017 $ 564,704 9,123 - 573,827 1,440,774 75,187 - 1,515,961 ( 1,462) 572,365 ( 51,885) 1,464,076 208,571 11,032 ( 2,648,308) ( 1,007,087) ( 212,584) ( 108,178) ( 60,915) ( 169,768) ( 32,205) ( 72,986) ( 153,556) ( 640,148) 2,240,165 ( 2,073,602) 125,887 10,833 ( 2,347,519) ( 877,927) ( 211,577) - ( 63,627) ( 120,198) ( 1,072) ( 39,778) ( 183,209) ( 375,328) 1,534,121 ( 1,085,318) 8,293 ( 35,456) 2,609 ( 38,385) ( 2,100,765) ( 1,121,094) 9,299 ( 11,108) ( 2,091,466) ( 1,132,202) - - ( 2,091,466) ( 1,132,202) 8 3 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Page 15 of 44 archTIS Limited ABN 79 123 098 671 Statement of financial position as at 30 June 2018 Assets Current assets Cash and cash equivalents Short term investments Trade and other receivables Other assets Tax assets Total current assets Non-current assets Investments accounted for using the equity method Property, plant and equipment Intangible assets Tax assets Total non-current assets Total assets Liabilities Current liabilities Bank overdraft Interest-bearing loans and borrowings Trade and other payables Provisions Total current liabilities Non-current liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings (accumulated losses) Total equity (attributable to the owners of archTIS Limited) Note 2018 $ Consolidated 2017 $ 2016 $ 4 4 5 6 13 7 8 13 4,9 10 11 12 12 14 15 1,638,668 57,478 89,154 116,393 922,061 2,823,754 - 153,137 3,059,698 92,750 3,305,585 20,184 56,158 257,168 56,354 627,871 21,944 54,815 741,018 156,349 382,177 1,017,735 1,356,303 - 170,513 1,698,383 83,451 1,952,347 - 174,146 831,605 94,559 1,100,310 6,129,339 2,970,082 2,456,613 - 300,000 644,428 314,623 1,259,051 229,479 324,989 1,239,363 179,371 1,973,202 93,175 - 1,040,484 170,186 1,303,845 110,829 110,829 93,613 93,613 88,753 88,753 1,369,880 2,066,815 1,392,598 4,759,459 903,267 1,064,015 6,767,689 731,746 ( 2,739,976) 1,234,003 317,774 ( 648,510) 490,500 89,823 483,692 4,759,459 903,267 1,064,015 The above statement of financial position should be read in conjunction with the accompanying notes. Page 16 of 44 archTIS Limited ABN 79 123 098 671 Statement of changes in equity for the year ended 30 June 2018 Issued capital Balance at beginning of period Issue of share capital Balance at end of period Share-based payments reserve Balance at beginning of period Arising on share-based payments Balance at end of period Retained earnings (accumulated losses) Balance at beginning of period Profit (Loss) for the year Balance at end of period Total equity Balance at beginning of period Profit (Loss) for the period Share-based payments Issue of share capital Balance at end of period Consolidated 2018 $ Note 2017 $ 1,234,003 5,533,686 490,500 743,503 14 6,767,689 1,234,003 317,774 413,972 731,746 89,823 227,951 317,774 15 ( 648,510) 483,692 ( 2,091,466) ( 1,132,202) ( 2,739,976) ( 648,510) 903,267 1,064,015 ( 2,091,466) ( 1,132,202) 413,972 5,533,686 4,759,459 227,951 743,503 903,267 The above statement of changes in equity should be read in conjunction with the accompanying notes. Page 17 of 44 archTIS Limited ABN 79 123 098 671 Statement of cash flows for the year ended 30 June 2018 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Receipts from R&D Tax Incentive Interest received Interest paid Income tax paid Consolidated Note 2018 $ 2017 $ 819,938 ( 5,232,107) 793,231 8,293 ( 30,219) - 2,344,277 ( 3,981,075) 547,536 2,609 ( 33,577) - Net cash provided by (used in) operating activities 19 ( 3,640,864) ( 1,120,230) Cash flows from investing activities Purchase of property, plant and equipment Net cash provided by (used in) investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from secured bank loans Net cash provided by (used in) financing activities Net increase (decrease) in cash held Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 7 14 10 4 ( 43,539) ( 43,539) ( 59,994) ( 59,994) 5,533,686 - 743,503 300,000 5,533,686 1,043,503 1,849,283 ( 153,137) 1,696,146 ( 136,721) ( 16,416) ( 153,137) The above statement of cash flows should be read in conjunction with the accompanying notes. Page 18 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 1. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations 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 adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB 2016-1 Amendments to Australian Accounting Standards - Recognition of Deferred Tax Assets for Unrealised Losses The consolidated entity has adopted AASB 2016-1 from 1 July 2017. The amendments to AASB 112 'Income Taxes' clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value. AASB 2016-2 Amendments to Australian Accounting Standards - Disclosure Initiative: Amendments to AASB 107 The consolidated entity has adopted AASB 2016-2 from 1 July 2017. The amendments to AASB 107 'Statement of Cash Flows' require the disclosure of changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. 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 available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, 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 its judgement 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. a. Parent company 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 23. b. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of archTIS Limited ('company' or 'parent entity') as at 30 June 2018 and the results of all subsidiaries for the year then ended. archTIS Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'. 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. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. Page 19 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 1. Significant accounting policies (continued) 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. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. 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 or loss. c. Foreign currency translation The financial statements are presented in Australian dollars, which is archTIS Limited's functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. d. Revenue recognition The company earns revenues from consulting services and the sale of solutions services for secure information sharing and inter-organisational collaboration. Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. 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. Amounts disclosed as revenue are net of sales returns and trade discounts Rendering of services Rendering of services revenue is recognised by reference to the stage of completion of the contracts. Stage of completion is measured by reference to the services performed to date as a percentage of total anticipated services to be performed for each contract. Where the contract outcome cannot be reliably estimated, revenue is only recognised to the extent of the recoverable expenditure incurred to date. 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. e. 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 assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for:  When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or Page 20 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 1. Significant accounting policies (continued)  When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. 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. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. archTIS Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. f. 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 classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity's 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 classified as current when: it is either expected to be settled in the consolidated entity's 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. Deferred tax assets and liabilities are always classified as non-current. g. 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. h. 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. Page 21 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 1. Significant accounting policies (continued) Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the consolidated entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment. i. Non-current assets or disposal groups classified as held for sale Non-current assets and assets of disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continued use. They are measured at the lower of their carrying amount and fair value less costs of disposal. For non-current assets or assets of disposal groups to be classified as held for sale, they must be available for immediate sale in their present condition and their sale must be highly probable. An impairment loss is recognised for any initial or subsequent write down of the non-current assets and assets of disposal groups to fair value less costs of disposal. A gain is recognised for any subsequent increases in fair value less costs of disposal of a non-current assets and assets of disposal groups, but not in excess of any cumulative impairment loss previously recognised. Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of assets held for sale continue to be recognised. Non-current assets classified as held for sale and the assets of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current assets. The liabilities of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current liabilities. 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. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. Impairment of financial assets The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows. The amount of the impairment allowance for financial assets carried at cost is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for similar financial assets. k. Property, plant and equipment Each class of 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 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: Leasehold improvements Office furniture and equipment Computer equipment The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Term of lease 2-4 years 2-4 years Page 22 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 1. Significant accounting policies (continued) 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 between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits. l. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term m. 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 derecognition 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. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Research and development Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it is probable that the project will be a success considering its commercial and technical feasibility; the consolidated entity is able to use or sell the asset; the consolidated entity has sufficient resources; and intent to complete the development and its costs can be measured reliably. Capitalised development costs are amortised on a systematic basis matched to the future economic benefits over the useful life of the project. Research and development tax incentive The Research and Development Tax Incentive (RDTI) is a 43.5% refundable tax offset that is calculated as 43.5% of the eligible research and development expenditure that has been incurred by the company. The Directors consider any payment arising from the RDTI to be a form of government assistance and are of the view that it is appropriate to recognise RDTI receipts as Government Grants in accordance with AASB120 Accounting for Government Grants and Disclosure of Government Assistance. Page 23 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 1. Significant accounting policies (continued) As such, RTDI refunds are recognised when there is a sufficient degree of certainty that the company will comply with the conditions attaching to RDTI and that the payment will be received. Such refunds are recognised in the Statement of profit and loss and other comprehensive income on a systematic basis over the periods in which the company recognises as expenses the related costs for which the assistance is intended to compensate. The proportion of the refund that relates to capitalised development is deducted against the carrying amount of the related non-current assets. Any remaining proportion that cannot be recognised on either of the preceding bases is recognised in the Statement of profit and loss and other comprehensive income as "Income from research and development claim".(cid:9)(cid:9)(cid:9)(cid:9)(cid:9) Patents and trademarks Significant costs associated with patents and trademarks are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 10 years. n. 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. o. Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. p. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. q. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. r. 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. s. 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. Page 24 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 1. Significant accounting policies (continued) The company's obligations for long-term employee benefits are presented as non-current provisions in its statement of financial position, except where the company does not have an unconditional right to defer settlement for at least 12 months after the end of the reporting period, in which case the obligations are presented as current provisions. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows:   during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. t. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Page 25 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 1. Significant accounting policies (continued) Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. u. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. v. Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the company. w. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. x. 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 30 June 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 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. AASB 9 introduces 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 solely principal and interest. All other financial instrument assets are to be 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) in other comprehensive income ('OCI'). For financial liabilities, 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). Page 26 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 1. Significant accounting policies (continued) 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 will use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment will be measured under 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. The standard introduces additional new disclosures. The consolidated entity will adopt this standard from 1 July 2018 and the impact of its adoption is expected to be minimal on the consolidated entity. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be 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. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgments made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The consolidated entity will adopt this standard from 1 July 2018, resulting in an increase in contract assets of $51,000 and an increase in contract liabilities of $51,000. 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 July 2019. On the application date the company will record a right-to-use asset equivalent to the present value of remaining lease payments (approximately $322,000) and a corresponding lease liability for the lease of the premises at 10 National Circuit, Barton, ACT. The right-to-use asset will be depreciated over the remaining term of the lease and interest will be expensed. The lease liability will be reduced by the principle portion of the lease payments. Currently, no right-to-use asset or lease liability is recorded in the statement of financial position, lease payments are expensed, and the lease commitment is recorded in the notes to these financial statements. Page 27 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 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. Share-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black- Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. 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. Goodwill and other indefinite life intangible assets The consolidated entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 1. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Income tax The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The consolidated entity recognises liabilities for anticipated tax audit issues based on the consolidated entity's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Employee benefits provision As discussed in note 1, the liability for employee benefits expected to be 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. Page 28 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 3. Tax expense Consolidated Note 2018 $ 2017 $ a. b. The components of tax expense/(income) are: Current tax Deferred tax Deferred tax - adjustment to prior year losses not recognised Deferred tax - change of tax rate Deferred tax on tax losses not recognised Income tax expense/(income) The prima facie tax on profit before income tax is reconciled to income tax as follows: Prima facie tax payable on profit before income tax at 27.5%. Less: Tax effect amounts which are not deductible/(taxable) in calculating taxable income: - Non deductible entertainment - Non deductible insurances - R&D expenditure - - - Prior year adjustment - Tax losses not recognised - Change of tax rate on Deferred Tax at beginning of year Income from R&D claim Tax losses not recognised Income tax attributable to entity 4. Cash and cash equivalents Cash at bank and on hand Cash on deposit Reconciliation of cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash and cash equivalents Bank overdraft 5. Trade and other receivables Current Trade receivables Other receivables Loans to directors GST receivable Total current trade and other receivables Credit risk 13 13 13 13 - ( 371,224) ( 175) ( 371,399) - 362,100 ( 9,299) - ( 252,181) - ( 252,181) 7,879 255,410 11,108 ( 577,710) ( 342,920) - - 1,827 9,328 79,584 - 255,410 - 7,879 354,028 11,108 20,184 56,158 76,342 1,504 29,749 232,590 ( 57,357) 362,100 ( 175) - 568,411 ( 9,299) 1,638,668 57,478 1,696,146 9 1,696,146 - 1,696,146 76,342 ( 229,479) ( 153,137) 42,659 5,639 - 40,856 89,154 196,536 6,715 9,494 44,423 257,168 The company has no significant concentration of credit risk with respect to any single counterparty or group of counterparties. The main source of credit risk to the company is considered to relate to the class of assets described as "trade and other receivables". The following table details the company's trade and other receivables exposed to credit risk (prior to collateral and other credit enhancements) with ageing analysis and impairment provided for thereon. Amounts are considered as "past due" when the debt has not been settled within the terms and conditions agreed between the company and the customer or counterparty to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the company. Page 29 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 5. Trade and other receivables (continued) The balances of receivables that remain within initial trade terms (as detailed in the table below) are considered to be of high credit quality. 6. Other assets Current Prepayments Accrued income 7. Property, plant and equipment Lease improvements At cost Accumulated depreciation Office, furniture & equipment At cost Accumulated depreciation Computer equipment At cost Accumulated depreciation Total plant and equipment Consolidated 2018 $ 2017 $ 109,315 7,078 116,393 33,261 23,093 56,354 72,779 ( 39,413) 33,366 112,542 ( 66,278) 46,264 243,214 ( 169,707) 73,507 153,137 72,779 ( 27,284) 45,495 102,424 ( 49,233) 53,191 209,794 ( 137,967) 71,827 170,513 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Balance at 1 July 2016 Additions Disposals - written down value Depreciation expense Balance at 30 June 2017 Additions Disposals - written down value Depreciation expense Balance at 30 June 2018 Lease improvements 57,625 - - ( 12,130) 45,495 - - ( 12,130) 33,365 Office, furniture & equipment 67,928 1,685 - ( 16,422) 53,191 10,119 - ( 17,045) 46,265 Computer equipment Total 48,593 58,309 - ( 35,075) 71,827 33,420 - ( 31,740) 73,507 174,146 59,994 - ( 63,627) 170,513 43,539 - ( 60,915) 153,137 Page 30 of 44 < 3031–6061–90> 90$$$$$$$Jun-2018Trade receivables42,659 - - - - 26,975 15,684 Other receivables5,639 - - - - - 5,639 Total48,298 - - - - 26,975 21,323 Jun-2017Trade receivables196,536 - 25,184 - 11,000 27,481 132,871 Other receivables6,715 - - - - - 6,715 Total203,251 - 25,184 - 11,000 27,481 139,586 Past Due but Not Impaired(Days Overdue)Within Initial Trade TermsPast Due and ImpairedGross Amount archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 8. Intangible assets Capitalised development Cost: Balance at beginning of year Additions from internal development Employment costs Administration overheads Contract development Balance at end of year Accumulated research and development tax incentive: Balance at beginning of year R&D tax incentive benefit Balance at end of year Accumulated amortisation and impairment: Balance at beginning of year Amortisation Impairment losses Balance at end of year Carrying amount at end of period Consolidated 2018 $ 2017 $ 3,237,894 1,512,006 1,332,925 793,341 839,188 6,203,348 786,713 328,451 610,724 3,237,894 ( 1,347,744) ( 878,850) ( 2,226,594) ( 680,401) ( 667,343) ( 1,347,744) ( 191,767) - ( 725,289) ( 917,056) 3,059,698 - - ( 191,767) ( 191,767) 1,698,383 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Carrying amount at beginning of year Additions from internal development R&D tax incentive benefit Amortisation and impairment losses Carrying amount at end of period 1,698,383 2,965,454 ( 878,850) ( 725,289) 3,059,698 831,605 1,725,888 ( 667,343) ( 191,767) 1,698,383 Capitalised development costs relate to the development of new techniques to provide enhanced secure content management capability. As at 30 June 2018 the completion percentage is approximately 55%. As development costs are still a work in progress no amortisation has been recorded. The recoverable amount of the entity's capitalised development costs has been determined by a value-in-use calculation using a discounted cash flow model, based on a 5 year projection period approved by management. Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive. The following key assumptions were used in the discounted cash flow model for the new products: a. b. 50% pre-tax discount rate; projected revenue growth rate based on expected customer acceptance of subscription based model, expected hardware and enterprise revenues; 3-5% per annum increase in operating costs and overheads. c. The discount rate of 50% pre-tax reflects management’s estimate of the time value of money and the entity’s weighted average cost of capital adjusted for the product, the risk free rate and the volatility of the share price relative to market movements. Management believes the projected revenue growth rate is prudent and justified, based on its market analyses and evaluation. There were no other key assumptions for the product. Based on the above, no impairment charge has been applied as the discounted recoverable amount for the product exceeds the capitalised development. Page 31 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 8. Other intangible assets (continued) Sensitivity As disclosed in note 1, the directors have made judgements and estimates in respect of impairment testing of capitalised development cost. Should these judgements and estimates not occur the resulting capitalised development cost carrying amount may decrease. The sensitivities are as follows: a. Revenue would need to decrease by more than 8.2% for the product before capitalised development cost would need to be impaired, with all other assumptions remaining constant; The discount rate would be required to increase to 57.3% for the product before capitalised development cost would need to be impaired, with all other assumptions remaining constant. b. Management believes that other reasonable changes in the key assumptions on which the recoverable amount of product's capitalised development cost is based would not cause the cash-generating unit’s carrying amount to exceed its recoverable 9. Bank overdrafts Bank overdraft (secured) Financing arrangements Unrestricted access was available at the reporting date to the overdraft as follows: Bank overdraft (secured) Used at reporting date Unused at reporting date Total facility The consolidated entity has an overdraft facility of $300,000, secured by personal assets of the two executive directors and one senior executive. 10. Interest-bearing loans and borrowings Current Unsecured insurance premium funding loan Secured bank loan Financing arrangements Unrestricted access was available at the reporting date to the secured bank loan as follows: Bank overdraft (secured) Used at reporting date Unused at reporting date Total facility The company secured bank loan facility of $300,000, is secured by personal assets of two of the three executive directors. 11. Trade and other payables Current Unsecured liabilities: Trade payables Accrued expenses Other creditors Loans from directors All payables are due within 12 months. 12. Provisions Current Annual leave Long service leave Page 32 of 44 Consolidated 2018 $ 2017 $ - 229,479 - 300,000 300,000 229,479 70,521 300,000 - 300,000 300,000 24,989 300,000 324,989 300,000 - 300,000 300,000 - 300,000 172,777 363,559 108,092 - 644,428 634,176 198,367 271,394 135,426 1,239,363 226,157 88,466 314,623 73,389 105,982 179,371 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 12. Provisions (continued) Non-current Long service leave Lease make good Consolidated 2018 $ 2017 $ 38,049 72,780 110,829 20,833 72,780 93,613 Movements in provisions Movements in each class of provision during the current financial year are set out below: Analysis of provisions: Balance at beginning of year Additional provisions Amounts used Balance at end of year Provision for employee benefits Employee Benefits Lease incentive 200,204 275,918 ( 123,450) 352,672 72,780 - - 72,780 Total 272,984 275,918 ( 123,450) 425,452 Provision for employee benefits represents amounts accrued for annual leave and long service leave. The current portion for this provision includes the total amount accrued for annual leave entitlements and the amounts accrued for long service leave entitlements that have vested due to employees having completed the required period of service. Based on past experience, the company does not expect the full amount of annual leave or long service leave balances classified as current liabilities to be settled within the next 12 months. However, these amounts must be classified as current liabilities since the company does not have an unconditional right to defer the settlement of these amounts in the event employees wish to use their leave entitlement. The non-current portion for this provision includes amounts accrued for long service leave entitlements that have not yet vested in relation to those employees who have not yet completed the required period of service. Make good provision A provision of $72,780 has been recognised by the consolidated entity for estimated make good costs in respect of the head office premises. The lease has a life of 6 years and the company has an obligation to make good the premises at the end of the lease term. 13. Tax balances Assets Current Provision for reseach and development tax incentive Non-current Deferred tax asset Deferred tax on tax losses not recognised Deferred tax asset comprises temporary differences attributable to: 922,061 627,871 710,260 ( 617,510) 92,750 338,861 ( 255,410) 83,451 Jun-18 Deferred tax asset on: Accrued income and prepayments Property, plant and equipment Provisions Costs of raising equity Accrued expenditure Lease incentives Tax losses Net amount Opening balance Credited (charged) to profit or loss Credited (charged) directly to equity Changes in tax rates Closing balance ( 6,663) ( 1,148) 54,386 2,504 20,234 14,138 255,410 338,861 4,605 ( 2,872) 42,599 ( 21,678) ( 5,274) ( 8,080) 362,099 371,399 Page 33 of 44 - - - - - - - - - - - - - - - - ( 2,058) ( 4,020) 96,985 ( 19,174) 14,960 6,058 617,509 710,260 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 13. Tax balances (continued) Jun-17 Deferred tax asset on: Accrued income and prepayments Property, plant and equipment Provisions Costs of raising equity Accrued expenditure Lease incentives Tax losses Net amount 14. Equity - Issued capital Ordinary shares - fully paid Ordinary shares - paid to $0.0936 Ordinary shares - paid to $0.0000 Capital raise fees Issued ordinary shares Balance at beginning of year Share split (3:1) Share issues Share issue Share issue Share issue Receipts - partly paid shares Receipts - options Share forfietures Capital raise fees Net increase (decrease) during year Balance at end of year Opening balance Credited (charged) to profit or loss Credited (charged) directly to equity Changes in tax rates Closing balance ( 46,586) 12,586 55,848 23,485 32,478 16,748 - 94,559 36,041 ( 12,685) 3,192 ( 19,025) ( 9,538) ( 1,214) 255,410 252,181 - - - - - - - - Date 2018 No 2018 $ 83,096,982 7,466,518 2017 Oct-17 Nov-17 Apr-18 - 720,000 - 83,816,982 10,214,651 20,429,302 - 12,254,904 29,338,125 12,060,000 - - ( 480,000) - 73,602,331 83,816,982 3,882 ( 1,049) ( 4,654) ( 1,956) ( 2,706) ( 1,396) - ( 7,879) 2017 No 9,226,874 587,777 400,000 - 10,214,651 - - ( 698,829) 6,767,689 1,234,003 8,460,000 - - - 1,754,651 - - 1,754,651 10,214,651 1,000,000 3,129,400 2,010,000 85,692 7,423 - ( 698,829) 5,533,686 6,767,689 6,139,400 85,692 7,423 ( 698,829) 5,533,686 ( 6,663) ( 1,148) 54,386 2,504 20,234 14,138 255,410 338,861 2017 $ 1,424,354 55,000 - ( 245,351) 1,234,003 490,500 - 988,854 - ( 245,351) 743,503 1,234,003 988,854 ( 245,351) 743,503 Reconciliation of cash proceeds from issue of shares Share issues Partly paid shares Options Capital raise fees Cash proceeds from issue of shares Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Capital risk management The consolidated entity's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Page 34 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 14. Equity - Issued capital (continued) Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. 15. Equity - Share-based payments reserve Balance at beginning of year Arising on share-based payments Balance at end of year Share options Consolidated 2018 $ 2017 $ 317,774 413,972 731,746 89,823 227,951 317,774 The company issues equity-settled share based payments to certain entities. Under AASB 2 these are measured at fair value at the date of the grant. This amount is expensed on a straight line basis over the vesting period based on the company’s estimate of the number of shares that will eventually vest. The weighted average fair value of the share options granted during the financial year to 30 June 2018 is $0.085 (2017: $0.26 after share split, $0.76 before split). Options were valued using a binomial option pricing model (2017: fundamental option pricing model). Where relevant, the expected life used in the model has been adjusted based on management's best estimate for the effects of non- transferability, exercise restrictions, and behavioural considerations. Inputs into the valuation model: Grant date share price Exercise price Expected volatility Option life Early exercise multiple Dividend rate Risk-free interest rate Share option value (2017: Binomial valuation, 2016: Fundamental valuation) At start of period Granted Exercised Lapsed At end of period Date exercisable Expiry date (a) Date of compleyion of capital raising (b) 4 years from date of completion 16. Dividends 2018 2017 $0.107 $0.102 70% 5 years 2 years $0.00 2.63% $0.20 $0.12 70% 3 years 2.5 years $0.00 2.65% $0.20 $0.20 70% 5 years 2 years $0.00 2.65% $1.00 $0.24 70% 4 years - $0.00 2.00% $0.047 $0.106 $0.088 $0.780 - - - 4,289,880 7,500,000 1,200,000 - - - - - - 4,289,880 10-Oct-17 10-Oct-22 7,500,000 01-Feb-18 01-Feb-21 1,200,000 22-May-18 01-Jul-23 $ 2.0% 2.0% 587,777 - - (a) (b) $ Dividends arrangements Dividends paid during the fiancial year Franking credits Franking credits available for subsequent financial years based on a rate of 27.5% - - 15,549 15,549 Page 35 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 17. Financial instruments The consolidated entity's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The consolidated entity's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market risk. Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the consolidated entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the consolidated entity's operating units. Finance reports to the Board on a monthly basis. Market risk Foreign exchange risk The consolidated entity is not exposed to any significant foreign exchange risk. Price risk The consolidated entity is not exposed to any significant price risk. Interest rate risk The consolidated entity's main interest rate risk arises from long-term borrowings. Borrowings obtained at variable rates expose the consolidated entity to interest rate risk. The policy is to maintain 100% of current borrowings at variable rates. The consolidated entity's bank loan outstanding, totalling $300,000 (2017: $300,000), is an interest only loan. Monthly cash outlays of approximately $1,300 (2017: $1,300) per month are required to service the interest payments. An official increase/decrease in interest rates of 100 (2017: 100) basis points would have an adverse/favourable effect on profit before tax of $3,000 (2017: $3,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts forecasts. In addition, minimum principal repayments of $0 (2017: $0) are due during the year ending 30 June 2019 (2017: 30 June 2018). Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The consolidated entity obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The consolidated entity does not hold any collateral. Guarantees A financial institution has provided bank guarantees secured over the term deposit account. 18. Events after the reporting period In July 2018 the company commenced the process to undertake an initial public offer in August 2018 to raise additional capital of $8,000,000. The capital raise was fully subscribed and the investment funds have been received. The company was listed on the Australian Stock Exchange on 21 September 2018. In July 2018 share options at 1.9% of capital were issued and in September 2018 the lead managers of the initial public offer were issued share options at 6% of capital. In August 2018 archTIS Solutions Pty Ltd, a subsidiary of the parent entity established an office in the Czech Republic. archTIS Solutions Pty Ltd will engage and manage a software development team based in the Czech Republic. The company's Product Manager and Product Requirements, Learning, Marketing and Capability Development Manager have relocated to the Czech Republic to manage and lead the development team. There has not been any other matter or circumstance occurring subsequent to the end of the financial year that has 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 future financial years. Page 36 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 19. Cash flow information Reconciliation of cash flow from operations with profit (loss) after income tax Profit (loss) after income tax Non-cash flows in profit (loss): - Depreciation and amortisation - - Impairment of capitalised development Loss on disposal of property plant & equipment Changes in operating assets and liabilities, net of the effects of purchase and disposal of subsidiaries: - - - - - - - - (Increase) decrease in trade and other receivables (Increase) decrease in accrued revenue (Increase) decrease in prepayments (Increase) decrease in research and development assets Increase (decrease) in trade and other payables Increase (decrease) in income taxes payable Increase (decrease) in employee benefits Increase (decrease) in share based payment reserve Consolidated 2018 $ 2017 $ ( 2,091,466) ( 1,132,202) 7 8 60,915 156,507 - 63,627 - - 185,755 16,015 ( 76,054) ( 1,517,822) ( 637,665) ( 303,489) 152,468 413,972 665,972 131,927 ( 31,932) ( 866,778) 41,746 ( 234,586) 14,045 227,951 Net cash provided by (used in) operating activities ( 3,640,864) ( 1,120,230) 20. Operating lease commitments a. Operating lease commitments Non-cancellable operating leases contracted for but not recognised in the financial statements Payable – minimum lease payments: not later than one year between two and five years - - - more than five years 184,258 328,121 - 512,379 179,708 518,111 - 697,819 21. Contingent liabilities and contingent assets Estimates of the potential financial effect of contingent liabilities that may become payable: Share options Share options were issued as part of the capital raising process during the year. Details of such share options are disclosed at note 15. Further share options were issued after balance date and are detailed in Note 18. Guarantees A financial institution has provided bank guarantees secured over the term deposit account. 22. Transactions with related parties Parent entity archTIS Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 25. Key management personnel Disclosures relating to key management personnel are set out in note 26. Transactions with related parties The following transactions occurred with related parties: Loans to related parties: Loans to directors Loans to related parties: Loans from directors Page 37 of 44 Consolidated 2018 $ 2017 $ - - 9,494 135,426 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 22. Transactions with related parties (continued) Transactions with subsidiaries The following transactions occurred with subsidiaries: Purchase of 100% of share capital of archTIS Solutions Pty Ltd Purchase of 100% of share capital of archTIS Services Pty Ltd 23. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit (loss) after income tax Total comprehensive income Statement of profit or loss and other comprehensive income Total current assets Total assets Total current liabilities Total liabilities Net assets Equity Issued capital Share-based payments reserve Retained profits (accumulated losses) Total equity Consolidated 2018 $ 2017 $ 10 10 20 - - - Parent 2018 $ 2017 $ ( 2,091,466) ( 2,091,466) ( 1,132,202) ( 1,132,202) 2,823,754 6,129,339 1,259,051 1,369,880 4,759,459 6,767,689 731,746 ( 2,739,976) 4,759,459 1,017,735 2,970,082 1,973,202 2,066,815 903,267 1,234,003 317,774 ( 648,510) 903,267 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity and its subsidiaries are not party to any deeds of cross guarantee under which each company guarantees the debts of the others. Contingent liabilities and contingent assets Contingent liabilities and contingent assets are set out in note 21. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following: - - - Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in associates are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator 24. Acquisition of subsidiaries On 23 May 2018 archTIS Limited acquired 100% of the ordinary shares of archTIS Services Pty Ltd for the total consideration transferred of $10 and archTIS Solutions Pty Ltd for the total consideration transferred of $10. Details of the acquisitions are as follows: archTIS Solutions Pty Ltd Cash and cash equivalents Net assets acquired Cash used to acquire subsidiaries, net of cash acquired Share capital Less: cash and cash equivalents Net cash used Page 38 of 44 Fair value 10 10 10 ( 10) - archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 24. Acquisition of subsidiaries (continued) archTIS Services Pty Ltd Cash and cash equivalents Net assets acquired Cash used to acquire subsidiaries, net of cash acquired Share capital Less: cash and cash equivalents Net cash used 25. Interests in subsidiaries Fair value 10 10 10 ( 10) - The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned subsidiaries in accordance with the accounting policy described in note 1: Name archTIS Solutions Pty Ltd archTIS Services Pty Ltd Principal place of business / Country of incorporation Australia Australia Ownership interest 2018 2017 100% 100% - - Consolidated 2018 $ 2017 $ 1,123,219 93,849 ( 24,370) 103,853 - 1,296,551 681,656 51,315 9,003 227,951 - 969,925 68,663 9,161 77,824 25,968 12,500 38,468 116,292 23,000 662 23,662 - - - 23,662 26. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below: Short-term benefits Post-employment benefits Other long-term benefits Share-based payments Termination benefits The remuneration of directors and key executives is determined by the Board having regard to the performance of individuals and market trends. 27. Auditor's remuneration During the financial year the following fees were paid or payable for services provided by RSM, the auditor of the company, its network firms and unrelated firms: Audit services - RSM - - auditing or reviewing the current year financial reports auditing or reviewing the prior year financial report Other services - RSM - - Investigating accountants report Research & development tax incentive review 28. Correction of prior period errors During the year, a total of $2,271,553 was reclassified from income tax benefits for the 2012 to 2017 financial years: $923,809 to income from research and development claim and $1,347,744 as an offset to capitalised development costs. The research and development claim was incorrectly included in tax benefit instead of being split between income from research and development and capitalised development expenditure. The abovementioned misstatements in the previous years' financial statements represents a prior period accounting error which must be accounted for retrospectively. Consequently, the consolidated entity has adjusted all comparative amounts presented in the current periods financial statements affected by the accounting errors as follows: Page 39 of 44 archTIS Limited ABN 79 123 098 671 Notes to the financial statements for the year ended 30 June 2018 28. Correction of prior period errors (continued) Statement of profit and loss and other comprehensive income for the year ended 30 June 2012 Income from research and development claim Profit (Loss) before income tax Income tax benefit (expense) Net profit (loss) for the year from continuing operations for the year ended 30 June 2013 Income from research and development claim Profit (Loss) before income tax Income tax benefit (expense) Net profit (loss) for the year from continuing operations for the year ended 30 June 2014 Income from research and development claim Profit (Loss) before income tax Income tax benefit (expense) Net profit (loss) for the year from continuing operations for the year ended 30 June 2015 Income from research and development claim Profit (Loss) before income tax Income tax benefit (expense) Net profit (loss) for the year from continuing operations for the year ended 30 June 2016 Income from research and development claim Profit (Loss) before income tax Income tax benefit (expense) Net profit (loss) for the year from continuing operations Statement of profit and loss and other comprehensive income for the year ended 30 June 2017 Income from research and development claim Profit (Loss) before income tax Income tax benefit (expense) Net profit (loss) for the year from continuing operations Statement of financial position at 30 June 2016 Non-current assets Other non-current assets Total non-current assets Total assets Net assets Equity Accumulated losses Total equity Statement of financial position at 30 June 2017 Non-current assets Other non-current assets Total non-current assets Total assets Net assets Equity Accumulated losses Total equity Page 40 of 44 Previously reported Adjustment Restated - 96,096 ( 21,916) 74,180 - 26,441 17,636 44,077 - ( 195,718) 71,884 ( 123,834) 34,848 34,848 ( 34,848) - 93,873 93,873 ( 93,873) - 73,896 73,896 ( 73,896) - - 53,075 34,250 87,325 183,101 183,101 ( 183,101) - - 551,967 477,443 1,029,410 412,204 412,204 ( 1,092,605) ( 680,401) 34,848 130,944 ( 56,764) 74,180 93,873 189,969 ( 115,789) 74,180 73,896 ( 121,822) ( 2,012) ( 123,834) 183,101 236,176 ( 148,851) 87,325 412,204 964,171 ( 615,162) 349,009 - ( 1,246,981) 782,122 ( 464,859) 125,887 125,887 ( 793,230) ( 667,343) 125,887 ( 1,121,094) ( 11,108) ( 1,132,202) 1,512,006 1,780,711 3,137,014 1,744,416 1,164,093 1,744,416 ( 680,401) ( 680,401) ( 680,401) ( 680,401) 831,605 1,100,310 2,456,613 1,064,015 ( 680,401) ( 680,401) 483,692 1,064,015 3,046,127 3,300,091 4,317,826 2,251,011 ( 1,347,744) ( 1,347,744) ( 1,347,744) ( 1,347,744) 1,698,383 1,952,347 2,970,082 903,267 699,234 2,251,011 ( 1,347,744) ( 1,347,744) ( 648,510) 903,267 archTIS Limited ABN 79 123 098 671 Directors' declaration 30 June 2018 In the directors' opinion: a. b. c. d. the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at 30 June 2018 and of its performance for the financial year ended on that date; there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors: Stephen Smith Chairman 27 September 2018 Perth, WA Page 41 of 44 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF archTIS LIMITED Opinion We have audited the financial report of archTIS Limited. (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, 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 30 June 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. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2018, but does not include the financial report and the auditor's report thereon. Page 42 of 44 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 have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 6 to 11 of the directors' report for the year ended 30 June 2018. In our opinion, the Remuneration Report of archTIS Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS Canberra, Australian Capital Territory Dated: 27 September 2018 RODNEY MILLER Partner Page 43 of 44 archTIS Limited ABN 79 123 098 671 Shareholder information 30 June 2018 The shareholder information set out below was applicable as at 20 September 2018. The company was admitted to the official list of the ASX on 21 September 2018. It is and will be using its money in a manner consistent with its business objectives. The company has no current on-market buy back. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: The Trust Company (Australia) Limited Cyber Security Investment Partners Pty Ltd HSBC Custody Nominees (Australia) Limited Mr Bruce Talbot Mr Daniel Chun Leung Lai Possum Hill Pty Ltd Redhill Holdings Ltd Mr David Graham Wood J P Morgan Nominees Australia Limited Ajava Holdings Pty Ltd 3STRZS Pty Ltd Goldjazz Pty Ltd Conleroy Pty Ltd Bremy Keane Investments Pty Ltd Mr Amit Gupta Myube Investments Pty Ltd Egmont Pty Ltd Bickham Court Superannuation Pty Ltd Bond Street Custodians Limited 7Sundays Pty Ltd Unquoted equity securities Number of holders of ordinary shares - - 50 196 129 375 - Ordinary shares Number held 12,425,000 12,254,904 8,875,000 7,286,436 7,284,252 7,284,252 2,787,129 2,737,500 2,450,000 1,950,000 1,931,250 1,875,000 1,400,000 1,350,000 1,350,000 1,268,750 1,250,000 1,200,000 1,175,000 1,000,000 79,134,473 % of total shares issued 10.03% 9.90% 7.17% 5.88% 5.88% 5.88% 2.25% 2.21% 1.98% 1.57% 1.56% 1.51% 1.13% 1.09% 1.09% 1.02% 1.01% 0.97% 0.95% 0.81% 63.89% Number on issue Number of holders 13 14,589,880 Options over ordinary shares issued Substantial holders Substantial holders in the company are set out below: The Trust Company (Australia) Limited Cyber Security Investment Partners Pty Ltd HSBC Custody Nominees (Australia) Limited Mr Bruce Talbot Mr Daniel Chun Leung Lai Possum Hill Pty Ltd Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. 12,425,000 12,254,904 8,875,000 7,286,436 7,284,252 7,284,252 10.03% 9.90% 7.17% 5.88% 5.88% 5.88% Page 44 of 44 

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