archTIS
Annual Report 2019

Plain-text annual report

2018/2019 Annual Report archTIS AR9 Corporate Directory Directors Stephen Smith Daniel Lai Bruce Talbot Leanne Graham Wayne Zekulich Company Secretary Baden Bowen Registered Office Principal Place of Business Level 3, archTIS House 10 National Circuit Barton ACT 2600 Level 3, archTIS House 10 National Circuit Barton ACT 2600 Share Register Auditor Automic Level 2, 267 St Georges Terrace Perth, WA 6000 RSM Australia Partners Equinox Building 4, Level 2 70 Kent Street Deakin, ACT 2600 Stock Exchange archTIS Limited shares are listed on the Australian Securities Exchange (ASX: AR9) Website www.archtis.com Corporate Governance Statement www.archtis.com/company/investor-relations/ archTIS Annual Report | 2 Table of Contents archTIS at a Glance archTIS’ Technology and Products archTIS’ Experience and History archTIS’ Partners Board of Directors and Senior Management archTIS’ Differentiators Letter From the CEO and Directors’ Report Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flow Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Declaration Independent Auditor’s Report to the Members of archTIS Limited Shareholder Information 04 06 08 10 12 14 15 26 27 28 29 30 55 56 57 60 archTIS Annual Report | 3 archTIS at a Glance archTIS’ vision is to be the company that the world trusts with its most valuable information. 23 Highly skilled staff employed Core Value #1 Collaboration 120+ Demonstrations of Kojensi Gov held Core Value #2 Trust Core Value #3 Responsibility Company founded in 2006 and listed in 2018 9 April 2019 Commercial launch of Kojensi Gov Core Value #4 Innovation 9 Partnerships archTIS Annual Report | 4 archTIS’ vision is to be the company that the world trusts with its most valuable information. Highlight $4.2m Kojensi Gov passes IRAP assessment Development & soft- ware assets created Highlight archTIS signs reseller agreeement with Team Asparona 50% Full-time female employees $606,613 Kojensi revenue for 2019 Signed Attorney General’s Department as first govt. client Highlight $4.75m Highlight Kojensi Gov added to Cloud Services Panel Investment proceeds remaining for 2020 Kojensi Gov demon- strated to NATO archTIS Annual Report | 5 The Global Problem We Solve Empowering organisations to share information with confidence The digital age has created new and better ways of work- Foreign actors and cyber criminals are targeting this infor- ing smarter and faster, anywhere, anytime. Through digital mation, which can threaten national security and lead to collaboration organisations have: • Increased productivity financial and reputational harm. • Discovered new economic opportunities archTIS creates solutions that facilitate secure sharing • Improved the creation of new public policies and collaboration of documents and data to empower • Improved the delivery of services governments, industry and Defence, worldwide, to share However, collaborating on and sharing sensitive, valuable, unique security model, known as Attribute Based Access or classified information, poses risks to organisations and Control (ABAC), to each of our solutions, allowing individ- government, making it difficult to do safely. uals to define the rules of who accesses their information. information with confidence. To achieve this we apply a The ABAC model applies attributes to things like documents and users. Here is a simplified example of ABAC applied to document sharing and collaboration, as used in Kojensi Gov. A role is applied to the document A user has attributes If the roles match the attributes, the Our applications of ABAC user is granted access Kojensi Gov LAUNCHED Kojensi Field IN DEVELOPMENT Kojensi IN DEVELOPMENT Secure content and collaboration Field appliance which will enable secure TOP SECRET information sharing platform, hosted in the cloud, for access to information in remote loca- platform, for collaborating on highly multi-agency and industry collaboration. tions for military or emergency personnel. classified information. archTIS Annual Report | 6 The Global Problem We Solve Kojensi Gov Connect. Create. Collaborate. Securely. Kojensi Gov, launched in April 2019, is a PROTECTED cloud service that enables government and industry to securely share and collaborate on classified information up to the PROTECTED level. Kojensi Gov’s industry leading attribute based security model makes the platform unique. User and document attributes control the flow of information and facilitate secure sharing within your agency and across agencies and their industry partners. Keep documents secure Ensure compliance Increase productivity Collaborate with anyone Collaboration that is simple, secure and effective Distributed Administration There are no super users inside of Kojensi Gov, you control the data you create or upload and who you share it with. Secure Online Editing Create, share and co-author documents, tracking your changes as you go. Security Controls and Settings Use the security controls to decide who will access your documents, including security level, organisation and country. Inter-agency Collaboration Collaborate within your agency, with other agencies and industry partners at different security levels. Tasks and Workflows Set tasks and workflows for yourself and others, helping you to better communicate and meet deadlines. Document Version Control A fully integrated content and records management system allows you to retain and access all versions of a document. archTIS Annual Report | 7 13 Years of Experience archTIS’ founders Daniel, Bruce and Phillip product Kojensi Gov. archTIS’ products and started archTIS in 2006 with the idea to solve services are built on years of experience a global critical problem - how to share infor- solving information sharing challenges. The mation securely. For many years the company difference lies in security, at archTIS we put worked in the TOP SECRET space, building security first. solutions for those with highly classified information, such as Defence. This experi- ence helped to shape the company’s flagship 2007 Whole of Defence 2009 International Intelligence 2011 Architecture of Single Identitiy Management Surveillance & Information Environment Framework Reconnaissance for Defence Backbone 2017 Top Secret Information Sharing Network Requirements Assessment 2008 archTIS receives 4D architecture accreditation 2012 Data management solu- tion for helicopter docks (Naval ships) 2016 Patent for ABAC application 2006 archTIS is founded by three friends with an idea. 2008 Patent for multi-lev- 2014 archTIS goes on 2016 archTIS starts 2017 Appointed new chairman el security USI Digital Transformation development of of the board: Ex minister Agency’s DTA Cloud Kojensi Gov for Defence Stephen Marketplace Smith 2007 Gen 1 Trusted 2009 Gen 2 Trusted Information Sharing Information Sharing platform platform 2016 Gen 3 Trusted Information Sharing 2017 Proof of Concept (POC) platform with Department of Finance Services Corporate Product archTIS Annual Report | 8 FY19 2018 archTIS list on 2019 archTIS expands overseas through Australian Securities reseller agreement with New Exchange (ASX) as AR9 Zealand based Team Asparona 2018 archTIS forms strategic 2019 Kojensi Gov receives 2019 archTIS’ product partnership and endorsement from DTA Kojensi Gov passess reseller agreement with and is added to the iWRAP assessment Axiomatcs Cloud Services Panel 2018 Created first generation of Kojensi Field for 2018 Attorney General’s de- 2019 AG’s Beta program 2019 Version 1.1 of Kojensi Gov Papua New Guinea partment (AG’s) signs Extended to Royal released following feed- Government on as Beta client Commission back from Beta clients archTIS Annual Report | 9 Our Partnerships Vault Cloud Cloud Provider Vault Cloud provides a secure, sovereign cloud for government and critical Infrastructure. archTIS and Vault have partnered together to deliver Kojensi Gov for Australian Government PROTECTED collaboration requirements. Team Asparona Reseller and Strategic Partner Team Asparona is a New Zealand-based company pro- viding Enterprise Content Management software ser- vices to the New Zealand Government. Using its estab- lished network of government clients, Team Asparona is working with archTIS as a reseller of Kojensi Gov. Team Asparona also has a strong international repu- tation with a presence in Europe and the United States through its relationship with Team Informatics. Agile Digital Partner Agile Digital are experts in digital strategy and agile software delivery. archTIS partners with Agile Digital as a key development and sales partner for Federal Government agencies. SME Gateway Partner SME Gateway provides support to Australian SMEs delivering projects and expert professional/technical capability across Australia. The SME Gateway/archTIS partnership is designed to provide SME Gateway’s members access to the Kojensi platform for classified collaboration for both bid and successful project work where higher levels of security are required. archTIS Annual Report | 10 Jacobs Partner Jacobs’ mission is to be the world’s premier design, engineering, construction and technical services firm delivering end-to-end innovative solutions that provide superior value to clients. Jacobs partners with archTIS to bring the Kojensi platform to its existing and poten- tial clients. Axiomatics Partner Axiomatics is the premier vendor of dynamic authorisa- tion delivered through Attribute Based Access Control (ABAC) solutions. archTIS partners with Axiomatics to extend Kojensi’s ABAC document and file security model for organisations requiring dynamic authorisa- tion of their critical data. Oracle Partner Oracle is one of the world’s leading global software companies. As an Oracle Gold partner archTIS utilises key Oracle capabilities to make the Kojensi platform a scaleable platform to meet the enterprise needs of our clients. Oracle is also partnering with archTIS to bring the Kojensi platform to existing Oracle clients. DXC Technology Partner DXC is the world’s leading independent end-to-end IT services company, helping clients harness the power of innovation. The DXC and archTIS partnership will de- liver the Kojensi platform to key government agencies, as well as open future opportunities at a global scale. AWS Development & Cloud Provider archTIS utilises the Amazon Web Services platform to provide a global development platform for its team. archTIS and AWS are partnering to offer the Kojensi platform to key clients both in Australia and across the world. archTIS Annual Report | 11 Board of Directors Left to right: Stephen Smith, Daniel lai, Bruce Talbot, Leanne Graham, Wayne Zekulich Stephen Smith Chairman of the Board sector working for CA Technologies, Hitachi Data Systems, Airservices Australia and the Australian Federal Police. Interest in Shares and Options: 7,396,436 ordinary shares and Stephen Smith was a member of the House of Representatives 1,080,000 options from 1993 to 2013. He served as a minister in the Rudd and Other current directorships None Gillard Governments, including as Minister for Foreign Affairs Former directorships (last 3 years) None (2007-2010), Minister for Trade (2010), and Minister for Defence (2010-2013). Stephen has also served as a board member for two not-for-profit organisations including Perth Leanne Graham Non-Executive Director USAsia Centre and LNG Marine Fuel Institute. With over 30 years in the software sector, Leanne has assisted Interest in Shares and Options: 1,080,000 options technology companies with her broad experience and SaaS Other current directorships: Member of Sapien Cyber Board expertise. In 2018, Ms. Graham was awarded the New Zealand from 1 Sept., and Chairman of Sapien Cyber Board from 16 Order of Merit for her services to the software industry. Her Sept. current ASX listed boards are Bid Energy, AppsVillage, archTIS Former directorships (last 3 years): None and VPCL. Daniel Lai archTIS CEO Interest in Shares and Options: 50,000 ordinary shares and 540,000 options Other current directorships: Executive Chairman of VPCL Daniel is a founding member of the Company and has suc- Limited, Non-Executive Director of BidEnergy Limited and Non- cessfully developed the business with its partners to be rec- Executive Director of AppsVillage ognised by the Australian and United States Departments of Former directorships (last 3 years): None Defence as a thought leader in information sharing strategies. Most importantly Daniel has direct experience in implement- ing organisational change to address the real challenges Wayne Zekulich Non-Executive Director businesses confront today in a rapidly evolving environment. Wayne is a consultant with extensive banking and investment Interest in Shares and Options: 7,284,252 ordinary shares and banking experience covering mergers and acquisitions, ar- 1,800,000 options ranging and underwriting financings and debt and equity capi- Other current directorships None tal markets. Wayne is a member of the Curtin Business School Former directorships (last 3 years) None of Accounting Advisory Board and the John Curtin Gallery Bruce Talbot Consultant and Executive Director Board, a member of the University of Western Australia Audit Committee and a Board member of ARTrinsic Inc. Interest in Shares and Options: 100,000 ordinary shares and Bruce has been involved in the creation, implementation and 540,000 options management of advanced computer security systems and Other current directorships: None capabilities. He has over 20 years experience in the Australian Former directorships (last 3 years): None Defence Force and a further 20 years in the commercial archTIS Annual Report | 12 Senior Management Left to right: Daniel Lai, Sarah Young, Matthew Kluken, Marcelle Newbound Daniel Lai archTIS CEO Matthew Kluken Business Development Manager Daniel has extensive industry experience in successfully de- Matthew has 25 years experience in the Information and livering outcomes as part of a senior executive team to both Communication Technologies Industry in Sales, Marketing, government and commercial organisations. Most importantly Technical and Cusomter Experience in large multinational Daniel has direct experience in implementing organisational technology and advisory companies such as Gartner, NetApp, change to address the real challenges businesses confront CA Technologies and Oracle. His primary focus is building today in a rapidly evolving environment. archTIS’s presence with Federal and State Government, as well Sarah Young archTIS CFO as building their partner eco-system supporting this market, both within Australia and internationally. Sarah has over 18 years experience in finance and strategy, including executive level responsibility for business case, val- Marcelle Newbound Customer and Employee Success Manager uation and pricing models, financial, budgeting and cashflow Marcelle has over 14 years of experience working in the management, product and corporate development, and stake- Information and Communication Technologies sector across holder management (managing and raising over A$8 billion of multi-national companies, including Deloitte, Thales and funds). Sarah has been a key finance/strategy executive for Peoplebank. Marcelle’s experience spans across driving strate- E*Trade, Ubitrade and Colonial First State, and has managed gy, maturing process and policy, creating customer onboarding international direct investment portfolios including Rubicon and training and Account Management. Marcelle is focused Japan Trust and Evolution/Lehman Bros. on optimizing the employee and customer experience to drive satisfaction and product renewal. Nick Main archTIS CTO Nick brings over 20 years experience in Information and Communication Technologies across both public and private sectors. Having filled executive roles in government organisa- tions as well as across service providers, vendors and global system integrators he has built expertise across a broad range of technology. Nick delivers technology leadership across se- curity, infrastructure, architecture, engineering and Information and Communication Technologies transformation, maintaining focus on the alignment of business and technology outcomes. archTIS Annual Report | 13 Our Differentiators Australian business Founded in Australia, headquartered in Canberra archTIS’ solutions are created specifically for Australian government and industry requirements, by an Australian company. archTIS understands the problems faced by government and industry in Australia and has direct experience solving these problems. Kojensi Gov is hosted within an ASD accredited cloud provider, locally, enabling governent and industry to feel secure knowing their data is safe. Experienced in the TOP SECRET space 13 years experience creating solutions for sharing information at TOP SECRET archTIS’ experience and products are born out of the TOP SECRET areas of govern- ment. archTIS recieved accreditation to TOP SECRET by the US and AU governments for its first information sharing platform. archTIS has used this experience to deliver the same security model to a PROTECTED platform for secure sharing and collabo- ration, known as Kojensi Gov. Unlike others, archTIS’ solutions are developed with security as a foundation rather than an afterthought. User focused solutions Solutions created based on user feedback, to be simple and intuitive archTIS’ solutions are devloped closely with government partners to create user-cen- tric solutions. The Kojensi Gov platform is based on how users work, not how prod- ucts force people to work. archTIS’ product team use the “agile” method to ensure the development of the product is focused on user feedback. Kojensi Gov is a modern, user friendly platform that is simple and effective to use for government and their partners. This provides us with a unique oppotunity to capture markets including govern- ment to government, government to industry, multi-coalition and multi-domain. archTIS Annual Report | 14 Letter from the CEO Daniel Lai, archTIS CEO Dear shareholders, Thank you for your support through what has been a busy year for archTIS, including the successful launch of Kojensi Gov, new strategic partnerships and product enhancements. We commence the 2020 financial year with strong momentum and remain focused on securing a number of key commercial contracts, expected to convert in the coming months. I would like to highlight a number of significant achievements from this financial year: The commercial launch of Kojensi Gov in April, and subse- General’s Department, and extension of this to include the quent 120+ product demonstrations to both the government Aged Care Royal Commission. This provides us with valuable and private sector. Advanced commercial discussions are feedback for the product. Commencement of the Beta program with the Attorney now progressing with government organisations and compa- nies in the private sector. The conversion of archTIS’ Beta client the Attorney General’s Department, our first client of Kojensi Gov, in September this Expanding on our partnerships and reseller networks, year. This proves the demand for Kojensi Gov’s unique differ- including most notably our strategic and reseller agree- entiator allowing collaboration of information classified at the ment with TEAM Asparona (a leading New Zealand-based PROTECTED level between government and industry software provider for government). This provides a direct sales channel into New Zealand’s government, Defence and On behalf of the Board and Senior Management Team I would intelligence sectors through TEAM Asparona’s existing client like to thank our staff and shareholders for their ongoing con- base. tribution and commitment to the Company. We are focused on delivering our strategy and vision, and look forward to Kojensi Gov’s inclusion on the Digital Transformation converting more commercial contracts in the coming months. Agency’s (DTA) cloud Marketplace earlier this year. Inclusion on this panel shortens the procurement process for Kojensi Sincerely, Daniel Lai (archTIS CEO) Gov across Australian Commonwealth, State and Territory governments, universities and local councils. The completion of the International Registered Assessors Program (IRAP) assessment for Kojensi Gov. Passing this assessment allows our product to hold PROTECTED information, delivering on key compliance requirements for government. archTIS Annual Report | 15 DIRECTORS’ REPORT 30 JUNE 2019 The directors present their report, together with the financial statements, on the Group (referred to hereafter as the 'Group') 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 2019. 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 • Daniel Lai • Bruce Talbot Company Secretary • Leanne Graham • Wayne Zekulich Baden Bowen has held the role of Company Secretary since February 2018. Mr Bowen has over 35 years accounting and company secretary experience in commercial and financial roles, including financial accounting, external and internal audit. He has served as Director and company secretary for a number of public and private companies and is a fellow of the Institute of Chartered Accountants in Australia. Directors and Meetings of Directors The qualifications and experience of directors, including current and recent directorships, are detailed on pages 12 to 13 of the Annual Report. The number of meetings of the company's Board of Directors ('the Board') held during the year ended 30 June 2019, and the number of meetings attended by each director were: Number of Meetings Held* Number Attended Stephen Smith Daniel Lai Bruce Talbot Leanne Graham Wayne Zekulich 11 11 11 11 11 11 10 10 11 11 * Held represents the number of meetings held during the time the director held office. The Directors have determined that the Group’s operations continue not to be of a sufficient magnitude to require the Board Committees outlined in the Corporate Governance Plan. The Board is carrying out the duties that would ordinarily be assigned to each committee under the written terms of reference for that committee 16 DIRECTORS’ REPORT 30 JUNE 2019 Principal Activities During the financial year the principal continuing activities of the Group consisted of: • Development of a cloud based, secure (PROTECTED) information management and collaboration software (Kojensi.gov) • Consulting and solutions services for secure information sharing and inter-organisational collaboration Dividends No dividends paid during the financial year. Review of Operations The loss for the consolidated entity after providing for income tax and non-controlling interest amounted to $3,931,517 (30 June 2018 (re-stated: $2,146,051)). The consolidated entity focused on product development of Kojensi.gov with a consequent reduction in consulting and services revenues. During the year, the company capitalised costs related to development of Kojensi.gov and other attribute-based access control (ABAC) algorithms that are expected to be recouped in the future. A successful conclusion from research and development is inherently risky. The Group launched the first commercialised version of Kojensi.gov in April 2019, and is focused on converting sales opportunities to future revenue. In order to meet the funding requirements of the future research and development, an initial public offer (IPO) in August 2018 raised additional capital of $8,000,000 ($7,383,497 net cash proceeds). The IPO was successfully completed in September 2018 and the Group was listed on the Australian Stock Exchange on 21 September 2018. As at 30 June 2019 the Group has maintained cash (or cash equivalents) of $3,255,200 (44% of net capital proceeds of the IPO). In addition, a Research and Development tax grant of $1,494,825 is expected to be received by October 2019. In August 2018, archTIS Solutions Pty Ltd, a subsidiary of the parent entity established an office in the Czech Republic to engage and manage a software development team based in the Czech Republic. In May 2019, after the substantial completion of product development, the Czech office was closed. The Group continues to utilise contractor resources in the European Union for development of updated versions of Kojensi.gov. Significant changes in the state of affairs 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. Matters subsequent to the end of the financial year No other matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. 17 DIRECTORS’ REPORT 30 JUNE 2019 Likely developments and expected results of operations Information on likely developments in the operations of the Group 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 Group. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. 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. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. Shares under option Unissued ordinary shares of archTIS Limited under option at the date of this report are as follows: Grant Date Expiry Date Exercise Price Number under Option 10 Oct 2017 10 Oct 2022 01 Feb 2018 1 Feb 2021 22 May 2018 1 Jul 2023 05 Sep 2018 5 Sept 2022 01 Feb 2018 1 Feb 2021 06 Jul 2018 5 July 2021 $ 0.10 $ 0.12 $ 0.20 $ 0.24 $ 0.12 $ 0.20 Total options on issue * Vest in three equal tranches at 1 Feb 2018, 1 Feb 2019 and 1 Feb 2020 4,289,880 7,200,000 * 1,200,000 5,000,000 300,000 * 1,600,000 19,589,880 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. 18 DIRECTORS’ REPORT 30 JUNE 2019 REMUNERATION REPORT (audited) The remuneration report details the key management personnel remuneration arrangements for the Group, 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. Overview of remuneration approach and framework From time to time, the Board of Directors ('the Board') reviews the remuneration arrangements for its Directors and Executive Officers, to ensure reward for performance is competitive and appropriate for the results delivered. The performance of the Group 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 remuneration of Directors and other key management personnel is not directly linked to the Group’s performance. The remuneration of Directors and other key management personnel is fixed annually. Bonuses are structured to reward outstanding performance against agreed Key Performance Indicators (KPI’s) including financial and non-financial metrics. The Group did not engage a remuneration consultant to provide recommendations in respect of the remuneration of key management personnel. 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. ASX listing rules require the aggregate non-executive directors' remuneration be determined periodically by a general meeting. The company’s Constitution provides that the maximum annual aggregate remuneration for non-executive directors will be not more than a fixed sum determined by a general meeting. Post admission to the Official list of the ASX, this was determined to be $250,000 per annum. Executive remuneration The Group aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. 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. 19 DIRECTORS’ REPORT 30 JUNE 2019 REMUNERATION REPORT (audited) (cont.) Executive remuneration (cont.) 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 Group 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 Group 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 Group's direct competitors. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. The key management personnel of the Group consisted of the following personnel of archTIS Limited: Directors Stephen Smith Daniel Lai Bruce Talbot Leanne Graham Wayne Zekulich Key Management Personnel Matthew Kluken Nick Main Marcelle Newbound Phillip Dean Martin Tucek Deborah Tucek Gregory Ginnivan Chairman Managing Director & Chief Executive Officer Executive Director & Chief Architect Non-executive Director Non-executive Director Head of Business Development & Sales Chief Technology Officer Head of People & Customer Experience Principal Consultant Product Manager (resigned 1 May 2019) Product & Capability Manager (resigned 1 Mar 2019) Senior Account Executive (resigned 21 Dec 2018) Changes since the end of the reporting period Sarah Young was appointed Chief Financial Officer on 16 July 2019. 20 DIRECTORS’ REPORT 30 JUNE 2019 REMUNERATION REPORT (audited) (cont.) Details of remuneration (cont.) Short-term Salary Cash Bonus Other Share Based Pay- ments Post employ- ment Super $ $ $ $ $ Long Term Benefits Long Service Leave $ % of salary assoc. with perfor- mance Options as a % of total Total $ % % 2019 Non-Executive Directors Stephen Smith Wayne Zekulich Leanne Graham Executive Directors Daniel Lai Bruce Talbot 75,000 50,000 - 230,054 230,054 Key Management Personnel Philip Dean Martin Tucek Debra Tucek 180,054 241,634 176,128 Gregory Ginnivan 125,337 - - - - - Matthew Klulken 175,436 23,526 Nick Main Marcelle Newbound - 56,353 2018 – restated * Non-Executive Directors Stephen Smith Leanne Graham Wayne Zekulich James Hyndes Executive Directors Daniel Lai Bruce Talbot 25,000 - 16,667 - 219,221 250,372 Key Management Personnel Matthew Kluken** 41,036 Phillip Dean Martin Tucek Deborah Tucek 200,054 166,340 150,000 Gregory Ginnivan*** 11,196 - - - - - - - - - - - - - - 41,646 20,823 54,750 20,823 7,125 4,750 - - - - 123,771 75,573 75,573 - - - - - - 262,400 - 69,410 20,531 3,015 323,010 41,646 20,531 3,015 295,246 41,646 17,106 3,015 241,850 64,000 17,856 64,000 14,323 11,777 - 296,490 - 254,451 - 137,114 - - - - 17,473 2,931 219,366 11% - - 262,400 5,333 285 61,971 - 61,580 2,375 20,833 30,790 1,583 30,790 22,500 114,480 - - - - - - 88,955 51,623 49,040 - 136,980 - - - - - - - 102,633 17,343 3,001 342,198 61,580 20,302 (30,372) 301,882 - 3,888 - 44,924 61,580 17,105 3,001 281,740 - - - 15,943 14,250 1,060 - 182,283 - 164,250 - 12,256 * Correction of prior period error for the year ended 30 June 2018 for error in treatment of share based payments (refer note 4) ** Represents remuneration from 7 March 2018 to 30 June 2018 *** Represents remuneration from 14 May 2018 to 30 June 2018 - - - - - - - - - - - - - - - - - - - - - - 34% 28% 28% 21% 14% 17% 29% 34% - - - - 69% 60% 63% 84% 30% 20% - 22% - - - 21 DIRECTORS’ REPORT 30 JUNE 2019 REMUNERATION REPORT (audited) (cont.) Share-based compensation 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: Grant Date Vesting Date Expiry Date Exercise Price Value Per Opt Number under Option ACTU02 Class Non-Executive Directors Stephen Smith Leanne Graham Wayne Zekulich Executive Directors Daniel Lai Bruce Talbot Key Management Personnel Phillip Dean 1 Feb 18 1 Feb 18 1 Feb 18 1 Feb 18 1 Feb 18 1 Feb 18 1 Feb 19 1 Feb 20 1 Feb 19 1 Feb 20 1 Feb 19 1 Feb 20 1 Feb 18 1 Feb 18 1 Feb 18 1 Feb 18 1 Feb 19 1 Feb 20 1 Feb 19 1 Feb 20 1 Feb 21 1 Feb 21 1 Feb 21 1 Feb 21 1 Feb 21 1 Feb 21 1 Feb 21 1 Feb 21 1 Feb 21 1 Feb 21 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.106 $ 0.106 $ 0.106 $ 0.106 $ 0.106 $ 0.106 $ 0.106 $ 0.106 $ 0.106 $ 0.106 360,000 360,000 180,000 180,000 180,000 180,000 600,000 600,000 360,000 360,000 1 Feb 18 1 Feb 18 1 Feb 19 1 Feb 20 1 Feb 21 1 Feb 21 $ 0.12 $ 0.12 $ 0.106 $ 0.106 360,000 360,000 ACTU06 Class – Granted under the Performance and Rights Plan Management Personnel Martin Tucek Debra Tucek 26 Jul18 26 Jul 18 26 Jul18 26 Jul 18 26 Jul18 26 Jul 18 na 26 Jul 18 na na 26 Jul 21 na 26 Jul 21 na na $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.12 NA $ 0.12 NA NA 800,000 800,000 800,000 400,000 400,000 During the year ACTU06 options were granted, in accordance with the Performance and Rights Options Plan, over unissued fully paid ordinary shares in the company. Some options were subject to performance conditions associated with Key Performance Indicators. The options are exercisable by the holder from the vesting date. All options above options vested are to lapse within one month of the Eligible Participant to the Plan ceasing to be an employee. There has not been any alteration to the terms or conditions of either grant of ACTU02 or ACTU06 options, 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. Options granted carry no dividend or voting rights. 22 DIRECTORS’ REPORT 30 JUNE 2019 REMUNERATION REPORT (audited) (cont.) Share-based compensation (cont.) 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 Group, including their personally related parties, is set out below: Opening Balance Received as part of remuneration Additions Disposals Closing Balance - - - 50,000 - - 50,000 100,000 Non-Executive Directors Stephen Smith Leanne Graham Wayne Zekulich Executive Directors Daniel Lai Bruce Talbot Key Management Personnel Matthew Kluken Nick Main Marcelle Newbound Phillip Dean - - - 7,284,252* 7,346,436* - - - 7,284,252* - - - - - - - - - 100,000 90,000 140,000 160,000 - - - - - - - - - 7,347,252 7,486,436 160,000 - - 7,284,252 * 7,284,252 each are held in escrow until 21 September 2020 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 Group, including their personally related parties, is set out below: Non-Executive Directors Stephen Smith Leanne Graham Wayne Zekulich Executive Directors Daniel Lai Bruce Talbot Key Management Personnel Martin Tucek Debra Tucek Matthew Kluken Nick Main Marcelle Newbound Phillip Dean Opening Balance 1,080,000 540,000 540,000 1,800,000 1,080,000 - - - - - 1,080,000 Granted Exercised Expired/ Forfeited /Other Closing Balance - - - - - 800,000 800,000 - - - - - - - - - - - - - - - - - - - - - - - - - - 1,080,000 540,000 540,000 1,800,000 1,080,000 800,000 800,000 - - - 1,080,000 This concludes the remuneration report, which has been audited. 23 DIRECTORS’ REPORT 30 JUNE 2019 Auditor RSM Australia Partners (“RSM”) continues in office in accordance with section 327 of the Corporations Act 2001. Non-audit services Details of the amounts paid or payable to RSM for non-audit services provided during the financial year by the auditor are outlined in note 23 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 RSM's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 24 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 RSM; 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 RSM'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. 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. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is included on page 56. 24 DIRECTORS’ REPORT 30 JUNE 2019 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 Chair 30 September 2019 Canberra, ACT 25 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 Consolidated 2019 $ Restated 2018 $ Previously Reported 2018 $ 1,022,210 (227,590) 794,620 573,827 (1,462) 572,365 573,827 (1,462) 572,365 Note 3(a) 3(b) 370,672 227,896 (269,955) (160,873) 227,896 (160,873) 4 (4,734,103) (2,794,738) (2,740,154) (3,838,766) (2,155,350) (2,100,765) Revenue Cost of Sales Gross Profit Other Income Sales and Marketing General Administration Loss before Income Tax Income Tax (Expense) / Benefit (92,751) 9,299 9,299 Other Comprehensive Income - - - Total Comprehensive income for the year (3,931,517) (2,146,051) (2,091,466) Basic earnings per share 29 Cents (3.28) Cents (3.89) Cents (3.79) The accompanying notes form part of these financial statements. 26 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 2019 Consolidated 2018 Note $ Restated $ 2018 Previously Reported $ ASSETS Current assets Cash and cash equivalents Short term investments Trade and other receivables Other assets Tax assets Total current assets Non-current assets Property, plant and equipment Intangible assets Deferred tax Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Interest-bearing loans and borrowings Employee benefits Other Current Liabilities Total current liabilities Non-current liabilities Employee benefits Provisions Total non-current liabilities Total liabilities NET ASSETS EQUITY Issued capital Reserves Retained profits (accumulated losses) TOTAL EQUITY ATTRIBUTABLE TO THE OWNERS OF ARCHTIS LIMITED 3,255,200 1,638,668 1,638,668 6 6 7 8 - 161,835 113,435 17 1,494,825 57,478 89,154 116,393 922,061 57,478 89,154 116,393 922,061 9 10 17 11 12 13 14 15 16 18 19 20 5,025,295 2,823,754 2,823,754 107,214 4,383,182 - 153,137 3,059,698 92,750 153,137 3,059,698 92,750 4,490,396 3,305,585 3,305,585 9,515,691 6,129,339 6,129,339 256,590 - 296,816 281,698 280,869 300,000 314,623 363,559 280,869 300,000 314,623 363,559 835,104 1,259,051 1,259,051 19,049 72,780 91,829 38,049 72,780 110,829 38,049 72,780 110,829 926,933 1,369,880 1,369,880 8,588,758 4,759,459 4,759,459 13,701,686 6,767,689 6,767,689 1,613,150 786,331 731,746 (6,726,078) (2,794,561) (2,739,976) 8,588,758 4,759,459 4,759,459 The accompanying notes form part of these financial statements. 27 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 Consolidated Note Issued capital $ Reserves $ Retained profits $ Total equity $ Balance at 1 July 2018 6,767,689 786,331 (2,794,561) 4,759,459 Total Comprehensive Income Transactions with owners in their capacity as owners: Issue of share capital Option fees Capital raise fees Foreign exchange reserve Share-based payments 20 18 18 18 19 19 - - (3,931,517) (3,931,517) 8,000,000 500 (1,066,503) - - - 8,000,000 500 - (1,066,503) 1,258 1,258 - 825,561 - 825,561 Balance at 30 June 2019 13,701,686 1,613,150 (6,726,078) 8,588,758 Balance at 1 July 2017 Total Comprehensive Income 1,234,003 317,774 (648,510) 903,267 - - (2,091,466) (2,091,466) Transactions with owners in their capacity as owners: Issue of share capital Capital raise fees Share-based payments 6,232,515 (698,829) - - - 413,972 - - - 6,232,515 (698,829) 413,972 Balance at 30 June 2018 10,11 6,767,689 731,746 (2,739,976) 4,759,459 Adjustment for accounting error Share-based payments 19 - 54,585 (54,585) - Balance at 30 June 2018 (restated) 6,767,689 786,331 (2,794,561) 4,759,459 The accompanying notes form part of these financial statements. 28 STATEMENT OF CASHFLOW FOR THE YEAR ENDED 30 JUNE 2019 Note Consolidated 2019 $ 2018 $ Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Receipts from R&D Tax Incentive Interest received Interest paid 1,072,619 (7,749,491) 1,087,420 45,187 (4,590) 819,938 (5,232,107) 793,231 8,293 (30,219) Net cash provided by (used in) operating activities 29 (5,548,855) (3,640,864) 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 Settlements of 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 The accompanying notes form part of these financial statements. 24,412 24,412 (43,539) (43,539) 12 6 7,383,497 (300,000) 7,083,497 1,559,054 1,696,146 3,255,200 5,533,686 - 5,533,686 1,849,283 (153,137) 1,696,146 29 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 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 the years presented, unless otherwise stated. to all The financial report does not include any adjustments relating to the amounts or classification of recorded assets or liabilities that might be necessary if the group does not continue as a going concern. (b) New or Accounting amended Standards and Interpretations adopted The Group 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 that are not yet mandatory, have not been early adopted. Interpretations, The following Accounting Standards and Interpretations are most relevant to the Group: AASB 9 Financial Instruments The Group has adopted AASB 9 from 1 July 2018. The standard introduced new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for- trading consideration contingent recognised in a business combination) in other comprehensive income ('OCI'). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting liabilities mismatch. financial For or (a) Going concern The consolidated financial statements have been prepared on a going concern basis, which assumes continuity of normal business activities and the realisation of assets and liabilities in the ordinary course of business. The consolidated group incurred a loss after tax of $3,931,517 (2018 $2,091,466) and had net operating cash outflows of $5,548,855 (2018: $3,640,864). The entity has prepared a cash flow forecast which indicates that the entity does not have sufficient cash to meet expenditure minimum commitments and support its current level of corporate overheads. its The above gives rise to the existence of a material uncertainty that casts significant doubt on the ability of the group to continue as a going concern, and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business, and at the amounts stated in the financial report. The Directors believe there are reasonable grounds that the business will continue as a going concern after taking into account the following factors: • • • the forecast of future sales based on the commercial launch of kojensi in April 2019, its acceptance by several proof of concept partners and outlook demand forecasting; identification cost reductions and improving personnel utilisation; and the Company will if necessary, consider additional capital raising activities through the issue of new share capital overhead of Accordingly, the Directors believe that the group will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report. 30 designated at fair value through profit or loss, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a loss allowance is available. There was no impact to the financial statements. initial recognition lifetime expected AASB 15 Revenue Customers from Contracts with for The Group has adopted AASB 15 from 1 July 2018. The standard provides a single revenue comprehensive model recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract- based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. This is described further in the accounting policies below. Credit risk is presented separately as an expense rather than adjusted against revenue. Contracts with customers are presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Customer acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contract period. There was no statements. impact to the financial NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 1. Significant Accounting Policies (b) 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 historical financial statements have been The prepared under 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 the use of certain critical requires It also requires accounting estimates. management to exercise its judgement in the process of applying the Group'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. (c) Parent company information In accordance with the Corporations Act 2001, these financial statements present only. the the Supplementary parent entity is disclosed in note 27. of information about the Group results (d) 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 2019 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 'Group'. Subsidiaries are all those entities over which the Group has control. The Group is controls an entity when the Group 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 Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between the Group are eliminated. entities in losses are also eliminated Unrealised 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 Group. The acquisition of subsidiaries is accounted the acquisition method of for using accounting. A change in ownership interest, without the loss of control, is accounted for as an equity 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. transaction, where 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 Group. Losses incurred by the Group are attributed to the non- controlling interest in full, even if that results in a deficit balance. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non- the subsidiary interest controlling in together with any cumulative translation differences recognised in equity. The Group recognises the fair consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. value the of (e) Foreign currency translation The financial statements are presented in Australian dollars, which is archTIS Limited's functional and presentation currency. Foreign currency transactions currency transactions Foreign 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 rates of financial year-end exchange liabilities assets monetary denominated in foreign currencies are recognised in profit or loss. and Foreign operations liabilities of The assets and foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the foreign exchange period. All differences are in other comprehensive income through the foreign currency reserve in equity. recognised resulting The foreign currency reserve is recognised in profit or loss at disposition of the foreign operation or net investment. (f) Revenue recognition The Group earns revenues from consulting services, the sale of solution services and software for secure information sharing and It inter-organisational recognises revenue as follows: collaboration. Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the 31 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 1. Significant Accounting Policies (f) Revenue recognition (cont) (g) 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 to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. liabilities attributable 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: the from • When the deferred income tax asset or initial liability arises 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 interests • When the taxable temporary difference in is associated with 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 to the price separate transaction performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. any, price, within consideration if the Variable transaction reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. consideration variable the Rendering of services Revenue from a contract to provide services is recognised over time as the services are rendered based on either a fixed price or an hourly rate. 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. 32 relate to the same taxable authority on either the same taxable entity or different intend to settle taxable entities which 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. (h) 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 Group'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 is cash or cash period; or the asset 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 Group'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. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 1. Significant Accounting Policies (h) Current and non-current classification (k) Investments and other financial assets (cont) Deferred tax assets and liabilities are always classified as non-current. (i) 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. (j) 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. of of for receivables impairment difficulties that Collectability of is trade reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly provision trade receivables is raised when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial debtor, the probability 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. receivables are recognised at less any provision for Other amortised cost, impairment. 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 other reclassification subsequent categories is restricted. to Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. is Impairment of financial assets The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or lender in payments; delinquency granting to a borrower concession due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy 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. other the or The amount of the impairment allowance for is the financial assets carried at cost 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. (l) Property, plant and equipment Each class of plant and equipment is stated less accumulated at historical cost 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 Improv. Term of lease Office furniture & equipment Computer Equipment 2-4 years 2-4 years residual values, useful The lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful the assets, whichever is shorter. life of An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. 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. (m) Leases of whether determination The 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 the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. incidental to 33 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 1. Significant Accounting Policies the future economic benefits over the useful life of the project. amount by which the asset's carrying amount exceeds its recoverable amount. and research 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 development expenditure that has been incurred by the Group. 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 in accordance with AASB120 Accounting for Government Grants and Disclosure of Government Assistance. as Government Grants As such, RTDI refunds are recognised when there is a sufficient degree of certainty that the Group 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 Group 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"". 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. (o) Impairment of non-financial assets 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 is recognised for the impairment loss 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. (p) Trade and other payables liabilities for These amounts represent goods and services provided to the Group 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. (q) Borrowings are fair value of and borrowings the initially Loans recognised at the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. (r) 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. (s) Provisions Provisions are recognised when the Group (legal or constructive) has a present obligation as a result of a past event, it is probable the Group 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 the and 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 uncertainties surrounding (m) Leases (cont) 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 Group will obtain ownership at the end of the lease term. lease payments, net of any Operating 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. (n) Intangible assets life intangible are Finite assets 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. 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 Group is able to use or sell the asset; the Group has sufficient resources; and intent to complete the development and reliably. its costs can be measured are development Capitalised amortised on a systematic basis matched to costs 34 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 1. Significant Accounting Policies the passage of time is recognised as a finance cost. (t) 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 that is 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. Other long-term employee benefits for The Group's obligations long-term employee benefits are presented as non- current provisions its statement of in financial position, except where the Group 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 to defined contribution Contributions 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 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. services. of The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using the Binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date 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 Group 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 in previous periods. recognised The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying the Binomial into option consideration the terms and conditions on which the award was granted. pricing model, taking 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. are taken conditions into Market consideration in determining fair value therefore any awards subject to market vest conditions irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. considered are to 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 any remaining modification that increases the total fair value of the share-based compensation benefit as at the date of modification. vesting period, for If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense is recognised over the remaining vesting period, unless the award is forfeited. the award for If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is new immediately. recognised replacement award is substituted for the cancelled award, the cancelled and new award if they were a modification. is treated as If a 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 35 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 1. Significant Accounting Policies (u) Fair value measurement (v) 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. (w) Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the company. (x) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of archTIS Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (y) 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 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. incurred 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 in other receivables or other included payables in the statement of financial position. 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. is measured using the Fair value that market participants assumptions 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 inputs and use of relevant observable minimising the use of unobservable inputs. that reflects hierarchy Assets and liabilities measured at fair value are classified, into three levels, using a fair the value 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 latest valuation and a comparison, where applicable, with external sources of data. in the 36 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. (z) New Accounting Standards and Interpretations not yet mandatory or early adopted Accounting and New Interpretations not yet mandatory or early adopted Standards Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2019. The Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 1. Significant Accounting Policies (z) New Accounting Standards and Interpretations not yet mandatory or early adopted (cont) prepayments, A liability corresponding to the capitalised lease will also be recognised, adjusted for incentives lease received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. lease lease expense Straight-line operating 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 expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. lease, the by expense However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced and interest 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, standard does not substantially change how a lessor accounts for leases. The Group will adopt this standard from 1 July 2019. The directors expect that the adoption will result in lease assets and liabilities being recognised on the balance sheet and there will be change in how related expenses are incurred. The estimated financial impact is: the Total Assets increased by $281,230 Total Liabilities increased by $235,585 Net Assets reduced by $ 17,355 37 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 2. Critical Accounting Judgements, Assessments and Estimations 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 Group 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 In respect of all employees at the reporting date. determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. Lease make good provision A provision has been made for the anticipated costs for future restoration of leased premises. The provision includes future cost estimates associated with closure of the premises. The calculation of this provision requires assumptions such as application of closure dates and cost estimates. The provision recognised for each site is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for sites are recognised in the statement of financial position by adjusting the asset and the provision. Reductions in the provision that exceed the carrying amount of the asset will be recognised in profit or loss. to make The preparation of the financial statements requires management 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 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. the circumstances. The Share-based payment transactions The Group 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 the Binomial model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and to equity-settled share-based assumptions 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. relating Finite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether finite 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 Group 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 Group recognises liabilities for anticipated tax audit issues based on the Group's current understanding of the tax law. Where the final tax outcome 3 38 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 3. Revenue (a) Revenue from contracts with customers Product Licence and Implementation Revenue Product Maintenance Consulting (b) Other Revenue Government Grants Interest Income Other Income Consolidated 2019 $ 2018 $ 606,613 4,440 411,157 1,022,210 9,123 - 564,703 573,826 279,746 78,774 12,152 370,672 208,571 8,293 11,032 227,896 Product Licence and Implementation Revenue Product Licence and Implementation Revenue includes revenue from archTIS solutions developed, customised and maintained for customers. For the year ended 30 June 2019, this includes development versions of Kojensi, and Kojensi Field delivered to Australian and international government departments. Consulting Consulting Revenue includes archTIS services relating to IT engineering, systems integration and security consulting. Note 4. Expenses (a) Employee Benefits Share Based Payments Superannuation expenses Other Employee Benefits less : capitalised to software development (b) Depreciation and Amortisation Expense Depreciation - property, plant and equipment Amortisation - intangibles (c) Written down Intangible Expense Intangible expense written down (d) Operating Lease Expense Rental expenses on operating leases 2019 Consolidated 2018 Restated $ $ 2018 Previously Reported $ 375,561 242,418 2,529,972 (1,353,827) 1,794,124 480,537 212,584 2,341,676 (1,142,028) 1,892,769 108,178 212,584 2,341,676 (1,142,028) 1,520,410 67,525 115,819 183,344 60,915 - 60,915 60,915 - 60,915 783,905 783,905 - - - - 276,768 276,768 143,868 143,868 143,868 143,868 Correction of prior period error Correction of prior period error for the year ended 30 June 2018 for : • share-based payment of $372,359 were not recognised in relation to ACTU02 options vested during the financial year. These options relate to employee benefits. This misstatement represents a prior period accounting error which must be accounted for retrospectively due to its materiality. Consequently, the Group has adjusted all comparative amounts presented in the current period financial statements affected by the accounting error, and a reversal ($317,774) of the Mandalay options brought forward from 2016 that were cancelled at the same time ACTU02 options were issued. These options are not related to employee benefits. • 39 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 5. Income Tax Expense 2019 Consolidated 2018 Restated Note $ $ Income tax expense Deferred tax Deferred tax not recognised Deferred tax derecognised Deferred tax on tax losses not recognised Income tax expense / (income) 17 (821,832) 821,832 92,751 0 92,751 (371,224) 362,100 (175) (9,299) Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax Tax at the statutory rate of 27.5% (3,838,766) (1,055,660) Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Entertainment expenses Sundry Items Share-based payments Research & Development Expenditure Income from Research & Development Claim Sub-total Current year deferred tax not recognised Deferred tax asset derecognised Adjustment recognised for prior periods 2,035 2,200 103,279 1,504 - 44,761 203,244 232,590 (76,930) 233,828 821,832 92,751 (57,357) 221,498 362,100 - (175) 914,583 361,925 2018 Previously Reported $ (371,224) 362,100 (175) (9,299) (2,100,765) (577,710) 1,504 - 29,749 232,590 (57,357) 568,586 362,100 (175) 361,925 Income tax expense 92,751 (9,299) (9,299) A net deferred tax asset of $1,961,280 ($1,539,864 relating to tax losses) has not been recognised on the basis it is not probable that taxable profit will be available against which the temporary differences may be utilised while the company is claiming the refundable research and development tax offset. Note 6 Current Assets – Cash and Cash Equivalents Consolidated 2019 2018 $ 250 2,054,950 1,200,000 $ - 1,638,668 57,478 3,255,200 1,696,146 Cash and cash equivalents Cash on hand Cash at bank Cash on deposit 40 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 6 Current Assets – Cash and Cash Equivalents (cont) Reconciliation to cash and cash equivalents at the end of the financial year 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: Balances as above 3,255,200 1,696,146 Balance as per statement of cash flows 3,255,200 1,696,146 Note 7. Current Assets – Trade and Other Receivables Trade Receivables Less : Bad debt provision Other Receivables GST Receivable Interest Receivable Allowance for expected credit losses The Group has made no allowance for expected credit losses for the current financial year (2018 : nil). The ageing of the receivables and allowance for expected credit losses provided for above are as follows : Not overdue 0 - 3 months overdue 3 - 6 months overdue Over 6 months overdue Note 8. Current Assets – other Security Deposit Prepayments Accrued Income Consolidated 2019 2018 $ 135,551 (41,080) 94,471 4,097 29,680 33,587 $ 42,659 - 42,659 5,639 40,856 - 161,835 89,154 Carrying Amount 2019 $ Provision for Bad Debts 2019 $ 88,018 - - 47,533 - - - (41,080) 135,551 (41,080) Consolidated 2019 $ 58,800 54,635 - 2018 $ - 109,315 7,078 113,435 116,393 41 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 9. Non-current Assets – Property, Plant and Equipment Leasehold improvements - at cost Less : Accumulated Depreciation Office equipment - at cost Less : Accumulated Depreciation Computer equipment - at cost Less : Accumulated Depreciation Consolidated 2019 $ 72,779 (51,546) 21,233 2018 $ 72,779 (39,413) 33,366 117,383 (86,139) 31,244 112,542 (66,278) 46,264 258,916 (204,179) 54,737 243,214 (169,707) 73,507 107,214 153,137 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous year are set out below : Balance at 1 July 2017 Additions Disposals - written down value Depreciation expense Leasehold Improvements $ 45,495 - - (12,130) Office equipment $ 53,191 10,119 - (17,045) Computer equipment $ 71,827 33,420 - (31,740) Total $ 170,513 43,539 - (60,915) Balance at 30 June 2018 Additions Disposals - written down value Depreciation expense 33,365 - - (12,132) 46,265 4,840 - (19,861) 73,507 19,572 (3,870) (34,472) 153,137 24,412 (3,870) (66,465) Balance at 30 June 2019 21,233 31,244 54,737 107,214 Note 10. Non-current Assets – Intangibles The proportion of product design and development expenses, less any tax incentive applicable, that create a benefit in future years, and meet certain requirements are capitalised as an intangible asset. These capitalised costs (intangibles) are then amortised to the Profit and Loss Statement over the estimated life of the asset created. The carrying value of intangibles is reviewed for impairment whenever events indicate that the carrying value may not be recoverable. The main intangible assets recognised during the financial period were technology/ in-process development, and internally generated computer software. Internally-generated software development Internally-generated software development costs qualify for capitalisation when the Group can demonstrate all of the following: • • • • • • The technical feasibility of completing the intangible asset so that it will be available for use or sale; Its intention to complete the intangible asset and use or sell it; Its ability to use or sell the intangible asset; That the intangible asset will generate probable future economic benefits; The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and The expenditure attributable to the intangible asset can be reliably measured during development. 42 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 10. Non-current Assets – Intangibles (cont) Internally-generated software development costs have a finite useful life and are amortised on a straight-line basis over its estimated useful life. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The software development asset has a useful life of five years and is amortised on a straight-line basis commencing from the time the asset is held ready for use. The internally developed software asset, Kojensi.gov, was commercialised and launched in April 2019. Accordingly, this asset is amortised from this date. Costs which are incurred after the general release of internally-generated software or costs which are incurred in order to enhance existing products are expensed in the period in which they are incurred and included within research and development expense in the financial statements. Technology/ In-process Research and Development Research and development expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic benefits and these benefits can be measured reliably. The Group assesses the eligibility of development costs for capitalisation on a project-by-project basis. Development costs capitalised are assessed annually for impairment. Costs capitalised to a project that is unlikely to deliver future economic benefits are recognised as an expense at the date of impairment. 2019 Cost Balance at 1 July 2018 Commercialisation of development to software Additions Written down Balance at 30 June 2019 Accumulated amortisation Balance at 1 July 2018 Amortisation Impairments Balance at 30 June 2019 Internally Generated Software $ - 3,202,566 - 3,202,566 - (115,819) - (115,819) Consolidated Development In Progress $ 3,059,698 (3,202,566) 2,223,208 (783,905) 1,296,435 - - - - Total $ 3,059,698 - 2,223,208 (783,905) 4,499,000 - (115,819) - (115,819) Net book value at 30 June 2019 3,086,747 1,296,435 4,383,182 43 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 10. Non-current Assets – Intangibles (cont) Internally Generated Software $ Consolidated Development $ 2018 Cost Balance at 1 July 2017 Additions Written down Balance at 30 June 20198 Accumulated amortisation Balance at 1 July 2017 Amortisation Impairments Balance at 30 June 2018 Net book value at 30 June 2018 - - - - - - - - - 1,698,383 2,086,604 (725,289) 3,059,698 - - - - Total $ 1,698,383 2,086,604 (725,289) 3,059,698 - - - - 3,059,698 3,059,698 The recoverable amount of the Group’s Intangible Assets 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. The 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: • 50% pre-tax discount rate This discount rate 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. • Projected revenue growth rate based on expected customer acceptance of Kojensi Gov and associated ABAC (Attributed Based Access Control) software sales Management believes the projected revenue growth rate is prudent and justified, based on its market analyses and evaluation. • Increase in operating costs and overheads in line with projected revenue growth Based on the above, no impairment charge has been applied as the discounted recoverable amount for the product exceeds the capitalised development. Judgements and estimates in respect of the above impairment testing have been made. Should these judgements and estimates not occur the resulting capitalised development cost carrying amount may decrease. The sensitivities are as follows : • Revenue would need to decrease by more than 5.4% for the internally generated software, and 20% for capitalised development projects before there would need to be impair either asset, with all other assumptions remaining constant; • The discount rate would be required to increase to 55% for the internally generated software, and 61% for capitalised development projects before there would need to be impair either asset, with all other assumptions remaining constant. 44 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 11. Current Liabilities – Trade and Other Payables Trade Payables Other Payables Note 12. Current Liabilities - Borrowings Secured Bank Loan The Group has no bank overdraft or loan facilities as at 30 June 2019. Note 13. Current Liabilities – Employee Benefits Employee Benefits Consolidated 2019 $ 192,744 63,846 2018 $ 172,777 108,092 256,590 280,869 Consolidated 2019 $ - - 2018 $ 300,000 300,000 Consolidated 2019 $ 296,816 2018 $ 314,623 Amounts not expected to be settled within the next 12 months The current provision for employee benefits includes all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be taken within the next 12 months : Employee Benefits obligation expected to be settled after 12 months Consolidated 2019 $ 100,669 2018 $ 88,466 45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 14. Current Liabilities - Other Accrued Expenses Note 15. Non-Current Liabilities – Employee Benefits Employee Benefits Note 16. Non-Current Liabilities – Provisions Lease Make Good Consolidated 2019 $ 2018 $ 281,698 363,559 281,698 363,559 Consolidated 2019 $ 19,049 2018 $ 38,049 Consolidated 2019 $ 72,780 2018 $ 72,780 Lease Make good The provision represents the value of the estimated costs to make good the premises leased by the Group at the end of the lease term. Note 17. Deferred Tax Assets Current Consolidated 2019 $ 2018 $ Provision for research and development tax incentive 1,494,825 922,061 Non-current Deferred tax asset - 92,751 46 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 17. Deferred Tax (cont) Deferred tax asset comprises temporary differences attributable to: Opening balance Credited (charged) to profit or loss $ $ Credited (charged) directly to equity $ Changes in tax rates Closing balance $ $ (2,058) (4,020) 96,985 (19,174) 14,960 6,058 2,058 - - - 4,020 (96,985) 19,174 - - - - - - - - - (14,960) - - - (6,058) - - - 92,751 (92,751) - - - (6,663) (1,148) 54,386 2,504 20,234 14,138 83,451 4,605 (2,872) 42,599 (21,678) (5,274) (8,080) 9,300 - - - - - - - - - - - - (2,058) (4,020) 96,985 (19,174) 14,960 6,058 - - 92,751 2019 Deferred tax asset on: Accrued Income & prepayments Property, plant & equip. Provisions Costs of raising equity Accrued expenditure Lease incentives Net amount 2018 Deferred tax asset on: Accrued Income & prepayments Property, plant & equip. Provisions Costs of raising equity Accrued expenditure Lease incentives Net amount 47 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 18. Equity – Issued Capital Consolidated 2019 Shares 2018 Shares 2019 $ 2018 $ Ordinary shares - fully paid Ordinary shares - paid to $0.00 Capital raise fees 123,096,982 - - 123,096,982 83,096,982 720,000 - 83,816,982 15,467,018 - 7,466,518 - (1,765,322) 13,701,686 (698,829) 6,767,689 Date Shares Issue price $ Movements in ordinary share capital Details Balance Share split (3:1) Issue of shares Issue of shares Issue of shares Partly paid shares Options called Share forfeitures Share issue transaction costs (net tax) 1-Jul-17 Oct-17 Nov-17 Apr-18 Balance Issue of shares Options called Share forfeitures Share issue transaction costs (net tax) 30-Jun-18 Sep-18 Jul-18 Jul-18 Sep-18 10,214,651 20,429,302 12,254,904 29,338,125 12,060,000 - - (480,000) - 83,816,982 40,000,000 - (720,000) - $0.08 $0.11 $0.17 $0.20 1,234,003 - 1,000,000 3,129,400 2,010,000 85,692 7,423 - (698,829) 6,767,689 8,000,000 500 - (1,066,503) 13,701,686 Balance 30-Jun-19 123,096,982 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. Share buy-back There is no current on-market share buy-back. Capital risk management The Group's objectives are to prudently manage capital so as 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. 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 Group may adjust the amount of dividend paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. 48 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 19. Equity – Reserves Foreign Currency Reserve Share Based Payments Reserve 2019 Consolidated 2018 Restated $ 1,258 1,611,892 1,613,150 $ - 786,331 786,331 2018 Previously Reported $ - 731,746 731,746 Foreign currency reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. Share Based Payments Reserve This reserve is used to recognise equity-settled share-based payments to certain suppliers, directors and employees. Under AASB 2, options granted are measured at fair value at the date of the grant, using a Binomial valuation. The valuation of each tranche of options granted is expensed on a straight lint basis over the vesting period. Movements in Reserves Movements in each class of reserve during the current and previous financial year are set out below : Balance at 1 July 2017 Share based payments Balance at 30 June 2018 Adjustment for ACTU02 Options Adjustment for cancelled “Mandalay Options” Total Adjustment Balance at 30 June 2018 (restated) Revaluation – gross Share based payments ACTU03 – tranche 1 (fully vested 5 Sep 18) ACTU02 – tranche 2 (fully vested 1 Feb 19) ACTU02 – tranche 3 (vest 1 Feb 20) ACTU06 – tranche 1 (fully vested 26 Jul 18) Share Based Payments $ 317,774 413,972 731,746 372,359 (317,774) 54,585 786,331 450,000 133,985 113,576 128,000 Consolidated Foreign Currency $ - - - - - - - 1,258 - - - - Total $ 317,774 413,972 731,746 372,359 (317,774) 54,585 786,331 1,258 450,000 133,985 113,576 128,000 Balance at 30 June 2019 1,611,892 1,258 1,613,150 Correction of prior period error Correction of prior period error for the year ended 30 June 2018 for : • • share-based payment of $372,359 were not recognised in relation to ACTU02 options vested during the financial year. This misstatement represents a prior period accounting error which must be accounted for retrospectively due to its materiality. Consequently, the Group has adjusted all comparative amounts presented in the current period financial statements affected by the accounting error, and a reversal ($317,774) of the Mandalay options brought forward from 2016 that were cancelled at the same time ACTU02 options were issued 49 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 20. Equity – Retained Profits Retained losses at the beginning of the financial year Losses after income tax expense for the year 2019 $ (2,794,561) (3,931,517) Consolidated 2018 Restated $ (648,510) (2,146,051) 2018 Previously Reported $ (648,510) (2,091,466) Retained losses at the end of the financial year (6,726,078) (2,794,561) (2,739,976) Note 21. Equity – Dividends Dividends No dividends were paid or declared during the year. Franking Credits Franking credits available for subsequent financial years based on a tax rate of 27.5% Consolidated 2019 $ 2018 $ 15,549 15,549 Note 22. Financial Instruments The Group’s activities expose it to a variety of financial risks: market risk, and credit risk and liquidity risk. The Group’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 Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of foreign exchange and other price risks, and ageing analysis for credit risk. Risk management is carried out under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Market risk Foreign exchange risk The Group is not exposed to any significant foreign exchange risk. Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group is not exposed to any interest risk. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is available. There are no guarantees against any receivable but management closely monitors the receivable balance on a monthly basis and is in regular contact with customers to mitigate risk. 50 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 22. Financial Instruments (cont.) Credit risk (cont.) Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. Liquidity risk Credit risk refers to the risk that the Group maintains sufficient liquid assets to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves. Note 23. Key Management Personnel Disclosures Short-term employee benefits Post-employment benefits Long-term benefits Share Based Payments 2019 Consolidated 2018 Restated $ $ 1,853,767 136,825 12,262 363,992 2,366,846 1,123,219 93,849 (24,370) 463,433 1,656,131 2018 Previously Reported $ 1,123,219 93,849 (24,370) 103,853 1,296,551 Correction of prior period error As per note 4 and 19, there has been a correction of a prior period error for the year ended 30 June 2018, where an additional $359,580 share-based payments expense relating to key management personnel needs to be recognised in relation to ACTU02 options vested during the financial year. This misstatement represents a prior period accounting error which must be accounted for retrospectively due to its materiality. Consequently, the Group has adjusted all comparative amounts presented in the current period financial statements affected by the accounting error. Note 24. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by RSM Australia Partners, the auditor of the company, and its network firms: Audit services - RSM Audit or review of the financial statements Other services - RSM Independent Accountants Report Research and Development Tax Grant Consolidated 2019 $ 2018 $ 67,442 77,825 15,968 24,745 40,713 25,968 12,500 38,468 108,155 116,292 51 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 25. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Consolidated 2019 $ 2018 $ 190,599 184,258 137,522 328,121 328,121 512,379 Operating lease commitments includes contracted amounts for offices and equipment under non-cancellable operating leases expiring within one to ten years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. Note 26. Related Party Transactions Parent Entity archTIS Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 28. Associates There are no associates. Key management personnel Disclosures relating to key management personnel are set out in note 23 and the remuneration report included in the directors' report. Transactions with related parties The following transactions occurred with related parties: Payments for services from other related parties: Payment for Corporate Advisor services from Jindalee Partners Payment for Corporate Advisor services from CPS Global Transactions with subsidiaries: Purchase of 100% of share capital of archTIS Solutions Pty Ltd Purchase of 100% of share capital of archTIS Services Pty Ltd Loan to archTIS Solutions Pty Ltd Purchase of 100% of share capital of archTIS EU s.r.o Consolidated 2019 $ 71,347 962,500 - - 2,000 7,345 1,043,192 2018 $ - - 10 10 - - 20 Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. 52 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 27. Parent Entity Information Set out below is the supplementary information about the parent entity. Statement of profit or loss Loss after income tax Statement of financial position Total current assets Total assets Total current liabilities Total liabilities 2019 $ Parent 2018 Restated $ 2018 Previously Reported $ (3,928,217) (2,146,053) (2,091,468) 5,018,062 2,823,754 2,823,754 9,515,692 6,129,339 6,129,339 835,105 1,259,051 1,259,051 926,934 1,369,880 1,369,880 Net assets Equity Issued capital Reserves Retained profits (accumulated losses) 8,592,058 4,759,458 4,759,458 13,701,686 1,613,150 (6,722,778) 6,767,689 786,331 (2,794,561) 6,767,689 731,746 (2,739,976) Total equity 8,592,058 4,759,459 4,759,459 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. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 1, except for Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Note 28. Interest in Subsidiaries 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: archTIS Solutions Pty Limited archTIS Services Pty Limited archTIS EU s.r.o Country of Incorporation Australia Australia Czech Republic Ownership Interest 2019 % 100% 100% 100% 2018 % 100% 100% na 53 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Note 29. Reconciliation of profit after income tax expense to net cash from operating activities 2019 Consolidated 2018 Restated $ $ 2018 Previously Reported $ Loss after income tax expense for the year (3,931,517) (2,146,053) (2,091,468) Adjustments for: Depreciation and amortisation Impairment of capitalised development Share-based payments Foreign exchange differences Change in operating assets and liabilities: Increase in trade and other receivables Decrease in accrued revenue (Increase) decrease in prepayments (Increase) decrease in other assets (Increase) in development assets Increase/(decrease) in trade and other payables Increase (decrease) in income taxes payable Increase / (decrease) in employee benefits (Increase)/ decrease in other provisions 183,344 783,905 375,560 1,258 72,681 (7,078) 54,680 (58,800) (1,991,570) (24,279) (520,733) (36,807) (449,500) 60,915 156,507 468,557 - 185,755 16,015 (76,054) - (1,517,822) (637,665) (303,489) 152,468 60,915 156,507 413,972 - 185,755 16,015 (76,054) - (1,517,822) (637,665) (303,489) 152,468 - - Net cash from operating activities (5,548,855) (3,640,864) (3,640,864) Correction of prior period error As per note 4 and 19, there has been a correction of a prior period error for the year ended 30 June 2018. Note 30. Earnings Per Share Loss after income tax attributable to the owners Weighted average number of ordinary shares used in calculating basic earnings per share Basic earnings per share Consolidated Restated 2019 $ (3,931,517) 2018 $ (2,146,051) Previously Reported 2018 $ (2,091,468) Number Number Number 119,993,339 55,227,645 55,227,645 Cents (3.28) Cents (3.89) Cents (3.79) 54 DIRECTORS’ DECLARATION 30 JUNE 2019 In the directors' opinion: • • • • 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 Group's financial position as at 30 June 2019 and of its performance for the financial year ended on that date; and 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 directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Stephen Smith Chairman 30 September 2019 Canberra 55 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of archTIS Limited for the year ended 30 June 2019, 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: 30 September 2019 RODNEY MILLER Partner 56 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 2019, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2019 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. Material Uncertainty Related to Going Concern We draw attention to Note 1 (a) in the financial report, which indicates that the Company incurred a net loss after tax of $3,931,517 during the year ended 30 June 2019 and, had net operating cash outflows of $5,548,855. As stated in Note 1 (a), these events or conditions, along with other matters as set forth in Note 1 (a), indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 57 In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How our audit addressed this matter Accounting for intangible asset Refer to Note 10 in the financial statements At 30 June 2019 the Company has intangible assets with a carrying value of $4,383,182, being capitalised development costs in respect to software. We focused on this area due to the size of the intangible asset balance and the risk that the amounts capitalised do not meet recognition and measurement criteria under AASB 138 Intangible Assets. the In addition, there is a risk that the carrying value is impaired under AASB 136 Impairment of Assets. Management impairment assessment over the balance of intangible assets. performed has an For the year ended 30 June 2019 management have performed an the goodwill balance by: impairment assessment over • • calculating the value in use using a forecast discounted cash flow model. These models used cash flows (revenues, expenses and payroll expenditure) for 5 years. These cash flows were then discounted to net present value using the Company’s weighted average cost of capital (WACC); and comparing the resulting value in use to the book values. Our audit procedures in relation to the capitalisation of intangibles assets included; • Assessing whether the Group’s capitalisation policies were in compliance with AASB 138; • Testing a sample of capitalised development costs to ensure they met the recognition and measurement criteria of AASB 138; • Reviewing the reasonableness of management’s assessment of expected future economic benefits that are attributable to the intangible assets; and • Testing the completeness of the capitalised asset by reviewing expense nominal ledgers for costs not capitalised the Our audit procedures in relation to management's assessment of impairment included: • assessing the valuation methodology used in; • reasonableness rates, discount key challenging assumptions, including the cashflow projections, revenue growth rates, and sensitivities used; and the checking cashflow models, and reconciling input data to supporting evidence, such as approved budgets and considering the reasonableness of these budgets. the mathematical accuracy of of • 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 2019, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 58 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 19 to 23 of the directors' report for the year ended 30 June 2019. In our opinion, the Remuneration Report of archTIS Limited., for the year ended 30 June 2019, 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: 30 September 2019 RODNEY MILLER Partner 59 SHAREHOLDER INFORMATION 30 JUNE 2019 The shareholder information set out below was applicable as at 18 September 2019. On 21 September 2018, the company was admitted to the official list of the Australian Securities Exchange (ASX). For the period from listing to the 30 June 2019, the company used the cash and assets in a form readily convertible to cash that it had at the time of admission in a way 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 HSBC Custody Nominees (Australia) Limited Mr Bruce Talbot Mr Daniel Chun Leung Lai Possum Hill Pty Ltd Redhill Holdings Ltd 7Sundays Pty Ltd Bond Street Custodians Limited Ajava Holdings Pty Ltd Goldjazz Pty Ltd Cityscape Asset Pty Ltd Mr David Graham Wood Invia Custodian Pty Limited Conleroy Pty Ltd Celtic Capital Pty Ltd Egmont Pty Ltd Mr Amit Gupta Mr Ottmar Weiss Myube Investments Pty Ltd Mr Leo David Barry Top 20 Holders of Ordinary Shares Total Remaining Holders Balance Of the above ordinary shares, 25,482,151 shares are escrowed until 21 September 2020. 60 8 25 80 224 139 476 18 Ordinary shares Number held % of total shares issued 15,090,641 12,457,107 12.26% 10.12% 7,286,436 7,284,252 7,284,252 2,787,129 2,500,000 2,200,000 1,950,000 1,875,000 1,757,929 1,500,000 1,437,500 1,400,000 1,391,569 1,250,000 1,060,000 1,059,359 1,050,078 1,000,000 73,621,252 49,475,730 5.92% 5.92% 5.92% 2.26% 2.03% 1.79% 1.58% 1.52% 1.43% 1.22% 1.17% 1.14% 1.13% 1.02% 0.86% 0.86% 0.85% 0.81% 59.81% 40.19% NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Unquoted Options Expiring 10 Oct 2022 exercisable at $0.10 escrowed until 21 Sep 2020 Expiring 01 Feb 2021 exercisable at $0.12 escrowed until 21 Sep 2020 Expiring 01 Jul 2023 exercisable at $0.20 escrowed until 21 Sep 2020 Expiring 05 Sep 2022 exercisable at $0.24 escrowed until 21 Ser 2020 Expiring 01 Feb 2021 exercisable at $0.12 Expiring 05 Jul 2021 exercisable at $0.20 Totals Substantial Holders The substantial holders in the Company are listed below: The Trust Company (Australia) Limited HSBC Custody Nominees (Australia) Limited Mr Bruce Talbot Mr Daniel Chun Leung Lai Possum Hill Pty Ltd Ordinary shares Number On issue Number of holders 4,289,880 7,200,000 1,200,000 5,000,000 300,000 1,600,000 19,589,880 3 7 2 14 1 2 29 Ordinary shares Number held 15,090,641 12,457,107 7,286,436 7,284,252 7,284,252 % of total shares issued 12.26% 10.12% 5.92% 5.92% 5.92% 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. 61 Level 3 10 National Circuit Barton ACT 2600 Australia 1300 ARCHTIS +61 2 6162 2792 info@archtis.com www.archtis.com twitter.com/arch_tis linkedin.com/company/archtis/ 

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