archTIS
Annual Report 2020

Plain-text annual report

Annual Report ArchTIS Limited AR9 2019/2020 Corporate Directory Directors Miles Jakeman AM Daniel Lai Leanne Graham Company Secretary James Palmer Registered Office Level 3, archTIS House 10 National Circuit Barton ACT 2600 Principal Place of Business Level 3, archTIS House 10 National Circuit Barton ACT 2600 Share Register Automic Auditor 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 Listing 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/ 2 2 Table of Contents Letter from the Chairman 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 Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Declaration Independent Auditor’s Report to the Members of archTIS Limited Shareholder Information 4 6 19 20 21 22 23 49 50 51 55 3 2 Letter from the Chairman A DEFINING YEAR FOCUSED ON ESTABLISHING PRODUCT-MARKET FIT & ASSOCIATED SALES OPPORTUNITIES I am pleased to present a pivotal report regarding archTIS operations and its priorities during the year ended 30 June 2020. KEY HIGHLIGHTS The past 12 months have been an extremely busy and productive period for the Company. Key milestones included:  Launching the Kojensi software platform, which provides a highly secure and trusted platform for sharing sensitive and classified files and document collaboration, into its target Government market and securing early adopter clients. Clients won included the Commonwealth Attorney Generals Department, Commonwealth Ombudsman and the Australian Criminal Intelligence Agency. This validated Kojensi’s market demand. As part of this validation, the Group continued to refine and add features to the core product in order to offer its customers an enhanced experience in the cloud and on-premise. In some cases, this additional research and development effort was part-funded customers.  Establishing a solid sales pipeline, to be further executed over the next 12 months. This is paying dividends and has resulted in just under a $5.2m in contract renewals and new wins in the first quarter of this financial year, which is more than double the entire prior year.  Commencing a measured pivot to sell the Kojensi platform into industries servicing the Government, which that also need to share sensitive and classified information. This culminated in wins with Curtin University and Northrop Grumman. The Curtin University opportunity also provided product development opportunities in securing Big Data analytics.  Developing a partner and channel business to further expose the Kojensi platform to the market and increase sales opportunities. In this regard, a key partnership agreement was signed with DXC Technologies during the year. DXC will offer Kojensi as a managed service to their National Security Community clients opening significant growth opportunities for Kojensi sales and a pathway to access up to 7,000 users in the Australian National Intelligence Community. A reseller agreement was also signed with TEAM Asparona to sell Kojensi in New Zealand.  Signing three strategic reseller deals with: Nucleus Cyber, Appsian and Axiomatics to enable archTIS to provide holistic trusted information sharing solutions across the Microsoft collaboration suite, ERP systems and Big Data Lakes respectively. FUNDING In May 2020, the Group successfully raised $2.3 million through a share placement and a Share Purchase Plan. This vital funding provides the Company with the cash runway that it needs to convert its sales pipeline and continue the sales momentum into FY21. BOARD AND MANAGEMENT It has been a pleasure to work with my colleagues on the archTIS Board and I appreciate all their efforts during the year. I would also like to thank Daniel, his executive team, and all the staff for their efforts in what has been a very busy year. Shareholders will have noted that, shortly after the end of FY20, archTIS announced it was continuing its business optimisation process. This involved reducing the number of directors from six to three and 4 2 establishing a strengthened strategic advisory capability through the formation of an advisory group led by former board chair and non-executive director, Stephen Smith. We are particularly thankful for his efforts, as well as those of former directors Bruce Talbot and Wayne Zekulich, both of whom have agreed to help the company continue with its growth aspirations supported by retired Brigadier Alison Creagh AM CSC and Mr Jeremy Waine, a former Corporate finance and M&A specialist. The revised board consists of myself as Independent Chair, Leanne Graham as Independent Non-Executive Director, and Daniel Lai as Executive Director/CEO. OUTLOOK With product-market fit now being established and the veracity of the underlying technology proven, there are many opportunities to continue growing the archTIS business in both public and private markets. We expect growth to be organic and from selected merger and acquisition opportunities should they arise. Finally, thanks to our shareholders for their support during the year. Yours sincerely, Miles Jakeman AM 21 September 2020 5 2 Letter from the CEO Dear Shareholders, Thank you for your support for what was a transformational year for archTIS, as we laid the foundations to achieve our vision of becoming a leading global security company. In April 2019 archTIS completed the build and accreditation of Kojensi, archTIS’ secure information sharing platform for sensitive and classified information. During FY2020 our focus was to successfully launch Kojensi, build market awareness, create sales opportunities and secure early clients. The Company has achieved all of this with pleasing results exemplified by the recent landmark $4.2m Australian Department of Defence contract win. Over the past 12 months archTIS successfully won a number of high-profile Government clients, including: The Aged Care Royal Commission, The Commonwealth Attorney General’s Department, The Australian Criminal Intelligence Agency and The Commonwealth Ombudsmen; validating our target government market for Kojensi. In January 2020 we diversified to commercial industries that work with Government, with our first wins in the Education and Space sector with Curtin University, and the Defence Industry sector, with Northrup Grumman, a global military system integrator. This success has demonstrated the broad appeal of Kojensi. Most importantly these sales have secured annual recurring revenue which we expect to grow as clients continue to use Kojensi to share their trusted information with external parties. archTIS has also invested in development of its channel and partnership strategy, with DXC (one of the world’s largest system integrators) signing a deal to demonstrate and sell Kojensi to Intelligence agencies. Other partnership developments include Thales, KPMG, Oracle, Microsoft and Nucleus Cyber. We are already seeing positive results from these investments in FY2021. Business development activities across the year resulted in over 350 demonstrations of Kojensi, both locally and internationally. These activities have generated a sales pipeline of over $15m of opportunities to be executed against in FY2021. This has come at a time when the Australian Prime Minister has announced a significant increase in targeted cyber-attacks across the country against government institutions, industry and businesses. This was followed by the announcement of a $1.67bn investment into Cyber Security by the Morrison government and a further $15bn investment to deal with the information and cyber security needs within the Australian Department of Defence across the next 10 years. archTIS is in a strong position to capitalise on this large market opportunity. The archTIS leadership team has taken a number of steps in FY2020 to strengthen the Company’s cash position and build a strong sales pipeline for execution. In June 2020, archTIS successfully completed a placement and a share issuance to raise a combined $2.24m in additional capital for sales growth. archTIS has also reduced its monthly operational expenditure by 32% since March 2020 as expenses shifted from software development to sales and marketing. Finally, archTIS recently announced a streamlined Board of Directors, and the creation of an Advisory Board. This has seen our inaugural Chairman Stephen Smith and Non-Executive Director Wayne Zekulich move from the Board of Directors to the Advisory Board where they will focus on driving new sales opportunities. Founder and Executive Director Bruce Talbot has also stepped down from his role as a Director to concentrate on growth opportunities. I would like to personally thank them for their dedication and service to archTIS, without which archTIS would not be in such a strong position to drive the company and shareholder value forward in FY2021. 6 2 I welcome and look forward to working with Dr Miles Jakeman, who accepted the role as new Chairman, and Ms Leanne Graham on the Board. I also would like to welcome Mr Jeremy Waine and Brigadier Alison Creagh as additional members of the Advisory Board. Together with the dedicated team at archTIS we look forward to establishing archTIS as a global leading Information Security company in 2021. Yours sincerely, Daniel Lai CEO 21 September 2020 7 2 DIRECTORS’ REPORT 30 JUNE 2020 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 2020. 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:  Miles Jakeman (appointed to the Board 13 February 2020. Appointed Chair 31 July 2020)  Daniel Lai  Leanne Graham  Bruce Talbot (resigned 31 July 2020  Stephen Smith (resigned 31 July 2020)  Wayne Zekulich (resigned 31 July 2020) Company Secretary Baden Bowen has held the role of Company Secretary from February 2018 until his resignation on 31 July 2020. James Palmer, CFO for the Group was appointed in his stead on 31 July 2020. Directors and Meetings of Directors The qualifications and experience of directors, including current and recent directorships, are detailed below: Dr Miles Jakeman AM Chairman of the Board Miles co-founded and was the CEO of Australian software and technology success story, The Citadel Group Limited (“Citadel”). During his time as CEO of Citadel, he grew Citadel from a start-up to a company with over 300 employees and a market capitalisation of $400 million. Interest in Shares and Options: 540,000 options Other current directorships: GetBusy plc (AIM:GetB), Fifth Domain Pty Ltd, The Shepherd Centre Charity, Manteena Security Australia Pty Ltd Former directorships (last 3 years): Executive Director and Deputy Chairman of Citadel Group. Daniel Lai CEO Daniel is a founding member of the Company and has successfully developed the business with its partners to be recognised by the Australian and United States Departments of Defence as a thought leader in information sharing strategies. Most importantly Daniel has direct experience in implementing organisational change to address the real challenges businesses confront today in a rapidly evolving environment. Interest in Shares and Options: 7,410,616 ordinary shares and 1,800,000 options Other current directorships: None Former directorships (last 3 years): None 8 2 DIRECTORS’ REPORT 30 JUNE 2020 Leanne Graham Non-Executive Director With over 30 years in the software sector, Leanne has assisted technology companies with her broad experience and SaaS expertise. In 2018, Ms. Graham was awarded the New Zealand Order of Merit for her services to the software industry. Her current ASX listed boards are Bid Energy, AppsVillage, ArchTIS and VPCL. Interest in Shares and Options: 50,000 ordinary shares and 540,000 options Other current directorships: Executive Chairman of VPCL Limited and Non-Executive Director of BidEnergy Limited. Former directorships (last 3 years): Non- Executive Director of AppsVillage (resigned 10 June 2020) Stephen Smith Chairman of the Board (1 July 2019 – 31 July 2020) Stephen Smith was a member of the House of Representatives from 1993 to 2013. He served as a minister in the Rudd and Gillard Governments, including as Minister for Foreign Affairs (2007‑2010), Minister for Trade (2010), and Minister for Defence (2010‑2013). Stephen has also served as a board member for two not-for- profit organisations including Perth USAsia Centre and LNG Marine Fuel Institute. Interest in Shares and Options: 1,080,000 options Other current directorships: Chairman of Sapien Cyber Board from 16 Sept 2019. Former directorships (last 3 years): None Wayne Zekulich Non-Executive Director (1 July 2019 – 31 July 2020) Wayne is a consultant with extensive banking and investment banking experience covering mergers and acquisitions, arranging and underwriting financings and debt and equity capital markets. Wayne is a member of the Curtin Business School of Accounting Advisory Board and the John Curtin Gallery Board, a member of the University of Western Australia Audit Committee and a Board member of ARTrinsic Inc. Interest in Shares and Options: 100,000 ordinary shares and 540,000 options Other current directorships: None Former directorships (last 3 years): None Bruce Talbot Executive Director (1 July 2019 – 31 July 2020) Bruce has been involved in the creation, implementation and management of advanced computer security systems and capabilities. He has over 20 years’ experience in the Australian Defence Force and a further 20 years in the commercial sector working for CA Technologies, Hitachi Data Systems, Airservices Australia and the Australian Federal Police. Interest in Shares and Options: 7,486,436 ordinary shares and 1,080,000 options Other current directorships: None Former directorships (last 3 years): None 9 2 DIRECTORS’ REPORT 30 JUNE 2020 The number of meetings of the company's Board of Directors ('the Board') held during the year ended 30 June 2020, and the number of meetings attended by each director were: Number of Meetings Held* Number Attended Miles Jakeman (appointed 13 Feb 20) Stephen Smith Daniel Lai Bruce Talbot Leanne Graham Wayne Zekulich 7 15 15 15 15 15 6 15 15 15 15 14 * 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 Principal Activities During the financial year the principal continuing activities of the Group consisted of:  Sales of a secure information management and collaboration software: Kojensi either in-cloud or on-premise  Consulting and solutions services for secure information sharing and inter-organisational collaboration related to the above software sales. Dividends No dividends were paid during the financial year. Review of Operations Over the previous 12-month period, archTIS launched its Kojensi platform into its target Government market and focused on securing early adopter clients. Clients won included the Commonwealth Attorney Generals Department, Commonwealth Ombudsman and the Australian Criminal Intelligence Agency. This validated Kojensi’s market demand. Other activities included business development and marketing which resulted in building a significant sales pipeline to be converted over the next 12 months. This is paying dividends and has resulted in just under a $1m in contract renewals and new wins in the first quarter of this financial year. In January 2020 the company pivoted to sell the Kojensi platform to industries servicing the Government that need to share sensitive and classified information including the Defence, University Research and Space industries. This culminated in wins with Curtin University and Northrop Grumman. The Curtin University opportunity has also has provided product development opportunities in securing Big Data analytics. 10 2 DIRECTORS’ REPORT 30 JUNE 2020 A particular focus over the last 12 months has been the development of a partner and channel business to further expose the Kojensi platform to the market and increase sales opportunities. A key partnership agreement was signed with DXC Technologies during the year. DXC will offer Kojensi as a managed service to their National Security Community clients opening significant growth opportunities for Kojensi sales and a pathway to access up to 7,000 users in the Australian National Intelligence Community. A reseller agreement was signed with TEAM Asparona to sell Kojensi in New Zealand. The Group also signed three strategic reseller deals with: Nucleus Cyber, Appsian and Axiomatics to enable archTIS to provide holistic trusted information sharing solutions across the Microsoft collaboration suite, ERP systems and Big Data Lakes respectively. The Group also continued to refine and add features to its core product in order to offer its customers enhanced experience whether the solution is in the cloud or on-premise. In some cases, this additional research and development effort was funded in-part by customers. In May 2020, the Group successfully raised $2.1 million (net of transaction costs) through a share placement and a Share Purchase Plan. This vital funding will give the Company the cash runway it needs to convert its sales pipeline and continue the sales momentum into FY21. The investment into these activities cumulated in a loss for the consolidated entity after providing for income tax and non-controlling interest amounted to $3,725,369 (30 June 2019 $3,931,517). Effects of Coronavirus (COVID-19) pandemic on the Company The Company took early and positive steps to protect its employees, clients and the public by initiating work from home practices. archTIS staff worked remotely using Kojensi as our remote access platform. The initial effect of the pandemic was to slow the conversion of sales pipeline as potential customers delayed IT projects to focus on the immediate impacts to their business. However cyber security and trusted information shared quickly emerged as a growing issue with most companies as they sent their workforce to work remotely from their homes. This has highlighted the need for our product more than ever and created a greater market need and increased our sales pipeline in the medium to long term. Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the year. Matters subsequent to the end of the financial year Board changes On 22 July 2020, the Company announced that it is continuing its business optimisation process following the recent successful capital raising with the board and management arrangements streamlined and a new advisory group formed. This involved reducing the number of directors from six to three and establishing a strengthened strategic advisory capability through the formation of an advisory group led by former board chair and non-executive director, Stephen Smith. The revised board consists of Miles Jakeman AM as Chair with Leanne Graham and CEO, Daniel Lai. General Meeting Further, as part of finalising the formalities relating to the recent successful capital raise, on 27 August 2020 the Company held a General Meeting where shareholders approved to:   ratify a number of prior issues of shares/share options; and, issue a number of shares and share options to advisors and directors. 11 2 DIRECTORS’ REPORT 30 JUNE 2020 No other matter or circumstance has arisen since 30 June 2020 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. 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 ensure 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 20 Nov 2019 1 Jul 2023 13 Feb 2020 13 Feb 2023 30 Jun 2020 1 Jul 2023 $ 0.10 $ 0.12 $ 0.20 $ 0.24 $ 0.12 $ 0.20 $0.20 $0.20 $0.10 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 * 1,600,000 250,000 540,000 500,000 20,879,880 12 2 DIRECTORS’ REPORT 30 JUNE 2020 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. 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 $275,000 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. 13 2 DIRECTORS’ REPORT 30 JUNE 2020 REMUNERATION REPORT (audited) (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 Miles Jakeman AM Key Management Personnel Matthew Kluken Nick Main Marcelle Newbound Phillip Dean James Palmer Sarah Young Chairman Managing Director & Chief Executive Officer Executive Director & Chief Architect Non-executive Director Non-executive Director Non-executive Director Head of Business Development & Sales Chief Technology Officer Head of People & Customer Experience Principal Consultant Chief Financial Officer (from 16 December 2019 onwards) Chief Financial Officer (16 July 2019 – 29 October 2019) 14 2 DIRECTORS’ REPORT 30 JUNE 2020 Details of remuneration (cont.) Short-term Salary Cash Bonus Fees Share Based Pay- ments Post employ -ment Super $ $ $ $ $ Long Term Benefit s Long Service Leave $ % of salary assoc. with perfor- mance Options as a % of total Total $ % % - - 273,600 - - 273,600 20,194 - 232,871 22% 2020 Non-Executive Directors Stephen Smith Leanne Graham Wayne Zekulich Miles Jakeman AM* Executive Directors Daniel Lai Bruce Talbot 75,000 - 50,000 16,667 230,054 230,054 Key Management Personnel Philip Dean Matthew Kluken 177,457 161,872 - - - - - - - 50,805 Nick Main Marcelle Newbound Sarah Young James Palmer** 2019 125,832 70,806 - 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 - 11,254 7,125 5,627 5,627 - 4,750 10,577 1,583 - - - - 93,379 60,383 60,377 28,827 18,757 18,567 3842 271,220 11,254 18,567 3842 263,717 11,254 16,858 3,015 208,585 54,756 - - - - - - - - 83,300 - - - - - - - - 11,913 6,727 - - 137,744 - - - - - 77,533 83,300 123,771 75,573 75,573 - - 41,646 20,823 54,750 20,823 7,125 4,750 - - - - - - - 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 - - - - - - - - - Matthew Kluken 175,436 23,526 Nick Main Marcelle Newbound - 262,400 56,353 - - 17,473 2,931 219,366 11% - - 262,400 5,333 285 61,971 - - - - - - - - - - - - - - - - - - - - - - 12% 9% 9% 37% 7% 4% 5% - - - - - 34% 28% 28% 21% 14% 17% 29% 34% - - - - 15 2 DIRECTORS’ REPORT 30 JUNE 2020 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 AR902 Class Non-Executive Directors Stephen Smith Leanne Graham Wayne Zekulich Executive Directors Daniel Lai Bruce Talbot 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 21 1 Feb 21 1 Feb 21 1 Feb 21 1 Feb 21 1 Feb 21 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 $ 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 Key Management Personnel Phillip Dean 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 AR906 Class – Granted under the Performance and Rights Plan Management Personnel Martin Tucek Debra Tucek AR908 Class Non-Executive Directors Miles Jakeman 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 13 Feb 20 13 Feb 20 13 Feb 23 13 Feb 20 13 Feb 21 13 Feb 23 13 Feb 20 13 Feb 22 13 Feb 23 $ 0.20 $ 0.20 $0.20 $ 0.041 $ 0.041 $0.041 180,000 180,000 180,000 During the year AR908 options were granted to a newly appointed director over unissued fully paid ordinary shares in the company. The options are exercisable by the holder from the vesting date. 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. 16 2 DIRECTORS’ REPORT 30 JUNE 2020 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 Non-Executive Directors Stephen Smith Leanne Graham Wayne Zekulich Miles Jakeman Executive Directors Daniel Lai Bruce Talbot - 50,000 100,000 - 7,347,252* 7,486,436* Key Management Personnel Matthew Kluken Nick Main Marcelle Newbound Phillip Dean 160,000 - - 7,284,252* - - - - - - - - - - * 7,284,252 each are held in escrow until 21 September 2020 Option holding - - - - - - - - - - 50,000 100,000 36,364 - 181,819 - - - - - - - - - 7,410,616 7,486,436 341,819 - - 7,284,252 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 Miles Jakeman 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 - - - 540,000 - - 800,000 800,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,080,000 540,000 540,000 540,000 1,800,000 1,080,000 800,000 800,000 - - - 1,080,000 This concludes the remuneration report, which has been audited. 17 2 DIRECTORS’ REPORT 30 JUNE 2020 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 24 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 58. 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 Miles Jakeman AM Chair 21 September 2020 Canberra, ACT 18 2 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 Revenue Cost of Sales Gross Profit Other Income Sales and Marketing General Administration Loss before Income Tax Income Tax (Expense) / Benefit Other Comprehensive Income Note 2020 $ 2019 $ 3(a) 3(b) 4 5 548,747 (303,929) 244,818 1,022,210 (227,590) 794,620 670,775 (477,528) (4,163,433) (3,725,369) - - 370,672 (269,955) (4,734,103) (3,838,766) (92,751) - Total Comprehensive income for the year (3,725,369) (3,931,517) Basic earnings per share 31 Cents (2.94) Cents (3.28) The accompanying notes form part of these financial statements. 19 2 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 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 Right of use asset Deferred tax Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Interest-bearing loans and borrowings Employee benefits Lease Liability Other Current Liabilities Total current liabilities Non-current liabilities Employee benefits Provisions Lease Liability Total non-current liabilities Total liabilities NET ASSETS EQUITY Issued capital Reserves Retained profits (accumulated losses) Note 2020 $ 2019 $ 6 6 7 8 18 9 10 11 18 12 13 14 15 16 17 2,428,648 3,255,200 - 58,896 194,943 886,008 - 161,835 113,435 1,494,825 3,568,495 5,025,295 39,356 4,261,450 1,052,957 - 107,214 4,383,182 - - 5,353,763 4,490,396 8,922,259 9,515,691 140,708 256,590 - 219,140 116,079 291,171 767,098 28,346 74,249 1,241,383 1,343,978 - 296,816 - 281,698 835,104 19,049 72,780 - 91,829 2,111,077 926,933 6,811,182 8,588,758 19 20 21 15,713,392 13,701,686 1,808,050 1,613,150 (10,710,260) (6,726,078) TOTAL EQUITY ATTRIBUTABLE TO THE OWNERS OF ARCHTIS LIMITED 6,811,182 8,588,758 The accompanying notes form part of these financial statements. 20 2 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Consolidated Balance at 1 July 2019 Adoption of AASB16 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 Note Issued capital $ Reserves $ Retained profits $ Total equity $ 13,701,686 1,613,150 (6,726,078) 8,588,758 - - - (258,814) (258,814) - (3,725,369) (3,725,369) 2,250,873 - - 2,250,873 - (239,167) - - - - - 194,900 - - - - - (239,167) - 194,900 21 19 19 19 20 20 Balance at 30 June 2020 19,20 15,713,392 1,808,050 (10,710,261) 6,811,181 Balance at 1 July 2018 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 21 19 19 19 20 20 6,767,689 786,331 (2,794,561) 4,759,459 - - (3,931,517) (3,931,517) 8,000,000 500 (1,066,503) - - - - - 1,258 825,561 - 8,000,000 - 500 - (1,066,503) - - 1,258 825,561 Balance at 30 June 2019 19,20 13,701,686 1,613,150 (6,726,078) 8,588,758 The accompanying notes form part of these financial statements. 21 2 STATEMENT OF CASHFLOW FOR THE YEAR ENDED 30 JUNE 2020 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 COVID-19 Government cash boost Interest received Interest paid Net cash provided by (used in) operating activities Cash flows from investing activities Purchase of property, plant and equipment Net cash provided by (used in) investing activities Cash flows from financing activities Net proceeds from issue of shares Settlements of secured bank loans Repayments under leases 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. Note Consolidated 2020 $ 2019 $ 777,694 (5,109,408) 1,494,825 50,750 38,786 (90,434) (2,837,787) 1,072,619 (7,749,491) 1,087,420 - 45,187 (4,590) (5,548,855) (3,640) (3,640) 24,412 24,412 2,116,554 - (101,679) 2,014,875 (826,552) 3,255,200 2,428,648 7,383,497 (300,000) - 7,083,497 1,559,054 1,696,146 3,255,200 30 9 6 22 2 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 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 (a) Going concern The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business. The consolidated group incurred a loss after tax of $3,725,369 (2019 $3,931,517) and had net operating cash outflows of $2,837,787 (2019: $5,548,855). The entity has prepared a cash flow forecast which indicates that the entity has sufficient cash to meet its debts as and when they fall due and payable. The Directors believe that it is reasonably foreseeable that the consolidated entity will continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report after consideration of the following factors: • • • • The consolidated entity is currently exploring sales opportunities with various potential customers across the Government and Private sectors; Following a successful capital raising in May 2020 the Group has cash at bank as at 30 Jun ’20 of $2.5 million; Cash operating costs of the business have been reduced to the minimum level in order to maximise the cash runway to allow time for conversion of the sales opportunities; and, if necessary, the Company will consider additional capital raising activities through the issue of new share capital. (b) New or Standards adopted amended Accounting Interpretations and The Group has adopted all of the new or and amended Accounting Standards Interpretations the Australian issued by 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. Lease liabilities - current (AASB 16) 227,789 Lease liabilities - non-current (AASB 16) 1,278,618 AASB 16 Leases As above 1,506,407 1 Jul 19 $ Right-of-use asset (AASB 16) (1,947,723) Accumulated amortisation as at 1 July 2019 (AASB 16) Make good asset as at 1 July 2019 (AASB 117) 689,819 21,233 Lease incentive liability (AASB 117) (10,922) Reduction in opening retained earnings as at 1 July 2019 258,814 Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of- use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease the payments made at or before commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any re- measurement of lease liabilities. a asset The consolidated entity has elected not to recognise and right-of-use corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. 1 Jul 19 $ 328,121 - Lease liabilities for for The consolidated entity has adopted AASB 16 from 1 July 2019. The standard replaces lessees 'Leases' and AASB 117 eliminates the classifications of operating leases and finance leases. Except for short- term leases and leases of low-value assets, right-of-use assets and corresponding lease liabilities are recognised in the statement of financial position. Straight-line operating lease expense recognition is replaced with a depreciation charge the right-of-use assets (included in operating costs) and an interest expense on the recognised lease liabilities (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results improve as the operating expense is now replaced by interest expense and depreciation in profit or loss. For classification within the statement of cash flows, the interest portion is disclosed in operating activities and the principal portion of the lease payments are separately disclosed in financing activities. For lessor accounting, not substantially change how a lessor accounts for leases. standard does the Impact of adoption AASB 16 was adopted using the modified retrospective approach and as such the comparatives have not been restated. The impact of adoption on opening retained profits as at 1 July 2019 was as follows: Operating lease commitments as at 1 July 2019 (AASB 117) Finance lease commitments as at 1 July 2019 (AASB 117) add: lease commitments on likely exercise of option to extend lease 1,599,346 less: future interest charges based on the weighted average incremental borrowing rate of 6.2% (421,060) Lease liabilities (AASB 16) 1,506,407 is lease liability recognised at A the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate the cannot consolidated entity's incremental borrowing determined, readily be 23 2 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Note 1. Significant Accounting Policies lease less any rate. Lease payments comprise of fixed payments incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is to occur, and any reasonably certain anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of- use asset is fully written down. (b) Basis of preparation These general-purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations the Australian issued by 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 under historical financial statements have been The cost the prepared 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 financial and equipment and derivative instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the 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 the results of the Group only. Supplementary information about is disclosed in note 27. the parent entity controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. (d) Principles of consolidation (e) Foreign currency translation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of archTIS Limited ('company' or 'parent entity') as at 30 June 2020 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 controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. in Intercompany transactions, balances and unrealised gains on transactions between the Group are eliminated. entities Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. the asset 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 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 the Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive statement of income, 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 the assets it derecognises subsidiary, liabilities and non- including goodwill, The financial statements are presented in Australian dollars, which is archTIS Limited's functional and presentation currency. Foreign currency transactions the dates of Foreign currency transactions are translated into Australian dollars using the exchange the rates prevailing at transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations liabilities of foreign The assets and operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into the average Australian dollars using 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 inter-organisational It 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 the contract with a Group: customer; performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the the time value of money; allocates separate transaction identifies identifies price the the to 24 2 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Note 1. Significant Accounting Policies 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. and the adjustment recognised for prior periods, where applicable. tax assets and Deferred 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: Variable consideration within the transaction price, if any, 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 to a variable consideration constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. is subject cumulative amount of 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 to receive payment is established. the right (f) 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 jurisdiction, adjusted by the changes in deferred tax assets and to temporary differences, unused tax losses liabilities attributable for each rate tax that • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction is not a business combination and that, at the time of the transaction, the neither affects accounting nor taxable profits; or • When the taxable temporary difference in is subsidiaries, 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. interests or associated with associates 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 temporary differences and losses. those The carrying amount of recognised and tax assets are unrecognised deferred reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. archTIS Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate tax consolidated group. to members of the 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 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 the asset 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. Deferred tax assets and liabilities are always classified as non-current. (h) 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 financial position. the statement of (i) 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. 25 2 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Note 1. Significant Accounting Policies Trade receivables are generally due for settlement within 30 days. the Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly provision for impairment of 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 financial receivables. Significant difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered 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 to short-term rate. Cash receivables are not discounted if the effect of discounting is immaterial. flows relating indicators that the Other amortised cost, impairment. receivables are less any provision recognised at for (j) Investments and other assets financial 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 their classification. Classification is determined based on the purpose of the acquisition and subsequent other reclassification categories is restricted. fair value depending on 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 there financial assets Impairment of financial assets The Group assesses at the end of each is any reporting period whether objective evidence that a financial asset or group of impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concession due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows. The amount of the impairment allowance for 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. is (l) Property, plant and equipment Each class of plant and equipment is stated at historical less accumulated depreciation and impairment. Historical cost includes expenditure is directly attributable to the acquisition of the items. cost that 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 life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the 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 an The 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. is made between A distinction finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which retains substantially all such risks and benefits. lessor effectively the 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. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term. (n) Intangible assets Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. in 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 its costs can Capitalised be measured development costs are amortised on a reliably. 26 2 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Note 1. Significant Accounting Policies systematic basis matched to the future economic benefits over the useful life of the project. 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 to which 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"". the assistance intended is 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 if events or changes Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. (p) Trade and other payables These amounts represent liabilities for 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. The liability for annual leave and long service leave that is not expected to be settled within the reporting date, are 12 months of 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 (q) Borrowings the are and borrowings fair value of 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 has a present (legal or constructive) 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 and uncertainties surrounding the obligation. If the is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. time value of money (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 for long-term The Group's obligations employee benefits are presented as non- current provisions in its statement of financial position, except where the Group does not have an unconditional 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. right Defined expense contribution superannuation to Contributions contribution superannuation plans are expensed in the period in which they are incurred. defined 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 services. Cash-settled rendering transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. 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. 27 2 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Note 1. Significant Accounting Policies The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying the Binomial into option consideration the terms and conditions on which the award was granted. pricing model, taking The cumulative charge to profit or loss until settlement of the liability is calculated as follows: • • during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. All changes in the liability are recognised in profit or loss. The ultimate cost of cash- settled transactions is the cash paid to settle the liability. are taken conditions in determining into Market consideration 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 remaining any 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 is remaining expense the award for recognised over period, unless the award is forfeited. the remaining vesting If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised new replacement award is substituted for the cancelled award, the cancelled and new award they were a modification. immediately. treated as is a If if (u) Fair value measurement When an asset or liability, financial or non- financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. value is measured using Fair the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. the inputs used Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of 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. in making 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 latest valuation and a applied comparison, where applicable, with external sources of data. the in (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 the GST Revenues, expenses and assets are recognised net of the amount of associated GST, unless 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 financial in position. the statement of 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. and contingencies are Commitments disclosed net of the amount of GST recoverable from, or payable to, the tax authority. 28 2 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Note 1. Significant Accounting Policies Conceptual Framework Reporting (Conceptual Framework) for Financial (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 that have recently been Interpretations issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity the annual reporting period ended 30 June 2020. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. for to annual Standards. Where revised Conceptual Framework is The applicable reporting periods beginning on or after 1 January 2020 and early adoption is permitted. The Conceptual Framework contains new definition and recognition criteria as well as new guidance that affects several on measurement Accounting the consolidated entity has relied on the existing framework in determining its accounting policies for transactions, events or conditions that are not otherwise dealt with under the Australian Accounting Standards, the consolidated entity may need to review such policies under the revised framework. At this time, the application of the Conceptual Framework is not expected to have a material impact on the consolidated entity's financial statements. 29 2 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Note 2: Critical Accounting Judgements, Estimates and Assumptions in the The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the financial statements. Management reported amounts 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 to be expectations of reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. future events, management believes 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 assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. 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 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 respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. 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 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. the Coronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the consolidated entity based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the consolidated entity operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the consolidated entity unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. 30 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 3. Revenue (a) Revenue from contracts with customers Product Licence and Implementation Revenue Product Maintenance Consulting (b) Other Revenue Government Grants (i) Interest Income Other Income Consolidated 2020 $ 2019 $ 231,781 20,483 296,483 548,747 664,219 6,556 - 670,775 606,613 4,440 411,157 1,022,210 279,746 78,774 12,152 370,672 (i) Government grants include an amount of $100,000 received as a cash flow boost for employers as part of the Australian Government’s response to the COVID-19 pandemic. The Company was not eligible for Jobkeeper payments. 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 2020, 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 2020 $ 2019 $ 77,489 187,858 1,532,346 (872,050) 925,643 375,561 242,418 2,529,972 (1,353,827) 1,794,124 50,266 830,394 880,660 67,525 115,819 183,344 - - - - 783,905 783,905 276,768 276,768 31 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 4. Expenses (cont’d) (e) Finance Costs Interest and finance charges paid/payable (f) Contractors Payments to contractors (g) Hosting Charges Hosting charges Note 5. Income Tax Expense 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 90,434 90,434 785,477 785,477 254,663 254,663 2020 $ (593,614) 593,614 - - - - - 2,236,075 2,236,075 252,410 252,410 2019 $ (821,832) 821,832 92,751 - 92,751 Profit before income tax (3,725,369) (3,838,766) Tax at the statutory rate of 27.5% (1,024,476) (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 Amortisation of Assets Income from Government Stimulus Income from Research & Development Claim Sub-total Current year deferred tax not recognised Deferred tax asset derecognised 1,281 2,279 21,309 404,060 184,592 (27,706) (154,954) 430,862 593,614 - 593,614 2,035 2,200 103,279 203,244 - - (76,930) 233,828 821,832 92,751 914,583 Income tax expense - 92,751 A net deferred tax asset of $2,429,907 ($2,087,977 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. 32 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 6 Current Assets – Cash and Cash Equivalents Cash and cash equivalents Cash on hand Cash at bank Cash on deposit Consolidated 2020 $ - 2,428,648 - 2019 $ 250 2,054,950 1,200,000 2,428,648 3,255,200 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 Balance as per statement of cash flows 2,428,648 3,255,200 2,428,648 3,255,200 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 (2019: nil). Consolidated 2020 $ 41,422 - 41,422 2019 $ 135,551 (41,080) 94,471 - 17,474 - 58,896 4,097 29,680 33,587 161,835 33 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 7. Current Assets – Trade and Other Receivables (cont’d) 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 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 Carrying Amount 2020 $ Provision for Bad Debts 2020 $ 40,804 - 618 - - - - - 41,422 - Consolidated 2020 $ 60,156 61,645 73,142 2019 $ 58,800 54,635 - 194,943 113,435 Consolidated 2020 $ - - - 2019 $ 72,779 (51,546) 21,233 117,383 (104,917) 12,466 262,557 (235,667) 26,890 117,383 (86,139) 31,244 258,916 (204,179) 54,737 39,356 107,214 34 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous year are set out below: Balance at 30 June 2018 Additions Disposals - written down value Depreciation expense Balance at 30 June 2019 Additions AASB 16 Adjustment Depreciation expense Leasehold Improvements $ 33,365 - - (12,132) 21,233 - (21,232) - Office equipment $ 46,265 4,840 - (19,861) 31,244 - - (18,778) Computer equipment $ 73,507 19,572 (3,870) (34,472) 54,737 3,640 - (31,487) Total $ 153,137 24,412 (3,870) (66,465) 107,214 3640 (21,232) (50,266) Balance at 30 June 2020 12,466 - 26,890 39,356 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. 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. 35 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 10. Non-current Assets – Intangibles (cont’d) 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. 2020 Cost Balance at 1 July 2019 Commercialisation of development to software Additions Written down Balance at 30 June 2020 Note 10. Non-current Assets – Intangibles (cont’d) Accumulated amortisation Balance at 1 July 2019 Amortisation Impairments Balance at 30 June 2020 Internally Generated Software $ 3,202,566 347,695 - - 3,550,261 (115,819) (671,243) - (787,062) Consolidated Development In Progress $ 1,296,435 (347,695) 549,511 - 1,498,251 Total $ 4,499,001 - 549,511 - 5,048,512 - - - - (115,819) (671,243) - (787,062) Net book value at 30 June 2020 2,763,199 1,498,251 4,261,450 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 Net book value at 30 June 2019 Internally Generated Software $ - 3,202,566 - - 3,202,566 - (115,819) - (115,819) 3,086,747 Consolidated Development In Progress $ 3,059,698 (3,202,566) 2,223,208 (783,905) 1,296,435 - - - - 1,296,435 Total $ 3,059,698 - 2,223,208 (783,905) 4,499,000 - (115,819) - (115,819) 4,383,182 36 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 10. Non-current Assets – Intangibles (cont’d) 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 4.5-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:  17% post-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 current sales pipeline, projected sales through current reseller partners, sales through new partnerships with resellers and increased users with existing customers; Management believes the projected revenue growth rate is prudent and justified, based on its market analyses and evaluation.  3-5% per annum increase in operating costs and overheads. 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 56% for the internally generated software and 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 99% for the internally generated software and capitalised development projects before there would need to be impair either asset, with all other assumptions remaining constant. Note 11. Right of Use Asset 2020 Cost Balance at 1 July 2019 Adjustment to lease arrangement Balance at 30 June 2020 Accumulated amortisation Balance at 1 July 2019 Amortisation Balance at 30 June 2020 Net book value at 30 June 2020 Land and Building $ 1,947,723 (45,796) 1,901,927 (689,819) (159,151) (848,970) 1,052,957 37 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 12. Current Liabilities – Trade and Other Payables Trade Payables Other Payables Note 13. Current Liabilities - Borrowings Secured Bank Loan The Group has no bank overdraft or loan facilities as at 30 June 2020. Note 14. Current Liabilities – Employee Benefits Employee Benefits Consolidated 2020 $ 117,520 23,188 2019 $ 192,744 63,846 140,708 256,590 Consolidated 2020 $ - - 2019 $ - - Consolidated 2020 $ 2019 $ 219,140 296,816 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 2020 $ 85,783 2019 $ 100,669 38 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 15. Current Liabilities - Other Accrued Expenses Deferred Revenue Note 16. Non-Current Liabilities – Employee Benefits Employee Benefits Note 17. Non-Current Liabilities – Provisions Lease Make Good Consolidated 2020 $ 112,831 178,341 2019 $ 281,698 - 291,172 281,698 Consolidated 2020 $ 28,346 2019 $ 19,049 Consolidated 2020 $ 74,249 2019 $ 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 18. Deferred Tax Assets Current Consolidated 2020 $ 2019 $ Provision for research and development tax incentive 886,008 1,494,825 Non-current Deferred tax asset - - 39 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 18. Deferred Tax (cont’d) 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 - 92,751 2,058 4,020 (96,985) 19,174 (14,960) (6,058) - (92,751) $ $ $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2020 Deferred tax asset on: Accrued Income & prepayments Property, plant & equip. Provisions Costs of raising equity Accrued expenditure Lease incentives Tax Losses Net amount 2019 Deferred tax asset on: Accrued Income & prepayments Property, plant & equip. Provisions Costs of raising equity Accrued expenditure Lease incentives Tax Losses Net amount 40 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 19. Equity – Issued Capital Consolidated 2020 Shares 2019 Shares 2020 $ 2019 $ Ordinary shares - fully paid Ordinary shares - paid to $0.00 Capital raise fees 164,021,946 - - 123,096,982 - - 17,717,891 - (2,004,499) 15,467,018 - (1,765,322) 164,021,946 123,096,982 15,713,392 13,701,686 Date Shares Issue price $ Movements in ordinary share capital Details Balance Issue of shares Options called Share forfeitures Share issue transaction costs (net tax) Balance Issue of shares Issue of shares Share issue transaction costs (net tax) 30-Jun-18 Sep-18 Jul-18 Jul-18 Sep-18 30-Jun-18 18-May-20 15-Jun-20 Jun-20 83,816,982 40,000,000 - (720,000) - 123,096,982 29,820,418 11,104,545 - Balance 30-Jun-20 164,021,946 $0.20 $0.055 $0.055 6,767,689 8,000,000 500 - (1,066,503) 13,701,686 1,640,123 610,750 (239,167) 15,713,392 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. 41 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 20. Equity – Reserves Foreign Currency Reserve Share Based Payments Reserve 2020 2019 $ 1,258 1,806,792 1,808,050 $ 1,258 1,611,892 1,613,150 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 30 June 2018 Foreign Currency Reserve Share based payments Balance at 30 June 2019 Foreign Currency Reserve Share based payments Directors, Key Management Personnel and Secretary Investor Relations Advisory Cost of capital Raise Sundry Bal (Not material) Balance at 30 June 2020 Share Based Payments $ 786,331 - 825,561 1,611,892 77,478 12,563 104,848 11 1,806,792 Consolidated Foreign Currency $ - 1,258 - 1,258 - - - - - - Total $ 786,331 1,258 825,561 1,613,150 - 77,478 12,563 104,848 11 1,808,050 42 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 21. Equity – Retained Profits Retained losses at the beginning of the financial year Adoption of AASB16 Losses after income tax expense for the year Retained losses at the end of the financial year Note 22. 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 2020 2019 $ (6,726,078) (258,814) (3,725,369) (10,710,261) $ (2,794,561) - (3,931,517) (6,726,078) Consolidated 2020 $ 2019 $ 15,549 15,549 Note 23. 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. 43 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 23. 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 24. Key Management Personnel Disclosures Short-term employee benefits Post-employment benefits Long-term benefits Share Based Payments Consolidated 2020 2019 $ $ 1,600,202 106,283 10,699 74,351 1,791,535 1,853,767 136,825 12,262 363,992 2,366,846 Note 25. 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 2020 $ 2019 $ 66,500 67,442 - 20,000 20,000 15,968 24,745 40,713 86,500 108,155 44 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 26. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Consolidated 2020 $ 2019 $ 3,064 190,599 - 3,064 137,522 328,121 Operating lease commitments includes contracted amounts for office 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 27. 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 Payment for Corporate Advisor services from Gemelli Payment for Corporate Advisor services from Amicaa/MST 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 2020 $ 10,500 - 36,000 210,962 - - - - 2019 $ 71,347 962,500 - - - - 2,000 7,345 257,462 1,043,192 45 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 27. Related Party Transactions (cont.) 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. Note 28. 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 Net assets Equity Issued capital Reserves Retained profits (accumulated losses) 2020 $ 2019 $ (3,725,369) (3,928,217) 3,559,088 5,018,062 8,922,259 9,515,692 651,019 835,105 2,111,077 926,934 6,811,182 8,592,058 15,713,392 1,808,050 (10,710,260) 13,701,686 1,613,150 (6,722,778) Total equity 6,811,182 8,592,058 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. 46 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 29. 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 2020 % 100% 100% 100% 2019 % 100% 100% 100% Note 30. Reconciliation of profit after income tax expense to net cash from operating activities 2020 2019 $ $ Loss after income tax expense for the year (3,725,369) (3,931,517) 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 Increase)/ decrease in revenue in advance 880,660 - 90,052 - 69,352 (73,142) (7,010) 32,231 (549,511) (273,829) 608,817 (68,379) - 178,341 183,344 783,905 375,560 1,258 72,681 (7,078) 54,680 (58,800) (1,991,570) (24,279) (520,733) (36,807) (449,500) - Net cash from operating activities (2,837,787) (5,548,855) 47 2 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 Note 31. 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 2020 $ (3,725,369) 2019 $ (3,931,517) Number Number 126,672,995 119,993,339 Cents (2.94) Cents (3.28) Note 32. Matters subsequent to the end of the financial year Board changes On 22 July 2020, the Company announced that it is continuing its business optimisation process following the recent successful capital raising with the board and management arrangements streamlined and a new advisory group formed. This involved reducing the number of directors from six to three and establishing a strengthened strategic advisory capability through the formation of an advisory group led by former board chair and non-executive director, Stephen Smith. The revised board consists of Miles Jakeman AM as Chair with Leanne Graham and CEO, Daniel Lai. General Meeting Further, as part of finalising the formalities relating to the recent successful capital raise, on 27 August 2020 the Company held a General Meeting where shareholders approved to:   ratify a number of prior issues of shares/share options; and, issue a number of shares and share options to advisors and directors. COVID-19 As the impact of the Coronavirus (COVID-19) pandemic is ongoing, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. No other matter or circumstance has arisen since 30 June 2020 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. 48 2 DIRECTORS DECLARATION 30 JUNE 2020 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 2020 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 Miles Jakeman AM Chairman 21 September 2020 Canberra 49 2 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of archTIS Limited for the year ended 30 June 2020, 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: 21 September 2020 RODNEY MILLER Partner 50 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 2020, 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: giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. (i) (ii) Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report. 51 Key Audit Matter How our audit addressed this matter Going concern Refer to Note 1(a) in the financial statements For the year ended 30 June 2020, the Group had incurred a net loss of $3,725,371, net cash outflows from operating activities of $2,837,787 and net cash outflows from investing activities of $3,640. The directors have prepared the financial report on the going concern basis. The directors’ assessment of the Group’s ability to continue as a going concern is based on a cashflow forecast. Our audit procedures included the following: • Critically assessing the directors' reasons as to why they believe it is appropriate to prepare the financial report on a going concern basis. • Reviewing the current financial position of the Group • Assessing the appropriateness and mathematical accuracy of the cash flow forecasts and budgets prepared by management. We determined this assessment of going concern to be a key audit matter due to the significant judgments involved in preparing the cashflow forecast, and the potential impact of the results of management’s assessment. • Challenging the reasonableness of key assumptions used. • Performing sensitivity testing on these assumptions. Disclosures relating to going concern can be found at Notes 1(a). • Assessing the adequacy of the going concern disclosures in the financial report (Note 1(a)). Capitalisation of assets, including useful lives, amortisation and impairment Refer to Note 10 in the financial statements There are a number of areas where judgments significantly impact the carrying value of intangible assets, and their respective amortisation profile. These areas are as follows: policies, as per AASB 138. Our audit procedures included the following: • Evaluated the appropriateness of capitalisation • • • the decision to capitalise or expense costs, as per AASB 138 Intangible Assets; the annual asset life and impairment review, as per AASB 136 Impairment of Assets; and significant changes that have taken place during the period or are expected to take place in the near future, which will impact the extent to which, or manner in which, an asset is used or is expected to be used. Changes in these judgments have a significant impact on the results of the Group. Accordingly, this was considered a key audit matter. Disclosures relating to the capitalisation and impairment of assets can be found at Notes 1(n), 1(o), 2 and 10. • Tested a sample of costs capitalised to determine whether capitalisation was appropriate. • Evaluated the reasonableness of management’s assessment of expected future economic benefits that are attributable to the intangible assets. We assessed the application of the Group’s annual asset life review. This included the judgments made by the Group on: • the appropriateness of assets lives applied in the calculation of amortisation. Our audit procedures in relation to management's assessment of impairment included: • Evaluating the valuation methodology used. • Evaluating the reasonableness of key assumptions including the cashflow forecasts, revenue growth rates, discount rates and other inputs used in the model. We evaluated the adequacy of disclosures included in Notes 1(n), 1(o), 2 and 10. 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 2020, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or 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 21 to 26 of the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of archTIS Limited., for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS Canberra, Australian Capital Territory Dated: 21 September 2020 RODNEY MILLER Partner SHAREHOLDER INFORMATION 30 JUNE 2020 The shareholder information set out below was applicable as at 18 September 2020. 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 2020, 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 238 2,401 936 1,389 195 5,159 563 Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below:Ordinary shares Hsbc Custody Nominees(Australia) Limited Daniel Chun Leung Lai Bruce Talbot Possum Hill Pty Ltd Mr Peter Robert Woodland Mr David Wood Citicorp Nominees Pty Limited Bond Street Custodians Limited Mr Ottmar Weiss Mr Miles Gareth Jakeman Redhill Holdings Ltd Mr David Frederick Oakley Power Invest Pty Ltd Pershing Australia Nominees Pt Y Ltd Mr Arya Ehteshami Oceanfront Properties Pty Ltd Cityscape Asset Pty Ltd Monex Boom Securities (Hk) Ltd Invia Custodian Pty Limited Mst Financial Services Pty Ltd Amicaa Advisors Pty Ltd Ligon 205 Pty Ltd 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 Number held 14,081,783 % of total shares issued 8.30% 7,320,616 7,286,436 7,284,252 5,528,336 3,155,682 2,781,264 2,200,000 1,968,450 1,454,545 1,333,668 1,270,000 1,268,750 1,202,132 1,100,220 1,050,000 1,040,694 1,028,563 1,000,000 1,000,000 1,000,000 909,091 4.32% 4.30% 4.30% 3.26% 1.86% 1.64% 1.30% 1.16% 0.86% 0.79% 0.75% 0.75% 0.71% 0.65% 0.62% 0.61% 0.61% 0.59% 0.59% 0.59% 0.54% 66,264,48264,482 39.07% 103,327,505 60.93% 55 2 SHAREHOLDER INFORMATION 30 JUNE 2020 Unquoted Options Expiring 10 Oct 2022 exercisable at $0.10 escrowed until 21 Sep 2020 Expiring 28 Aug 2023 exercisable at $0.10 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 Jul 2021 exercisable at $0.20 Expiring 05 Sep 2022 exercisable at $0.24 escrowed until 21 Sep 2020 Expiring 01 Feb 2021 exercisable at $0.12 Expiring 01 Jul 2023 exercisable at $0.20 Expiring 13 Feb 2023 exercisable at $0.20 Expiring 01 Jul 2023 exercisable at $0.20 Totals Substantial Holders The substantial holders in the Company are listed below: HSBC CUSTODY NOMINEES(AUSTRALIA) LIMITED DANIEL CHUN LEUNG LAI BRUCE TALBOT POSSUM HILL PTY LTD MR PETER ROBERT WOODLAND Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares Number On issue Number of holders 4,289,880 500,000 7,200,000 1,200,000 1,600,000 4,930,000 300,000 250,000 540,000 500,000 21,309,880 3 1 7 2 2 13 1 1 1 1 32 Ordinary shares Number held 14,081,783 % of total shares issued 8.30% 7,320,616 7,286,436 7,284,252 5,528,336 4.32% 4.30% 4.30% 3.26% 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. 56 2 

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