Constellation Technologies Limited
Annual Report 2020

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27 August 2020 Company Announcements For Immediate Release ASX Code: CT1 APPENDIX 4E AND ANNUAL FINANCIAL REPORT In accordance with the ASX Listing Rules, CCP Technologies Limited encloses for immediate release the following information: 1. Appendix 4E; and 2. Annual Financial Report for the period ended 30 June 2020. If you have a query about any matter covered by this announcement, please contact Ms Terri Bakos Authorised for release by the Board. ASX LISTING RULES – APPENDIX 4E ANNUAL FINANCIAL REPORT FOR THE YEAR ENDING 30 JUNE 2020 The following information is presented in accordance with ASX Listing Rule 4.2A.3. 1. Details of the reporting year and the previous corresponding year Current reporting year - the year ended 30 June 2020 Previous corresponding year - the year ended 30 June 2019 2. Results for announcement to the market Year ended 2.1 Revenues from ordinary activities 30 June 2020 $ 691,484 30 June 2019 $ 578,990 Increase / (Decrease) $ 112,494 % 19.43 2.2 2.3 Loss from ordinary activities after tax attributable to members 2,923,876* 2,177,277 746,599 34.29 Net loss for the year attributable to members 2,923,876* 2,177,277 746,599 34.29 2.4 Dividends (distributions) Nil 2.5 Record date for determining entitlements to the dividend Nil 2.6 Commentary on “Results for Announcement to the Market” A brief explanation of any of the figures in 2.1 to 2.4 above is contained in the attached Annual Financial Report for the Year ended 30 June 2020. *Unaudited normalised loss for the year $1,371,757. Refer page 9, 2020 Annual Report 3. Net tangible assets per security Year ended 30 June 2020 cents 30 June 2019 cents Increase / (Decrease) cents % Net tangible assets per security 0.33 (0.10) 0.43 428.44 The net tangible assets backing per ordinary security of 0.33 cents presented above is inclusive of right- of-use assets and lease liabilities. The net tangible asset backing per security, as at 30 June 2020, would reduce to 0.32 cents if right-of-use assets were excluded, and right-of-use liabilities were included in the calculation. 4. Details of entities over which control has been gained or lost during the year The only change in controlled entities during the period was the incorporation of the Group’s 100% owned Chinese entity, Beijing Constellation Technologies Development Co. Ltd. 5. Details of individual and total dividends or distributions and dividend or distribution payments Nil 6. Details of any dividend distribution reinvestment plans Nil 7. Details of any associates and joint venture entities Nil 8. Foreign Entities, Accounting Standards used in compiling the report Refer to Note 12 of the Annual Financial Report for details of investments in foreign subsidiaries. 9. Audit / Review of Accounts upon which this report is based and qualification of audit / review The Annual Financial Report has been subject to an audit and is not subject to any dispute or qualification. Constellation Technologies Limited Annual report for the year ended 30 June 2020 ABN 58 009 213 754 Constellation Technologies Limited (formerly CCP Technologies Limited) ABN 58 009 213 754 Annual report - 30 June 2020 Contents Corporate Directory .................................................................................................................................................................................. 1 Chairman’s Letter ....................................................................................................................................................................................... 2 CEO Report ................................................................................................................................................................................................... 4 Directors Report ......................................................................................................................................................................................... 8 Remuneration report (audited) ......................................................................................................................................................... 16 Auditors Independence Declaration ................................................................................................................................................ 29 Corporate governance statement .................................................................................................................................................... 30 Consolidated Statement of Profit or Loss and Other Comprehensive Income ............................................................... 31 Consolidated Statement of Financial Position ............................................................................................................................. 32 Consolidated Statement of Changes in Equity ............................................................................................................................ 33 Consolidated Statement of Cash Flows .......................................................................................................................................... 34 Notes to the Consolidated Statements .......................................................................................................................................... 35 Director’s Declaration ............................................................................................................................................................................ 73 Independent Auditors Report ............................................................................................................................................................ 74 Shareholder Information ...................................................................................................................................................................... 79 Corporate Directory Directors Mr Adam Gallagher Executive Director and Chief Executive Officer Mr Leath Nicholson Independent Non-Executive Chairman Mr Anoosh Manzoori Independent Non-Executive Director Company Secretary Ms Terri Bakos Principal registered office and principal place of business Share register Auditor Solicitors Bankers Level 7, 420 Collins Street Melbourne VIC 3000 Australia Telephone: +61 (0)3 8592 4883 Advanced Share Registry Ltd 110 Stirling Highway Nedlands WA 6909 Australia Telephone: +61 (0)8 9389 8033 Facsimile: +61 (0)8 9262 3723 PKF Brisbane Audit Level 6, 10 Eagle Street Brisbane QLD 4000 Australia Telephone: +61 (0)7 3839 9733 Facsimile: +61 (0)7 3832 1407 Nicholson Ryan Lawyers Pty Ltd Level 7, 420 Collins Street Melbourne VIC 3000 Australia Telephone: +61 (0)3 9640 0400 Westpac Banking Corporation 150 Collins Street Melbourne VIC 3000 Australia Stock exchange listings Constellation Technologies Limited shares are listed on the Australian Securities Exchange (ASX: CT1) Website https://www.ct1limited.com 1 Constellation Technologies Limited Annual Report 2020 Chairman’s Letter Mr Leath Nicholson Independent Non-Executive Chairman Dear fellow shareholders, I welcome you to the 2020 Annual Report for Constellation Technologies Limited and its subsidiaries and I thank you for your interest and continued support. Our Company is ambitiously setting out on a grand journey to define the next era of the Internet of Things that we have named ‘Constellation Technologies’. The ability of software platforms to make best use of the proliferation of data is central to enabling true digital transformation and underpins the rapidly emerging Smart Cities theme. While we are still at the very early stages of our plans, our market capitalisation has already grown in excess of 1000% from our low point in 2019, and we were very pleased to provide all shareholders who participated in our Q2 FY2020 rights issue, with this early upside. I particularly acknowledge and thank our two underwriters that supported the rights issue and whose participation I am sure gave many shareholders the confidence to invest alongside them. In December 2019, we signed two strategic partnership agreements that together contemplates new business revenues of $15m in cash by 31 December 2021. Our partners have extensive commercial and corporate experience as well as international networks. They each also chose to subsequently further invest in the Company at effectively double the price of the rights issue that was completed in October 2019 when taking into account the value of the free attaching option received by rights issue participants. The investment and revenue targets of the strategic partners provides the Board with the confidence to invest in the business to support this anticipated growth that is in addition to, and complemented by our existing and future growth initiatives. Since establishing in China in recent months we are now seeing the initial projects and momentum starting to materialise that gives us confidence in the future achievement of the strategic partnership revenue targets. Our projects to date have also given us an early glimpse of the enormous scale of the smart- cities sector that is commencing its implementation phase in China with major projects being developed across the country. We are doing all that we can to be a major beneficiary of this sector. 2 Constellation Technologies Limited Annual Report 2020 Chairman’s Letter continued… Accordingly, we have invested in our team and added significant skillsets in areas that we believe are important to our current and future growth such as AI, camera technology, IoT architecture, project management and sensor production. We have a phenomenal team working seamlessly across India, Australia and China servicing clients and opportunities in each of these regions as well as in the USA and the Middle East. While COVID-19 restrictions have had an impact on new sales across the group mainly in the form of project delays, we are see growing opportunities in the global smart-city movement with the acceleration of the mainstream awareness that the pandemic has fostered for the transition to a more digital economy in every area. Digital transformation occurs where our industries and the customers that they serve incorporate technologies that can help them become more sustainable and efficient as well as creating and enabling innovative new growth opportunities. IoT is core to this movement and we have a broad vision, a growing capability and the commercial distribution to be a significant enabler. While our share capital has expanded considerably in the financial year it is important to note that our register is now relatively tightly held with the Board, management and our strategic partners together holding over 40% of shares on issue on both an undiluted and a fully diluted basis. It is also worth noting that the exercise of the current in-the-money options would realise an additional $7.8m in cash that is potentially available to further accelerate our growth. I thank my fellow directors and our management team for staying the course through a difficult period in the 2019 calendar year, several of whom worked without payment for an extended period and even invested their monies to support the Company before we turned the corner late last calendar year. While we’re still only on the launchpad we are now in a strong overall position technically, commercially and corporately to pursue our high growth agenda. Leath Nicholson Independent Non-Executive Chairman 3 Constellation Technologies Limited Annual Report 2020 CEO Report Mr Adam Gallagher Chief Executive Officer Dear fellow shareholders, The 2020 financial year has been a formation period for the Company as it transitioned from a niche IoT solution provider to adopting an expansive vision which involves supporting a wide range of IoT and software applications. The Smart cities theme is receiving a rapidly increasing amount of mainstream attention and awareness with many countries now moving from conceptual pondering to practical application. ‘Smart Cities’ to us is an umbrella term under which all IoT applications can fit. Our existing applications in cold storage monitoring as well as our more recent projects in city infrastructure monitoring and operational management are each examples of smart city applications. In Australia, we are seeing an increasing amount of market enquiry from all levels of government and infrastructure operators for technology vendors that can provide smart city applications which is a first practical step for these groups to understand what might be possible in terms of new technologies and who they should work with to develop them. The next stage will be tendering for smart city applications and we have positioned the Company to participate in this evolving process. The market of IoT vendors is highly fragmented with most major technology groups watching the smaller innovators emerge and themselves concentrating on the services side to implement and support hardware networks or provide software platforms on which innovators can create new applications. The innovators normally focus on their domain expertise and offer solutions within an industry niche such as healthcare, environment, transport or energy. CT1 was originally just another example of a domain innovator with its temperature monitoring solution and the Company experienced a similar commercialisation journey to many in the IoT space, where achieving large- scale rollouts with major groups takes a long time. While continuing to progress with this application we have sought to both reduce inherent business model risk and increase opportunity by building out our backend IoT platform to position the Company to support all types of IoT applications, including our own as well as third party solutions. 4 Constellation Technologies Limited Annual Report 2020 CEO Report continued… An IoT platform has three basic functions: to receive data, process that data and deliver it to the user. This seems simple, though in practice there is a myriad of data flows that need to be intelligently integrated and processed in a way that is practical, viable and ultimately useful, which to a user means timely and intuitive. We have hired and incentivised some of the best minds in IoT with broad experience in developing and supporting applications across a broad number of industries to complement and build out our existing team with a view to becoming a key supporting participant to the IoT industry. On the hardware side sensors are becoming increasing smaller, smarter and cheaper with domain knowledge experts from all fields clamouring to create and implement their own particular IoT solution. We want to help industry to innovate through providing a robust back-end IoT platform which we have named the ‘MeridianCT Platform’ on which innovators can develop, launch and maintain their IoT solutions. To do this we help customers to ensure that their hardware networks are optimised by incorporating the best available sensors, augmenting existing hardware, or even creating new sensors through our design and production capabilities. We then connect their data streams, add their AI or assist customers to source or develop new AI and then design, implement and support their front-end user interfaces across all devices from control rooms to smartphones. We work closely with research, services and hardware partners to incorporate expertise, finance, ‘boots on the ground’ for large-scale deployments and other inputs as necessary to deliver the customer outcomes. Notably in Q4 FY20, we were the first company in Australia to be accredited with Panasonic to load algorithms into their new smart camera. We are working with the University of NSW and Monash University as well as other research groups to ensure that our solutions carry the latest innovations available. After a delay with COVID-19 restrictions we formally opened our office in China in mid-June. We have a small team of seven that work in concert on a daily basis with our Australian and Indian teams to address the starting opportunities that our strategic partners have assisted us to procure to gain initial traction in the China market. 5 Constellation Technologies Limited Annual Report 2020 CEO Report continued… As we complete these early projects and pass through their revenue hurdle we anticipate that we will establish a track record that allows us to pursue increasingly larger smart city projects. A key strategic objective is to provide our shareholders with positive exposure to the enormous smart city market in China. As we are developing solutions for universal industry problems and opportunities, we are already seeing some positive cross-sell in the Australian market from prospective customers in government and industry that are looking at our China successes as they seek to similarly digitise their operations. With the movement restrictions in place at this point, we have been a little hamstrung in our capacity to be able to pursue new local opportunities as aggressively as we otherwise would have liked. Our US new business has also stalled though we believe that we’ll see some positive movement by the end of the calendar year. In the last twelve months we have more than doubled the number of temperature monitoring tags and we expect to do better than that in the coming twelve months. While this side of the business has not delivered to expectations in the past, it certainly remains an ongoing part of our growing product suite and we are steadily approaching the larger rollouts that the Company has always anticipated would land at some point. While we pursue these opportunities, we have added several other irons in the fire in regard to innovative industry IoT solutions and we will continue to broaden our market offering that is being progressively developed on a project basis. We have an excellent team of people and in recent months we have bedded down our internal systems to provide for sustained scalability to ensure that there are no operational or resourcing impediments to our continued growth. Our vision of ‘making data, make sense’ sums up the objective of where the IoT sector as a whole needs to be heading to enable business and government to continue to digitise effectively, without drowning in an ever-increasing sea of data and the associated communications costs from the streaming of that data across their organisations. 6 Constellation Technologies Limited Annual Report 2020 CEO Report continued… We are living our name’s sake of ‘Constellation Technologies’ that solve this mounting global challenge by embracing, collating, learning from and practically applying the expanding cosmos of data for the tailored benefit of our customers and their stakeholders. Adam Gallagher Chief Executive Officer 7 Constellation Technologies Limited Annual Report 2020 Directors Report The directors are pleased to present their report on the consolidated entity consisting of Constellation Technologies Limited (the ‘Company’) and the entities it controls (the ‘Consolidated entity’ or ‘Group’) for the year ended 30 June 2020. Directors and Company Secretary The following persons were directors of Constellation Technologies Limited during the whole of the financial year and up to the date of this report: Mr Adam Gallagher, Executive Director and Chief Executive Officer Mr Leath Nicholson, Independent Non-Executive Chairman Mr Anoosh Manzoori, Independent Non-Executive Director The following persons held office as Company Secretary of Constellation Technologies Limited during the financial year and up to the date of this report or their date of resignation as noted: Ms Terri Bakos – appointed 17 December 2019 Mr Adam Gallagher – resigned 17 December 2019 Mr Phillip Hains – resigned 17 December 2019 Principal activities The principal activities of the Group are to bring innovative solutions to market which leverage cloud, internet of things (IoT), edge-computing sensors, big data, analytics, machine learning (ML), artificial intelligence (AI) and other advanced technologies. Review of operations Financial results Reported revenue for the year has increased 19.43% to $691,484 (2019: $579,990) as a result of the Group’s expansion into China. The Group however recorded a loss for the year of $2,923,876 (2019: $2,177,277), a 34.29% increase over the prior year. During the year, the Group did however incur several large abnormal expenses which impacted its result. Adjusting for these abnormal items and share based payments made to employees and contractors for the year (and corresponding year) results in an unaudited normalised loss for the year, before tax of $1,371,757 – an improvement of 19.7% over the prior year normalised result. 8 Constellation Technologies Limited Annual Report 2020 Directors Report continued… 2020 $ 2019 $ Loss before income tax (audited) (2,923,876) (2,177,277) Share-based payments (non-cash) Settlement to previous management & suppliers Legal and mediation Capital raising associated costs China project Normalised Loss before income tax (unaudited) 1,231,492 121,067 60,209 45,095 94,256 (1,371,757) 437,236 - 36,621 - - (1,703,420) During the past 18 months, the Group had been involved in protracted negotiations with previous management and suppliers which has resulted in settlements and costs in the vicinity of $180k during the current year. With the Group’s move into the Asian region, specifically China, the Group undertook several capital raising activities and incurred specific formation costs that were one-off in nature. The Group had net assets of $4,426,941 as at 30 June 2020 (2019: net deficiency of assets of $550,540). As at 30 June 2020, the Group had cash reserves of $4,405,173 (2019: $40,854). Noting the additional cash raised during the year, the directors are of the view that the Group will continue to be able to pay its debts as and when they fall due and have prepared the financial report on a going concern basis. Operations On 27 May 2020, shareholders resolved to change the Company’s name from CCP Technologies Limited to Constellation Technologies Limited. Information on the operations of the Group and its business strategies and prospects is set out in the Chairman’s Letter CEO Report section of this annual report. Dividends No dividends have been paid or proposed by the Group during or since the end of the financial year (2019: nil). Significant changes in the state of affairs Other than the information set out in the Chairman's letter, CEO’s Report and activities section of this annual report, there are no significant changes in the state of affairs that the Group has not disclosed. Event since the end of the reporting period On 29 July 2020, the Company announced that ASIC had consented to the resignation of BDO Audit Pty Ltd as the Group’s auditors. PKF Brisbane Audit commenced as the Group’s auditors for the FY20 audit. The Board intends to seek confirmation of PKF Brisbane Audit as the Group’s auditors at the 2020 Annual General Meeting. 9 Constellation Technologies Limited Annual Report 2020 Directors Report continued… No other matter or circumstance has occurred subsequent to year end that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or economic entity in subsequent financial years. Likely developments and expected results of operations Other than the information set out in the Chairman's letter and review of operations and activities section of this annual report, there are no likely developments or details on the expected results of operations that the Group has not disclosed. Environmental regulation The Group is not affected by any significant environmental regulation in respect of its operations. Our Board The names of directors in office at any time during or since the end of the financial year are: Mr Adam Gallagher Executive Director and Chief Executive Officer Experience: Adam is a technology leader in IoT and digitalisation with a corporate focus on creating sustained, rapid growth through innovation and commercialisation complemented by strategic corporate transactions. As a director of Envirosuite Limited for 8 years, he was instrumental in building, funding, and transitioning the Company across a series of acquisitions and corporate transactions from a $2.5m Australian environmental consulting business with a pilot IoT platform, to a $200m international technology company with 500 clients across more than a dozen countries. Adam has previously worked in corporate finance, funds management, stock exchanges, digital media in public companies with a focus on creating and managing catalytic growth opportunities. Qualifications: Date of appointment: - Bachelor of Economics - Master in Commerce - Graduate Diploma in Information Systems - Graduate Diploma in Applied Corporate Governance Other current directorships: Former directorships in last 3 years: Committees: CT1 Ordinary Shares: CT1 Options: 1 June 2015 None Envirosuite Limited (ASX:EVS), until 31 July 2020 None 26,482,360 24,729,747 10 Constellation Technologies Limited Annual Report 2020 Directors Report continued… Mr Leath Nicholson Independent Non-Executive Chairman Experience: Leath was a corporate partner at a leading Melbourne law firm, gaining experience with a breadth of ASX listed entities, before co-founding Foster Nicholson (now Nicholson Ryan) in 2008. Leath's principal clients continue to be ASX listed companies and high net worth individuals. Leath has particular expertise in mergers and acquisitions, IT based transactions, and corporate governance. Qualifications: Date of appointment: 14 October 2016 - Bachelor of Economics Other current directorship: (Honours) - Bachelor of Laws (Honours) - Master of Laws (Commercial Law) Former directorships in last 3 years: AMA Group Limited (ASX:AMA), since 23 December 2015 Money3 Corporation Limited (ASX:MNY) until 15 November 2019 Committees: CT1 Shares: CT1 Options: Chair – Remuneration & Nomination Committee Member – Audit & Risk Committee 17,930,084 17,033,613 11 Constellation Technologies Limited Annual Report 2020 Directors Report continued… Mr Anoosh Manzoori Independent Non-Executive Director Experience: Anoosh has over 20 years’ experience as an entrepreneur, investor, board member and advisor, specialising in helping fast growth technology companies. Following the completion of his tertiary studies Anoosh founded several technology companies including one of Australia’s largest cloud-hosting platforms that he exited via a highly successful trade sale. He is also a director of investment and corporate advisory firm Shape Capital Pty Ltd. Anoosh leverages his experience and strong international network in the technology sector in both corporate and capital markets to help shape and optimise CT1’s continued growth. Qualifications: Date of appointment: 14 October 2016 - Bachelor of Science - Graduate Diploma in Business Enterprise, Business Other current directorships: First Growth Funds Ltd, since 14 December 2017. Company delisted from the ASX on 4 December 2019 and joined the Canadian Stock Exchange. Former directorships in last 3 years: YPB Group Limited (ASX:YPB), until 4 June 2019 Committees: Chair – Audit & Risk Committee Member – Remuneration & Nomination Committee CT1 Shares: CT1 Options: 10,260,506 9,201,682 12 Constellation Technologies Limited Annual Report 2020 Directors Report continued… Our management team Ms Terri Bakos Company Secretary & Chief Financial Officer Experience: Terri has over 20 years’ experience providing company secretarial, financing accounting and compliance services to ASX Listed and unlisted public companies in the technology, financial services, automotive, mining and biotech sectors. She holds a Bachelor of Business in Accounting, is a Chartered Accountant and Chartered Secretary. Mr Kartheek Munigoti General Manager Experience: Kartheek Munigoti is an IoT expert with 18 years’ experience in creating and managing technology products and businesses and combines a deep knowledge of IoT solutions with experience running technology businesses. Kartheek’s experience and skill-set covers software, firmware and hardware development. Kartheek has been directly involved and/or responsible for the commercialisation of innovative products and services. This includes concept, design, product development and deployment. Meetings of directors The numbers of meetings of the Group's board of directors and of each board committee held during the year ended 30 June 2020, and the numbers of meetings attended by each director were: Mr Adam Gallagher Mr Leath Nicholson Mr Anoosh Manzoori Full meetings of directors Meetings of committees Audit Remuneration A 8 8 7 B 8 8 8 A - 2 2 B - 2 2 A - 1 1 B - 1 1 A = Number of meetings attended B = Number of meetings held during the time the director held office or was a member of the committee during the year 13 Constellation Technologies Limited Annual Report 2020 Directors Report continued… Shares under option Unissued ordinary shares Unissued ordinary shares of Constellation Technologies Limited under option at the date of this report are as follows: Options Grant Date Recipients 18/11/2016 Director Director 8/11/2016 15/12/2016 Consultants 10/11/2017 Director 11/12/2018 14/11/2019 29/05/2020 29/05/2020 Directors 19/06/2020 Investors - free attaching Rights Issue - free attaching Employees Sophisticated Investor Performance Rights Grant Date Recipients 13/01/2020 13/01/2020 1/02/2020 Employees Employees Employees Expiry Date 15/12/2020 15/12/2020 15/12/2019 25/10/2021 10/12/2020 14/11/2022 29/05/2023 29/05/2023 18/06/2023 Exercise Price $0.100 $0.100 $- $0.100 $0.030 $0.015 $0.015 $0.015 $0.015 30 June 2020 30 June 2019 2,000,000 2,000,000 - 1,446,550 19,890,191 426,582,657 19,285,714 39,142,858 16,800,000 527,147,970 2,000,000 2,000,000 1,533,000 1,446,550 43,062,350 - - - - 50,041,900 Vesting Date Expiry Date 30 June 2020 3,000,000 13/04/2022 13/01/2021 3,000,000 13/04/2022 13/01/2022 375,592 1/05/2021 1/02/2021 6,375,592 30 June 2019 - - - - No option holder has any right under the options to participate in any other share issue of the Company or any other entity. Shares issued on the exercise of options or rights 57,410,886 ordinary shares of Constellation Technologies Limited were issued during the year ended 30 June 2020 on the exercise of options granted. Insurance of officers and indemnities Insurance of officers During the financial year, the Group paid a premium in respect of a contract to insure the directors and executives of the Group against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. 14 Constellation Technologies Limited Annual Report 2020 Directors Report continued… Indemnity of auditor Constellation Technologies Limited has not, during or since the financial year, indemnified or agreed to indemnify the auditor of the Group or any related entity against a liability incurred by the auditor. During the financial year, the Group has not paid a premium in respect of a contract to insure the auditor of the Group or any related entity. 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 Company, or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the Corporations Act 2001. Non-audit services During the year ended 30 June 2020, the Group did not engage the external auditor to provide non-audit services. Rounding of amounts The Group is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the 'rounding off' of amounts in the directors' report. Amounts in the directors' report have been rounded off in accordance with the instrument to the nearest dollar. 15 Constellation Technologies Limited Annual Report 2020 Remuneration report (audited) The directors present the Constellation Technologies Limited 2020 Remuneration Report, outlining key aspects of our remuneration policy and framework, and remuneration awarded this year. The report is structured as follows: a) Principles used to determine the nature and amount of remuneration b) Details of remuneration c) Service agreements d) Share-based compensation e) Relationship between the remuneration policy and group performance f) Key management personnel disclosures (a) Principles used to determine the nature and amount of remuneration Remuneration policy The performance of the Group depends upon the quality of its directors and executives. To prosper, the Group must attract and retain highly skilled directors and executives. Remuneration committee The Board has a Remuneration Committee comprising the following members: • Mr Leath Nicholson, Non-Executive Director (chair) • Mr Anoosh Manzoori, Non-Executive Director Mr Adam Gallagher, CEO has a standing invitation to attend Committee meetings, however he is not allowed to vote. The Committee assesses the appropriateness of the nature and amounts of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high-quality board and executive team. Officers are given the opportunity to receive their base emoluments in a variety of forms including cash, salary sacrifice and fringe benefits. It is intended that that the manner of payments chosen will be optimal for the recipient without creating undue cost for the Group. Remuneration structure It is the Group's objective to provide maximum stakeholder benefit from the retention of a high-quality board and executive team by remunerating directors and other key management personnel (KMP) fairly and appropriately with reference to relevant employment market conditions. 16 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… To assist in achieving this objective, the Committee considers the nature and amount of executive directors’ and officers’ emoluments alongside the Group's financial and operational performance. The expected outcomes of the remuneration structure are the retention and motivation of key executives, the attraction of quality management to the Group and performance incentives, which allow executives to share the rewards of the success of the Group. In accordance with best practice corporate governance, the structure of executive and non-executive director remuneration is separate and distinct. Non-executive directors The Board seeks to set aggregate remuneration at a level which provides the Group with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. The constitution of Constellation Technologies Limited and the ASX Listing Rules specify that the non-executive directors are entitled to remuneration as determined by the Group in a General Meeting to be apportioned amongst them in such manner as the directors agree and, in default of agreement, equally. The maximum aggregate remuneration currently approved by shareholders for directors' fees is for a total of $400,000 per annum. This amount was approved at the 2020 General Meeting held on 27 May 2020 and is an increase from $250,000 previously approved by shareholders. If a non-executive director performs extra services which in the opinion of the directors are outside the scope of the ordinary duties of the director, the Group may remunerate that director by payment of a fixed sum determined by the directors in addition to or instead of the remuneration referred to above. Non-executive directors are entitled to be paid travel and other expenses properly incurred by them in attending directors or General Meetings of the Group or otherwise in connection with the business of the Group. Executive directors and senior management The Group aims to reward executive directors and senior management with a level and mix of remuneration commensurate with their position and responsibilities within the group and to: • reward executives for Group and individual performance against targets set by reference to appropriate benchmarks; • align the interests of the executives with those of shareholders; • link reward with strategic goals and performance of the Group; and • ensure total remuneration is competitive by market standards. 17 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… The remuneration of the executive directors and senior management may from time-to-time be fixed by the Remuneration Committee. As noted above, the policy is to align executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering short- and long-term incentives. The level of fixed remuneration is set to provide a base level of remuneration, which is both appropriate to the position and is competitive in the market. Fixed remuneration is reviewed annually by the committee, and the process consists of a review of group-wide and individual performance, relevant comparative remuneration in the market and internal, and where appropriate, external advice on policies and practices. In relation to the payment of bonuses, options and other incentive payments, discretion is exercised by the committee, having regard to the overall performance of the Group and the performance of the individual during the year. Employment and consultancy contracts The Group utilises a mixture of employment and consultancy contracts to provide the Group with the flexibility to operate effectively in a dynamic industry. It is the Board’s policy that agreements are entered into with all directors, executives and employees. Details of notice periods and termination clauses are disclosed under Section c) below. Voting and comments made at the last annual general meeting At the last annual general meeting (AGM), the Group received approval for the remuneration report adopted for the 2019 financial year. The Group did not receive any specific feedback at the AGM or throughout the year on its remuneration policies. (b) Details of remuneration Mr Adam Gallagher, Executive Director and Chief Executive Officer Mr Leath Nicholson, Independent Non-Executive Chairman Mr Anoosh Manzoori, Independent Non-Executive Director Key management personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group receiving the highest remuneration. Details of the remuneration of the KMP of the Group are set out in the following tables. Apart from Directors, the following persons were considered other KMP during the financial year: • Mr Kartheek Munigoti, General Manager and Chief Technical Officer • Ms Terri Bakos, Company Secretary & Chief Financial Officer (appointed Company Secretary 17 December 2019 & CFO 1 January 2020) 18 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… Amounts of remuneration The following table shows details of remuneration expenses recognised for the Group's KMP for the year ended 30 June 2020. Short-term benefits Post- employm ent benefits Share-based payments Cash salary & fees $ Cash bonus $ Non- monetary benefits Annual leave Superann -uation $ $ $ Shares Options $ $ Total $ 46,667 40,000 - - 135,000 - 156,000 36,923 414,590 - - - - - - - - - - 30,200 65,219 142,086 - 29,000 62,627 131,627 - 155,000 365,693 655,693 - - (22,356) 3,289 14,799 3,508 28,125 - 62,474 49,979 239,042 93,699 - (19,067) 18,307 242,325 605,992 1,262,147 2020 Non-executive directors Leath Nicholson1 Anoosh Manzoori2 Executive directors Adam Gallagher3 Other KMP Kartheek Munigoti Terri Bakos4 Total compensation 1 12,857,142 shares with a deemed value of $90,000 and a free-attaching option were issued to an associate of Mr Nicholson during the year. 4,314,285 shares (with a 1:1 free attaching option) were issued in lieu of $20,000 of cash-based directors fees for this financial year and $ 10,200 of directors fees for the prior year. The balance of the equity was issued in lieu of $59,800 of fees owing to related party entities of Mr Nicholson for services provided to the Company during this financial year. Refer related party transactions note 15. 2 4,142,858 shares with a deemed value of $29,000 and a 1:1 free-attaching option were provided to an associate of Mr Manzoori during the year in lieu of receiving $ 16,667 of cash-based directors fees for this financial year and $12,334 for the prior year. 19 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… 3 22,142,858 shares with a deemed value of $155,000 and a 1:1 free-attaching option were issued to an associate of Mr Gallagher during the year in lieu of receiving $45,000 of cash-based remuneration for this financial year and $110,000 for the prior year. The full value of the equity has been expensed in the current year as it formed compensation for services performed during the current and prior years and was subject to shareholder approval at a general meeting of shareholders held 27 May 2020. The equity will vest upon Mr Gallagher stepping down as CEO. For accounting purposes this has been estimated to be within 2 years and is of no way a reflection of his estimate date of termination of employment with the Company 4 Compensation since commencing with the Company 1 January 2020. Short-term benefits Post- employm ent benefits Share-based payments 2019 Cash salary & fees Cash bonus Non- monetary benefits Annual leave Superan- nuation Shares Options Total $ $ $ $ $ $ $ $ Non-executive directors Leath Nicholson Anoosh Manzoori Executive directors Adam Gallagher Michael White1 Anthony Rowley1 Other KMP 23,000 15,000 15,000 112,238 96,617 Kartheek Munigoti 126,000 Total KMP compensation 387,855 1 Resigned 4 February 2019 - - - - - - - - - - - - - - - - - - - 37,000 35,000 8,075 8,075 68,075 58,075 - 7,980 7,191 35,000 91,661 90,661 7,826 57,826 (5,697) 206,182 (5,697) 188,772 - 14,889 11,970 77,710 - 230,569 - 14,889 27,141 367,032 12,582 809,499 20 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Fixed remuneration At risk - STI At risk - LTI 2020 % 2019 % 2020 % 2019 % 2020 % 2019 % 33 30 21 - - 65 45 88 86 86 57 53 100 - - - - - - - - - - - 43 47 - - 67 70 79 - - 35 55 12 14 14 - - - - Non-executive directors Leath Nicholson Anoosh Manzoori Executive directors Adam Gallagher Michael White Anthony Rowley Other KMP Kartheek Munigoti Terri Bakos (c) Service agreements Adam Gallagher The Group has entered into a service arrangement with Famile Pty Ltd to provide the services of Mr Adam Gallagher as an Executive Director and Chief Executive Officer of the Group commencing on 9 February 2019. The key terms of the arrangement are: • • • Current fee of $180,000 per annum. No termination payment other than statutory requirements. 6 month notice period. Leath Nicholson The Group has entered into a service arrangement with Catellen Pty Ltd to provide the services of Mr Leath Nicholson as Non-Executive Chairman of the Group commencing on 14 October 2016. The key terms of the arrangement are: • • • Current fee of $70,000 per annum. No termination payment. No notice period. 21 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… Anoosh Manzoori The Group has entered into a service arrangement with Shape Capital Pty Limited to provide the services of Mr Anoosh Manzoori as a Non-Executive Director of the Group commencing on 14 October 2016. The key terms of the arrangement are: • • • Current fee of $60,000 per annum. No termination payment. No notice period. Kartheek Munigoti The Group has entered into a permanent employment contract with Mr Kartheek Munigoti as General Manager and Chief Technical Officer (CTO). The key terms of the contract are: • • • Current salary of $156,000 per annum plus statutory superannuation contributions. No termination payment other than statutory requirements. 6 month notice period, except where there is a change in control and the notice period is reduced to 3 months. Terri Bakos The Group has entered into a permanent part-time employment contract with Ms Terri Bakos as Company Secretary and Chief Financial Officer (CFO). The key terms of the contract are: • • • Salary of $80,000 per annum plus statutory superannuation contributions. No termination payment other than statutory requirements. 3 month notice period. 22 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… (d) Equity instruments I. Shares and options granted as compensation. Details on Shares and Options over ordinary shares in the Company that were granted as compensation to each Key Management Person during the reporting period and details of options that vested during the reporting period are as follows: Shares Name Grant Date Vesting Date Qty Issue Price Value of Shares Granted Year in which shares vests Leath Nicholson 27/05/2020 29/05/2020 4,314,285 $0.0070 $30,200 Adam Gallagher 27/05/2020 29/05/2022 22,142,858 $0.0070 $155,000 Anoosh Manzoori 27/05/2020 29/05/2020 4,142,858 $0.0070 $29,000 Kartheek Munigoti 1/05/2020 29/05/2020 3,571,429 $0.0070 $25,000 Kartheek Munigoti 1/05/2020 29/05/2021 3,571,429 $0.0070 $25,000 Kartheek Munigoti 1/05/2020 29/05/2022 3,571,428 $0.0070 $25,000 FY20 FY22 FY20 FY20 FY21 FY22 Options Name Grant Date Vesting Date Expiry Date Qty Exercise Price Fair value per option at grant date Value of options exercise d during the year Value of options lapsed during the year Year in which option vests Value of options granted during the year $ $ $ $ $ Leath Nicholson Adam Gallagher Anoosh Manzoori Kartheek Munigoti 27/05/2020 29/05/2020 29/05/2023 4,314,285 0.0150 0.0150 65,219 27/05/2020 29/05/2022 29/05/2023 22,142,858 0.0150 0.0170 365,693 27/05/2020 29/05/2020 29/05/2023 4,142,858 0.0150 0.0150 62,627 1/05/2020 29/05/2020 29/05/2023 10,714,286 0.0150 0.0050 62,474 Terri Bakos 1/05/2020 29/05/2020 29/05/2023 8,571,428 0.0150 0.0050 49,979 - - - - - - - - - - FY20 FY22 FY20 FY20 FY20 All options have a life of 3 years from 29 May 2020 and expire on their expiry date. The value of shares and fair value of options granted as compensation are expensed as remuneration over their vesting period, except for Mr Gallagher. Shares and options issued to Mr Gallagher were expensed in the current year as they formed compensation for services performed during the current and prior years. The equity will vest upon Mr Gallagher stepping down as CEO. For accounting purposes this has been estimated to be within 2 years and is of no way a reflection of his estimate date of termination of employment with the Company. 23 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… Further information can be found in the Share-based payment note 16. II. Exercise of options granted as compensation. No options granted as compensation during the current or prior years were exercised during the year by Key Management Personnel. III. Movement in options granted as compensation. Refer to movement in Key Management Personnel disclosures below. (e) Relationship between the remuneration policy and group performance Statutory performance indicators The factors that are considered to affect shareholder return in the past five years are summarised below: Share price at end of year Market capitalisation at the end of the year ($M) 30 June 2020 30 June 2019 30 June 2018 30 June 2017 30 June 2016 $ 0.032 $ 0.018 $ 0.010 $ 0.025 $ 0.016 31.2 8.92 3.50 7.10 2.52 Net profit/(loss) for the financial year (2,923,876) (2,177,277) (2,833,837) (3,758,069) (376,510) Dividends paid Nil Nil Nil Nil Nil Fixed remuneration is not linked to Group performance. It is set to the individuals' role, responsibilities and performance and remuneration levels for similar positions in the market. The Board do not believe that financial targets such as net profit are the only appropriate performance measure for the granting of short and long term incentives to KMP. Other financial targets such as cost reduction and key performance indicators such as projects/strategic targets, executive behavior and customer experience are equally as important for a Group in this stage of its life cycle and have a direct and indirect impact on shareholder returns. During the year, the Group granted equity to KMP’s in lieu of cash-based fixed remuneration or as a fee for service outside of employment contracts. Share prices are subject to the influence of market sentiment toward the sector in which it operates and increase and decreases in the share price may occur independently of executive performance or remuneration. 24 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… (f) Key management personnel disclosures Share holdings The number of shares in the parent entity held during the financial year ended 30 June 2020 by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at the start of the year Granted as remuneration Received on exercise of options Other changes1 Balance at the end of the year Vested Non-executive directors Leath Nicholson 2,176,471 4,314,285 Anoosh Manzoori 2,058,824 4,142,858 - - 11,439,328 17,930,084 17,930,084 4,058,824 10,260,506 10,260,506 Executive directors Adam Gallagher Other KMP 2,981,772 22,142,858 - 1,357,730 26,482,360 4,339,502 Kartheek Munigoti 25,341,882 10,714,286 Terri Bakos - - 32,558,949 41,314,287 - - - 5,000,000 41,056,168 33,913,311 - - - 21,855,882 95,729,118 66,443,403 1Other changes reflect changes in holdings as a result of acquisitions outside of remuneration activities, I.e. on and off market acquisitions, compensation for services provided by related parties and subscriptions under rights issue. Option holdings The number of options over ordinary shares in the parent entity held during the financial year ended 30 June 2020 by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: 25 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… Balance at the start of the year Granted as remuneration Exercised Other changes1 Balance at the end of the year Vested and exercisable Non-executive directors Leath Nicholson 2,000,000 4,314,285 - 10,719,328 17,033,613 17,033,613 Anoosh Manzoori 2,000,000 4,142,858 - 3,058,824 9,201,682 9,201,682 Executive directors Adam Gallagher 1,446,550 22,142,858 - 1,140,339 24,729,747 2,586,889 Other KMP Kartheek Munigoti Terri Bakos - - 10,714,286 8,571,428 - - 5,000,000 15,714,286 15,714,286 - 8,571,428 8,571,428 5,446,550 49,885,715 - 19,918,491 75,250,756 53,107,898 1Other changes reflect changes in holdings as a result of acquisitions outside of remuneration activities, i.e. on and off market acquisitions, compensation for services provided by related parties and subscriptions under rights issue. Transactions with KMP and related parties Transactions between key management personnel related parties are on normal commercial terms and conditions no more favorable than those available to other parties unless otherwise stated. The following transactions occurred during the year ended 30 June 2020: 26 Constellation Technologies Limited Annual Report 2020 Remuneration report continued… During the Year Outstanding at end of Year During the Year Outstanding at end of Year 2020 2020 $ - $ - 2019 $ 16,788 2019 $ 1,416 33,000 - 6,000 6,600 18,982 - 64,364 6,896 131,650 - 94,201 95,897 - - - - - 33,675 37,042 5,833 - - - - - 27,408 15,125 15,747 Office rent and outgoings paid on an arm’s length commercial basis to Lagoon Properties Pty Ltd, company associated with former directors Michael White and Anthony Rowley in respect of offices in St Kilda. Office rent and outgoings paid on an arm's length commercial basis to FNJ Properties Pty Ltd, a company associated with director, Leath Nicholson in respect of the Groups's Melbourne Offices. Compensation received in cash and equity. Consultancy fees paid to Skantech Pty Ltd, a company associated with Kartheek Munigoti, in respect of the provision of IT technical support services. Legal fees paid on normal commercial terms to Nicholson Ryan Lawyers Pty Ltd, a company associated with director Leath Nicholson. Compensation received in cash and equity. Share issue cost paid to First Growth Funds Limited, a company associated with director, Anoosh Manzoori Directors fees payable to Catellen Pty Ltd, a company associated with Leath Nicholson Directors fees payable to Famile Pty Ltd, a company associated with Adam Gallagher Directors fees payable to Shape Capital Pty Ltd, a company associated with Anoosh Manzoori [This concludes the remuneration report, which has been audited] 27 Constellation Technologies Limited Annual Report 2020 Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page. This report is made in accordance with a resolution of directors. Mr Adam Gallagher Executive Director and Chief Executive Officer Melbourne 27 August 2020 28 Constellation Technologies Limited Annual Report 2020 Auditors Independence Declaration 29 Constellation Technologies Limited Annual Report 2020 Corporate governance statement Constellation Technologies Limited and the Board are committed to achieving and demonstrating the highest standards of corporate governance. Constellation Technologies Limited has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. The 2020 Corporate Governance Statement dated as at 30 June 2020 reflects the corporate governance practices in place throughout the 2020 financial year. The 2020 Corporate Governance Statement was approved by the Board on 27 August 2020. A description of the Group's current corporate governance practices is set out in the Group's Corporate Governance Statement which can be viewed at https://www.ct1limited.com. 30 Constellation Technologies Limited Annual Report 2020 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2020 Revenue from contracts with customers Cost of sales Gross profit/(loss) Other gains/(losses) - net Distribution costs General and administrative expenses Research and development expenses Selling and market expenses Operating loss Finance income Finance expense Finance costs - net Loss before income tax Income tax expense Loss for the year Net loss attributable to equity holders of the company Other comprehensive income Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations Total comprehensive loss for the year, net of tax Notes 2020 $ 2019 $ 2 3a 3b 691,484 (403,085) 288,399 578,990 (353,118) 225,872 84,779 (2,171) (16,662) (3,196,553) (77,562) (6,646) (26,424) (2,155,512) (157,077) (62,586) (2,924,245) (2,177,898) 1,759 (1,390) 369 621 - 621 (2,923,876) (2,177,277) 4 - - (2,923,876) (2,177,277) (2,923,876) (2,177,277) (100,615) 3,890 (3,024,491) (2,173,387) Total comprehensive loss attributable to equity holders of the company (3,024,491) (2,173,387) Loss per share for loss attributable to the ordinary equity holders of the company: Basic/diluted earnings per share 18 (0.33) (0.52) Cents Cents The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 31 Constellation Technologies Limited Annual Report 2020 Consolidated Statement of Financial Position As at 30 June 2020 Notes 2020 $ 2019 $ Assets Current assets Cash and cash equivalents Trade and other receivables Other Total current assets Non-current assets Property, plant and equipment Other Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Provisions Contract liabilities Liabilities directly associated with discontinued operations Total current liabilities Non-current liabilities Borrowings Total non-current liabilities Total liabilities Net assets/(deficiency) Equity Contributed equity Reserves Accumulated losses Total equity 5a 5b 6a 6b 6a 5c 6c 6d 2b 6c 7a 7b 4,405,173 77,182 224,945 4,706,851 40,854 90,507 24,144 155,505 82,152 20,208 102,360 25,471 - 25,471 4,809,211 180,976 238,667 43,746 38,526 25,050 21,658 367,647 14,622 14,622 615,376 - 36,312 58,170 21,658 731,516 - - 382,269 731,516 4,426,942 (550,540) 16,390,763 845,977 (12,809,798) 4,426,942 9,644,401 154,424 (10,349,365) (550,540) The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 32 Constellation Technologies Limited Annual Report 2020 Consolidated Statement of Changes in Equity For the year ended 30 June 2020 Notes Share Capital Other reserves Accumulated Losses $ $ $ Total equity $ At 1 July 2018 Loss for the period Other comprehensive income Total comprehensive loss for the period 8,400,628 137,951 (8,172,088) (2,177,277) - 366,491 (2,177,277) 3,890 3,890 3,890 (2.177.277) (2,173,387) - - Transactions with owners in their capacity as owners: Shares issued, net of transaction costs Share based payments 1,243,773 - 1,243,773 - 12,583 12,583 - - - 1,243,773 12,583 1,256,356 Balance at 30 June 2019 9,644,401 154,424 (10,349,365) (550,540) At 1 July 2019 9,644,401 154,424 (10,349,365) (550,540) Loss for the period Other comprehensive income Total comprehensive loss for the period - - - (100,615) (2,923,876) - (2,923,876) (100,615) - (100,615) (2,923,876) (3,024,491) Transactions with owners in their capacity as owners: Shares issued, net of transaction costs Write-back of equity Share based payments 7 7,209,805 (463,443) - 6,746,362 - - 792,168 792,168 - 463,443 - 463,443 7,209,805 - 792,168 8,001,973 Balance at 30 June 2020 16,390,763 845,977 (12,809,798) 4,426,942 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 33 Constellation Technologies Limited Annual Report 2020 Consolidated Statement of Cash Flows For the year ended 30 June 2020 Cash flows related to operating activities Receipts from customers Payments to suppliers and employees Interest paid Other income receipts Notes 2020 $ 2019 $ 662,392 (2,670,838) (1,390) 87,029 670,922 (1,934,565) - - Net operating cash flows 8 (1,922,807) (1,263,643) Cash flows relating to investing activities Payment for purchases of plant and equipment Interest received Payments for deposits Net investing cash flows Cash flows relating to financing cash flows Proceeds from issue of equity Share issue transaction costs Net financing cash flows Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Foreign exchange movement (22,987) 1,759 (21,122) (5,755) 621 - (42,350) (5,134) 6,534,277 (104,186) 852,795 - 6,430,093 852,795 4,464,936 (415,982) 40,854 (100,617) 453,776 3,060 Cash and cash equivalents at the end of the year 4,405,173 40,854 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 34 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements For the year ended 30 June 2020 1. Segment information Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision makers, who are responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board and the Chief Executive Officer of Constellation Technologies Limited. The Group has identified one reportable segment; that is, the sale and commercialisation of the IoT Solution. The segment details are therefore fully reflected in the body of the financial statements. 2. Revenue from contracts with customers a) Disaggregation of revenue from contracts with customers The Group derives revenue from the transfer of goods and services at a point in time and over time in the following categories: 2020 Timing of revenue recognition At a point in time Over time 2019 Timing of revenue recognition At a point in time Over time Monitor tag revenue $ - 17,905 Monitoring subscription revenue $ Consulting revenue $ Labour- hire revenue $ Total $ - 184,586 80,533 124,899 283,561 - 364,094 327,390 17,905 184,586 205,432 283,561 691,484 Monitor tag revenue Monitoring subscription revenue Consulting revenue Labour-hire revenue Total $ $ $ $ $ - 49,164 - 213,631 162,195 - 154,000 - 316,195 262,795 49,164 213,631 162,195 154,000 578,990 35 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … b) Liabilities related to contracts with customers Other gains/(losses) Contract liabilities – deferred revenue on consulting contracts 25,050 58,170 25,050 58,170 2020 $ 2019 $ c) Accounting policies I. Installation and use of monitor tags Revenue from the sale of the food temperature monitoring tags are recognised over time when the customer has access and thus control of the gadget and where the tag is considered distinct from other services provided to the customer. Contracts do not provide for discounts or rebates which give rise to variable consideration. Neither do they contain provision for warranties. II. Monitoring subscriptions Revenue from the sale of monitoring subscriptions is recognised on a straight-line basis over the subscription term. III. Consulting Revenue from the provision of consulting and ad hoc maintenance services is recognised typically over time when the Group has an enforceable right to payment for its performance completed to date. Customer contracts will include a statement of work, which will describe the work to be completed and the time frame for its completion. These services are invoiced at the point in time of completion of performance obligations within the statement of work. Therefore revenue is recognised when the performance obligation is completed. IV. Labour hire Revenue from the provision of labour hire services is recognised on a straight-line basis over the term of the hire agreement. V. Critical judgements in allocating the transaction price Management allocates the transaction price to each performance obligation based on an assessment of work completed at each reporting date for consulting revenue. Due to variations between each contract, up front payments and changes to projects during the term of engagement, judgement is used in estimating the completion of performance obligations and allocating the transaction price to each performance obligation. 36 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … VI. Customer contract with multiple performance obligations The Group frequently enters into multiple contracts with the same customer and where that occurs the Group treats those arrangements as one contract if the contracts are entered into at or near the same time and are commercially interrelated. The Group does not consider contracts closed more than three months apart as a single contract. The Group's subscription contracts are combining an obligation to receive a monitor tag and customer support and monitoring services. The provision of monitor tags is treated as a separate performance obligation to the services provided. As a result, the total transaction price for a customer contract is allocated amongst the distinct performance obligations based on their relative stand-alone selling prices. Where the stand-alone prices are highly variable, the Group applies a residual approach. VII. Incremental costs of obtaining customer contracts Commissions on obtaining any customer contracts are capitalised and amortised over the term, where the term is greater than 12 months. VIII. Financing components The group does not recognise adjustments to transition prices or contract balances where the period between the transfer of promised goods or services to the customer and payment by customer does not exceed 12 months. 3. Expense items a) Other gains/(losses) Government COVID-19 cash incentives Other non-operating income Net foreign exchange (losses) 2020 $ 83,812 3,217 (2,250) 2019 $ - - (2,171) 84,779 (2,171) 37 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … b) Breakdown of expenses by nature General and administrative expenses Accounting and audit Bad debts and expected credit losses Computer costs Consulting costs Depreciation Employee benefits Insurance Investor relations Legal Listing and share registry Occupancy Patent costs Share-based payments Superannuation Travel and entertainment Other I. Depreciation Office Equipment Plant and Equipment Property – right of use Notes 2020 $ 2019 $ i) 16 90,949 7,239 90,175 114,783 45,797 852,537 71,414 - 137,079 136,336 83,692 - 1,231,492 49,328 77,240 208,792 220,874 31,071 90,965 163,414 23,651 616,300 35,532 13,188 99,421 64,259 108,680 23,924 437,236 47,829 83,894 95,274 3,196,553 2,155,512 2020 $ 24,936 988 19,873 2019 $ 21,316 2,335 - 45,797 23,651 38 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … 4. Income tax expense a) Numerical reconciliation of income tax expense to prima facie tax payable Loss from continuing operations before income tax expense Tax at the Australian tax rate of 27.5% (2019: 27.5%) (2,923,876) (804,066) (2,177,277) (598,751) 2020 $ 2019 $ Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Entertainment Employee leave obligations Expected credit losses Share-based payments expense Superannuation liability Unrealised foreign exchange movements Subtotal Difference in overseas tax rate Tax losses and other timing differences for which no deferred tax asset is recognised Income tax expense b) Tax losses - - - 337,634 - 29,842 (436, 590) 421 (10,569) 1,412 120,240 1,672 228 (485,347) (6,350) (9,591) 442,940 494,938 - - The Group does not recognise as a deferred tax asset carried forward tax losses. Deferred tax assets are recognised for deductible temporary differences only if the entities consider it is probable that future taxable amounts will be available to utilise those temporary differences and losses. As at 30 June 2020, no deferred tax balances have been recognised (2019: nil). Unused tax losses available to the Group are currently not known and have not been included as the Group has not yet calculated a reliable estimate of these losses. 39 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … 5. Financial assets and financial liabilities a) Cash and cash equivalents Current assets Cash at bank and on hand 2020 $ 2019 $ 4,405,173 40,854 I. Reconciliation to cash flow statement The above figures reconcile to the amount of cash shown in the consolidated statement of cash flows at the end of the financial year as follows: Balances as above Balances as per statement of cash flows II. Classification as cash equivalents 2020 $ 4,405,173 4,405,173 2019 $ 40,854 40,854 Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours notice with no loss of interest. See note 20(j) for the Group’s other accounting policies on cash and cash equivalents. III. Risk exposure The Group's maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of cash and cash equivalents mentioned above. 40 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … b) Trade and other receivables Notes Current $ 2020 Non- current $ Trade receivables Provision for impairment Other receivables Total trade and other receivables 59,773 (7,027) 52,746 24,436 77,182 - - - - - Total $ Current $ 59,773 (7,027) 52,746 63,310 (5,136) 58,174 24,436 32,333 77,182 90,507 2019 Non- current $ - - - - - Total $ 63,310 (5,136) 58,174 32,333 90,507 I. Classification as trade and other receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Details about the Group’s impairment policies and the calculation of the loss allowance are provided in note 10(b). II. Other receivables Other receivables principally comprises GST refundable. c) Trade and other payables Notes Trade payables Accrued expenses Other payables Total trade and other payables 2020 Non- current $ - - - - Total $ Current $ 130,659 81,097 26,911 491,049 48,960 75,367 238,667 615,376 2019 Non- current $ - - - - Current $ 130,659 81,097 26,911 238,667 Total $ 491,049 48,960 75,367 615,376 41 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … Trade payables are unsecured and are usually paid within 30 days of recognition. The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature. 6. Non-financial assets and liabilities a) Other current assets Notes Current $ 2020 Non- current $ Total $ Current $ Prepayments Consumables Security deposits 138,543 46,634 39,318 224,495 20,208 - - 20,208 158,751 46,634 39,318 244,703 3,732 - 20,412 24,144 2019 Non- current $ - - - - Total $ 3,732 - 20,412 24,144 b) Property, plant & equipment At 30 June 2020 Cost or fair value Accumulated depreciation Net book amount Opening net book value Exchange differences Additions Disposals Depreciation charge Closing net book value Furniture & fittings $ Plant & equipment $ Property – right-of-use assets $ 71,370 (53,429) 17,941 19,591 (595) 23,881 - (24,936) 17,941 8,325 (3,732) 4,593 5,880 (298) - - (989) 4,593 79,490 (19,872) 59,618 - - 79,490 - (19,872) 59,618 Total $ 159,184 (77,033) 82,152 25,471 (893) 103,371 - (45,797) 82,152 42 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … Furniture & fittings $ Plant & equipment $ 48,083 (28,492) 19,591 37,632 (31) 10,796 (7,490) (21,316) 19,591 8,623 (2,743) 5,880 5,735 63 3,100 (683) (2,335) 5,880 Property – right-of-use assets $ - - - - - - - - - Total $ 56,706 (31,235) 25,471 43,367 32 13,896 (8,173) (23,651) 25,471 At 30 June 2019 Cost or fair value Accumulated depreciation Net book amount Opening net book value Exchange differences Additions Disposals Depreciation charge Closing net book value c) Borrowings 2020 Current $ Non-current $ Total $ Current $ 2019 Non-current $ Total $ Lease liability 43,746 14,622 58,368 - - - d) Employee benefit obligations 2020 2019 Current Non-current Total Current Non-current Total $ $ $ $ Leave obligations 38,526 - 38,526 36,312 $ - $ 36,312 I. Leave obligations The leave obligations cover the Group’s liabilities for annual leave which are classified as short-term benefits, as explained in note 20(o). The current portion of this liability includes all of the accrued annual leave. The entire amount of the provision of $38,526 (2019: $36,312) is presented as current, since the Group does not have an unconditional right to defer settlement for any of these obligations. 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. 43 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … 7. Equity a) Share capital 30 June 2020 No. 30 June 2020 $ 30 June 2019 No. 30 June 2019 $ Ordinary shares - fully paid 1,347,887,247 16,390,762 446,167,028 9,644,401 Movement in ordinary shares Balance at 1 July 2018 Note No. of shares 349,678,422 $ 8,400,628 Issue of securities at $0.017 each - Directors Issue of securities at $0.023 each - ESOP Issue of securities at $0.027 each - Directors Issue of securities at $0.027 each - ESOP Issue of securities at $0.015 each - Consultants for services rendered Issue of securities at $0.025 each - Consultants for services rendered Issue of securities at $0.020 each - private placement Issue of securities at $0.015 each - private placement Issue of securities at $0.015 each - share purchase plan Less: Transaction costs arising on share issues i) 6,294,119 508,693 6,715,648 2,878,135 1,527,777 960,183 43,062,350 14,333,333 20,208,368 107,000 11,700 181,322 77,710 22,917 24,004 395,295 215,000 242,500 (33,675) Balance at 30 June 2019 446,167,028 9,644,401 Issue of securities at $0.013 each - ESOP Issue of securities at $0.019 each - ESOP Issue of securities at $0.015 each - ESOP Issue of securities at $0.007 each - ESOP Issue of securities at $0.007 each - Directors Issue of securities at $0.013 each - Consultants for services received Issue of securities at $0.0104 each - Consultants for services received Issue of securities at $0.007 each - Consultants for services received Issue of securities at $0.013 - private placement Issue of securities at $0.007 - rights issue Issue of securities at $0.007 - private placement Exercise of options Cancellation of shares Transfer from share based payment reserve Less: transaction costs 769,231 1,056,358 600,000 10,714,286 39,142,858 13,744,216 4,807,692 21,428,571 44,430,252 487,029,970 243,758,058 57,410,886 (23,172,159) - 10,000 20,071 9,000 75,000 274,000 178,675 50,000 150,000 577,593 3,409,209 1,706,306 841,168 (463,443) 63,366 (154,586) Balance at 30 June 2020 1,347,887,247 16,390,761 44 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … I. Ordinary shares Ordinary shares entitle the holder to participate in dividends, and to share in the proceeds of winding up the Group in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. II. Options Information relating to options, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in notes 7(b) and 16. b) Other reserves The following table shows a breakdown of the consolidated balance sheet line item ‘other reserves’ and the movements in these reserves during the year. A description of the nature and purpose of each reserve is provided below the table. Share-based payments $ Foreign currency translation $ Total $ Balance at 1 July 2018 149,742 (11,791) 137,951 Currency translation differences Other comprehensive income for the year - - 3,890 3,890 3,890 3,890 Transactions with owners in their capacity as owners Share-based payment expenses 12,583 - 12,583 At 30 June 2019 162,325 (7,901) 154,424 45 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … Share-based payments $ Foreign currency translation $ Balance at 1 July 2019 162,325 (7,901) Currency translation differences Other comprehensive income for the year - - (100,615) (100,615) Total $ 154,424 - (100,615) (100,615) Transactions with owners in their capacity as owners Share-based payment expenses 792,168 - 792,168 At 30 June 2020 954,493 (108,516) 845,977 Nature and purpose of other reserves I. Share-based payments The share-based payment reserve records items recognised as expenses on valuation of share options and rights issued to Key Management Personnel, other employees and eligible contractors. Foreign currency translation Exchange differences arising on translation of the foreign controlled subsidiaries are recognised in other comprehensive income and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed of. II. Movement in options and rights Options and rights 537,892,989 954,493 50,041,900 30 June 2020 No. 30 June 2020 $ 30 June 2019 No. 30 June 2019 $ 162,325 46 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … Note Number of options $ Balance at 1 July 2018 Issue of options - Placement Forfeiture of options - Directors Share based payments Balance at 30 June 2019 Issue of free attaching options under Rights Issue exercisable at $0.15 each Cancellation of Options Exercise of Options Issue of options - ESOP Issue of rights - ESOP Issue of rights - ESOP Issue of rights - ESOP Issue of options - Directors Issue of options - Supplier Exercise of Options Lapse of options - ESOP a) b) c) d) e) f) g) h) i) j) c) 16,979,550 149,742 43,062,350 (10,000,000) - - (11,393) 23,976 50,041,900 162,325 487,029,970 (23,172,159) (1,333,000) 19,285,714 3,000,000 3,000,000 375,592 39,142,858 16,800,000 (56,077,886) (200,000) - - (63,366) 112,453 30,000 30,000 10,000 622,681 50,400 - - Balance at 30 June 2020 537,892,989 954,493 a) Unlisted options at $0.030, expiring 6 December 2020 On 11 December 2018, Constellation Technologies Limited issued 43,062,350 options free- attaching to the 43,062,350 private placement shares issued on 8 August 2018. As these options are outside the scope of AASB 2 Share-based Payment, no share-based payment expense was recognised for the issue of these unlisted options. b) Unlisted options at $0.10, expiring 15 December 2020 Options forfeited by Directors due to performance conditions not being met. c) Unlisted options at $0.015, expiring 14 November 2022 On 15 November 2019, Constellation Technologies Limited issued 487,029,970 options free-attaching to the 487,029,970 right-issue shares. As these options are outside the scope of AASB 2 Share-based Payment, no share-based payment expense was recognised for the issue of these unlisted options. During the period, 56,077,886 of the options were exercised. 47 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … d) Unlisted options at $0.030, expiring 10 December 2020 Cancelation of free-attaching options granted to Penta Global, e) Unlisted options at $0.015, expiring 29 May 2023 Issued to Key Management Personal in lieu of cash based remuneration. f) Unlisted performance rights vesting 13 January 2021, expiring 13 April 2022 Issued to other employees as part of the Company’s long-term incentive program g) Unlisted performance rights vesting 13 January 2022, expiring 13 April 2022 Issued to other employees as part of the Company’s long-term incentive program h) Unlisted performance rights vesting 1 February 2021, expiring 1 May 2021 Issued to other employees as part of the Company’s long-term incentive program i) Unlisted options at $0.015, expiring 29 May 2023 Issued to directors in lieu of cash based remuneration and approved by shareholders at a General Meeting held 27 May 2020. j) Unlisted options at $0.015, expiring 18 June 2023 On 27 May 2020 shareholders approved the issue of 16,800,000 options to MRGL Pty Ltd in lieu of outstanding under-writing fees to the value of $50,400 owing to MRGL Pty Ltd for the Rights Issued as disclosed in item c) above. 48 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … 8. Cash flow information Reconciliation of profit/(loss) after income tax to net cash inflow (outflow) from operating activities Loss for the year (2,923,876) (2,177,277) 2020 $ 2019 $ Adjustments for Depreciation Finance costs Finance income Share-based payments Unrealised net foreign currency (gains)/losses Change in operating assets and liabilities Movement in trade and other receivables Movement in other current assets Movement in trade and other payables Movement in contract liabilities Movement in other operating liabilities Net cash inflow (outflow) from operating activities 45,797 - (1,759) 1,231,492 - 13,483 (128,993) (153,046) (33,120) 27,215 (1,922,807) 23,651 - (621) 437,236 830 620 20,158 412,022 58,170 (38,432) (1,263,643) a) Non-cash investing and financing activities Non-cash investing and financing activities disclosed in other notes are: • Options and shares issued to employees under the 'employee share option plan' for no cash consideration - note 16. 9. Critical estimates and judgements The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting policies. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Detailed information about each of these estimates and judgements is included in other notes together with information about the basis of calculation for each affected line item in the financial statements. 49 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … a) Significant estimates and judgements The areas involving significant estimates or judgements are: • Recognition of revenue and allocation of transaction price - note 2(c)(iii) • Non-recognition of carry-forward tax losses - note 4(b) • Estimation of employee benefit obligations - note 6(d)(i) • Estimation of share-based payments - note 16 • Application of the going concern assumption - note 20(a)(iii) Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. In assessing the carrying value of the company’s assets and liabilities, the directors have taken into consideration the economic outlook in light of the COVID-19 pandemic. The pandemic has not had a material impact on the Group’s operations to date and therefore no additional provisions specific to the pandemic have been taken up in the Group’s accounts. At this stage, the directors do not believe the pandemic will have a material impact on the Group’s operations in the future due to its diversification of operations in Australia and China. 10. Financial risk management This note explains the Group's exposure to financial risks and how these risks could affect the Group’s future financial performance. The Group’s risk management is predominantly controlled by the Board. The Board monitors the Group's financial risk management policies and exposures and approves substantial financial transactions. It also reviews the effectiveness of internal controls relating to market risk, credit risk and liquidity risk. a) Market risk I. Foreign exchange risk The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. The Group is primarily exposed to changes in the Chinese yuan and Indian rupee against the Australian dollar on translation into the Group's presentation currency of subsidiaries' financial information. However, there are no material financial assets and liabilities denominated in currencies other than the functional currency of each entity. Therefore, management has concluded that market risk from foreign exchange fluctuation is not material. Credit risk b) Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations that could lead to a financial loss to the Group. 50 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … I. Risk management Credit risk is managed through the maintenance of procedures (such as the utilisation of systems for the approval, granting and renewal of credit limits, regular monitoring of exposures against such limits and monitoring the financial stability of significant customers and counterparties), ensuring to the extent possible that customers and counterparties to transactions are of sound credit worthiness. Such monitoring is used in assessing receivables for impairment. Credit terms are normally 30 days from the invoice date. Risk is also minimised through investing surplus funds in financial institutions that maintain a high credit rating. II. Impairment of financial assets The Group has one type of financial asset subject to the expected credit loss model: • trade receivables for sales of monitor tags, the provision of monitoring subscriptions, consulting and labour hire services. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, the identified impairment loss was immaterial. Trade receivables The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of 24 months before 30 June 2020 and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. On that basis, the loss allowance as at 30 June 2019 and 30 June 2020 were determined as follows for trade receivables: 30 June 2019 Expected credit loss rate Gross carrying amount Loss allowance Days past due Current $ 1-30 $ 31-60 $ 61-90 $ 91- 120 $ 121+ Total $ $ 1.33% 33,136 441 7.95 % 15.17 % 24.30 % 44.11 % 69.85 % 7,073 20,161 3,058 562 1,905 463 428 189 63,31 0 607 423 5,136 51 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … 30 June 2020 Days past due Current $ 1-30 $ 31-60 $ 61-90 $ 91- 120 $ 121+ Total $ $ Expected credit loss rate 0.00% Gross carrying amount Loss allowance - - 2.03% 32,72 8 666 11.35 % 34.45 % 46.43 % 58.63 % 432 49 2,244 773 924 429 45,04 8,715 3 5,110 7,027 Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period of greater than 121 days past due. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item. The directors have deemed that no additional provision over and above current provisions are warranted in light of the COVID-19 pandemic due to the recoverability of receivables to date and the Company’s relationships with its customers. This will however be monitored closely into the future. c) Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: • preparing forward looking cash flow analyses in relation to its operating, investing and financing activities; • obtaining funding from a variety of sources; • maintaining a reputable credit profile; • managing credit risk related to financial assets; • • investing cash with major financial institutions; and comparing the maturity profile of financial liabilities with the realisation profile of financial assets. Maturities of financial liabilities I. The tables below analyse the Group's financial liabilities into relevant maturity groupings based on their contractual maturities. The amounts disclosed in the table are the contractual undiscounted cash flows. 52 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … Contractual maturities of financial liabilities 2019 Less than 6 months 6 - 12 month s Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cashflows $ $ Trade and other payables Total 615,376 615,376 - $ - $ $ $ 615,376 615,376 - - 615,376 615,376 Carrying amount (assets)/ liabilities $ Less than 6 months 6 - 12 month s Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cashflows 2020 $ $ Trade and other payables Total 238,667 238,667 - $ - $ - $ $ 238,667 238,667 - 238,667 238,667 Carrying amount (assets)/ liabilities $ 11. Capital management a) Risk management The Group's objectives when managing capital are to • safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and • maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may issue new shares or reduce its capital, subject to the provisions of the Group's constitution. The capital structure of the Group consists of equity attributed to equity holders of the group, comprising contributed equity, reserves and accumulated losses. By monitoring undiscounted cash flow forecasts and actual cash flows provided to the Board by the Group's management, the Board monitors the need to raise additional equity from the equity markets. b) Dividends No dividends were declared or paid to members for the year ended 30 June 2020 (2019: nil). The Group’s franking account balance was nil at 30 June 2020 (2019:nil). 53 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … 12. Interest in other entities a) Material subsidiaries The Group’s principal subsidiaries at 30 June 2020 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business. Name of entity Note Place of business/country of incorporation Ownership interest held by the group 2020 2019 % % 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 Australia China India Australia Australia United States Australia Australia Unites States Constellation Technologies Australia Pty Ltd Beijing Constellation Technologies Development Co. Ltd CCP IoT Technologies Pvt Ltd CCP IP Pty Ltd CCP Asia Pacific Pty Ltd CCP Network North America Inc. Agen Limited Agen Biomedical Limited Agen Inc. 1 3 2 2 2 2 1. 2. 3. Formerly CCP Network Australia Pty Ltd Entitles in the process of being wound up. Incorporated on 17 January 2020 13. Contingent liabilities The Group had no contingent liabilities at 30 June 2020 (2019: nil). 14. Events occurring after the reporting period On 29 July 2020, the Group announced that ASIC had consented to resignation of BDO Audit Pty Ltd as the Group’s auditors. PKF Brisbane Audit commenced as the Group’s auditors for the FY20 audit. PKF Brisbane Audit will be confirmed as the Group’s auditors at the 2020 Annual General Meeting. No other matter or circumstance has occurred subsequent to period end that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or economic entity in subsequent financial years. 54 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … 15. Related party transactions a) Key management personnel compensation Short-term employee benefits Post-employment benefits Share-based payments Notes 2020 $ 395,523 18,307 1,037,259 1,451,089 2019 $ 402,744 27,141 379,614 809,499 Detailed remuneration disclosures are provided in the remuneration report. 55 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … b) Transactions with other related parties Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. The following transactions occurred during the year ended 30 June 2020 with related parties and were outstanding as the reporting date: Office rent and outgoings paid on an arms's length commercial basis to Lagoon Properties Pty Ltd, company associated with former directors Michael White and Anthony Rowley in respect of offices in St Kilda. Office rent and outgoings paid on an arms's length commercial basis to FNJ Properties Pty Ltd, a company associated with director, Leath Nicholson in respect of the Company's Melbourne Offices. Payment received in cash and equity. Consultancy fees paid to Skantech Pty Ltd, a company associated with Kartheek Munigoti, in respect of the provision of IT technical support services. Legal fees paid on normal commercial terms to Nicholson Ryan Lawyers Pty Ltd, a company associated with director Leath Nicholson. Payment received in cash and equity. Share issue cost paid to First Growth Funds Limited, a company associated with director, Anoosh Manzoori Directors fees payable to Catellen Pty Ltd, a company associated with Leath Nicholson Directors fees payable to Famile Pty Ltd, a company associated with Adam Gallagher Directors fees payable to Shape Capital Pty Ltd, a company associated with Anoosh Manzoori During the Year 2020 $ Outstanding at end of Year 2020 $ During the Year 2019 $ Outstanding at end of Year 2019 $ - - 16,788 1,416 33,000 18,982 131,650 - - - - - - - 6,000 6,600 64,364 6,896 94,201 95,897 - 33,675 37,042 5,833 - - - - - 27,408 15,125 15,747 56 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … 16. Share-based payments (a) Share options and performance rights on issue Set out below are summaries of all options & rights, including those issued under the ESOP: Weighted average exercise price per share $ 0.040 $ 0.015 $ 0.015 $ 0.008 2020 2019 Number of options & performance rights 50,041,900 568,634,134 (23,372,159) (57,410,886) 537,892,989 509,374,539 Weighted average exercise price per share $ 0.090 $ 0.030 $ 0.100 - $0.040 Number of options & performance rights 16,979,550 43,062,350 (10,000,000) - 50,041,900 48,595,350 As at 1 July Granted during the year Forfeited during the year Exercised As at 30 June Vested and exercisable Share options outstanding at the end of the year have the following expiry date and exercise prices: Grant Date Recipients Expiry Date 18/11/2016 8/11/2016 15/12/2016 10/11/2017 11/12/2018 14/11/2019 29/05/2020 29/05/2020 19/06/2020 Director Director Consultants Director Investors - free attaching Rights Issue - free attaching Employees Directors Sophisticated Investor 15/12/2020 15/12/2020 15/12/2019 25/10/2021 10/12/2020 14/11/2022 29/05/2023 29/05/2023 18/06/2023 Exercise Price $0.100 $0.100 $ - $0.100 $0.030 $0.015 $0.015 $0.015 $0.015 30 June 2020 30 June 2019 2,000,000 2,000,000 - 1,446,550 19,890,191 430,952,084 19,285,714 39,142,858 16,800,000 531,517,397 2,000,000 2,000,000 1,533,000 1,446,550 43,062,350 - - - - 50,041,900 Weighted average remaining contractual life of options outstanding at end of period 2.36 1.03 57 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … Performance rights outstanding at the end of the year have the following terms: Grant Date 13/01/2020 13/01/2020 1/02/2020 Recipients Employees Employees Employees Vesting Date Expiry Date 13/04/2022 13/04/2022 1/05/2021 13/01/2021 13/01/2022 1/02/2021 Weighted average remaining contractual life of rights outstanding at end of Year: (b) Employee share scheme 30 June 2020 30 June 2019 - - - - 3,000,000 3,000,000 375,592 6,375,592 1.73 - The establishment of the 'employee share option plan' (ESOP) was approved by shareholders at the 2017 annual general meeting. The plan is designed to provide long-term incentives for employees (including directors) to deliver long-term shareholder returns. Participation in the plan is at the Board's discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. The following equity has been issued under the scheme since it was last approved by shareholders. Shares Name Kartheek Munigoti Karen Davy Other Employees Kartheek Munigoti Kartheek Munigoti Kartheek Munigoti Other Employees Other Employees Term Code Issue Date Grant Date Vesting Date Qty Issue Price Value of Shares Granted Value Vested $ $ $ A 26/11/2018 31/12/2017 31/12/2017 2,878,135 0.0270 77,710 77,710 B 26/11/2018 18/12/2017 18/12/2017 43,478 0.0230 1,000 1,000 C 2/09/2019 2/09/2020 2/09/2020 769,231 0.0130 10,000 10,000 D 29/05/2020 1/05/2020 29/05/2020 3,571,429 0.0070 25,000 25,000 D 29/05/2020 1/05/2020 29/05/2021 3,571,429 0.0070 25,000 D 29/05/2020 1/05/2020 29/05/2022 3,571,428 0.0070 25,000 - - E F 29/05/2020 28/05/2020 28/05/2020 1,056,358 0.0190 20,071 20,071 29/05/2020 28/05/2020 28/05/2020 600,000 0.0150 9,000 9,000 58 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … A: Issue Price was 7 day VWAP up to close of trading on 31 December 2017 and at a 50% premium to the closing price on 11 October 2018. B: Ms Davy was the spouse of KMP Michael White who resigned on 4 February 2019. Issue price was closing share price on grant date. C: Issue price was 14 day VWAP up to close of trading on 23 July 2019 and a 42% premium to closing share price on date of issue. D: Issue price based on price granted to all shareholders under Rights Issue Allocation 15 November 2019. E: Issue price based on 30 day VWAP as at 30 April 2020. F: Issue price based on a 30% discount to the 30 day VWAP as at 30 April 2020. Options Name Valuation Code Grant Date Vesting Date Expiry Date Qty Exercise Price $ Value of Options Granted $ Kartheek Munigoti Terri Bakos A 1/05/2020 29/05/2020 29/05/2023 10,714,286 8,571,428 A 1/05/2020 29/05/2020 29/05/2023 0.0150 0.0150 53,571 42,857 All options were valued using a Black-Scholes valuation model with parameters as disclosed in note 16. Value Vested $ 53,571 42,857 Rights Name Term Code Grant Date Vesting Date Expiry Date Qty Other Employee Other Employee Other Employee H 13/01/2020 I 13/01/2020 1/02/2020 J 13/01/2021 13/01/2022 1/02/2021 13/04/2022 13/04/2022 1/05/2021 3,000,000 3,000,000 375,592 Value of Rights Granted $ 30,000 30,000 10,000 Value Vested $ - - - H & I: Issued price based on a 43% premium to shares issued to shareholders under the Rights Issue Allocation 15 November 2019. J: Issued price based on 30 day VWAP as at grant date. 59 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … (c) Other share based payment arrangements The following equity has been issued to directors and consultants outside of the Employee Equity Share Plan. Shares Name Issue Date Grant Date Vesting Date Qty Leath Nicholson Adam Gallagher Anoosh Manzoori 29/05/2020 27/05/2020 29/05/2020 12,857,142 29/05/2020 27/05/2020 29/05/2022 22,142,858 4,142,858 29/05/2020 27/05/2020 29/05/2020 Issue Price $ 0.0070 0.0070 0.0070 Value of Shares Granted $ 90,000 155,000 29,000 Value vested $ 90,000 - 29,000 Options Name Valuation Code Grant Date Vesting Date Expiry Date Value of Options Granted $ Qty Exercise Price $ Leath Nicholson Adam Gallagher Anoosh Manzoori B 27/05/2020 29/05/2020 29/05/2023 12,857,142 C 27/05/2020 29/05/2022 29/05/2023 22,142,858 4,142,858 B 27/05/2020 29/05/2020 29/05/2023 0.0150 192,857 0.0150 376,428 62,142 0.0150 All of the above equity issued to associates of the directors and was approved by shareholders at a General Meeting held 27 May 2020. The shares and options were issued as part of the directors remuneration except for Mr Nicolson. 8,542,857 shares and options were issued to an associate of Mr Nicholson for services provided by related parties to Mr Nicholson. Refer related party transactions note 19. All options were valued using a Black-Scholes valuation model with parameters as disclosed in note 16. 60 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … (d) Valuation of share options Options issued to employees under the employee share scheme and to directors outside of the employee share scheme were valued in accordance with AASB 2 – Share Based Payments over the vesting period with the following parameters. Employees (A) Directors (B) Directors (C) Exercise price Grant date Vesting date Life of option Share price on grant date Expected volatility Expected dividend yield Risk free rate $0.015 29/05/20 29/05/20 3 yrs $0.02 53% 0% 0.25% $0.015 29/05/20 29/05/20 3 yrs $0.03 53% 0% 0.26% $0.015 29/05/20 29/05/22 3 yrs $0.03 53% 0% 0.26% Options granted form part of the employee or directors’ remuneration. The options vest on the dates disclosed and are not transferable. Shares and options issued to Mr Gallagher vest when Mr Gallagher ceases to be CEO. For accounting purposes this has been estimated to be within 2 years and is of no way a reflection of his estimated date of termination of employment with the Company. (e) Expenses arising from share-based payment transactions Expenses arising from shares issued to key management personnel Expenses arising from options issued to key management personnel Expenses arising from shares issued to other employees Expenses arising from rights issued to other employees Expense arising from shares issued to consultants 2020 $ 111,878 605,992 29,263 22,917 461,442 1,231,492 2019 $ 367,032 12,582 10,702 - 46,920 437,236 61 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … 17. Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Audit and review of financial statements BDO Audit Pty Ltd PKF Brisbane Audit 2020 $ 44,189 34,000 78,189 2019 $ 62,500 - 62,500 Subsequent to balance date ASIC consented for BDO Audit Pty Ltd to resign as the Group’s auditors (refer note 14). This will be ratified at the 2020 Annual General Meeting by shareholders. PKF Brisbane Audit commenced as the Group’s auditors for the FY20 year end audit. 18. Loss per share (a) Reconciliation of loss used in calculating loss per share Loss attributable to equity holders of the Group used in calculating loss per share: From continuing operations (2,923,876) (2,177,277) 2020 $ 2019 $ (b) Weighted average number of shares used as the denominator (2,923,876) (2,177,277) 2020 No. 2019 No. Weighted average number of ordinary shares used as the denominator in calculating basic and diluted loss per share 873,682,078 418,652,763 There are 317,759,446 share options on issue not included in diluted earnings per share as these would have an anti-dilutive effect on earnings per share. These potential ordinary shares are anti-dilutive as their conversion to ordinary shares would decrease loss per share. If these shares options were included in the calculation of diluted earnings per share, the weighted average number of shares used in the denominator would be 1,191,441,524. 62 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … 19. Parent entity financial information Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Balance Sheet Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Share capital Reserves - Share-based payments Retained earnings Income Statement Loss for the year Total comprehensive income 2020 $ 3,348,746 5,450,539 8,799,285 (73,898) - (73,898) 2019 $ 47,298 2,000 49,298 569,401 - 569,401 91,181,314 84,434,953 5,618,491 (88,074,418) 8,725,387 4,826,323 (89,781,379) (520,103) 2,518,452 2,518,452 2,023,673 2,023,673 20. Summary of significant accounting policies This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements to the extent they have not already been disclosed in the other notes above. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the Group consisting of Constellation Technologies Limited and its subsidiaries. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Constellation Technologies Limited is a for-profit entity for the purpose of preparing the financial statements. I. Compliance with IFRS The consolidated financial statements of the Constellation Technologies Limited group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). 63 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … II. Historical cost convention The financial statements have been prepared on a historical cost basis. III. 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 settlement of liabilities in the normal course of business. As disclosed in the financial statements, the Group is in a net asset position of $4,426,941, net current asset position of $4,339,204 and has net operating cash outflows of $1,922,807. The Group generated a loss after tax for the year of $2,923,876. The group’s cash position increased to $4,405,173 at 30 June 2020. Notwithstanding the historical losses to date the directors believe that the going concern basis of preparation is appropriate due to the following reasons: • Recent history in raising capital. The Group completed two successful capital raisings in September and November 2019 where $3,985,801 in cash was raised via a Placement and a Rights Issue. A further placement was made to a Group of Sophisticated Investors during the year that raised $1,706,306. • Significant progress has been made in realising the Group’s intellectual property. The Group has entered into Strategic Agreements with two partners to exploit the Group’s technology, particularly in the Asian region. These investors have a history of working with and growing public companies. Refer Group announcement 11 December 2019. • The Group is incurring a rate of expenditure designed to enhance its prospects in generating growth in sales locally and in the event that the Group encounters any difficulties in raising capital, the Board is comfortable that the current levels of expenditure can be scaled back to preserve cash, and • The Group continues to apply different measures to control its expenditure to preserve cash and working capital. The recent changes at executive management level, and the ability to negotiate payment in equity in lieu of cash with its consultants and suppliers, also improves the Group’s cash coverage. IV. New and amended standards adopted by the group The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 July 2019: 64 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … AASB 16 Leases – impact of adoption AASB 16 Leases was adopted from 1 July 2019. The standard replaces AASB 117 Leases and for lessees eliminates the classification 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 recognized in the statement of financial position. Straight line operating lease expense recognition is replaced with a depreciation charge for the right-of-use assets (including in operating costs) and an interest expense on the recognized lease liabilities (including in finance costs). In the earlier periods of the lease, the expenses associated with the lease under ASSB 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. There has been no impact on the initial adoption of this standard as the Company did not have any leases until this current reporting period. V. New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2020 reporting periods and have not been early adopted by the Group. As at the date of this report there are no new Accounting Standards that have been issued but not yet applied that have a material effect on the results of the Group. (b) Principles of consolidation I. Subsidiaries Subsidiaries are all entities (including structured 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 deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers. This has been identified as the Board and chief executive officer. 65 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … (d) Foreign currency translation I. Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Australian dollar ($), which is Constellation Technologies Limited's functional and presentation currency. II. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. Foreign exchange gains and losses that relate to borrowings are presented in the consolidated statement of profit or loss, within finance costs. All other foreign exchange gains and losses are presented in the consolidated statement of profit or loss on a net basis within other gains/(losses). Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as at fair value through other comprehensive income are recognised in other comprehensive income. II. Group companies The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each consolidated balance sheet presented are translated at the closing rate at the date of that consolidated balance sheet • income and expenses for each consolidated statement of profit or loss and consolidated statement of profit or loss and other comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and • all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. 66 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … (e) Revenue recognition The accounting policies for the Group’s revenue from contracts with customers are explained in note 2. (f) Contract liabilities Contract liabilities represent the Group’s obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the Group has transferred the goods or services to the customer. (g) Income tax The income tax expense or credit for the year is the tax payable on the current year's taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting year in the countries where the Company and its subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting year and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. (h) Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. 67 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … (i) Lease liabilities A lease liability is recognised at 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 cannot be readily determined, the consolidated entities incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts excepted to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any 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. (j) Discontinued operations A discontinued operation is a component of the consolidated entity that has been disposed of or is classified as held for sale and that represents a major line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the profit or loss and other comprehensive income. Where a decision is made to treat a major line of business or area of operations as discontinued the comparative information is restated to reflect as if that major line of business or area of operations had been discontinued in the prior year. (k) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested 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. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting year. 68 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … (l) Cash and cash equivalents For the purpose of presentation in the consolidated statement of cash flows, 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, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the consolidated balance sheet. (m) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less loss allowance. See note 5(b) for further information about the Group’s accounting for trade receivables and note 10(b) for a description of the Group's impairment policies. (n) Investments and other financial assets I. Classification From 1 July 2019, the Group classifies its financial assets in the following measurement categories: • • those to be measured subsequently at fair value (either through OCI or through profit or loss), and those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). II. Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. 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. III. Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. 69 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … IV. Impairment From 1 July 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables, see note 10(b) for further details. (o) Property, plant and equipment Plant & Equipment Plant & equipment acquired are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting year in which they are incurred. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting year. An assets carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (note 20(m)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. Right-of-use assets These includes leases of rental properties and equipment. A right-of-use asset is recogised at the commencement date of a lease. The right-of-use asst is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commence date, net of any lease incentives received, any initial direct costs incurred, and except where included in the cost of inventories, an estimate of the cost expected to be incurred for dismantling and removing the underlaying 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 lease asset at the end of the lease term, the depreciation is over the estimated useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and 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. 70 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … (p) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting year. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. (q) Employee benefits I. Short-term obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave that are expected to be settled wholly within 12 months after the end of the year in which the employees render the related service are recognised in respect of employees’ services up to the end of the year and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet. II. Share-based payments Share-based compensation benefits are provided to employees via the 'employee share option plan' (ESOP). Information relating to these schemes is set out in note 16. Employee options The fair value of options granted under the ESOP is recognised as a share-based payment expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted: - including any market performance conditions (e.g. the Group’s share price) - excluding the impact of any service and non-market performance vesting conditions (e.g. profitability, sales growth targets and remaining an employee of the Group over a specified time period), and - including the impact of any non-vesting conditions (e.g. the requirement for employees to save or holdings shares for a specific period of time). The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each year, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. 71 Constellation Technologies Limited Annual Report 2020 Notes to the Consolidated Statements continued … (r) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (s) Loss per share I. Basic loss per share Basic loss per share is calculated by dividing: • the loss attributable to owners of the Group, 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 year. II. Diluted loss per share Diluted loss per share adjusts the figures used in the determination of basic loss 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 additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (t) Rounding of amounts The Group is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the 'rounding off' of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with the instrument to the nearest dollar. (u) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. 72 Constellation Technologies Limited Annual Report 2020 Director’s Declaration In the directors' opinion: (a) the financial statements and notes set out on pages 31 to 72 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity's financial position as at 30 June 2020 and of its performance for the financial year ended on that date, and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Note 20(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of directors. Mr Adam Gallagher Executive Director and Chief Executive Officer 73 Constellation Technologies Limited Annual Report 2020 Independent Auditors Report 74 Constellation Technologies Limited Annual Report 2020 75 Constellation Technologies Limited Annual Report 2020 76 Constellation Technologies Limited Annual Report 2020 77 Constellation Technologies Limited Annual Report 2020 78 Constellation Technologies Limited Annual Report 2020 Shareholder Information As at 25 August 2020 (a) Distribution of equity securities The number of shareholders, by size of holding in each class of equity are: Distribution 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Ordinary Shares Options No. of holders No. of shares No. of holders 629 449 20 37 124 1,330,680,561 21,293,200 174,617 86,419 21,877 205 80 2 8 21 No. of shares 522,701,377 4,405,061 16,030 19,853 5,649 1,259 1,352,256,674 316 527,147,970 There are two holders of 6,375,592 Performance Rights on issue, each holding is greater than 100,001. There were 229 holders of less than a marketable parcel of 949,994 ordinary shares. 79 Constellation Technologies Limited Annual Report 2020 Shareholder Information (b) Twenty largest holders of quoted securities are: Name of registered holder 1 MRGL PTY LTD 2 MR XIAONIU BAO 3 4 5 K & M HOLDINGS AUSTRALIA PTY LTD KARTHEEK MUNIGOTI SHANKAR RAO FIRST GROWTH FUNDS LIMITED 6 MR YI ZHANG 7 COMMIT CO PTY LTD 8 MR ZHIGANG ZHANG 9 MR CHRISTOPHER THOMAS TITMARSH 10 S & M FRENCH INVESTMENTS PTY LTD 11 MAINLINE SOLUTIONS PTY LIMITED 12 PRADO INVESTMENTS PTY LTD 13 MS XIAOFANG ZHANG 14 HONGMEN CAPITAL HOLDINGS PTY LTD 15 MR XIAONIU BAO 16 DSA SUPERANNUATION NOMINEES PTY LTD 17 MR HONGLIANG CAI 18 MR CHANG LIANG ZHANG + MRS DAN YUN WEI 19 EQUITAS NOMINEES PTY LIMITED 20 HONG & JIANG SUPER HOLDINGS PTY LTD No. of shares 138,122,848 % of holding 10.23 41,760,000 37,784,144 30,341,882 30,180,740 27,840,000 27,521,086 26,000,000 25,442,857 24,884,983 24,637,301 24,201,682 22,000,000 21,428,571 20,000,000 17,000,000 14,000,000 13,308,126 13,003,423 13,000,000 3.09 2.80 2.25 2.24 2.06 2.04 1.93 1.88 1.84 1.82 1.79 1.63 1.59 1.48 1.26 1.04 0.99 0.96 0.96 592,457,643 43.88 (c) Substantial shareholders The names of the substantial shareholders who have notified the Group in accordance with section 371B of the Corporations Act 2001 are: Name of registered holder 1 K&M Holdings Australia Pty Ltd 2 Mainline Solutions Pty Limited 3 S&M French Investments Pty Ltd 4 Raymond Malone No. of shares % of holding 35,840,430 33,249,673 28,984,983 7.03 6.52 5.69 156,276,694 11.61 80 Constellation Technologies Limited Annual Report 2020 Shareholder Information (d) Voting rights The voting rights attached t equity securities are set out below: (i) Ordinary shares Each ordinary share is entitled to on vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. (ii) Options and performance rights Options and performance rights are not entitled to voting rights. (e) Unquoted equity security holdings greater than 20% No single shareholder has an unquoted equity holding greater than a 20%. (f) Escrowed securities holdings The following securities holdings are subject to restrictions or voluntary escrow arrangements. Security Type Ordinary Shares1 Ordinary Shares1 Ordinary Shares1 Ordinary Shares Qty Escrow Date 120,000,000 8/01/2021 1,879,029 19/06/2021 121,879,029 19/06/2022 21,428,571 19/06/2022 265,186,629 1Securities escrowed until disclosed date or when various performance targets are satisfied. (g) On market buy-back There is no current on-market buy-back of the Group’s securities. 81 Constellation Technologies Limited Annual Report 2020

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