Candy Club Holdings Limited ACN 629 598 778 Annual Report - 31 December 2020 Candy Club Holdings Limited Corporate directory 31 December 2020 Directors Mr Keith Cohn (Executive Director) Mr Andrew Clark (Non Executive Director) Mr James Baillieu (Non Executive Chairman) Mr Chi Kan Tang (Non-Executive Director) Company secretaries Mr Justyn Stedwell and Ms Nova Taylor Registered office Principal place of business Share register Auditor Solicitors C/- Moray & Agnew Lawyers Level 6, 505 Little Collins Street Melbourne VIC 3000, Australia 5855 Green Valley Circle Suite 101 Culver City, CA 90230 Automic Group Level 5, 126 Phillip Street Sydney NSW 2000, Australia HLB Mann Judd (Vic) Partnership Level 9, 575 Bourke Street, Melbourne VIC 3000, Australia Moray & Agnew Lawyers Level 6, 505 Little Collins Street, Melbourne VIC 3000, Australia Stock exchange listing Candy Club Holdings Limited shares are listed on the Australian Securities Exchange (ASX code: CLB) Candy Club Holdings Limited options are listed on the Australian Securities Exchange (ASX code: CLBO) Website https://www.candyclub.com Corporate Governance Statement Refer to https://www.candyclub.com 1 Candy Club Holdings Limited Directors' report 31 December 2020 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity') consisting of Candy Club Holdings Limited (referred to hereafter as the 'company' or 'parent entity') and the entities it controlled at the end of, or during, the period ended 31 December 2020. Directors The following persons were directors of Candy Club Holdings Limited during the whole of the financial period and up to the date of this report, unless otherwise stated: Keith Cohn Chi Kan Tang James Baillieu Andrew Clark Presentation currency As announced on 8 July 2020, during the current year the board have opted to change the presentation currency to US dollars, because it is the consolidated entity's functional currency and better reflects its financial performance and position. It is also the currency used by the board to measure and assess the consolidated entity's performance. Refer to note 1 of the financial statements for an explanation of impact of this change. Principal activities During the financial period the principal continuing activities of the consolidated entity consisted of: ● ● Sourcing, sales, marketing and distribution of candies in North America; and Servicing business customers in various traditional & non traditional candy retailers in a B2B segment & consumer customers through a B2C segment. Dividends There were no dividends paid, recommended or declared during the current or previous financial period. Review of operations The loss for the consolidated entity after providing for income tax amounted to $US4,535,042 (31 December 2019: $US5,453,516). In 2020, Candy Club saw the pivot it made to focus on the B2B segment pay off significantly as revenue from this business line grew 507% from $US1,095,687 in 2019 to $US6,645,435 in 2020. Total net revenue for 2020 was $US8,673,772. Candy Club’s B2B segment saw an increase in the total number of retail doors shipped in FY2020 by 10,000 from 4,000 doors to 14,000. While Candy Club continues to experience rapid accelerating growth in the number of retail doors carrying its product resulting from signing partnerships with large US national retailers, its B2B eCommerce customers were responsible for a significant amount of its growth in 2020. It should be noted that the dramatic growth the Company experienced in 2020 occurred despite the significant headwinds from the COVID-19 pandemic which dramatically curtailed brick and mortar retail activity in the US. Candy Club has seen its growth continue in Q1 2021 as brick and mortar retailers begin to resume more normalized operations and as its B2B eCommerce segment continues to scale. Candy Club’s outstanding performance in 2020 was driven by a combination of strong new customer acquisition and a 90%+ reorder rate every quarter by its top customers. Candy Club’s B2C subscription business is being managed for an optimum ROI. This segment’s largest variable expense is its cost per acquisition (“CPA”), which dropped to $US17 in 2020 from $US23 in 2019, a direct result of focusing on efficiency vs. scale. 2 Candy Club Holdings Limited Directors' report 31 December 2020 The B2C segment remains a key part of the Company’s overall strategy & supports the B2B business by helping with product and manufacturing efficiencies. Candy Club believes that this can be accomplished through ongoing customer acquisition in conjunction with repeat business from existing customers, new product development, consumer facing advertising, expanded partnerships with existing & new business partners, leveraging big-data customer insights to continually improve the company’s products & programs. In Q1 2020 the Company signed a deal with its 3rd party logistics partner that will greatly expand its production capacity to meet its aggressive growth targets through 2022. This expanded capacity comes with greater automation and efficiency, and as such the Candy Club was able to negotiate better rates on its key assembly processes that will result in higher gross margins once the project is complete in Q3 2022. Significant changes in the state of affairs Refer to note 21 for details of shares issued during the financial year. There were no other significant changes in the state of affairs of the consolidated entity during the financial period. Matters subsequent to the end of the financial period On 13 January 2021, the company issued 1,165,000 options over ordinary shares to employees under the company's ESOP. The options are exercisable at ($AU 0.13 - $US 0.101) and expire on 13 January 2025. On 9 February 2021, the company issued 12,500,001 fully paid ordinary shares valued at $AU 0.12 ($US 0.0927) fully paid ordinary shares to directors or their related entities raising $AU 1,500,000 ($US 1,159,050). On 9 February 2021, the company also issued 7,102,088 fully paid ordinary shares valued at $AU0.125 ($US.0966) to directors or their related entities. These shares were issued to settle borrowings and accrued interest valued $AU 887,761 ($US 685,972). On 9 February 2021, the company also issued 2,614 fully paid ordinary shares valued at $US 0.0029 on the conversion of ESOP options. On 14 February 2021, 34,438,212 fully paid ordinary shares, 4,000,000 performance rights and 2,000,000 unlisted options were released from escrow. On 19 February 2021, the consolidated entity signed an agreement with its fulfillment and warehouse center to expand their production facilities to not only allow them to meet their sales forecasts through 2022, but to better efficiently allow for improved gross margins, reducing cash burn throughout 2021 and 2022. On 8 March 2021, the company issued 5,067,000 options over ordinary shares to a US employee. The options are exercisable at $AU 0.20 ($US 0.154) and expire on 4 March 2025. The COVID-19 pandemic has created unprecedented economic uncertainty. Actual economic events and conditions in the future may be materially different from those estimated by the consolidated entity by the reporting date. As responses by government continue to evolve; management recognises that it is difficult to reliably estimate with any degree of certainty the potential impact of the pandemic after the reporting date on the consolidated entity, its operations, its future results and financial position. Subsequent to year end, the state of emergency in Victoria was extended until 9 April 2021. Refer to note 3 to the financial statements for further information regarding the impact of COVID-19 on the Group's operations. No other matter or circumstance has arisen since 31 December 2020 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years. Likely developments and expected results of operations Information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity. 3 Candy Club Holdings Limited Directors' report 31 December 2020 Business risks Below is a summary of the key business risk relating to the consolidated entity. Item Summary Sufficiency of funding Consumer demand Customer acquisition costs Food safety and hygiene Supply of confectionery Privacy and Data Intellectual Property Reliance on Key Personnel The consolidated entity's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. If consumers do not perceive the Candy Club Branded confectionery to be of sufficient quality, value or novelty, the consolidated entity may not be unable to acquire new customers or retain existing customers, adversely affecting the consolidated entity’s business operations and profitability. Customer demand for subscription plans of the Candy Boxes is currently generated, in part, from paid online media sources such as Facebook and Google. Customer acquisition costs, in particular from online media sources may rise in the future and in such circumstances the consolidated entity could find it difficult to acquire customers at a price sufficient to make a profit. Selling food for human consumption carries inherent risks related to food safety. The business carried on by the consolidated entity may be adversely affected to the extent there are any food safety incidents involving the Candy Club Branded Confectionery (such as tampering or contamination). While the consolidated entity is not dependent on any one supplier of confectionery, its business operations may be affected by the failure of a supplier to meet its contractual obligations to the consolidated entity or to supply products that meet the consolidated entity’s production standards. Any such failure by a supplier may have adverse implications on the consolidated entity’s business. The consolidated entity is reliant on third party suppliers for data processing and payment services, and the consolidated entity and such suppliers collect, store and transmit significant amounts of customer information. Any security breach or interruption in service may adversely affect the consolidated entity’s reputation and substantially interrupt the consolidated entity’s business operations. The success of Candy Club’s business operations is reliant on its intellectual property, such as customer data, trademarks, domain names, copyrights and know-how. If competitors utilise or infringe the consolidated entity’s intellectual property, the consolidated may be adversely affected. The consolidated entity is heavily reliant on key personnel, including the consolidated entity’s Executive Director, Mr Keith Cohn. Candy Club’s continued success depends on the continuing efforts and retention of its management team and staff, and if it is not able to attract highly skilled staff to support its planned growth, its business operations may be impacted. Environmental regulation The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. 4 Candy Club Holdings Limited Directors' report 31 December 2020 Information on directors Name: Title: Experience and expertise: Keith Cohn Executive Director Keith founded the Candy Club Business in 2014 and currently serves as the Chief Executive Officer of the Company. Keith has over 20 years of consumer industry experience and has held various executive marketing roles in the industry. Keith began his career as a Product Manager for Parkers Brothers, a division of Hasbro, Inc in managing the product lines of toys. He then proceeded to work as a Senior Product manager for Mattel, Inc. Keith subsequently worked at Equity Marketing, Inc, where he served as Vice President of the consumer division and was responsible for negotiating master licensing agreements with Universal Studios, Warner Bros. Entertainment Inc. and Lyrick Studios and launched product lines on a worldwide basis. In 2000, Mr. Cohn founded Vendare Media, a leading venture-backed online performance marketing company. Cohn led this high-growth, digital marketing enterprise from pre-revenue to US $150,000,000 in annual sales in five years. The Company pioneered email, lead generation and network advertising platforms in the early days of online marketing. He subsequently founded Bardon Advisors, a successful Search-based digital marketing company focused on high-value SEM marketing which he later sold in 2010. Other current directorships: Former directorships (last 3 years): Nil Interests in shares: Interests in options: Interests in rights: 10,997,811 fully paid ordinary shares 15,600,000 options over ordinary shares 2,000,000 performance rights Experience and expertise: Name: Title: Qualifications: Chi Kan Tang Non Executive Director Kan is a qualified Chartered Professional Accountant (CPA) and qualified Chartered Financial Analyst (CFA) and holds a Bachelor of Commerce from the University of Alberta. Kan is the founding partner of Asia Summit Capital, a private equity firm established in 2014, focused on consumer growth and the technology sector in Indonesia and Southeast Asia. Prior to this, Kan developed considerable experience in the online and landbase gaming industry with particular expertise in markets within the Asia-Pacific region. In 2003, Kan co-founded AsianLogic Limited, a Hong Kong based gaming company. During his time at Asianlogic, he took on numerous senior roles and responsibilities from CFO in the early stages of the company growth, to Business Development Director and was promoted to Chief Officer of Asianlogic from 2009 to 2014. Kan has also launched a series of SMEs including multiple F&B, leisure and 7- Eleven franchises in Hong Kong and the Philippines. Other current directorships: Nil Former directorships (last 3 years): Nil Interests in shares: Interests in options: Interests in rights: Contractual rights to shares: 38,019,031 fully paid ordinary shares 11,214,711 options over ordinary shares Nil Convertible note with a face value of $US 250,000. 5 Candy Club Holdings Limited Directors' report 31 December 2020 Name: Title: Qualifications: Experience and expertise: Mr James Baillieu Non Executive Director James holds an LLB (First Class Honours) and Bachelor of Arts from the University of Melbourne James previously served as Senior Vice President of Business Development at Aconex Limited (ASX:ACX) and was an early investor in and consultant to Aconex Limited. He also served as a non-executive director of Bidenergy Ltd (ASX: BID). James spent more than seven years as a consultant with McKinsey & Co, assisting businesses in Australia and internationally with strategy and operational improvement. James was previously a lawyer who practised in commercial law with Mallesons Stephen Jacques in the 1990s. Nil Other current directorships: Former directorships (last 3 years): Bidenergy Ltd (ASX: BID) - resigned 22 February 2019 Interests in shares: Interests in options: Interests in rights: Contractual rights to shares: 84,611,444 fully paid ordinary shares 25,161,506 options over ordinary shares Nil Convertible note with a face value of $US 400,000. Name: Title: Experience and expertise: Andrew Clark Non-Executive Director Andrew Clark has a wealth of knowledge gained in executive and senior leadership positions whilst working for more than 20 years in the Consumer Goods sector. Andrew's experiences have included domestic and global roles held in large multi- national and national public businesses and smaller private equity businesses covering manufacturer/supplier, wholesaler/retailer and technology/platform operations in the Australian, UK and US markets. Andrew has held various roles at Cadbury Schweppes, Reckitt Benckiser (including Global Sales Development Director and USA Vice President Trade Marketing); Nestle (Head of Sales and Category); Metcash (General Manager Merchandise: Food and Non-Food) and irexchange (CEO - FMCG). Nil Other current directorships: Former directorships (last 3 years): Nil Interests in shares: Interests in options: 2,831,780 fully paid ordinary shares 4,350,000 options over ordinary shares 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretaries Justyn Stedwell is a professional Company Secretary consultant with over eleven years’ experience as a Company Secretary of ASX listed companies in a wide range of industries. His qualifications include a Bachelor of Commerce (Management and Economics) from Monash University, a Graduate Diploma of Accounting from Deakin University and a Graduate Diploma in Applied Corporate Governance at the Governance Institute of Australia. He is currently the Company Secretary of several ASX listed companies. On 25 January 2021, Nova Taylor was appointed as joint company secretary. She has 4 years working in company secretary and assistant company secretary roles for listed entities. She previously worked for Computershare Investor Services Pty Ltd in various roles for 10 years and has a Bachelor of Law from Deakin University. 6 Candy Club Holdings Limited Directors' report 31 December 2020 Meetings of directors The number of meetings of the company's Board of Directors ('the Board') held during the period ended 31 December 2020, and the number of meetings attended by each director were: Keith Cohn Chi Kan Tang Andrew Clark James Baillieu Full Board Attended Held 6 6 6 6 6 6 6 6 Held: represents the number of meetings held during the time the director held office. Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: ● ● ● ● ● ● Principles used to determine the nature and amount of remuneration Details of remuneration Service agreements Share-based compensation Additional information Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The company observed the following factors in setting remuneration: ● ● ● ● competitiveness and reasonableness acceptability to shareholders performance linkage / alignment of executive compensation Transparency The board is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The reward framework is designed to align executive reward to shareholders' interests. The Board have considered that it should seek to enhance shareholders' interests by: ● ● having economic performance as a core component of plan design focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value attracting and retaining high calibre executives ● Additionally, the reward framework should seek to enhance executives' interests by: ● ● ● rewarding capability and experience reflecting competitive reward for contribution to growth in shareholder wealth providing a clear structure for earning rewards In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. 7 Candy Club Holdings Limited Directors' report 31 December 2020 Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and payments are reviewed annually by the board. The board may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. The chairman's fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market. The chairman is not present at any discussions relating to the determination of his own remuneration. Non-executive directors do not receive share options or other incentives. ASX listing rules require the aggregate non-executive directors' remuneration be determined periodically by a general meeting. The annual level of non-executive remuneration was set a maximum of $AU250,000 at the company's 2019 annual general meeting. Executive remuneration The consolidated entity aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has three components: ● ● ● base pay and non-monetary benefits short term performance incentives share based payments The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee based on individual and business unit performance, the overall performance of the consolidated entity and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the consolidated entity and provides additional value to the executive. The short-term incentives ('STI') program is designed to align the targets of the business units with the performance hurdles of executives. STI payments are granted to executives based on specific annual targets and key performance indicators ('KPI's') being achieved. KPI's include profit contribution, customer satisfaction, leadership contribution and product management. The long-term incentives ('LTI') include long service leave and share-based payments. The Board reviewed the long-term equity-linked performance incentives. Consolidated entity performance and link to remuneration Remuneration for certain individuals is directly linked to the performance of the consolidated entity. A portion of cash bonus and incentive payments are dependent on targets being met. Refer to the section 'Additional information' below for details of the earnings and total shareholders return for the last five years. Use of remuneration consultants The consolidated entity has not made use of remuneration consultants. Voting and comments made at the company's 31 July 2020 Annual General Meeting ('AGM') At the 31 July 2020 AGM, 100% of the votes received supported the adoption of the remuneration report for the year ended 31 December 2020. The company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables. 8 Candy Club Holdings Limited Directors' report 31 December 2020 Short-term benefits Post- employment benefits Long-term benefits Share-based payments Cash salary Consulting Bonus Super- Long service and fees $US fees $US $US annuation $US leave $US Equity- settled options $US Issue of shares $US Total $US - 37,983 - - 212,014 - - - - - 3,608 - 293,917 331,900 - 212,014 150,000 150,000 - 3,608 - - - - - - 96,351 - - 78,892 - - 428,848 - 540,024 636,375 100,000 1,083,941 178,892 1,512,789 2020 Non-Executive Directors: Chi Kan Tang * Andrew Clark James Baillieu * Executive Director: Keith Cohn** * ** These directors have agreed to forgo all fees during the current financial year. Of the bonus US$37,500 was paid at 31 December 2020 with the remainder accrued as a liability. Short-term benefits Post- employment benefits Long-term benefits Share- based payments Cash salary and fees $US Cash bonus $US Non- Super- monetary annuation $US $US Long service leave $US Equity- settled $US Total $US 22,877 19,695 24,150 9,353 11,053 244,251 331,379 - - - - - - - - - - - - - - - 1,871 2,294 888 - - 5,053 - - - - - - - - 6,899 - - - 22,877 28,465 26,444 10,241 11,053 214,651 221,550 458,902 557,982 Restated 2019 Non-Executive Directors: Robert Hines Zachry Rosenberg Chi Kan Tang Andrew Clark James Baillieu Executive Director: Keith Cohn The proportion of remuneration linked to performance and the fixed proportion are as follows: Name Non-Executive Directors: Robert Hines Zachry Rosenberg Chi Kan Tang Andrew Clark James Baillieu Executive Directors Keith Cohn Fixed remuneration At risk - STI 2020 Restated 2019 2020 Restated 2019 At risk - LTI 2020 Restated 2019 - - 100% 59% 100% 100% 76% 100% 100% 100% - - - - - 27% 53% 14% - - - - - - - - - 41% - - 24% - - - 59% 47% 9 Candy Club Holdings Limited Directors' report 31 December 2020 Cash bonuses are dependent on meeting defined performance measures. The amount of the bonus is determined having regard to the satisfaction of performance measures and weightings as described above in the section 'Consolidated entity performance and link to remuneration'. The proportion of the cash bonus paid/payable or forfeited is as follows: Name Executive Directors: Keith Cohn Cash bonus paid/payable Restated 2020 2019 2020 Cash bonus forfeited Restated 2019 100% - - - Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Term of agreement: Name: Title: Details: Name: Title: Term of agreement: Name: Title: Term of agreement: Keith Cohn Executive Director US$275,000 per annum plus an allowance of US$1,750 per month. Employment can be terminated by either party at any time with or without reason and with or without notice. James Baillieu Non-Executive Chairman $AU 50,000 per annum (plus superannuation) Andrew Clark Non-Executive Director $AU 55,000 per annum (plus superannuation) Chi Kan Tang Non-Executive Director $AU 40,000 per annum (plus superannuation). Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Share-based compensation Issue of shares Details of shares issued to directors and other key management personnel as part of compensation during the period ended 31 December 2020 are set out below: Name Keith Cohn Andrew Clark Date 17 January 2020 13 August 2020 Shares Issue price $US 1,865,672 $US0.0536 1,581,780 $US0.0499 100,000 78,892 10 Candy Club Holdings Limited Directors' report 31 December 2020 Options The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other key management personnel in this financial period or future reporting years are as follows: Grant date Number of options 5 November 2015 and 1 July 2016 543,665 11 November 2018 17 January 2020 * 17 January 2020 17 January 2020 17 January 2020 87,668 3,100,000 5,200,000 5,200,000 5,200,000 Expiry date 48 months from grant date 11 March 2020 15 January 2024 15 January 2024 15 January 2024 15 January 2024 Exercise price ($US) $US1.1700 $US1.1700 $US0.0000 $US0.1379 $US0.1724 $US0.2069 * Exercise price is 150% of the company's VWAP 10 day immediately prior to exercise. Options granted carry no dividend or voting rights. All options were granted over unissued fully paid ordinary shares in the company. The number of options granted was determined having regard to the satisfaction of performance measures and weightings as described above in the section 'Consolidated entity performance and link to remuneration'. Options vest based on the provision of service over the vesting period whereby the executive becomes beneficially entitled to the option on vesting date. Options are exercisable by the holder as from the vesting date. There has not been any alteration to the terms or conditions of the grant since the grant date. There are no amounts paid or payable by the recipient in relation to the granting of such options other than on their potential exercise. Additional information The earnings of the consolidated entity for the three years to 31 December 2020 are summarised below: Sales revenue Net loss attributable to owners 2020 $US 2019 $US 2018 $US 8,673,772 (4,535,042) 4,705,618 (5,453,516) 748,789 (936,820) The factors that are considered to affect total shareholders return ('TSR') are summarised below: Share price at financial year end ($AU) * Total dividends declared (cents per share) ($US) Basic earnings per share (cents per share) ($US) Diluted earnings per share (cents per share) ($US) 2020 2019 2018 0.13 - (1.86) (1.86) 0.07 - (3.75) (3.75) - - (1.22) (1.22) * On 19 February 2019, the company successfully completed its IPO, and was officially admitted onto the Australian Securities Exchange. 11 Candy Club Holdings Limited Directors' report 31 December 2020 Additional disclosures relating to key management personnel Shareholding The number of shares in the company held during the financial period by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at Received as the start of the period part of remuneration Additions Disposals/ other Balance at the end of the period Ordinary shares Mr Keith Cohn Mr Chi Kan Tang James Baillieu Andrew Clark 9,091,947 28,250,919 8,712,910 - 46,055,776 - 1,865,672 - 2,760,610 - 55,276,032 1,581,780 1,250,000 3,447,452 59,286,642 - 10,957,619 - 31,011,529 - 63,988,942 - 2,831,780 - 108,789,870 Option holding The number of options over ordinary shares in the company held during the financial period by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at Received as the start of the period part of remuneration Additions Expired/ forfeited/ other Balance at the end of the period Options over ordinary shares Keith Cohn * Chi Kan Tang James Baillieu Andrew Clark 7,062,730 2,178,228 - 631,333 15,600,000 - 4,151,981 - - 22,983,278 1,250,000 3,100,000 9,872,291 18,700,000 28,385,259 (631,333) 15,600,000 - 11,214,711 - 25,161,506 4,350,000 - (631,333) 56,326,217 * During the year 631,333 options over ordinary shares held by Keith Cohn expired unexercised. Loans from key management personnel and their related parties Entities related to James Baillieu and Chi Kan Tang had short term loans of $US,1,250,000 outstanding at 31 December 2020 with interest being accrued at 1% per month. These loans may be converted into fully paid ordinary shares at the discretion of the lender. Total interest expense of $US 236,041 was incurred for the year in relation to these loans with $135,155 of this amount unpaid and accrued at 31 December 2020. During the year, entities related to James Baillieu and Chi Kan Tang have converted borrowings and accrued interest totalling $US 1,302,724 into fully paid ordinary shares. Performance shares On 28 November 2018, both Keith Cohn and Zachry Rosenberg (now resigned) were issued 2,000,000 performance rights each, convertible into 2,000,000 fully paid ordinary shares upon the achievement of the milestones referred to below on or before the date being three (3) years from the date of the company’s Admission to the ASX. There are 4 classes with each recipient receiving 500,000 of each class: ● ● ● ● Class A - the company achieving accumulated revenue of at least $AU15,000,000 within any 12 month period prior to the expiry date of the performance shares; Class B - the company achieving accumulated revenue of at least $AU20,000,000 within any 12 month period prior to the expiry date of the performance shares; Class C - the company achieving accumulated revenue of at least $AU25,000,000 within any 12 month period prior to the expiry date of the performance shares; Class D - the company achieving accumulated revenue of at least $AU30,000,000 within any 12 month period prior to the expiry date of the performance shares; An expense of $AU 169,059 ($US 116,751) has been recognised in relation to these performance shares. Half of this amount relates to Keith Cohn and has been included in the remuneration report. This concludes the remuneration report, which has been audited. 12 Candy Club Holdings Limited Directors' report 31 December 2020 Shares under option Unissued ordinary shares of Candy Club Holdings Limited under option at the date of this report are as follows: Grant date Expiry date Between 5 April 2017 and 15 August 2018 19 February 2019 11 November 2018 13 June 2019 and 7 November 2019 3 July 2019 14 November 2019 17 January 2020 * 17 January 2020 17 January 2020 17 January 2020 17 January 2020 17 April 2020 5 June 2020 13 August 2020 11 September 2020 24 December 2020 13 January 2021 8 March 2021 48 months from the date of grant 48 months from the date of grant 11 March 2020 31 May 2023 27 March 2023 23 October 2023 15 January 2024 15 January 2024 15 January 2024 15 January 2024 31 May 2023 31 May 2023 5 June 2023 31 May 2023 11 September 2020 31 May 2023 31 January 2025 4 March 2015 Exercise price Number under option 1,582,128 $US0.0029 2,000,000 $US0.2310 $US1.1700 87,668 $US0.0770 42,253,897 2,578,165 $US0.1194 160,000 $US0.0585 3,100,000 $US0.0000 5,200,000 $US0.1540 5,200,000 $US0.1926 $US0.2311 5,200,000 $US0.7700 27,744,939 6,175,000 $US0.7700 1,613,672 $US0.0394 1,250,000 $US0.0770 595,142 $US0.0761 3,000,000 $US0.1386 1,165,000 $US0.1001 5,067,000 $US0.1540 113,972,611 * Exercise price is 150% of the company's 10 day VWAP immediately prior to exercise. No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate. Shares issued on the exercise of options The following ordinary shares of Candy Club Holdings Limited were issued during the period ended 31 December 2020 and up to the date of this report on the exercise of options granted: Date of conversion 2 December 2020 Exercise price Number of shares issued $US0.0029 753,866 Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. Since the end of the financial period, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The company has not, during or since the end of the financial period, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor. During the financial period, the company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. 13 Candy Club Holdings Limited Directors' report 31 December 2020 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 company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services There were no non-audit services provided during the financial period by the auditor. Officers of the company who are former partners of HLB Mann Judd (Vic) Partnership There are no officers of the company who are former partners of HLB Mann Judd (Vic) Partnership. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. Auditor HLB Mann Judd (Vic) Partnership was appointed in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Keith Cohn Executive Director 31 March 2021 14 Auditor’s independence declaration As lead auditor for the audit of the consolidated financial report of Candy Club Holdings Limited for the year ended 31 December 2020, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (a) the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (b) any applicable code of professional conduct in relation to the audit. This declaration is in relation to the Candy Club Holdings Limited and the entities it controlled during the period. HLB Mann Judd Chartered Accountants Melbourne 31 March 2021 Jude Lau Partner Candy Club Holdings Limited Contents 31 December 2020 Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors' declaration Independent auditor's report to the members of Candy Club Holdings Limited Shareholder information General information 17 18 19 20 21 51 52 56 The financial statements cover Candy Club Holdings Limited as a consolidated entity consisting of Candy Club Holdings Limited and the entities it controlled at the end of, or during, the period. The financial statements are presented in US dollars, which is Candy Club Holdings Limited's presentation currency. Candy Club Holdings Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are: Registered office Principal place of business C/- Moray & Agnew Lawyers Level 6, 505 Little Collins Street Melbourne VIC 3000, Australia 5855 Green Valley Circle Suite 101 Culver City, CA 90230 A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 31 March 2021. The directors have the power to amend and reissue the financial statements. 16 Candy Club Holdings Limited Consolidated statement of profit or loss and other comprehensive income For the period ended 31 December 2020 Revenue Other income Interest revenue calculated using the effective interest method Expenses Cost of sales Corporate and administration expenses Marketing and promotional expenses Employee benefits expense Development expenses Depreciation and amortisation expense Technology expenses Property expenses Other expenses Finance costs Loss before income tax expense Income tax expense Consolidated Restated Note 2020 $US 2019 $US 6 7 8 8 9 8,673,772 4,726,210 302,434 64 85,919 187 (5,373,371) (1,466,327) (2,380,205) (2,614,669) (109,348) (161,699) (183,949) (23,275) (595,631) (602,838) (4,067,371) (727,295) (1,293,199) (2,469,779) (180,043) (178,572) (151,232) (80,026) (679,318) (438,997) (4,535,042) (5,453,516) - - Loss after income tax expense for the period attributable to the owners of Candy Club Holdings Limited (4,535,042) (5,453,516) Other comprehensive loss Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive loss for the period, net of tax (427,305) (93,330) (427,305) (93,330) Total comprehensive loss for the period attributable to the owners of Candy Club Holdings Limited (4,962,347) (5,546,846) Basic earnings per share Diluted earnings per share Cents Cents 36 36 (1.86) (1.86) (3.75) (3.75) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 17 Candy Club Holdings Limited Consolidated statement of financial position As at 31 December 2020 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other Total current assets Non-current assets Property, plant and equipment Right-of-use assets Intangibles Other Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Lease liabilities Provisions Deferred revenue Total current liabilities Non-current liabilities Borrowings Lease liabilities Total non-current liabilities Total liabilities Net assets/(liabilities) Equity Issued capital Reserves Accumulated losses Consolidated Restated Restated Note 2020 $US 2019 $US 2018 $US 10 11 12 13 14 2,018,492 448,667 3,554,504 294,360 6,316,023 543,342 248,435 2,322,716 148,713 3,263,206 8,820 121,729 1,728,856 596,404 2,455,809 5,286 315,367 17,123 29,500 367,276 23,876 419,692 55,907 25,000 524,475 45,911 - 5,152 53,418 104,481 6,683,299 3,787,681 2,560,290 15 16 17 18 1,838,789 1,385,155 80,400 - - 3,304,344 2,887,927 1,649,495 174,713 50,000 - 4,762,135 2,963,869 408,000 - - 123,198 3,495,067 19 20 1,412,059 117,695 1,529,754 - 198,095 198,095 - - - 4,834,098 4,960,230 3,495,067 1,849,201 (1,172,549) (934,777) 21 22 21,835,441 15,344,101 11,386,068 (11,384,025) (936,820) (9,060,862) (10,925,378) (10,126,314) (6,390,336) Total equity/(deficiency) 1,849,201 (1,172,549) (934,777) The above consolidated statement of financial position should be read in conjunction with the accompanying notes 18 Candy Club Holdings Limited Consolidated statement of changes in equity For the period ended 31 December 2020 Consolidated Issued Reserves Accumulated capital $US $US losses $US Total deficiency in equity $US Balance at 1 January 2019 11,386,068 (11,384,025) (936,820) (934,777) Loss after income tax expense for the period Other comprehensive loss for the period, net of tax Total comprehensive loss for the period - - - - (93,330) (5,453,516) - (5,453,516) (93,330) (93,330) (5,453,516) (5,546,846) Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 21) Share based payments (note 22) 3,958,033 - - 1,351,041 - - 3,958,033 1,351,041 Balance at 31 December 2019 15,344,101 (10,126,314) (6,390,336) (1,172,549) Consolidated Issued capital $US Reserves $US Accumulated losses $US Total equity $US Balance at 1 January 2020 15,344,101 (10,126,314) (6,390,336) (1,172,549) Loss after income tax expense for the period Other comprehensive loss for the period, net of tax Total comprehensive loss for the period - - - - (427,305) (4,535,042) - (4,535,042) (427,305) (427,305) (4,535,042) (4,962,347) Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 21) Share based payments (note 22) 6,491,340 - - 1,492,757 - - 6,491,340 1,492,757 Balance at 31 December 2020 21,835,441 (9,060,862) (10,925,378) 1,849,201 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 19 Candy Club Holdings Limited Consolidated statement of cash flows For the period ended 31 December 2020 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Other revenue Interest and other finance costs paid Consolidated Restated Note 2020 $US 2019 $US 8,362,540 (13,339,222) 4,457,662 (10,758,363) (4,976,682) 64 13,812 (443,084) (6,300,701) 186 20,592 (167,915) Net cash (used) in operating activities 33 (5,405,890) (6,447,838) Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Proceeds from release of security deposits Net cash (used) in investing activities Cash flows from financing activities Proceeds from issue of shares and options Proceeds from borrowings Share issue transaction costs Repayment of borrowings Repayment of lease liabilities Funds received ahead of shares issued Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial period Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial period - - - - (20,631) (53,721) 27,806 (46,546) 4,559,244 3,449,622 (218,517) (760,497) (174,713) - 4,823,305 1,792,618 (451,717) - (163,881) 1,042,743 6,855,139 7,043,068 1,449,249 543,342 25,901 548,684 8,820 (14,162) 2,018,492 543,342 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 20 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 1. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The following Accounting Standards and Interpretations have been adopted by the consolidated entity: Conceptual Framework for Financial Reporting (Conceptual Framework) The consolidated entity has adopted the revised Conceptual Framework from 1 January 2020. The Conceptual Framework contains new definition and recognition criteria as well as new guidance on measurement that affects several Accounting Standards, but it has not had a material impact on the consolidated entity's financial statements. 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 ordinary course of business. The consolidated entity incurred a loss from ordinary activities of $US4,535,042 for the period ended 31 December 2020 (2019: $US5,453,516) and had negative cash from operating activities of $US5,405,890 (2019: $US6,447,838). The directors have reviewed the cashflow forecasts and believe that there are reasonable grounds to believe that the consolidated entity will be able to continue as a going concern due to the following factors: ● ● ● ● ● ● The consolidated entity’s products continue to sell extremely well at retail as evidenced by the consolidated entity’s top customers reordering at a 90% rate on a quarterly basis and is on track to scale revenues significantly in 2021; On 19 February 2021, the consolidated entity signed an agreement with its fulfillment and warehouse center to expand their production facilities to not only allow them to meet their sales forecasts through 2022, but better efficiency allows for improved gross margins eliminating cash burn throughout 2021 and 2022; In the first quarter of 2021, the consolidated entity began conversations with a variety of debt lenders to determine the viability of improving on its current debt facility. The company received multiple term sheets and is confident that it could raise incremental debt on more favorable terms than it currently has if the Board chooses to go in this direction; On 9 February 2021, the company issued 12,500,001 valued at $AU.0.12 ($US0.0927) fully paid ordinary shares to directors or their related entities raising $AU $1,500,000 ($US1,159,050); On 9 February 2021, the company also issued 7,102,088 fully paid ordinary shares values $AU0.125 (US$.0966) to directors or their related entities. These shares were issued to settle borrowings and accrued interest valued $AU 887,761 ($US 685,972); and The company has the ability to raise additional capital under its 15% general placement capacity and is currently negotiating with several parties about securing additional equity investment in the company. The company also has the ability to increase its current debt facility. Accordingly, the Directors believe that the consolidated entity will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report. In the event that consolidated entity is unsuccessful in implementing the above-stated initiatives, a material uncertainty exists, that may cast significant doubt on the consolidated entity's ability to continue as a going concern and its ability to recover assets and discharge liabilities in normal course of business and at the amounts shown in the financial report. Should the consolidated entity be unable to continue as a going concern it may be required to realise its assets and discharge its liabilities other than in the normal course of business and at amounts different from those stated in the financial statements. Change in presentation currency As announced on 8 July 2020, during the current year the board have opted to change the presentation currency to US dollars, because it is the consolidated entity's functional currency and better reflects its financial performance and position. It is also the currency used by the board to measure and assess the consolidated entity's performance. 21 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 1. Significant accounting policies (continued) A change in presentation currency represents a change in an accounting policy in terms of AASB 108 - Accounting Policies, Changes in Accounting Estimates and Errors, requiring the restatement of comparative information. In accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates, the following methodology was followed in restating historical financial information from Australian dollars into US dollars. ● ● ● Non-US dollar assets and liabilities were translated at the relevant closing exchange rate at the end of the reporting period; Non-US dollar items of income and expenditure and cash flows were translated at the average exchange rates for the relevant period; and The effects of translating the consolidated entity’s financial results and financial position into US dollar were recognised in the foreign currency translation reserve. The exchange rates used when performing the restatement from Australian dollars, that are relevant to this report and the remuneration report are summarised below: 31 December 2018 31 December 2019 Closing Average 0.7058 0.7006 0.7201 0.6951 The effect of the change on statement of financial performance for financial year ended 31 December 2019 is summarised below: Revenue and income Less expenses Loss after income tax Basic earnings per share Diluted earnings per share Exchange $AUD rates $US 6,922,584 (14,767,546) 0.6951 0.6951 4,812,316 (10,265,832) (7,844,962) (5,453,516) (5.39) (5.39) 0.6951 0.6951 (3.75) (3.75) The effect of the change on statement of financial position at 31 December 2019 is summarised below: Current assets Non-current assets Current liabilities Non-current liabilities Exchange $AUD rate $US 4,657,732 748,608 (6,797,225) (282,751) (1,673,636) 0.7006 0.7006 0.7006 0.7006 3,263,206 524,475 (4,762,135) (198,095) (1,172,549) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, investment properties, certain classes of property, plant and equipment and derivative financial instruments. 22 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 1. Significant accounting policies (continued) Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 30. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Candy Club Holdings Limited ('company' or 'parent entity') as at 31 December 2020 and the results of all subsidiaries for the period then ended. Candy Club Holdings Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting, unless it is an acquisition involving entities or businesses under common control. For common control acquisitions the excess of the purchase price over the identifiable fair value of net assets acquired, is recognised in equity as a reserve. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Board of Directors being the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. The consolidated entity operates the business of selling candies. The consolidated entity currently manages the B2B business line as part of the overall candy selling business, whereby no discrete financial information between the B2C and B2B lines is maintained other than the revenue generated. The Board being the chief operating decision maker monitors the financial performance and position of the group as a whole and not by the business line. To this end, the group has been assessed as one business segment during the year ended 31 December 2020. Foreign currency translation The financial statements are presented in US dollars, which is Candy Club Holdings Limited's presentation currency. Foreign currency transactions Foreign currency transactions are translated into US dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. 23 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 1. Significant accounting policies (continued) Translation to presentation currency The assets and liabilities of entities where the functional currency is not US dollars are translated into US dollars using the exchange rates at the reporting date. The revenues and expenses are translated into US dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. The exchange difference from the translation is recognised in other comprehensive income. Revenue recognition The consolidated entity recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: ● ● ● ● ● identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Sale of goods Revenue from the sale of goods is recognised at the point in time when the product is shipped to the customer. No element of financing is deemed present as the sales are generally made with terms ranging from customer pre-payment to credit terms of 30 to 60 days. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Government grants Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. 24 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 1. Significant accounting policies (continued) Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a ● transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. ● Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are amounts due from customers for goods sold in the ordinary course of business. Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The consolidated entity holds accounts receivable with the objective of collecting the contracted cashflows. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. Inventories Stock on hand is stated at the lower of cost and net realisable value. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. 25 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 1. Significant accounting policies (continued) Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Plant and equipment Computer equipment 4-5 years 2 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The consolidated entity 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. Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Website Significant costs associated with the development of the revenue generating aspects of the website, including the capacity of placing orders, are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life. Software Significant costs associated with software are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life. Impairment of non-financial assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. 26 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 1. Significant accounting policies (continued) Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial period and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. 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. Borrowings are derecognised when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount extinguished and the consideration paid, including any non cash assets transferred or liabilities assumed is recognised in profit and loss as other finance costs. The component of the convertible notes that exhibits characteristics of a liability is recognised as a liability in the statement of financial position, net of transaction costs. On the issue of the convertible notes the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond and this amount is carried as a non-current liability on the amortised cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time is recognised as a finance cost. The remainder of the proceeds are allocated to the conversion option that is recognised and included in shareholders equity as a convertible note reserve, net of transaction costs. The carrying amount of the conversion option is not remeasured in the subsequent years. The corresponding interest on convertible notes is expensed to profit or loss. 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 entity's 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 expected 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. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Provisions Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result of a past event, it is probable the consolidated entity will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Employee benefits Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. 27 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 1. Significant accounting policies (continued) Equity-settled transactions are awards of shares, or options over shares, that are provided to employees and directors in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows: ● during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. ● All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Candy Club Holdings Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial period, adjusted for bonus elements in ordinary shares issued during the financial period. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. 28 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 1. Significant accounting policies (continued) Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 31 December 2020. The consolidated entity has not yet assessed the impact of these new or amended Accounting Standards and Interpretations. Note 2. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Share-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees and directors by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Provision for impairment of inventories The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence. Lease term The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the consolidated entity's operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements; and the costs and disruption to replace the asset. The consolidated entity reassesses whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances. 29 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 2. Critical accounting judgements, estimates and assumptions (continued) Incremental borrowing rate Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to discount future lease payments to measure the present value of the lease liability at the lease commencement date. Such a rate is based on what the consolidated entity estimates it would have to pay a third party to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset, with similar terms, security and economic environment. Note 3. Impact of COVID 19 pandemic During the current financial year the COVID 19 pandemic had a significant impact on the global economy. In response to the pandemic, the US, state and local governments announced a series of measures aimed at preventing the spread of COVID-19 (“measures”), which had the subsequent effect of impacting the state of the US economy (i.e. impact on supply chain, customers, availability of finance, consumer confidence, etc). ● ● ● ● ● Enacting Candy Club’s stated business continuity plan of enabling all consolidated entity employees, including head office and sales staff, to work remotely, until further notice; To date, no business interruptions have occurred in either the consolidated entity’s warehousing and distribution center operations, located primarily in Indiana, nor in its supply chain of core product or packaging vendors, as we and our facility are classified as a food manufacturer and currently considered “essential critical business infrastructure”; given the fluidity of the situation this is subject to change in the future; There are segments of the consolidated entity’s business that have been negatively impacted by these events, such as sales to retail stores and hospitality outlets, and segments that have been positively impacted as a result of these measures, including e-commerce and grocery customers. While the consolidated entity’s revenue has increased since the beginning of the pandemic, the situation in the US remains fluid and it is still too early to tell how revenue, earnings and cash flow for FY2020 will be impacted by the measures required by COVID-19; and The consolidated entity’s board of directors and management continually review and revise Candy Club’s 2020 operating plans, including operating expense management solutions and associated cashflow budget, to adapt to the impact of the ongoing COVID-19 crisis. During the year consolidated entity received a PPP loan of $US288,622 from the US federal government as part of its COVID response. This loan was forgiven in full during the current financial year. Management continues to monitor other possible impacts associated with COVID 19. Management also recognises that the situation associated with the management of COVID-19 continues to evolve on a daily basis and it is difficult to estimate with any degree of certainty the resulting impact (financial and operational) which this may have on Candy Club and its future results and financial position. Note 4. Difference to preliminary results On 26 February 2021, the company announced its preliminary results. Since that time there have been adjustments made to the presentation within the equity section of the statement of financial position. This has resulted in a $US376,073 increase in issued capital and a corresponding decrease of the overall reserves balance. There has been no change to the loss before income tax or net assets reported in the preliminary results. However, the operating cash outflows were understated by $US710,208 while cash inflows from financing activities were understated by $US680,557 with the difference attributable to FX translation. 30 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 5. Operating segments Identification of reportable operating segments The consolidated entity is organised into one operating segment, being the candy distribution in the United States of America. This operating segment is based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. The consolidated entity operates the business of selling candies. CODM manages the B2B business line as part of the overall candy selling business, whereby no discrete financial information between the B2C and B2B lines is maintained other than the revenue generated. The Board being the chief operating decision maker monitors the financial performance and position of the group as a whole and not by the business line. To this end, the group has been assessed as one business segment during the year ended 31 December 2020. Refer to note 6 for split of total revenue per business line. Note 6. Revenue Net revenue from contracts with customers Sales of goods Other revenue Other revenue Revenue Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Major revenue streams Sale of goods - business to customer Sale of goods - business to business Geographical regions United States of America Consolidated Restated 2020 $US 2019 $US 8,673,772 4,705,618 - 20,592 8,673,772 4,726,210 Consolidated Restated 2020 $US 2019 $US 2,028,337 6,645,435 3,609,931 1,095,687 8,673,772 4,705,618 8,673,772 4,705,618 Timing of revenue recognition Goods transferred at a point in time - being when shipped and ownership transfers 8,673,772 4,705,618 31 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 7. Other income Gain on early termination of lease Government COVID stimulus PPP loan forgiven Other income Note 8. Expenses Loss before income tax includes the following specific expenses: Depreciation Plant and equipment Right of use assets Total depreciation Amortisation Intangible assets Total depreciation and amortisation Finance costs Interest and finance charges paid/payable on bridging finance - from director related entities Interest and finance charges paid/payable on lease liabilities Interest and finance charges paid/payable on US loan facilities (inc share based payments) Finance costs expensed Consolidated Restated 2020 $US 2019 $US - 13,812 288,622 85,919 - - 302,434 85,919 Consolidated Restated 2020 $US 2019 $US 18,590 104,325 26,777 133,108 122,915 159,885 38,784 18,687 161,699 178,572 236,041 16,100 350,697 201,942 43,092 193,963 602,838 438,997 32 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 9. Income tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Loss before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Tax effect of different tax rates in US US tax losses not recognised US state taxes Tax losses not recognised Non deductible items Income tax expense Australian tax losses not recognised Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit @ 30% Consolidated Restated 2020 $US 2019 $US (4,535,042) (5,453,516) (1,360,513) (1,636,055) 277,717 973,313 (267,196) 310,155 66,524 425,087 1,339,779 (346,264) 198,425 19,028 - - Consolidated Restated 2020 $US 2019 $US 1,892,569 672,721 567,771 201,816 The above potential tax benefit for tax losses has not been recognised in the statement of financial position. These tax losses can only be utilised in the future if the continuity of ownership test is passed, or failing that, the same business test is passed. US tax losses The company's US subsidiaries have total tax losses of $US31,689,000 (2019: $US28,641,000) which have not been recognised as the recovery of this benefit is uncertain. The tax losses are yet to be tested to ensure that they will be able to be utilised by the US subsidiaries after their acquisition by the company. Note 10. Current assets - trade and other receivables Trade receivables Less: Allowance for expected credit losses Other receivables BAS receivable Consolidated Restated 2020 $US 2019 $US 435,397 (111,000) 324,397 152,901 - 152,901 115,421 8,849 88,715 6,819 448,667 248,435 Refer to note 24 for information on credit risk. No allowance for credit loss has been recognised as none of the balances are considered impaired. 33 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 10. Current assets - trade and other receivables (continued) Allowance for expected credit losses The consolidated entity has recognised a loss of $US111,000 in profit or loss in respect of the expected credit losses for the year ended 31 December 2020. The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Consolidated 0 to 90 days Over 90 days Expected credit loss rate Carrying amount Restated Restated Allowance for expected credit losses Restated 2020 % 2019 % 2020 $US 2019 $US 2020 $US 2019 $US - 75% - - 402,818 148,000 241,616 - - 111,000 550,818 241,616 111,000 Movements in the allowance for expected credit losses are as follows: - - - - - - Consolidated Restated 2020 $US 2019 $US - 111,000 111,000 Consolidated Restated 2020 $US 2019 $US 3,946,951 (392,447) 2,968,715 (645,999) 3,554,504 2,322,716 Opening balance Additional provisions recognised Closing balance Note 11. Current assets - inventories Stock on hand - at cost Less: Provision for impairment The consolidated entity's inventory has been pledged as security for borrowings. Refer to note 19. Note 12. Current assets - other Prepayments Consolidated Restated 2020 $US 2019 $US 294,360 148,713 34 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 13. Non-current assets - right-of-use assets Land and buildings - right-of-use Less: Accumulated depreciation Plant and equipment - right-of-use Less: Accumulated depreciation Consolidated Restated 2020 $US 2019 $US 275,806 (89,937) 185,869 161,873 (32,375) 129,498 275,806 (17,987) 257,819 161,873 - 161,873 315,367 419,692 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial period are set out below: Consolidated Balance at 1 January 2019 Additions Early termination of lease Recognised on adoption of AASB 16 Depreciation expense Balance at 31 December 2019 Depreciation expense Balance at 31 December 2020 Note 14. Non-current assets - other Security deposits Land and Plant and buildings equipment $US $US - 275,806 (581,656) 696,777 (133,108) - 161,873 - - - Total $US - 437,679 (581,656) 696,777 (133,108) 257,819 (71,950) 161,873 (32,375) 419,692 (104,325) 185,869 129,498 315,367 Consolidated Restated 2020 $US 2019 $US 29,500 25,000 35 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 15. Current liabilities - trade and other payables Trade payables Funds received ahead of shares issued Other payables Refer to note 24 for further information on financial instruments. All trade and other payables are unsecured liabilities and recognised at amortised cost. Note 16. Current liabilities - borrowings Bridging finance - from director related entities Loan facility - CircleUp Consolidated Restated 2020 $US 2019 $US 1,351,451 - 487,338 1,429,421 1,050,900 407,606 1,838,789 2,887,927 Consolidated Restated 2020 $US 2019 $US 1,385,155 - 1,220,998 428,497 1,385,155 1,649,495 Refer to note 24 for further information on financial instruments. The bridging finance includes a balance of $US1,250,000 with interest being accrued at 1% per month. These loans may be converted into fully paid ordinary shares at the discretion of the lender, with part of the balance having been converted since 31 December 2020. Refer to note 32. CircleUp provided a revolving line of credit to Candy Club based on the company’s Direct-To-Consumer (DTC) cash flows. An initial Maximum Facility Amount of $US1,000,000 was approved, and CircleUp will seek to re-evaluate the maximum credit limit on demand as Candy Club grows. Initial availability was $US700,000 based on DTC sales. Interest accrued daily as simple interest (non-compounding) on the principal balance outstanding at a rate of Prime + 5%. The loan was secured against the assets of the consolidated entity's US subsidiaries. At 31 December 2019 these assets had a carrying value of $US 5,000,247. There were no defaults on this loan during the prior year. This loan was repaid in full during the current year. Note 17. Current liabilities - lease liabilities Consolidated Restated 2020 $US 2019 $US 80,400 174,713 Lease liability Refer to note 24 for further information on financial instruments. 36 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 18. Current liabilities - provisions Legal claims Refer to note 27 for further details. Consolidated Restated 2020 $US 2019 $US - 50,000 Legal claims The provision represented a claim by a former employee. This claim was settled during the current financial year. Movements in provisions Movements in each class of provision during the current financial period, other than employee benefits, are set out below: Consolidated - 2020 Carrying amount at the start of the period Payments Unused amounts reversed Carrying amount at the end of the period Note 19. Non-current liabilities - borrowings Loan facility Refer to note 24 for further information on financial instruments. Legal claims $US 50,000 (30,000) (20,000) - Consolidated Restated 2020 $US 2019 $US 1,412,059 - The loan facility is with Crossroads Financial LLC and has a $US2.0m credit facility secured by the value of the consolidated entity's inventory with $US 421,000 of unused facility at 31 December 2020. The loan has a two year term expiring in April 2022. At 31 December 2020, the outstanding balance of $US 1,412,059 comprises the face value of $US1,579,000 less capitalized borrowing costs totalling $US 166,941. Interest is payable at 19 per cent per annum. 37 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 19. Non-current liabilities - borrowings (continued) Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Loan facility Used at the reporting date Loan facility Unused at the reporting date Loan facility Note 20. Non-current liabilities - lease liabilities Lease liability Refer to note 24 for further information on financial instruments. Note 21. Equity - issued capital Consolidated Restated 2020 $US 2019 $US 2,000,000 1,579,000 421,000 - - - Consolidated Restated 2020 $US 2019 $US 117,695 198,095 Ordinary shares - fully paid 288,552,735 174,911,079 21,835,441 15,344,101 Consolidated 2020 Shares Restated 2019 Shares 2020 $US Restated 2019 $US 38 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 21. Equity - issued capital (continued) Movements in ordinary share capital Details Date Shares Issue price $US Balance IPO shares Shares issued to lead manager Conversion of debt Rights issue Rights issue Settlement of trade creditors Conversion of debt Cost of capital raising Balance Shares issued to settle trade payables Shares issued to KMP and employees as part of remuneration Issue of shares Shares issued on conversion of debt and accrued interest Issue of shares Issue of shares Issue of shares Shares issued to KMP as part of remuneration Issue of shares Exercise of options Cost of capital raising 1 January 2019 19 February 2019 19 February 2019 5 August 2019 5 August 2019 2 October 2019 7 November 2019 7 November 2019 31 December 2019 17 January 2020 106,726,399 25,120,020 $US0.1423 7,244,312 $US0.1423 9,832,832 $US0.0545 4,804,856 $US0.0545 19,125,000 $US0.0537 825,000 $US0.0549 1,232,660 $US0.0225 - $US0.0000 11,386,066 3,573,574 1,030,575 535,850 261,845 1,027,242 45,322 27,679 (2,544,052) 174,911,079 412,500 $US0.0450 15,344,101 18,487 17 January 2020 17 January 2020 4,104,478 $US0.0540 18,750,000 $US0.0450 220,000 840,328 17 January 2020 17 April 2020 24 July 2020 13 August 2020 13 August 2020 1 December 2020 2 December 2020 31,801,055 $US0.0410 6,175,000 $US0.0150 19,646,310 $US0.0886 1,250,000 $US0.0253 1,581,780 $US0.0499 29,166,667 $US0.0884 753,866 $US0.0028 - $US0.0000 1,302,724 94,255 1,740,172 31,656 78,892 2,578,800 2,139 (416,113) Balance 31 December 2020 288,552,735 21,835,441 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The consolidated entity's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Refer to going concern disclosures in Note 1. 39 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 22. Equity - reserves Foreign currency reserve Share-based payments reserve Commonly controlled reserve Consolidated Restated 2020 $US 2019 $US (310,853) 3,638,968 (12,388,977) 116,452 2,146,211 (12,388,977) (9,060,862) (10,126,314) Foreign currency reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to US dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. Commonly controlled reserve This reserve is used to account for commonly controlled acquisitions, and the reserve represents the excess of the purchase price over the identifiable fair value of net assets acquired from US subsidiaries. Movements in reserves Movements in each class of reserve during the current and previous financial period are set out below: Consolidated Balance at 1 January 2019 Foreign currency translation Share based payments Balance at 31 December 2019 Foreign currency translation Share based payments Foreign currency $US Share based Commonly payments controlled $US $US Total $US 209,782 (93,330) - 795,170 - 1,351,041 (12,388,977) - - (11,384,025) (93,330) 1,351,041 116,452 (427,305) - 2,146,211 - 1,492,757 (12,388,977) - - (10,126,314) (427,305) 1,492,757 Balance at 31 December 2020 (310,853) 3,638,968 (12,388,977) (9,060,862) Note 23. Equity - dividends There were no dividends paid, recommended or declared during the current or previous financial period. Note 24. Financial instruments Financial risk management objectives The consolidated entity's activities expose it to a variety of financial risks: market risk (including foreign currency risk, and interest rate risk), credit risk and liquidity risk. The consolidated entity's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange, ageing analysis for credit risk. 40 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 24. Financial instruments (continued) Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the consolidated entity and appropriate procedures, controls and risk limits. Finance reports to the Board on a monthly basis. Market risk Foreign currency risk The consolidated entity is exposed to foreign exchange risk in relation to the operation of its subsidiaries in the United States of America. It does not hedge any of these risks as the US denominated debts are expected to be paid using US dollar denominated receipts. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. The carrying amount of the consolidated entity's foreign currency denominated financial assets and liabilities at the reporting date were as follows: Consolidated Australian dollars Assets Restated 2020 $US 2019 $US Liabilities Restated 2020 $US 2019 $US 105,275 269,403 1,535,483 2,402,156 Consolidated - 2020 % change profit before tax Effect on equity % change profit before tax Effect on equity USD strengthened Effect on USD weakened Effect on Australian dollars 10% - (143,021) 10% - 143,021 Consolidated - Restated 2019 % change profit before tax Effect on equity % change profit before tax Effect on equity USD strengthened Effect on USD weakened Effect on Australian dollars 10% - (213,275) 10% - 213,275 Price risk The consolidated entity is not exposed to any significant price risk. Interest rate risk The consolidated entity is not exposed to significant interest rate risk. Its only borrowings were short term bridging finance with a fixed interest rate and the Crossroads facility with a fixed interest rate of 19% per annum. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity is exposed to credit risk in relation to it business to business customers, whic h represented 76.62% (2019: 23.29%) of revenue from customers. The remainder of the revenue was business to customer sales where payment is received before delivery is made. The total trade receivable balance at 31 December 2020 was $US435,397 (2019: $US152,901). An impairment of $US111,000 was recognised in the current year (2019: nil). Average credit terms are 30 days. The consolidated entity credit risk by country is summarised below:- 41 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 24. Financial instruments (continued) United States Consolidated Restated 2020 $US 2019 $US 435,397 241,615 Liquidity risk Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Refer to going concern disclosures in Note 1 for further details. Financing arrangements Unused borrowing facilities at the reporting date: Loan facility Consolidated Restated 2020 $US 2019 $US 421,000 - Remaining contractual maturities The following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Weighted average interest rate % 1 year or less $US Between 1 and 2 years $US Between 2 and 5 years $US Over 5 years $US Remaining contractual maturities $US Consolidated - 2020 Non-derivatives Non-interest bearing Trade payables Other payables - - 1,351,451 487,338 - - - - Interest-bearing - fixed rate Lease liability Loan facility Short term loans from directors Total non-derivatives 7.00% 19.00% 12.00% 80,400 - 1,385,155 3,304,344 80,400 1,412,059 - 1,492,459 37,295 - - 37,295 42 - - - - - - 1,351,451 487,338 198,095 1,412,059 1,385,155 4,834,098 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 24. Financial instruments (continued) Consolidated - Restated 2019 Weighted average interest rate % 1 year or less $US Between 1 and 2 years $US Between 2 and 5 years $US Remaining contractual maturities $US Over 5 years` $US Non-derivatives Non-interest bearing Trade payables Other payables Funds received ahead of shares issued Interest-bearing - fixed rate Lease liability Bridging loans Bridging loans Loan facility Total non-derivatives - - - 7.00% 10.00% 24.00% 9.75% 1,429,421 407,606 1,050,900 174,713 85,903 1,135,895 428,497 4,712,935 - - - - - - 174,713 - - - 174,713 23,382 - - - 23,382 - - - - - - - - 1,429,421 407,606 1,050,900 372,808 85,903 1,135,895 428,497 4,911,030 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Measurement of financial assets The totals for each category of financial instruments, measured in accordance with AASB 9: Financial Instruments as detailed in the accounting policies to these financial statements, are as follows: Financial assets Financial assets measured at amortised cost Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Financial liabilities at amortised cost Trade and other payables Borrowings Lease liabilities Total financial liabilities Consolidated Restated 2020 $US 2019 $US 2,018,492 448,667 543,342 248,435 2,467,159 791,777 Consolidated Restated 2020 $US 2019 $US 1,838,789 2,797,214 198,095 2,887,927 1,649,495 372,808 4,834,098 4,910,230 None of the consolidated entity's financial instruments are recorded at fair value subsequent to initial recognition. 43 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 25. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below: Short-term employee benefits Post-employment benefits Share-based payments Note 26. Remuneration of auditors Consolidated Restated 2020 $US 2019 $US 693,914 3,608 815,267 331,379 5,053 221,550 1,512,789 557,982 During the financial period the following fees were paid or payable for services provided by HLB Mann Judd (Vic) Partnership, the auditor of the company, and its network firms: Audit services - HLB Mann Judd (Vic) Partnership Audit or review of the financial statements Audit services - network firms Audit or review of the financial statements Note 27. Contingent liabilities/assets Consolidated Restated 2020 $US 2019 $US 26,012 29,154 67,000 67,000 In the prior year, the consolidated entity was defending a litigation claim brought against the consolidated entity by a former employee in relation to their past employment. The consolidated entity had received legal advice that it has a strong case and has instructed its legal counsel to settle the matter for which an accrual was recognised at 31 December 2019. During the current year the amount was settled for $US30,000. Refer to note 18. The consolidated entity does not have any other contingencies. Note 28. Commitments The consolidated entity has no commitments at the end of the current and prior financial years. Note 29. Related party transactions Parent entity Candy Club Holdings Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 31. 44 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 29. Related party transactions (continued) Key management personnel Disclosures relating to key management personnel are set out in note 25 and the remuneration report included in the directors' report. Transactions with related parties The following transactions occurred with related parties: Other expenses: Finances costs to key management personnel and their related entities. Consolidated Restated 2020 $US 2019 $US 236,041 110,613 Receivable from and payable to related parties The following balances are outstanding at the reporting date in relation to transactions with related parties: Current payables: Other payables to key management personnel Funds received ahead of shares issued Bonus accrued to key management personnel Consolidated Restated 2020 $US 2019 $US 81,564 - 112,500 192,122 1,050,900 - Loans to/from related parties The following balances are outstanding at the reporting date in relation to loans with related parties: Current borrowings: Loans from key management personnel and their related entities * Consolidated Restated 2020 $US 2019 $US 1,381,810 1,216,029 * The bridging finance includes a balance of $US1,250,000 with interest being accrued at 1% per month. These loans may be converted into fully paid ordinary shares at the discretion of the lender. Note 30. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Loss after income tax Total comprehensive loss 45 Parent Restated 2020 $US 2019 $US (6,868,315) (18,294,826) (6,868,315) (18,294,826) Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 30. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Foreign currency reserve Share-based payments reserve Accumulated losses Total deficiency in equity Parent Restated 2020 $US 2019 $US 107,490 284,509 107,490 284,509 1,535,483 2,402,156 1,535,483 2,402,156 21,835,441 15,344,101 (207,466) 1,082,175 (18,336,457) (497,467) 2,438,805 (25,204,772) (1,427,993) (2,117,647) Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 31 December 2020 and 31 December 2019. Contingent liabilities The parent entity had no contingent liabilities as at 31 December 2020 and 31 December 2019. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 31 December 2020 and 31 December 2019. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following: ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Note 31. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1: Name Candy Club Holdings Inc. Candy Club LLC Note 32. Events after the reporting period Principal place of business / Country of incorporation USA USA Ownership interest Restated 2020 % 2019 % 100.00% 100.00% 100.00% 100.00% On 13 January 2021, the company issued 1,165,000 options over ordinary shares to employees under the company's ESOP. The options are exercisable at ($AU 0.13 - $US 0.101) and expire on 13 January 2025. 46 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 32. Events after the reporting period (continued) On 9 February 2021, the company issued 12,500,001 fully paid ordinary shares valued at $AU 0.12 ($US 0.0927) fully paid ordinary shares to directors or their related entities raising $AU 1,500,000 ($US 1,159,050). On 9 February 2021, the company also issued 7,102,088 fully paid ordinary shares valued at $AU0.125 ($US.0966) to directors or their related entities. These shares were issued to settle borrowings and accrued interest valued $AU 887,761 ($US 685,972). On 9 February 2021, the company also issued 2,614 fully paid ordinary shares valued at $US 0.0029 on the conversion of ESOP options. On 14 February 2021, 34,438,212 fully paid ordinary shares, 4,000,000 performance rights and 2,000,000 unlisted options were released from escrow. On 19 February 2021, the consolidated entity signed an agreement with its fulfillment and warehouse center to expand their production facilities to not only allow them to meet their sales forecasts through 2022, but to better efficiently allow for improved gross margins, reducing cash burn throughout 2021 and 2022. On 8 March 2021, the company issued 5,067,000 options over ordinary shares to a US employee. The options are exercisable at $AU 0.20 ($US 0.154) and expire on 4 March 2025. The COVID-19 pandemic has created unprecedented economic uncertainty. Actual economic events and conditions in the future may be materially different from those estimated by the consolidated entity by the reporting date. As responses by government continue to evolve; management recognises that it is difficult to reliably estimate with any degree of certainty the potential impact of the pandemic after the reporting date on the consolidated entity, its operations, its future results and financial position. Subsequent to year end, the state of emergency in Victoria was extended until 9 April 2021. Refer to note 3 to the financial statements for further information regarding the impact of COVID-19 on the Group's operations. No other matter or circumstance has arisen since 31 December 2020 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years. 47 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 33. Reconciliation of loss after income tax to net cash (used) in operating activities Loss after income tax expense for the period (4,535,042) (5,453,516) Consolidated Restated 2020 $US 2019 $US Adjustments for: Depreciation and amortisation Share-based payments Accrued interest Settlement of operating liabilities through issue of shares Non-cash finance costs Gain on early termination of lease PPP loan forgiven Provision for expected credit losses Movement in provision for inventory impairment Change in operating assets and liabilities: Increase in trade and other receivables Increase in inventories Increase in other operating assets Decrease in trade and other payables Increase/(decrease) in other provisions Decrease in other operating liabilities Net cash (used) in operating activities Note 34. Non-cash investing and financing activities 161,699 734,340 - 314,354 146,131 - (288,622) 111,000 (253,552) 178,572 519,100 77,101 45,880 193,979 (85,919) - - - (311,232) (978,236) (150,147) (306,583) (50,000) - (126,607) (676,307) (15,299) (1,033,085) 49,611 (121,348) (5,405,890) (6,447,838) During the year, the company issued 31,801,055 fully paid ordinary shares (2019: 19,134,804) settling liabilities valued at US$1,302,724 (2019: $US1,639,427). Note 35. Changes in liabilities arising from financing activities Consolidated Balance at 1 January 2019 Net cash from/(used in) financing activities Recognised on adoption of AASB 16 Additions Early termination of lease Other changes (conversions and accruals of interest) Balance at 31 December 2019 Net cash from/(used in) financing activities PPP loan forgiven Other changes (conversions and accruals of interest) Leases $US Loan Facility $US Bridging loans $US Total $US - (163,881) 762,663 275,806 (506,489) 4,709 372,808 (174,713) - - - 425,171 - - - 3,326 408,000 1,367,738 - - - (554,740) 408,000 1,629,028 762,663 275,806 (506,489) (546,705) 428,497 1,439,125 (288,622) (166,941) 1,220,998 1,250,000 - (1,085,843) 2,022,303 2,514,412 (288,622) (1,252,784) Balance at 31 December 2020 198,095 1,412,059 1,385,155 2,995,309 48 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 36. Earnings per share Consolidated Restated 2020 $US 2019 $US Loss after income tax attributable to the owners of Candy Club Holdings Limited (4,535,042) (5,453,516) Weighted average number of ordinary shares used in calculating basic earnings per share 243,896,364 145,612,717 Weighted average number of ordinary shares used in calculating diluted earnings per share 243,896,364 145,612,717 Number Number Basic earnings per share Diluted earnings per share Note 37. Share-based payments Cents Cents (1.86) (1.86) (3.75) (3.75) Total share based payments of $US1,492,757 (2019: $US 1,351,041) have been recognised in relation to the options issued to employees, directors and contractors. The terms of options as share based payments are as follows: 2020 Balance at the start of the period Lapsed Granted Exercised Balance at the end of the period 5,095,449 5,095,449 (1,363,061) 23,908,814 (1,363,061) 23,908,814 (753,866) 26,887,336 (753,866) 26,887,336 Weighted average exercise price $US0.2342 $US1.1700 $US0.1038 $US0.0290 $US0.1042 Restated 2019 Balance at the start of Granted the period Granted on Balance at the end of acquisition of the period CCH 2,357,284 2,357,284 2,738,165 2,738,165 - - 5,095,449 5,095,449 Weighted average exercise price $US0.3839 $US0.1054 $US0.0000 $US0.2342 The weighted average remaining contractual life of options outstanding at the end of the financial period was 2.83 years (2019: 2.54 years). The fair value of the options granted to employees, directors and contractors is considered to represent the value of the employee services received over the vesting period. 49 Candy Club Holdings Limited Notes to the consolidated financial statements 31 December 2020 Note 37. Share-based payments (continued) For the options granted during the current financial period, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price Exercise at grant date price Expected volatility Dividend Risk-free Fair value yield interest rate at grant date 17/01/2020 17/01/2020 17/01/2020 17/01/2020 05/06/2020 11/09/2020 11/09/2020 03/12/2020 15/01/2024 15/01/2024 15/01/2024 15/01/2024 05/06/2023 11/09/2023 11/09/2023 31/05/2023 $US0.0476 $US0.0709 $US0.0476 $US0.1379 $US0.0476 $US0.1724 $US0.0476 $US0.2085 $US0.0350 $US0.0358 $US0.0841 $US0.0719 $US0.1239 $US0.0719 $US0.1111 $US0.1334 106.000% 106.000% 106.000% 106.000% 110.000% 83.000% 86.000% 96.000% - - - - - - - - 0.850% 0.850% 0.850% 0.850% 0.260% 0.270% 0.280% 0.115% $US0.031 $US0.026 $US0.024 $US0.022 $US0.023 $US0.046 $US0.083 $US0.057 50 Candy Club Holdings Limited Directors' declaration 31 December 2020 In the directors' opinion: ● ● ● ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at 31 December 2020 and of its performance for the financial period ended on that date; and there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable, taking into accounts the matters outlined in the going concern disclosures in Note 1 of the financial statements. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Keith Cohn Executive Director 31 March 2021 51 Independent Auditor’s Report to the Members of Candy Club Holdings Limited REPORT ON THE AUDIT OF THE FINANCIAL REPORT Opinion We have audited the financial report of Candy Club Holdings Limited (“the Company”) and its controlled entities (“the Group”), which comprises the consolidated statement of financial position as at 31 December 2020, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group’s financial position as at 31 December 2020 and of its financial performance for the year then ended; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Regarding Going Concern We draw attention to the Going Concern note as contained in Note 1 of the financial report, which indicates that the Group incurred a net loss of $4,535,042 (2019: $5,453,516) during the year ended 31 December 2020 and incurred net cash outflows in operations of $5,405,890 (2019: $6,447,838). As stated in the Going Concern note as contained in Note 1 of the financial report, these events or conditions, along with other matters as set forth in the Going Concern note as contained in Note 1 of the financial report, indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How our audit addressed the key audit matter Share-based payments Refer to note 21 (equity – issued capital), 22 (equity – reserves) and 37 (Share-based payments). The Group pays its employees, directors and contractors issue of ordinary the through shares and options over shares. During the year, there were several share- based payments made to settle liabilities owing to employees, directors and contractors. The valuation and accounting for share-based payments to is complex and management’s estimates and judgement. is subject to the relevant agreements, Our audit procedures included: Verifying the key terms and conditions of equity settled share-based payments in respect of ordinary shares and options over shares for services rendered by employees, directors and contractors. Assessing and fair value testing calculation of share-based payments by checking the accuracy of the inputs to source documents and performing a cross check against our own findings. the Testing the accuracy of the share-based payments amortisation over the vesting periods (where applicable) and the recording of expenses in the statement of profit or loss and movement in the share-based payment reserve. Checking for compliance with the requirements of AASB 2 Share-based Payment. the adopted disclosures Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 31 December 2020 but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. REPORT ON THE REMUNERATION REPORT Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 7 to 12 of the directors’ report for the year ended 31 December 2020. In our opinion, the Remuneration Report of Candy Club Holdings Limited for the year ended 31 December 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. HLB Mann Judd Chartered Accountants Melbourne 31 March 2021 Jude Lau Partner Candy Club Holdings Limited Shareholder information 31 December 2020 The shareholder information set out below was applicable as at 26 March 2021. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: Ordinary shares % of total Options over ordinary shares % of total Number of holders shares issued Number of holders shares issued 16 60 68 301 192 637 19 - 0.07 0.18 4.53 95.22 2 13 8 48 61 - 0.06 0.09 3.23 96.62 100.00 132 100.00 - 4 0.01 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: Ordinary shares % of total shares issued Number held 61,895,101 41,862,607 14,003,433 8,712,910 7,750,000 6,716,985 6,656,250 6,242,500 5,506,509 5,360,000 5,359,852 5,322,351 3,831,666 3,500,000 2,933,250 2,884,394 2,840,340 2,831,780 2,804,870 2,644,000 20.09 13.58 4.54 2.83 2.51 2.18 2.16 2.03 1.79 1.74 1.74 1.73 1.24 1.14 0.95 0.94 0.92 0.92 0.91 0.86 199,658,798 64.80 JCKB PTY LTD CITICORP NOMINEES PTY LIMITED MR JAMES CLIVE KNOX BAILLIEU JAMES CLIVE KNOX BAILLIEU SOPRIS CREEK PTY LTD 10 BOLIVIANOS PTY LTD MUTUAL TRUST PTY LTD INSTANZ NOMINEES PTY LTD (HEARTS A/C) BEDWELL PTY LTD (BEDWELL DISCRETIONARY A/C) GINGA PTY LTD (TG KLINGER S/F A/C) UBS NOMINEES PTY LTD KEC VENTURES II LP BORRMAN HOLDINGS PTY LTD (THE BROEREN FAMILY A/C) SKYMAKER PTY LTD MR WILLIAM NEIL STEWART COATS HAMILTON HAWKES PTY LTD (WHITCOMBE FAMILY A/C) PKT SPRINGBROOK PTY LTD (SPRINGBROOK FAMILY A/C) MR ANDREW BAINES CLARK CROSSCUT VENTURES 3 LP BEARAY PTY LIMITED (BRIAN CLAYTON S/F A/C) 56 Candy Club Holdings Limited Shareholder information 31 December 2020 Options over ordinary shares % of total options issued Number held JCKB PTY LTD CHI KAN TANG CITICORP NOMINEES PTY LIMITED 10 BOLIVIANOS PTY LTD PKT SPRINGBROOK PTY LTD (SPRINGBROOK FAMILY A/C) MR MICHAEL FIMERI JAMES CLIVE KNOX BAILLIEU MR WILLIAM NEIL STEWART COATS MR HARRY JOHN LEE-STEERE DUDLEY MR DEAN RODNEY RYAN & MRS JULIA LEONIE RYAN (DEAN RYAN SUPER A/C) GRANET SUPERANNUATION AND INVESTMENT SERVICES PL (GRANET SUPER FUND A/C) ROUSE EQUITIES PTY LTD (ROUSE INVESTMENT A/C) BEDWELL PTY LTD (BEDWELL DISCRETIONARY A/C) MR ANDREW BAINES CLARK T G F HOLDINGS (QLD) PTY LTD (T FORD SUPERANNUATION A/C) JAG HILFORD SUPER PTY LTD (JAG HILFORD SUPER FUND A/C) TOOTING BEC PTY LTD (ANTHONY SUPERFUND A/C) BLUE LAKE PARTNERS PTY LTD (UBS SECURITIES AUSTRALIA LTD) CERDIK MR GRAHAM JOHN WALKER 22,983,278 6,963,878 4,250,833 3,853,881 3,041,336 2,938,770 2,178,228 2,100,000 1,935,818 1,658,503 1,450,300 1,400,000 1,250,000 1,250,000 1,176,496 1,025,000 1,000,000 937,500 897,434 888,550 29.67 8.99 5.49 4.98 3.93 3.79 2.81 2.71 2.50 2.14 1.87 1.81 1.61 1.61 1.52 1.32 1.29 1.21 1.16 1.15 63,179,805 81.56 Unquoted equity securities There are no unquoted equity securities. Substantial holders Substantial holders in the company are set out below: JAMES BAILLIEU and JCKB PTY LTD CHI KAN TANG Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares % of total shares issued Number held 81,757,415 29,501,350 26.53 9.57 Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. 57
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