2018 Annual Report DomaCom Limited and its Controlled Entities ABN 69 604 384 885 DOMACOM LIMITED ABN 69 604 384 885 Table of Contents Chairman’s Report CEO’s Report Financial Report Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Information 2 4 7 25 26 27 28 29 30 57 58 63 65 1 DOMACOM LIMITED ABN 69 604 384 885 CHAIRMAN’S REPORT 30 JUNE 2018 Dear Shareholder On behalf of the Board it is with pleasure I present the Annual Report for the year ended 30 June 2018. Firstly, I would like to thank all our shareholders, staff and my fellow board members for their continual support and efforts in our journey of bringing this game changing approach to the market. Whilst the quote, “nothing good ever comes easy” is attributable to a number of people, we, at DomaCom, have not lost or reduced our belief in the tremendous opportunity that exists within fractional investing whether as a wealth accumulation tool or a retirement planning tool with the significant potential afforded by equity release product. Additionally, we have seen the structure of the DomaCom platform being used and considered for environmentally important aspects such as solar and socially important aspects such as affordable housing. This excites us and makes us proud that we can play a small part in helping both the environment and the community. I’m sure that many of you have now recognised that the DomaCom platform starts to open up opportunities, which in this technologically changing environment, were not visible only a short time ago. During the 2017-18 year, the board had to make a number of difficult and challenging decisions including reducing staff to lower our cost base including the board taking a significant drop in their own board remuneration and the changing of our Responsible Entity to allow us to introduce leverage into our property offerings which has been a major limitation particularly with the many advisers who are accredited to use DomaCom. We have had to deal with many roadblocks over the last year and each of which seems to have been removed. The Federal Court in recent days handed down a decision in a test case with the ATO which ruled that the DomaCom offering is not a breach of the sole purpose test. At the time of writing we do not know if the ATO will appeal the decision but, as ruled, it would allow DomaCom to expand its offering into the important and continually growing SMSF marketplace. We have also in the last few weeks seen the Government remove elements of its draft MIT legislation which would have negatively affected our business and that of many others working in the MIT space. We have been also dealing with a cautious regulator around new offerings for the retirement marketplace such as our equity release product where understandably the regulator wants to ensure the protection of consumers. Our equity release product is in the final stages of approval and which will offer a significant new business opportunity for DomaCom. All these matters have at various stages in part affected market confidence in DomaCom throughout the year which has seen the share price reflecting that uncertainty. With resolution of the majority of these matters our expectations are that our funds under management will continue to grow and this should be reflected in our share price. From the board’s perspective, whilst DomaCom has now been going since 2012, we believe this coming year will demonstrate the true potential of the company. I would like to pay a particular thanks to our CEO Arthur Naoumidis who works tirelessly to deliver the game changing and consumer important vision that the DomaCom platform promises. Additionally, our COO Ross Laidlaw and our CFO Phil Chard, have also put in significant effort through the year to keep the wheels turning and to continue to deliver a positive approach in face of the many challenges thrown at us during the last 12 months. 2 DOMACOM LIMITED ABN 69 604 384 885 CHAIRMAN’S REPORT 30 JUNE 2018 Many of you, have supported us from the early stages of DomaCom’s development. This loyalty and belief are what drives us, the board and staff of DomaCom, to continue to push to deliver all that DomaCom promises. For our newer shareholders who have seen the potential in DomaCom, the board, thanks you for your support and belief. Our results for the year are outlined in this report and I commend the reading of it to you. Grahame Evans Chairman 30 August 2018 3 DOMACOM LIMITED ABN 69 604 384 885 CEO’S REPORT 30 JUNE 2018 Dear Shareholder Overview The past 12 months have been a very important period for DomaCom as we have had to address some major structural issues that have been holding back our business. When creating a new business that is unlike any other existing business there are many times that you come up with issues that we could not have anticipated – this is the hallmark of innovation. I believe that we will look back to FY2018 as the year that DomaCom has achieved several key milestones that address these key structural issues and that will underpin the business going forward: (cid:120) Leverage in property purchases is now available Calendar year 2017 was spent resolving the issue that has been restricting our ability to find any lenders willing to lend to our fund. The solution to this was to appoint a new Trustee to the Fund who now allows us to borrow on normal commercial terms. Our inability to have debt has been a major road block to our growth as the vast majority of investment property purchases require internal leverage to make the investment tax efficient and to reduce the amount of capital required from the outset. This has been a significant issue for our business as our main target market, the financial planners, have a “best interest” obligation that also includes the tax effectiveness of their investment advice. Now that we can offer debt the advisers can now deliver tax effective outcomes using our platform. In March 2018, a new version of our Product Disclosure Statement (PDS) was issued that allows our advisers to syndicate their own mortgage backed loans using the DomaCom Platform and the first sets of transactions have been completed where the advisers have syndicated both the debt and the equity. Additionally, DomaCom announced our first $100 million debt facility from private lenders in June 2018 and the first transactions are currently being structured that will use this facility. This debt facility suits developments and commercial property investments and several transactions are in the process of being structured that will use this facility. On the residential property side, DomaCom has been speaking to several Banks and we are in the final stages of agreeing a loan facility that will suit both residential property developments and investments with our first bank lender. To date over 50 properties have been purchased with DomaCom since we started operations – all with no debt. Now that we have leverage available, every transaction that is currently in the pipeline incorporates some level of debt. (cid:120) Negative MIT Legislation resolved On the 14th September 2017 the Government issued draft legislation that proposed to ban Managed Investment Trusts (MITs) from investing in residential properties. As DomaCom is taxed as an MIT, this initially posed a significant risk to our business model and had been hanging over the company. At the time, DomaCom and our advisers had determined that should the legislation be implemented as proposed, that the company could change the tax treatment of the fund which, whilst not ideal, would result in a workable solution. DomaCom has participated in the consultation process in relation to the draft legislation and we are pleased to report the Government issued revised draft legislation on the 26th July 2018 that removed the proposal that MIT’s being banned from purchasing residential properties. It is expected this legislation will be passed into Law in the September Parliamentary sitting. 4 DOMACOM LIMITED ABN 69 604 384 885 CEO’S REPORT 30 JUNE 2018 (cid:120) Federal Court Challenge For many years DomaCom has been attempting to get a ruling from the ATO that SMSF’s investing in residential properties via the DomaCom Fund would not be in breach of the inhouse asset and sole purpose test restrictions of the superannuation legislation if a related party were to rent the underlying property. In 2017, this matter proceeded to a Federal Court hearing with the result of the trial judge ruling against DomaCom in December 2017. DomaCom had subsequently appealed the matter to the full bench of the Federal Court and the matter was heard on 23rd May 2018. The court has subsequently delivered its judgement with a partial victory for DomaCom. The court has ruled that the trial judge erred on the sole purpose test matter and the investment in the particular DomaCom sub-fund by an SMSF and the subsequent leasing of the underlying property to the daughter of the SMSF member did not breach the sole purpose test. We believe that this is a major milestone for both DomaCom and Australia and we are waiting to see whether the ATO will appeal this decision in the High Court. However, DomaCom was unsuccessful on the matter of whether the investment in the particular sub-fund was an investment in an inhouse asset or not. This ruling applied to the particular circumstances of the establishment of specific sub-fund used to test the matter with the key issues being the interplay between the constitution and disclosure documents applicable in 2015 when the sub-fund was created. Many of the items identified in the ruling that contributed to the court’s decision have already been addressed in the years since 2015 and we, along with our advisers, are now analysing the detailed judgement to see whether any further amendments may be needed. We will then look to see what this ruling means for sub-funds created in the future and will update the market at the time. I would like to remind investors that a successful outcome on this strategy will result in DomaCom being able to offer a mainstream solution to housing affordability for the younger Australians using their own and the parent’s superannuation – a game changer for Australia. (cid:120) Senior Equity Release DomaCom’s Senior Equity Release (‘SER’) product has significant potential in terms of attracting a large new demographic of investors; the SER product will enable retirees to help fund their retirement by releasing equity from their homes to investors. This is particularly relevant to the ‘Baby Boomer’ generation and will also enable IFAs to include property in multi-generational wealth planning. We have been working with ASIC for 5 ½ years on this product and whilst we expected to be able to deploy this product earlier in 2018, we are now in the final stages of regulatory approval process and if successful it is anticipated that we will have the product available in the last quarter of 2018. Financial Results For the full year we reported a loss of $5.7 million ($6.1 million loss 2017), which is in line with expectations and reflects our position as an early stage company. DomaCom underwent a major cost reduction program during FY2018. There were significant costs savings across all areas. In particular salary and wages were 24% lower than the previous year, representing a reduction of $0.6 million from $2.5 million for FY2017 to $1.9 million for FY2018. The full effect of these costs savings will continue to be seen in FY2019. 5 DOMACOM LIMITED ABN 69 604 384 885 CEO’S REPORT 30 JUNE 2018 Our Business The DomaCom Fund leverages its proprietary cloud-based technology platform to deliver a range of important differentiating functions for investors in our sub-funds: (cid:120) Campaign functions enabling investors to pool together to acquire any property asset (“crowdfunding”). (cid:120) Liquidity through the ability to buy and sell on the platform. (cid:120) Greater choice, by being able to search properties through our platform and bid on individual assets they deem attractive. (cid:120) An ability to invest alongside family and friends via an enhancement to our platform we are rolling out in the fourth quarter of this year. This will enable a group of family and friends to select a property of their choosing and co-invest together. (cid:120) DomaCom is extending its business to allow fractionalisation of other assets such as direct mortgages and other non-property investments. This will help to diversify the income stream of the business. Outlook & Conclusion I would like to thank the shareholders who have stayed the course and continued to hold the stock. Whilst progress has been much slower than we would all expect, DomaCom is a complex business that is finally, we believe, nearing the “home stretch”. DomaCom has addressed the key road blocks to our business and we are well positioned for the future and we are starting to see the evidence. We believe that the coming 12 months will be a time when the company starts to demonstrate traction in our business with substantial growth in our underlying FUM and with the consequent improvement in our cash flow. The ability to have debt has already started to make to a difference to the operational success of the company as it has taken us 3 years to get to $28 Million in FUM and then within a few months of having lending available the FUM grew to $35 million. We now have another $17 million of transactions due to exchange in the next little while which will take us to around $52 Million. We also have a further $100 Million plus of transactions in the pipeline – all of which have debt involved which shows the importance of debt on property investment. We believe that we are positioned to benefit from a number of market themes that are clearly evident at the moment: - Housing affordability; - Withdrawal of banks from non-recourse lending to SMSF’s; - - - Tightening up of borrowing hurdles from Banks regarding serviceability; Ageing population and concerns over level of retirement savings; and Reduction in developer funding. DomaCom is well positioned to benefit from this perfect storm of difficulties in people purchasing properties – either for investment or to live in. Our federal court action also has the potential to place DomaCom at the center of a solution to housing affordability for millions of Australians that are struggling to get on the property ladder. We expect a final resolution to this matter in the next 12 months. Arthur Naoumidis Chief Executive Officer 30 August 2018 6 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 Your directors present their report on DomaCom Limited (the “Company”) and its Controlled Entities (the “Group”) for the year ended 30 June 2018. 1. Directors The names of the directors in office throughout the year and to the date of this financial report are Mr David H Archbold, Mr Graeme A Billings, Mr Peter C Church OAM, Mr Grahame D Evans, Mr Ross A Laidlaw and Mr Arthur Naoumidis. The name of the company secretary in office throughout the year and to the date of this financial report is Mr Philip J R Chard. Details of qualifications, experience and special responsibilities of the Directors are as follows: Grahame D Evans – Chairman and Independent Non-Executive Chairman Grahame has been extensively involved with the financial services industry for over 30 years. He has held a variety of board positions including Chairman of Australian, Canadian, Singaporean & Chinese investment & advisory businesses and also as a director of Malaysian and New Zealand companies. He is a regular speaker at conferences both in Australia and overseas and holds an MBA from the prestigious Australian Graduate School of Management, voted in the top 10 management schools in the Asian region. Grahame's executive roles have included CEO Investments for Tower Australia, Managing Director, AMP Consulting and Group Managing Director of Centrepoint Wealth. He is currently an executive director of GPS Wealth. Grahame has been a director of DomaCom Limited since 23 February 2015. Arthur Naoumidis – Chief Executive Officer After 20 years as an IT consultant, Arthur spent 5 years at JB Were and BNP Paribas building and operating investment administration systems and businesses. Using the combined technology and investment administration background, Arthur founded the now ASX Listed Praemium (ASX:PPS). Arthur grew Praemium into a business with 500 client firms (accountants, financial planners, stockbrokers, SMSF administrators and institutions) in Australia administering over $43 Billion as well as partnering with Blackrock Australia to launch Australia’s first online separately managed account (SMA) platform. As a result of listing Praemium on the ASX, Arthur took the Praemium SMA concept to the UK and successfully launched the SMA platform business of Praemium UK. Arthur is now taking some of the advanced equity concepts he pioneered in the equity markets during his Praemium days into a market that has been relatively untouched by technology and business process improvements – the property market. Arthur has been a director of DomaCom Limited since 23 February 2015. David H Archbold – Independent Non-Executive Director David has over 45 years’ experience in the property industry in Australia. Prior to the establishment of International Property Group Pty Limited in 1991, David was Executive Director - International, for Colliers Jardine and Executive General Manager of Hooker Corporation. For 17 years prior he was Managing Director of Baillieu Knight Frank (SA) Pty Ltd, then Managing Director of Baillieu Knight Frank (NSW) and a Director/Partner of the Australian Company. David has extensive experience in property consultancy throughout Australia and South East Asia with Corporate and large family owned businesses. David has been a director of DomaCom Limited since 23 February 2015. Graeme A Billings – Independent Non-Executive Director Graeme has been a chartered accountant since 1980. He retired from PricewaterhouseCoopers in 2011 after 34 years where he was a senior partner in the Assurance practice. Graeme is a former head of the Melbourne Assurance practice as well as leading the Firm's Australian and Global Industrial Products businesses. He has extensive experience in providing assurance, governance, transaction and consulting services to multi-national and national companies in the automotive, manufacturing, consumer goods and construction industries. Graeme was also a regular media commentator on the Industrial Products sector. Graeme is now an advisor to various companies as well as acting as a non-executive director for a number of public and private companies in the financial services, manufacturing, retail and construction sectors. Graeme has been a director of DomaCom Limited since 23 February 2015. 7 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 Peter C Church OAM – Independent Non-Executive Director Peter Church OAM FAICD is a lawyer and corporate adviser who has spent much of his career in South East Asia and India where he advises a wide range of clients. He has written a number of books on the region and is an Adjunct Professor in the Business School of Curtin University. He was awarded the Medal of the Order of Australia (OAM) in 1994 by the Australian Government for the promotion of business relations between Australian and South East Asia. He is also a Fellow of the Australian Institute of Company Directors (FAICD). His current appointments include Executive Chairman of AFG Venture Group, Special Counsel to the English law firm, Stephenson Harwood, Non-Executive Director of OM Holdings Limited (ASX) and Elara Capital PLC. Peter has been a director of DomaCom Limited since 26 August 2015. Ross A Laidlaw – Executive Director Ross has spent over 25 years in Financial Services, and has deep and expansive experience within markets in Australasia, Europe and America. His strength lies in the development of start-up or green field developments and driving them into fully fledged and profitable businesses. Ross was CEO of the successful Skandia Platform for over 7 years, developing it into a leading Platform that was well supported by independent financial advisers. Prior to being transferred to Skandia's European business the business had grown organically to over $5 billion in assets under management and employed over 200 staff. Ross has held a number of directorships including the Australian businesses, Skandia's joint venture in Mainland China, Skandia's Fund Management Company in Ireland and American Skandia's Broker Dealer group. Ross is qualified Chartered Accountant, and Fellow of the Financial Services Institute of Australasia and his key role at DomaCom is as Chief Operating Officer. Ross has been a director since 23 February 2015. Philip JR Chard – Chief Financial Officer, Company Secretary Philip has over 25 years of experience in the financial services industry. As a senior manager at Deloitte he provided assurance and advisory services within the funds management and investment banking sectors. Subsequently he has held a broad range of financial control and reporting positions within the property, funds management and banking sectors. He has a strong understanding of the requirements of highly regulated industries and the reporting obligations of listed companies. He has a proven track record of designing and implementing robust internal control and reporting systems. 2. Directors meetings The number of Directors’ meetings and the number of meetings attended by the Directors of the Company during the year ended 30 June 2018 were: Board of Directors Attended Held 12 12 12 12 12 12 12 12 10 12 12 12 Audit Committee Held 5 5 5 - - - Attended 5 5 5 - - - Risk Management Attended Held 1 1 1 1 1 1 1 1 1 1 1 1 Mr David H Archbold Mr Graeme A Billings Mr Peter C Church Mr Grahame D Evans Mr Ross A Laidlaw Mr Arthur Naoumidis 3. Principal activity During the year, the principal activities of entities within the Group were the development of a software platform to be used for the trading of fractional interests in property. 4. Operating results The Group has incurred an operating loss of $5,671,250 (2017:$6,136,417). 8 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 5. Distributions paid or declared No distributions were declared or paid in the current year. 6. Review of operations and financial results The Group is a participant in the financial services market in Australia. DomaCom Limited is the holding company and DomaCom Australia Limited, DomaCom Platform Services Pty Ltd and DomaCom Singapore Private Limited are 100% owned subsidiaries of the DomaCom Group. DomaCom Australia Limited is the investment manager of the DomaCom Fund (“the Fund”) (Managed Investment Scheme). The Fund allows investors to hold fractional interests in underlying assets, that they themselves have selected or their advisers on their behalf. New Developments since last year (cid:120) Change of Trustee (cid:120) New Product Disclosure Statement launched with new Product initiatives (cid:120) Credit Facility (cid:120) Crowd Funding Loans (cid:120) (cid:120) (cid:120) Equity Release Approval Exposure Draft MIT legislation Federal Court Hearing Change of Trustee In December of 2017 DomaCom was successful in holding a unitholder meeting to change the Trustee and Responsible Entity from Perpetual Trustees to Melbourne Securities Corporation Limited. This was supported by the retiring Trustee and the incoming Trustee that operates in the Fintech space which is more aligned to DomaCom’s vision and future product initiatives. New Product Disclosure Statement launched with new Product initiatives On the 27th February 2018 a new product disclosure statement was launched which increased the range of asset classes that DomaCom is able to fractionalise. Our Vision has always been to fractionalise other asset classes. We are now able to fractionalise Loans and other special projects where the underlying asset maybe a debt instrument or a share in an unlisted company. This significantly enhances the opportunities available for DomaCom, increases its potential investor base and in turn ability to grow funds under management. Credit Facility Obtaining a Third-Party lender to provide finance to the DomaCom Fund has been a challenge due to the non- recourse style of borrowing and also because the former Trustee had some unusual conditions which a lender would not agree to. It is very pleasing to announce in early June 2018, that we had secured a $100 million lending facility through a panel of non-bank lenders. This has also resulted in increased activity from a number of interested clients. We are also progressing a line of credit with Bank lenders, which we hope to secure shortly. Crowd Funding Loans It has been a significant development that not only can the DomaCom Fund crowd fund the equity side of the transaction, it is now able to establish crowd funding campaigns to raise the debt side of the transaction from its client base. The financial planner has clients interested in investing on the equity side of the transaction looking for capital growth and income yield, while they also have clients interested in securing an income yield above term deposit rates and with the security of a first registered mortgage. We have undertaken one such transaction and have a number of others in the pipeline. 9 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 Equity Release This product is very relevant for the current demographic situation faced by Australia and many other countries. Many people are outliving their retirement savings, particularly as the older generation has not had the years of accumulating funds into Superannuation as the Superannuation guarantee only commenced in the early 1990’s. DomaCom have been working on a product called Seniors Equity Release for many years. It is pleasing to state that we are just finalising the relief documentation with Australian Securities Investment Commission. This product will allow retirees to release equity in their homes to supplement their retirement savings and enjoy their final years. It is expected we will release this product in the latter part of this year. Managed Investment Trust Schemes (MITs) Exposure Draft In September 2017 the Government introduced an exposure draft in its efforts to improve the affordability of Housing that has become a significant issue across Australia particularly in the larger cities of Sydney and Melbourne. However, this initial exposure draft outlawed the use of MITs for the use of residential Housing unless it was said to be for affordable housing and was managed by a Community Housing Provider. DomaCom amongst others major companies lobbied hard to the Treasury Department of Australia, the Treasurer and also the Assistant Treasurer of the Australian Government that this decision should be reversed. While we supported their initiatives in the areas of affordable housing. It is very pleasing to see that an amended exposure draft was released in early August 2018 and the Government has titled this exposure draft “Making sure Foreign Investors pay their fair share of Tax and other Measures” and has reversed the early decision and has lifted the rate of withholding tax that applies to Foreign investors from 15% to the current corporate Taxation rate of 30% when they are making passive investments into Residential Housing or Agricultural land. We commend the Government on this change and their willingness to listen to the business community. It is expected this exposure draft will be passed into Law in September of this year. This allows DomaCom to continue to use its MIT for Residential Housing and also Agricultural land. Federal Court Hearing DomaCom has been actively progressing a challenge against the Australian Taxation Office in the Federal Court seeking a ruling in relation to Self-Managed Superannuation Funds (“SMSF”). DomaCom has been seeking confirmation that the legislation allows SMSFs to invest in a DomaCom sub-fund that owns a residential property that is rented by a related party (i.e. family member). DomaCom has been seeking court confirmation that DomaCom is one widely held trust and does not breach the sole purpose test. If successful, the ruling would open the entire SMSF industry to property investment in a way that has not been possible before and support generation X and Y in tackling the affordability of housing issue. DomaCom was unsuccessful in the first hearing in the Federal Court with the decision handed down in December last year. DomaCom has appealed against this decision and the case was reheard in front of 3 Federal Court judges in May 2018. On the 10th August the Federal Court handed down their decision. The Court held that the primary judge was incorrect in concluding that the leasing of the residential property held by the sub-fund to a child of a member of a Self Managed Superannuation Fund (SMSF) was a breach of the ‘sole purpose test’. The Court held that the primary judge was correct to conclude that the units held by the SMSF in a sub-fund of the DomaCom Fund constituted an investment in a ‘related trust’ of the SMSF. In relation to the related trust determination, we are reviewing the comprehensive judgment with our lawyers and will look at this further to investigate about the effect, if any, of the decision on the DomaCom Fund. Cost Savings The company took steps earlier this year to reduce its costs, which did result in the reduction of staff across all areas of the business and resulting in budgeted annual savings of $1.8m and 25% reduction in staff numbers. This was done to manage the business more in line with current capacity. 10 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 The Fund has successfully completed approximately 50 crowdfunding transactions and has just under 1,000 investors at 30 June 2018. With the increased range of products and the goal to release the Equity Release product later in the year, DomaCom has removed a number of hurdles that were reducing its ability to grow its investor base and in turn Funds under management. It is very pleasing to state that DomaCom has a very healthy sales pipeline across a range of opportunities that include further Land Banking opportunities, Commercial developments, residential developments, rural opportunities and exciting developments in the alternative energy space. 7. Significant Changes in State of Affairs There were no significant changes in the state of affairs of the Group during the year. 8. Post Balance Date Events Subsequent to balance date and prior to the issuing of this report, the following events have occurred: - The Group’s Research and Development tax incentive claim has been registered with AusIndustry and an amount of $558,324 will be claimed. No other matters or circumstances have arisen since the end of the year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 9. Future Developments The Group is expected to continue to develop its software platform and increase the level of assets under management in the DomaCom Fund (Managed Investment Scheme) for which the Group will earn management fees for its role as Investment Manager. 11 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 10. Unissued shares under Performance Rights and Options Performance Rights were issued under the programs described in Note 13 to the financial statements. No other options were granted or are outstanding at the date of this report. Date Granted Expiry Date Exercise price of shares ($) Number of shares under Performance Rights 14 December 2015 5 April 2018 30 November 2018 5 April 2021 $nil $nil 136,929 5,107,129 Options were granted to the Australian Special Opportunity Fund, LP, a New York-based institutional investor managed by The Lind Partners, LLC (together, “Lind”) as set out in Note 13 Date Granted Expiry Date Exercise price of shares ($) Number of shares under Options 24 January 2018 5 April 2018 24 January 2021 15 June 2021 $0.114 $0.065 3,700,000 1,850,000 11. Shares issued during or since the end of the year as a result of exercise of Performance Rights During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of Performance Rights as follows (there were no amounts unpaid on the shares issued): Date Granted 14 December 2015 5 April 2018 Issue Price of Shares ($) $nil $nil Number issued of shares 969,699 496,260 12 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 12. Remuneration Report (audited) The Directors present the Remuneration Report for Non-Executive Directors, Executive Directors and other Key Management Personnel, prepared in accordance with the Corporations Act 2001 and the Corporations Regulations 2001. The Remuneration Report is set out under the following main headings: a Principles used to determine the nature and amount of remuneration; b Details of remuneration; c Service agreements; d Share-based remuneration; and e Other information a) Principles used to determine the nature and amount of remuneration The principles of the Group’s executive strategy and supporting incentive programs and frameworks are: - - - to align rewards to business outcomes that deliver value to shareholders to drive a high performance culture by setting challenging objectives and rewarding high performing individuals; and to ensure remuneration is competitive in the relevant employment market place to support the attraction, motivation and retention of executive talent. A remuneration framework has been structured that is market competitive and complementary to the reward strategy of the Group. The remuneration structure that has been adopted by the Group consists of the following components: - - - fixed remuneration being annual salary; short term incentives (STI), being cash-based sales bonuses; and long term incentives (LTI), being equity-based incentive plans. Short Term Incentives (STI) Short term incentives have been established to reward members of the sales department. The non-discretionary incentives are structured to reward performance against financial targets, including Funds Under Management. Long Term Incentives (LTI) The Group has established a long term equity-based incentive plan for Directors and staff in order to: - - assist in the retention and motivation of directors and employees; and provide an incentive to grow shareholder value by providing an opportunity to receive an ownership interest in the Company. The plan provides for the award of both Employee Share Options and Employee Performance Rights to Directors, executives, employees and consultants. As the Group listed on the ASX on 7th November 2016 historical performance indicators have only been included from 2016 onwards. Earnings/(Loss) Per Share ($) Net Profit/(loss) ($’000) Share price ($) * * Price at 30 June 2018 (0.05) (5,671) 0.066 2017 (0.06) (6,136) 0.11 2016 (0.06) (6,061) - 13 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 b) Details of remuneration Short-term employee benefits Post- employment benefits Long-term benefits Year Cash salary and fees Superannu- ation Long service leave Share- based payments Perform- ance Rights Total Perform- ance based % of remune- ration Executive Directors Arthur Naoumidis Director and CEO Ross Laidlaw Director and COO 2018 2017 2018 2017 191,018 240,482 163,621 213,090 18,147 22,846 15,544 20,244 2,173 2,085 4,708 1,057 55,119 266,457 - 265,413 50,249 234,122 - 234,391 21% 0% 21% 0% Non-executive directors Grahame Evans Chairman & Independent Director David Archbold Independent Director Graeme Billings Independent Director Peter Church Independent Director 2018 52,045 2017 60,000 2018 2017 2018 2017 2018 2017 32,774 36,614 32,774 36,614 32,774 40,000 - - 3,114 3,478 3,114 3,478 3,114 - - - - - - - - - 14,612 66,657 22% - 60,000 0% 9,741 45,629 - 40,092 9,741 45,629 - 40,092 9,741 45,629 - 40,000 Other Key Management Personnel Philip Chard CFO / Company Secretary (1) 2018 Total 2017 Total 2018 162,000 15,390 2,744 41,707 221,841 2017 141,167 13,411 1,895 10,639 167,112 667,006 767,967 58,423 63,457 9,625 190,910 925,964 5,037 10,639 847,100 (1) Appointed as CFO on 9 May 2017 21% 0% 21% 0% 21% 0% 19% 6% 14 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Employee Fixed Remuneration At risk: Short Term Incentives At risk: Performance Rights (i) Executive Directors Arthur Naoumidis Ross Laidlaw Non-Executive Directors Other Key Management Personnel Philip Chard 79% 79% 79% 81% (i) based on the value of $0.093 at grant date. - - - - 21% 21% 21% 19% Remuneration and other terms of employment for executive directors and senior executives are formalised in letters of employment that provide for various conditions in line with market practice including: - - - an annual remuneration package and benefits including superannuation; the basis of termination or retirement and the benefits and conditions as a consequence; and agreed provisions in relation to annual leave and long service leave, confidential information and intellectual property. The compensation for termination benefits was $nil (2017: $nil). c) Service agreements No key management personnel are employed under a service agreement. d) Share-based remuneration Performance Rights granted to directors and employees during the year ended 30 June 2018 under the Long Term Incentive Plan have an exercise price of $nil, were granted at no cost to the recipient and carry no dividends or voting rights. Vesting gives the holder of a Performance Right the right to convert into ordinary shares on a one-for-one basis. The performance rights were issued with no vesting conditions. A cost reduction program implemented during the year ended 30 June 2018 included a reduction in fees paid to non-executive directors and salary paid to executive directors. The issue of the Performance Rights was made to partially compensate for these reductions. The Performance Rights issued during the year ended 30 June 2018 will expire on 5 April 2021 and may be exercised at any time up to the expiry date. 15 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 Details of Performance Rights that were granted as remuneration during the year ended 30 June 2018 to key management personnel are set out below. Employee/ Director Number granted Grant date Number vested Exercise Price ($) Value per Performance Right at grant date $0.093 Arthur Naoumidis Ross Laidlaw Grahame Evans David Archbold Graeme Billings Peter Church Philip Chard 592,681 5 April 2018 592,681 540,309 5 April 2018 $0.093 540,309 157,117 5 April 2018 $0.093 157,117 104,745 5 April 2018 $0.093 104,745 104,745 5 April 2018 $0.093 104,745 104,745 5 April 2018 $0.093 104,745 448,460 5 April 2018 $0.093 104,745 - - - - - - - Vesting and first exercise date 5 April 2018 Last exercise date 5 April 2021 5 April 2018 5 April 2021 5 April 2018 5 April 2021 5 April 2018 5 April 2021 5 April 2018 5 April 2021 5 April 2018 5 April 2021 5 April 2018 5 April 2021 213,929 Performance Rights issued to Ross Laidlaw on 14th December 2015 were forfeited as the vesting conditions has not been met. 16 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 e) Other information The number of Performance Rights in the Company held during the financial year ended 30 June 2018 held by key management personnel, including their related parties, are set out below: Balance at start of year Granted as remuneration Exercised Forfeited Vested and exercisable at the end of the reporting period 42,786 28,590 28,590 28,590 31,324 213,929 157,117 104,745 104,745 104,745 669,148 540,309 -42,786 -133,335 -133,335 -133,335 -31,324 - - - - - - -213,929 128,253 448,460 -128,253 - 157,117 - - - 669,148 540,309 448,460 Non-Executive Directors Grahame Evans David Archbold Graeme Billings Peter Church Executive Directors Arthur Naoumidis (i) Ross Laidlaw Executives Philip Chard (i) Includes opening balance of 31,324 and 76,467 granted to Kathryn Naoumidis (related party to Arthur Naoumidis) as an employee of the Company. The number of ordinary shares in the Company held during the financial year ended 30 June 2018 held by key management personnel, including their related parties, are set out below: Balance at start of year Granted as remuneration Received on exercise Other changes Held at end of reporting period Executive Directors Grahame Evans David Archbold Graeme Billings Peter Church Non-Executive Directors Arthur Naoumidis (i) Ross Laidlaw Philip Chard 817,500 250,000 375,000 50,000 18,913,323 1,625,000 - - - - - - - - 42,786 133,335 133,335 133,335 31,234 - 128,253 - - - - 860,286 383,335 508,335 183,335 - - -50,000 18,944,557 1,625,000 78,253 (i) Includes shares issued to Kathryn Naoumidis (related party to Arthur Naoumidis) on exercise of Performance Rights. There were no loans to key management personnel during the year. There were no other transactions with key management personnel during the year. End of audited Remuneration Report. 17 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 13. Environmental Issues The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth and State. 14. Indemnification and insurance of Officers or Auditor During or since the end of the financial year, the Group has given indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums as follows: During the year, the Group has paid premiums in respect of an insurance contract to indemnify officers against liabilities that may arise from their position as officers of the Group. Officers indemnified include all directors and all executive officers participating in the management of the Group. Further disclosure required under section 300(9) of the Corporations Act 2001 is prohibited under the terms of the contract. 15. Proceedings on Behalf of the Group No person has applied for leave of court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of their proceedings. The Group was not a party to any such proceedings during the year. As set out above, DomaCom Australia, a subsidiary of DomaCom Limited, has been supporting an action in the Federal Court for a determination that DomaCom sub-funds are not inhouse assets or related trusts for the purposes of the SIS (Superannuation Industry Supervision) Act. 16. Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required by section 307C of the Corporations Act 2001 is set out in the following report. 18 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 17. Corporate Governance Statement The Board of DomaCom has adopted the following Corporate Governance policies and practices which are in accordance with the ASX Corporate Governance Council’s “Corporate Governance Principles and Recommendations (3rd Edition)” (ASX Guidelines) unless otherwise stated. The ASX Corporate Governance Council (the “Council”) is currently consulting on proposals to update and issue a 4th Edition of its Corporate Governance Principles and Recommendations (the “Principles and Recommendations”). The Council will consider all submissions it receives in response to this consultation before finalising the fourth edition of the Principles and Recommendations. The Council envisages that the final version of the fourth edition will be released in early 2019 and will take effect for an entity’s first full financial year commencing on or after 1 July 2019. Role and responsibility of the Board (Principle 1.1) The Board is responsible for the overall corporate governance of the Company, including establishing and monitoring key performance goals. The Board monitors the operational and financial position and performance of the Company and oversees its business strategy, including approving the strategic goals of the Company and considering and approving an annual business plan (including a budget). The Board is committed to maximising performance, generating appropriate levels of Shareholder value and financial return and sustaining the growth and success of the Company. In conducting the Company’s business with these objectives, the Board seeks to ensure that the Company is properly managed to protect and enhance Shareholder interests, and that the Company and its Directors, officers and personnel operate in an appropriate environment of corporate governance. Accordingly, the Board has created a framework for managing the Company, including adopting relevant internal controls, risk management processes and corporate governance policies and practices which it believes are appropriate for the Company’s business and which are designed to promote the responsible management and conduct of the Company. (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) The Board is responsible for the strategic direction of the company. The Board reviews and approves the Company's proposed strategy. The objectives of the Company are clearly documented in a long term corporate strategy and an annual business plan together with achievable and measurable targets and milestones. The Board approves budgets and other performance indicators and reviews performance against them and initiates corrective action when required. The Board ensures that risks facing the company have been identified, assessed and that the risks are being properly managed. The Board ensures that policies on key issues are in place and are appropriate. The Board also reviews compliance with policies. The Board adopts the most effective structure that best assists the governance process. The selection of Directors is based on obtaining the most relevant and required skills, while also recognising the need to have a diversity of skills and experience on the Board. The Board approves and fosters an appropriate corporate culture matched to the Company's values and strategies. The Board appoints the Managing Director and evaluates his or her ongoing performance against predetermined criteria. (Principle 1.6) The Board approves remuneration for the Managing Director and remuneration policy and succession plans for the Managing Director and senior management. (Principle 1.6) Board Charter (Principle 1.1) A Board charter prepared having regard to the ASX Corporate Governance Principles and Recommendations, has been adopted by the Board and covers the independence of directors, the Board’s responsibility for overall governance of the Company, the Board members’ roles, powers and responsibilities. A copy of the Company’s Board Charter is available on the Company’s Website at: www.domacom.com.au/investor-relations. 19 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 Board Committees (Principle 1.2) The Board has established 1 standing committee to facilitate and assist the Board in fulfilling its responsibilities. It may also establish other committees from time to time to assist in the discharge of its responsibilities. Audit Committee (Principle 4) The Board has established a Board Audit Committee. The purpose of the Committee is to assist the Board in the effective discharge of its responsibilities in relation to the external audit function, accounting policies, financial reporting, funding, financial risk management and certain compliance matters. The Committee has authority from the Board to review and investigate any matter within the scope of its Charter and make recommendations to the Board in relation to the outcomes. The Committee has no delegated authority from the Board to determine the outcomes of its reviews and investigations and the Board retains its authority over such matters. The Committee must have at least three members, a majority of whom must be independent non-executive directors. At least one member of the Committee should have significant expertise in financial reporting, accounting or auditing. The Chairman of the Committee should act independently and must not be the Chairman of the Board. The current Audit Committee members are: (cid:120) Graeme Billings (cid:120) David Archbold Peter Church (cid:120) Chairperson and Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director The Board has received declarations from the CEO and CFO that the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. (Principle 4.2) A copy of the Company’s Audit Committee Charter is available on the Company’s Website at: www.domacom.com.au/investor-relations. Remuneration and Nomination Committee (Principle 1.2/ 2.1/ 8.1-8.3) The Remuneration and Nomination Committee at present comprises the full Board. The Board considers that at this stage assuming the duties of a Remuneration and Nomination Committee is appropriate in light of the Company’s operations and size, and the size of the Board. All of the Directors believe that they will able to, individually and collectively, analyse the issues before them objectively in the best interests of all shareholders and in accordance with their duties as Directors. The Board also addresses board succession issues and ensures that it has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively. The Board Charter outlines duties relating to Remuneration and Nomination, and is made available on the Company website. The Company has established a long term incentive plan (LTIP) to assist in the motivation, reward and retention of executive directors and all other employees. The LTIP is designed to align participants’ interests with the interests of Shareholders by providing participants an opportunity to receive shares through the granting of performance rights. Composition of the Board (Principle 2.3, 2.4 & 2.5) The Board currently comprises six directors (two of whom are also executives of the Company). The names, biographical details and length of service of the directors are set out above. 20 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 Terms of appointment (Principle 1.3 & 2.6) The Board has adopted a letter of appointment that contains the terms on which non-executive directors are to be appointed, including the basis upon which they will be indemnified by the Company. Non-Executive directors are entitled to take independent advice at the cost of the Company in relation to their role as members of the Board. In addition, an induction process for incoming directors is coordinated by the Company Secretary. The Board receives regular updates at Board meetings, industry workshops, meetings with customers and site visits. These assist directors to keep up-to-date with relevant market and industry developments. Areas of Competence and skills of the Board of Directors (Principle 2.2) Area Competence Leadership Business Leadership, public listed company experience Total out of 6 directors* 6 Business, Finance and Governance International Market & Sales, Distribution Technology Business strategy, competitive business analysis, corporate advisory, finance and accounting, governance, audit assurance and risk management International business management Financial service expertise Product Development, product life cycle management Real Estate Domestic and International Property market analysis 6 6 3 1 1 *This column represents the number of directors rated as being ‘competent’ or higher in respect of the relevant skill. Company Secretary (Principle 1.4) The Company Secretary is accountable directly to the Board, through the Chairman, on all matters to do with the proper functioning of the Board. The Company Secretary is responsible for ensuring that Board procedures are complied with and that governance matters are addressed. The Company Secretary is also responsible for communications with the ASX about listing rule matters, including making disclosures to the ASX. All directors have direct access to the Company Secretary. The appointment and removal of the Company Secretary is a matter for decision by the Board. Review of Board performance (Principle 1.6 & 1.7) The Board at least annually reviews the performance of the Board. The evaluation includes a review of: - - - the Board’s membership and the charters of the Board and its committees (if any); Board processes and its committees’ (if any) effectiveness in supporting the Board; and the performance of the Board and its committees (if any). The performance of the Board was reviewed during the year ended 30 June 2018. A review of each Director’s performance is undertaken by the Chairman, after consultation with the other directors, prior to a director standing for re-election. Policies The Company has adopted the following policies, each of which has been prepared or revised having regard to the ASX Corporate Governance Principles and Recommendations and is available on the Company’s website at www.domacom.com.au/investor-relations. 21 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 Continuous Disclosure Policy (Principle 5.1) The Board has adopted a Continuous Disclosure Policy to ensure that it complies with its disclosure obligations under the Corporations Act and the ASX Listing Rules, which applies to all Directors, officers, employees and consultants of the Company. The Board has also delegated the authority to certain authorised spokespersons to manage the Company’s compliance with its disclosure obligations and the Continuous Disclosure Policy. Code of Conduct Policy (Principle 3.1) This policy sets out the standards of ethical behaviour that the Company expects from its Directors, Officers, and Employees. The Board has adopted a Code of Conduct of which sets out the way in which the Group seeks to conduct business, namely in an honest and fair manner, acting only in ways that reflect well on the Group and to act in compliance with all laws and regulations. Communication Policy (Principle 6.1-6.4) This policy sets out practices which the Company will implement to ensure effective communication with its Shareholders. The Company has informed shareholders of all major developments affecting the Group’s state of affairs as follows: (cid:132) (cid:132) (cid:132) (cid:132) (cid:132) (cid:132) (cid:132) placing all relevant announcements made to the market on the Website after they have been released to ASX; publishing all corporate governance policies and charters adopted by the Board on the Company Website; releasing information provided to analysts or media during briefings to ASX and placing such information on the Website; encouraging attendance and participation of shareholders at general meetings to receive updates from the CEO and Chairman on the Group’s performance, ask questions of the Board and the Company’s auditors regarding the conduct of the audit and preparation and content of the auditor’s report. providing investor feedback and encouraging they seek further information about the Company via the Company website; Management or Directors being available to meet with shareholders from time to time upon request and respond to any enquiries they may make; and Investors being able to communicate with the Company’s registry electronically by emailing the registry or via the registry’s website. Diversity Policy (Principle 1.5) The Diversity Policy sets out the Company’s objectives for achieving diversity amongst its Board, management and employees and aims: • to articulate commitment to diversity within the Company at all levels (including employee level, senior executive level and Board level); to establish objectives and procedures which are designed to foster and promote diversity within the Company; and ensure a work environment is in place where people are treated fairly and with respect notwithstanding their gender, ethnicity, disability, age or educational experience. • • The Board has set the following measurable objectives for achieving gender diversity: (cid:120) (cid:120) Increase gender diversity on the Board and senior executive positions and throughout the Group. The Company currently has 11% female representation across the entire group as at 30 June 2018. The objective will be to lift this percentage across the company with the intention that a 1/3 (33%) of the employees are female on a full or part time basis by 30 June 2020. Promote flexible work practices to provide managers and staff with the tools to tailor flexible work options that suit both the business and the individual’s personal requirements; 22 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 (cid:120) (cid:120) Selection of new staff, the development, promotion and remuneration of staff based solely on their performance and capability; and Annually assess gender diversity performance against objectives set by Board. The Company’s current performance against its diversity policy objectives is as follows: Gender Representation Non-Executive Directors Employees Executive Directors Managers Staff Total Employees 30-Jun-18 30-Jun-17 % Female % Male % Female % Male 0% 100% 0% 100% 0% 0% 20% 11% 100% 100% 80% 89% 0% 14% 24% 20% 100% 86% 76% 80% Risk Management Policy (Principle 7.1-7.4) This policy sets out how the Company evaluates the effectiveness of its risk management framework to ensure that its internal control systems and processes are monitored and updated on an ongoing basis. The Board is responsible for reviewing the Company’s risk management framework, including adopting relevant internal controls, risk management processes and corporate governance policies and practices which it believes are appropriate for the Company’s business and which are designed to promote the responsible management and conduct of the Company. The Board at least annually reports on the effectiveness of the Company’s risk management and internal control policies and practices. The Company does not currently have an internal audit function. The current structure for reviewing risks, controls and procedures within the Board is considered appropriate at the Company’s current stage of growth and size. The Board has reviewed the risk management framework during the financial year ended 30 June 2018. The Company monitors its exposure to all risks, including economic, environmental and social sustainability risks. Material business risks are described in the annual report, which also outlines the Company’s activities, performance during the year, financial position and main business strategies. Compliance with ASX Corporate Governance Principles and Recommendations The Board has evaluated the Company’s current corporate governance policies and practices in light of the ASX Corporate Governance Principles and Recommendations. A brief summary of the approach currently adopted by the Company is set out below: The Company complies with all of the ASX Corporate Governance Principles and Recommendations including, as not specifically addressed above: - That at each AGM, the external auditor attends and is available to answer questions from security holders relevant to the audit. (Principle 4.3) That shareholders have the option to receive communications from, and send communications to, the entity and its security registry electronically. (Principle 6.4) - except in relation to the following: - Recommendation 2.1.(a) – the Board should establish a nomination committee comprising at least 3 members, a majority of independent directors and chaired by an independent director, and should not be the same person as the CEO of the entity. Recommendation 7.1.(a) –the Board should have a committee or committees to oversee risks comprising at least 3 members, a majority of independent directors and chaired by an independent director, and should not be the same person as the CEO of the entity. - 23 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ REPORT 30 JUNE 2018 - Recommendation 8.1.(a) – the Board should establish a remuneration committee comprising at least 3 members, a majority of independent directors and chaired by an independent director, and should not be the same person as the CEO of the entity. The Board has carefully considered its size and composition, together with the specialist knowledge of its directors, and formed the view that based on its current composition, it has the necessary skills and motivation to ensure that the Company performs strongly, and there is sufficient accountability in the structure of the Board, to ensure the outcomes and objectives sought by the ASX Guidelines are achieved. Having regard for the size of the DomaCom Group, the Board considered that incorporating the risk management and nomination and remuneration procedures into the function of the Board has been an appropriate way of addressing the accountability and efficiencies sought to be achieved by the ASX Guidelines. Signed in accordance with a resolution of the Board of Directors: Grahame D Evans Chairman 30 August 2018 Arthur Naoumidis Director 24 Collins Square, Tower 1 727 Collins Street Melbourne VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of DomaCom Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of DomaCom Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants M A Cunningham Partner - Audit & Assurance Melbourne, 30 August 2018 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 25 DOMACOM LIMITED ABN 69 604 384 885 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018 Revenue Income recognised from research and development incentive Interest Income Fair value gains and losses on derivatives Expenses Employee benefits expenses Fund administration Rent Depreciation Insurance Advertising Travel expenses IT expenditure Telephone expenditure Professional fees Finance costs Director Fees Other expenses Total Expenses Note 4 13 2018 $ 142,981 290,309 15,362 324,501 773,153 (2,681,382) (216,615) (175,501) (665,649) (214,878) (561,872) (102,426) (48,576) (50,644) (913,514) (328,351) (150,367) (334,628) (6,444,403) 2017 $ 93,045 581,377 56,356 - 730,778 (2,980,981) (291,156) (210,806) (663,589) (342,890) (740,447) (160,098) (47,714) (56,763) (666,871) (81,236) (174,204) (450,440) (6,867,195) Loss before income tax (5,671,250) (6,136,417) Income tax expense Loss for the period 5 - - (5,671,250) (6,136,417) Other comprehensive income Items that may be reclassified subsequently to profit and loss Exchange differences on translating foreign operations Other comprehensive income for the period (856) (856) 10,895 10,895 Total comprehensive loss for the period (5,672,106) (6,125,522) Earnings per share Basic Loss per share Diluted Loss per share 17 17 (0.05) (0.06) (0.05) (0.06) This statement should be read in conjunction with the notes to the financial statements. 26 DOMACOM LIMITED ABN 69 604 384 885 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 ASSETS CURRENT ASSETS Cash and cash equivalents Receivables Prepayments and other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Payables Provisions Other financial liabilities Borrowings TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provisions Borrowings TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued Capital Reserves Accumulated Losses TOTAL EQUITY Note 2018 $ 2017 $ 6 7 8 9 10 11 12 14 11 14 15 16 803,421 654,509 103,374 1,561,304 2,705,481 1,075,114 158,560 3,939,155 11,506 2,370,513 2,382,019 32,378 2,666,089 2,698,467 3,943,323 6,637,622 414,569 232,339 255,476 822,412 1,724,796 62,247 732,371 794,618 560,418 142,033 - - 702,451 54,800 - 54,800 2,519,414 757,251 1,423,909 5,880,371 24,382,924 1,363,076 (24,322,091) 1,423,909 23,754,418 776,794 (18,650,841) 5,880,371 This statement should be read in conjunction with the notes to the financial statements. 27 DOMACOM LIMITED ABN 69 604 384 885 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 2018 Opening balance at 1 July 2017 Issue of share capital Issue of convertible notes Issue of options Share based payments Transactions with owners recorded directly in equity Loss for the period to 30 June 2018 Other comprehensive income Balance at 30 June 2018 2017 Opening balance at 1 July 2016 Issue of share capital Share based payments Transactions with owners recorded directly in equity Issued Capital $ 23,754,418 628,506 - - Reserves $ 776,794 - 76,971 482,295 27,872 Accumulated Losses $ (18,650,841) - - - Total $ 5,880,371 628,506 76,971 482,295 27,872 24,382,924 1,363,932 (18,650,841) 7,096,015 - - 24,382,924 Issued Capital $ 16,791,037 6,963,381 - - (856) 1,363,076 (5,671,250) (24,322,091) (5,671,250) (856) 1,423,909 Reserves $ 945,120 - (179,221) Accumulated Losses $ (12,514,424) - - Total $ 5,221,733 6,963,381 (179,221) 23,754,418 765,899 (12,514,424) 12,005,893 Loss for the period to 30 June 2017 Other comprehensive income Balance at 30 June 2017 - - 23,754,418 - 10,895 776,794 (6,136,417) - (18,650,841) (6,136,417) 10,895 5,880,371 This statement should be read in conjunction with the notes to the financial statements. 28 DOMACOM LIMITED ABN 69 604 384 885 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Research and development tax offset received Finance costs Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Payments to acquire other assets Proceeds from sale of financial assets Payments for plant and equipment Payments for intangible assets Interest Received Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from share issue Proceeds from issue of convertible notes Repayment of convertible notes Proceeds from short term loans Repayment of short term loans Net cash provided by financing activities Note 2018 $ 2017 $ 161,476 (4,976,674) 952,925 (28,078) (3,890,351) 74,550 (5,687,616) 1,276,823 (81,236) (4,417,479) 18 - 12,040 (1,090) (616,126) 15,362 (589,814) 150,000 2,003,961 (105,000) 530,000 - 2,578,961 (1,901,204) 2,705,481 (856) 803,421 (12,040) - (7,305) (881,778) 56,357 (844,766) 6,227,809 - - 700,000 (700,000) 6,227,809 965,564 1,746,197 (6,280) 2,705,481 Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of period Net foreign exchange difference Cash and cash equivalents at the end of period 6 This statement should be read in conjunction with the notes to the financial statements. 29 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: GENERAL INFORMATION AND STATEMENT OF COMPLIANCE The financial report includes the financial statements and notes of DomaCom Limited (the “Company”) and its Controlled Entities (the “Group”). The consolidated general purpose financial statements of the Group have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. Compliance with Australian Accounting Standards results in full compliance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). DomaCom Limited is a for-profit entity for the purpose of preparing the financial statements. The financial statements for the year ended 30 June 2018 were approved and authorised for issue by the Board of Directors on 30 August 2018. NOTE 2: ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE AND NOT BEEN ADOPTED EARLY BY THE GROUP The following standards and interpretations have been recently issued or amended but are not yet effective, and have not been early adopted by the Group for the year ended 30 June 2018. AASB 9 Financial Instruments (December 2014) AASB 9 introduces new requirements for the classification and measurement of financial assets and liabilities and includes a forward-looking ‘expected loss’ impairment model and a substantially-changed approach to hedge accounting. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are: a) Financial assets that are debt instruments will be classified based on: (i) the objective of the entity’s business model for managing the financial assets; and (ii) the characteristics of the contractual cash flows. b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income (instead of in profit or loss). Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. c) Introduces a ‘fair value through other comprehensive income’ measurement category for particular simple debt instruments. d) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. e) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: • • the change attributable to changes in credit risk are presented in Other Comprehensive Income (OCI) the remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. 30 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE AND NOT BEEN ADOPTED EARLY BY THE GROUP (CONTINUED) Otherwise, the following requirements have generally been carried forward unchanged from AASB 139 into AASB 9: • classification and measurement of financial liabilities; and • derecognition requirements for financial assets and liabilities. AASB 9 requirements regarding hedge accounting represent a substantial overhaul of hedge accounting that enable entities to better reflect their risk management activities in the financial statements. Furthermore, AASB 9 introduces a new impairment model based on expected credit losses. This model makes use of more forward- looking information and applies to all financial instruments that are subject to impairment accounting. There will be no material impact on the transactions and balances recognised in the financial statements. AASB 15 Revenue from Contracts with Customers AASB 15 replaces AASB 118 Revenue, AASB 111 Construction Contracts and some revenue-related Interpretations: AASB 15 - - - - establishes a new revenue recognition model changes the basis for deciding whether revenue is to be recognised over time or at a point in time provides new and more detailed guidance on specific topics (e.g. multiple element arrangements, variable pricing, rights of return, warranties and licensing) expands and improves disclosures about revenue When this standard is first adopted for the year ending 30 June 2019, based on detailed analysis there will be no material impact on the transactions and balances recognised in the financial statements. AASB 16 Leases AASB 16 replaces AASB 117 Leases and some lease-related Interpretations. AASB 16 • • • • requires all leases to be accounted for ‘on-balance sheet’ by lessees, other than short-term and low value asset leases provides new guidance on the application of the definition of lease and on sale and lease back accounting largely retains the existing lessor accounting requirements in AASB 117 requires new and different disclosures about leases Based on a detailed assessment, it is expected that the first-time adoption of AASB 16 for the year ending 30 June 2020 will have a material impact on the transactions and balances recognised in the financial statements for leases greater than 12 months, in particular: • • • • (cid:3)lease assets and financial liabilities on the balance sheet will increase respectively (based on the facts at the date of the assessment) there will be a reduction in the reported equity as the carrying amount of lease assets will reduce more quickly than the carrying amount of lease liabilities the implicit interest in lease payments for former off balance sheet leases will be presented as part of finance costs rather than being included in operating expenses operating cash outflows will be lower and financing cash flows will be higher in the statement of cash flows as principal repayments on all lease liabilities will now be included in financing activities rather than operating activities. Interest can also be included within financing activities. 31 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: SUMMARY OF ACCOUNTING POLICIES (a) Overall considerations The significant accounting policies that have been used in the preparation of these financial statements are summarised below. The financial statements have been prepared using the measurement bases specified by Australian Accounting Standards for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below. Segmental Reporting Financial information reported internally used for the allocation of resources and assessing performance is currently presented without reference to segments. Therefore profit and loss, revenues and expenses and assets and liabilities have been presented without segmentation. (b) Basis of consolidation The Group financial statements consolidate those of the Parent Company and all of its subsidiaries as of 30 June 2018. The Parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group Companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of Subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the period are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the Parent and the non-controlling interests based on their respective ownership interests. (c) Business Combination The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of: (a) fair value of consideration transferred; (b) the recognised amount of any non-controlling interest in the acquiree; and (c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (ie gain on a bargain purchase) is recognised in profit or loss immediately. 32 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: SUMMARY OF ACCOUNTING POLICIES (CONTINUED) (d) Foreign currency translation Functional and presentation currency The consolidated financial statements are presented in Australian Dollars ($AUD), which is also the functional currency of the Parent Company. Foreign currency transactions and balances Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items at year end exchange rates are recognised in profit or loss. Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the date of the transaction), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined. Foreign operations In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than the $AUD are translated into $AUD upon consolidation. The functional currency of the Entities in the Group has remained unchanged during the reporting period. On consolidation, assets and liabilities have been translated into $AUD at the closing rate at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into $AUD at the closing rate. Income and expenses have been translated into $AUD at the average rate over the reporting period. Exchange differences are charged / credited to other comprehensive income and recognised in the currency translation reserve in equity. On disposal of a foreign operation the cumulative translation differences recognised in equity are reclassified to profit or loss and recognised as part of the gain or loss on disposal. (e) Revenue Revenue arises from the investment management services provided to the DomaCom Fund and recognised on an accruals basis. Interest income and expense are reported on an accruals basis. The DomaCom Group may be entitled to claim a refundable tax credit for eligible research and development expenditure (eg the Research and Development Tax Incentive regime in Australia or other investment allowances). The DomaCom Group accounts for a claim as an offset against eligible capitalised R&D expenditure. To the extent the claim relates to costs that were expensed as they did not meet the capitalisation criteria under AASB 138 Intangible Assets, this amount is recognised as Other Income. (f) Operating expenses Operating expenses are recognised in profit or loss upon utilisation of the service or at the date of their origin. 33 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: SUMMARY OF ACCOUNTING POLICIES (CONTINUED) (g) Intangible assets Recognition of other intangible assets Acquired intangible assets Acquired computer software is capitalised on the basis of the costs incurred to acquire and install the specific software. Internally developed intangibles Expenditure on the research phase of projects to develop the software platform is recognised as an expense as incurred. Costs that are directly attributable to a project’s development phase are recognised as intangible assets, provided they meet the following recognition requirements: (cid:120) the development costs can be measured reliably (cid:120) (cid:120) (cid:120) (cid:120) the project is technically and commercially feasible the Group intends to and has sufficient resources to complete the project the Group has the ability to use or sell the asset the software will generate probable future economic benefits Development costs not meeting these criteria for capitalisation are expensed as incurred. Subsequent measurement All intangible assets, including the internally developed software platform, are accounted for using the cost model whereby capitalised costs are amortised on a systematic basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing. Any capitalised internally developed asset that is not yet complete is not amortised but is subject to impairment testing. The following useful lives are applied: - - Software: 5 years Software platform costs: 5 years (see note 3s) The DomaCom Group may be entitled to claim a refundable tax credit for eligible research and development expenditure (eg the Research and Development Tax Incentive regime in Australia or other investment allowances). The DomaCom Group accounts for a claim as an offset against eligible capitalised R&D expenditure to the extent the claim relates to capitalised expenditure. Subsequent expenditures on the maintenance of computer software and the software platform will be expensed as incurred. When an intangible asset is disposed of, the gain or loss on disposal is determined as the difference between the proceeds and the carrying amount of the asset, and is recognised in profit or loss within other income or other expenses. 34 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: SUMMARY OF ACCOUNTING POLICIES (CONTINUED) (h) Property, plant and equipment Plant and equipment is initially recognised at acquisition cost, including any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Group’s management. Plant and equipment is subsequently measured using the cost model, cost less subsequent depreciation and impairment losses. Depreciation is recognised on a straight-line basis to write down the cost less estimated residual value of plant and equipment. The following useful lives are applied: - - - Furniture & fittings: 5 years Plant & office equipment: 5 years Computer equipment: 3 years Material residual value estimates and estimates of useful life are updated as required, but at least annually. Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognised in profit or loss within other income or other expenses. (i) Leased assets Operating leases Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. (j) Impairment testing of intangible assets and property, plant and equipment For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit's carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risks factors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash- generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount. 35 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: SUMMARY OF ACCOUNTING POLICIES (CONTINUED) (k) Financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument, and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss, which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in Companies, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified company. Classification and subsequent measurement of financial liabilities The Group’s financial liabilities include trade and other payables, and related party loans Financial Liabilities Financial liabilities are measured subsequently at amortised cost using the effective interest method. All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance costs or finance income. Compound Instruments The component parts of compound instruments (convertible notes) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Conversion options that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recognised as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date. The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognised in equity will be transferred to issued capital. Where the conversion option remains unexercised at the maturity date of the convertible note, the balance recognised in equity will be transferred to retained profits/ accumulated losses. No gain or loss is recognised in profit or loss upon conversion or expiration of the conversion option. 36 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: SUMMARY OF ACCOUNTING POLICIES (CONTINUED) (k) Financial Instruments (continued) Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognised directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortised over the lives of the convertible notes using the effective interest method. (l) Income taxes Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Current income tax assets and/or liabilities comprise those obligations to, or claims from, the Australian Taxation Office (ATO) and other fiscal authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with investments in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax assets are recognised to the extent that it is probable that they will be able to be utilised against future taxable income, based on the Group’s forecast of future operating results which is adjusted for significant non- taxable income and expenses and specific limits to the use of any unused tax loss or credit. Deferred tax liabilities are always provided for in full. Deferred tax assets and liabilities are offset only when the Group has a right and intention to set off current tax assets and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognised as a component of tax income or expense in profit or loss, except where they relate to items that are recognised in other comprehensive income (such as the revaluation of land) or directly in equity, in which case the related deferred tax is also recognised in other comprehensive income or equity, respectively. (m) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 37 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: SUMMARY OF ACCOUNTING POLICIES (CONTINUED) (n) Equity, reserves and dividend payments Share capital represents the fair value of shares that have been issued. Any transaction costs associated with the issuing of shares are deducted from share capital, net of any related income tax benefits. Retained earnings includes all current and prior period retained profits. Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date. All transactions with owners of the parent are recorded separately within equity. (o) Employee benefits Short-term employee benefits Short-term employee benefits, including annual leave entitlement, are current liabilities included in employee benefits, measured at the undiscounted amount that the Group expects to pay as a result of the unused entitlement. Share-based payments Share-based compensation benefits are provided to employees via the Group or Shareholders for no cash consideration. The fair value of shares granted is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the shares. (p) Provisions, contingent liabilities and contingent assets Provisions for legal disputes, onerous contracts or other claims are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognised. 38 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: SUMMARY OF ACCOUNTING POLICIES (CONTINUED) (q) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST components of investing and financing activities, which are disclosed as operating cash flows. (r) Going Concern As a developing business the Group has experienced a loss of $5,671,250. The Group has effective net working capital of $384,396 after adjusting for the current liabilities relating to the Convertible Securities and their embedded derivatives set out in Notes 12 and 14 that are repayable in shares at the option of DomaCom. The continuing viability of the Group and its ability to continue as a going concern is dependent upon the Group being successful in continuing to grow Funds under Management (“FUM”) within the DomaCom Fund and the ability to raise capital. A detailed sales pipeline and forecast is continuously updated and reported to the Board on a regular basis. The strategy for continued growth includes further expanding the direct to consumer distribution channel that will work alongside DomaCom’s established financial adviser network. DomaCom has now developed the ability to introduce leverage into investments which will be a significant driver in FUM growth. In addition DomaCom is focused on providing investment opportunities within the themes of regional investment, affordable housing and renewable energy. These opportunities are constantly monitored within the sales pipeline review process. Cash flow forecasts are presented and discussed by the Board on a monthly basis. These include the forecast receipt of R&D tax claims ($558,324 expected to be received for the year ended 30 June 2018). In addition to the forecast growth in management fees from increased FUM and the R&D tax claim, DomaCom intends to raise additional capital as required. If these matters are not achieved, there may be significant uncertainty as to whether the Group will continue as a going concern and, therefore, whether it will realise its assets and settle its liabilities in the normal course of business and at the amounts stated in the financial report. The Directors believe that the Group will be able to access sufficient sources of funds and implement cost control measures if required and are satisfied that the Group will continue as a going concern. The Group has shown the ability to raise capital during the current year. Accordingly, the financial report has been prepared on a going concern basis. No adjustments have been made to the financial report relating to the recoverability and classification of the asset carrying amounts or the amount and classification of liabilities that might be necessary should the Group not continue as a going concern. (s) Significant management judgement in applying accounting policies and estimation uncertainty When preparing the financial statements, management undertakes a number of judgments, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. Significant management judgments The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements. 39 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: SUMMARY OF ACCOUNTING POLICIES (CONTINUED) (s) Significant management judgement in applying accounting policies and estimation uncertainty (continued) Capitalisation of internally developed software platform Distinguishing the research and development phases of the internally developed software platform and determining whether the recognition requirements for the capitalisation of development costs are met requires judgment. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. Useful economic life of internally developed software platform Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical obsolescence that may change the utility of software. During the year management determined that the useful life of the internally developed software remains unchanged from the prior year. Fair value of derivatives and other financial instruments As described in Note 3(k) and Note 24, management uses its judgement in selecting the appropriate valuation technique for financial instruments that are not quoted in an active market. Valuation techniques commonly used by market participants are applied. For derivative financial instruments, assumptions are based on quoted market rates adjusted for specific features of the instrument. As disclosed in Note 12 and Note 14, as at 30 June 2018 the carrying value of convertible notes and other securities including related derivatives were: Convertible Note - $548,540 (2017: $nil) Convertible Security (January 2018) Convertible Security – $283,746 (2017: $nil) Embedded derivative liability with the following features: DomaCom option to repay security in shares, Lind option to have securities repaid in shares & DomaCom’s option to have securities repaid early $85,686 (2017: $nil) Convertible Security (June 2018) Convertible Security – $192,497 (2017: $nil) Embedded derivative liability with the following features: DomaCom option to repay security in shares, Lind option to have securities repaid in shares & DomaCom’s option to have securities repaid early $169,790 (2017: $nil) The accounting for and valuation of the convertible securities is complex due to significant judgement involved in: - - Determining the appropriate accounting treatment; and Inputs into the fair value calculators of the embedded derivatives, including the volatility of the underlying share price. Recognition of deferred tax assets The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the Group’s future taxable income against which the deferred tax assets can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions. No deferred tax assets were recognized due to uncertainty of recoverability. 40 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 4: REVENUE & OTHER INCOME Management Fees Income recognised from research and development incentive Interest Income Fair value gains and losses on derivatives 2018 $ 142,981 290,309 15,362 324,501 773,153 2017 $ 93,045 581,377 56,356 - 730,778 Fees earned for investment management services provided to the DomaCom Fund are calculated based on fixed percentages applied to the Funds Under Management. The DomaCom Group claims refundable tax credits for eligible research and development expenditure. The DomaCom Group accounts for a claim partially as an offset against eligible capitalised R&D expenditure. Income recognised from research and development incentive represents the amount of the claim that does not meet the criteria for offset to the extent that it has been received for expenses that did not meet the capitalisation criteria under AASB 138 Intangible Assets. NOTE 5: INCOME TAX EXPENSE Prima facie tax on loss before income tax Prima facie tax on loss before income tax at 27.5% (2017: 27.5%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non-deductible research and development expenses Non-assessable research & development income Other non-deductible expenses Research and development tax grant received Effect of different tax rate of subsidiaries operating in other jurisdiction (17%) Unused tax losses not recognised as DTAs Tax offsets not recognised for deferred tax Income tax expense Components of tax expense Temporary differences Note 2018 $ 2017 $ (5,671,250) (6,136,417) 1,559,594 1,687,515 169,433 234,887 79,835 (142,613) (352,963) (4,050) (1,161,857) (147,379) - 159,879 (58,467) (602,424) (23,375) (1,397,034) (980) - - - - - 41 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 5: INCOME TAX EXPENSE (CONTINUED) Deferred taxes arising from temporary differences and unused tax losses calculated at a tax rate of 27.5% (2017: 27.5%) disclosed in the table below have not been recognised due to uncertainty over future taxable profits in the consolidated tax group. Note 2018 $ 2017 $ Deferred tax assets not recognised at the reporting date: Unused tax losses at 27.5% (2017: 27.5%) Equity raising and company restructure costs Accruals & Provisions Tax Losses and deductible temporary differences for which no deferred tax asset has been recognised Unused tax losses Equity raising and company restructure costs Accruals & Provisions NOTE 6: CASH AND CASH EQUIVALENTS Cash at bank Cash on deposit 5,009,848 248,886 101,416 5,360,150 3,920,461 128,467 74,456 4,123,384 19,900,767 905,040 368,784 21,174,591 14,257,484 467,153 270,748 14,995,385 199,767 603,654 803,421 35,596 2,669,885 2,705,481 Cash and cash equivalents carries a weighted average effective interest rate of 1.5% (2017: 1.5%). NOTE 7: RECEIVABLES CURRENT Amount receivable from R&D taxation rebate Amount receivable from related party Other debtors 558,324 14,798 81,387 654,509 952,925 2,805 119,384 1,075,114 Receivables are non-interest bearing. There are no receivables where the fair value would be materially different from the current carrying value. The amount receivable from R&D taxation rebate has been pledged as part security for Short Term Loans (see Note 14). The Group reviews all receivables for impairment. Any receivables which are doubtful have been provided for. There are no receivables past due at the reporting date. No receivables have been provided for at the reporting date. 42 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 8: PLANT AND EQUIPMENT Furniture & fittings Year ended 30 June 2018 Opening net book amount Additions Depreciation charge Closing net book value At 30 June 2018 Cost Accumulated depreciation Net book value Year ended 30 June 2017 Opening net book amount Additions Disposal Depreciation charge Net exchange differences Closing net book value At 30 June 2017 Cost Accumulated depreciation Net book value $ 387 - (387) - 9,677 (9,677) - 2,322 - - (1,935) - 387 9,677 (9,290) 387 Plant and office equipment $ Computer Equipment $ 440 - (289) 151 3,633 (3,482) 151 1,600 - (318) (821) (21) 440 3,633 (3,193) 440 31,551 1,090 (21,286) 11,355 68,064 (56,709) 11,355 47,534 7,305 (1,936) (21,352) - 31,551 66,974 (35,423) 31,551 Total $ 32,378 1,090 (21,962) 11,506 81,374 (69,868) 11,506 51,456 7,305 (2,254) (24,108) (21) 32,378 80,284 (47,906) 32,378 43 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 9: INTANGIBLE ASSETS Year ended 30 June 2018 Opening net book amount at 1 July 2017 Amounts capitalised and additions Amortisation Closing net book value at 30 June 2018 At 30 June 2018 Cost Accumulated depreciation Net book value Year ended 30 June 2017 Opening net book amount at 1 July 2016 Amounts capitalised and additions Amortisation Closing net book value at 30 June 2017 At 30 June 2017 Cost Accumulated depreciation Net book value Software platform Computer software $ $ Total $ 2,604,015 348,111 (617,422) 2,334,704 62,074 - (26,265) 35,809 2,666,089 348,111 (643,687) 2,370,513 3,831,940 (1,497,236) 2,334,704 130,057 (94,248) 35,809 3,961,997 (1,591,484) 2,370,513 2,730,532 482,585 (609,102) 2,604,015 64,809 27,645 (30,380) 62,074 2,795,341 510,230 (639,482) 2,666,089 3,483,829 (879,814) 2,604,015 130,057 (67,983) 62,074 3,613,886 (947,797) 2,666,089 Amortisation methods and useful lives The Group amortises intangible assets with a limited useful life using the straight-line method over the following periods: (cid:120) Software platform costs (all internally generated): 5 years (cid:120) Computer software 5 years See Note 3 (s) for management’s judgement applied in determining the useful life of intangible assets. NOTE 10: PAYABLES CURRENT Trade creditors Sundry creditors and other accruals 2018 $ 340,371 74,198 414,569 2017 $ 486,503 73,915 560,418 Payables are non-interest bearing. There are no payables where the fair value would be materially different from the current carrying value. 44 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 11: PROVISIONS CURRENT: Employee entitlements Other NON-CURRENT Employee entitlements NOTE 12: OTHER FINANCIAL LIABILITIES Derivative liability - First Convertible Security Derivative liability - Second Convertible Security NOTE 13: EMPLOYEE REMUNERATION Wages, salaries Pensions - defined contribution plans Share based payments Other employment benefits 2018 $ 132,339 100,000 232,339 2017 $ 142,033 - 142,033 62,247 54,800 85,686 169,790 255,476 - - - - 1,887,535 180,758 512,083 101,006 2,681,382 2,481,672 203,670 203,262 92,377 2,980,981 The Director Long Term Incentive Plan and Employee Long Term Incentive Plan (LTIP) was established as a retention strategy and an incentive for staff and directors to continue to work hard for the DomaCom Group. Through obtaining equity, staff are motivated to strive to make the DomaCom Group successful as they will ultimately share in the success. All Directors and eligible employees have been granted performance rights at 5th April 2018. Vesting gives the holder of a Performance Right the right to convert some or all of their Performance Rights into ordinary shares. Each Performance Right entitles its owner to one ordinary share in the Company on conversion. The performance rights expire on 5th April 2021 and may be exercised at any time up to that date. The performance rights under the employee and non-executive director and executive director programs have an exercise price of $nil. 45 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 13: EMPLOYEE REMUNERATION (CONTINUED) Performance rights were granted as follows for the reporting periods presented: Employee & director program (issued 2018) Employee & non- executive director program (issued 2015) Executive director program (issued 2015) Number of rights - - - - - - 5,603,389 (496,260) 5,107,129 Number of rights 1,871,596 (42,556) 42,556 (764,968) 1,106,628 - - (969,699) 136,929 Number of rights 213,929 - - - 213,929 (213,929) - - - Outstanding at 30 June 2016 Forfeited Granted Exercised Outstanding at 30 June 2017 Expired Granted Exercised Outstanding at 30 June 2018 The fair value of performance rights granted under the employee and non-executive director program on 14th December 2015 and granted under the employee and director program on 5th April 2018 was based on the estimated share price at grant date. The following principal assumptions were used in the valuations: Grant date Vesting period ends Share price at grant date Volatility Performance right life Dividend yield Risk free investment rate Fair value at grant date Exercise price at grant date Exercisable from Exercisable to Employee & director program (issued 2018) Employee & non- executive director program (issued 2015) 5 April 2018 5 April 2018 $0.093 - Up to 3 years - - $0.093 $0.00 5 April 2018 5 April 2021 14 Dec 2015 30 Nov 2018 $0.50 - Up to 3 years - - $0.50 $0.00 Variable 30 Nov 2018 In total, $512,083 (2017: $$203,262) of employee remuneration expense (all of which related to equity-settled share-based payment transactions) has been included in profit or loss and credited to equity compensation reserve. 46 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 14: BORROWINGS CURRENT Short term loans Convertible Security (January 2018) Convertible Security (June 2018) NON-CURRENT Convertible Notes Convertible Security (January 2018) Convertible Security (June 2018) Short Term Loans 2018 $ 530,000 196,164 96,248 822,412 548,540 87,582 96,249 732,371 2017 $ - - - - - - - - Short Term Loans includes an unsecured loan of $300,000 and a loan of $230,000 secured on the Research & Development tax incentive claim for the year ended 30 June 2018. Both loans are repayable on receipt of the Research & Development tax incentive claim. Interest rates charged over the period of the loans range between 1.25% per month and 10% per quarter. Convertible Notes $650,000 was raised through the issue of 650,000 unsecured 3 Year Convertible Notes on 25 January 2018 with an annual coupon of 10% payable quarterly in arrears. The holder of each note has the right to convert into one share at a conversion price of $0.20 up to 25 January 2021. Convertible Securities issued to The Australian Special Opportunity Fund DomaCom Limited entered into a Convertible Security Funding Agreement (“Agreement”) to raise initially $1,000,000 in funds through the issue of a First Convertible Security to the Australian Special Opportunity Fund, LP, a New York-based institutional investor managed by The Lind Partners, LLC (together, “Lind”). The Execution Date was 15 January 2018 and the First Closing Date was 24 January 2018. The Agreement provided for DomaCom to request up to an additional A$500,000 during the Term of the Agreement through the issue of a Second Convertible Security. This was taken up with a Second Closing Date of 15 June 2018. DomaCom issued Lind a A$1,200,000 First Convertible Security that will be repayable over 24 months with an initial repayment holiday of 120 days. DomaCom will make 20 monthly repayments of a notional amount of $60,000 in either shares or cash (at DomaCom’s option). DomaCom issued Lind a A$600,000 Second Convertible Security that will be repayable over 24 months with no repayment holiday. DomaCom will make 24 monthly repayments of a notional amount of $25,000 in either shares or cash (at DomaCom’s option). The monthly repayment amount in shares will be determined using 90% of the average of 3 daily VWAPs as selected by Lind during the 20 business days preceding the monthly repayment. The cash repayment amount will be at a premium of 5% on the notional amount. 47 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 14: BORROWINGS (CONTINUED) Lind has the right to have the First Security and Second Security repaid early at any time during the Term by converting the Outstanding Amounts into DomaCom shares based on a Conversion Price per share equal to 130% of the average of the 5 daily VWAP selected by Lind during the 20 trading days prior to the execution of the agreement for the First Convertible (equal to A$0.127) and 130% of the average of the 5 daily VWAP selected by Lind during the 20 trading days prior to the Second Closing for the Second Convertible Security). DomaCom has the right to prepay the remaining balance of the First Convertible Security and Second Convertible Security at any time. If this occurs Lind can request that up to 30% of the Face Value be repaid in shares at a price determined by Lind equal to either the 130% of the average of the 5 daily VWAP selected by Lind during the 20 trading days prior to the agreement being executed or 90% of the average of 3 daily VWAPs as selected by Lind during the 20 trading days prior to notice of repayment. Subject to the option of Lind to request part repayment in Shares, the Amount Outstanding will be repaid in Cash with a premium of 5%. DomaCom paid Lind a First Commitment Fee of A$50,000 and issued Lind 3.7 million options to purchase ordinary shares in DomaCom with an exercise price equal to the average daily VWAP during the 20 trading days prior to the execution of the agreement (A$0.114) with an expiry date of 36 months after the date of issue (24 January 2021). DomaCom paid Lind a Second Commitment Fee of A$25,000 and issued Lind 1.85 million options to purchase ordinary shares in DomaCom with an exercise price equal to the average daily VWAP during the 20 trading days prior to the Second Closing Date (A$0.065) with an expiry date of 36 months after the date of issue (15 June 2021). The Agreement included the issue of 2 million DomaCom shares as Collateral Shares initially issued at $0.00 that will be paid for at a price equal to 90% of the average of 3 daily VWAPs per Share during the Collateral Pricing Period as set out in the Agreement. A limit on the number of Shares was included as a separate additional agreement. The maximum number of Shares that may be issued to service the repayments or be converted under the terms of the Agreement without obtaining shareholder approval is 6 million shares (in addition to the Collateral Shares and any Shares issued in respect of the Options). To account for the Agreement in accordance with Australian Accounting Standards, the Company has recognised liabilities of $283,746 and $192,497 for the debt instruments (split between current and non-current), derivative net current liabilities of $255,476 (refer Note 12) and an equity instrument of $482,295 recognised in equity. 48 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 15: ISSUED CAPITAL Ordinary shares fully paid Ordinary shares 2018 Opening balance Ordinary shares fully paid issued during the period Share issue cost Closing balance as at 30 June 2018 2017 Opening balance Ordinary shares fully paid issued during the period Share issue cost Closing balance as at 30 June 2017 2018 $ 2017 $ 24,382,924 23,754,418 No. $ 111,471,240 5,132,625 - 116,603,865 100,795,641 10,675,599 - 111,471,240 23,754,418 634,211 (5,705) 24,382,924 16,791,037 7,710,024 (746,643) 23,754,418 The amount of franking credits available for subsequent reporting periods are: Deferred debit balance of franking account at the beginning of the reporting period Deferred debit that will arise from the receipt of the R&D tax offset for the current year Balance of franking account adjusted for deferred debits arising from past R&D offsets received and expected R&D tax offset to be received for the current year 4,697,712 3,744,787 558,324 952,925 5,256,036 4,697,712 The Group has the capital management objective of ensuring the Group’s ability to continue as a going concern. Management assesses the Group’s capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may issue new shares. 49 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 16: RESERVES Share based payment reserve Equity Compensation Reserve Equity 3 year Convertible Note Equity Option Reserve Foreign Currency Translation Reserve 2018 Opening balance Recognition of performance rights issued during the period Expired performance rights issued in prior periods Exercise of performance rights Issue of convertible note Issue of options with Lind Notes Translation of foreign operation net assets and results 2018 $ 249,600 543,428 76,971 482,295 10,782 1,363,076 2017 $ 249,600 515,556 - - 11,638 776,794 Share based payment reserve ($) 249,600 - - - - - Equity Compensation Reserve ($) Convertible Note Equity Reserve ($) Equity Option Reserve ($) 515,556 521,115 (9,033) (484,210) - - - - - - - - - 76,971 - - - 482,295 Foreign Currency Translation Reserve ($) 11,638 - - - - - - - - (856) Closing balance 249,600 543,428 76,971 482,295 10,782 2017 Opening balance Recognition of performance rights issued in prior periods Exercise of performance rights Translation of foreign operation net assets and results Closing balance Share based payment reserve ($) 249,600 - - - Equity Compensation Reserve ($) 694,777 203,262 (382,483) - 249,600 515,556 Convertible Note Equity Reserve ($) - - - - - Equity Option Reserve ($) - - - - - Foreign Currency Translation Reserve ($) 743 - - 10,895 11,638 Share based payment reserve is used to recognise the grant date fair value of shares issued to employees by the Group or Shareholders. The equity compensation reserve represents amounts expensed over the vesting period for performance rights issues to staff and directors. The convertible note equity reserve is used to recognise the equity portion of compound instruments as set out in Note 3(k). The equity option reserve is used to record the equity element of options issued. Exchange differences relating to the translation of results and net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency are recognised in other comprehensive income and accumulated in the foreign currency reserve. 50 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 17: EARNINGS PER SHARE Both the basic and diluted earnings per share have been calculated using the profit attributable to shareholders of the Parent Company (DomaCom Limited) as the numerator (i.e. no adjustments to profit were necessary in 2018 or 2017). The weighted average number of shares used in the calculation of the earnings per share is as follows: Amounts in thousands of shares: - weighted average number of shares used in the basic earnings per share 2018 2017 113,450 107,959 NOTE 18: RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES $ $ Loss for the period (5,671,250) (6,136,417) Adjustments for: Depreciation and amortisation Share based payments Net interest received included in investing and financing Expense recognised in respect of shares issued Research & development grant offset against intangible assets Net foreign exchange (gain)/loss Changes in assets and liabilities: (Increase)/decrease in trade and other receivables Increase/(decrease) in trade payable and accruals Increase/(decrease) in employee provisions 665,650 512,083 (80,503) - 268,015 - 463,752 (145,852) 97,754 663,589 203,262 (56,356) 353,087 371,548 17,197 288,572 (82,790) (39,171) Net cash used by operating activities (3,890,351) (4,417,479) NOTE 19: AUDITOR REMUNERATION Audit and review of financial statements Auditors of DomaCom Limited - Grant Thornton Australia Overseas Grant Thornton network firms Remuneration from audit and review of financial statements Other Services Auditors of DomaCom Limited - Grant Thornton Australia - taxation compliance - other - investigating accountants report Total other service remuneration 67,000 11,856 78,856 10,000 4,962 - 14,962 58,750 8,142 66,892 9,460 1,380 21,670 32,510 Total auditor's remuneration 93,818 99,402 51 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 20 RELATED PARTY TRANSACTIONS Key management personnel compensation Salaries Total short term employee benefits Long service leave Total other long-term benefits Pensions - defined contribution plans Total post-employment benefits Share based payments Total remuneration 2018 $ 516,639 516,639 9,625 9,625 49,081 49,081 2017 $ 594,739 594,739 5,037 5,037 56,501 56,501 147,075 10,639 722,420 666,916 The term of the share based payments in the form of performance rights are set out in Note 13. Key management personnel are employees of DomaCom Australia Limited, a controlled entity of the Company. Transactions between the Group and its related parties During the financial year ended 30 June 2018, the following transactions occurred between the Group and its other related parties: DomaCom Australia Limited, a controlled entity of the Company, received management fees for managing the DomaCom Fund. Management fees recognised during the financial year were $142,981 (2017: $93,045). DomaCom Australia Limited held cash in the DomaCom Fund. Interest earned during the financial year was $13,165 (2017: $35,530). At 30 June 2018, cash held in the DomaCom Fund amounted to $563,654 (2017: $2,629,885). DomaCom Australia had an unsecured receivable balance with the DomaCom Fund of $14,798 (2017: $2,805) representing upfront sub-fund set-up costs to be subsequently reimbursed by the DomaCom Fund. NOTE 21: CONTINGENT LIABILITIES There are no contingent liabilities at the end of the period. NOTE 22: COMMITMENTS Operating lease commitments: No later than 12 months Between 12 months and 5 years Greater than 5 years Minimum lease payments $ $ 133,173 11,142 - 144,315 211,357 17,678 - 229,035 Operating leases entered into by the Group relate to its office rental obligations (Melbourne and Sydney offices). 52 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 23: INTERESTS IN SUBSIDIARIES Name of Subsidiary Country of incorporation and principal place of business Principal activity Proportion of ownership interests held by the Group DomaCom Australia Limited Australia Provision of Investment Management Services and development of platform to fractionalise assets DomaCom Singapore Private Limited Singapore Sales and marketing of fractionalised asset product DomaCom Platform Services Pty Ltd Australia Development of platform to fractionalise assets DomaCom Loan Pty Ltd Australia Trustee for DomaCom Loan Fund 100% 100% 100% 100% NOTE 24: FINANCIAL INSTRUMENTS Categories of financial instruments Financial Assets Cash and cash equivalents Trade and other receivables # Financial Liabilities Trade and other payables # Derivative financial instruments Current Borrowings Non-Current borrowings 2018 $ 2017 $ 803,421 654,509 1,457,930 340,371 255,476 822,412 732,371 2,150,630 2,705,481 1,075,114 3,780,595 486,503 - - - 486,503 # Carried at amortised cost and repayable within 6 months Risk management objectives and policies The Group is exposed to various risks in relation to financial instruments. The Group’s financial assets and liabilities by category are summarised above. The main types of risks are liquidity risk, credit risk and market risk. The Company’s risk management is coordinated through the Chief Compliance and Risk Officer, in close cooperation with the Board of Directors (the “Board”) and the Chief Financial Officer. Liquidity risk analysis Liquidity risk is the risk that the Group might be unable to meet its obligations. The Group manages its liquidity needs by monitoring forecast cash inflows and outflows due in day-to-day business. Net cash requirements are compared to available cash in order to maintain a cash surplus. Funding for long-term liquidity needs sourced through additional capital raising. 53 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 24: FINANCIAL INSTRUMENTS (CONTINUED) Liquidity risk analysis (continued) The Group’s non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below: 30 June 2018 Trade payable and other payables Short term loans Convertible Notes Convertible Security (January 2018) Convertible Security (June 2018) 30 June 2017 Trade payable and other payables Credit Risk Analysis Within 6 months ($) 340,371 530,000 - 378,000 157,500 6-12 months ($) 1-5 years ($) - - - 378,000 157,500 - - 650,000 399,000 315,000 486,503 - - Credit risk is the risk that a counterparty fails to discharge an obligation to the Group. The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, as summarised in Note 7. The Group continuously monitors defaults of customers and other counterparties, identified either by individual or group and incorporates this information into its credit risk controls. The Group’s policy is to deal only with creditworthy counterparties. The Group’s management considers that all the above financial assets that are not impaired or past due for each of the reporting dates under review are of good credit quality. In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. Market risk analysis The Group is exposed to market risk through currency and interest rate risk. Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those translated into $AUD at the closing rate: Foreign Currency Sensitivity SGD Financial assets Financial liabilities Total Exposure 2018 $ 1,678 - 1,678 2017 $ 3,110 - 3,110 54 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 24: FINANCIAL INSTRUMENTS (CONTINUED) Market risk analysis (continued) The following table illustrates the sensitivity of profit and equity in regards to the Group’s financial assets and financial liabilities and the $SGD/$AUD exchange rate ‘all other things being equal’. It includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a change in foreign currency rates. It assumes a +/- 10% change of the $SGD/$AUD exchange rate for the year ended at 30 June 2018 (2017: 10%). If the $SGD had strengthened against the $AUD by 10% (2017: 10%) this would have had the following impact through a decrease in the Foreign Currency Translation Reserve: Equity 2018 $ 153 2017 $ 283 For a 10% weakening of $SGD against $AUD there would be a comparable increase in the Foreign Currency Translation Reserve. Interest Rate Sensitivity The Company’s policy is to minimise interest rate risk exposures. Interest income is earned on deposits held. The rate is reviewed on a regular basis to ensure it remains in line with the expected rate of return. Interest expense incurred on any short term borrowings is assessed to ensure it is in line with market expectations. The Company’s policy is not to enter into any long term borrowing. The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates of +/- 1% (2017: +/- 1%). These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant. Interest Rate Sensitivity 30 June 2018 30 June 2017 Fair value Measurements Loss for the period $ +1% (12,606) (34,373) Loss for the period $ -1% 12,606 34,373 This note provides information about how the Group determines fair values of financial assets and financial liabilities. Fair value of the Groups financial assets and financial liabilities that are measured at fair value on a recurring basis Some of the Consolidated Entity’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used). 55 DOMACOM LIMITED ABN 69 604 384 885 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 24: FINANCIAL INSTRUMENTS (CONTINUED) Fair value Measurements (continued) Financial assets/(liabilities) Fair value 30 June 2018 Fair value 30 June 2017 Fair value hierarchy Valuation technique(s) and key input(s) (85,686) - Level 2 (169,790) - Level 2 Embedded derivative liability with the following features: DomaCom option to repay security in shares, Lind option to have securities repaid in shares & DomaCom’s option to have securities repaid early - First Convertible Security Embedded derivative liability with the following features: DomaCom option to repay security in shares, Lind option to have securities repaid in shares & DomaCom’s option to have securities repaid early - Second Convertible Security Black Scholes and Monte Carlo pricing models, using observable share price, observable risk free rate and observable share price volatility Black Scholes and Monte Carlo pricing models, using observable share price, observable risk free rate and observable share price volatility NOTE 25: PARENT ENTITY INFORMATION Current Assets Total Assets Current Liabilities Total Liabilities Net Assets Issued Capital Share based payment reserve Equity compensation reserve Convertible note equity reserve Equity option reserve Retained earnings Current earnings Total Equity NOTE 26: SUBSEQUENT EVENTS 2018 $ 558,324 3,250,373 838,617 1,826,464 1,423,909 24,382,924 249,600 543,428 76,971 482,295 (18,639,203) (5,672,106) 1,423,909 2017 $ 952,925 5,880,371 - - 5,880,371 23,754,418 249,600 515,556 - - (12,513,681) (6,125,522) 5,880,371 Subsequent to balance date and prior to the issuing of this report, the following events have occurred: - The Group’s Research and Development tax incentive claim has been registered with AusIndustry and an amount of $558,324 will be claimed. There have been no other events subsequent to period end that require disclosure. 56 DOMACOM LIMITED ABN 69 604 384 885 DIRECTORS’ DECLARATION In the opinion of the directors of DomaCom Limited a the consolidated financial statements and notes of DomaCom Limited are in accordance with the Corporations Act 2001, including: i giving a true and fair view of its financial position as at 30 June 2018 and of its performance for the financial period ended on that date; and ii complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 and other mandatory professional reporting requirements, and there are reasonable grounds to believe that DomaCom Limited will be able to pay its debts as and when they become due and payable, and DomaCom Limited has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. b c Signed in accordance with a resolution of the directors: Grahame D Evans Chairman 30 August 2018 Arthur Naoumidis Director 57 Collins Square, Tower 1 727 Collins Street Melbourne VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of DomaCom Limited Report on the audit of the financial report Opinion We have audited the financial report of DomaCom Limited (the Company) and its Controlled Entities (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the directors’ report. In our opinion, the accompanying consolidated 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 30 June 2018 and of its performance for the year ended on that date; 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 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 3(r) in the financial statements, which indicates that the Group incurred a net loss of $5,671,250 during the year ended 30 June 2018, and as of that date, the Group’s net working capital deficiency was $163,492. As stated in Note 3(r), these events or conditions indicate that a material uncertainty exists that may cast doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 58 Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial report of the current period. These matters were addressed in the context of our audit of the consolidated 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 Recognition of research and development (R&D) tax incentive (Note 4) The Group receives a 43.5% refundable tax offset (2017: 43.5%) of eligible expenditure under the research and development (R&D) tax incentive scheme. An R&D plan is filed with AusIndustry in the following financial year and, based on this filing, the Group receives the incentive in cash. Management perform a detailed review of the Group’s total research and development expenditure to determine the potential claim under the R&D tax incentive legislation. The Group recognises R&D tax incentive rebate income on an accruals basis, meaning that a receivable is recorded at the balance date based on the estimated claim that is yet to be received from the Australian Taxation Office. The receivable at year end for the incentive was $558,324. This represents an estimated claim for the period 1 July 2017 to 30 June 2018. The R&D tax incentive scheme represent the highest level of income and asset in the 2018 financial report. This area is a key audit matter due to the size of the accrual and because there is a degree of judgement and interpretation of the R&D tax legislation required by management to assess the eligibility of the R&D expenditure under the scheme. Our procedures included, amongst others: • obtaining the R&D incentive calculations prepared by management and engaging an internal R&D Tax Expert to assist the engagement team in assessing the reasonableness of the estimate; • comparing the nature of the R&D expenditure included in the current year estimate to the prior year approved claim; • comparing the estimates made in previous years to the amount of cash actually received after lodgement of the R&D tax claim; • considering the nature of the expenses against the eligibility criteria of the R&D tax incentive scheme to form a view about whether the expenses included in the estimate were likely to meet the eligibility criteria; • assessing the eligible expenditure used to calculate the estimate to ensure it is in accordance with expenditure recorded in the general ledger; • agreeing a sample of individual expenditure items included in the estimate to underlying supporting documentation to ensure that they have been appropriately recognised in the accounting records and that they are eligible expenditures; • inspecting copies of relevant correspondence with AusIndustry and the ATO related to the claims; and • assessing the adequacy of the relevant disclosures in the financial statements. 59 Capitalisation of Software development costs The Group capitalises costs that are directly attributable to the development of intangibles assets in accordance with AASB 138 Intangible Assets. AASB 138 provides that an entity may only capitalise costs that meet specific capitalisation criteria. This area is a key audit matter due to the inherent subjectivity required in determining whether the costs capitalised meet the requirements of AASB 138 Intangible Assets. Our procedures included, amongst others: • enquiring with management to obtain and document an understanding of their process and the design of controls relating to the capitalisation of software development costs and their compliance with AASB 138; • evaluating the entity’s position that the underlying assets is in the development phase, as well as the entity’s ability to demonstrate technical feasibility, that the asset will generate probable future economic benefits, the ability to bring the asset to completion for use or sale, amongst other requirements of AASB 138; • obtaining supporting workings and on a sample basis, agreeing internal salary costs and other costs capitalised to supporting documentation; • assessing the eligibility of expenditure capitalised for compliance with development recognition requirements under the Accounting Standards; • assessing the allocation of costs between separately identifiable intangible assets; and • comparing to the R&D incentive claim to assess appropriateness of the breakout between capitalised R&D costs and expensed costs, as the period in which the R&D incentive is recognised will be matched to the period of expense. Intangible asset – Impairment Given the nature of the industry in which the Group operates, there is a risk that there could be a material impairment to goodwill and intangible asset balances. AASB 136 Impairment of Assets requires that an entity shall assess at the end of each reporting period possible internal or external indicators of impairment. If any indication exists, the entity shall estimate the recoverable amount of the asset. This area is a key audit matter due to the inherent subjectivity required in measuring the recoverable amount. Our procedures included, amongst others: • obtaining from management their impairment model and supporting information used for key assumptions and assessing management's determination of the Group’s Cash Generating Units (“CGU”); • evaluating management’s assessed carrying value of the intangible asset calculated based on its expected fair value less cost to sell; and • assessing the adequacy of the relevant disclosures in the financial statements. 60 Convertible notes & security As disclosed in Notes 12 and 14, as at 30 June 2018 the carrying value of convertible notes and securities including related derivatives were: • • Convertible notes and security: $1,024,783 (2017: nil); and Derivative liability: $255,476 (2017: nil). The accounting for and the valuation of the convertible securities is complex due to significant judgement involved in: • • Determining the appropriate accounting treatment; and Determining the fair value of each element of the convertible securities including embedded derivatives. This area is a key audit matter due complexities and conditions which may have an impact on the carrying value of the note and how it is presented within the financial statements. Our procedures included, amongst others: • evaluating management’s accounting treatment of the convertible securities; • inspecting management’s valuations for the convertible securities, assessing the methodology used for the valuations and testing the mathematical accuracy of the valuations; • involving our valuation specialists and challenging the reasonableness of the assumptions used in the valuation by agreeing key inputs such as maturity, repayment and conversion terms and pricing to the agreement, as well as assessing volatility used in the valuation by reference to historical share price information; and • assessing the adequacy of the relevant disclosures in the financial statements. 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 in the Group’s financial report for the year ended 30 June 2018, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and 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. Directors’ Responsibilities for the Financial Report The Directors of the Group 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 Group’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report. 61 Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 13 to 17 of the Directors’ report for the year ended 30 June 2018. In our opinion, the Remuneration Report of DomaCom Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Group 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. Grant Thornton Audit Pty Ltd Chartered Accountants M A Cunningham Partner - Audit & Assurance Melbourne, 30 August 2018 62 DOMACOM LIMITED ABN 69 604 384 885 SHAREHOLDER INFORMATION Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out below. The information is effective as at 29 August 2018. Substantial shareholders ARTHUR NAOUMIDIS & KATHRYN NAOUMIDISVoting rights Number of shares held 18,252,896 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. Performance Rights: No voting rights. Distribution of equity security holders Holdings Ranges Ordinary Shares Performance Rights Options 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-9,999,999,999 Totals 9 197 129 245 165 745 - - - 1 15 16 - - - - 1 1 63 DOMACOM LIMITED ABN 69 604 384 885 SHAREHOLDER INFORMATION Twenty (20) largest shareholders ARTHUR NAOUMIDIS & KATHRYN NAOUMIDIS BNP PARIBAS NOMINEES PTY LTD UCAN NOMINEES PTY LTD SONENBERG SUPERANNUATION PTY LTD TAYCO INVESTMENTS PTY LTD MR GRANT RAYMOND SNIBSON & MRS SNIBSON CATHRYN NOLAN & STEPHEN JOYCE CITICORP NOMINEES PTY LIMITED GOLFER'S DELIGHT PTY LTD TORONTO COVE PTY LTD TRADING PURSUITS PTY LTD ROSS LAIDLAW & SOFIE LAIDLAW MR WARREN GIBSON MCCONNELL SUPERANNUATION PTY LTD NO TAX BILL PTY LTD GRAYSON NOMINEES PTY LTD MCCONNELL SUPERANNUATION PTY LTD PPA PTY LTD KRAM NAMDOT PTY LTD BOVINGDON RETIREMENT FUND PTY LTD Total Securities of Top 20 Holdings Number of shares held 18,252,896 5,788,466 4,797,445 4,663,333 3,158,830 3,083,333 3,037,982 2,904,309 2,725,000 2,562,500 1,717,165 1,625,000 1,508,634 1,313,459 1,280,000 1,200,000 1,186,541 1,166,667 1,138,128 931,826 64,041,514 % of issued shares 15.65% 4.96% 4.11% 4.00% 2.71% 2.64% 2.61% 2.49% 2.34% 2.20% 1.47% 1.39% 1.29% 1.13% 1.10% 1.03% 1.02% 1.00% 0.98% 0.80% 54.92% Unissued equity securities Number of performance rights issued under the Employee Director programs: 5,244,058. Number of options issued to the Australian Special Opportunity Fund, LP: 5,550,000 Securities exchange The Company is listed on the Australian Securities Exchange. 64 DOMACOM LIMITED ABN 69 604 384 885 CORPORATE INFORMATION REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS Level 6 99 Queen Street Melbourne VIC 3000 Tel: 01300 365 930 DIRECTORS Grahame D Evans Arthur Naoumidis David H Archbold Graeme A Billings Peter C Church OAM Ross A Laidlaw COMPANY SECRETARY Philip JR Chard SHARE REGISTRY Boardroom Pty Limited Level 12, 225 George Street Sydney NSW 2000 AUDITOR Grant Thornton Collins Square 727 Collins Street Melbourne VIC 3008 65