Identitii Limited
Annual Report 2021

Plain-text annual report

Report Title 1 Identitii Limited Annual Report FY21 Contents A letter from our Chairman ................................................................................... 3 A letter from our CEO ........................................................................................... 4 Directors Report .................................................................................................... 6 Auditor’s Independence Declaration .................................................................. 22 Consolidated Statement of Profit or Loss and Other Comprehensive Income . 23 Consolidated Statement of Financial Position ................................................... 25 Consolidated Statement of Changes in Equity .................................................. 27 Consolidated Statement of Cash Flows ............................................................. 29 Notes to the Consolidated Financial Statements ............................................... 31 Directors’ Declaration ......................................................................................... 75 Independent Auditor’s Report ............................................................................ 76 Additional ASX Information ................................................................................ 80 Corporate Directory ............................................................................................ 82 About Identitii Identitii is helping reduce regulatory risk, without replacing legacy technology. Identitii Limited Annual Report FY21 Chairman’s Letter A letter from our Chairman Dear shareholders and friends, I am pleased to provide you with Identitii’s FY21 Annual Report. Over the past twelve months we have enjoyed stability and alignment on our Board, meeting frequently with our CEO and key leadership team members to discuss key issues and continue reviewing the effectiveness of our strategy. In addition to ensuring good governance and effective return on capital, the Board’s primary focus is our customer acquisition and revenue growth plans, which I am confident will accelerate in the year ahead. We are also mindful of our other value drivers, such as our U.S. Patent, our Payble joint venture with CommBank’s x15ventures, and several other emerging projects. We also welcomed Tim Phillipps to the Board of Directors this year, following his 45-year career with Deloitte, ASIC and the Victoria Police, where he specialised in regulatory technology and fighting financial crime. Tim has been a fantastic addition to the Board, leveraging his industry knowledge, experience and network to help the team evolve our strategy and connect us with senior decision makers within the financial services industry. Tim’s appointment also addressed the need for further independent governance, in addition to our Co-founder and CEO who are both heavily invested in the business. The Board is proud of the achievements our team delivered this year, although we are certainly mindful that our acquisition of new customers was below expectation. That said, we are optimistic about our strategy, confident there is significant and genuine demand for our products, and fully supportive of our CEO’s ability to execute successfully in the year ahead. Thank you for your ongoing support. I look forward to a successful year ahead. Steve James, Chairman 3 Identitii Limited Annual Report FY21 A letter from our CEO A letter from our CEO Dear shareholders and friends, There are many reasons to be proud of this past year, as we made tremendous advances in some less visible foundations for success, that will deliver benefit this year and beyond. Of particular note, I am immensely proud of the team and the culture we have built, and increasingly confident in both our evolving strategy and its execution. That said, there is little doubt we fell short of our new customer aspirations and that shareholders and the market were hoping for more. Identitii’s incredible network of supporters, both shareholders and observers alike, is one of our key brand assets that we consistently leverage to secure productive meetings with prospective customers. This traction, together with our growing brand awareness and recognition within the industry, continue to inspire and reassure everyone at Identitii that we will genuinely deliver our vision of a trusted and transparent global financial services industry. The right strategy Identitii is a growing RegTech provider solving the problem that, whilst money moves around the world with relative ease today, there is growing demand from government regulators and customers to see more granular information about individual financial transactions. For most of the global financial services industry, the use of multiple legacy systems, that create and store data in different formats and locations, makes it incredibly difficult to meet this demand. Globally, we are witnessing significant growth in fines, reputational damage and jail-time for executives, for non-compliance with growing regulatory requirements. This increasing scrutiny, predominantly on the legacy technology used by most of the industry, is driving significant interest in the technology Identitii is developing. Our strategy to enhance what is already there enables our customers to quickly meet the demands of regulators and customers alike. Evolving for success Whilst we have relished significant interest in our technology from some of the biggest global brands in the industry, both here in Australia and in other key global markets, the industry’s lengthy and complicated buying journey remains our biggest challenge. This is something that has a significant impact on us, yet we have very little control over. Perhaps the biggest lesson we have learned this year, is that working hard to close these large deals can take a very long time, consume significant capital and frustrate shareholders in the process. Whilst winning these deals should, and will, always form part of our core revenue growth strategy – we’ve recognised the need to look for alternative, additional revenue streams to help us scale. This is why we were so excited to recently announced the launch of a Software-as-a-Service version of the Identitii platform, and the first customer in an all-new segment to sign with us. Novatii (ASX:NOV) are the first of many new customers that will help us grow revenue in a more linear fashion, to stabilise market sentiment during periods between the larger wins. The right culture “Culture eats strategy for breakfast” – said consultant and writer Peter Drucker, implying that a powerful and empowering culture is a surer route to organisational success, than a great strategy. I’m hopeful that at Identitii we have both. We survey the temperature of our team every three weeks, and more than 90% of our team have responded over the past three months, meaning they believe giving feedback is a worthwhile exercise because we will do something with it. And we certainly do. To provide a little more insight into our culture, our two highest scoring questions are “Taking everything into account, I would say that (Identitii) is a great place to work” at 83% (last three months) average and “Identitii inspires me to do my best work every day” at 81% average. We are right to be very proud of these key cultural indicators. 4 Identitii Limited Annual Report FY21 The right people Over the past twelve months, Identitii has implemented a scalable organisational design, that focuses heavily on attracting and engaging customers, to ensure there is real, validated market demand for the products we build. Identifying and creating the right roles, from sales and marketing, to product and technology, and information security, is critical to ensure operational efficiency and the best possible return on shareholder capital. With the right structure in place, the Company has been able to focus on attracting some fantastic talent, recruiting leaders from within the banking industry to help us better understand our prospective customers, and software engineers from successful technology companies to help us stay ahead of emerging trends. I am supremely confident in the team we have built and their ability to deliver our strategy in the year ahead. Summarising the year I am very proud of the long list of achievements the team delivered this year, increasingly optimistic about our strategy given the validation our technology is receiving in the market, and confident that all translates into real value in the year ahead. I am also conscious this past year delivered less customer growth than was expected of us and hope I have provided enough insights into our awareness of that, but more importantly into what we are already doing differently this year as a result. I hope you enjoy reading our annual report, and take this opportunity to say thank you for your continued support of the Board, the Executive and our Team. Regards, John Rayment Chief Executive Officer A letter from our CEO FY21 Highlights H1 ● Mastercard signed 5-year global MSA Identitii awarded ISO 27001 certification ● ● Identitii launched new RegTech strategy ● First project with Mastercard commenced ● Won global RegTech competition at Sibos ● Patent approval granted in the U.S. ● Second project with Mastercard commenced ● CBA's x15ventures invested in Payble ● $7.9M raised H2 ● Joe Higginson joined from Investec Bank ● HSBC renewed contract for additional $2.0M Identitii named in Deloitte APAC Fast 500 ● ● x15ventures invested $1.0M into Payble ● Deloitte and ASIC veteran joined the Board ● Overlay+ went live with customers twice: – Reporting IFTI's and TTR's to AUSTRAC – Requesting missing information from correspondent banks ● Revenue from customers up 45% from FY20 ● 634% growth in revenue from customers (FY18-FY21) FY22 ● Novatti signed licence for AUSTRAC reporting ● New SaaS platform announced to shorten sales cycle and significantly expand target customer base, due for launch Q1 FY22 ● Citibank signed LOI signalling upcoming MSA to licence Overlay+ for AUSTRAC reporting 5 Identitii Limited Annual Report FY21 Directors Report Directors Report The Directors present their report together with the consolidated financial statements of the Group comprising of Identitii Limited (the Company) and its subsidiaries for the year ended 30 June 2021 and the auditor’s report thereon. Directors The Directors of the Company at any time during the year ended 30 June 2021 and up to the date of this report are: Name, qualification and independence status Experience, special responsibilities and other directorships Executive Mr. John Rayment Dip Proj Mgt, Dip Bus Mgmt, Dip Bus Mktg Executive Director Non-Executive Mr. Steven James M(Fin Serv) Law, NSAA, Dip FM, GAICD Independent Non-Executive Director Chairman John brings a wealth of experience to Identitii, having supported many early-stage ventures through sharp periods of growth. He has held board and executive roles at Travelex across the globe and has proven success in helping businesses to scale in line with rapidly expanding customer demand. John is the Chief Executive Officer/Managing Director of the Company. Steve has held senior leadership and board positions at multiple public and private organisations, including the Commonwealth Bank of Australia, CommSec, Aston Consulting, Motorcycling Australia and Seer Asset Management. He also played a pivotal role in developing the first online stockbroking business for financial planners, which was later sold to CommSec. Chairman of the Nomination and Remuneration Committee and a member of the Audit and Risk Committee. 6 Identitii Limited Annual Report FY21 Directors Report Name, qualification and independence status Experience, special responsibilities and other directorships Non-Executive Mr. Nicholas Armstrong B. Sc Non-Executive Director Mr. Timothy Phillipps Dip Arts Independent Non-Executive Director Appointed 27 May 2021 Mr. Stephen Porges Independent Non-Executive Director Chairman Appointed 1 February 2021 (resigned 3 February 2021) Nicholas is an entrepreneur, with over 15 years’ experience in building and scaling technology businesses. Nicholas was founder and CEO of COZero Holdings Ltd, an energy technology company, until it was taken over by a Japanese strategic investor in 2013. Nicholas co-founded Identitii in 2014 with Eric Knight and was the CEO for 6 years before moving into his new role as Non-Executive Director in May 2020. Member of the Nomination and Remuneration Committee and of the Audit and Risk Committee. Tim is a Financial Crime and RegTech expert with 45 years of industry experience, most recently at Deloitte, where he held Global and Asia-Pacific roles in financial crime compliance and analytics, and prior to that with ASIC as Director of Enforcement. Chairman of the Audit and Risk Committee and member of the Nomination and Remuneration Committee. Company secretary Elissa Hansen has over 20 years’ experience advising boards and management on corporate governance, compliance, investor relations and other corporate related issues. She has worked with boards and management on a range of ASX listed companies including assisting companies through the IPO process. Elissa is a Chartered Secretary who brings best practice governance advice, ensuring compliance with the Listing Rules, Corporations Act and other relevant legislation. 7 Identitii Limited Annual Report FY21 Directors’ meetings Directors Report The number of Directors’ meetings and number of meetings attended by each of the Directors of the Company during the financial year are: Board of Directors Audit and Risk Committee Nomination and Remuneration Committee A 10 10 10 1 - B 10 10 9 1 - A 3 - 3 - - B 3 - 3 - - A 1 - 1 - - B 1 - 1 - - Steven James John Rayment Nicholas Armstrong Timothy Phillipps Stephen Porges A B Eligible to attend Attended Principal activities The principal activities of the Group during the financial year were business development, marketing and research and development activities, as well as further development of Identitii’s Overlay+ platform. During the year, Identitii announced a revised RegTech strategy which allowed it to focus on delivering growth across five key areas: • Deliver: Focus on servicing existing clients including HSBC, Mastercard, HomeSend and, as of July 2021, Novatti; • Land: Leverage AUSTRAC’s public discussion of regulatory non-compliance to drive sales of Overlay+ Reporting; • Expand: Grow reporting deals to include Request use cases (correspondent bank and remediation) once contracts are agreed; • Innovate: continuously improve the core Overlay+ platform through ongoing innovation and product updates; and • Monetise: Maximise other previous technology investments, which no longer fit the Company’s core RegTech strategy. Identitii operates in a growing market, with global spending on RegTech solutions predicted to reach US$130 billion by 2025 (Juniper Research, ‘RegTech: Market Opportunities, Challenges and Forecasts 2021-2025’). Increasing enforcement of regulatory obligations by governments around the world, including AUSTRAC who levied $2 billion in fines for non-compliance in the past two years alone, rising financial crime, the appearance of new players in the financial services industry and accelerated adoption of digital technologies have combined to push regulated entities to find new, technology-based ways to simplify and automate how they conduct financial crime compliance. Identitii is well placed to take advantage of this trend with its Overlay+ platform that makes it easier for regulated entities to process payments and ensure compliance. Identitii gives financial services businesses a single view of their data, solving the problem that the information needed to process and report financial transactions is often incomplete, inaccurate, or even missing, holding up payments and increasing the risk of non-compliance. 8 Identitii Limited Annual Report FY21 Review of operations Directors Report During the year ended 30 June 2021, the Group achieved the following milestones: • On 24 July 2020, the Group confirmed it had successfully raised an additional $1.9 million by placing 27.3 million Residual Shortfall Shares reserved per the Company’s Entitlement Offer prospectus. • On 24 August 2020, the Group announced it had signed a five year Master Services Agreement (MSA) with Mastercard International Incorporated (Mastercard). • On 30 September 2020, the Group announced it was awarded ISO 27001 information security certification. • On 15 October 2020, Identitii announced that it had won a global RegTech competition at the world’s largest financial services and FinTech event, Sibos. • On 21 October 2020, Identitii announced it had signed a Statement of Work (SOWs) with Mastercard, following the MSA announced in August. The SOW sets out how Mastercard will use Overlay+ to securely share financial crime compliance information within its cross-border payments network. • On 24 November 2020, the Company went into a trading halt pending the completion of a placement to sophisticated and institutional investors. The placement was oversubscribed raising $4.0 million in capital. On 3 December 2020 a total of 27.5 million shares were issued at $0.146 per share. • On 10 December 2020, the Company announced a second SOW under its MSA with Mastercard. The SOW outlines how HomeSend will use Overlay+ to help support the delivery of financial crime compliance obligations. • On 14 December 2020, the Company was awarded U.S. Patent Approval. The patent covers the Group’s secure financial information sharing ecosystem. • On 15 December 2020, the Company announced it had signed, alongside CBA New Digital Businesses Pty Ltd (x15ventures), a Memorandum of Understanding (MOU) with Identitii subsidiary Payble Pty Ltd (Payble). x15ventures invested $0.150 million directly into Payble to help complete an existing trial. • On 31 December 2020, the Group announced the closing of an oversubscribed share purchase plan (SPP). On 6 January 2021, the Company issued a total of 13.7 million shares at $0.146 per share to participating shareholders, raising an additional $2.0 million in capital. • On 31 December 2020, the Group announced the resignation of CFO, Margarita Claringbold. This was followed by the appointment of Trent Jerome on 1 February 2021. • On 1 April 2021, the Group announced the renewal of its original 2017 contract with HSBC for a further three years. The contract is worth up to $2.0 million over the term of the agreement. The global Master Framework Agreement was also renewed allowing Identitii to licence its technology to any HSBC business globally. • On 12 April 2021, it was announced x15ventures had invested $1.0 million in Payble for a minority stake. The funds will be used to accelerate Payble’s growth plans. • On 4 May 2021, Identitii announced that Joe Higginson had joined as Chief Commercial Officer (CCO). Joe is the former Head of Payments for Investec Bank and has also held the position of Global Head of Payments at Travelex. • On 27 May 2021, Timothy Phillipps joined the board as an independent non-executive Director. Review of financial conditions The Group reported revenue from contracts with customers of $1,364,197 for the year ended 30 June 2021 (30 June 2020: $941,592), an increase of 45% from the prior year. The Group reported a net loss after tax of $5,873,875 for the year ended 30 June 2021 (30 June 2020: $7,074,479) which was substantially driven by salary and employee benefit expenses and expenditure on research and development (R&D) related activities. 9 Identitii Limited Annual Report FY21 Review of operations (continued) Directors Report The Group held $33,039 of borrowings and leases at 30 June 2021, had a positive net current asset balance of $4,843,582 and a positive overall net asset balance of $5,002,124. The Group had $4,489,311 of cash and cash equivalents on hand at 30 June 2021 and reported a net cash outflow from operating activities of $4,759,614 during the year ended 30 June 2021. Significant changes in the state of affairs During the year, Identitii Limited founded new subsidiary Payble Pty Ltd (Payble) in conjunction with Elliott Donazzan. Subsequent to incorporation, CBA New Digital Businesses Pty Ltd (x15ventures) invested $1.0 million in Payble to acquire a minority ownership stake and to assist in accelerating its growth plans. Identitii Limited holds a 60% majority shareholding as at 30 June 2021. In the opinion of the Directors there were no other significant changes in the state of affairs of the Group that occurred during the year ended 30 June 2021, other than noted above. Dividends No dividends were declared or paid by the Company during the financial year ended 30 June 2021. Events subsequent to reporting date Following the results of a General Meeting held on 6 July 2021 the Company issued 285,714 shares at $0.07 per share to John Rayment in full and final settlement of his loan. Furthermore, 1,000,000 share options with an exercise price of $0.25 were issued to both Steven James and Nicholas Armstrong in their capacity as Non- Executive Directors of the Company. These share options vest over three years pending continued employment and expire on 8 July 2024. On 30 July 2021, the Group announced it had signed a three-year licence agreement with Novatti Group Limited worth $0.2 million. The licence is for the Group’s new Software as a Service (SaaS) version of Overlay+. Other than the matters discussed above, there has not arisen in the interval between the end of the year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to affect significantly in future financial years the operations of the Group, the results of those operations, or the state of affairs of the Group. Likely developments The Group will continue to develop the Overlay+ platform and continue to sign new customers and grow its pipeline of partners. This will require further investment in product and business development and marketing. Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would likely result in unreasonable prejudice to the Group. Environmental regulation The Group’s operations are not regulated by any significant law of the Commonwealth or of a State or Territory relating to the environment. 10 Identitii Limited Annual Report FY21 Directors interests Directors Report The relevant interest of each Director in the shares and options over shares issued by the companies within the Group, as notified by the Directors to the ASX in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows: Steven James John Rayment (1) Nicholas Armstrong (2) Timothy Phillipps Stephen Porges Ordinary shares Options over ordinary shares - 1,590,608 9,609,275 - - 1,000,000 8,000,000 2,350,000 - 2,000,000 (1) (2) Shares held by Elorey Pty Ltd, of which John Rayment is a beneficiary HSBC Custody Nominees (Australia) Pty Ltd acts as custodian over 7,000,000 shares for security purposes pursuant to a Master Loan Agreement and Deed of Security entered into with Nicholas Armstrong in his personal capacity. Nicholas Armstrong remains the ultimate beneficial owner of the shares. Majority of the balance of the shares and the options are held by 275 Invest 2 Pty Ltd ATF the 275 Investment Trust, of which Nicholas Armstrong is a beneficiary Share options Unissued shares under option At the date of this report, unissued shares of the Group under option are: Expiry date 13 May 2022 2 October 2022 8 October 2022 21 October 2022 19 November 2022 1 January 2023 14 January 2023 11 February 2023 6 March 2023 18 March 2023 27 May 2023 8 July 2024 19 October 2025 Exercise price Number of shares $0.10 $0.75 $0.75 $0.15 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.25 $0.15 5,000,000 2,292,686 50,000 2,000,000 97,169 100,000 14,018 12,191 49,680 30,548 100,000 2,000,000 8,000,000 11 Identitii Limited Annual Report FY21 Share options (continued) Expiry date 1 January 2026 1 July 2028 1 August 2028 Total unissued shares under option All unissued shares are ordinary shares of the Company. Directors Report Exercise price Number of shares $0.15 $0.75 $0.75 13,350,000 358,082 1,928,125 35,382,499 All options issued to employees under the Group’s Equity Incentive Plan expire on the earlier of their expiry date or termination of the employee’s employment, unless approved otherwise by the Board. All other options expire on their expiry date. Further details about share-based payments to Directors and Key Management Personnel are included in the remuneration report in Table 1. Shares issued on exercise of options During or since the end of the financial year, no ordinary shares of the Company were issued by the Group as a result of the exercise of options. Indemnification and insurance of officers and auditors The Company has entered into a director protection deed with each Director. Under these deeds, the Company indemnifies the Directors against all liabilities to another person that may arise from their position as Director of the Company and its controlled entities. The Company has not indemnified or made a relevant agreement for indemnifying against a liability to any person who is or has been an auditor of the Group. The Group paid insurance premiums in respect of Directors’ and Officers’ liability and legal expenses insurance contracts for the year ended 30 June 2021 and subsequent to the year end. Such insurance contracts insure against certain liability (subject to specific exclusions), persons who are or have been Directors or Executive Officers of the Group. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in Note 25 to the financial statements. The Board are satisfied that the provision of non-audit services during the financial year, by the auditor, is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • • all non-audit services have been reviewed by the Board to ensure they do not impact integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in the APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. 12 Identitii Limited Annual Report FY21 Directors Report Officers of the Company who are former partners of RSM There are no officers of the Company who are former partners of RSM. 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 those proceedings. The Group was not a party to any such proceedings during the year. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 22 and forms part of the Directors’ report for the year ended 30 June 2021. Rounding of amounts to the nearest dollar In accordance with ASIC Corporations (Rounding of Financial/Directors’ Reports) Instrument 2016/191, the amounts in the Directors’ Report and consolidated financial statements have been rounded to the nearest dollar. 13 Identitii Limited Annual Report FY21 Directors Report Audited Remuneration Report The Directors present the Remuneration Report (the Report) for the Company and its subsidiaries (the Group) for the year ended 30 June 2021. This Report forms part of the Directors’ Report and has been audited in accordance with Section 300A of the Corporations Act 2001. The Report details the remuneration arrangements for the Group’s Key Management Personnel (KMP): • Executive Directors and other KMP • Non-Executive Directors KMP are those persons who, directly or indirectly, have authority and responsibility for planning, directing and controlling the major activities of the Group. 1. Principles of remuneration The performance of the Group depends upon the quality and commitment of the Directors and Executives. The philosophy of the Directors in determining remuneration levels is to: • • • set competitive remuneration packages to attract and retain high calibre employees; link executive rewards to shareholder value creation; and establish appropriate hurdles for variable executive remuneration. The Nomination and Remuneration Committee reviews and make recommendations to the Board on the Group’s remuneration policies, procedures and practices. It also defines the individual packages offered to Executive Directors and KMP, for recommendation to the Board. The Board may consider engaging an independent remuneration consultant to advise the Board on appropriate levels of remuneration relative to its industry peer group. In accordance with Corporate Governance best practice (Recommendation 8.2), the structure of Non- Executive Director and Executive remuneration is separate and distinct as follows: a) Non-Executive Directors Fixed and variable remuneration The Board seeks to set Non-Executive Directors’ remuneration at a level that provides the Group with the ability to attract and retain Directors of a high calibre whilst incurring a cost that is acceptable to shareholders. The ASX Listing Rules specify that the aggregate remuneration of Non-Executive Directors shall be determined from time to time by a general meeting. This amount has been fixed by the Company at $250,000. The amount of aggregate remuneration and the manner in which it is apportioned amongst directors is reviewed annually. The Board considers advice from shareholders and takes into account the fees paid to Non-Executive Directors of comparable companies when undertaking the annual review process. Non-Executive Directors’ base fees cover all main board activities and membership of all committees; however, they do not receive performance-related compensation and are not provided with retirement benefits apart from statutory superannuation. Non-executive Directors are entitled to participate in the Equity Incentive Plan. 14 Identitii Limited Annual Report FY21 Directors Report 1. Principles of remuneration (continued) Year ended to Chairman’s fee Non-Executive Directors fee 30 June 2021 $ 30 June 2020 $ 75,000 50,000 50,000 50,000 b) Executives and Executive Director remuneration Remuneration for Executives and Executive Directors consists of fixed and variable remuneration only. Fixed remuneration Fixed remuneration is reviewed annually by the Directors. The process consists of a review of relevant comparative remuneration in the employment market and within the Group. The Group may engage an independent remuneration consultant to advise the Board on appropriate levels of remuneration for the Group’s Executive Directors relative to its industry peer group. Variable remuneration Variable remuneration is provided in the form of share options under the Group Equity Incentive Plan (EIP). Under the EIP, one share option entitles the holder to one share in the Company subject to vesting conditions. Executives and Executive Directors vesting conditions are linked to continued years of service and may be linked to performance hurdles. The Board have the discretion to settle share options with a cash equivalent payment. Participants in the EIP will not pay any consideration for the grant of the share option unless determined otherwise. Share options will not be listed and may not be transferred, assigned or otherwise dealt with unless approved by the Directors. If the executive’s employment terminates before the share options have vested, the share options will lapse, unless approved otherwise by the Board. 2. Details of remuneration Details of the remuneration of the KMP as defined in AASB 124 Related Party Disclosures are set out in Table 1 which follows. The KMP of the Group have authority and responsibility for planning, directing and controlling the activities of the Group. The KMP make or participate in making decisions that affect the whole, or a substantial part, of the business or who have the capacity to affect significantly the Group’s financial standing. The KMP of the Group are the Executive and Non-Executive Directors and the Chief Financial Officer. 15 Identitii Limited Annual Report FY21 Directors Report Details of the nature and amount of each major element of remuneration of each Director of the Company, and other KMP of the Group are: Table 1 Short-term benefits Post- employment Other long-term benefits Share-based payments Total % share-based payments Salary Consulting fee Superannuation (A) $ Share options (B) (variable) $ $ $ Year ended 30 June 2021 $ Executive Directors John Rayment (1) Non-Executive Directors Steven James (2) Nicholas Armstrong (3) Timothy Phillipps (4) Other KMP Trent Jerome (5) Margarita Claringbold (6) 226,667 64,425 45,662 4,762 95,833 84,600 $ - - 34,800 - - - Total 521,949 34,800 21,533 14,107 442,384 704,691 63% - 4,338 - 9,104 - 34,975 - - - 5,603 - - 47,674 - 52,837 - 64,425 132,474 4,762 163,377 84,600 19,710 542,895 1,154,329 - 36% - 32% - (1) Salary increased from $210,000 to $260,000 per annum effective 1 March 2021. (2) Remuneration invoiced via Aston Consulting Pty Ltd of which Steven James is a beneficiary. (3) Share options held via 275 Invest 2 Pty Ltd of which Nicholas Armstrong is a beneficiary. (4) Appointed 27 May 2021. (5) Appointed 1 February 2021. (6) Remuneration invoiced via Gram Accounting & Advisory Pty Ltd of which Margarita Claringbold is a beneficiary. This includes remuneration for CFO, accounting and equity raise related services. Resigned 31 December 2020. (A) In accordance with AASB 119 Employee Benefits, annual leave is classified as other long-term employee benefits. (B) The fair value of share options is calculated at the grant date using an option-pricing model and allocated to each reporting period from grant date to vesting date depending on the vesting conditions attached to the options. The value disclosed is the portion of the fair value of the options recognised as an expense in the reporting period. 16 Identitii Limited Annual Report FY21 Directors Report Table 1 Short-term benefits Post- employment Other long- term benefits Termination benefits Share-based payments Total % share-based payments Year ended 30 June 2020 $ $ Salary Consulting fee Superannuation Share options (B) (variable) (A) $ 5,743 4,650 - - $ - - $ - - $ - - $ 70,848 12,000 145,935 12,000 13,864 21,506 25,000 170,634 388,939 - - - - - 6,749 3,089 1,052 - - - - - - - - - - - - 47,395 125,184 - - - - 35,606 12,112 16,740 165,549 - - 44% 38% - - - - Executive Directors John Rayment (1) Non-Executive Directors Steven James (2) Nicholas Armstrong (3) Michael Aston (4) Peter Lloyd (5) Nathan Lynch (6) Martin Rogers (7) Other KMP 60,455 12,000 71,040 32,517 11,060 16,740 Margarita Claringbold (8) 165,549 Total 515,296 12,000 30,497 26,156 25,000 218,029 826,978 (1) Appointed as CEO on 19 March 2020. (2) Remuneration invoiced via Aston Consulting Pty Ltd of which Steven James is a beneficiary. Appointed 19 March 2020. (3) Includes remuneration as Executive Director from 1 July 2019 – 15 May 2020 and as Non-Executive Director from 16 May 2020 – 30 June 2020. Share options held via 275 Invest 2 Pty Ltd of which Nicholas Armstrong is a beneficiary. (4) Share options held via M&M Funds Management Pty Ltd ATF Savu Superannuation Fund of which Michael Aston is a beneficiary. Resigned 17 March 2020. (5) Resigned 17 March 2020. (6) Appointed 8 December 2019 (resigned 3 March 2020). (7) Remuneration invoiced via Structure Investments Pty Ltd ATF Rogers Family Trust of which Martin Rogers is a beneficiary. Resigned 8 October 2019. (8) Remuneration invoiced via Gram Accounting & Advisory Pty Ltd of which Margarita Claringbold is a beneficiary. This includes remuneration for CFO, accounting and equity raise related services. 17 Identitii Limited Annual Report FY21 3. Service agreements Directors Report The following is a summary of the current major provisions of the agreement relating to remuneration of the Executive Director. John Rayment – Chief Executive Officer John Rayment is the Chief Executive Officer of the Group and is considered a key member of the Group’s management team. John receives a base salary of $260,000 per annum plus superannuation and holds 8,000,000 share options with attached service and performance vesting conditions. During the year ended 30 June 2021, no bonuses were paid to John Rayment. Employment Conditions Commencement date: 19 March 2020 Term: Ongoing until notice is given by either party Review: Annually Notice period required on termination: 3 months by either party Termination benefits: None Independent Review To ensure the Group complies with industry best practice in relation to the remuneration of its Executive Director, the Non-Executive Directors of the Group will consider engaging the services of a remuneration consultant to conduct an independent assessment of the remuneration packages negotiated with its Executive Director. The following is a summary of the current major provisions of the agreement relating to remuneration of Executive KMP: Trent Jerome – Chief Financial Officer Trent Jerome is the Chief Financial Officer of the Group and is considered a key member of the Group’s management team. Trent receives a base salary of $230,000 per annum plus superannuation and holds 2,000,000 share options with attached service and performance vesting conditions. Employment Conditions Commencement date: 1 February 2021 Term: Ongoing until notice is given by either party Notice period required on termination: 3 months by either party Termination benefits: None The following is a summary of the current major provisions of the consulting agreement relating to remuneration of Non-Executive Director, Nicholas Armstrong. 18 Identitii Limited Annual Report FY21 Directors Report 3. Service agreements (continued) Nicholas Armstrong – Non-Executive Director In addition to Nicholas Armstrong’s role as Non-Executive Director, a consulting agreement was signed in the prior year which required Nicholas to provide an additional 2.5 days per week to the Company at a rate of $800 per day (exclusive of GST). The agreement covered the provision of business consulting services to the CEO as well as supporting the CEO to execute on agreed strategic, operational and commercial business objectives. This consulting support was terminated effective 31 October 2020 in accordance with the terms of the agreement. Employment Conditions Commencement date: 18 May 2020 Term: Until 31 October 2020 Notice period required on termination: 1 month by either party Termination benefits: None 4. Equity instruments All share options refer to options over ordinary shares of Identitii Limited, which are exercisable on a one-for- one basis under the Equity Incentive Plan (EIP). a) Options over equity instruments granted as compensation All options expire on the earlier of their expiry date or termination of the individual’s employment. Vesting is conditional on the individual remaining in employment during the vesting period unless determined by the Board otherwise. Share options were granted to KMP as compensation during the year ended 30 June 2021 as noted in the table below. b) Analysis of movements in equity instruments The movement during the year in the number of options over ordinary shares in Identitii Limited held, directly, indirectly or beneficially, by each KMP, including their related parties, is as follows: Held at 1 July 2020 Granted during the year Held at 30 June 2021 Vested during the year Vested at 30 June 2021 Exercisable at 30 June 2021 Steven James John Rayment - - - - 8,000,000 8,000,000 - - - - - - Nicholas Armstrong 1,350,000 - 1,350,000 450,000 900,000 900,000 Timothy Phillipps Stephen Porges (1) - - - - 2,000,000 2,000,000 Trent Jerome - 2,000,000 2,000,000 Margarita Claringbold (2) - - - - - - - - - - - - - - - 19 Identitii Limited Annual Report FY21 4. Equity instruments (continued) Directors Report (1) Stephen Porges ceased as a Non-Executive Director on 3 February 2021. The options held balance at the end of the financial period is at date of cessation. (2) Margarita Claringbold ceased as Chief Financial Officer on 31 December 2020. The options held balance at the end of the financial period is at date of cessation. 5. KMP transactions a) Loans from KMP and their related parties Details regarding loans outstanding at the end of the reporting period from KMP and their related parties, where the individual’s aggregate loan balance exceeded $100,000 in the reporting period, are as follows: Balance at 1 July 2020 $ Balance at 30 June 2021 $ Interest not charged $ Highest balance in period $ John Rayment 100,000 20,000 - 100,000 This loan is for a 12 month term, is interest free and is to convert to equity at $0.07 per share in accordance with shareholder approval. During the year, $80,000 of the loan was converted to equity by issuing 1,142,857 shares to John Rayment at $0.07 per share, leaving a remaining loan balance of $20,000 at 30 June 2021. Subsequent to year end, a further 285,714 shares were issued to John Rayment in full and final settlement of his loan. b) Other transactions with KMP A number of KMP, or their related parties, hold positions in other entities that result in them having control, or joint control, over the financial or operating policies of that entity. A number of these entities transacted with the Group during the year. The terms and conditions of the transactions with KMP and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-KMP related entities on an arm’s length basis. c) Movement in shares The movement during the year in the number of ordinary shares in Identitii Limited held, directly, indirectly or beneficially, by each KMP, including their related parties, is as follows: Held at 1 July 2020 Acquired Held at 30 June 2021 Steven James John Rayment - - Nicholas Armstrong 9,555,263 Timothy Phillipps Stephen Porges (1) Trent Jerome - - - - 1,304,894 54,012 - - - - 1,304,894 9,609,275 - - - Margarita Claringbold (2) 7,000 142,857 149,857 20 Identitii Limited Annual Report FY21 5. KMP transactions (continued) Directors Report (1) Stephen Porges ceased as a Non-Executive Director on 3 February 2021. The ordinary shares held balance at the end of the financial period is at date of cessation. (2) Margarita Claringbold ceased as Chief Financial Officer on 31 December 2020. The ordinary shares held balance at the end of the financial period is at date of cessation. This Directors’ Report is signed in accordance with a resolution of the Board of Directors: Steven James Chairman Sydney 26 August 2021 21 RSM Australia Partners Level 13, 60 Castlereagh Street Sydney NSW 2000 GPO Box 5138 Sydney NSW 2001 T +61 (0) 2 8226 4500 F +61 (0) 2 8226 4501 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Identitii Limited for the year ended 30 June 2021, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Gary Sherwood Partner Sydney NSW Dated: 26 August 2021 THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation 22 Identitii Limited Annual Report FY21 Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Profit or Loss and Other Comprehensive Income Revenue from contracts with customers Research and development tax incentive Government grants Other income Interest income Note 30 June 2021 $ 30 June 2020 $ 8 9 1,364,197 905,319 417,936 12,726 1,823 941,592 740,381 364,539 - 14,396 Total revenue and other income 2,702,001 2,060,908 Expenses Salaries and employee benefit expenses Share based payments Consultants fees Advertising and marketing Depreciation and amortisation General expenses Interest expense Legal expenses Office expenses Travel and accommodation Short-term lease payments Impairment / (reversal) on trade receivables Gain on lease modification 10 Research and development expenses Total expenses 2,690,002 806,766 886,805 121,794 402,013 1,056,250 46,757 151,536 435,698 24,844 24,292 2,530 (72,005) 1,998,594 8,575,876 2,913,502 1,125,708 1,490,385 238,464 121,759 725,734 70,095 214,104 289,426 184,426 62,050 (2,291) - 1,702,025 9,135,387 Loss before income tax Income tax expense Loss for the year (5,873,875) (7,074,479) 11 - - (5,873,875) (7,074,479) 23 Identitii Limited Annual Report FY21 Consolidated Statement of Profit or Loss and Other Comprehensive Income Note 30 June 2021 $ 30 June 2020 $ Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation 65,893 8,853 Total comprehensive loss for the year (5,807,982) (7,065,626) Loss for the year attributable to: Owners of Identitii Limited Non-controlling interests Comprehensive loss for the year attributable to: Owners of Identitii Limited Non-controlling interests (5,825,443) (7,074,479) 20 (48,432) - (5,873,875) (7,074,479) (5,759,550) (7,065,626) 20 (48,432) - (5,807,982) (7,065,626) Basic and diluted loss per share (cents) 12 (4.46) (12.18) 24 Identitii Limited Annual Report FY21 Consolidated Statement of Financial Position Consolidated Statement of Financial Position Assets Cash and cash equivalents 13 4,489,311 1,411,309 Note 30 June 2021 $ 30 June 2020 $ Research and development tax incentive receivable Trade receivables Other receivables Contract assets Current assets Intangible assets Property, plant and equipment Non-current assets Total assets Liabilities Trade and other payables Employee provisions Contract liabilities Borrowings and lease liabilities Current liabilities Borrowings and lease liabilities Non-current liabilities Total liabilities 8 8 14 15 16 17 8 18 18 905,319 227,419 153,832 26,400 740,381 43,702 186,343 66,500 5,802,281 2,448,235 57,006 101,536 158,542 62,112 852,275 914,387 5,960,823 3,362,622 271,109 474,901 179,650 33,039 958,699 - - 267,734 668,468 44,545 848,930 1,829,677 474,818 474,818 958,699 2,304,495 Net assets 5,002,124 1,058,127 25 Identitii Limited Annual Report FY21 Consolidated Statement of Financial Position Equity Share capital Share options reserve Foreign currency translation reserve Other reserves Retained losses Equity attributable to owners of Identitii Limited Non-controlling interests Total equity Note 30 June 2021 $ 30 June 2020 $ 19 29 20 20 25,775,278 17,930,105 4,517,002 3,710,236 73,017 688,123 7,124 - (26,414,781) (20,589,338) 4,638,639 363,485 1,058,127 - 5,002,124 1,058,127 26 Identitii Limited Annual Report FY21 Consolidated Statement of Changes in Equity Consolidated Statement of Changes in Equity Note Share capital Share option reserve $ $ Foreign currency translation reserve $ Balance at 1 July 2020 17,930,105 3,710,236 7,124 Loss after tax Other comprehensive income Total comprehensive loss - - - Issue of ordinary share capital Costs of equity raising NCI acquisition without loss of control Equity-settled share based payments 19 19 20 29 8,063,347 (218,174) - - - - - - - - 806,766 - 65,893 65,893 - - - - Other reserves Retained losses Total Non- controlling interest Total equity $ - - - - - - 688,123 - $ $ (20,589,338) 1,058,127 $ - $ 1,058,127 (5,825,443) (5,825,443) (48,432) (5,873,875) - 65,893 - 65,893 (5,825,443) (5,759,550) (48,432) (5,807,982) - - - - 8,063,347 (218,174) - - 8,063,347 (218,174) 688,123 411,917 1,100,040 806,766 - 806,766 Balance at 30 June 2021 25,775,278 4,517,002 73,017 688,123 (26,414,781) 4,638,639 363,485 5,002,124 27 Identitii Limited Annual Report FY21 Consolidated Statement of Changes in Equity Note Share capital Share option reserve $ $ Foreign currency translation reserve $ Balance at 1 July 2019 16,261,495 2,584,528 (1,729) Initial application of AASB 16 - - - Adjusted balance at 1 July 2019 16,261,495 2,584,528 (1,729) Loss after tax Other comprehensive income Total comprehensive loss Issue of ordinary share capital Costs of equity raising Equity-settled share based payments 19 19 29 - - - 1,908,158 (239,548) - - - - - - 1,125,708 - 8,853 8,853 - - - Balance at 30 June 2020 17,930,105 3,710,236 7,124 Other reserves Retained losses Total Non- controlling interest Total equity $ - - - - - - - - - - $ $ (13,485,660) 5,358,634 (29,199) (29,199) (13,514,859) 5,329,435 (7,074,479) (7,074,479) - 8,853 (7,074,479) (7,065,626) - - - 1,908,158 (239,548) 1,125,708 (20,589,338) 1,058,127 $ - - - - - - - - - - $ 5,358,634 (29,199) 5,329,435 (7,074,479) 8,853 (7,065,626) 1,908,158 (239,548) 1,125,708 1,058,127 28 Identitii Limited Annual Report FY21 Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows Note 30 June 2021 $ 30 June 2020 $ Cash flows from operating activities Receipts from customers Receipts from government grants and tax incentives 1,395,598 1,192,781 1,093,022 1,509,266 Payments to suppliers and employees (7,348,417) (7,269,044) Cash flows utilised in operations (4,760,038) (4,666,756) Interest received Interest and other costs of finance paid 3,193 (2,769) 15,019 (5,866) Total cash flows from operating activities 22 (4,759,614) (4,657,603) Cash flows from investing activities Acquisition of property, plant and equipment (45,136) (18,608) Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Other investing cash flows - - - Total cash flows from investing activities (45,136) Cash flows from financing activities Proceeds from the issue of shares Transaction costs related to the issue of shares Proceeds from borrowings Repayment of borrowings Lease payments Transaction costs related to borrowings and leases Other financing cash flows 8,923,237 (341,405) - (600,000) (125,649) (61,687) 100,000 1,840 (62,112) 12,830 (66,050) 1,758,158 (464,722) 850,000 - (95,710) (30,913) - Total cash flows from financing activities 7,894,496 2,016,813 29 Identitii Limited Annual Report FY21 Consolidated Statement of Cash Flows Note 30 June 2021 $ 30 June 2020 $ Net increase / (decrease) in cash held Opening cash balance Effect of movement in exchange rates Closing cash balance 13 3,089,746 1,411,309 (11,744) 4,489,311 (2,706,840) 4,120,380 (2,231) 1,411,309 30 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 1. Reporting entity Identitii Limited (the Company) is a Company incorporated and domiciled in Australia and whose shares are publicly traded on the Australian Securities Exchange (ASX:ID8). The registered office and principal place of business is Level 2, 129 Cathedral Street, Woolloomooloo, NSW 2011. These consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Identitii Limited as at 30 June 2021 and the results of all subsidiaries for the year then ended. Identitii Limited and its subsidiaries together are referred to in these financial statements as the Group. The Group is a for profit entity and is primarily involved in developing and licensing enterprise software for regulated entities. Its main product Overlay+ is a platform that helps reduce regulatory risk, without replacing technology systems. The financial statements were authorised for issue, in accordance with a resolution of directors, on 26 August 2021. 2. Basis of preparation These consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). Details of the Group’s accounting policies are included in Note 6. Going concern The financial report has been prepared on the going concern basis which contemplates the continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business and assumes the Group will have sufficient cash resources to pay its debts as and when they become due and payable for at least 12 months from the date of signing the financial report. The statement of profit or loss and other comprehensive income for the year ended 30 June 2021 reflects a loss for the year of $5,873,875 and total cash outflows from operating activities of $4,759,614. The Directors believe that it is reasonably foreseeable that the Company will continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report after considering the following: • The Group has $4,489,311 in cash and cash equivalents as at the balance date; • The Group successfully raised $8.9 million in funding during the year ended 30 June 2021 and is evaluating plans to secure additional funding later in the calendar year; • The Group has the ability to scale back a significant portion of its expenditure if required; and • the Company signed a Master Service Agreement with Mastercard during the year, extended its contract with HSBC for a further three years and has other potential customer engagements in the pipeline. Consequently, the Directors have concluded there are reasonable grounds to believe that the Group will continue to be able to pay its debts as and when they become due and payable for a period of no less than 12 months from the date of signing this financial report and that the preparation of the 30 June 2021 financial report on a going concern basis is appropriate. 31 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 3. Functional and presentation currency These consolidated financial statements are presented in Australian dollars which is the Group’s functional currency. The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that instrument, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest Australian dollar, unless otherwise stated. 4. Use of judgements and estimates In preparing these consolidated financial statements, management has made judgements and estimates that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Management bases its judgements, estimates and assumptions on historical experience and on various other factors, including expectations of future events that management believe to be reasonable under the circumstances. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. a) Judgements Information about judgements made in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes: COVID-19 pandemic – judgement has been exercised in considering the impacts that the COVID-19 pandemic has had, or may have, on the Group based on known information. This consideration extends to the nature of the services offered, customers, staffing and geographic regions in which the Group operates; and Note 8 – revenue recognition: whether revenue from licence fees is recognised over time or at a point in time. b) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties at 30 June 2021 that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year are as follows: The measurement and realisation of the R&D tax incentive: determining the percentage of expenditure that is directly attributable to eligible R&D activities when measuring the R&D tax incentive. Uncertainty exists over the quantum and timing of realisation of the R&D tax incentive claim until such time as the claim has been examined and accepted by the Australian Tax Office (ATO); Note 11 – recognition of deferred tax assets: availability of future taxable profit against which deductible temporary differences and tax losses carried forward can and cannot be utilised; and Note 29 – share based payments: key assumptions in determining the valuation of share based payment transactions on grant date. Key assumptions include expected expiry dates, volatility rates and likelihood of vesting. 32 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 5. New or amended accounting standards and interpretations The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted in preparing these consolidated financial statements. A number of new standards and amendments to standards are effective for annual periods beginning on or after 1 April 2021 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. The following amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements: • AASB 2021-03 Amendments to Covid-19 Related Rent Concessions beyond 30 June 2021; • AASB 2020-8 Amendments to Interest Rate Benchmark Reform; • AASB 2014-10 Amendments to Sale or Contribution of Assets between an Investor and its Associate or Joint Venture; • AASB 2020-1 Amendments to Classification of Liabilities as Current or Non-Current; • AASB 2020-3 Amendments to Annual Improvements 2018-2020 and Other Amendments; • AASB 2021-2 Amendments to Disclosure of Accounting Policies and Definition of Accounting Estimates; • AASB 17 Insurance Contracts. 6. Significant accounting policies a) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Identitii Limited as at 30 June 2021 and the results of all subsidiaries for the year then ended. Identitii Limited and its subsidiaries together are referred to in these financial statements as the Group. Subsidiaries are those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses incurred by the subsidiaries are attributed to the non-controlling interest in full, even if that results in a deficit balance. 33 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. b) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency of the Group at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss and presented within general expenses. c) Revenue from contracts with customers Information about the Group’s accounting policies relating to contracts with customers is provided in Note 8. d) Research and development tax incentive The R&D tax incentive encourages companies to engage in R&D benefiting Australia, by providing a tax offset (or a cash refund if in a tax loss position) for eligible R&D activities. The Group recognises the R&D tax incentive in profit or loss when the Group incurs the eligible R&D expenditure. The R&D tax incentive income is presented on a gross basis and is not netted off against the R&D costs to which it relates. e) Government grants The Group recognises an unconditional government grant in profit or loss when the grant becomes receivable. Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the periods in which the expenses are recognised. The grants are recognised on a gross basis in income and are not netted off against the expenditure to which it relates. Refer to Note 9 for further details. f) Employee benefits Short-term employee benefits Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. term cash bonus or profit ‑ ‑ 34 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) Other long term employee benefits ‑ The Group’s net obligation in respect of long term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Re-measurements are recognised in profit or loss in the period in which they arise. ‑ Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, they are discounted. Share based payment arrangements Equity-settled share based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost is measured at fair value on grant date using a suitable option pricing model such as Black Scholes, Binomial or Monte Carlo. The grant date fair value of equity settled share based payment arrangements is recognised as an expense, with a corresponding increase in equity over the vesting period of the award. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share based payment awards with non- vesting conditions, the grant date fair value of the share based payment is measured to reflect such conditions and there is no true up for differences between expected and actual outcomes. Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. g) Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity. Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to incomes taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax liability arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met. Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. 35 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) Deferred tax is not recognised for: • • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; and temporary differences related to investments in subsidiaries to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future. Deferred tax assets are recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, the future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that is has become probable that future taxable profits will be available against which they can be used. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if certain criteria are met. h) Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. i) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 36 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) j) Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 45 days. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. k) Contract assets Contract assets are recognised when the Group has transferred goods or services to the customer but where the Group is yet to establish an unconditional right to consideration. Contract assets are treated as financial assets for impairment purposes. l) Property, plant and equipment Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. Subsequent expenditure Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. Depreciation Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognised in profit or loss. The estimated useful lives of property, plant and equipment for current and comparative periods are as follows: Right-of-use asset Office fit out Computer equipment Office equipment 2021 3 years 3 years 3 years 5 years 2020 6 years 6 years 3 years 5 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. 37 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) m) Intangible assets Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. The estimated useful lives of intangible assets for current and comparative periods are as follows: Acquired software n) Trade and other payables 2021 1 year 2020 1 year These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature, they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. o) Contract liabilities Contract liabilities represent the Group’s obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the Group has transferred the goods or services to the customer. p) Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. q) Leases The Group adopted AASB 16 from 1 July 2019 applying the modified retrospective approach, under which the cumulative effect of initial application was recognised in retained earnings at 1 July 2019. Except for short-term leases and leases of low-value assets, right-of-use assets and corresponding lease liabilities are recognised in the statement of financial position. For classification within the statement of cash flows, the interest and the principal portion of the lease payments are disclosed in financing activities. For lessor accounting, the standard did not substantially change how a lessor accounts for leases. 38 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised as the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Lease payments comprise of: • • • • fixed payments less any lease incentive receivables; variable lease payments that depend on an index or a rate; amounts expected to be paid under residual value guarantees; and the exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Short-term leases and low-value assets The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short- term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed on a straight line basis to profit or loss over the lease term. r) Financial instruments Recognition and initial measurement Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. 39 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) Classification and subsequent measurement Financial assets On initial recognition, a financial asset is classified as measured at: amortised cost; fair value in other comprehensive income (FVOCI) – debt investment; FVOCI – equity investment; or fair value through profit or loss (FVTPL). Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as FVTPL: • • It is held within a business model whose objective is to hold assets primarily to collect contractual cash flows; and Its contractual term gives rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI test). The Group does not have any debt or equity investments that are classified and measured at FVOCI. Therefore, all financial assets that do not meet the classification requirements for amortised cost are classified and measured at FVTPL. Financial assets – assessment whether contractual cash flows are solely payments of principal and interest For the purpose of this assessment, principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers: • • • • contingent events that would change the amount or timing of cash flows; terms that may adjust the contractual coupon rate; prepayment and extension features; and terms that limit the Group’s claim to cash flows from specified assets. A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued contractual interest is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition. 40 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) Financial assets – subsequent measurement and gains and losses Type of financial asset Financial assets at FVTPL Financial assets at amortised cost These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Financial liabilities – classification, subsequent measurement and gains and losses Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expenses, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. The Group also derecognises a financial asset when its terms are modified and the cash flows associated with the modified asset are substantially different, in which case a new financial asset based on the modified terms is recognised at fair value. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss. Offsetting Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to offset the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. 41 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) s) Impairment A. Non-derivative financial assets Financial instruments and contract assets The Group recognises loss allowances for expected credit losses (ECLs) on: • • financial assets measured at amortised cost; and contract assets The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs: • • financial assets (excluding trade receivables) that are determined to have low credit risk at the reporting date; and other financial assets and bank balances for which credit risk (ie. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs and are calculated using a provision matrix under the simplified approach. When determining whether credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and includes forward looking information and the use of macro-economic factors. The Group assumes that the credit risk on a financial asset has increased if it is more than 30 days past due. The Group considers a financial asset to be in default when: • • the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if held); or the financial asset is more that 90 days past due. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. Measurement of ECLs ECLs are a probability weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (ie. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the asset. 42 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) ECLs for trade receivables and contract assets are calculated using a provision matrix based on historical default rates adjusted for current and forecast credit conditions including other business, financial and economic factors such as geographical region and external credit rating. Credit impaired financial assets At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit impaired. A financial asset is credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit impaired includes the following: • • • • significant financial difficulty of the borrower; a breach of contract such as default or being more that 90 days past due; restructuring of an amount due to the Group on terms that the Group would not consider otherwise; or it is probable that the borrower will enter bankruptcy or other financial reorganisation. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. There have been no changes in estimation techniques or significant assumptions made during the year. Write off The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. For corporate customers, the Group individually makes an assessment with respect to the timing and amount of write off based on whether there is reasonable expectation of recovery. The Group expects no significant recovery for the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due. B. Non financial assets ‑ At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units (CGUs). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. They are allocated to reduce the carrying amount of assets in the CGU on a pro rata basis. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 43 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 6. Significant accounting policies (continued) t) Share capital Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with AASB 112. u) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. v) Comparative figures Comparative figures have been adjusted to conform to changes in presentation for the current financial year where required by Accounting Standards or as a result of changes in Accounting Policy. w) Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When one is available, the Group measures fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The best evidence of the fair value of a financial instrument on initial recognition is normally the transaction price ie. the fair value of the consideration given or received. If the Group determines that the fair value on initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique for which any unobservable inputs are judged to be insignificant in relation to the measurement, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value on initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out. 44 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 7. Operating segments An operating segment is a component of the Group • • that engages in business activities from which it may earn revenues and incur expenses (including revenue and expenses relating to transactions with the Group’s other components), and whose operating results are reviewed regularly by the Group’s chief operating decision maker for the purpose of making decisions about allocating resources to the segment and assessing its performance. The Group currently has one reportable segment, which develops and licenses enterprise software for regulated entities. The revenues and profits generated by the Group’s operating segment and segment assets are summarised below: For the year ended 30 June Sales to external customers Other revenue and income Total segment revenue and income Unallocated revenue: Interest revenue Total revenue and other income EBITDA Depreciation and amortisation Interest revenue Interest expense Loss before income tax Income tax expense Loss for the year Enterprise Software Development and Licensing 2021 $ 1,364,197 1,335,981 2,700,178 2020 $ 941,592 1,104,920 2,046,512 1,823 14,396 2,702,001 2,060,908 (5,422,756) (6,897,021) (406,185) (121,759) 1,823 (46,757) 14,396 (70,095) (5,873,875) (7,074,479) - - (5,873,875) (7,074,479) Segment assets 5,960,823 3,362,622 Segment liabilities 958,699 2,304,495 45 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 7. Operating segments (continued) Geographic information The Group’s main operations and place of business is in Australia, with majority of its revenue being derived in the United States of America. Revenue from contracts with customers Asia Australia United States of America 30 June 2021 $ 30 June 2020 $ 505,989 341,625 516,583 578,592 363,000 - 1,364,197 941,592 Revenue is based on the location of the customer. Refer to Note 8 for further detail on major customers, products and services. Location of non-current assets Australia Other 30 June 2021 $ 30 June 2020 $ 158,542 914,387 - - 158,542 914,387 Non-current assets include intangible, property, plant and equipment and leased assets. 8. Revenue The Group generates revenue primarily from the licensing of enterprise software and the provision of professional and maintenance services to its customers. a) Performance obligations and revenue recognition policies Under its contracts, the Group grants a licence to the customer for the use of its software. The contract will specify the term of the licence, the jurisdictions in which the licence may be utilised and protocols to be followed to extend the licence beyond the agreed licence term. The contracts also facilitate the provision of certain software, training, maintenance, customisation and configuration or other services from the Group in consideration for the payment of fees. The customer is granted, for the term of each contract, a non-exclusive, perpetual, irrevocable and royalty-free licence to use the software in a specific use case. The Group retains all rights, title and interest in the intellectual property of the software. 46 Identitii Limited Annual Report FY21 8. Revenue (continued) Notes to the Consolidated Financial Statements The Group is currently recognising revenue under these contracts for licence fees, maintenance fees, usage fees and professional services, each regarded as a separate performance obligation. Revenue is measured based on the consideration specified in the contract and is recognised when the Group transfers control over the product or service to the customer. Charges are determined by a number of factors including transaction volume, customisation requirements, ongoing support and maintenance and new feature releases. Pricing changes for each renewal term are to be mutually agreed in writing. The following table provides information about the nature and timing of the satisfaction of performance obligations in its contracts with customers including the related revenue recognition policies. Product and services Licence fees Nature and timing of satisfaction of performance obligations The contracts require the Group to undertake maintenance and software enhancement activities throughout the licence period that significantly affects the intellectual property (IP) to which the customers have rights. The nature of the Group’s performance obligation in granting a licence is regarded as a right to access the IP and thus the Group recognises licence fee revenue over time. Licence fee revenue is recognised in equal monthly instalments from the date the licence is first transferred and for the term of the contract. The licence fee is a fixed annual fee as specified in the contract. There remains $627,502 in relation to contracted licence fees for which no revenue or deferred revenue has been recognised as the performance obligations have not been met as at 30 June 2021. Maintenance fees Maintenance (software, equipment and hosted services maintenance) is to be provided to customers on an ongoing basis from the date the licence is first transferred and throughout the term of the contract. The maintenance fee is a fixed annual fee as specified in the contract. Under AASB 15, the performance obligation to provide maintenance services is first met upon transfer of the licence and is ongoing throughout the term of the contract. The total maintenance fee revenue to be billed under the contract is recognised in equal monthly instalments over time from the date the licence is first transferred. There remains $55,364 in relation to contracted maintenance fees for which no revenue or deferred revenue has been recognised as the performance obligations have not been met as at 30 June 2021. 47 Identitii Limited Annual Report FY21 8. Revenue (continued) Product and services Usage fees Notes to the Consolidated Financial Statements Nature and timing of satisfaction of performance obligations Usage fee revenue is determined by the number of successful transactions (as defined in the contract) and is based on information provided to the Group by the customer. Usage fees are recognised only when the later of the usage occurs and the licence fee obligation has been satisfied. Usage fees are variable fees and may be subject to an annual cap as specified in the contract. The Group recognises usage fee revenue over time based on when the usage occurs. Professional services (including setup, training and other support costs) Professional services include setup, training and support costs as well as individual customisation projects that are separate and distinct performance obligations. The Group recognises revenue at a point in time based on time and materials incurred in delivering the product and services to its customers as per the terms and prices specified in the contract. Invoices are generated on confirmation of product and service delivery and revenue is recognised at that point in time. There remains $341,709 in relation to contracted professional services for which no revenue or deferred revenue has been recognised as the performance obligations have not been met as at 30 June 2021. Where revenue is billed in advance, a contract liability is recognised and amortised over the period of the invoice. Where revenue is billed in arrears, a contract asset is recognised at the time of revenue recognition and transferred to trade receivables when the invoice is generated. Warranties, returns and refunds The warranty period will run from the licence start date and over a specified period of time. Under the warranty period the Group undertakes that the product and services supplied are of satisfactory quality and fit for purpose, free from defects in design, operate in accordance with the contract and that appropriate master copies are maintained by the Group. In the event of an unresolved third party intellectual property rights claim, customers may elect to return all deliverables under the contract and be refunded in full for all charges paid by the customer to date. Revenue is recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. Due to the absence of any third party intellectual property rights claims during the current and prior period, no adjustment has been made to revenue recognised during the period for expected returns. Customers may terminate or partially terminate the contract by written notice to the Group. Customers shall be entitled to a pro-rata refund of fees paid in advance of the termination date unless termination by the customer is for no reason. Due to the absence of any such written notices to the Group during the current and prior period, no adjustment has been made to revenue recognised during the period for expected refunds on termination. 48 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 8. Revenue (continued) b) Disaggregation of revenue In the following table, revenue is disaggregated by nature of product and service and is done so in conjunction with the Group’s reporting segment. For the year ended 30 June Nature of product and service Licence and usage fees Maintenance fees Professional services Revenue from contracts with customers c) Contract balances Enterprise Software Development and Licensing 2021 $ 359,206 21,303 983,688 1,364,197 2020 $ 207,553 21,069 712,970 941,592 The following table provides information about trade receivables, contract assets and contract liabilities from contracts with customers. Trade receivables Contract assets Contract liabilities 30 June 2021 $ 30 June 2020 $ 227,419 26,400 43,702 66,500 (179,650) (44,545) Reconciliation of the written down values of contract assets and contract liabilities at the beginning and end of the current and prior financial year are set out below: Contract assets Opening balance 1 July Additions Transfer to trade receivables Closing balance 30 June 30 June 2021 $ 30 June 2020 $ 66,500 153,400 (193,500) 26,400 - 66,500 - 66,500 49 Identitii Limited Annual Report FY21 8. Revenue (continued) Contract liabilities Opening balance 1 July Payments received in advance Transfer to revenue – in opening balance Transfer to revenue – other balances Closing balance 30 June Notes to the Consolidated Financial Statements 30 June 2021 $ 30 June 2020 $ 44,545 550,533 (44,545) (370,883) 179,650 34,425 87,941 (34,425) (43,396) 44,545 No information has been provided about remaining performance obligations at 30 June 2021 that have an original expected duration of one year or less, as allowed by AASB 15. 9. Government grants Export market development grant COVID-19 related grants 30 June 2021 $ 30 June 2020 $ 100,000 317,936 417,936 150,000 214,539 364,539 The Export Market Development Grant (EMDG) scheme is a key Australian Government financial assistance program that encourages small to medium sized Australian businesses to develop export markets by granting funding to cover eligible export expenditure, up to a maximum claim of $150,000. The Group recognises the EMDG in profit or loss when the application is successful and the Group receives an unconditional right to the income. COVID-19 related grants were temporary subsidies for businesses affected by COVID-19 and consisted mostly of the JobKeeper and Cash Flow Boost payment schemes. Both schemes have closed as at the date of this report. • • Under the JobKeeper scheme, eligible employers could apply to receive up to $1,500 per eligible employee per fortnight. The Group recognised the JobKeeper payments in profit or loss when the related salaries were paid to eligible employees. The Company was eligible for JobKeeper up to 31 December 2020. Under the Cash Flow Boost payment scheme, eligible businesses who employed staff received a cash flow boost in the form of a credit when lodging their activity statements. This was to cover the tax withheld from salaries paid to employees for the period covered by the activity statement. The Group recognised the Cash Flow Boost in profit or loss when the activity statement was lodged. 50 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 10. Reassessment of lease terms a) Leases The Group leases office space in Australia over an initial term of three years with an option to extend for a further three years. The lease has an escalation clause to account for inflation over time and, on renewal, the terms of the lease will be renegotiated. On initial application of AASB 16: Leases on 1 July 2019, the lease liability and right-of-use asset in relation to this office lease were calculated using a six year lease term as it was assumed the option to extend would be exercised. Due to a change in circumstances, the Group has decided not to exercise its option to extend the lease. The current lease will expire in August 2021, following which it will default to a monthly term with either party giving 3 months’ notice to terminate. This reassessment of the lease term has resulted in a remeasurement of the lease liability and right-of-use asset with the following impact on the financial statements for the year ended 30 June 2021: Decrease in lease liability Decrease in right-of-use asset Gain on lease modification b) Office fit out 30 June 2021 $ 459,651 (387,646) (72,005) In line with the above, the Group reassessed the useful life of the office fit out asset from six years to three years to align with the end of the current lease in August 2021. This is treated as a change in accounting estimate and has resulted in an acceleration of office fit out depreciation in the current year of $184,454 as follows: Office fit out depreciation for the year – six years useful life Office fit out depreciation for the year – three years useful life Acceleration of depreciation during the year 11. Income tax expense a) Amounts recognised in profit or loss Current tax expense Current year Tax expense 30 June 2021 $ 58,664 243,118 184,454 30 June 2021 $ 30 June 2020 $ - - - - 51 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 11. Income tax expense (continued) b) Reconciliation of accounting loss to taxable loss Loss before tax Adjustments to accounting loss Non-deductible expenses Tax exempt income Taxable loss Tax expense 30 June 2021 $ 30 June 2020 $ (5,873,875) (7,074,479) 3,063,404 (1,053,724) 2,477,939 (740,381) (3,864,195) (5,336,921) - - The Group is in a net tax loss position and does not recognise a deferred tax asset. c) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items, because it is not probable that future taxable profit will be available against which the Group can use the benefits therefrom. 30 June 2021 30 June 2020 Gross amount $ Tax effect $ Gross amount $ Tax effect $ Tax losses 12,489,797 3,434,694 9,370,574 2,422,019 12. Loss per share The calculation of basic and diluted loss per share has been based on the following loss attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding. 30 June 2021 $ 30 June 2020 $ Loss for the year attributable to owners of Identitii Limited (5,825,443) (7,074,479) Weighted-average number of ordinary shares Issued ordinary shares at 1 July 81,778,198 54,518,799 Effect of shares issued during the year 48,799,915 3,575,003 Weighted-average number of ordinary shares at 30 June 130,578,113 58,093,802 Basic and diluted loss per share (cents) (4.46) (12.18) 52 Identitii Limited Annual Report FY21 12. Loss per share (continued) Notes to the Consolidated Financial Statements Share based payment options have not been included in the calculation of diluted loss per share as these are considered anti-dilutive as at 30 June 2021 and 30 June 2020. 13. Cash and cash equivalents Bank balances Term deposits 14. Intangible assets Software – at cost Less: Accumulated amortisation Reconciliation of carrying amount Balance at 1 July 2019 Amortisation expense Balance at 30 June 2020 Amortisation expense Balance at 30 June 2021 30 June 2021 $ 30 June 2020 $ 4,415,466 1,337,464 73,845 73,845 4,489,311 1,411,309 30 June 2021 $ 30 June 2020 $ 62,112 (5,106) 57,006 62,112 - 62,112 Software $ 62,112 - 62,112 (5,106) 57,006 53 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 15. Property, plant and equipment Reconciliation of carrying amount Right-of- use asset $ Office fit out $ Computer equipment $ Office equipment $ Total $ Cost Balance at 1 July 2019 - 351,024 83,461 41,935 476,420 Initial application of AASB 16 774,563 - - - 774,563 Adjusted balance at 1 July 2019 774,563 351,024 83,461 41,935 1,250,983 Additions Disposals - - - - 18,608 - 18,608 (1,879) (2,636) (4,515) Balance at 30 June 2020 774,563 351,024 100,190 39,299 1,265,076 Balance at 1 July 2020 774,563 351,024 100,190 39,299 1,265,076 Modification of lease (396,024) Additions Disposals - - - - - - 49,330 (3,999) - - - (396,024) 49,330 (3,999) Balance at 30 June 2021 378,539 351,024 145,521 39,299 914,383 Accumulated depreciation Balance at 1 July 2019 - 38,765 25,053 4,766 68,584 Initial application of AASB 16 118,336 - - - 118,336 Adjusted balance at 1 July 2019 118,336 38,765 25,053 4,766 186,920 Depreciation Disposals 129,080 58,504 31,291 8,100 226,975 - - (568) (526) (1,094) Balance at 30 June 2020 247,416 97,269 55,776 12,340 412,801 Balance at 1 July 2020 247,416 97,269 55,776 12,340 412,801 Modification of lease (8,378) - - - (8,378) Depreciation Disposals 128,986 243,118 31,623 7,834 411,561 - - (3,137) - (3,137) Balance at 30 June 2021 368,024 340,387 84,262 20,174 812,847 54 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 15. Property, plant and equipment (continued) Right-of- use asset $ Office fit out $ Computer equipment $ Office equipment $ Total $ Carrying amounts At 1 July 2019 - 312,259 58,408 37,169 407,836 Balance at 30 June 2020 527,147 253,755 Balance at 30 June 2021 10,515 10,637 44,414 61,259 26,959 852,275 19,125 101,536 The Group reassessed its office lease term from six to three years during the year, resulting in a decrease in carrying amount of the right-of-use asset by $387,646. Similarly, the Group reassessed the useful life of the office fit out asset from six years to three years resulting in an acceleration of depreciation in the current year. Refer to Note 10 for further details. The Group leases office space in Hong Kong under agreement for six months with an option to extend. As this lease is short-term and of low value, it has been expensed as incurred during the year and not capitalised to right-of-use assets. 16. Trade and other payables Trade payables Other payables and accruals 17. Employee provisions Provision for annual leave Superannuation payable Employee taxes withheld ATO debt payable 30 June 2021 $ 30 June 2020 $ 103,887 167,222 271,109 142,519 125,215 267,734 30 June 2021 $ 30 June 2020 $ 238,767 95,906 140,228 - 474,901 146,631 64,244 132,007 325,586 668,468 55 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 17. Employee provisions (continued) Amounts not expected to be settled within the next 12 months The provision for annual leave includes all unconditional entitlements where employees have completed the required period of service and also where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. 18. Borrowings and lease liabilities Current liabilities Borrowings (a) Lease liabilities (b) Non-current liabilities Lease liabilities (b) a) Borrowings Borrowings at the end of the year were as follows: Director loan - John Rayment R&D finance loan – Radium Capital 30 June 2021 $ 30 June 2020 $ 20,000 13,039 33,039 722,500 126,430 848,930 - 474,818 33,039 1,323,748 30 June 2021 $ 30 June 2020 $ 20,000 - 20,000 100,000 622,500 722,500 On 17 March 2020 the Group received a loan of $100,000 from John Rayment. This loan is for 12 months, interest free and will convert to equity at $0.07 per share as approved by shareholders. On 17 November 2020 the Company issued 1,142,857 shares to John Rayment in partial settlement of this loan, leaving a remaining loan balance of $20,000 as at 30 June 2021. Subsequent to year end, a further 285,714 shares were issued to John Rayment in full and final settlement of his loan. On 1 April 2020 the Group received a $600,000 loan facility with Radium Capital that was secured against the R&D tax incentive cash refund expected to be received in relation to eligible R&D expenditure incurred. The interest rate on the loan principal was 1.25% per month. This loan was settled in full on 29 July 2020. 56 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 18. Borrowings and lease liabilities (continued) b) Lease liabilities Lease liabilities are recognised on transition to AASB 16 Leases. The Group reassessed its office lease term from six to three years during the year, resulting in a decrease in carrying amount of the lease liability by $459,651. Refer to Note 10 for further details. Lease liabilities are payable as follows: For the year ended 30 June ($) Less than one year Between one and five years Future minimum lease payments Interest Present value of future minimum lease payments 2021 13,106 - 13,106 2021 67 - 67 2021 13,039 - 13,039 c) Terms and repayment schedule The terms and conditions of outstanding borrowings and lease liabilities are as follows: 30 June 2021 30 June 2020 Nominal interest rate p.a Year of maturity Face value $ Carrying amount $ Face value $ Carrying amount $ Director loan - unsecured R&D finance loan - secured Lease liabilities Total liabilities 0% 15% 6% 2021 20,000 20,000 100,000 100,000 2020 - - 600,000 622,500 2021 378,539 13,039 774,563 601,248 398,539 33,039 1,474,563 1,323,748 57 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 18. Borrowings and lease liabilities (continued) d) Reconciliation of movements in borrowings and lease liabilities to cash flows arising from financing activities Balance at 1 July Initial application of AASB 16 Restated balance at 1 July Changes from financing cash flows Proceeds from borrowings Repayment of borrowings Lease payments Transaction costs related to borrowings and leases Other financing cash flows Total changes from financing cash flows Other changes Finance costs Conversion of borrowings to equity Lease modification Movements in lease liability not yet paid 2021 $ 1,323,748 - 1,323,748 2020 $ 30,253 685,426 715,679 - 850,000 (600,000) (125,649) (61,687) 100,000 (687,336) 36,278 (180,000) (459,651) - - (95,710) (30,913) - 723,377 22,500 (150,000) - 12,192 Balance at 30 June 33,039 1,323,748 58 Identitii Limited Annual Report FY21 19. Share capital Notes to the Consolidated Financial Statements Ordinary shares 30 June 2021 30 June 2020 $ Number of shares $ Number of shares In issue at beginning of the year 17,930,105 81,778,198 16,261,495 54,518,799 Issued for cash, net of costs of equity – entitlement offer 1,832,720 27,259,400 1,668,610 27,259,399 Issued in settlement of Director loan 80,000 1,142,857 Issued for cash, net of costs of equity – placement Issued for cash, net of costs of equity – share purchase plan Issued not for cash – consideration for marketing services In issue at end of the year – authorised, fully paid and no par value 3,903,426 27,500,000 1,978,750 13,698,630 50,277 411,986 - - - - - - - - 25,775,278 151,791,071 17,930,105 81,778,198 All ordinary shares rank equally with regard to the Company’s residual assets. Holders of ordinary shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. Issue of ordinary shares On 24 July 2020, as part of the entitlement issue, the Board approved the issue of 27,259,400 ordinary shares in the Company at a price of $0.07 per share. On 17 November 2020, the Company issued 1,142,857 shares at $0.07 per share to John Rayment in partial settlement of his loan. On 3 December 2020, as part of a placement to institutional investors, the Board approved the issue of 27,500,000 ordinary shares in the Company at a price of $0.146 per share. On 6 January 2021, as part of a share purchase plan, the Board approved the issue of 13,698,630 ordinary shares in the Company at a price of $0.146 per share. On this same date, the Company also approved the issue of 411,986 shares at $0.146 per share, for no cash consideration, to a consultant in relation to marketing services provided to the Company. Nature and purpose of reserves The share option reserve comprises the cost of the Company shares issued under the Group’s share based payment plans. Refer to Note 29. 59 Identitii Limited Annual Report FY21 19. Share capital (continued) Notes to the Consolidated Financial Statements The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. Other reserves comprises the notional equity gain on dilution of the parent entity’s ownership interest in its subsidiary without a loss of control. Dividends No dividends were declared or paid by the Company for the current or previous year. 20. Non-controlling interest The following table summarises the information relating to each of the Group’s subsidiaries that has a material non-controlling interest (NCI), after intra-group eliminations. NCI percentage Current assets Non-current assets Current liabilities Net assets Net assets attributable to NCI Loss after tax Total comprehensive loss Loss allocated to NCI Other comprehensive loss allocated to NCI Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase in cash and cash equivalents Payble Pty Ltd 39.9% n/a 30 June 2021 $ 30 June 2020 $ 925,258 2,258 28,926 898,590 411,917 203,116 203,116 48,432 48,432 (174,868) (3,327) 1,100,040 921,845 - - - - - - - - - - - - - 60 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 20. Non-controlling interest (continued) In April 2021, x15ventures acquired a 31.3% interest in Payble, decreasing Identitii’s ownership from 87.5% to 60.1%. The carrying amount of Payble’s net liabilities in the Group’s consolidated financial statements on the date of x15ventures investment was $98,625. Carrying amount of NCI given Consideration received Increase in equity attributable to owners of the parent 30 June 2021 $ 30 June 2020 $ 411,877 1,100,000 688,123 - - - 21. Capital management The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors the return on capital. The Group monitors capital using a ratio of net debt to equity. Net debt is calculated as total liabilities (as shown in the statement of financial position) less cash and cash equivalents. The Group’s net debt to equity ratio at 30 June was as follows: Total liabilities Less: Cash and cash equivalents Net (assets) / debt 30 June 2021 $ 30 June 2020 $ 958,699 4,489,311 (3,530,612) 2,304,495 1,411,309 893,186 Equity 5,002,124 1,058,127 Net debt to equity ratio n/a 0.84 61 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 22. Reconciliation of cash flows from operating activities Loss for the year Adjustments for: Other income – rent relief Equity settled share based payment transactions Annual leave provision Depreciation and amortisation Loss / (gain) on disposal of asset Gain on lease modification Bank revaluation and unrealised FX gains and losses Interest expense and other finance costs Capital raise transaction costs Non-cash lease movements Bad and doubtful debts Equity settled consulting fees Related party loans written off Other non-cash generating expenses Changes in: Trade and other receivables R&D tax receivable Contract assets Trade and other payables Employee provisions Contract liabilities 30 June 2021 $ 30 June 2020 $ (5,873,875) (7,074,479) (12,726) 806,766 92,572 416,667 862 (72,005) (10,151) 43,988 123,231 - 2,530 50,277 - 3,381 - 1,125,708 - 226,975 (919) - 8,128 59,589 236,392 (24,897) (2,291) - 10,320 (309) (4,428,483) (5,435,783) (151,206) (164,938) 40,100 3,375 (193,567) 135,105 149,029 465,534 (66,500) (126,407) 346,404 10,120 Net cash from operating activities (4,759,614) (4,657,603) 62 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 23. Financial instruments – fair values and risk management i. Accounting classifications and fair values The carrying amount of the Group’s financial assets and financial liabilities is a reasonable approximation of fair value due to their short term nature. ii. Financial risk management The Group has exposure to the following risks arising from financial instruments: • • • credit risk (see ii (b)) liquidity risk (see ii (c)) foreign currency risk (see ii (d)) a) Risk management framework The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board of Directors has established the Audit and Risk Committee, which is responsible for developing and monitoring the Group’s risk management policies. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies are reviewed regularly to reflect changes in market conditions and the Group’s activities. b) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers. The carrying amount of financial assets and contract assets represents the maximum credit exposure. Impairment losses on financial assets and contract assets recognised in profit or loss are as follows: Increase / (decrease) in impairment loss on trade receivables and contract assets arising from contracts with customers 30 June 2021 $ 30 June 2020 $ 2,530 (2,291) Trade receivables and contract assets The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Management also considers the factors that may influence the credit risk of its customer base including the default risk associated with the industry and country in which the customers operate. The Group limits its exposure to credit risk from trade receivables by establishing a maximum payment period of 45 days for corporate customers. Expected credit loss assessment for corporate customers The Group uses a provision matrix to measure ECLs of trade receivables from corporate customers, which comprise of a small number of large balances. 63 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 23. Financial instruments – fair values and risk management (continued) The Group is still in its early stages of revenue generation with a small customer base and therefore doesn’t have extensive historical information on which to base its loss rates. Its loss rates are management’s best estimate based on industry comparatives and will be updated at every reporting period to reflect current and forecast credit conditions including other business, financial and economic factors. Loss rates are determined separately for each credit risk grade, based on external credit rating definitions from a reputable credit rating agency. To date no customer balances have been written off or credit impaired at the reporting date. The following tables provides information about the exposure to credit risk and ECLs for trade receivables and contract assets for corporate customers as at 30 June 2021. 30 June 2021 External credit rating Weighted average loss rate Credit impaired Not past due BBB- to AAA 0 - 30 days BBB- to AAA 61 - 180 days BBB- to AAA 0.1% 0.5% 3.0% No No No 30 June 2020 External credit rating Weighted average loss rate Credit impaired Gross carrying amount $ 125,179 27,814 77,000 229,993 Impairment loss allowance $ 125 139 2,310 2,574 Gross carrying amount $ Impairment loss allowance $ Not past due BBB- to AAA 0.1% No 43,746 43,476 44 44 Cash and cash equivalents and other receivables The Group held cash and cash equivalents of $4,489,311 at 30 June 2021 (30 June 2020: $1,411,309). The majority of cash and cash equivalents are held with financial institution counterparties, which are rated A- to AA, based on credit agency ratings. The Group considers its cash and cash equivalents to have low credit risk based on the external credit ratings of the counterparties. The Group held other receivables of $153,831 at 30 June 2021 (30 June 2020: $186,343). The Group considers its other receivables to have low credit risk based on historical data available, the reputation of the counterparties and the systematic ease with which the receivables are recoverable. The Group did not recognise an impairment allowance for cash and cash equivalents and other receivables during the current and prior year under review. 64 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 23. Financial instruments – fair values and risk management (continued) Movements in the allowance for impairment in respect of trade receivables, contract assets and other financial assets The movement in the allowance for impairment in respect of trade receivables, contract assets and other financial assets during the year was as follows. Balance at 1 July Net remeasurement of loss allowance Balance at 30 June c) Liquidity risk 30 June 2021 $ 30 June 2020 $ 44 2,530 2,574 2,335 (2,291) 44 Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate, but manageable, borrowing facilities are maintained. The Group also monitors the level of expected cash inflows on trade and other receivables together with expected cash outflows on trade and other payables. Exposure to liquidity risk The following are the contractual maturities of financial liabilities at the reporting date. The amounts are gross, undiscounted and include contractual interest payments where applicable. 30 June 2021 Carrying amount $ Total $ 2 months or less $ 2-12 months $ 12 months or more $ Contractual cash flows Borrowings and leases 33,039 (33,039) (33,039) Trade and other payables 271,109 (271,109) (271,109) 304,148 (304,148) (304,148) - - - - - - 65 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 23. Financial instruments – fair values and risk management (continued) Contractual cash flows 30 June 2020 Carrying amount $ Total $ 2 months or less $ 2-12 months $ 12 months or more $ Borrowings and leases 1,323,748 (1,323,748) (20,216) (828,714) (474,818) Trade and other payables 267,734 (267,734) (267,734) - - 1,591,482 (1,591,482) (287,950) (828,714) (474,818) d) Foreign currency risk The Group is exposed to transactional foreign currency risk to the extent that there is a mismatch between the currencies in which sales, purchases, receivables and borrowings are denominated and the respective functional currencies of the Group companies. The Group’s exposure to foreign currency risk is concentrated primarily in trade receivables which are invoiced in United States Dollars (USD). As USD sales increase there will be a natural hedge in place as majority of Group expenditure is in Australian Dollars (AUD). Other foreign currency risk is not material at present. Exposure to foreign currency risk The following is the summary quantitative data about the Group’s exposure to currency risk as reported to the management of the Group: Trade receivables Trade payables Net statement of financial position exposure Sensitivity analysis 30 June 2021 USD 30 June 2020 USD 71,088 (16,561) 54,527 30,000 (30,000) - If foreign exchange rates were to increase / decrease by 10 per cent from rates used to determine fair values as at the end of the reporting period, assuming all other variables that might impact fair value remain constant, then the impact on profit or loss for the year would be as follows: Impact on profit after tax 10% increase in USD/AUD exchange rate 10% decrease in USD/AUD exchange rate 30 June 2021 $ 30 June 2020 $ 7,239 (6,581) - - There has been no change in assumptions or method used to determine foreign currency sensitivity from the prior year. 66 Identitii Limited Annual Report FY21 24. Commitments Notes to the Consolidated Financial Statements The Group has no commitments or contingencies other than those described in Leases Note 18 (b). 25. Auditors’ remuneration During the financial year the following fees were paid or payable for services provided by RSM, the auditor of the Company, its network firms and unrelated firms: 30 June 2021 $ 30 June 2020 $ Audit and review services RSM (Australia) Audit and review of financial statements 51,500 44,000 RSM (Hong Kong) Audit and review of financial statements 20,989 72,489 - 44,000 26. Related parties Parent and ultimate controlling party Identitii Limited is the parent and ultimate controlling party of the Group. Transactions with Key Management Personnel (KMP) a) KMP compensation KMP compensation comprised the following: Compensation by category Short-term employment benefits Post-employment benefits Other long-term employment benefits Termination benefits Share-based payments 30 June 2021 $ 30 June 2020 $ 556,749 34,975 19,710 - 542,895 1,154,329 527,296 30,497 26,156 25,000 218,029 826,978 Compensation of the Group’s KMP includes salaries, non-cash benefits and mandatory contributions to post-employment superannuation and provident funds. Certain Directors as well as senior employees of the Group are entitled to participate in the Equity Incentive Plan. 67 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 26. Related parties (continued) b) KMP transactions KMP of the Company control approximately 7% of the voting shares of the Company as at 30 June 2021. A number of KMP, or their related parties, hold positions in other entities that result in them having control, or joint control, over the financial or operating policies of that entity. A number of these entities transacted with the Group during the year. The terms and conditions of the transactions with KMP and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-KMP related entities on an arm’s length basis. The aggregate value of transactions and outstanding balances related to KMP and entities over which they have control or significant influence were as follows: Transactions Transaction values for year ended 30 June Balance outstanding as at 30 June 2021 $ 2020 $ 2021 $ 2020 $ Loan from Director – John Rayment 80,000 100,000 20,000 100,000 An unsecured loan with no interest and a 12 month repayment term was advanced from John Rayment to the Company in March 2020. $80,000 of this loan was converted to equity (1,142,857 shares at $0.07 per share) during the year as approved by shareholders at the AGM. Refer to Note 18 (a) for further details. 27. List of subsidiaries The table below lists the controlled entities of the Group. Country of incorporation Hong Kong Identitii Hong Kong Limited Australia Payble Pty Ltd % ownership 100 60 The Company provided $69,990 (30 June 2020: $548,600) of financial support during the year to Identitii Hong Kong Limited to assist with the payment of current and ongoing general operating costs mostly in relation to salaries and employee benefit expenses. 68 Identitii Limited Annual Report FY21 28. Parent entity disclosures Notes to the Consolidated Financial Statements As at, and throughout, the financial year ended 30 June 2021, the parent entity of the Group was Identitii Limited. Results of parent entity Total comprehensive loss for the year (4,446,282) (7,074,479) 30 June 2021 $ 30 June 2020 $ Financial position for the parent entity Current assets Total assets Current liabilities Total liabilities Total equity of the parent entity Share capital Reserves Retained losses Total equity Contingent liabilities 6,805,285 6,961,866 900,588 900,588 2,448,235 3,362,622 1,829,677 2,304,495 25,775,278 17,930,105 4,517,002 3,717,360 (24,231,002) (20,589,338) 6,061,278 1,058,127 The parent entity had no contingent liabilities as at 30 June 2021 and 30 June 2020. Capital commitments The parent entity had no capital commitments for property, plant and equipment as at 30 June 2021 and 30 June 2020. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in Note 6. 69 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 29. Share based payment arrangements For the year ended 30 June 2021, the Group recognised a share based payment expense of $806,766 in the statement of profit or loss (30 June 2020: $1,125,708) under the following share based payment arrangements. Share options 30 June 2021 30 June 2020 $ Number of options $ Number of options Director options Canaccord options Gleneagle options Equity incentive plan (i) (ii) (ii) (iii) 599,406 10,358,082 157,022 358,082 992,485 1,950,000 992,485 1,950,000 165,740 5,000,000 165,740 5,000,000 2,759,371 18,024,417 2,394,989 4,994,738 In issue at end of year 4,517,002 35,332,499 3,710,236 12,302,820 a) Description of share based payment arrangements (i) Share options issued to Directors Michael Aston (equity settled) On 28 June 2018, Michael Aston was granted 400,000 share options at an exercise price of $0.75 per share in his capacity as Director of the Company. 25% of the options vested immediately on issue with the remaining 75% to vest in equal annual tranches over two years. On termination of his employment with the Company in March 2020, 41,918 share options were forfeited with the remaining options vesting immediately. The fair value of share options granted to Michael Aston have been measured using the Black-Scholes model. A share based payment expense of $nil in relation to these options has been recognised in the statement of profit or loss for the year ended 30 June 2021. John Rayment (equity settled) On 21 October 2020, John Rayment was granted 8,000,000 share options at an exercise price of $0.15 per share in his capacity as Director of the Company. The share options vest in four equal instalments from grant date pending specific service, performance and market conditions being met as follows: (a) 2,000,000 share options vest in four equal annual tranches of 500,000 options each, commencing 1 July 2021, subject to continued service with the Company; (b) 2,000,000 share options vest when the Group records revenue of at least $5 million in the preceding twelve month period; (c) 2,000,000 share options vest when the Group records revenue of at least $10 million in the preceding twelve month period; and (d) 2,000,000 share options vest when the Company’s closing share price on the ASX is at or above $0.46 per share for twenty consecutive trading days. 70 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 29. Share based payment arrangements (continued) The fair value of the options (a) – (c) have been measured using a Binomial Model whilst the fair value of the options in (d) have been measured using a Monte Carlo Simulation. A share based payment expense of $442,384 in relation to these options has been recognised in the statement of profit or loss for the year ended 30 June 2021. Stephen Porges (equity settled) On 1 February 2021, Stephen Porges was granted 2,000,000 share options at an exercise price of $0.15 per share in his capacity as Chairman of the Company. The share options were to vest in two equal instalments from grant date pending specific share price conditions being met and subject to continued employment with the Company. On termination of his employment with the Company on 3 February 2021, the share options no longer meet the vesting criteria. A share based payment expense of $nil in relation to these options has been recognised in the statement of profit or loss for the year ended 30 June 2021. (ii) Share options issued to supplier of services Canaccord Genuity (Australia) Limited (equity settled) On 17 October 2018, the Company issued 1,950,000 share options to Canaccord Genuity (Australia) Limited (Canaccord) in consideration for corporate advisory services to be provided in connection with the Group’s ongoing capital markets strategy. The options vested immediately and were subject to a mandatory escrow of 24 months commencing from the date of issue. The options expired on 1 July 2021. The fair value of share options granted have been measured using the Black-Scholes model. A share based payment expense of $nil in relation to these options has been recognised in the statement of profit or loss for the year ended 30 June 2021. Gleneagle Securities (Aust) Pty Ltd (equity settled) On 13 May 2020, the Company issued 5,000,000 share options at an exercise price of $0.10 per share to Gleneagle Securities (Aust) Pty Ltd (Gleneagle) in consideration for underwriting services provided in connection with the Group’s entitlement issue. The options vested immediately and expire on 13 May 2022. The fair value of share options granted have been measured using the Black-Scholes model. A share based payment expense of $nil in relation to these options has been recognised in the statement of profit or loss for the year ended 30 June 2021. (iii) Equity Incentive Plan (equity settled) On 10 January 2018 the Group established the Equity Incentive Plan (EIP). This is a long-term plan under which share options or performance rights to subscribe for shares may be offered to eligible employees and consultants as selected by the Directors at their discretion. Currently only share options have been awarded under the EIP. Under the EIP, one share option entitles the holder to one share in the Company subject to vesting conditions such as the satisfaction of performance hurdles and/or continued employment. The Board have the discretion to settle share options with a cash equivalent payment. Participants in the EIP will not pay any consideration for the grant of the share option unless determined otherwise. Share options will not be listed and may not be transferred, assigned or otherwise dealt with unless approved by the Board. 71 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 29. Share based payment arrangements (continued) If the employee’s employment terminates before the share options have vested, the share option will lapse, unless approved otherwise by the Board. Eligible employees holding a share option pursuant to the EIP have no rights to dividends and are not entitled to vote at shareholder meetings until that share option is vested and, where required, exercised. On 30 April 2021, the Company issued 14,100,000 share options at an exercise price of $0.15 per share to eligible employees. The share options vest in equal instalments from grant date pending specific service, performance and market conditions being met as noted in the table below. A share based payment expense of $364,382 in relation to all EIP options has been recognised in the statement of profit or loss for the year ended 30 June 2021. The terms and conditions of share options granted under the EIP as at 30 June 2021 are as follows: Grant date Number of share options issued Forfeited Share options on issue at 30 June 2021 Vesting conditions Contractual life of options Valuation Model July 2018 1,350,000 - 1,350,000 3 years (1) 10 years Black-Scholes August 2018 1,250,000 (671,875) 578,125 10% upfront, 3 years (2) 10 years Black-Scholes October 2018 – December 2019 3,250,000 (603,708) 2,646,292 3 years (1) 4 years Black-Scholes January 2019 200,000 (100,000) 100,000 2 years (3) 4 years Black-Scholes March 2019 200,000 (200,000) - 4 years (4) 5 years Black-Scholes April 2021 (A) 2,500,000 - 2,500,000 4.5 years (5) 5 years Binomial April 2021 (A) 9,000,000 (750,000) 8,250,000 4.5 years (5) 5 years Binomial April 2021 (B) 250,000 April 2021 (A) 2,350,000 - - 250,000 3.5 years (6) 5 years Monte Carlo 2,350,000 3 years (1) 5 years Binomial 20,350,000 (2,325,583) 18,024,417 (1) 3 year equity incentive plan – share options vest in equal annual instalments over 3 years from grant date (2) 3 year equity incentive plan – 10% of share options vest immediately on grant date with the remaining 90% of share options held vesting in equal annual instalments over 3 years from grant date (3) 2 year equity incentive plan – share options vest in equal annual instalments over 2 years from grant date (4) 4 year equity incentive plan – share options vest in three equal instalments from grant date pending three specific performance hurdles being met relating to product proof of value, commercialisation and go-live. Share option vesting has been estimated at 4 years (5) 4.5 year equity incentive plan – share options vest in various instalments from grant date pending specific revenue and share price targets being met and continuous employment with the company. Share option vesting has been estimated at 4.5 years (6) 3.5 year equity incentive plan – share options vest on successful deployment of a company product across multiple entities. Share option vesting has been estimated at 3.5 years 72 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 29. Share based payment arrangements (continued) b) Measurement of grant date fair values The following inputs were used in the measurement of the fair values at grant date of the share based payment awards granted during the year: Director options: John Rayment (a) (b) (c) (d) Number of options 2,000,000 2,000,000 2,000,000 2,000,000 Fair value at grant date Share price at grant date Exercise price Expected volatility (1) Contractual life of options (years) Expected dividends Risk free rate (2) Valuation method Expiry date $0.1319 $0.1950 $0.1500 $0.1319 $0.1950 $0.1500 $0.1319 $0.1950 $0.1500 $0.1186 $0.1950 $0.1500 70 – 90% 70 – 90% 70 – 90% 70 – 90% 5 Nil 5 Nil 5 Nil 5 Nil 0.32% 0.32% 0.32% 0.32% Binomial Binomial Binomial Monte Carlo 20 October 2025 Equity incentive plan: Staff Number of options Fair value at grant date Share price at grant date Exercise price Expected volatility (1) Contractual life of options (years) Expected dividends Risk free rate (2) Valuation method Expiry date (A) 13,850,000 $0.0844 $0.1400 $0.1500 (B) 250,000 $0.0716 $0.1400 $0.1500 70 – 90% 70 – 90% 5 Nil 5 Nil 0.67% 0.67% Binomial Monte Carlo 1 January 2026 (1) Expected volatility - a measure of the amount by which a share price is expected to fluctuate during a period and is based on the historic share price volatility of the Company up to the Grant Date. (2) Risk free rate - the yield available on Commonwealth Government bonds with a term comparable to the likely term of the options. 73 Identitii Limited Annual Report FY21 Notes to the Consolidated Financial Statements 29. Share based payment arrangements (continued) c) Reconciliation of outstanding share options The number and weighted-average exercise price of share options under the share based payment arrangements noted above were as follows: Number of options Weighted average exercise price Number of options Weighted average exercise price Outstanding at 1 July 12,302,820 2021 2021 $0.53 2020 8,558,334 Forfeited during the year (1,070,321) $0.33 (1,255,514) Granted during the year 24,100,000 $0.15 5,000,000 Outstanding at 30 June 35,332,499 $0.28 12,302,820 2020 $0.78 $0.75 $0.10 $0.53 Exercisable at 30 June 11,049,165 $0.50 8,728,071 $0.44 30. Fair value measurements The carrying amount of the Group’s financial assets and financial liabilities is a reasonable approximation of fair value. 31. Subsequent events Following the results of a General Meeting held on 6 July 2021 the Company issued 285,714 shares at $0.07 per share to John Rayment in full and final settlement of his loan. Furthermore, 1,000,000 share options with an exercise price of $0.25 were issued to both Steven James and Nicholas Armstrong in their capacity as Non- Executive Directors of the Company. These share options vest over three years pending continued employment and expire on 8 July 2024. On 30 July 2021, the Group announced it had signed a three-year licence agreement with Novatti Group Limited worth $0.2 million. The licence is for the Group’s new Software as a Service (SaaS) version of Overlay+. The impact of the COVID-19 pandemic is ongoing and it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. 74 Identitii Limited Annual Report FY21 Directors’ Declaration Directors’ Declaration 1. In the opinion of the Directors of Identitii Limited (‘the Company’): a. the consolidated financial statements and notes that are set out on pages 23 to 74 are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its performance for the financial year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and ii. b. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. 3. The Directors draw attention to Note 2 to the financial statements, which includes a statement of compliance with International Financial Reporting Standards. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2021. Signed in accordance with a resolution of the Board of Directors: Steven James Chairman Sydney 26 August 2021 75 INDEPENDENT AUDITOR’S REPORT To the Members of Identitii Limited Opinion RSM Australia Partners Level 13, 60 Castlereagh Street Sydney NSW 2000 GPO Box 5138 Sydney NSW 2001 T +61 (0) 2 8226 4500 F +61 (0) 2 8226 4501 www.rsm.com.au We have audited the financial report of Identitii Limited (the Company) and its controlled entity (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2021 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation 76 Key Audit Matter How our audit addressed this matter Share-based payments – Refer to Note 29 in the financial statements. The Group recognised a share-based payment expense of $806,766 in the statement of profit or loss for the year ended 30 June 2021 under various share based payment arrangements. Management has accounted for these arrangements in accordance with AASB 2 Share-Based Payments. Accounting for share-based payments and share option reserves are considered as key audit matters due to the following:  Accounting for share-based payments is non-routine and complex. inputs  There is significant judgement in relation to the the valuation models, including the likelihood of vesting conditions and performance hurdles being met, and the appropriate valuation methodology to apply. into Our audit procedures in relation to the share-based payments included the following:  Making enquiries of management about the the rationale behind the nature of and instruments issued;  Reviewing the terms and conditions of the instruments issued;  Reviewing managements expert's valuation their report, giving due consideration independence and capability; to  Reviewing the valuation methodology to ensure it is in compliance with AASB 2;  Verifying the mathematical accuracy of the underlying model;  Management engaged a third party expert for the valuation process.  Reviewing the inputs to the valuation model for reasonableness;  Critically evaluating the key assumptions used, considering the market, the grant date share the price and current date share price, expected volatility in the share price, the vesting period, and the number of instruments expected to vest;  Recalculating the value of the share-based payment expense to be recognised and the reserve balance, for accuracy, factoring in any cancellations, modifications, expiry, or vesting; and  Reviewing the adequacy of the relevant disclosures, in respect of judgements made, in the financial statements. the disclosures including 77 Key Audit Matter How our audit addressed this matter Payble ownership restructure (Intellectual property (IP) transfer and SAFE note conversion) – Refer to Note 20 in the financial statements. During the year, Identitii Limited founded a new subsidiary Payble Pty Ltd (Payble) in conjunction with Elliott Donazzan. Subsequent to incorporation, CBA New Digital Businesses Pty Ltd (x15ventures) invested $1m in Payble to acquire a minority ownership stake and to assist in accelerating its growth plans. Identitii Limited continues to hold a 60% majority shareholding as at 30 June 2021. We identified the formation of the new subsidiary and the resultant minority investment as a key audit matter due to the following:  It is as significant transaction that occurred during the period, and their judgement involved in applying the requirements of AASB Financial Statements in relation to quantification and accounting in relation to the minority interest and incoming equity. Consolidated 10  There is a risk that the transfer of the IP from to subsidiary was not correctly transactions were parent effected given between related group companies. the Our audit procedures in relation to the Payble ownership structure included the following:  Reviewing the various agreements and to understand the transactions, the consideration received accounting and considerations; related the  Reviewing the Company's accounting treatment in relation to the incoming investment and resultant non-controlling to ensure compliance with AASB 10 Consolidated Financial Statements; interest  Assessing the the compliance of financial presentation the Accounting requirements Standards in respect of the non-controlling interest; disclosures with Australian and of  Reviewing the consolidation journal entries in relation to the transfer of the IP from parent to subsidiary as well as the journal entries in relation to the non-controlling interest; and  In relation to the SAFE notes, RSM obtained documentation from management which supports the conversion of liability settled notes to equity settled notes as of 30 June 2021. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2021 but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 78 Responsibilities of the Directors 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 ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/auditors_responsibilities/ar2.pdf This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 14 to 21 of the directors' report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Identitii Limited, for the year ended 30 June 2021, 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. RSM AUSTRALIA PARTNERS G N Sherwood Partner Sydney, NSW, dated: 26 August 2021 79 Identitii Limited Annual Report FY21 Additional ASX Information Additional ASX Information In accordance with ASX Listing Rule 4.10, the Directors provide the following information as at 11 August 2021. a) Distribution of shareholders and options holders Fully paid ordinary shares holding ranges 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-9,999,999,999 Totals Marketable Parcels Holders Number of shares % of issued capital 47 445 477 1,004 254 2,227 17,603 1,495,928 3,590,561 35,274,056 111,698,637 152,076,785 0.010 0.980 2.360 23.190 73.450 100.000 There are 649 shareholders holding less than a marketable parcel of 6,410 shares each (i.e. less than $500 per parcel of shares) based on the closing price of AUD 0.078 on 11 August 2021 representing a total of 2,418,511 shares. Options Identitii has 35,382,499 unlisted options on issue held by 39 option holders. b) Substantial shareholders A substantial shareholder is one who has a relevant interest in 5 per cent or more of the total issued shares in the Company. Following are the substantial shareholders in the Company based on notifications provided to the Company under the Corporations Act 2011: Shareholder 275 Invest 2 Pty Ltd (1) (1) 275 Invest 2 Pty Ltd and its related parties c) Voting rights Number of shares held % of issued capital 9,609,275 6.32% Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. There are no other classes of equity securities. d) Restricted securities The Company does not have any restricted securities on issue. 80 Identitii Limited Annual Report FY21 e) Twenty largest shareholders Shareholder 1 KTM Ventures Innovation Fund LP 2 HSBC Custody Nominees (Australia) Limited Additional ASX Information Number of shares held % of issued capital 7,388,134 4.858% 4,273,259 2.810% 3 Bannaby Investments Pty Limited 3,356,630 2.207% 4 Wodi Wodi Pty Limited 3,018,792 1.985% 5 BNP Paribas Nominees Pty Ltd 2,759,581 1.815% 6 Pat Property Pty Ltd 7 Mr Benjamin Buckingham 2,579,837 1.696% 2,119,967 1.394% 8 O’Dwyer Technology Training Pty Limited 2,000,000 1.315% 9 Link Traders (Aust) Pty Ltd 10 275 Invest 2 Pty Ltd <275 Invest A/C> 1,964,733 1.292% 1,952,352 1.284% 11 CS Third Nominees Pty Limited 1,893,128 1.245% 12 Ms Sihol Marito Gultom 13 Pintia Pty Ltd 14 Oxleigh Pty Ltd 15 Mr Andrew Robert Robson 16 Creighton & Co Investments Pty Ltd 17 Elorey Pty Ltd 18 Mainstay Holdings Pty Ltd 19 Citicorp Nominees Pty Limited 20 Lotsa Nominees Pty Ltd Total Securities of Top 20 Holdings Total Securities 1,802,037 1.185% 1,801,877 1.185% 1,731,562 1.139% 1,703,254 1.120% 1,590,608 1.046% 1,590,608 1.046% 1,544,007 1.015% 1,533,813 1.009% 1,136,363 0.747% 47,740,542 31.392% 152,076,785 81 Corporate Directory Share Registry Boardroom Pty Limited Level 12 225 George Street Sydney NSW 2000 Telephone: (02) 9290 9600 Identitii Limited Annual Report FY21 Corporate Directory Directors Steven James, Chair John Rayment Nicholas Armstrong Timothy Phillipps Company Secretary Elissa Hansen Registered Office Level 2 129 Cathedral Street Woolloomooloo NSW 2011 Telephone: (02) 9056 4160 ABN 83 603 107 044 Company Website https://identitii.com/ Auditors RSM Australia Pty Ltd Level 13 60 Castlereagh Street Sydney NSW 2000 Solicitors Law Squared Level 13 50 Carrington St Sydney NSW 2000 Securities Exchange Listing Identitii Limited shares are Listed on the Australian Securities Exchange. ASX Code: ID8 82 

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