Indoor Skydive Australia Group Limited
Annual Report 2018

Plain-text annual report

Indoor Skydive Australia Group Limited ABN: 39 154 103 607 For the year ended 30 June ANNUAL REPORT 2018 CORPORATE DIRECTORY Directors Jon BRETT Steve BAXTER Danny HOGAN Wayne JONES James SPENCELEY Simon WARD Company Secretary Salesh NISCHAL and Fiona YIEND Registered Office Principal Place of Business Share Register Auditor Indoor Skydive Australia Group Limited Level 2 201 Miller Street North Sydney NSW 2060 Indoor Skydive Australia Group Limited Level 2 201 Miller Street North Sydney NSW 2060 Boardroom Pty Limited Level 12 225 George Street Sydney NSW 2000 Felsers, Chartered Accountants t/as Accru Felsers Level 6 1 Chifley Square Sydney NSW 2000 Bankers Westpac Banking Corporation Stock exchange listing code: IDZ Website www.indoorskydive.com.au 2 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT CONTENTS Directors’ Review Directors’ Report Remuneration Report (Audited) 4-5 6-11 12-21 Auditor’s Independence 23 Declaration Financial Reports Notes to the Financial Statements 24-27 28-62 Directors’ Declaration 63 Independent Auditor’s Report 64-68 Additional Information 70-72 Front Page: Instructor Dave flies in iFLY Perth. This Page: A First Time Flyer Enjoys a High Fly in Penrith. DIRECTORS’ REVIEW The 2018 financial year concluded with very mixed results. A number of key initiatives were achieved including increasing the investment in our Australian operations team to drive performance and the development of systems and processes focused on the customer experience. However, the achievements of 2018 where overshadowed by the dispute with SkyVenture International Limited and the consequences arising from the resolution of that dispute. During the year, ISA Group’s operations suffered as a result of management being focused on the dispute and the impairments and costs flowing from the settlement achieved after year end have significantly impacted the Company’s financial results. All costs associated with the settlement have been provisioned for in the 2018 financial statements. The focus in 2019 will be to reduce overhead costs and debt levels while increasing earnings from our existing facilities. 2018 Financial Performance For the year ended 30 June 2018, ISA Group reported a statutory loss before interest, tax, depreciation and is particularly amortisation of $6,387,289 This disappointing as without the legal fees, AirRider impairment and dispute settlement costs the underlying result was a positive $2,293,178. This compares to $982,510 in 2017. result On 24 September 2018 ISA Group and SkyVenture entered into a Deed of Settlement which resolved all issues between them and resets the foundations of the relationship. As a result of the settlement ISA Group agreed that it will pay SkyVenture’s Australian and US legal fees and repay the amounts received from SkyVenture in relation to our Perth and Gold Coast facilities. These costs of the settlement are being funded by promissory notes provided by SkyVenture. SkyVenture Relationship Going Forward The relationship between ISA Group and SkyVenture is strong. At an operational level both parties have always and will continue to engage in good faith to drive the performance of indoor skydiving facilities. One of the beneficial outcomes of the dispute with SkyVenture is that both parties now understand the relationship between them and have agreed to work more closely together going forward. As part of the settlement SkyVenture has agreed to provide ISA Group with preferential pricing for the purchase of vertical wind tunnel equipment going forward and ISA Group has confirmed its commitment to SkyVenture and the iFLY franchise. Consistent with its commitment to iFLY, ISA Group has agreed to surrender the AirRider brand. Dispute with SkyVenture Sound Business Model The dispute with SkyVenture centred around whether ISA Group, through any of its entities, could enter into a contract for the supply of a vertical wind tunnel from a third party supplier anywhere in the world. ISA Group, after taking into account appropriate advice, understood that it could. When the Malaysian opportunity arose, based on this understanding, ISA Group proceeded to use a different suppler for the vertical wind tunnel. The arbitrator of the dispute did not agree. There were a number of ancillary arguments raised throughout the dispute process however the key operational issue focused on the supply of vertical wind tunnel equipment. On 19 July 2018 the arbitrator issued a partial final award that contained his findings on the application of the contracts between ISA Group and SkyVenture and found that ISA Group’s Australian operating facilities were in breach of their purchase and license agreements. At that time settlement discussions were well advanced but had not been concluded. the arbitrator’s decision disrupted Receipt of the settlement negotiations and it took some time to get them back on track. ISA Group’s operations are founded on a sound proven business model. Many of the costs associated with each indoor skydiving facility are fixed or able to be reliably estimated resulting in returns being driven by utilisation. With focused committed management high margins can be achieved at a facility level. Throughout 2018 ISA Group has invested in each of its Australian facilities to increase management expertise facilitate a smoother customer and capability, to experience and to break into new market segments. While there is a time lag between the implementation of these changes and their benefits, ISA Group is starting to see new customers from the inbound tourist market, held the first commercial indoor skydiving instructor course and increased the alignment of tunnel flying with outdoor skydiving enthusiasts. Board Renewal ISA Group has a clear strategy for the way ahead and has used the last few months to establish a board of directors with the appropriate skills and expertise to deliver that strategy. 4 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTindependent Jon Brett joins the board as Chairman bringing a high level of financial acumen, leadership and a sharp analytical mind. He is joined by James Spenceley, an experienced entrepreneur who is skilled at delivering growth through corporate transactions and organic development and building start-up ventures into successful stable operations. Simon Ward has also joined the Board reflecting the strong relationship between ISA Group and SkyVenture and providing up to the minute knowledge of the vertical wind tunnel industry and indoor skydiving. Continuity and stability is maintained through the continued services of Steve Baxter, Wayne Jones and Danny Hogan as directors. Looking Ahead The focus for 2019 will be to reduce corporate overheads, to repay debt and to achieve sustainable growth. Our growth focus continues to be Australia, South East Asia, China and Hong Kong over the medium to long term. In the short term, ISA Group’s primary focus will be on current operations and considering all options to maximise shareholder value. Junior Flyer Millie is Excited for Her Next Flight 5 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTDIRECTORS’ REPORT VFS Team practising for the Australian Open DIRECTORS’ REPORT Your Directors present their report on the consolidated entity (referred to hereafter as ISA Group) consisting of Indoor Skydive Australia Group Limited (the Company) and the entities it controlled at the end of, or during, the year ended 30 June 2018. Internet Provider SE Net and co-founder of early telecommunications Pipe Networks Ltd. In 2008 he moved to the USA and joined Google Inc deploying high speed telecommunication infrastructure, before returning to Australia. infrastructure company, DIRECTORS The individuals listed below were Directors of the Company at all times during the year and at the date of this Directors’ Report, unless otherwise stated: Steve is known for his entrepreneurial skills and appears on the popular TV show “Shark Tank”. He is the founder of Brisbane based not-for-profit River City Labs - an early stage and start-up co-working space for tech and creative companies. Steve is a former director of Other Levels Limited and Vocus Communications Limited. Wayne Jones Director & Chief Executive Officer Appointed 4 November 2011 Wayne served for 21 years in the Australian Defence Force and was part of the highly acclaimed Special Air Service Regiment for the last 14 years of his career. Wayne holds various senior instructor qualifications and has been at the forefront of Australian Military Freefall development and training over the past 10 years. He is still involved in the training of special forces troops and he continues to participate in the sport of skydiving at the highest levels. Wayne is a member of the Australian Institute of Company Directors. Wayne served as Interim Chairman between 6 August 2018 and 24 September 2018 while the process of selecting a Chairman and appointing additional non-executive directors was conducted. Danny Hogan MG Director & Chief Operations Officer Appointed 4 November 2011 Danny enlisted in the Australian Regular Army in 1991, and in 1997 was selected for further service within the Special Air Service Regiment. He has been recognised and awarded for his actions and leadership during his 21 year military career including receiving the Medal for Gallantry. He was selected and completed a two year military exchange in the USA with two of the USA’s elite Special Forces Commands. While in the USA he gained his freefall parachuting qualifications and developed a very strong background in the use of vertical wind tunnel simulation training. Danny was a highly qualified senior dive instructor within the Special Air Service Regiment. Danny is a member of the Australian Institute of Company Directors. Steve Baxter Non-Executive Director Appointed 13 August 2012 Jon Brett Chairman – Non-Executive Appointed 24 September 2018 Jon Brett has extensive experience in the areas of management, operations, finance and corporate advisory. Jon was an executive director of Investec Wentworth Private Equity. Jon has served as the managing director of a number of publicly listed companies, including Techway Limited which pioneered internet banking in Australia. Jon is an experienced non-executive director and served as a non-executive director on Vocus Group Limited and was an integral part in helping Vocus grow from a small cap ASX company to an ASX 100 company. He served as the non-executive deputy president of the National Roads and Motoring Association and has been Chairman of the Audit & Risk Committees for a number of different ASX listed companies. In the last three years Jon has been a director of Vocus Group Limited, Godfreys Limited and The PAS Group Limited. Jon is highly qualified and has a B.Acc, B.Com, M. Com CA(SA). James Spenceley Non-Executive Director Appointed 24 September 2018 James Spenceley is an experienced entrepreneur, company director and CEO with a track record of organic and acquisition related value creation. He is the founder and former CEO of Vocus Communications, an ASX100 business and now Australia’s 4th largest telecommunications company. James is the Chairman of Airtasker and former owner of the Illawarra Hawks basketball team. He is co-founder and CEO of MHOR asset management, an Australian small capital investment fund, and twice been recognised as an EY Entrepreneur of the Year award winner. Former Australian Regular Army electronics technician turned successful entrepreneur, Steve is the founder of James is currently Chairman of Silver Heritage Group Limited and Chairman of AirTasker. In the last three years 7 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTDIRECTORS’ REPORT James was an executive director of Vocus Communications Limited. Simon Ward Non-Executive Director To be appointed As International President of iFLY and a director of SkyVenture International Limited, Simon Ward has a detailed understanding of the developments and innovation occurring in the manufacture of vertical wind tunnels. Simon founded the indoor skydiving industry in the United Kingdom and brings over 13 years experience in the operation of indoor skydiving facilities. He is a senior member of the SkyVenture and iFLY leadership team and works with franchisees worldwide to drive the performance of indoor skydiving facilities. Ken Gillespie AC, DSC, CSM Former Chairman – Non-Executive Appointed 18 October 2012 Resigned 6 August 2018 One of Australia’s most distinguished career soldiers, Lieutenant General (retired) Ken Gillespie, AC, DSC, CSM, is the Chairman of ISA Group. Ken is on the Board of Directors of leading local defence manufacturer, Airbus Asia Pacific Group, and ASX listed, Senetas Limited. He is also Chair of the Council of the Australian Strategic Policy Institute, an internationally recognised Canberra based think tank, on the advisory board of Veolia Waste and a board member of the not-for-profit, ANZAC Research Institute. Ken also provides advice to the NSW Government in his role as Co-ordinator of Rural & Regional Infrastructure of NSW. Ken, served with the Australian Defence Force for over 43 years, and was Chief of Army for three years before his retirement in June 2011. Previously he had served as Land Commander Australia and Vice Chief of the Australian Defence Force. COMPANY SECRETARY Salesh Nischal Chief Financial Officer & Company Secretary Appointed Company Secretary on 24 September 2018 Salesh Nischal has 21 years of extensive financial and operational experience in the ASX reporting environment within large diverse organisations. He has experience performing company secretarial work as part of the finance function. He has a proven ability to implement financial risk management, cost control management and internal controls. Salesh holds a Bachelor of Arts degree in accounting and has CPA qualifications. 8 Fiona Yiend General Counsel & Company Secretary Appointed 16 October 2013 Resigned 27 September 2018 Fiona Yiend is an experienced company secretary with over 9 years’ experience in the listed environment. She holds a Bachelor of Arts, Bachelor of Laws (Hons), Graduate Diploma in Applied Finance and Investments, Graduate Diploma in International Law and a Graduate Diploma in Applied Corporate Governance. She is also a member of the Association of Corporate Counsel (ACC). DIRECTORS’ MEETINGS The number of Directors’ meetings that Directors were eligible to attend and the number of meetings attended by each Director during the year are listed below. Board Eligible to Attend Attended Wayne Jones Danny Hogan Steve Baxter Ken Gillespie 12 12 13 13 11 11 13 13 DIRECTORS’ SHAREHOLDINGS The following table sets out each Director’s relevant interest in shares and options in shares of ISA Group as at the date of this report. Director Number of Shares and Nature of Interest Wayne Jones Indirect interest in 16,060,000 shares held by Excalib-air Pty Ltd, indirect interest in 325,000 shares held by Project Flight Pty Ltd ATF Wayne Jones Superannuation Fund, indirect interest in 14,000 shares held by Project Gravity Pty Ltd, indirect interest in 2,627,307 shares held by Project Gravity Pty Ltd ATF Jones Family Trust. Direct interest in 1,100,000 unlisted Options with an exercise price of $0.35, subject to vesting conditions being met, and an expiry date of 23 August 2021. INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTDIRECTORS’ REPORT Director Danny Hogan Steve Baxter Jon Brett James Spenceley Ken Gillespie Number of Shares and Nature of Interest Indirect interest in 16,060,000 shares held by Excalib-air Pty Ltd, indirect interest in 200,000 shares held by Hogan Superannuation Fund, indirect interest in 2,187,833 shares held by Australian Indoor Skydiving Pty Ltd ATF Hogan Family Trust. Direct interest in 1,100,000 unlisted Options with an exercise price of $0.35, subject to vesting conditions being met, and an expiry date of 23 August 2021. Indirect interest in 17,039,475 shares held by Birkdale Holdings (QLD) Pty Ltd. Contractual right to be issued 6,000,000 unlisted options with an exercise price of $0.25 and an expiry date of 18 June 2020 conditional on receipt of shareholder approval. Nil Nil Indirect interest in 436,142 shares held by Sector West Pty Ltd ATF Gillespie Family Trust No Director has any relevant interest in shares or options in shares of a related body corporate of ISA Group as at the date of this report. DIVIDENDS No dividends were declared during the period. PRINCIPAL ACTIVITIES ISA Group owns and operates Indoor Skydiving Facilities. ISA Group has three operating Australian Indoor Skydiving Facilities; iFLY Downunder (Penrith NSW), iFLY Gold Coast and iFLY Perth. In early 2018 ISA Group, in partnership with 1 Utama, opened its first international first Indoor Skydiving Facility in Kuala Lumpur, Malaysia. The Malaysian facility operates under the brand AirRider 1 Utama. REVIEW OF OPERATIONS The financial year ended 30 June 2018 was a challenging year for ISA Group with lower than expected performance across the industry and difficult trading conditions in the last half of the year. Against this backdrop, ISA Group implemented a number its Australian of efficiencies and restructures across operations to drive revenue while continuing to provide an optimal customer experience. The operations were also impacted by senior management’s need to focus on an arbitration proceeding in the second half of the year which resulted in some revenue generating activities being deferred. ISA Group’s Malaysian facility opened to the public in the second half of the financial year under the AirRider brand. As part of the settlement with SkyVenture International Limited referred to below, ISA Group has committed to deliver growth projects under the iFLY or SkyVenture brands and to use SkyVenture VWT equipment on a worldwide basis. Accordingly, ISA Group has impaired all investment in the AirRider brand and will seek to transfer all management agreements and other economic benefits associated with the Malaysian facility to SkyVenture. For the year ended 30 June 2018, ISA Group reported statutory loss before interest, tax, depreciation and amortisation was $6,387,289. The underlying EBITDA (excluding legal fees, AirRider impairment and dispute settlement costs) is $2,293,178. This compares to $982,510 in 2017. ISA Group’s initial focus going forward is on driving the performance of our operations, establishing a stable reliable level of performance and creating efficient customer focused experiences. Through the revitalised partnership with SkyVenture, ISA Group will be able to access preferential pricing and bespoke fit for purpose VWT models to support our future growth. The growth focus continues to be Australia, South East Asia, China and Hong Kong over the medium to long term. In the short term, ISA Group’s primary focus will be on current operations. CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the affairs of the Company during the financial year which have not been disclosed to the market. 9 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTDIRECTORS’ REPORT SUBSEQUENT EVENTS INTERESTS IN ISA GROUP SECURITIES Details of the ISA Group securities issued during the year, and the number of ISA Group securities on issue as at 30 June 2018 are detailed in Note 16 of the Financial Statements and form part of this Directors’ Report. As at 30 June 2018 ISA Group had 3,500,000 employee and executive director unlisted options on issue with an exercise price of $0.35, tenure based vesting conditions and an expiry date of 23 August 2021. As at 30 June 2018 ISA Group had a contractual obligation to issue 6,000,000 unlisted options with an exercise price of $0.25 and an expiry date of 18 June 2020 to Birkdale Holdings (QLD) Pty Ltd subject to shareholder approval. ISA Group intends to request shareholder approval of the issue of the options at the 2018 Annual General Meeting. ENVIRONMENTAL REGULATION ISA Group is not subject to any significant environment regulation under any law of the Commonwealth or of a State or Territory. DIRECTORS’ AND OFFICERS’ INSURANCE During the financial year, ISA Group has paid premiums to insure all Directors and Officers against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of a director or officer of the Company, other than conduct involving a wilful breach of duty in relation to the Company. In accordance with common commercial practice, the insurance policy prohibits disclosure of the nature of the liability insured against and the amount of the premium. The Directors and Company Secretary of ISA Group are also party to a deed of access and indemnity. The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or any related body corporate against a liability incurred by such an officer or auditor. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the court under section 237 of the Corporations Act 2001 for leave to bring, or intervene in, proceedings on behalf of any entity within ISA Group. On 19 July 2018 ISA Group received a partial final arbitral award from the Arbitrator of the dispute with SkyVenture International Limited. The award addressed the question of liability only and did not address remedy, costs or any quantum. After receipt of the award ISA Group and SkyVenture International Limited agreed to a settlement which addressed all issues between them. The settlement provides for ISA Group to pay SkyVenture for its legal costs, to transfer all ownership in the AirRider brands and the management agreements and other economic benefits associated with the Malaysian facility to SkyVenture. SkyVenture has committed under the settlement to supply ISA Group with specialist vertical wind tunnel equipment at preferential prices to support ISA Group’s future growth. is funded by Promissory Notes The settlement for US$3,789,933 from SkyVenture International Limited. The loans under the promissory notes have a 2-year term with the first year comprising interest payments only. For so long as ISA Group is listed, up to US$1,619,219.99 of the loan amount may be converted into ISA Group ordinary shares from 60 days after the effective date of the note at a conversion price of US$0.079. The maximum number of shares that may be issued on conversion is 20,496,455 which is within ISA Group’s capacity to issue under Listing Rules 7.1. FUTURE DEVELOPMENTS ISA Group’s initial focus going forward is on driving the performance of our operations, establishing a stable reliable level of performance and creating efficient customer focused experiences. Through our revitalised partnership with SkyVenture, ISA Group will be able to access preferential pricing and bespoke fit for purpose VWT models to support our future growth. Our growth focus continues to be Australia, South East Asia, China and Hong Kong over the medium to long term. In the short term ISA Group’s primary focus will be on current operations. In the opinion of the Directors, disclosure of any further information regarding business strategies and future development of ISA Group would be unreasonably prejudicial to the Company. REMUNERATION REPORT (AUDITED) The Remuneration Report set out from page 12 forms part of this Directors’ Report. 10 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT DIRECTORS’ REPORT AUDITORS Felsers Chartered Accountants trading as Accru Felsers was appointed as ISA Group’s auditor on 13 June 2018 and continues in office until the 2018 Annual General Meeting. Shareholders will be asked to approve the appointment of Felsers Chartered Accountants as auditor at the 2018 Annual General Meeting in accordance with section s327C of the Corporations Act 2001. NON-AUDIT SERVICES The Directors have considered and are satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: - all non-audit services are reviewed and approved by the Board prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and the nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. - The fees paid or payable to Felsers Chartered Accountants for non-audit services provided during the year ended 30 June 2018 were $7,500. AUDITOR’S INDEPENDENCE DECLARATION The Auditor’s Independence Declaration at page 23 forms part of this Directors’ Report. ROUNDING OF AMOUNTS ISA Group is not an entity to which ASIC Legislative Instrument 2016/199 applies. Accordingly, amounts in the financial statements and annual reports have been rounded to the nearest dollar not the nearest thousand dollars. BUY BACK ISA Group does not currently have any on-market buy- back of shares. STATEMENT OF CORPORATE GOVERNANCE ISA Group’s Statement of Corporate Governance for the year ended 30 June 2018 is available at http://www.indoorskydiveaustralia.com.au/ skydivecompany/charters-and-policies/. This Directors’ Report is made in accordance with a resolution of the directors made pursuant to section 298(2) of the Corporations Act. On behalf of the Board Wayne Jones Director & Chief Executive Officer 26 September 2018 Sydney 11 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT REMUNERATION REPORT Amy Watson Wows the Crowd with Her Freestyle Routine REMUNERATION REPORT 1. Introduction This Remuneration Report for the year ended 30 June 2018 forms part of the ISA Group Directors’ Report and has been audited in accordance with the Corporations Act 2001. The Remuneration Report details remuneration information for the KMP of ISA Group comprising the Non-Executive Directors, Executive Directors and the senior executives responsible for planning, directing and controlling the activities of ISA Group. 2. Remuneration Governance ISA Group’s remuneration strategy has been designed to promote shareholder growth by setting strategic and operational targets for at risk remuneration while maintaining a base salary that fairly rewards employees. Consideration of Remuneration & Nomination Matters All remuneration matters across ISA Group are reviewed by a ‘one up’ manager to ensure that no single individual is determining remuneration. In the case of the Chief Executive Officer and his direct reports all remuneration matters are submitted to the Board for consideration and, if appropriate, approval. Where appropriate external advice is obtained for the benefit of the Board in considering remuneration matters. This advice can take the form of remuneration benchmarking, remuneration consultancy, tax or financial consultancy services. The approval of remuneration matters is restricted to non-executive directors only. Since April 2017 remuneration matters have been considered by the Board of Directors (Executive Directors excluded) under the auspices of the Remuneration & Nomination Committee Charter which is available at www.indoorskydive.com.au. Remuneration Recommendations ISA Group engages independent external consultants to provide advice and assistance in relation to remuneration from time to time as required. ISA Group received preliminary advice on long term incentives to drive performance in 2018 and the following years. This advice formed the foundation of ISA Group’s long term incentive which utilises premium priced options. Hedging of Remuneration ISA Group’s KMP and their closely related parties are prohibited from hedging or otherwise reducing or eliminating the risk associated with equity based incentives. 3. Key Management Personnel The KMP for ISA Group for 2018 comprise the Non-Executive Directors, Executive Directors and the senior executives responsible for planning, directing and controlling the activities of ISA Group. Executive KMP Wayne Jones Danny Hogan Non-Executive Directors: Executive Director & Chief Executive Officer Executive Director & Chief Operations Officer Ken Gillespie* Chair Stephen Baxter Director Salesh Nischal Chief Financial Officer Fiona Yiend General Counsel & Company Secretary Profiles of KMP can be found on page 7 and 8. * Resigned 6 August 2018 at which time Wayne Jones assumed the role of Interim Chairman until 24 September 2018. 13 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTREMUNERATION REPORT 4. Remuneration Principles, Strategy and Outcomes Remuneration principles ISA Group’s remuneration strategy is based on the following principles: • • • • Retain Top Talent – As ISA Group operates in a unique environment with a limited pool of talent ISA Group seeks to retain the high calibre people it has identified. Align rewards with business performance – ISA Group seeks to align remuneration rewards with business performance through the use of “at risk” remuneration and the assessment of performance. Support the execution of business strategy – ISA Group seeks to motivate employees to execute our aggressive growth strategy by setting performance objectives in line with strategic outcomes. Fairness, equity and consistency – ISA Group implements a consistent, transparent process for remuneration review and structures remuneration to achieve equity for like positions taking into account performance and tenure. These principles are applied as we assess remuneration in the context of the operational demands of the business, the labour market we operate in, and returns to shareholders. Remuneration Strategy ISA Group’s remuneration strategy for 2018 focused on driving the delivery of operation, strategic and growth strategies. Short term incentives were used to focus on achieving key deliverables to the ISA Group strategic plan with long term incentives designed to encourage the retention of key employees and promote shareholders interest. The following table sets out the mix of remuneration types and their alignment to our remuneration strategy: Fixed Remuneration Short-Term Incentive (STI) Long Term Incentive (LTI) Consists of Base salary Rewards for Experience, skills, capability and performance. Annual cash payment subject to the achievement of strategic targets Participation in the ISA Group Employee Incentive Option Plan Achieving set outcomes for the financial year including financial targets, operational milestones and strategic developments. Tenure over a long term period. As the options have a premium built into the exercise price the employee only benefits if an increase in shareholder value is achieved. Is Fixed At Risk At Risk Reviewed annually Wholly dependent on achieving the set financial targets Determined by Review of individual performance, experience and capability within the context of the overall business performance. Performance against predetermined targets. STI is only payable if the targets are achieved. It includes an initial target and a stretch target for each category of target to encourage continued performance. Wholly dependent on achieving the set tenure requirements and being “in the money” during the exercise period. Retention of individual over a course of time with premium exercise price set to require an increase in shareholder value before a benefit is received. 14 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT REMUNERATION REPORT Remuneration Outcomes for Executive KMP The remuneration received by Executive KMP in 2018 and 2017 is set out below. Short Term Benefits Post Employment Benefits KMP Year Salary STI Non Monetary Superannuation Long Term Benefits Long Service Leave Other Termination Share Based Payments Options/ Rights $ $ $ $ $ $ $ Total $ Wayne Jones CEO Danny Hogan COO Salesh Nischal CFO1 Fiona Yiend General Counsel/ Company Secretary Brett Sheridan CCO2 2018 218,759 2017 208,725 2018 218,759 2017 208,725 2018 176,550 2017 16,975 2018 185,038 2017 146,578 2018 103,615 2017 178,200 Stephen Burns Former CFO3 2017 179,675 1 Appointed CFO on 10 May 2017 2 Resigned 8 January 2018 3 Resigned effective 17 May 2017 - - - - - - - - - - - 15,090 20,782 8,943 19,829 16,571 20,782 16,020 19,829 - - 16,773 1,613 7,560 17,579 4,019 13,925 9,439 7,372 - 9,812 16,929 17,692 - - - - - - - - - - - - - - - - - - - - - - 13,034 267,665 51,212 288,709 13,034 269,146 51,212 295,786 15,788 209,111 - 18,588 15,788 225,965 30,537 195,059 - 122,866 30,537 233,038 (29,788) 167,579 Executive Remuneration Structure Remuneration Mix Fixed annual remuneration provides a “base” level of remuneration. Short and long-term variable incentives (“at risk”) reward executives for meeting and exceeding pre-determined targets. The targets for at-risk rewards is linked to clear measurable targets which the Company considers are significant to achieving our strategic plan and delivering shareholder returns. The percentage of at risk remuneration varies between executives based on the extent to which they are in a position to directly influence company performance. The executive directors’ at risk remuneration comprises short term incentives of 36% of base salary plus long term incentives which are assessed over a three year period. Other executives have short term incentives of up to 25% of their base at risk in each financial year in addition to long term incentives assessed over a three year period. Fixed Remuneration Fixed remuneration consists of cash salary, superannuation and other limited non-monetary benefits. The levels are set to attract and retain qualified, skilled and experienced executives and are determined based on comparable market data, the skills and experience of the individual executive and the accountability and responsibility of the role. 15 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTREMUNERATION REPORT Following an independent external remuneration review in 2013 which identified that ISA Group Executive KMP remuneration was within the bottom quartile compared to its comparator group, ISA Group has been moving fixed remuneration closer to the median level. Short Term Incentive Structure The key features of ISA Group’s STI Plan are outlined below: What is the purpose of the STI? STI performance targets drive executives to focus on achieving ISA Group’s performance goals in relation to current operations, future operations and the strategic plan. Who participates? All Executive KMP and selected senior executives. How much can be earned under the STI Plan? The target STI opportunity for KMP is between 14% to 18% of base salary depending on the role. For stretch/over performance, KMP can earn a total STI of 25% to 36% of base salary. What are the performance conditions? The performance criteria is: Current Operations (50%) – EBITDA targets Future Operations (25%) – Milestones in relation to the Malaysian project to be achieved by set dates Strategic Plan (25%) - Milestones in relation to international growth plan to be achieved by set dates Over what period is it measured? Performance is measured over the 12 month period from 1 July to 30 June. How is it paid? STI payments are made on the achievement of reaching targets (ie payments are not made progressively). If targets are reached the full STI is paid. If the target is achieved but the stretch target is not, no payment or partial payment is made for exceeding the target. The Executive must be an employee and not serving out a notice period when the payment of an STI is made. Payment occurs after conclusion of the end of year audit (usually September). When and how is it reviewed? The STI is reviewed annually in line with the review of remuneration and the setting of the upcoming financial budget. Who assesses performance against targets? The targets are objective measures which are assessed by the Board. Financial measures are assessed against the Company’s audited financial accounts. The Board approves all STI assessments and payments. What are the clawback provisions? None 16 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTREMUNERATION REPORT Short term Incentive Outcomes For 2018, the STI performance targets were not met. All Executive KMP forfeited 100% of their STI award. Long Term Incentive Structure The key features of the ISA Group Long Term Incentive (LTI) are outlined below: What is the purpose of the LTI? The LTI aligns employee interest with shareholder interest with a focus on increasing shareholder value. Who participates? Participants are the KMP who drive the growth strategy of ISA Group. What is the vehicle? Awards are in the form of premium priced options in accordance with the ISA Group Employee Incentive Option Plan. If performance hurdles related to tenure are met the options will vest. Once vested, each option entitles the employee to purchase one share in ISA Group for $0.35. What are the performance conditions and what is the performance period? The performance hurdles are split into two tranches with 50% of the options vesting on continuous employment with the Company for 2 years and 50% of the options vesting on continuous employment with the Company for 3 years. Vested options only provide a financial benefit to the employee if the exercise price of $0.35 is lower than the ISA Group share price on the ASX during the exercise period. What are the service conditions? An employee must be continuously employed with the Company for options to vest. Termination of employment prior to vesting causes the options to lapse. How is it paid? Subject to meeting the performance hurdles the options vest. Once vested each option can be exercised to purchase one fully paid ordinary ISA Group share for $0.35. How are performance conditions set? The performance conditions were set by the Board after considering the appropriate incentive and conditions to align employee and shareholder interests. What happens if a change of control occurs? If a change in control event occurs vested options may be exercised for shares in the acquiring company with appropriate adjustments provided that the Company, employee and acquiring company agree. What are the clawback provisions? If in the reasonable opinion of the Board a participant in the LTI has acted fraudulently or dishonestly or is in material breach of his or her obligations to ISA Group then the Board in its absolute discretion may determine that any unvested options lapse or that any vested but unexercised options lapse. 17 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTREMUNERATION REPORT Long Term Incentive Awards and Outcomes During 2018 the following options were issued under the ISA Group Employee Incentive Option Plan. Each vested option entitles the holder to purchase one ordinary ISA Group share for the exercise price of $0.35. Shareholder approval was granted to the issue of options to Wayne Jones and Danny Hogan on 21 November 2017. Employee Options Exercise Price Vested Vesting Date Tranche 1 (50%) Vesting Date Tranche 2 (50%) Expiry Date Value of Option on Grant Date Wayne Jones 1,100,000 $0.35 No 24 August 2019 24 August 2020 23 August 2021 3.55 cents Danny Hogan 1,100,000 $0.35 No 24 August 2019 24 August 2020 23 August 2021 3.55 cents Salesh Nischal 650,000 $0.35 No 24 August 2019 24 August 2020 23 August 2021 7.29 cents Fiona Yiend 650,000 $0.35 No 24 August 2019 24 August 2020 23 August 2021 7.29 cents Summary of Executive Contracts Executive contracts set out remuneration details and other terms of employment for each individual executive. The key provisions of the KMP contracts relating to terms of employment and notice periods are set out below. Contractual terms vary due to the timing of contracts, individual negotiations and different market conditions. Date of contract Term of contract Notice required to be given to the Company for termination by Employee Termination Payments Wayne Jones Director and CEO Danny Hogan Director and COO Salesh Nischal Chief Financial Officer Fiona Yiend General Counsel & Company Secretary October 2012 Ongoing 6 months October 2012 Ongoing 6 months May 2017 Ongoing 6 Weeks September 2013 Ongoing 6 Weeks 5. Non-Executive Director Remuneration 6 months’ notice for termination by Employer and legislative entitlements on redundancy. 6 months’ notice for termination by Employer and legislative entitlements on redundancy. 6 weeks’ notice for termination by Employer and legislative entitlements on redundancy. 6 weeks’ notice for termination by Employer and 6 months on redundancy. Approved Fee Pool Non-Executive Director fees are determined within a maximum directors’ fee pool limit. The directors’ fee pool was set in 2012 as $500,000. No director’s fees are paid to Executive Directors, Wayne Jones and Danny Hogan. Total non-executive remuneration paid during 2018 was $125,417 (FY17: $210,192). Approach to setting Non-Executive Director Remuneration Non-Executive Directors receive fixed remuneration in the form of a fee. The fee is set taking into account the conditions at the time of the director’s appointment, the director’s skills and expertise and the role to be performed by the director. 18 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTREMUNERATION REPORT Non-Executive Directors do not receive variable remuneration or other performance-related incentives. The Non-Executive Director fees were not increased in 2018. The Non-Executive Directors fees for the last two financial years are set out below. Financial Year Salary and Fees Bonus Share based payments Stephen Baxter Ken Gillespie* 2018 2017 2018 2017 David Murray** 2017 Kirsten Thompson** 2017 * Resigned 6 August 2018 ** Resigned 25 April 2017 40,417 55,000 85,000 85,000 29,727 40,465 - - - - - - - - - - - - Total 40,417 55,000 85,000 85,000 29,727 40,465 6. Other Statutory Disclosures ISA Group’s Financial Performance The table below sets out ISA Group’s earnings and movements in shareholder wealth over the last 5 years. 2014 2015 2016 2017 2018 Revenue 1,212,643 6,431,444 8,155,888 12,271,081 13,880,529 Net Profit/(Loss) after Tax (2,714,016) (1,903,921) (1,506,760) (891,290) (10,140,582) Share price at 30 June 0.68 0.45 0.40 0.20 0.12 19 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTREMUNERATION REPORT Performance rights holdings of KMP During the period 2013 to 2017 ISA Group used performance rights as a long term incentive tool. The last issue of shares on the exercise of vested performance rights occurred at the beginning of the 2018 financial year. Non-executive Directors do not hold performance rights. Details of the performance rights holdings of other KMP are set out below: Balance at 1 July 2017 Granted as remuneration Rights exercised Rights lapsed Rights Forfeited Balance at 30 June 2018 Wayne Jones 228,554 Danny Hogan 228,554 Salesh Nischal - Fiona Yiend 129,054 Brett Sheridan 129,054 Option holdings of KMP - - - - - 228,554 228,554 - 129,054 129,054 - - - - - - - - - - - - - - - Details of the option holdings of KMP are set out below. Non-Executive Directors are not granted options as part of their remuneration: Balance at 1 July 2017 Granted as remuneration Rights exercised Rights lapsed Rights Forfeited Balance at 30 - - - - June 2018 1,100,000 1,100,000 650,000 650,000 650,000 - Wayne Jones Danny Hogan Salesh Nischal Fiona Yiend Brett Sheridan - - - - - 1,100,000 1,100,000 650,000 650,000 650,000 - - - - - - - - - - 20 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTREMUNERATION REPORT Shareholdings of KMP The shareholding of the KMP including their associates is as follows: KMP Role Interest in shares held at 1 July 2017 Interest in shares acquired / (disposed) during the period Interest in shares issued on exercise of vested performance rights during the period Balance at 30 June 2018 Ken Gillespie Chairman* 436,142 Steve Baxter Wayne Jones Danny Hogan Salesh Nischal Non-Executive Director Chief Executive Officer & Director Chief Operations Officer & Director Chief Financial Officer 17,039,475 18,797,753 18,219,279 - Fiona Yiend General Counsel & Company Secretary 140,000 - - - - Brett Sheridan Chief Commercial Officer** 550,000 129,054 * Resigned 6 August 2018 ** Resigned 8 January 2018 - - 228,554 228,554 - 129,054 436,142 17,039,475 19,026,307 18,447,833 - 269,054 679,054 2017 Annual General Meeting (AGM) At the Company’s AGM in November 2017, 98.43% of votes received were in favour of adopting the remuneration report. Related Party Transaction On 19 June 2018 ISA Group entered into agreements for a $3m loan facility from Birkdale Holdings (QLD) Pty Ltd ATF the Baxter Family Trust, a company associated with Steve Baxter. The term of the loan is 2 years and it is supported by a second ranking general security agreement. As part of the loan agreements ISA Group will issue 6,000,000 options with an exercise price of $0.25 and an expiry date of 2 years from the date of issue. The issue of the options is subject to shareholder approval which will be sought at the 2018 Annual General Meeting. 21 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTAUDITOR’S INDEPENDENCE DECLARATION Sarah Yates puts on a Show for the Crowds AUDITOR’S INDEPENDENCE DECLARATION Auditor’s Independence Declaration To the Directors of Indoor Skydive Australia Group Limited In accordance with the requirements of section 307 of the Corporations Act 2001, as lead auditor for the audit of Indoor Skydive Australia Group Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. Felsers Chartered Accountants Michael Kersch Partner Sydney 26 September 2018 23 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2018 Revenue Cost of sales Gross profit Other income Selling and marketing expenses Administration expenses Impairment of AirRider brand Legal expense Dispute settlement costs Other expenses Loss before Interest and Tax Finance income Finance expense Net financing costs Share of loss from joint venture entities Loss Before Tax Income tax (expense)/benefit Loss After Tax Other comprehensive income Exchange differences on translation of foreign operations Note 3 3 3 (a) 3 (b) 10 4 Consolidated Group 2018 $ 2017 $ 13,880,529 12,271,081 (2,575,301) (2,464,687) 11,305,228 9,806,394 396,753 45,478 (5,183,269) (4,602,987) (2,627,648) (2,520,068) (3,532,751) (1,560,123) (8,324,865) 615 (558,598) (557,983) (339,583) (9,222,431) (918,151) (10,140,582) (4,731,189) (4,354,932) - - - (1,432,046) (666,295) 7,373 (383,317) (375,944) - (1,042,239) 150,949 (891,290) 805 - Total comprehensive loss for the year (10,139,777) (891,290) Earnings per share From continuing operations: Basic earnings per share (cents) Diluted earnings per share (cents) 24 24 (7.42) (7.42) (0.68) (0.68) The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the Notes to the financial Statements. 24 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2018 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other financial asset TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Investment in joint venture entities Intangible asset Deferred tax asset Other financial asset TOTAL NON-CURRENT ASSETS Notes 5 6 7 8 10 11 4, 1(s).ii 7 Consolidated Group 2018 $ 2017 $ 953,541 105,473 83,156 130,890 1,273,060 1,706,457 917,777 74,105 42,489 2,740,828 42,151,324 43,965,692 206,329 264,350 1,249,487 197,440 44,068,930 - 773,304 2,167,638 209,245 47,115,879 TOTAL ASSETS 45,341,990 49,856,707 LIABILITIES CURRENT LIABILITIES Trade and other payables Deferred revenue Borrowings Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Share capital Reserve Accumulated losses TOTAL EQUITY 12 13 14 15 14 15 16 3,997,700 1,231,797 1,886,317 425,288 7,541,102 9,081,123 6,338,337 15,419,460 3,655,064 1,907,300 472,312 276,558 6,311,234 10,267,198 818,289 11,085,487 22,960,562 17,396,721 22,381,428 32,459,986 40,810,939 58,450 (18,487,961) 22,381,428 40,466,917 340,448 (8,347,379) 32,459,986 The Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Financial Statements. 25 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2018 Share Capital Reserves Accumulated Total $ $ $ $ Losses Balance at 1 July 2017 Share issue on exercise of performance 40,466,917 344,022 rights Employee share based payment performance rights Issue of share options Comprehensive income Loss for the year Other comprehensive income Total comprehensive loss for the year - - - - - 340,448 (344,022) 3,574 57,645 - 805 805 (8,347,379) 32,459,986 - - - - 3,574 57,645 (10,140,582) (10,140,582) - 805 (10,140,582) (10,139,777) Balance at 30 June 2018 40,810,939 58,450 (18,487,961) 22,381,428 Balance at 1 July 2016 34,648,455 658,164 (7,456,089) 27,850,530 Shares issued during the year Share issue costs Share issue on exercise of performance rights Employee share based payment performance rights Comprehensive income Loss for the year Total comprehensive loss for the year 5,665,005 (342,131) 495,588 - - - - - (495,588) 177,872 - - - - 5,665,005 (342,131) - 177,872 - - (891,290) (891,290) (891,290) (891,290) Balance at 30 June 2017 40,466,917 340,448 (8,347,379) 32,459,986 The Consolidated Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements. 26 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2018 Cash Flows From Operating Activities Receipts from customers Payments to suppliers and employees Grant income received Interest received Finance costs Consolidated Group 2018 $ 2017 $ Note 14,946,055 (13,508,159) - 615 (558,598) 14,523,197 (12,023,796) 24,875 7,373 (383,317) Net cash inflows from operating activities 18 879,913 2,148,332 Cash Flows From Investing Activities Purchase of property, plant and equipment Payments for investment in joint venture Payment for intangible assets (106,485) (545,107) (1,263,202) (9,389,457) - (517,477) Net cash outflows from investing activities (1,914,794) (9,906,934) Cash Flows From Financing Activities Proceeds from issue of securities Proceeds from borrowings Repayment of borrowings Share issue costs - 1,500,000 (1,218,035) - 5,665,005 2,493,302 (901,718) (342,131) Net cash inflows from financing activities 281,965 6,914,458 Net decrease in cash held (752,916) (844,144) Cash and cash equivalents at beginning of year 1,706,457 2,550,601 Cash and cash equivalents at end of year 5 953,541 1,706,457 The Consolidated Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements. 27 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 These consolidated financial statements and notes represent those of Indoor Skydive Australia Group Limited and Controlled Entities (the Consolidated Group or Group). The separate financial statements of the parent entity, Indoor Skydive Australia Group Limited have not been presented within this financial report as permitted by the Corporations Act 2001. The financial statements were authorised for issue on 26 September 2018 by the Directors of the Company. NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Indoor Skydive Australia Group Ltd is the Group’s ultimate parent company. Indoor Skydive Australia Group Ltd is a public company listed on the Australian Stock Exchange and domiciled in Australia. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Australian Accounting Standards set out accounting policies that the Australian Accounting Standards Board has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. 28 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT) Basis of Accounting The Group incurred a loss for the year after tax of $10,140,582 (2017: loss of $891,290) and has a net current deficiency in assets of $6,268,042. Included within current liabilities are deferred revenue of $1,231,797 that will be realised as revenue once the service has been delivered to the customer. Therefore, excluding this balance, the Group has an adjusted current asset deficiency position of $5,036,245 at 30 June 2018. The following matters have been considered by the directors in determining the appropriateness of the going concern basis of preparation in the financial statements: i) in July and August 2018, the consolidated entity received the balance of $1,500,000 in funding from Birkdale Holdings (QLD) Pty Ltd. As a result, the consolidated entity will have sufficient working capital to enable it to meet its objectives and financial obligations. ii) the consolidated entity generated net operating cash inflow for the financial year ended 30 June 2018 of $879,913 (2017: $2,148,332). Excluding the legal costs that have been paid in financial year 2018, net operating cash flow was $1,679,146. Management expect that the operating costs will be further reduced in the succeeding financial year as a result of the restructuring of its operations, which further increases operating cash flows. iii) in September 2018, the consolidated entity has entered into a settlement that is funded by Promissory Notes for US$3,789,933 from SkyVenture International Limited. The loans under the promissory notes have a 2-year term with the first year comprising interest payments only. For so long as ISA Group is listed, up to US$1,619,219.99 of the loan amount may be converted into ISA Group ordinary shares from 60 days after the effective date of the note at a conversion price of US$0.079. iv) the Westpac Banking Corporation has agreed to consolidate all loan facilities and to increase the term of the loan to be repaid over a 7 year term which will result in reduction in the monthly loan repayment amounts. The directors are of the opinion that no asset is likely to be realised for an amount less than the amount at which it is recorded in the financial statements as at 30 June 2018. Accordingly, no adjustments have been made to the financial statements relating to the recoverability and classification of the asset carrying amounts or the amounts and classification of liabilities that might be necessary should the consolidated entity not continue as a going concern. A cash flow forecast for the next 12 months prepared by management has indicated that the consolidated entity will have sufficient cash assets to be able to meet its debts as and when they fall due. The directors are satisfied that the consolidated entity is able to meet its working capital liabilities through the normal cyclical nature of receipts and payments. As a result, the financial report has been prepared on a going concern basis. 29 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT) a. Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Indoor Skydive Australia Group Limited at the end of the reporting period. A controlled entity is any entity over which Indoor Skydive Australia Group Limited has the ability and right to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Where controlled entities have entered or left the Group during the year, the financial performance of those entities is included only for the period of the year that they were controlled. A list of controlled entities is contained in Note 9 to the financial statements. In preparing the consolidated financial statements, all intragroup balances and transactions between entities in the consolidated group have been eliminated in full on consolidation. Non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are reported separately within the equity section of the consolidated statement of financial position and statements showing profit or loss and other comprehensive income. The non-controlling interests in the net assets comprise their interests at the date of the original business combination and their share of changes in equity since that date. b. Income Tax The income tax expense/(benefit) for the year comprises current income tax expense/(benefit) and deferred tax expense/(benefit). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities/(assets) are measured at the amounts expected to be paid to/(recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense/(benefit) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. With respect to non-depreciable items of property, plant and equipment measured at fair value and items of investment property measured at fair value, the related deferred tax liability or deferred tax asset is measured on the basis that the carrying amount of the asset will be recovered entirely through sale. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. 30 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT) Tax Consolidation - Australia The Company and its wholly-owned Australian resident entities have formed a tax consolidated group with effect from 1 November 2011 and will therefore be taxed as a single entity from that date. The Company is the head entity within the tax-consolidated group. Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using a modified stand-alone tax allocation methodology. Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the controlled entities are assumed by the head entity in the tax-consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax-consolidated group in conjunction with any tax funding arrangements. The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability is recognised by the head company only. c. Property, Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Plant and Equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1(j) for details of impairment). The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised as expenses in profit or loss during the financial period in which they are incurred. 31 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT) Depreciation The depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Office equipment Furniture and fittings IT equipment Useful Life 3 years 5 years 5 years Vertical wind tunnel building infrastructure 40 years Vertical wind tunnel equipment 20 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are recognised in profit or loss in the period in which they arise. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. 32 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT) d. Intangibles Exclusive Territory Development Agreement Acquired intangibles are capitalised on the basis of the costs incurred to acquire and install the specific licence. Refer to Note 11 for further information. Development Costs Internally generated intangibles including capitalised development costs on individual projects that are recognised as an intangible asset when the Group can demonstrate that the asset will generate future economic benefits and can be measured reliably. Costs that are directly attributable to a project’s development phase are recognised as intangible assets, provided they meet the following recognition requirements: • the development costs can be measured reliably • the project is technically and commercially feasible • the Group intends to and has sufficient resources to complete the project • the Group has the ability to use or sell the asset; and • the asset will generate probable future economic benefits. Development costs not meeting these criteria for capitalisation are expensed as incurred. Costs that are directly attributable include employees’ (other than Directors’) costs incurred on development. Expenditure on the research phase of projects is recognised as an expense as incurred. Subsequent measurement Intangible assets are not amortised but tested for impairment annually either individually or at cash generating unit level. When an intangible asset is disposed of, the gain or loss on disposal is determined as the difference between the proceeds and the carrying amount of the asset, and is recognised in profit or loss within other income or other expenses. e. Leases Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset – but not the legal ownership – are transferred to entities in the consolidated group, are classified as finance leases. Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the lease term. 33 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT) f. Foreign Currency Transactions and Balances Functional and Presentation Currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars, which is the parent entity’s functional currency. Transactions and Balances Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income; otherwise the exchange difference is recognised in profit or loss. g. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits available on demand with banks and bank overdrafts. Bank overdrafts are reported within short-term borrowings in current liabilities in the statement of financial position. h. Trade and Other Payables Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. Payables expected to be settled within 12 months of the end of the reporting period are classified as current liabilities. All other liabilities are classified as non-current liabilities. i. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). 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 ATO is included with other receivables or 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 ATO are presented as operating cash flows included in receipts from customers or payments to suppliers. j. Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (e.g. in accordance with the revaluation model in AASB 116: Property, Plant and Equipment). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 34 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 Impairment testing is performed annually for intangible assets with indefinite lives and intangible assets not yet available for use. k. Employee Benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be settled within a year have been measured at the amounts expected to be paid when the liability is settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Liabilities for long service leave are recognised when employees reach a qualifying period of continuous service. Liabilities and expenses for bonuses are recognised where contractually obliged or where there is a past practice that has created a constructive obligation. Share-based Payments Share-based compensation benefits are provided to certain employees (including key management personnel) via the premium priced options in accordance with Indoor Skydive Australia Group Limited Employee Incentive Option Plan. The fair value of the option is measured at grant date and is recognised over the period the services are received, which is the expected vesting period during which the employees would become entitled to exercise the performance rights. Non-market vesting conditions are included in assumptions to determine the number of options that are expected to become exercisable. If performance hurdles related to tenure are met, the options will vest if the exercise price of $0.35 is achieved. Estimates are subsequently revised if there is any indication that the number of performance rights expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if performance rights ultimately exercised are different to that estimated on vesting. The fair value of options granted for rights with non-market based performance criteria are measured using the Black-Scholes option pricing methodology which is the approach typically used for valuing options which may be exercised, once vested, at any time up until expiry. Upon exercise of options, the proceeds received net of any directly attributable transaction costs are allocated to contributed equity. l. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. Make good provisions are recognised on a systematic basis over the life of the lease, based on the most reliable evidence available at reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. The provision is discounted to its present value, where the time value of money is material. m. Revenue and Other Income Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. When the inflow of consideration is deferred, it is included in the Statement of Financial Position as a current liability. Revenue from the sale of goods and services is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership and the cessation of all involvement in those goods and services. For gift card revenue, refer to Note 1(s)(iv). 35 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT) Interest revenue is recognised on an accruals basis using the effective interest method. n. Deferred Revenue Income relating to future periods is initially recorded as deferred revenue, and is then recognised as revenue over the relevant periods of admission or rendering of other services. o. Trade and Other Receivables Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Refer to Note 1(j) for further discussion on the determination of impairment losses. p. Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined using the weighted average cost method, after deducting any purchase settlement discount and including logistics expenses incurred in bringing the inventories to their present location and condition. q. Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. r. Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Where the Group has retrospectively applied an accounting policy, made a retrospective restatement or reclassified items in its financial statements, an additional statement of financial position as at the beginning of the earliest comparative period will be disclosed. s. Critical Accounting Estimates and Judgements i. Useful lives, Residual Values and Classification of Property, Plant and Equipment There is a degree of judgement required in estimating the residual values and useful lives of the Property, Plant and Equipment. There is also a degree of judgement required in terms of the classification of such Property, Plant and Equipment. The Group’s main assets at present comprise the Vertical Wind Tunnel (VWT) Equipment and its related Building Infrastructure. The construction of these assets are typically foreseen in the lease agreements, however the Board has exercised their judgement in determining that the nature of these assets are that of buildings and equipment, rather than leasehold improvements. To this extend, the Board has confirmed the useful life of the Buildings to be 40 years and VWT equipment to be 20 years and the residual values of both these classes of assets to be nil. 36 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 ii. Deferred Tax Asset In future years, the Group is expected to generate taxable income that will utilise the deferred tax balance. The directors have recognised a deferred tax asset to the extent of deductible temporary differences. Due to several years of losses, there is some doubt as to whether the tax benefit from unused tax losses will be recouped. The directors have therefore deemed it is prudent not to recognise a deferred tax asset for tax losses. This may be reversed in future years if it becomes probable that sufficient taxable income will be generated. iii. Exclusive Territory Development Agreement Recognition and Amortisation On 20 December 2013 an Exclusive Territory Development Agreement was entered into between the Company and iFly Australia Pty Ltd (iFly) to exclusively develop projects in Australia and New Zealand for which iFly would receive 2,500,000 shares in the company (IDZ.ASX). iFly is the Australian subsidiary of SkyVenture International, our vertical wind tunnel supplier. The agreement has created an intangible asset which is expected to create a future economic benefit. This intangible asset must be initially valued at cost, in accordance with AASB 138. The cost is calculated as $1,500,000, being the fair value of the shares granted to iFly, at the IDZ close price of $0.60 at 20 December 2013. The term of the agreement is limited, and the asset is therefore classified as a finite life intangible asset. An intangible asset with a finite life is to be amortised over its useful life. The amortisation method selected should reflect the pattern over which the asset’s future economic benefit is expected to be consumed. If that pattern cannot be determined reliably, the straight-line method is to be used. The amortisation period and method for an intangible asset with a finite useful life are to be reviewed at least at the end of each annual reporting period. If the expected useful life or expected pattern of consumption of the future economic benefit is different from previous estimates, the period or method is to be revised. An accelerated amortisation rate of 40% diminishing value has been used against this intangible asset. This reflects the expected consumption of benefits under the agreement. In the current year, the Group has fully impaired the carrying value of this intangible asset considering the arbitrator’s findings that the Group’s Australian operating facilities were in breach of the purchase and license agreements. iv. Gift Card Revenue Gift card revenue from the sale of gift cards is recognised when the card is redeemed for the purchase of flight time (Flight Revenue), or when the gift card is no longer expected to be redeemed (Gift Card Revenue). At 30 June 2018, $797,913 of Gift Card Revenue is recognised (2017: $494,388). The key assumption in measuring the liability for gift cards and vouchers is the expected redemption rates by customers, which are reviewed based on historical information. Any reassessment of expected redemption rates in a particular period impacts the revenue recognised from expiry of gift cards and vouchers (either increasing or decreasing). Any foreseeable change in the estimate is unlikely to have a material impact on the financial statements. v. Site Restoration Provisions for site restoration obligations are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. In the current year, the Group has recognised a provision for site restoration for its three tunnels. To this extent, an estimate of the costs to remove the VWT’s and its related Building Infrastructure has been determined based on current costs using existing technology at current prices. Management used the services of an expert and determined the cost to restore the sites. These costs were projected forward at a 2.5% inflationary escalation and then discounted back at 8.73% (2017: 8.73%) after consideration of the associated risks. The discount rate reflects the time value of money and risks specific to the operation of the tunnels. The site restoration asset is depreciated over the remainder of each extended lease period being 40 years in the case of each of iFLY Downunder (Penrith), iFLY Gold Coast and iFLY Perth. The accumulative effect of discounting on the site restoration provision is included within finance costs in the statement of comprehensive income. 37 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT) vi. Capitalisation of Internally Developed Intangible Assets Distinguishing the research and development phases of a new project and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. t. New and amended standards and interpretations The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. At the date of this financial report the following standards and interpretations, which may impact the entity in the period of initial application, have been issued but are not yet effective: Reference Title Summary AASB 15 Revenue from Contracts with Customers AASB 9 Financial Instruments AASB 16 Leases This Standard establishes principles (including disclosure requirements) for reporting useful information about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. This Standard supersedes both AASB 9 (December 2010) and AASB 9 (December 2009) when applied. It introduces a “fair value through other comprehensive income” category for debt instruments, contains requirements for impairment of financial assets, etc. This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 ‘Leases’ and for lessees will eliminate the classifications of operating leases and finance leases. Application date 1 July 2018 Expected Impact Not expected to have a material impact. 1 July 2018 Expected to change disclosures in the year of adoption. 1 July 2019 The Group is yet to assess the effect. 38 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 2: PARENT INFORMATION The following information has been extracted from the books and records of the parent and has been prepared in accordance with Australian Accounting Standards. Statement of Financial Position Assets Current assets Non-current assets Total Assets Liabilities Current liabilities Non-current liabilities Total Liabilities Equity Issued capital Share based payments reserve Retained earnings Total Equity Statement of Profit or Loss and Other Comprehensive Income Total comprehensive loss for the year 2018 $ 2017 $ 1,059,762 35,055,595 36,115,357 2,609,813 14,485,115 17,094,928 1,301,227 39,486,508 40,787,734 385,842 10,780,173 11,166,015 40,810,939 57,645 (21,848,155) 19,020,429 40,466,917 340,448 (11,185,646) 29,621,719 (10,662,509) (10,662,509) (1,258,610) (1,258,610) Contingent liabilities The parent entity does not have any contingent liabilities as at 30 June 2018. Contractual commitments Other than amounts disclosed in the financial statements, the parent entity has no additional contractual commitments as at 30 June 2018. 39 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 3: REVENUE AND EXPENSES Revenue VWT revenue – rendering of services Other sales 2018 $ 13,221,607 658,922 13,880,529 2017 $ 11,047,575 1,223,506 12,271,081 Other sales revenue relates to cafeteria income, merchandise income and sub-let income. Other Income Grant Income Other Included in the expenses are the following: a) Selling and Marketing Expenses Marketing expenses Employment expenses b) Administrative Expenses Depreciation and amortisation expenses Occupancy expenses Employment expenses Share based payments Directors’ fees 176,220 220,533 396,753 2018 $ 861,722 4,321,547 5,183,269 2018 $ 1,937,576 1,434,800 1,047,549 57,645 125,417 4,602,987 24,875 20,603 45,478 2017 $ 770,305 3,960,884 4,731,189 2017 $ 1,648,805 1,313,899 994,066 177,872 220,290 4,354,932 40 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 4: INCOME TAX (EXPENSE)/BENEFIT Income tax (expense)/benefit Current income tax: Current income tax charge Deferred tax: 2018 $ 2017 $ 104,482 25,259 Relating to origination and reversal of temporary differences Income tax (Expense)/ Benefit (1,022,633) (918,151) 125,690 150,949 A reconciliation of income tax expense applicable to accounting loss before income tax at the statutory income tax rate to income tax expense at the company’s effective income tax rate for the year ended 30 June 2018 is as follows: Accounting loss before income tax At the statutory income tax rate of 27.5% (2017: 30%) Share of results of joint venture Tax losses not recognised Non-deductible expenses for tax purposes: Entertainment expenses Share based payments Amortisation expenses Dispute settlement costs Impairment of AirRider brand Other exempt income Other non-deductible expenses Effect of lower tax rates in Malaysia Income Tax Expense/ (Benefit) Deferred tax assets (timing difference) comprises of: Share issue costs Accruals and provisions Deferred tax asset (timing difference) brought to account Deferred tax asset (tax losses) brought to account Total deferred tax brought to account 2018 $ (9,222,431) (2,536,168) 81,500 1,666,342 4,950 15,852 28,141 971,507 722,603 (48,460) - 11,884 918,151 80,797 1,168,691 1,249,487 - 1,249,487 2017 $ (1,042,239) (312,672) - - 3,525 53,362 51,164 - - 53,672 - (150,949) 185,278 408,299 593,577 1,574,061 2,167,638 The Group has tax losses that arose in Australia for which no deferred tax asset of $1,666,342 is recognised on the Statement of Financial Position. The tax losses are available indefinitely for offsetting against future taxable profits of the Group. NOTE 5: CASH AND CASH EQUIVALENTS Cash at bank and on hand 2018 $ 953,541 953,541 2017 $ 1,706,457 1,706,457 41 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 6: TRADE RECEIVABLES AND OTHER ASSETS Trade receivables Other receivables Prepaid expenses 2018 $ 38,885 9,400 57,188 105,473 2017 $ 27,959 808,514 81,304 917,777 All amounts are short- term. The carrying value is considered a reasonable approximation of fair value. The Group’s trade and other receivables have been reviewed for indicators of impairment. No impairment has been recognised and no receivables are past due. NOTE 7: OTHER FINANCIAL ASSETS Current Non- current 2018 $ 130,890 197,440 328,830 2017 $ 42,489 209,245 251,734 Other financial assets relate to costs associated with the bank loan facility. This financial asset is amortised over the period of the loan facility. NOTE 8: PROPERTY PLANT AND EQUIPMENT 2018 Cost 2017 2018 2017 2018 2017 Depreciation Carrying Value Vertical wind tunnel building Infrastructure Balance at Beginning of year Acquisitions / depreciation Disposals / transfers Balance at end of year 32,338,525 22,631,045 (1,354,288) (767,506) 30,984,237 21,863,539 28,446 55,373 8,262,704 1,444,776 (804,106) (586,782) (775,660) - - 55,373 7,675,922 1,444,776 32,422,344 32,338,525 (2,158,394) (1,354,288) 30,263,950 30,984,237 Vertical wind tunnel equipment Balance at Beginning of year 12,763,735 7,401,038 (1,058,479) (464,051) 11,705,256 83 - 193,085 5,169,612 (701,621) (594,428) (701,538) - - - 12,763,818 12,763,735 (1,760,100) (1,058,479) 11,003,718 11,705,256 6,936,987 (401,343) 5,169,612 Acquisitions / depreciation Disposals / transfers Balance at end of year 42 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 8: PROPERTY PLANT AND EQUIPMENT (CONT) 2018 2017 2018 2017 2018 2017 Cost Depreciation Carrying Value IT Equipment Balance at Beginning of year Acquisitions / depreciation Disposals / transfers Balance at end of year 666,502 21,911 254,242 942,655 491,266 173,611 1,625 666,502 (222,694) (145,402) - (94,139) 443,808 (128,555) (123,491) - 254,242 574,559 397,127 45,056 1,625 443,808 (368,096) (222,694) Furniture and fittings Balance at Beginning of year Acquisitions / depreciation 598,281 34,322 461,202 294,490 Disposals / transfers - (157,411) (227,723) (106,449) - (118,687) (165,806) 56,770 370,558 (72,127) 342,515 128,684 - (100,641) Balance at end of year 632,603 598,281 (334,172) (227,723) 298,431 370,558 Office Equipment Balance at Beginning of year 21,268 Acquisitions / depreciation Disposals / transfers 729 - 300 20,968 - (4,034) (7,297) - (27) (4,007) - 17,234 (6,568) - 273 16,961 - Balance at end of year 21,997 21,268 (11,331) (4,034) 10,666 17,234 Capital Work in Progress Balance at Beginning of year 444,599 8,529,771 Acquisitions / depreciation - 444,599 Disposals / transfers Balance at end of year (444,599) (8,529,771) - 444,599 - - - - - - - - 444,599 8,529,771 - 444,599 (444,599) (8,529,771) - 444,599 Total Balance at Beginning of year 46,832,910 39,514,622 (2,867,218) (694,277) 43,965,692 38,070,212 Acquisitions / depreciation 85,491 9,389457 (1,764,875) (1,479,578) (1,679,384) 7,909,879 Disposals / transfers (134,984) (2,071,169) - 56,770 (134,984) (2,014,399) Balance at end of year 46,783,417 46,832,910 (4,632,093) (2,867,218) 42,151,324 43,965,692 43 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 9: INTEREST IN SUBSIDIARIES Set out below are the Group’s subsidiaries at 30 June 2018. The subsidiaries listed below have share capital consisting solely of ordinary shares, which are held directly by the Group and the proportion of ownership interests held equals the voting rights held by the Group. Each subsidiary’s country of incorporation or registration is also its principal country of business. Subsidiaries Country of Incorporation Indoor Skydiving Penrith Holdings Pty Ltd Australia Indoor Skydiving Penrith Pty Ltd Indoor Skydiving Gold Coast Pty Ltd ISA FLIGHT Club Pty Ltd Indoor Skydiving Perth Pty Ltd ISAG Holdings D Pty Ltd ISAG Café Pty Ltd ISA Asia Holdings Pty Ltd ISA Asia Operations Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia 2018 % 100 100 100 100 100 100 100 100 100 2017 % 100 100 100 100 100 100 100 100 100 44 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 10: INTEREST IN JOINT VENTURE ENTITIES a) b) The Group has a 40% interest in LeisureWorld Assets Sdn. Bhd., a joint venture involved in owning an indoor skydive facility in Kuala Lumpur, Malaysia. The Group’s interest in LeisureWorld Assets Sdn. Bhd. is accounted for using the equity method. The Group has a 60% interest in LeisureWorld Escapades Sdn. Bhd., a joint venture operating and managing the indoor skydive facility in Kuala Lumpur, Malaysia officially launched on 24 January 2018. The Group’s interest in LeisureWorld Escapades Sdn. Bhd. is accounted for using the equity method. The following table illustrates the summarised financial information of the Group’s 40% investment in LeisureWorld Assets Sdn. Bhd. and 60% investment in LeisureWorld Escapades Sdn. Bhd: Current assets Non-current assets Current liabilities Non-current liabilities Equity Group’s carrying value of the investment Revenue Cost of sales Administration expenses Finance costs Loss before tax Income tax benefit Loss for the period Group’s share of the loss for the period 30 June 2018 LeisureWorld Assets Sdn. Bhd LeisureWorld Escapades Sdn. Bhd 4,581,349 5,425,005 44,653 9,474,211 487,490 194,996 321,278 6,494 197,492 111,392 18,888 11,333 Period from 24 January 2018 to 30 June 2018 LeisureWorld Assets LeisureWorld Sdn. Bhd Escapades Sdn. Bhd 184,891 - (300,179) (115,732) (231,020) - (231,020) (92,408) 349,257 (136,871) (624,345) - (411,959) - (411,959) (247,175) 45 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 11: INTANGIBLE ASSET Development Costs Exclusive Territory Development Cost At 1 July 2016 Additions – Internally developed At 30 June 2017 Additions – Internally developed Transfer to Property, Plant and Equipment At 30 June 2018 Amortisation At 1 July 2016 Amortisation At 30 June 2017 Amortisation Impairment At 30 June 2018 Net Book Value At 30 June 2018 At 30 June 2017 $ - 517,477 517,477 1,457,040 (254,242) 1,720,275 - - - - 1,455,925 1,455,925 264,350 517,477 Agreement $ 1,500,000 - 1,500,000 - - 1,500,000 1,073,622 170,551 1,244,173 102,331 153,496 1,500,000 - 255,827 Total $ 1,500,000 517,477 2,017,477 1,457,040 (254,242) 3,220,275 1,073,622 170,551 1,244,173 102,331 1,609,421 2,955,925 264,350 773,304 The Exclusive Territory Development Agreement was entered into during the 2014 year and was valued at cost. An accelerated amortisation rate of 40% has been used against the Exclusive Territory Development Agreement intangible asset, amortised from 20 December 2013. In the current year, the Group has fully impaired the carrying value of the Exclusive Territory Development Agreement. Development expenditure on individual projects are recognised as an intangible asset when the Group can demonstrate that the asset will generate future economic benefits and can be reliably measured. Refer to Note 1(d). The impairment of the development cost in the current year related to the AirRider brand which has been fully impaired. The carrying value of the development cost relates to the cost incurred in relation to projects initiated in China. 46 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 12: TRADE AND OTHER PAYABLES Trade payables Other accruals Other payables 2018 $ 1,267,853 2,729,847 - 3,997,700 2017 $ 407,894 1,247,170 2,000,000 3,655,064 Other payable relates to amounts owing to iFLY Australia Pty Ltd under their rights under the Exclusive Territory Development Agreement. Under the Deed of Settlement with SkyVenture International Limited, other payable of $2,000,000 has been included in the promissory note and included as part of dispute settlement provision. NOTE 13: DEFERRED REVENUE Deferred revenue 2018 $ 1,231,797 1,231,797 2017 $ 1,907,300 1,907,300 Deferred revenue primarily represents prepaid sales in respect of flight time purchased in advance. The sales are released to revenue at the time the services are rendered or gift card revenue is recognised in accordance with historical redemption rates. 47 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 14: BORROWINGS Current Liabilities Westpac debt facility (a) Non - Current Liabilities Westpac debt facility (a) Loan from Birkdale Holdings (QLD) Pty Ltd (b) 2018 $ 1,886,317 1,886,317 7,581,123 1,500,000 9,081,123 2017 $ 472,312 472,312 10,267,198 - 10,267,198 a) Interest payable on each component is based on current market rates, over a maximum 5 year term. Security provided is: Fully Interlocking Guarantee and Indemnity by: Indoor Skydive Australia Group Limited Indoor Skydiving Penrith Holdings Pty Ltd Indoor Skydiving Penrith Pty Ltd Indoor Skydiving Gold Coast Pty Ltd ISA FLIGHT Club Pty Ltd Indoor Skydiving Perth Pty Ltd ISAG Holdings D Pty Ltd ISAG Café Pty Ltd Supported by General Security Agreement over all existing and future assets and undertaking by: Indoor Skydive Australia Group Limited Indoor Skydiving Penrith Holdings Pty Ltd Indoor Skydiving Penrith Pty Ltd Indoor Skydiving Gold Coast Pty Ltd ISA FLIGHT Club Pty Ltd Indoor Skydiving Perth Pty Ltd ISAG Holdings D Pty Ltd ISAG Café Pty Ltd Mortgage over lease by Indoor Skydiving Penrith Holdings Pty Ltd. b) The company has in place a loan facility of $3,000,000 with Birkdale Holdings (QLD) Pty Ltd, a company associated with Steve Baxter, Director of Indoor Skydive Australia Group Limited, with an undrawn amount of $1,500,000 at year end. The term of the loan is 24 months with full repayment at expiry. 48 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 15: PROVISIONS Current Provisions Non Current Provisions Total 2018 $ 425,288 6,338,337 6,763,625 2017 $ 276,558 818,289 1,094,847 Provision Provision for Provision for Provision for Provision for Total Provisions for Dispute Employee Lease Straight Site Restoration Onerous Lease Settlement Benefits Lining $ - $ $ $ 223,970 648,222 222,655 $ - $ 1,094,847 Carrying amount 1 July 2017 Additional provisions 3,532,751 262,891 Transfer from payables 2,000,000 - Amount utilised - (215,386) Carrying amount 30 June 2018 5,532,751 Current Non-current - 5,532,751 Carrying amount 1 July 2016 - Additional provisions Change in estimates - - 271,475 268,985 2,490 195,260 345,819 - - - (30,916) 617,306 35,168 582,138 19,438 100,000 3,915,080 - - - - 2,000,000 (246,302) 242,093 100,000 6,763,625 21,135 100,000 425,288 220,958 - 6,338,337 Amount utilised - (317,109) Carrying amount 30 June 2017 - Current Non-current - - 223,970 223,970 - (28,506) 648,222 33,151 615,072 - 222,655 19,437 203,218 575,087 1,581,770 101,641 62,693 - (1,421,808) - - - - - - - 2,352,117 510,153 (1,421,808) (345,615) 1,094,847 276,558 818,289 Provisions for Employee Benefits a) The current portion for this provision includes the total amount accrued for annual leave entitlements that have vested due to employees having completed the required period of service. Provision for Lease Straight Lining b) Rental lease payments for operating the wind tunnels are expensed on a straight lining basis. All unamortised lease incentives in the form of rent free periods are recognised as provision. This provision is reduced by allocating lease payments between rental expenses and reduction of the provision over the remaining term of the lease. Provision for Site Restoration c) This provision relates to present value of expected site restoration costs for three tunnels. These costs are projected forward to an extended lease period of 40 years using 2.5% inflationary escalation and discounted to present value at 8.73% after consideration of the associated risks. 49 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 16: SHARE CAPITAL 136,696,514 (2017: 135,884,625) fully paid ordinary shares Share issue costs a. Ordinary Shares At the beginning of the reporting period · Shares issued during the period · Performance rights exercised b. Performance Rights At the beginning of the reporting period: Performance rights issued during the year Performance rights lapsed during the year Performance rights exercised during the year 2018 $ 42,803,385 (1,992,446) 40,810,939 2018 No. 135,884,625 - 811,889 136,696,514 2018 No. 811,889 - - (811,889) - 2017 $ 42,459,363 (1,992,446) 40,466,917 2017 No. 120,193,004 14,907,909 783,712 135,884,625 2017 No. 1,845,496 - (249,895) (783,712) 811,889 Performance rights are provided to certain employees (including key management personnel) via the Indoor Skydive Australia Group Limited Performance Rights Plan. The fair value is measured at grant date and is recognised over the period the services are received, which is the vesting period upon which the employees would become entitled to exercise the performance rights. Capital Management c. The Board controls the capital of the Group in order to generate long-term shareholder value and to ensure that the Group can fund its operations and continue as a going concern. The Board assesses the Group’s capital requirements based on the Company’s stage of operations, having regard to available debt funding and equity funding and seek to maintain a capital structure based on the lowest cost of capital available to the Group. The Board achieves this through the internal generation of capital and the management of debt levels and, if necessary, share issues. 50 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 17: CAPITAL AND LEASING COMMITMENTS a) Operating Lease Commitments Non-cancellable operating leases contracted for but not recognised in the financial statements Payable – minimum lease payments: - Not later than 12 months - Between 12 months and five years - Later than five years 2018 $ 2017 $ 861,571 3,072,662 24,063,733 27,997,966 857,821 3,170,156 24,856,067 28,884,044 The Group has entered into operating leases for occupancy of the vertical wind tunnels with extended lease terms of 40 years. b) Capital Commitments Subsidiary capital commitments contracted for but not recognised in the financial statements - - - - 51 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 18: CASH FLOW INFORMATION Reconciliation of Cash Flow from Operations with Loss after Income Tax 2018 $ 2017 $ Loss after income tax Non-cash flows in loss: - Share based payments - Impairment - Share of loss from joint venture - Unwind of make good discount - Depreciation expense - Amortisation expense Changes in assets and liabilities: - (increase)/decrease in trade and term receivables - (increase)/decrease in prepaid expenses - (increase)/decrease in other financial assets - (increase)/decrease in deferred tax asset - increase/(decrease) in trade payables and accruals - increase/(decrease) in deferred revenue - increase/(decrease) in provisions Cash flow provided by operations Other Non-Cash Transactions Capital expenditure Depreciation & Amortisation Other non-cash expense (10,140,582) (891,290) 57,645 2,627,648 339,583 19,438 1,764,875 172,701 (10,926) 24,116 (160,351) 918,151 2,296,270 (675,503) 3,646,848 879,913 1,369,687 1,937,576 57,645 177,872 - - (20,968) 1,434,796 214,009 20,361 374,196 (229,830) (150,948) 227,428 890,861 101,845 2,148,332 9,906,934 1,648,805 177,872 52 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 19: RELATED PARTY TRANSACTIONS a. (i) The Group’s main related parties are as follows: Entities exercising control over the Group: The ultimate parent entity is Indoor Skydive Australia Group Ltd. (ii) Key management personnel: Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity, are considered key management personnel. For details of disclosures relating to key management personnel, refer to the Remuneration Report. (iii) Entities subject to significant influence by the Group: An entity that has the power to participate in the financial and operating policy decisions of an entity, but does not have control over those policies, is an entity which holds significant influence. Significant influence may be gained by share ownership, statute or agreement. There are no such entities in the Group. (iv) Other related parties: Other related parties include entities controlled by the ultimate parent entity and entities over which key management personnel have joint control. - The entities disclosed in Note 9 are 100% owned subsidiary companies of the parent entity. Refer to Note 9 for further details. b. Transactions with related parties: Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this Note. During the year, a loan facility of $3,000,000 was made available from Birkdale Holdings (QLD) Pty Ltd, a company controlled by Steve Baxter, Non-Executive Director of Indoor Skydive Australia Group Limited. The drawn balance at 30 June 2018 was $1,500,000. As part of the loan agreements ISA Group has agreed to issue 6,000,000 options with an exercise price of $0.25 and an expiry date of 2 years from date of issue. The issue of the options is subject to shareholder approval which will be sought at the FY2018 Annual General Meeting. The loan facility has been on an arm’s length basis with term of 2 years and is supported by a second ranking general security agreement. This facility has been approved by Westpac primary financier of ISA Group. Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. There were no related party transactions during the comparative year. 53 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 c. Key Management Personnel Compensation The Key Management Personnel compensation included in employment expenses is as follows: Consolidated Entity Company 2018 $ 2017 $ 2018 $ 2017 $ Short term employee benefits 1,076,798 1,185,424 1,076,798 1,185,424 Post employment benefits Share based payments 85,728 57,644 89,817 133,710 85,728 57,644 89,817 133,710 1,220,170 1,408,951 1,220,170 1,408,951 NOTE 20: SHARE BASED PAYMENTS Year Ended 30 June 2018 Under the Employee Incentive Option Plan, awards are made to executives who have an impact on the Group’s Performance. Employee Incentive Option awards are delivered in the form of options over shares which vest over a period of three years subject to meeting performance measures. The group uses share price as the performance measure. The fair value of share options granted is estimated at the date of grant using a Black-Scholes valuation model, taking into account the terms and conditions upon which the share options is equal to 145% of the volume weighted average market price of shares on ASX for up to 5 trading days. The contracted term of the share options is four years and there are no cash settlement alternatives for the employees. The following table illustrates the reconciliation of share options during the year: Numbers of Share Options Outstanding as at 1 July 2017 Granted during the year Forfeited during the year Outstanding as at 30 June 2018 - 4,150,000 (650,000) 3,500,000 The following table lists the inputs to the model used for the Employee Incentive Option Plan for the year ended 30 June 2018: 24 Aug 2018 21 Nov 2018 Fair Value at grant/approval date (weighted average) Share Price at grant/approval date Exercise Price Expected Volatility Expected life (weighted average number of days) Expected dividends Risk-free rate (weighted average) $0.24 $0.24 $0.35 50% 1,460 0% 2.66% $0.17 $0.17 $0.35 50% 1,460 0% 2.66% 54 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 Year Ended 30 June 2017 On 27 November 2013 shareholders approved the Indoor Skydive Australia Group Limited Performance Rights Plan (Plan) at the 2013 Annual General Meeting. The Plan allows for the grant of performance rights to Directors and employees as part of the Company’s remuneration strategy. The performance rights carry neither rights to dividends, nor voting rights and may be exercised at any time from the date of vesting to the date of their expiry. (i) Equity-Settled Share-Based Payment Arrangements The fair value of equity instruments granted under the Plan has been, where appropriate, calculated using a binominal approximation option pricing model. Service and non-market performance conditions attached to the approvals or grants were not taken into account in determining the fair value. The inputs used in the calculation of the fair value at grant (or approval) date of the Equity-settled share-based payments were as follows: 27 November 2013 7 July 2014 7 July 2015 27 Oct 2015 Fair Value at grant/approval date (weighted average) $0.59 Share Price at grant/approval date Exercise Price Expected Volatility Expected life (weighted average number of days) Expected dividends Risk-free rate (weighted average) 5 day VWAP $0.59 $0.00 50% 956 0% 2.95% n/a $0.68 $0.68 $0.00 50% 358 0% 2.58% $0.68 $0.47 $0.47 $0.00 50% 730 0% 2.20% $0.47 $0.38 $0.47 $0.00 50% 619 0% 2.83% n/a Reconciliation of outstanding share options The number and weighted-average exercise prices of equity instruments granted under the Plan were as follows: Number of rights Weighted-average exercise price Outstanding at 30 June 2017 Granted during the year Forfeited during the year Exercised during the year Outstanding as at 30 June 2018 811,889 - - (811,889) - - - - - - 55 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 21: SEGMENT INFORMATION General Information Identification of reportable segments The Group’s operations are in one segment being the construction and operation of indoor skydiving facilities. The Group operates in one segment being Australia. All subsidiaries in the Group operate within the same segment. All three tunnels have been aggregated to one operating segment. Types of Products and Services by Segment The products and services will include a number of indoor skydiving facilities allowing human flight within a safe environment used by tourists, enthusiasts and military. NOTE 22: FINANCIAL RISK MANAGEMENT Financial Risk Management Policies The Board of Directors for, among other issues, manages financial risk exposures of the Group. The Board monitors the Group’s financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to commodity price risk, counterparty credit risk, currency risk, liquidity risk and interest rate risk. The Board meets on a regular basis. The Board’s overall risk management strategy seeks to assist the Group in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of the use of hedging derivative instruments, credit risk policies and future cash flow requirements. Specific Financial Risk Exposures and Management The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate risk, foreign currency risk and other price risk (commodity and equity price risk). There have been no substantive changes in the types of risks the Group is exposed to, how these risks arise, or the Board’s objectives, policies and processes for managing or measuring the risks from the previous period. a. Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance by counter parties of contract obligations that could lead to a financial loss to the Group. Risk is also minimised through investing surplus funds in financial institutions that maintain a high credit rating, or in entities that the Board has otherwise assessed as being financially sound. Credit risk exposures The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period excluding the value of any collateral or other security held, is equivalent to the carrying amount and classification of those financial assets (net of any provisions) as presented in the statement of financial position. No collateral is held by the Group securing receivables. The Group only has significant concentrations of credit risk with any single counterparty in the form of its bankers, and therefore significant credit risk exposures to Australia. There are no trade and other receivables that are past due nor impaired. 56 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 Credit risk related to balances with banks and other financial institutions is managed by the Board. which requires that surplus funds are only invested with counterparties with a Standard & Poor’s rating of at least AA–. The following table provides information regarding the credit risk relating to cash and term deposits based on Standard & Poor’s counterparty credit ratings. Cash and Term Deposits: Cash at bank and on hand 2018 $ 953,541 953,541 2017 $ 1,706,457 1,706,457 b. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: – preparing forward-looking cash flow forecasts in relation to its operating, investing and financing activities; using derivatives that are only traded in highly liquid markets; monitoring undrawn credit facilities; obtaining funding from a variety of sources; maintaining a reputable credit profile; managing credit risk related to financial assets; only investing surplus cash with major financial institutions; and comparing the maturity profile of financial liabilities with the realisation profile of financial assets. – – – – – – – The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet it liabilities when they become due. The table below reflects an undiscounted contractual maturity analysis for financial liabilities. Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward. 57 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 22: FINANCIAL RISK MANAGEMENT (CONT) Financial liability and financial asset maturity analysis for the Consolidated Group. Within 1 Year 1-5 Years Over 5 Years Total 2018 $ 2017 $ 2018 $ 2017 $ 2018 $ 2017 $ 2018 $ 2017 $ Financial liabilities due for payment Borrowings 1,886,317 472,312 9,081,123 10,267,198 Trade and other payables* Total contractual outflows Total expected outflows Financial assets – cash flows realisable Cash and cash equivalents Trade and other receivables Total anticipated inflows Net inflow on financial instruments 3,997,700 1,655,064 - - 5,884,017 2,127,376 9,081,123 10,267,198 5,884,017 2,127,376 9,081,123 10,267,198 953,541 1,706,457 105,473 917,777 1,059,014 2,624,234 - - - - - - (4,825,003) 496,858 (9,081,123) (10,267,198) - - - - - - - - - - - - - - - 10,967,440 10,739,510 3,997,700 1,655,064 14,965,140 12,394,574 14,965,140 12,394,574 953,541 1,706,457 105,473 917,777 1,059,014 2,624,234 - (13,906,126) (9,770,340) Refer to Note 1 Basis of Accounting for matters that have been considered by the directors in determining the appropriateness of the going concern basis for the preparation of the financial statements. *Trade and other payables for 2017 financial year excludes SkyVenture investment balance of $2,000,000. c. Market risk (i) Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group is not exposed to earnings volatility on floating rate instruments. The financial instruments that primarily expose the Group to interest rate risk are borrowings, cash and cash equivalents and term deposits. Interest rate risk is managed using a mix of fixed and floating rate debt where possible. 58 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 (ii) Foreign exchange risk Most of the Group’s transactions are carried out in AUD. Exposures to currency exchange rates primarily arise from the purchase of vertical wind tunnel equipment from SkyVenture International, which is denominated in US dollars. To mitigate the Group’s exposure to foreign currency risk, non-AUD cash flows are monitored and forward exchange contracts are entered into in accordance with the Group’s risk management policies. Forward exchange contracts are mainly entered into for significant long-term foreign currency exposures that are not expected to be offset by other currency transactions. Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the Group holds financial instruments which are other than the AUD functional currency of the Group. (iii) Other price risk Other price risk relates to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices largely due to demand and supply factors (other than those arising from interest rate risk or currency risk) for commodities. The Group is not exposed to commodity price risk. The Group is not exposed to securities price risk on investments held for trading over the medium to longer terms. Sensitivity analysis The following table illustrates sensitivities to the Group’s exposures to changes in interest rates, and exchange rates. In respect of the exchange rates, the table summarises the sensitivity of the balance of financial instruments held at the reporting date to movement in the exchange rate of the US dollar to the Australian dollar, with all other variables held constant. The table indicates the impact on how profit and equity values reported at the end of the reporting period would have been affected by changes in the relevant risk variable that management considers to be reasonably possible. These sensitivities assume that the movement in a particular variable is independent of other variables. 59 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 22: FINANCIAL RISK MANAGEMENT (CONT) Year ended 30 June 2018 +/–1% in interest rates +/–10% in devaluation of the AUD Year ended 30 June 2017 +/–1% in interest rates +/–10% in devaluation of the AUD Profit $ $ Equity 100,291 541,419 107,395 26,847 100,291 541,419 107,395 26,847 There have been no changes in any of the methods or assumptions used to prepare the above sensitivity analysis from the prior year. These movements are considered to be reasonably possible based on observation of current market conditions. Fair Values Fair value estimation The fair values of financial assets and financial liabilities are presented in the following table and can be compared to their carrying amounts as presented in the statement of financial position. Fair value is the amount at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair values derived may be based on information that is estimated or subject to judgment, where changes in assumptions may have a material impact on the amounts estimated. Areas of judgement and the assumptions have been detailed below. Where possible, valuation information used to calculate fair value is extracted from the market, with more reliable information available from markets that are actively traded. In this regard, fair values for listed securities are obtained from quoted market bid prices. Where securities are unlisted and no market quotes are available, fair value is obtained using discounted cash flow analysis and other valuation techniques commonly used by market participants. Differences between fair values and carrying amounts of financial instruments with fixed interest rates are due to the change in discount rates being applied by the market since their initial recognition by the Group. Most of these instruments, which are carried at amortised cost (i.e. term receivables, held-to-maturity assets, loan liabilities), are to be held until maturity and therefore the fair value figures calculated bear little relevance to the Group. 60 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 2018 2017 Note Carrying Amount Fair Value Carrying Amount Fair Value Consolidated Group $ $ $ $ Financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Trade and other payables Borrowings Total financial liabilities (i) (i) (i) (ii) 953,541 105,473 1,059,014 3,997,700 10,967,440 14,965,140 953,541 105,473 1,059,014 3,997,700 10,967,440 14,965,140 1,706,457 917,777 2,624,234 3,655,064 10,739,510 14,394,574 1,706,457 917,777 2,624,234 3,655,064 10,739,510 14,394,574 The fair values disclosed in the above table have been determined based on the following methodologies: (i) Cash and cash equivalents, term deposits, trade and other receivables, and trade and other payables are short-term instruments in nature whose carrying amount is equivalent to fair value. Trade and other payables exclude amounts provided for annual leave, which is outside the scope of AASB 139. (ii) Debt is recorded at the current carrying value which is considered equivalent to fair value. NOTE 23: AUDITOR’S REMUNERATION Remuneration of the auditor for: – – – – Audit fees Half year review Taxation compliance Other advisory services 2018 $ 55,300 27,550 5,000 2,500 90,350 2017 $ 62,500 25,500 5,300 2,500 95,800 The Group had a change in auditors. The auditor for financial year 2017 and half year 2018 was Grant Thornton. The auditor for financial year 2018 was Felsers, Chartered Accountants. 61 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2018 NOTE 24: EARNINGS PER SHARE Earnings per share (cents per share) From continuing operations: - - basic earnings per share diluted earnings per share a. Reconciliation of earnings to profit or loss: Loss Earnings used to calculate basic EPS Earnings used in the calculation of dilutive EPS 2018 Cents (7.42) (7.42) 2018 $ (10,140,582) (10,140,582) (10,140,582) No. b. Weighted average number of ordinary shares for basic EPS 136,640,752 Weighted average number of ordinary shares for diluted EPS 139,818,500 All performance rights on issue at 30 June 2018 are anti-dilutive. NOTE 25: EVENTS AFTER REPORTING DATE 2017 Cents (0.68) (0.68) 2017 $ (891,290) (891,290) (891,290) No. 131,633,571 136,633,571 On 19 July 2018, ISA Group received a partial final arbitral award from the Arbitrator of the dispute with SkyVenture International Limited. The award addressed the question of liability only and did not address remedy, costs or any quantum. After receipt of the award ISA Group and SkyVenture International Limited agreed to a settlement which addressed all issues between them. The settlement provides for ISA Group to pay SkyVenture for its legal costs, to transfer all ownership in the AirRider brands and economic benefits associated with the Malaysian facility to SkyVenture. SkyVenture has committed under the settlement to supply ISA Group with specialist vertical wind tunnel equipment at preferential prices to support ISA Group’s future growth. The settlement is funded by Promissory Notes for US$3,789,933 from SkyVenture International Limited. The loans under the promissory notes have a 2-year term with the first year comprising interest payments only. For so long as ISA Group is listed, up to US$1,619,219.99 of the loan amount may be converted into ISA Group ordinary shares from 60 days after the effective date of the note at a conversion price of US$0.079. The maximum number of shares that may be issued on conversion is 20,496,455 which is within ISA Group’s capacity to issue under Listing Rules 7.1. Other than above, no other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated group, the results of those operations, or the state of affairs of the consolidated group in future financial years. NOTE 26: CONTINGENT LIABILITIES The Group does not have any contingent liabilities at the reporting date. 62 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT DIRECTORS’ DECLARATION For the year ended 30 June 2018 In the opinion of the Directors of Indoor Skydive Australia Group Limited: a. the financial statements and notes, as set out on pages 24 to 62, are in accordance with the Corporations Act 2001, including: i. ii. giving a true and fair view of the financial position as at 30 June 2018 and of its performance for the financial year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and b. There are reasonable grounds to believe that Indoor Skydive Australia Group Limited will be able to pay its debts as and when they become due and payable. Note 1 includes a statement that the financial statements also comply 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 2018. This declaration is made in accordance with a resolution of the Directors. For and on behalf of the Board Wayne Jones Director and Chief Executive Officer 26 September 2018 Sydney 63 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT Independent Audit Report to the members of Indoor Skydive Australia Group Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Indoor Skydive Australia Group Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and the 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 2018 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 Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report. 64 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT Key audit matter Revenue – Note 1 (s)(iv), 3, 13 The group recognised revenue derived from the sales of goods and services as well as the sale of prepaid gift cards. Wind Tunnel Revenue for the year ended 30 June 2018 was $13,221,607. It was noted that the point-of-sale system (Siriusware) used to record and track revenue receipts is not integrated with the general ledger. We therefore considered revenue to be a key audit matter given the potential for revenue to be materially misstated when posted via manual general ledger journal entries based off the monthly summary extracted from Siriusware. Our procedures were designed to corroborate our assessment that revenue should be closely aligned to actual cash identify manual adjustments made to banked and revenue for additional testing. A portion of the revenue attributable to gift card sales is recognised upfront using management’s internal estimates of the historical redemption rates of the gift cards. As at 30 June 2018, gift card revenue or ‘breakage’ of $797,913 was recognised along with a corresponding deferred revenue balance of $1,231,797. Given the management judgement and inherent subjectivity in the development and application of appropriate accounting policies in compliance with Australian Accounting Standards as well as adherence to proper cut-off procedures as to the timing of the revenue, we believe this constitutes a key audit matter. Recovery of deferred tax assets – Note 1(s)(ii), 4 In accordance with Australian Accounting Standards, deferred tax assets can only be recognised to the extent that it is probable sufficient future taxable profits will be generated to utilise the benefits associated with the deferred tax assets through reductions in the tax payable in future reporting periods. Gross deferred tax assets of the Group for the year ended 30 June 2018 amounted to $1,249,487, all arising from future deductible temporary differences have been recognised. Due to several years of losses, the directors have deemed it prudent not to recognise a deferred tax asset of $1,666,342 on tax losses. The balance of unused tax losses may be recouped in future years. Given the material amount of deferred tax assets recognised or unrecognised and the judgement required in determining their recoverability in accordance with the Australian Accounting Standards, we believe this constitutes a key audit matter. How our audit addressed the key audit matter Our audit procedures included, among others: • Assessing whether the Group’s revenue recognition policies were in compliance with Australian Accounting Standards • Evaluating the operating effectiveness of revenue recognition • Testing the appropriateness and accuracy of general ledger revenue journals • Reviewing the mathematical accuracy of management’s calculation of the gift card revenue recognised and tracing a sample of general journals posted to supporting documentation; • Evaluating the reasonableness of management’s estimates relating to gift card breakage rates including corroborating management’s assertions to historical redemption rates; and • Performing testing on a sample of sales at year end to determine that the revenues recorded relate to the appropriate period. Our audit procedures included, among others: • reviewing the tax calculations prepared by the Group; • evaluating the key assumptions used by the Group to determine its tax balances; • involving our taxation specialists to assist in the assessment of the determination of the tax bases; • evaluating the assessment of the recoverability of its deferred tax assets; and • assessing the Group’s taxation disclosures. 65 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORT Key audit matter How our audit addressed the key audit matter Impairment of non-current assets – Note 8, 11 As at 30 June 2018, the carrying amount of the group’s totalled $264,350 and property, intangible assets plant and equipment totalled $42,151,324. Based on the Group’s assessment of both external and internal indicators of impairment, a resulting impairment charge of $2,627,648 was posted to the Statement of Profit or Loss relating to the cash-generating unit (CGU) of the Group’s AirRider Brand, Malaysia. We focused on this area due to the size of the intangible the director’s and PPE balances and because assessment of the value in use (VIU) of the CGU’s involves inherent judgement and subjectivity as to the future cash flows and discount rates applied to them. Provision for site restoration – Note 1 (s)(v), 15 The Group entered into long term lease agreements at each of their tunnel facilities – Penrith, Gold Coast and Perth. There is a contractual obligation that the Group is responsible for restoring the site to its original condition at the conclusion of the lease. The Group has recognised a provision of $242,093 for the site restoration as at 30 June 2018 in accordance with AASB 137 Provision, Contingent Liabilities and Contingent Assets. This is a key audit matter due to the inherent complexity in estimating future restoration costs, particularly those that are forecast to be incurred several years in the future. Basis of Accounting - Note 1 In accordance with the Australian Accounting Standards, when assessing whether the going concern assumption is appropriate, management is required to consider all information about the future encompassing at the least twelve months from the end of the reporting period. The assessment is largely based on the assumptions made by directors in formulating cash flow forecasts, with key assumptions including the timing of the future cash flows, operating results, capital raising activities, any potential sale of assets and any capital commitments. Our audit procedures included, among others: • Updating our understanding of managements procedures for annual impairment testing • Agreeing key assumptions such as discount rates and revenue growth to supporting documentation and reasonableness when compared with industry averages and trends. • Comparing cash flow projections to historical performance and observable trends corroborating any deviations to third party evidence where applicable Our audit procedures included, among others: • Reviewing the mathematical accuracy of the Group’s calculation; • Evaluating the key assumptions used by the Group in calculating the provision including the inputs to calculate the discount factor; • Reading the terms of the lease agreements to verify the Group’s rights and obligations; • Reviewing qualification and experience of Management’s expert in relation to the valuation of the restoration costs at their presents value to use as the basis of the estimate; and • Assessing the adequacy of the financial statement disclosure. Our audit procedures included, among others: • Evaluation of the underlying data used as the basis of cash flow projections prepared by management and those charged with governance; • Analysing the impact of potential changes in projected cash flows and their timing, to the projected periodic cash positions • Assessing the resulting impact on the ability of the Group to pay debts as and when they fall due and the Group’s ability to continue as a going concern; • Recalculation of the ability to meet debt covenant ratios attached to existing facilities on the basis of budgeted and forecasted figures prepared by management and those charged with governance • Obtaining and reviewing correspondence between existing financiers and the Group to determine the options available to the Group inclusive of variable debt facilities • Evaluating the Group’s disclosures in the financial report by comparing them to our understanding of the matter, the events or conditions incorporated into the cash flow projection assessment, the Group’s plans, and accounting standard requirements. 66 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORT 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 2018 but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 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 the financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • • 67 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT • • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 13 to 21 of the directors’ report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Indoor Skydive Australia Group Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Felsers Chartered Accountants Michael Kersch Partner Sydney 26 September 2018 68 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT A First Timer Flyer Masters Her Solo Skills ADDITIONAL INFORMATION The following information is current as at 5 September 2018: 1. Shareholder Information Distribution of Shareholders Category (size of holding): 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Number Ordinary Shares 40 97 69 247 76 529 17,454 256,455 599,254 8,930,442 126,892,909 136,696,514 The number of shareholdings held in less than marketable parcels is 126. The names of the substantial shareholders listed in the holding company’s register are: Shareholder: Number of Shares Birkdale Holdings (QLD) Pty Ltd Excalib-Air Pty Ltd Challenger Limited LHC Capital Partners Pty Ltd CVC Limited 17,039,475 16,060,000 15,213,222 10,792,523 10,528,274 Paradice Investment Management Pty Ltd 8,826,251 Commonwealth Bank of Australia 7,750,431 % of Issued Capital 12.47 11.97 11.13 7.94 7.7 6.58 5.67 Voting Rights ISA Group has 136,696,514 ordinary shares on issue which are listed on the ASX. The voting rights attached to each ordinary share is one vote per share when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. ISA Group also has 3,500,000 options on issue which are not listed on the ASX. Options do not give a holder the right to vote at any meeting of ISA Group or to participate in any share issues. 70 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT ADDITIONAL INFORMATION 20 Largest Shareholders – Ordinary Shares Name BIRKDALE HOLDINGS (QLD) PTY LTD EXCALIB-AIR PTY LTD NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED CVC LIMITED UBS NOMINEES PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED QUAD INVESTMENTS PTY LTD PROJECT GRAVITY PTY LTD LYNDCOTE SUPER PTY LTD IFLY AUSTRALIA PTY LIMITED AUSTRALIAN INDOOR SKYDIVING PTY LTD BNP PARIBAS NOMS PTY LTD SABRE ONE INVESTMENTS PTY LTD DRILL INVESTMENTS PTY LTD BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP NULIS NOMINEES (AUSTRALIA) LIMITED SANDHURST TRUSTEES LTD MR ALISTAIR DAVID STRONG MR DAVID C SCICLUNA & MR ANTHONY A SCICLUNA Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 17,039,475 16,060,000 15,140,261 12,739,938 10,528,274 9,300,000 8,642,768 5,927,540 2,916,667 2,627,307 2,521,667 2,500,000 2,187,833 1,281,390 1,001,277 1,000,000 891,474 757,000 688,834 600,000 600,000 12.465 11.749 11.076 9.320 7.702 6.803 6.323 4.336 2.134 1.922 1.845 1.829 1.601 0.937 0.732 0.732 0.652 0.554 0.504 0.439 0.439 114,951,705 84.093 71 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT ADDITIONAL INFORMATION The name of the company secretary is Salesh Nischal and Fiona Yiend. The address of the principal registered office in Australia is Level 2, 201 Miller Street North Sydney NSW 2060 Telephone 02 9325 5900. The Register of Securities is held at Grosvenor Place, Level 12, 225 George Street, Sydney NSW 2000. Stock Exchange Listing Quotation has been granted for all 136,696,514 ordinary shares of ISA Group on all Member Exchanges of the Australian Securities Exchange Limited. Unquoted Securities ISA Group has 3,500,000 incentive options on issue to 4 eligible employees and executive directors. The incentive options are subject to vesting conditions relating to tenure, have an exercise price of $0.35 and expire on 23 August 2021. On 24 September 2018 ISA Group entered into loan agreements with SkyVenture which included a right to convert amounts outstanding under the loans into ISA Group shares. For so long as ISA Group is listed, SkyVenture may convert up to US$1,619,219.99 of the loan into ordinary shares at a conversion price of US$0.079. The maximum number of shares that may be issued on conversion is 20,496,455 which is within ISA Group’s capacity to issue under Listing Rule 7.1. 2. 3. 4. 5. 6. 72 INDOOR SKYDIVE AUSTRALIA GROUP LIMITED2018 ANNUAL REPORT Disability Ambassador Peter Pellegrini Takes Flight. Indoor Skydive Australia Group Ltd Level 2, 201 Miller Street North Sydney NSW 2060 www.indoorskydive.com.au 

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