2017 ANNUAL REPORT iSignthis Ltd / ABN 93 075 419 715 Contents Corporate directory Chairman’s letter Letter from Managing Director Directors’ report Auditor’s independence declaration Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of iSignthis Ltd Shareholder information 3 4 5 6 10 23 24 25 26 27 28 52 53 56 Annual Report 2017iSignthis Ltd - 30 June 2017 4 Corporate Directory Directors Timothy Hart (Non-Executive Chairman) Nickolas John Karantzis (Managing Director) Barnaby Egerton-Warburton (Non-Executive Director) Scott Minehane (Non-Executive Director) Company secretary & CFO Todd Richards Registered office Share registry Auditor 456 Victoria Parade East Melbourne, VIC, 3002 Link Market Services Level 12, 680 George Street Sydney, NSW, 2000 Telephone: 1300 554 474 Grant Thornton Audit Pty Ltd The Rialto, Level 30 525 Collins Street Melbourne, VIC 3000 Stock exchange listing iSignthis Ltd shares are listed on the Australian Securities Exchange (ASX code: ISX) and cross listed on the Frankfurt Stock Exchange (FRA : TA8) Website www.isignthis.com Annual Report 2017iSignthis Ltd - 30 June 2017 5 Letter from Chairman Dear Shareholders, I would firstly like to thank our shareholders for their ongoing support throughout the past year as iSignthis continues to grow and generates its first operational revenues. The past year in many ways has been a successful year for the company as we reached new milestones and strategically grew into existing and new markets. We have continued to raise awareness of our Paydentity® solution in the regulated market. With a specific focus on the European gaming, gambling, remittance, trading, forex, CFD, wagering, card issuing and e-wallet markets, where identity proofing is a regulatory requirement. We believe the iSignthis Paydentity® solution is now well known within these markets, especially the forex and trading market where we have been most prominent in raising brand awareness. A major development for the company was the introduction of iSignthis eMoney Ltd (“ISXPayTM”). ISXPayTM was created to form the payments side of the business so iSignthis can provide merchants with a full end to end solution, strengthening our competitive advantage. The introduction of ISXPay to the iSignthis services has led to agreements with the National Australia Bank, JCB International and Worldline. As the company has continued to grow, iSignthis established an Operations Centre in Nicosia, Cyprus in August 2016. Our Cyprus office has allowed us to offer merchants with 24hr support and stronger communication with potential European customers. Our regional European sales offices have also expanded from Amsterdam and London to include Barcelona. Other major successes achieved by the company in the past year include; • Go live announcements with global payments expert, Ixaris, bitcoin wallet, Blockchain, award winning FX trader, XM.com.uk and European acquirer and issuer, Borgun. • Achieving our eMoney Institution License (EMI) from the Central Bank of Cyprus for ISXPayTM (#115.1.3.17). • Cross listing on the Frankfurt Stock Exchange (FRA : TA8). Moving forward into 2017/18 iSignthis main focus will be on continuing to generate revenue, going live with our existing partnerships and signing new agreements. We continue to be the only company offering identity proofing services in conjunction with payment services and we will continue to make the most of this competitive advantage. On behalf of the iSignthis Board of Directors, Management Team and talented employees we would like to express our sincere appreciation to our shareholders. We look forward to sharing our success with you as we continue to grow. Timothy Hart Non-Executive Chairman Annual Report 2017iSignthis Ltd - 30 June 2017 6 Letter from the Managing Director Dear Shareholder, It gives me great pleasure to present you with this review of the Company’s progress for the Financial Year ended 30 June 2017. I am pleased with the progress and growth of iSignthis in this past year, with our focus continuing to be on Europe, yet with an eye on opportunities as they develop elsewhere. As shareholders are aware, iSignthis is an answer to what was a developing regulatory problem – that of solving remote identity in an Anti-Money Laundering (AML) context, whilst at the same time monitoring and then later fulfilling payments to our merchant customers. The regulatory regimes of the 4th Anti Money Laundering Directive (4AMLD) and the Payment Services Directive 2 (PSD2) will introduce new requirements that conventional approaches are poorly or inadequately able to meet. The iSignthis services have been designed to meet the complex risk based identity verification and monitoring requirements of these EU regimes in an automated and scalable manner. We expect to see similar regulatory regimes extend across all forty plus Financial Action Task Force (FATF) member countries, including Australia, New Zealand, the USA, Japan, China, Hong Kong, Singapore, South Africa and so on, providing further opportunity for iSignthis. Whilst we appreciate that there has been shareholder frustration with regards to the initial deferral of the EU’s regulatory regime and the impact on the Company’s growth timetable, that time also allowed the Company to refine and further develop its products in preparation for the new regulatory regime. That frustration was also felt by the executive and the board of directors. I note that the end of the 2017 financial year marks the entry into regulatory force of the first of the two critical EU regulatory regimes, being the 4AMLD, with the PSD2 slated for mid 2018. With the 4AMLD now in force, one of the two core regulatory drivers our business case relies upon is now in place in the EU. Whilst our focus will remain on the EU for some time, systemic failures of AML regimes in the US, Australia and other jurisdictions may hasten application of the FATF’s risk based requirements across all member jurisdictions. I believe we have been able to meet and exceed many of the goals that we set out to achieve, whilst we were forced to wait for the regulatory landscape to coalesce. In the meantime, the Company didn’t wait idly by, nor pin its success on one region or one regulatory regime, or even one prospective revenue stream. We have worked to develop multiple opportunities simultaneously, and exploit our strengths, intellectual property and first mover advantages to the benefit of shareholders. The past year has not been about short-term measures or quick wins, but rather to put in place the necessary building blocks to establish a successful business platform, capable of providing global transactional banking and RegTech services. We can now focus on going live with our already integrated customers, building our transactional revenue and signing new deals, and delivering value to shareholders. Last year we set out to achieve a strong market presence within the regulated market in Europe. This was achieved by speaking and exhibiting at some of Europe’s largest payments, forex and gaming conferences including ACAMS, Money20/20, iFX EXPO, ICE Totally Gaming and Excellence in iGaming. By having a strong presence at these event’s, we have been able to position iSignthis as a global leader in identity proofing to meet AML standards. Our successful market presence in the forex and trading industry can be seen through the number of partnerships we have gained throughout the year. Some of which include; XM.com.uk (who we are currently live and transacting with), Pepperstone, iFOREX, Leverate, Valutrades and IronFX. The forex and trading market has been a large focus for the Company due to several important factors, including; • • It is a regulated industry that must comply with Anti Money Laundering (AML) and Counter Funding of Terrorism (CFT) laws in the related jurisdictions. It is generally regarded as ‘high risk’ meaning that the level of regulatory control and review is higher than other industries. Cost of compliance is also therefore high and these businesses are looking for a better way of doing things regarding AML compliance and identifying customers than the traditional paper based approach. • High transactional volume and trading amounts. XM.com are reported to be trading approximately USD$15Bn per day and are the second largest FX trader in the world. Our Merchant Ultimate Beneficial Owner Verification service has also been especially popular in the market place due to the AML regulatory change. Both Ixaris, European payments expert and Borgun, Icelandic issuer and acquiring Monetary Financial Institution are currently live and transacting with this service. Annual Report 2017iSignthis Ltd - 30 June 2017 Letter from the Managing Director 7 A major milestone was achieved when we received our eMoney License (EMI) from the Central Bank of Cyprus (#115.1.3.17) for our subsidiary iSignthis eMoney Ltd (“ISXPayTM”). This will allow ISXPay to deliver payment processing, card acquiring and card issuing to not only financial institutions and AML regulated merchants, but regular eCommerce merchants as well. The expansion of our product line has strengthened our competitive advantage as iSignthis is now the only Company to offer a full end to end, global, compliant payment and identity verification solution. It is important that we continue to stay ahead of the regulatory curve and provide our customers with the most advance technology in the industry. Selected highlights from the year include: • iSignthis executed a Payment Facilitator Program Services Agreement with the National Australia Bank (ASX : NAB) to allow iSignthis to use card acquiring services together with its identity, payment processing and authentication solutions. iSignthis has therefore, been able to supply merchants within Australia and New Zealand with a full end to end solution. • • Our subsidiary, iSignthis eMoney Ltd (“ISXPayTM”) was granted an eMoney Institution License #115.1.3.17 by the Central Bank of Cyprus. This allows the Company to provide card acquiring and issuing services within the European Economic Area. iSignthis opened an Operations Center in Nicosia, Cyprus to allow for expanded customer support and easy communication with European customers. We also leverage the strong payments and banking experience that has been provided by the team that we have recruited over the past twelve months. • The Company went live with our Merchant UBO Verification service, first with Ixaris, payments expert and later with Icelandic card acquirer and issuer, Borgun. I was invited to participate at Europe’s Association of Certified Anti-Money Laundering Specialists (“ACAMS”) European Conference, Cyprus Symposium and webinars. ACAMS are a highly regarded Association within Europe that provide expert opinions and knowledge around Anti-Money Laundering. iSignthis’ PaydentityTM solution went live with award winning, FX trading leader, XM.com.uk. XM has over 1,000,000 clients from over 196 countries and executes over 150,000,000 trades. iSignthis is currently processing and authenticating these transactions, whilst on-boarding and performing KYC checks on these customer to AML standard. June was a very exciting month with the cross listing of the Company on the Frankfurt Stock Exchange • • • • under the code “TA8” (FRA : TA8). This comes about as we continue to grow in the European market, it was important to expand our shareholder base, increase liquidity and introduce iSignthis to a wider audience across Europe. Just recently, iSignthis announced a direct License Agreement to process JCB Internationals transactions in the Single Euro Payments Area (SEPA). The partnership will offer card acquiring, settlement and processing services to EU/EEA merchants, creating new opportunities to generate sales with JCB’s 106 million card members worldwide. The Year in review The Company has worked extremely hard over the past year to be able to achieve the above successes. It is a true testament to our Company and employees to see how far we have been able to come in a relatively short period. Our Technical team are continuing to work hard to improve and refine our service to bring new customers onboard and to start generating revenues. With the announcement of many partnerships in the past year our Sales team are in a prime position to close more deals as we continue our strong market presence. The regulatory changes in the European Union (EU) have been a massive advantage for the Company. Our software has been built and designed around what is regulatory permissible, allowing us to offer an industry leading solution to comply with the EU’s 4AMLD and PSD2. We aim to stay ahead of the regulatory curve and provide merchants with the most seamless and compliant solution. Moving forward, 2017/18 will be focused on generating more revenues as we scale up our existing customers and our sales team bring more customers onboard. Operations The Company is pleased with its progress and achievements in conceiving, deploying and commencing operations of a global transactional Monetary Financial Institution (MFI) in a relatively short period of time since listing on the ASX. An MFI can issue cards, process cards, open current accounts to accept deposits, offer credit where its consistent with its charter, and operate eMoney facilities (aka eWallet) for merchants and the general public, within the EEA. The ISX Services have been designed and deployed to meet the requirements of the most stringent AML/ CFT regime in the world, being the European Union’s Annual Report 2017iSignthis Ltd - 30 June 2017 8 4AMLD, which took effect 26th June 2017. The 4AMLD is a key ‘Regulatory driver and catalyst’ upon which the Company’s business model and revenues rely, and we are starting to see that catalyst produce results. The Company expects that AML obligated / regulated entities will consider their requirements over the European summer period, and, where they fall short on a compliance basis, or need scale, or need automation, or need greater or seek global User reach or lack resources to grow or are unable in a timely manner to respond to opportunity presented by remote/online operations, or combinations of the foregoing; then we expect that these entities would be prospective customers. The Company is already engaging in sales discussions with a number of entitles, noting that it is usually the larger entities that exhibit interest in our services based on one or more of the foregoing requirements, noting however that such entities also have a “deal time” proportional to their size. The services the Company provides are to: i) identity & verify Users on behalf of our merchants, ii) AML/CFT sanction and PEP screen those Users, iii) process and monitor payments from Users, iv) settle funds between User’s MFI and ISXPay to the credit of our merchants, v) and securely store User identity and transactional details for compliance, audit and User convenience for subsequent transactions. Shareholders should note that timeframes to negotiate, integrate, test, third party audit, and certify banking systems are by their nature long, and are complex to undertake. Shareholders should also take comfort that the process is now complete to a transactional, operational and revenue capable status, with features, capabilities and additional revenue stream opportunities to be developed. Licensing to become an MFI within the EU is a process that is measured in months and years. The Company’s license is as a full MFI with deposit taking, payment processing, transfer, credit and eMoney issuance services. The Company is excited that not only its own services offered to merchants are Payment Services Directive 2 (PSD2) compliant with regards to API access and Strong Customer Authentication, but also that it is offering services to other MFIs and Payment Service Providers to assist them with their 4AMLD and PSD2 requirements. Further, the Company has developed advantages in intellectual property including granted patents, partnerships, business models and technology deployment, and has commenced exploitation of these to the benefit of shareholders. Financial Position The most recent quarterly report demonstrated month on month revenue growth. Whilst still in the early stages and the business not generating the revenue numbers that we would like, we are encouraged by the current growth trajectory and look to continue that progress in FY2018 as the company deploys the services to a wider range of contracted customers, contract new customers and open fully the service to the global operations of the existing integrated merchants. As mentioned in previous communications to the market, the business operates on a transactional basis with the various transactions (identity verification/KYC, payment processing & monitoring, and funds clearance and settlement) being billed at varying rates depending on volume, size and complexity. Transaction growth therefore has a direct correlation with revenue on a per merchant basis, but not on a consolidated basis. Consistent with being an API based service where our merchant customers connect to us, we do not charge fees for integration unless it is bespoke. As our reputation and service demand increases, the Company will seek to charge monthly minimums and seek upfront commitments, in order for Merchants to demonstrate commitment to the Company’s services on contract. Outlook iSignthis continues to focus on delivering multiple services into its existing service customers and securing additional business development opportunities. The Company’s outlook for the coming financial year includes: • Operational recurring revenues to commence from previously announced and contracted merchant customers. • The Company has completed integration to the National Australia Bank as part of the previously announced payment facilitation agreement. Discussions are now in place to offer settlement services to existing contracted merchants for their Australian operations as well as securing agreements with new customers in both the regulated and nonregulated industries. Annual Report 2017iSignthis Ltd - 30 June 2017 TOTAL RECURRING TRANSACTION VOLUMES 1QFY17 2QFY17 3QFY17 4QFY17 KYC TRANSACTIONS & CURRENCIES 28710 25952 16662 14302 12445 10652 7688 500K 450K 400K 350K 300K 250K 200K 150K 100K 50K 1.6M 1.4M 1.2M 1M 800K 600K 400K 200K VALUE 429 799 859 388 809 TOTAL TXNS EUR GBR USD Poly.(EUR) R2 = 0.97939 9 35K 30K 25K 20K 15K 10K 5K 2.5K VOLUME • Completing integration with Worldline to offer similar settlement services to EU merchants. together with the trust and confidence they have placed in us to meet their regulatory challenges. • Completing direct integration to the major card schemes via third party operator First Data in order to commence direct settlement services in Europe as per the terms of our license with the Central Bank of Cyprus. I would like to thank our exceptional employees for all the hard work and effort they have demonstrated in getting iSignthis off the ground. I would also like to express gratitude on behalf of everyone at iSignthis to our shareholders for the support that has enabled us to grow and provide the payment and identity solutions we are passionate about. Further, thanks also goes to our customers, especially those who have been and are, assisting us to develop and further refine our products, We look forward to your continued support and the exciting things to come in the year ahead. Yours Sincerely, N J (John) Karantzis B.E. LL.M M.Enterp FIEAust CPEng EurIng Adj Annual Report 2017iSignthis Ltd - 30 June 2017 10 Director’s Report The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘consolidated entity’) consisting of iSignthis Ltd (referred to hereafter as the ‘company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2017. Revenue including other income during the period amounted to $1,371,192 (2016: $443,881), which included interest of $126,003, sales from operating activities of $666,305 and R&D tax concession of $578,884. Directors The following persons were directors of iSignthis Ltd during the whole of the financial year and up to the date of this report, unless otherwise stated: • Mr. Timothy Hart (Non-Executive Chairman) • Mr. Nickolas John Karantzis (Managing Director) • Mr. Scott Minehane (Non-Executive Director) • Mr. Barnaby Egerton-Warburton (Non-Executive Director) Principal activities iSignthis Ltd is an Australian headquartered business with patented technology used to significantly enhance online payment security and to electronically verify identities by way of a dynamic, digital and automated system. The system assists obligated entities under Anti Money Laundering (“AML”) and Counter Terrorism Funding (“CTF”) legislation to meet their compliance requirements and to ensure rapid and convenient on boarding of their customers. iSignthis also assists online merchants with mitigating Card Not Present (“CNP”) fraud and providing CNP liability shift, within the framework of the card scheme rules and applicable regulatory regimes. The consolidated entity has been granted USA, European, South African, Portuguese, Singaporean and Australian patents and has patents pending in several other key jurisdictions including China, Hong Kong, South Korea, Canada, Brazil and India. The Company is licensed by the Central Bank of Cyprus as an EEA authorised eMoney Institution, offering card acquiring in the EEA, Australia and New Zealand. Review of operations The loss for the consolidated entity after providing for income tax amounted to $5,700,062 (30 June 2016: $9,235,217). Operating expenses for the financial year were $7,071,254 (2016: $9,679,098). Employment benefit costs amounted to $2,618,551 (2016: $2,035,354), due to an increase in the number of employees throughout the financial year. Corporate expenses amounted to $1,031,525 (2016: $831,674) resulting from continuing operations. These fees are made up of consultancy, accounting and other professional services. Share based payments during the period amounted to $979,347 (2016: $4,834,907) which represented a total of 15,000,000 unlisted options issued to advisors of the company in consideration for services provided and a total of 1,796,750 performance rights issued to employees in accordance with the company’s employee incentive scheme. Financial position The net assets of the consolidated entity decreased by $4,333,469 to $5,410,364 as at 30 June 2017 (2016: $9,743,833). The consolidated entity’s working capital, being current assets less current liabilities was $4,152,721 at 30 June 2017 (2016: $8,509,398). During the period the consolidated entity had a negative cash flow from operating activities of $5,337,210 (2016: $3,893,501). As a result of the above the Directors believe the consolidated entity is in a strong and stable position to expand and grow its current operations. Significant changes in the state of affairs On 10 February 2017, the consolidated entity issued 10,000,000 fully paid ordinary shares upon the exercise of unlisted options at an exercise price of $0.04 (4 cents) per option raising a total of $400,000. There were no other significant changes in the state of affairs of the consolidated entity during the financial year. Annual Report 2017iSignthis Ltd - 30 June 2017 Director’s Report 11 Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future financial years. Likely developments and expected results of operations The past financial year has seen continual growth in operations and advancement of the core services offered to merchant customers. Key operational staff and systems are located in Melbourne and Cyprus and continue to build brand awareness, a pipeline of new business opportunities and integration of existing customers to enable processing of transactions and generating revenues. Additional revenue streams are now available via a payment facilitation agreement with the National Australia Bank and an eMoney Institution license issued by the Central Bank of Cyprus. iSignthis is therefore now an EEA authorised institution allowing it to offer settlement services (card acquiring) to its existing and new merchant customers. These services now provide a full range of revenue generating services which include customer verification (identify and verify the customer as required by AML law), the Processing of payments (payment gateway) and the settlement of payments to the merchant (Acquiring). Every effort is now focused on growth. We continue to hold a significant first mover advantage in regards to the delivery of a truly online customer identity service. We now strive to deliver an outstanding product to existing customers, expand our customer list and deliver increased revenues in the 2018 financial year. Annual Report 2017iSignthis Ltd - 30 June 2017 Director’s Report 12 Information on Directors Name Mr. Timothy Hart Title Non-Executive Chairman Qualifications Name Mr. Nickolas John Karantzis Title Managing Director Qualifications BSc, MM(T), MMkting, MEd (Melb), PGDipSI (Oxon), FAICD, FAIM Experience and expertise Mr. Hart is the Managing Director and Chief Executive Officer of Ridley Corporation Limited (ASX:RIC). Mr. Hart was Chief Executive Officer of Sugar Australia and Sugar New Zealand (joint ventures between Wilmar/CSR and Mackay Sugar Limited). Eight years prior to this, Mr. Hart held management positions with SCA Hygiene Australasia, Carter Holt Harvey, ACI Plastics Packaging, Amcor Limited and Pasminco Limited. He has also been Deputy Chairman of the Australian Food & Grocery Council, Chaired the Corporate Affairs Committee and was a Director of the World Sugar Research organisation. Mr. Hart currently Chairs the AFGC Agribusiness Forum and is an Ambassador of not for profits National Association of Women in Operations (NAWO) and Enactus (SIFE). Mr. Hart has an extensive background of senior management, in the agribusiness, food, resources, automotive and packaging industries across Australia, New Zealand, Europe and Asia. B.E. LL.M. M.Enterp FIEAust CPEng EurIng Experience and expertise Mr. Karantzis holds qualifications in engineering (University of Western Australia), law and business (University of Melbourne and University of Melbourne Business School). He is a founder of iSignthis, and has been leading the sales effort whilst developing the intellectual property to its commercialised state. Mr. Karantzis has over 20 years’ experience in a number of sectors, including online media, defence and communications, with a background in secure communications. His previous public company experience includes directorships with ASX listed Pacific Star Network Limited (ASX:PNW) and Reeltime Media Limited (ASX:RMA). Other current directorships: Nil Former directorships (last 3 years) Other current directorships: Nil Ridley Corporation Limited (ASX:RIC) Special responsibilities Former directorships (last 3 years) Nil Nil Special responsibilities Chairman, Member of the Audit & Risk Committee and Chairman of the Remuneration Committee Interests in shares 349,623 Fully paid ordinary shares Interests in options: Nil Interests in rights: Nil Interests in shares Nil Interests in options: Nil Interests in rights: Nil Annual Report 2017 iSignthis Ltd - 30 June 2017 Director’s Report 13 Name Mr. Scott Minehane Title Name Mr. Barnaby Egerton-Warburton Title Non-Executive Director Non-Executive Director Qualifications B.Econ LLB LL.M Qualifications B. Ec. GAICD Experience and expertise Experience and expertise Mr. Minehane has international regulatory and strategy experience in the telecommunications sector and has been involved in advising investors, telecommunications operators, Governments and regulators in Australia, Asia, the Pacific and South Africa for over 25 years. He is also an independent director of ASX listed Etherstack plc (ASX:ESK) which specialises in wireless technology including waveforms and public mobile radio solutions. Mr. Minehane has a Bachelor of Economics and a Bachelor of Laws from the University of Queensland and holds a Master of Laws, specialising in Communications and Asian Law from the University of Melbourne. Other current directorships: Etherstack plc (ASX:ESK) Former directorships (last 3 years) Nil Special responsibilities Chairman of Audit and Risk Committee and Member of the Remuneration Committee Mr Egerton-Warburton holds a Bachelor of Economics Degree and is a graduate of the Australian Institute of Company Directors. He has over 20 years of trading, investment banking, international investment and market experience. He has held positions with global investment banks in Hong Kong, New York and Sydney including JPMorgan, Banque Nationale de Paris and Prudential Securities. Other current directorships: Eneabba Gas Limited (ASX : ENB) and Interpose Holdings Limited (ASX: IHS) (formerly Sunbird Energy Limited) Former directorships (last 3 years) 1-Page Limited (ASX : 1PG) (resigned 9 October 2014), Black Rock Mining Limited (ASX : BKT) resigned 22 January 2015 and Fastbrick Robotics Ltd (ASX : FBR) resigned 18 November 2015, Global Geoscience Limited (ASX: GSC) resigned 23 May 2017 Special responsibilities Member of Remuneration Committee and Audit & Risk Committee Interests in shares Nil Interests in options: Nil Interests in rights: Nil Interests in shares 2,847,224 fully paid ordinary shares Interests in options: Nil Interests in rights: Nil ‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Annual Report 2017 iSignthis Ltd - 30 June 2017 Director’s Report 14 Company secretary and Chief Financial Officer Todd Richards is a co-founder of iSignthis, and a Certified Practising Accountant with more than 20 years’ experience in statutory corporations and international and ASX listed companies. His experience has been gained in a number of industries including manufacturing, logistics, professional sport, IT, online media and telecommunications. Todd’s previous public company experience includes executive and Company Secretary roles with ASX listed Destra Corporation Limited (ASX:DES) and Reeltime Media Limited (ASX:RMA). Meetings of directors The number of meetings of the company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2017, and the number of meetings attended by each director were: Full Board Nomination and Remuneration Committee Audit and Risk Committee Attended Held Attended Held Attended Held Mr. T Hart Mr. S Minehane Mr. B Egerton-Warburton Mr. NJ Karantzis 5 5 5 5 5 5 5 5 1 1 1 1 1 1 1 1 1 2 2 - 2 2 2 - Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: • Principles used to determine the nature and amount of remuneration • Details of remuneration • Service agreements • Share-based compensation • Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the consolidated entity’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors (‘the Board’) ensures that executive reward satisfies the following key criteria for good reward governance practices: • competitiveness and reasonableness • acceptability to shareholders • performance linkage / alignment of executive compensation • transparency The Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The reward framework is designed to align executive reward to shareholders’ interests. The Board have considered that it should seek to enhance shareholders’ interests by: • has economic profit as a core component of plan design • focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value • attracts and retains high calibre executives Annual Report 2017iSignthis Ltd - 30 June 2017 Director’s Report iSignthis Ltd - 30 June 2017 15 to be warranted. The board will continue to monitor and review its decision in regards to formal plans as the consolidated entity progresses and reaches further milestones. Consolidated entity performance and link to remuneration Remuneration for certain individuals is not directly linked to performance of the consolidated entity. An individual member of staff’s performance assessment is done by reference to their contribution to the Company’s overall operational achievements. Directors and Executives hold shares and options in the Company to facilitate goal congruence between Executives with that of the business and shareholders. The Nomination and Remuneration Committee is of the opinion that the continued improved results can be attributed in part to the adoption of performance based compensation and is satisfied that this improvement will continue to increase shareholder wealth if maintained over the coming years. Voting and comments made at the company’s 18 November 2016 Annual General Meeting (‘AGM’) At the 18 November 2016 AGM, 99.45% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2016. The company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration The proportion of remuneration linked to performance and the fixed proportion are as follows: Amounts of remuneration Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables. Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non- executive directors’ fees and payments are reviewed annually by the Nomination and Remuneration Committee. The Nomination and Remuneration Committee may, from time to time, receive advice from independent remuneration consultants to ensure non- executive directors’ fees and payments are appropriate and in line with the market. The chairman’s fees are determined independently to the fees of other non- executive directors based on comparative roles in the external market. The chairman is not present at any discussions relating to the determination of his own remuneration. Executive remuneration The consolidated entity aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has three components: • • • base pay and non-monetary benefits share-based payments other remuneration such as superannuation and long service leave The combination of these comprises the executive’s total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee based on individual and business unit performance, the overall performance of the consolidated entity and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits where it does not create any additional costs to the consolidated entity and provides additional value to the executive. Following the issue of shares and performance shares for the initial acquisition of iSignthis B.V. and ISX IP Ltd (together known as “iSignthis”) the board of directors of the consolidated entity have concluded that as they are still in the early stages of operations, a formal process regarding STI and LTI share based payments are not yet appropriate. The board will continue to review performance and make appropriate changes to remuneration and issue any incentives as deemed Annual Report 2017 Director’s Report 16 Short-term benefit Post- employment benefits Long-term benefits Share- based payments Cash salary and fees Cash Bonus Non- monetary Super- annuation Long service leave Equity settled Total 2017 $ $ $ $ $ $ $ Non-Executive Directors Mr. Timothy Hart Mr. Scott Minehane Mr. Barnaby Egerton- Warburton Executive Directors Mr. Nickolas John Karantzis Other Key Management Personnel Mr. Todd Richards Mr. Chris Muir* 60,000 40,000 40,000 228,125 180,000 88,673 636,798 - - - - - - - - - - - - - - 5,700 3,800 3,800 - 17,100 7,125 37,525 - - - - - - - - - - 65,700 43,800 43,800 228,125 185 197,285 7,708 103,506 7,893 682,216 * Mr Muir resigned as Chief Operating Officer and Chief Legal Officer on 31 October 2016. Short-term benefit Post- employment benefits Long-term benefits Share- based payments Cash salary and fees Cash Bonus Non- monetary Super- annuation Long service leave Equity settled Total 2016 $ $ $ $ $ $ $ Non-Executive Directors Mr. Timothy Hart Mr. Scott Minehane Mr. Barnaby Egerton- Warburton Executive Directors Mr. Nickolas John Karantzis Other Key Management Personnel Mr. Todd Richards Mr. Chris Muir* 60,000 40,000 40,000 219,000 180,000 135,000 674,000 - - - - - - - - - - - - - - 5,700 3,800 3,800 - 17,100 12,825 43,225 - - - - - - - - - - - - - - 65,700 43,800 43,800 219,000 197,100 147,825 717,225 * Mr. Muir was appointed as Chief Operating Officer and Chief Legal Officer on 1 October 2015. Annual Report 2017iSignthis Ltd - 30 June 2017 Director’s Report 17 The proportion of remuneration linked to performance and the fixed proportion are as follows: Name 2017 2016 2017 2016 2017 2016 Fixed remuneration At risk-STI At risk -LTI Non-Executive Directors Mr. Timothy Hart Mr. Scott Minehane Mr. Barnaby Egerton- Warburton Executive Directors 100% 100% 100% 100% 100% 100% Mr. Nickolas John Karantzis 100% 100% Other Key Management Personnel Mr. Todd Richards Mr. Chris Muir Service agreements 100% 92% 100% 100% - - - - - - - - - - - - - - - - - 8% - - - - - - Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name Name Mr. Nickolas John Karantzis Mr. Todd Richards Title Managing Director Title Chief Financial Officer and Company Secretary Term of agreement Term of agreement Ongoing Details Ongoing Details The terms of Mr. Karantzis Executive Services Agreement for the position of Managing Director and Chief Executive Officer include a termination period of six (6) months by either party, a director’s fee and base salary totalling $264,996 per annum which was approved by the Nomination and remuneration committee during the year financial year (which is effective from 1 July 2017), inclusive of statutory superannuation entitlements, and domicile portability provisions. The agreement shall recognise one month of accrued annual leave, and participation in the employee incentive plan. The terms of Mr. Richards’ Executive Services Agreement for the position of Chief Financial Officer and Company Secretary of the Company includes a termination period of three (3) months by either party, a base salary of $198,000 per annum which was approved by the Nomination and remuneration committee during the year financial year (which is effective from 1 July 2017), plus statutory superannuation entitlements, and domicile portability provisions. The agreement provides for participation in the employee incentive plan. Annual Report 2017iSignthis Ltd - 30 June 2017 Director’s Report 18 Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2017. Options There were no options over ordinary shares issued to directors and other key management personnel as part of compensation that were outstanding as at 30 June 2017. There were no options over ordinary shares granted to or vested by directors and other key management personnel as part of compensation during the year ended 30 June 2017. Performance rights The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Grant Date Vesting date Expiry date Fair value per right at grant date 11 November 2016 1 November 2018 1 November 2018 27 January 2017 2 January 2019 2 January 2019 $0.170 $0.140 Name Number of rights granted Grant date Vesting date Expiry date Chris Muir 250,000 11 November 2016 1 November 2018 1 November 2018 Todd Richards 10,000 27 January 2017 2 January 2019 2 January 2019 Fair value per right at grant date $0.170 $0.140 Performance rights granted carry no dividend or voting rights The number of performance rights over ordinary shares granted to and vested by directors and other key management personnel as part of compensation during the year ended 30 June 2017 are set out below: Name Chris Muir Todd Richards Number of Number of Number of Number of rights granted rights granted rights vested rights vested during the year during the year during the year during the year 2017 2016 2017 2016 250,000 10,000 - - - - - - Annual Report 2017iSignthis Ltd - 30 June 2017 Director’s Report 19 Values of performance rights over ordinary shares granted, vested and lapsed for directors and other key management personnel as part of compensation during the year ended 30 June 2017 are set out below: Name Chris Muir Todd Richards Value of rights Value of rights Value of rights Remuneration granted during vested during lapsed during consisting of the year the year the year rights for the year $ $ $ % 7,708 185 - - - - - - Additional disclosures relating to key management personnel Shareholding The number of shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at the start of Received as part of the year remuneration Additions Disposals/ other Ordinary shares Mr. Barnaby Egerton-Warburton 2,847,224 - Mr. Timothy Hart* 285,107 64,516 Mr. Nickolas John Karantzis* Mr. Scott Minehane* Mr. Todd Richards* - - - - - - 3,132,331 64,516 - - - - - - Balance at the end of the year 2,847,224 349,623 - - - 3,196,847 - - - - - - * During the 2015 financial year iSignthis Ltd (the “acquiree”) completed the acquisition of iSignthis B.V. and ISX IP Ltd (together known as “iSignthis”) (“acquirer”). The acquiree (iSignthis Ltd) issued a total of 311,703,933 fully paid ordinary shares to the acquirer as consideration for the transaction. These members (excluding Mr. Barnaby Egerton-Warburton) of the Key Management Personnel hold an interest in the acquirer. During the year a total of 3,000,000 FPO’s were transferred from iSignthis to Mr John Karantzis self-managed super fund Ithaki Nominees’ This concludes the remuneration report, which has been audited. Annual Report 2017iSignthis Ltd - 30 June 2017 Director’s Report 20 Shares under option Unissued ordinary shares of iSignthis Ltd under option at the date of this report are as follows: Grant Date Expiry Date Exercise Price Number Under Option 2 November 2015 30 September 2018 2 November 2015 30 September 2018 1 August 2016 1 August 2016 1 August 2017 1 July 2018 1 July 2019 31 December 2018 $0.500 $0.620 $0.500 $0.620 $0.300 6,000,000 6,000,000 5,000,000 5,000,000 500,000 22,500,000 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate. Shares under performance rights Unissued ordinary shares of iSignthis Ltd under performance rights at the date of this report are as follows: Grant Date Expiry Date Number Under Option 1 August 2016 1 August 2016 1 March 2018 15 July 2018 11 November 2016 1 November 2018 27 January 2017 2 January 2019 30 June 2017 30 June 2017 25 April 2017 1 July 2019 216,667 718,584 335,000 371,500 50,000 17,500 1,709,251 No person entitled to exercise the performance rights had or has any right by virtue of the performance right to participate in any share issue of the company or of any other body corporate. Annual Report 2017iSignthis Ltd - 30 June 2017 Director’s Report 21 Shares issued on the exercise of options The following ordinary shares of iSignthis Ltd were issued during the year ended 30 June 2017 and up to the date of this report on the exercise of options granted: Date Options Granted Exercise Price Number of Shares Issued 10 February 2017 $0.040 10,000,000 Shares issued on the exercise of performance rights There were no ordinary shares of iSignthis Ltd issued on the exercise of performance rights during the year ended 30 June 2017 and up to the date of this report. Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor. During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services There were no non-audit services provided during the financial year by the auditor. Annual Report 2017iSignthis Ltd - 30 June 2017 Director’s Report 22 Officers of the Company who are former audit partners of Grant Thornton Audit Pty Ltd There are no officers of the Company who are former audit partners of Grant Thornton Audit Pty Ltd. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors’ report. Auditor Grant Thornton Audit Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. Rounding of amounts iSignthis Ltd is a type of Company that is referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest dollar. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Nickolas John Karantzis Managing Director 30 August 2017 Annual Report 2017iSignthis Ltd - 30 June 2017 The Rialto, Level 30 525 Collins St Melbourne Victoria 3000 Correspondence to: GPO Box 4736 Melbourne Victoria 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF ISIGNTHIS LTD In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of iSignthis Ltd for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants B L Taylor Partner - Audit & Assurance Melbourne, 30 August 2017 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 24 Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 30 June 2017 Revenue Expenses Corporate expenses Advertising & marketing Employee benefits expense Research & development expenses Consolidated Note 2017 $ 2016 $ 5 1,371,192 443,881 (1,031,525) (831,674) (116,837) (186,498) (2,618,551) (2,035,354) (345,583) (521,347) Depreciation & amortisation expense 6 (122,719) (107,546) Other expenses Operating costs Share based payments Net realised foreign exchange loss Finance costs Loss before income tax expense Income tax expense Loss after income tax expense for the year attributable to the owners of iSignthis Ltd Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation (1,042,191) (781,006) (768,611) (353,493) 27 (979,347) (4,834,907) 6 7 (41,316) (25,882) (4,574) (1,391) (5,700,062) (9,235,217) - - (5,700,062) (9,235,217) (12,754) (60,540) Other comprehensive loss for the year, net of tax (12,754) (60,540) Total comprehensive loss for the year attributable to the owners of iSignthis Ltd Basic loss per share Diluted loss per share (5,712,816) (9,295,757) Cents (0.91) (0.91) Cents (1.53) (1.53) 26 26 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes Annual Report 2017iSignthis Ltd - 30 June 2017 Statement of Financial Position as at 30 June 2017 25 Assets Current assets Cash and cash equivalents Trade and other receivables Other assets Total current assets Non-current assets Plant and equipment Intangibles Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Employee benefits Total current liabilities Non-current liabilities Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Consolidated Note 2017 $ 2016 $ 8 9 10 11 12 13 14 15 3,398,853 8,957,072 818,654 642,871 67,291 142,758 4,860,378 9,167,121 63,541 72,269 1,221,448 1,179,063 1,284,989 1,251,332 6,145,367 10,418,453 576,562 131,095 707,657 547,948 109,775 657,723 27,346 27,346 16,897 16,897 735,003 674,620 5,410,364 9,743,833 24,668,528 22,734,789 5,735,142 6,302,288 (24,993,306) (19,293,244) 5,410,364 9,743,833 The above statement of financial position should be read in conjunction with the accompanying notes Annual Report 2017iSignthis Ltd - 30 June 2017 26 Statement of Changes in Equity for the Year Ended 30 June 2017 Consolidated Balance at 1 July 2015 Issued capital Share based Accumulated payments losses reserve Foreign currency reserve Total equity $ $ $ $ $ 8,916,522 4,601,216 (10,039,425) (5,818) 3,472,495 Loss after income tax expense for the year Other comprehensive loss for the year, net of tax Total comprehensive loss for the year - - - Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 14) 10,732,190 - - - - Share-based payments (note 27) - 4,834,905 (9,235,217) - (9,235,217) - (60,540) (60,540) (9,235,217) (60,540) (9,295,757) - - - - - 10,732,190 4,834,905 - Transfer from share based payments reserve upon the exercise of options 3,086,077 (3,067,475) (18,602) Balance at 30 June 2016 22,734,789 6,368,646 (19,293,244) (66,358) 9,743,833 Consolidated Balance at 1 July 2016 Issued capital Share based Accumulated payments losses reserve Foreign currency reserve Total equity $ $ $ $ $ 22,734,789 6,368,646 (19,293,244) (66,358) 9,743,833 Loss after income tax expense for the year Other comprehensive loss for the year, net of tax Total comprehensive loss for the year - - - Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 14) 400,000 - - - - Share-based payments (note 27) - 979,347 Transfer from share based payments reserve upon the exercise of options 1,533,739 (1,533,739) (5,700,062) - (5,700,062) - (12,754) (12,754) (5,700,062) (12,754) (5,712,816) - - - - - - 400,000 979,347 - Balance at 30 June 2017 24,668,528 5,814,254 (24,993,306) (79,112) 5,410,364 The above statement of changes in equity should be read in conjunction with the accompanying notes Annual Report 2017iSignthis Ltd - 30 June 2017 Statement of Cash Flows for the Year Ended 30 June 2017 27 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Research and development incentive received Consolidated Note 2017 $ 2016 $ 431,984 20,937 (5,917,610) (4,312,074) 148,416 - 154,329 243,307 Net cash used in operating activities 25 (5,337,210) (3,893,501) Cash flows from investing activities Payments for plant and equipment Payments for intangibles Cash on deposit considered an investment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Capital raising costs Net cash from financing activities 11 12 14 14 (31,944) (124,063) (451,907) (607,914) (62,218) - - (62,218) 400,000 11,287,871 - (555,682) 400,000 10,732,189 Net increase/(decrease) in cash and cash equivalents (5,545,124) 6,776,470 Cash and cash equivalents at the beginning of the financial year 8,957,072 2,267,022 Effects of exchange rate changes on cash and cash equivalents (13,095) (86,420) Cash and cash equivalents at the end of the financial year 8 3,398,853 8,957,072 The above statement of cash flows should be read in conjunction with the accompanying notes Annual Report 2017iSignthis Ltd - 30 June 2017 28 Notes to the Financial Statements Note 1. General information Basis of preparation The financial statements cover iSignthis Ltd as a consolidated entity consisting of iSignthis Ltd and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is iSignthis Ltd’s functional and presentation currency. iSignthis Ltd is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: 456 Victoria Parade East Melbourne Victoria, 3002 A description of the nature of the consolidated entity’s operations and its principal activities are included in the directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 30 August 2017. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New, revised or amending Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of plant and equipment and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 22. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of iSignthis Ltd (‘company’ or ‘parent entity’) as at 30 June 2017 and the results of all subsidiaries for the year then ended. iSignthis Ltd and its subsidiaries together are referred to in these financial statements as the ‘consolidated entity’. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 29 Note 2. Significant accounting policies (continued) Operating segments Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is iSignthis Ltd’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year- end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised through the following major revenue streams as follows: Know Your Customer (KYC) verification Revenue generated from KYC fees are billed on a flat rate per verification service and are recognised when the service is performed. Payment processing function Revenue generated from the payment processing function are billed on a per transaction basis and are recognised when the service is performed. Settlement of payments Revenue generated from the settlement of payments are billed on a percentage of the transaction value and is recognised when the service is performed. Unearned services revenue Amounts received from customers in advance of provision for services are accounted for as a liability namely Unearned Revenue. Government subsidies Subsidies from the government including R&D tax incentive income, are recognised as revenue at their fair value where there is reasonable assurance that the grant will be received, the Company will comply with attached conditions and the R&D incentive is readily measureable. As such the Company recognised the R&D tax incentive on a cash basis, in prior periods however the consolidated entity amended its method during the current year to an accrual basis. Rendering of services Service revenue is recognised when the services are provided by reference to the stage of completion of the transaction at reporting date and where the outcome of the work can be estimated reliably. Stage of completion is determined with reference to the service performed to date. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent that related expenditure is recoverable. Interest IInterest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 30 Note 2. Significant accounting policies (continued) Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Income tax The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are initially recognised at fair value less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the consolidated entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 31 Note 2. Significant accounting policies (continued) Other receivables are recognised at amortised cost, less any provision for impairment. Other receivables are recognised at amortised cost, less any provision for impairment. Plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of plant and equipment (excluding land) over their expected useful lives as follows: Computer and office equipment: 2.5 - 7 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits. Intangible assets Intangible assets, not acquired through a business combination, are initially recognised at cost. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. Amortisation commences when the asset is available for use, in the location and condition necessary for it to be capable of operating in the intended manner by management. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. Intellectual property Significant costs associated with intellectual property are deferred and amortised on a straight-line basis over the shorter of the period of expected benefit or the period of the related patent. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non- monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 32 Note 2. Significant accounting policies (continued) the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. • from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability. Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, performance rights or options over shares that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. • The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows: • during the vesting period, the liability at each Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 33 Note 2. Significant accounting policies (continued) best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity’s operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non- controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition- date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Earnings per share Basic loss per share Basic loss per share is calculated by dividing the profit attributable to the owners of iSignthis Ltd, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted loss per share Diluted loss per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 34 is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2017. The consolidated entity has not yet assessed the impact of these new or amended Accounting Standards and Interpretations. Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Share-based payment transactions The consolidated entity measures the cost of equity- settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Estimation of useful lives of assets The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Impairment of non-financial assets The consolidated entity assesses impairment of non- financial assets at each reporting date by evaluating conditions specific to the consolidated entity and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. Employee benefits provision As discussed in note 2, the liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. Business combinations As discussed in note 2, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the consolidated entity taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 35 impact on the assets and liabilities, depreciation and amortisation reported. Note 4. Operating segments Identification of reportable operating segments The consolidated entity is organised into one operating segment which consists of online payment security, internet identity, e-mandates and e-contract validation services, to safeguard e Commerce operators, and assist Anti Money Laundering (“AML”) and Counter Terrorism Funding (“CTF”). This operating segment is based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (‘CODM’) in assessing performance and in determining the allocation of resources. Note 5. Revenue Fees Contracted service fees Licensing fees Other revenue Interest Research & development tax concession Revenue Note 6. Expenses Loss before income tax includes the following specific expenses: Depreciation Computers & office equipment Amortisation Patents and trademarks Total depreciation and amortisation Finance costs Interest and finance charges paid/payable Consolidated 2017 $ 2016 $ 441,722 224,583 666,305 126,003 578,884 704,887 1,371,192 20,937 - 20,937 179,640 243,304 422,944 443,881 Consolidated 2017 $ 2016 $ 41,041 27,609 81,678 79,937 122,719 107,546 4,574 1,391 Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 36 Note 7. Income tax expense Consolidated 2017 $ 2016 $ Numerical reconciliation of income tax expense and tax at the statutory rate Loss before income tax expense (5,700,062) (9,235,217) Tax at the statutory tax rate of 27.5% (2016: 30%) (1,567,517) (2,770,565) Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Share-based payments Difference attributable to foreign operations Research and development refund Deductible blackhole expenditure Other timing differences Income tax losses not taken up as a tax benefit Income tax expense Deferred tax assets not recognised Deferred tax assets not recognised comprises temporary differences attributable to: Tax losses (Australia) Temporary differences (Australia) Tax losses (foreign subsidiaries) Total deferred tax assets not recognised 269,320 401,221 (159,193) 1,450,472 70,796 (72,991) (1,056,169) (1,322,288) (39,549) 15,304 (61,134) 116,447 1,080,414 1,266,975 - - Consolidated 2017 $ 2016 $ 1,587,843 1,199,178 232,101 385,675 352,550 89,736 2,205,619 1,641,464 Due to the significant change in ownership following the reverse acquisition of iSignthis BV and ISX IP Ltd (together “iSignthis”) the Company has taken a conservative approach regarding the carried forward tax losses incurred prior to the reverse acquisition and it will undertake a detailed investigation in relation to this matter going forward. The above potential tax benefit for deductible temporary differences, which excludes tax losses, has not been recognised in the financial statements as the recovery of the benefit is uncertain. The taxation benefits of tax losses and temporary differences not brought to account will only be obtained if: i) the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised; Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 37 ii) the consolidated entity continues to comply with the conditions for deductibility imposed by law; iii) no changes in tax legislation adversely affect the consolidated entity in realising the benefit from the deductions for the losses; and iv) the losses are transferred to an eligible entity in the consolidated group. Note 8. Current assets - cash and cash equivalents Cash at bank Cash on deposit Consolidated 2017 $ 2,398,853 1,000,000 3,398,853 2016 $ 1,910,322 7,046,750 8,957,072 The cash held on deposit noted above amounting to $451,907 represents cash held in two term deposits with maturity dates that exceed three months and therefore must be disclosed as an other current asset. Note 9. Current assets - trade and other receivables Trade receivables Other receivables Interest receivable GST/VAT receivable Consolidated 2017 $ 2016 $ 181,539 585,288 2,898 48,929 818,654 - 6,434 25,311 35,546 67,291 Included within other receivables noted above is the Research and Development tax incentive receivable amounting $578,884 to for the 2016 financial year which was refunded subsequent to year end. Due to the short term nature of the receivables, their carrying value is assumed to be approximately their fair value. No collateral or security is held. No interest is charged on the receivables. The consolidated entity has financial risk management policies in place to ensure that all receivable are received within the credit time frame. Note 10. Current assets - other assets Prepayments Cash held on deposit Consolidated 2017 $ 2016 $ 190,964 451,907 642,871 142,758 - 142,758 The cash held on deposit noted above amounting to $451,907 represents cash held in two term deposits with maturity dates that exceed three months and therefore must be disclosed as an other current asset. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 38 Note 11. Non-current assets - Plant and equipment Computer and office equipment - at cost Less: Accumulated depreciation Consolidated 2017 $ 2016 $ 139,597 (76,056) 63,541 107,150 (34,881) 72,269 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2015 Additions Depreciation expense Balance at 30 June 2016 Additions Foreign exchange translation movements Depreciation expense Balance at 30 June 2017 Note 12. Non-current assets - intangibles Intellectual property - at cost Less: Accumulated amortisation Computer and Office Equipment $ 37,660 62,218 (27,609) 72,269 31,944 369 (41,041) 63,541 Consolidated 2017 $ 2016 $ 1,383,063 1,259,000 (161,615) (79,937) 1,221,448 1,179,063 Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 39 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2015 Amortisation expense Balance at 30 June 2016 Additions Amortisation expense Balance at 30 June 2017 Patent $ 1,259,000 (79,937) 1,179,063 124,063 (81,678) 1,221,448 Included in the additions above was the purchase of five patents amounting to USD$91,000. Note 13. Current liabilities - trade and other payables Consolidated 2017 $ 2016 $ 309,951 266,611 576,562 231,069 316,879 547,948 Trade payables Other payables Refer to note 16 for further information on financial instruments. Note 14. Equity - issued capital Consolidated 2017 Shares 2016 Shares 2017 $ 2016 $ Ordinary shares - fully paid 631,869,714 621,869,714 24,668,528 22,734,789 Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 40 Movements in ordinary share capital Details Balance Exercise of options Placement Exercise of options Exercise of options Exercise of options Transfer from share based payments reserve on conversion of options Capital raising costs Balance Exercise of options Transfer from share based payments reserve on conversion of options Date Shares Issue Price $ 1 July 2015 574,993,971 2 November 2015 20,000,000 9 November 2015 26,125,000 11 November 2015 18 November 2015 4 January 2016 500,000 250,000 743 - - 8,916,522 800,000 10,450,000 25,000 12,500 372 $0.04 $0.40 $0.05 $0.05 $0.50 - - 3,086,077 (555,682) 30 June 2016 621,869,714 22,734,789 10 February 2017 10,000,000 $0.04 400,000 - - 1,533,739 Balance 30 June 2017 631,869,714 24,668,528 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The consolidated entity’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current company’s share price at the time of the investment. The consolidated entity is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The consolidated entity is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 41 Consolidated 2017 $ (79,112) 5,814,254 5,735,142 2016 $ (66,358) 6,368,646 6,302,288 Note 15. Equity - reserves Foreign currency reserve Share-based payments reserve Foreign currency reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Balance at 1 July 2015 Foreign currency translation Share-based payments Transfer to issued capital upon the exercise of options Balance at 30 June 2016 Foreign currency translation Share-based payments Transfer to issued capital upon the exercise of options Foreign currency reserve $ Share based payments reserve $ Total $ (5,818) 4,601,216 4,595,398 (60,540) - (60,540) - - 4,834,905 4,834,905 (3,067,475) (3,067,475) (66,358) (12,754) - - 6,368,646 6,302,288 - 979,347 (12,754) 979,347 (1,533,739) (1,533,739) Balance at 30 June 2017 (79,112) 5,814,254 5,735,142 Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 42 Note 16. Financial instruments operating units. Finance reports to the Board on a monthly basis. Financial risk management objectives The consolidated entity’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The consolidated entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market risk. Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board of Directors (‘the Board’). These policies include identification and analysis of the risk exposure of the consolidated entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the consolidated entity’s Market risk Foreign currency risk The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. Foreign exchange risk arises from future commercial transactions and recognized financial assets and financial liabilities denominated in a currency that is not the entity’s functional currency. Price risk The consolidated entity is not exposed to any significant price risk. Interest rate risk The consolidated entity’s only exposure to interest rate risk is in relation to deposits held. Deposits are held with reputable banking financial institutions. Consolidated Cash at bank Cash on deposit Net exposure to cash flow interest rate risk 2017 2016 Weighted average interest rate Balance Weighted average interest rate Balance % $ % $ 1.60% 2.00% 2,398,853 1,000,000 3,398,853 1.50% 2.90% 1,910,322 7,046,750 8,957,072 Below is a sensitivity analysis of interest rates at a rate of 50 basis points on cash at bank and 100 basis points on cash on deposit for the 2016 and 2017 financial years. The impact would not be material on bank balances held at 30 June 2017. The percentage change is based on expected volatility of interest rates using market data and analysis forecasts. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 43 Basis points increase Basis points decrease Basis points change Effect on profit before tax Effect on equity Basis points change Effect on profit before tax Effect on equity 50 100 11,994 11,994 10,000 10,000 50 100 (11,994) (11,994) (10,000) (10,000) 21,994 21,994 (21,994) (21,994) Basis points increase Basis points decrease Basis points change Effect on profit before tax Effect on equity Basis points change Effect on profit before tax Effect on equity 50 100 9,552 9,552 70,468 70,468 50 100 (9,552) (9,552) (70,468) (70,468) 80,020 80,020 (80,020) (80,020) Consolidated - 2017 Cash at bank Cash on deposit Consolidated - 2016 Cash at bank Cash on deposit Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The consolidated entity obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The consolidated entity does not hold any collateral. Liquidity risk Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 44 Note 17. Key management personnel disclosures Directors The following persons were directors of iSignthis Ltd during the financial year: Mr. Timothy Hart (Non-Executive Chairman) Mr. Nickolas John Karantzis (Managing Director and CEO) Mr. Scott Minehane (Non-Executive Director) Mr. Barnaby Egerton-Warburton (Non-Executive Director) Other key management personnel The following persons also had the authority and responsibility for planning, directing and controlling the major activities of the consolidated entity, directly or indirectly, during the financial year: Mr. Todd Richards CFO and Company Secretary Mr. Chris Muir Chief Operating Officer & Chief Legal Officer (resigned 31 October 2016) Compensation The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below: Short-term employee benefits Post-employment benefits Share-based payments Note 18. Remuneration of auditors Consolidated 2017 $ 2016 $ 636,798 37,525 7,893 682,216 674,000 43,225 - 717,225 During the financial year the following fees were paid or payable for services provided by Grant Thornton Audit Pty Ltd, the auditor of the company: Audit services - Grant Thornton Audit Pty Ltd Audit or review of the financial statements Consolidated 2017 $ 2016 $ 51,000 44,700 Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 45 Note 19. Contingent liabilities There were no contingent liabilities at 30 June 2017 and 30 June 2016. Note 20. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Consolidated 2017 $ 2016 $ 140,970 186,765 327,735 88,400 286,987 375,387 Operating lease commitments includes the office lease until 25 May 2020 for the Australian office and 16 May 2018 for the Cyprus office. Note 21. Related party transactions Parent entity iSignthis Ltd is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 23. Key management personnel Disclosures relating to key management personnel are set out in note 17 and the remuneration report included in the directors’ report. Consolidated 2017 $ 2016 $ Payment for goods and services: Reimbursement paid to Southern Ocean Pty Ltd - 150,000 Purchase of Intellectual property from BXWIP Holding Co Pty Ltd 124,063 - During the prior financial year the consolidated entity paid $150,000 to Southern Ocean Pty Ltd (an entity associated with Mr John Karantzis) as a reimbursement of costs incurred by this entity in relation to the consolidated entity’s intellectual property and associated patents. During the financial year the consolidated entity purchased Intellectual Property (Patents) from a third party in the amount of USD$91,000 (AUD$124,063). The purchase was completed whereby an entity (incorporated specifically for this transaction for commercial purposes) associated with Mr Barnaby Egerton-Warburton (BXWIP Holding Co Pty Ltd) purchased the Intellectual Property which was then immediately reassigned to the consolidated entity. It is noted that the purchase consideration above was paid directly to a solicitor and as such no cash transaction occurred between the consolidated entity and BXWIP Holding Co Pty Ltd and thus no benefit was provided to Mr Barnaby Egerton-Warburton. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 46 Transactions with related parties The following transactions occurred with related parties: Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Loss after income tax Total comprehensive loss Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Share-based payments reserve Accumulated losses Total equity Parent 2017 $ 2016 $ (1,518,622) (5,458,514) (1,518,622) (5,458,514) Parent 2017 $ 2016 $ 2,703,304 8,285,615 13,989,430 13,924,324 250,236 250,236 45,855 45,855 109,191,179 107,257,440 5,814,254 6,368,646 (101,266,239) (99,747,617) 13,739,194 13,878,469 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2016 and 30 June 2017. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2016 and 30 June 2017. Capital commitments - Plant and equipment The parent entity had no capital commitments for plant and equipment as at 30 June 2016 and 30 June 2017. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 47 Note 22. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 2, except for the following: Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in associates are accounted for at cost, less any impairment, in the parent entity. • • • Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 23. Interests in subsidiaries Name Authenticate Pty Ltd Authenticate BV iSignthis BV ISX IP Ltd iSignthis eMoney Ltd iSignthis Inc. iSignthis (IOM) Ltd iSignthis (UK) Ltd Principal place of business / Country of incorporation Australia Netherlands Netherlands Ownership interest 2017 % 2016 % 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% British Virgin Islands 100.00% 100.00% Cyprus USA Isle of Man United Kingdom 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Note 24. Events after the reporting period No matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future financial years. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 48 Note 25. Reconciliation of loss after income tax to net cash used in operating activities Loss after income tax expense for the year Adjustments for: Depreciation and amortisation Share-based payments Foreign exchange differences Change in operating assets and liabilities: Increase in trade and other receivables Increase in other current assets Increase in trade and other payables Increase in employee benefits Consolidated 2017 $ 2016 $ (5,700,062) (9,235,217) 122,720 979,347 - 107,545 4,834,907 25,882 (751,393) (48,206) 28,615 31,769 (34,463) (66,279) 378,657 95,467 Net cash used in operating activities (5,337,210) (3,893,501) Note 26. Earnings per share Consolidated 2017 $ 2016 $ Loss after income tax attributable to the owners of iSignthis Ltd (5,700,062) (9,235,217) Weighted average number of ordinary shares used in calculating basic loss per share Weighted average number of ordinary shares used in calculating diluted loss per share Basic loss per share Diluted loss per share Number Number 626,705,330 605,377,229 626,705,330 605,377,229 Cents Cents (0.91) (0.91) (1.53) (1.53) Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 49 Note 27. Share-based payments Set out below are summaries of options granted under the plan: 2017 Grant Date Expiry Date Exercise price Balance at the start of the year Granted Exercised Expired/ fortfeited/ other Balance at the end of the year 15/05/2015 13/05/2017 $0.040 10,000,000 02/11/2015 31/07/2017 $0.380 6,000,000 02/11/2015 30/09/2018 $0.500 6,000,000 02/11/2015 30/09/2018 $0.620 6,000,000 01/08/2016 01/07/2017 $0.380 5,000,000 01/08/2016 01/07/2018 $0.500 5,000,000 01/08/2016 01/07/2019 $0.620 5,000,000 43,000,000 - - - - - - - - (10,000,000) - - - - - - (10,000,000) - - - - - - - - - 6,000,000 6,000,000 6,000,000 5,000,000 5,000,000 5,000,000 33,000,000 * On 1 August 2016 the company approved to grant 15,000,000 Unlisted Options in three tranches of 5,000,000 options each. The options have an exercise price of $0.38 (38 cents), $0.50 (50 cents) and $0.62 (62 cents) per option, respectively. 2016 Grant Date Expiry Date Exercise price Balance at the start of the year Granted Exercised Expired/ fortfeited/ other Balance at the end of the year 15/05/2015 13/05/2017 $0.040 30,000,000 02/11/2015 31/07/2017 $0.380 6,000,000 02/11/2015 30/09/2018 $0.500 6,000,000 02/11/2015 30/09/2018 $0.620 6,000,000 48,000,000 - - - - - (20,000,000) - - - (20,000,000) - - - - - 10,000,000 6,000,000 6,000,000 6,000,000 28,000,000 * On 2 November 2015 at the company’s general meeting shareholders approved to grant 18,000,000 Advisor Options to the Advisors (and/or nominees) in recognition of ongoing corporate advisory services provided to the Company by the Advisors. The options have an exercise price of $0.38 (38 cents), $0.50 (50 cents) and $0.62 (62 cents) per option, respectively. Annual Report 2017iSignthis Ltd - 30 June 2017 50 Set out below are the options exercisable at the end of the financial year: Grant Date Expiry Date 15/05/2015 13/05/2017 02/11/2015 31/07/2017 02/11/2015 30/09/2018 02/11/2015 30/09/2018 01/08/2016 01/07/2017 01/08/2016 01/07/2018 01/08/2016 01/07/2019 2017 2016 Number Number - 10,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 5,000,000 5,000,000 5,000,000 - - - 33,000,000 28,000,000 Set out below are summaries of performance rights granted under the plan: Grant date Expiry date Balance at the start of the year Granted Exercised 01/08/2016 01/03/2018 01/08/2016 15/07/2018 11/11/2016 01/11/2018 27/01/2017 02/01/2019 30/06/2017 25/04/2019 30/06/2017 01/07/2019 - - - - - - - 231,250 791,500 335,000 371,500 50,000 17,500 1,796,750 Expired/ forfeited/ other Balance at the end of the year (14,583) (72,916) - - - - 216,667 718,584 335,000 371,500 50,000 17,500 (87,499) 1,709,251 - - - - - - - Set out below are the performance rights exercisable at the end of the financial year: Grant Date Expiry Date 01/08/2016 01/03/2018 01/08/2016 15/07/2018 11/11/2015 01/11/2018 27/01/2017 02/01/2019 30/06/2017 25/04/2019 30/06/2017 01/07/2019 2017 2016 Number Number 216,667 718,584 335,000 371,500 50,000 17,500 1,709,251 - - - - - - - Annual Report 2017iSignthis Ltd - 30 June 2017 51 For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date 01/08/2016 01/07/2017 01/08/2016 01/07/2018 01/08/2016 01/07/2019 $0.215 $0.215 $0.215 $0.380 $0.500 $0.620 98.59% 93.99% 93.99% - - - 1.57% 1.48% 1.44% $0.043 $0.060 $0.077 For the performance rights granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date 01/08/2016 01/03/2018 01/08/2016 15/07/2018 11/11/2016 01/11/2018 27/01/2017 02/01/2019 30/06/2017 25/04/2019 30/06/2017 01/07/2019 $0.215 $0.215 $0.170 $0.140 $0.170 $0.170 93.99% 93.99% 93.99% 84.98% 71.83% 71.83% - - - - - - 1.48% 1.48% 1.73% 1.85% 1.74% 1.74% $0.215 $0.215 $0.170 $0.140 $0.170 $0.170 The performance rights listed above will vest once the holder of the right has satisfied various performance conditions set out in the signed offer letter. The company has estimated that there is a 56% chance of all rights vesting and has therefore taken this into consideration when valuing the rights. As part of the part consideration for the acquisition of 100% of issued capital of iSignthis B.V. and ISX IP Ltd (together known as “iSignthis”) the vendor also issued 336,666,667 performance shares (on a post consolidation basis) based on achievement of the following milestones within three (3) of completing the transaction: (i) 112,222,222 Class A Performance Shares – on achievement of annual revenue of at least $5,000,000. Annual revenue will be calculated on annualised basis over a 6 month reporting period. Class A Performance Shares will expire if unconverted within three (3) years of completing the transaction; (ii) 112,222,222 Class B Performance Shares – on achievement of annual revenue of at least $7,500,000. Annual revenue will be calculated on annualised basis over a 6 month reporting period. Class B Performance Shares will expire if unconverted within three (3) years of completing the transaction; and (iii) 112,222,223 Class C Performance Shares – on achievement of annual revenue of at least $10,000,000. Annual revenue will be calculated on annualised basis over a 6 month reporting period. Class C Performance Shares will expire if unconverted within three (3) years of completing the transaction. As at the date of the this report, none of the milestones have been met in relation to the Performance Shares and none of the Performance Shares were issued or cancelled. Annual Report 2017iSignthis Ltd - 30 June 2017 Notes to the Financial Statements 52 Directors’ Declaration In the directors’ opinion: • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; • • the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; • • the attached financial statements and notes give a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and • • there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Nickolas John Karantzis Managing Director 30 August 2017 Annual Report 2017iSignthis Ltd - 30 June 2017 INDEPENDENT AUDITOR’S REPORT TO THE DIRECTORS OF ISIGNTHIS LTD Report on the audit of the financial report The Rialto, Level 30 525 Collins St Melbourne Victoria 3000 Correspondence to: GPO Box 4736 Melbourne Victoria 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Opinion We have audited the financial report of iSignthis Ltd (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: a Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the year ended on that date; and b Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the 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 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. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Key audit matter How our audit addressed the key audit matter Impairment of intangibles Note 2 At 30 June 2017 the Group’s Statement of Financial Position includes intellectual property (IP) of $1,383,063, gross, which is being amortised over the useful life of each pertinent patent. Accounting Standard AASB 136 – Impairment of Assets requires that an entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any indication exists, the entity shall estimate the recoverable amount of the asset. We have determined this to be a key audit matter given the inherent subjectivity that is involved in the Group’s evaluation of impairment indicators. Our procedures included, amongst others: • Confirming the status of patents associated with the capitalised intellectual property with external sources; • Reviewing the assumptions applied by management when assessing the useful life and impairment indicators of the intellectual property; • Analysing the Group’s future cash flow forecasts used to support management’s review of impairment indicators, and understanding the process by which they were developed, including: ensuring they are consistent with Board - approved budgets; and critically assessing the key assumptions in the forecasts by comparing them to historical results, business strategies and economic and industry forecasts; and • Assessing the adequacy of the Group’s - disclosures within the financial statements. Information Other than the Financial Report and Auditor’s Report Thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2017, 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 we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 5 to 10 of the directors’ report for the year ended 30 June 2017. In our opinion, the Remuneration Report of iSignthis Ltd, for the year ended 30 June 2017, 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. GRANT THORNTON AUDIT PTY LTD Chartered Accountants B L Taylor Partner - Audit & Assurance Melbourne, 30 August 2017 56 Shareholder Information The shareholder information set out below was applicable as at 10 August 2017. Distribution of equitable securities Analysis of number of equitable security holders by size of holding Number of holders of rights over ordinary shares Number of holders of options over ordinary shares Number of holders of ordinary quoted shares 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Twenty largest equity security holders The names of the twenty largest security holders are listed below: - 5 2 8 4 19 - - - - - 4 4 - 616 859 661 1,423 337 3,896 955 ISIGNTHIS LTD CITICORP NOMINEES PTY LIMITED UBS NOMINEES PTY LTD MYCATMAX PTY LTD BANNABY INVESTMENTS PTY LIMITED IFM PTY LIMITED BRISPOT NOMINEES PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 MS MERLE SMITH & MS KATHRYN SMITH MR IAN TETRO MAHSOR HOLDINGS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED MS MERLE SMITH & MS KATHRYN SMITH ITHAKI NOMINEES PTY LTD CHAMPIO PTY LTD BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP WHISTLER STREET PTY LTD IGNITION LTD Ordinary Shares Number held Shares % of total shares issued 297,343,100 47.06 40,971,120 19,769,834 13,250,000 11,500,000 10,000,000 8,816,656 8,452,970 7,092,400 6,550,000 5,966,667 5,500,000 5,497,192 4,770,256 4,000,000 3,000,000 2,830,452 2,793,403 2,593,557 2,571,000 6.48 3.13 2.10 1.82 1.58 1.40 1.34 1.12 1.04 0.94 0.87 0.87 0.75 0.63 0.47 0.45 0.44 0.41 0.41 463,268,607 73.31 Annual Report 2017iSignthis Ltd - 30 June 2017 Shareholder Information 57 Number on issue Number of holders 22,500,000 1,709,251 4 19 Ordinary Shares Number held Shares % of total shares issued 297,343,100 40,971,120 47.06 6.48 Unquoted equity securities Options over ordinary shares issued Performance rights over ordinary shares issued Substantial holders Substantial holders in the company are set out below: ISIGNTHIS LTD CITICORP NOMINEES PTY LIMITED Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. Annual Report 2017iSignthis Ltd - 30 June 2017 www.isignthis.com