Knosys Limited
ABN 96 604 777 862
Annual Report
30 June 2017
Knosys Limited
Chairman’s letter to shareholders
30 June 2017
Dear Shareholders,
I have pleasure in presenting to you the 2017 Annual Report of Knosys Limited.
Following the successful float of the Company and its transition to a fully operational public company in the 2016 financial
year, the 2017 year saw the next stage of the Company’s development.
During July 2016, Mr. John Thompson was appointed the Company’s new CEO. John Thompson is a highly experienced
and skilled CEO having been a successful CEO in a wide range of technology businesses from start-ups to large
international companies. John has held various CEO positions over more than twenty years and has a strong track record in
growing revenue and profits.
Upon joining the Company, John in consultation with the Board conducted a comprehensive review of all aspects of the
Company’s business and provide recommendations for the Board to consider and implement.
The first was to transform the Company into a sales-focussed technology business. We commenced with the recruitment of
a national sales team and the refinement of our sales proposition. We are now better articulating our value proposition to
potential customers and are focused on our core vision, that is, “making knowledge matter”.
We also adopted a more focused sales strategy targeting Tier 1 and Tier 2 customers in the Banking, Legal/Government
and Telecommunication sectors. This approach is expected to deliver customers of similar scale to the ANZ bank and
additionally customers in the 200-500 user range over time
Our partner relationships were also deemed to be under performing and we made significant changes to these during the
year. With a greater focus on direct sales we are now less dependent upon resellers. Whilst we still see an opportunity for
resellers going forward to expand our sales, we will be more selective and demanding on their performance in the future.
The Company also concluded a number of external subcontracting arrangements for software development and support
services to offset the costs associated with the expanded internal development team.
The Company also transitioned from a founder driven business to one under the stewardship of independent management.
Mr Alistair Wardlaw resigned from the Board of the Company and resigned from his position as Knosys’ Chief Technology
Officer. Mr Wardlaw was the founder of the Knosys technology and was an owner of the entity acquired by Knosys to secure
ownership of the IP associated with the Knosys platform. He has successfully transferred the knowledge around the Knosys
technology to the current Knosys management and development teams and everyone associated with Knosys Limited
thanks Alistair for his significant contribution to the development of the Company and its technology both before and after
listing. Mr Gavin Campion also resigned from his position as a Knosys consultant during the year. He was instrumental in
assisting Company to float and introducing strategic partners to the business in its formative years. We thank him for his
contribution and support of the business as it moves ahead.
The Board is confident that John Thompson will deliver further success for Knosys and its shareholders as he continues to
evolve the Company in the years ahead.
In May 2017 the Company announced the raising of $1.5m through a convertible note issue. Funds were raised for the purpose
of supporting the Company’s current sales, marketing and business development activities and initiatives, continued product
development and its general working capital needs. On behalf of the Directors I would like to thank all investors who supported
this fund raising initiative and I thank all stakeholders who have taken an interest in the Company and that have continued to
support us.
I present to you the report on the Company and its controlled entities for the financial period ended 30 June 2017.
Hon. Alan Stockdale AO
CHAIRMAN
Knosys Limited
Directors' report
30 June 2017
The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as
the 'consolidated entity') consisting of Knosys Limited (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.
Directors
The following persons were directors of Knosys Limited during the period from 1 July 2016 to the date of this report, unless
otherwise stated:
Hon. Alan Stockdale (Non-executive Chairman)
Ashley Gall (Managing Director) resigned 15 July 2016
Alistair Wardlaw (Executive Director) resigned 27 September 2016
Richard Levy (Non-executive Director)
Peter Pawlowitsch (Non-executive Director)
Principal activities
During the financial year the principal continuing activities of the consolidated entity consisted of:
● Computer software development and licencing.
Dividends
No dividends were paid or declared during the financial year.
Review of operations
The loss for the consolidated entity after providing for income tax amounted to $2,085,018 (30 June 2016 loss: $1,411,015).
The consolidated entity had net assets of $726,589 at 30 June 2017 and cash on hand of $2,841,416. The consolidated
entity is adequately funded and has the resources to develop its product and its business.
The Knosys Platform enables organisations, large or small, to better capture, manage and access information across often
disparate business units, divisions and information technology (IT) platforms, improving and simplifying the knowledge. The
Knosys Platform sits above an organisation’s existing technology or IT platform, without disrupting existing processes. The
Knosys Platform optimises the outcomes of existing IT platforms in an organisation through the integration of their
capabilities and content, without moving the data from the legacy system. This is done by indexing the data/information
location or tagging the file and creating a virtual link to the information without the requirement to replicate the information
into a central repository.
The Consolidated entity’s business model is based on a recurring subscription fee payable by customers annually on a per
user basis.
The 2017 financial year was a challenging but successful one for Knosys as it addressed a number of strategic
imperatives. This was the first full year of trading since listing and we learnt many valuable lessons during this period and
implemented a number of targeted actions to position the business for better future trading results. We established a
program to further develop the Knosys platform to achieve its real potential in the market, engaged with our customers and
commenced building our reputation as world-class software vendor.
We had grown the business by 45% by the end of the 2017 financial year, with the licensed user base increasing from
11,350 (2016) to over 16,500. We focused on our core Banking and Financial Services market and improved our working
relationship with our key customer ANZ Bank, which was the primary purchaser of new licenses during the year. We
expect additional Tier 2 banking customers and some mid-sized Super Funds to come on line during the next financial year
because of our direct sales efforts in this sector in the latter half of 2017. We are therefore working through the protracted
sales cycles, that are characteristic of enterprise and government customers, particularly when we are trying to achieve a
broader penetration of our offering in these organisations. We are significantly progressed in a number of these sales
processes and we are seeing the prospects starting to open for these broad-based roll outs.
Expenses during the year rose as we continued to invest in the business and attract specialist skills within the organisation
necessary to position it for growth. During 2017 the Company implemented a number of restructuring plans and reduced its
external consulting costs to offset some of the increased labour costs, the full benefits of which will materialise in the
following financial year.
The company has moved strongly into the phase where its primary focus is on gaining sales, both direct and through
partners. We look forward to releasing news of new customer signings during the coming financial year.
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Knosys Limited
Directors' report
30 June 2017
Significant changes in the state of affairs
There were no significant changes in the state of affairs of the consolidated entity during the financial year, other than those
discussed already in the review of operations.
Going Concern
For the year ended 30 June 2017, the consolidated entity had an operating net loss of $2,085,018 (2016: $1,411,015) and
net cash outflows from operating activities of $1,625,135 (2016: $767,996).
The ability of the consolidated entity to continue as a going concern is dependent upon a number of factors, one being the
continuation and availability of funds. The financial statements have been prepared on the basis that the consolidated
entity is a going concern, which contemplates the continuity of its business, realisation of assets and the settlement of
liabilities in the normal course of business.
In determining that the going concern assumption is appropriate, the directors have had regard to:
• Achieving expected increase in sales through both direct sales and the Company’s reseller network;
• Prudent management of costs as required;
• Previous success on being eligible for the research and development tax incentive refunds
• Potential reduction of liabilities and additional capital contribution from the conversion of convertible notes to
ordinary shares and additional capital from the exercise of options attached to the convertible notes; and
If required, being able to raise additional capital funds through conducting a capital raising.
•
The consolidated entity’s ability to continue to operate as a going concern is dependent upon the items listed above.
Should these events not occur, the consolidated entity may be unable to continue as a going concern and may be required
to realise its assets and extinguish its liabilities other than in the ordinary course of business, and at amounts that differ
from those stated in the financial statements
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
Information on likely developments in the operations of the consolidated entity and the expected results of operations have
not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the
consolidated entity.
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State
law.
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Knosys Limited
Directors' report
30 June 2017
Information on directors
Name:
Title:
Experience and expertise:
Directorships held in other listed
entities in the last 3 years
Interests in shares
Interests in options
Hon. Alan Stockdale AO
Non-Executive Chairman
Hon. Alan Stockdale AO served as Treasurer in the Victorian Government from 1992
to 1999 and his responsibilities included the Government reform agenda and general
financial management.
Alan was responsible for the privatisation of $A30 billion of Government business
enterprises. He was also Minister for IT and Multimedia from 1996 to 1999, promoting
Victoria as a leader in the application of multimedia and new information technologies.
In the private sector, Alan was employed by Macquarie Bank for a total of six years,
co-leading the Macquarie team that successfully bid to acquire Sydney Airport. Taking
on a number of other corporate advisory roles, he was involved in a wide range of
infrastructure transactions, especially in the power, gas and transport sectors in
Australia and overseas.
Alan has developed a career as a company Chairman and director of a number of ASX-
listed companies and of various unlisted companies and not-for-profit organisations.
He has been Chairman of Axon Instruments Inc (incorporated in the USA and listed on
the ASX), Symex Holdings Limited, Senetas Corporation Limited and a director of
Marriner Financial Limited - all companies listed on the ASX. He is also a consultant to
Maddocks Lawyers, Metro Trains and Lazard Australia and Chairman of the Medical
Research Commercialisation Fund.
He was Federal President of the Liberal Party from 2008 to 2014.
Alan holds a Bachelor of Laws and a Bachelor of Arts, both completed at the University
of Melbourne, is a Barrister of the Supreme Courts of Victoria and NSW and the High
Court of Australia and is a Fellow of the Australian Institute of Company Directors.
Mr Stockdale has been a director since 30 April 2015.
Nil.
Nil ordinary shares
500,000 options
Name:
Title:
Richard Levy
Non-Executive Director
Experience and expertise:
Richard Levy has had 27 years automotive manufacturer (Nissan/Ford) and supplier
(Air International) experience in sales and marketing management positions including
four years as Director of Sales and Dealer Operations at Nissan. He has also had
investments and participation in several commercial ventures including food, travel and
now internet businesses.
Richard has been a partner and was Managing Director (resigned Feburary 2017) of
MMG Interactive for the last 17 years including involvement with servicing many blue
chip and high value SME customers, and has also published papers on the internet
and the auto industry - both business-to business and business-to-consumer. He was
and continues to be a founding owner of apStream, an internet streaming services
company.
Richard holds an Economics degree from the ANU.
Mr Levy has been a director since 30 April 2015.
Directorships held in other listed
entities in the last 3 years
Nil
Interests in shares
Interests in options
10,292,260 ordinary shares
1,000,000 options
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Knosys Limited
Directors' report
30 June 2017
Name:
Title:
Experience and expertise:
Peter Pawlowitsch
Non-Executive Director
Peter Pawlowitsch is an accountant by profession with extensive experience as a
director and officer of ASX-listed entities. He brings to the team experience in
operational management, business administration and project evaluation in the IT,
hospitality and mining sectors during the last 15 years.
Peter is Chairman of Dubber Corporation Limited (appointed a director on 26
September 2011), and a non-executive director of Ventnor Resources Ltd (appointed
12 February 2010), Novatti Group Limited (appointed 19 June 2015) and a non-
executive director of Rewardle Holdings Limited (appointed 30 May 2017) and he was
a non-executive director of Department 13 Ltd (30 January 2010 to 18 December
2015), all ASX-listed companies.
Peter holds a Bachelor of Commerce from the University of Western Australia, is a
current member of the Certified Practising Accountants of Australia and also holds a
Masters of Business Administration from Curtin University.
Mr Pawlowitsch has been a director since 16 March 2015.
Directorships held in other listed
entities in the last 3 years
Dubber Corporation Limited (ASX:DUB)
Ventnor Resources Limited (ASX:VRX)
Novatti Group Limited (ASX:NOV)
Department 13 International Limited (ASX:D13)
Rewardle Holdings Limited (ASX:RXH)
Interests in shares
Interests in options
900,000 ordinary shares
500,000 options
Name:
Title:
Ashley Gall (resigned 15 July 2016)
Managing Director and CEO
Experience and expertise:
Ashley Gall has over 25 years’ experience working in the information technology sector.
This has formed the basis of Ashley’s strong industry expertise in enterprise market
segments including government, health, utilities, education, finance and banking.
Serving as an Enterprise Account Manager with multinational information technology
corporation Hewlett-Packard from 1991 until 2009, Ashley then moved on, becoming a
Senior Account Manager for Southern Cross Computer Systems from 2009 until 2012.
From 2013 to January 2015, Ashley was the Victorian Sales Manager for NTT
Communications ICT Solutions.
Coming from an engineering background, Ashley has developed his knowledge and
skills from working in sales and sales management, with a strong focus on business
solutions.
Ashley studied at Collingwood & Box Hill TAFE obtaining a Certificate and Associate
Degree in Civil Drafting and Civil Engineering.
Mr Gall held the position of director from 30 April 2015 to 15 July 2016.
Directorships held in other listed
entities in the last 3 years
Nil
Interests in shares
Interests in options
Nil ordinary shares
2,416,667 options
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Knosys Limited
Directors' report
30 June 2017
Name:
Title:
Experience and expertise:
Alistair Wardlaw (resigned 26 September 2016)
Executive Director and Chief Technical Officer
Alistair has 20 years’ experience in multimedia, information technology and software
development and delivery.
As a co-founder of the Group and Chief Technology Officer, Alistair has played a key
role in productising and commercialising the Knosys Platform, taking the original
conceptual model of the Knosys Platform through each phase of the software
development life cycle to the final product.
For the last 15 years Alistair has been a part owner and operations director of MMG
interactive, which has provided services for many blue chip and high value small-to-
medium enterprise customers, developing customer-centric websites, application and
SaaS platforms.
Alistair is also a co-founder of apStream, a streaming and content distribution network
to commercial and government sectors.
Alistair has academic training from La Trobe University and Monash University and
applications experience in electronic graphic design.
Mr Wardlaw held the position of director from 30 April 2015 to 26 September 2016.
Directorships held in other listed
entities in the last 3 years
Nil
Interests in shares
Interests in options
19,100,000 ordinary shares
416,667 options
Chief Executive Officer - Appointed 18 July 2016
John Thompson (BEng Hons, MBA) was appointed as CEO on 18 July 2016. Mr. Thompson brings a wealth of leadership
experience having worked for more than 20 years at the helm of renowned technology companies. Most recently, Mr.
Thompson spent 11 years as CEO of Sigtec and 5 years as CEO of Wavenet International in addition to 5 years with CS
Communications and Systems in New York and London. Mr. Thompson received a first class honours degree in
Engineering from the Queensland University of Technology in addition to a Master of Business Administration from the City
University Business School in London. Mr. Thompson has a strong record in driving sales and revenue in addition to his
ample experience as a capable CEO providing pivotal leadership expertise across UK, US, Australia and New Zealand
markets for multi-national, listed, IPO and start-up technology companies.
Company Secretary and Chief Financial Officer
Stephen Kerr (BCom, CA, FGIA) has held the role of Company Secretary since July 2015. Stephen Kerr is a qualified
chartered accountant and chartered company secretary. He is an experienced CFO and governance professional, having
held senior finance positions in private and publicly listed company environments across Australia and New Zealand for over
15 years. Stephen holds a Bachelor of Commerce from the University of Melbourne and is a current member of Chartered
Accountants Australia and New Zealand and a Fellow of the Governance institute of Australia.
Meetings of directors
The number of meetings of the Company's Board of Directors ('the Board') held from 1 July 2016 to the year ended 30 June
2017, and the number of meetings attended by each director were:
Hon. Alan Stockdale
Ashley Gall (resigned 15 July 2016)
Alistair Wardlaw (resigned 26 September 2016)
Richard Levy
Peter Pawlowitsch
Full board
Attended
Held
13
0
2
13
12
13
0
2
13
13
Held: represents the number of meetings held during the time the director held office.
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Knosys Limited
Directors' report
30 June 2017
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 information
● 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. 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 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 executive remuneration
framework is structured to be market competitive and complementary to the strategy of the consolidated entity.
Non-executive directors’ remuneration
Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors'
fees and payments are reviewed annually by the Board. The Board may, from time to time, receive advice from independent
remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market.
No such advice was sought for the financial year ended 30 June 2017. 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.
ASX listing rules require the aggregate non-executive directors’ remuneration be determined periodically by a general
meeting. The current maximum aggregate remuneration payable to non-executive directors of the consolidated entity in any
financial year is $500,000.
Executive remuneration
The consolidated entity aims to reward executives with a level and mix of remuneration based on their position and
responsibility, which has both fixed and variable components.
The executive remuneration and reward framework has four components:
● base pay, superannuation and non-monetary benefits
● short-term performance incentives
● share-based payments
● other remuneration such as 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
Board, based on individual performance and the overall performance of the consolidated entity and comparable market
remunerations.
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Knosys Limited
Directors' report
30 June 2017
Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle
benefits) where it does not create any additional costs to the consolidated entity and provides additional value to the
executive.
The short-term incentives ('STI') program is designed to align the targets of the business with the targets of those executives
responsible for meeting those targets. STI payments are granted to executives based on specific targets and/or key
performance indicators ('KPI's') being achieved. These targets are discussed in further detail in the description of service
agreements which forms part of this Remuneration Report.
The long-term incentives ('LTI') include long service leave and share-based payments. Options are awarded to executives,
vesting over a period of three years based on elapsed time and/or achievement of long-term incentive measures.
Consolidated entity performance and link to remuneration
Remuneration for certain individuals is directly linked to the performance of the consolidated entity. A portion of cash bonus
and incentive payments are dependent on defined revenue and earnings targets being met. The remaining portion of the
cash bonus and incentive payments are at the discretion of the Board.
In considering the performance of the consolidated entity and benefits for shareholder wealth, the remuneration committee
have regard to the following indices in respect of the current financial year and the previous financial years. As this is only
the second report as a public ASX listed company, the previous financial information is limited to the immediately previous
financial year.
Profit / (loss) attributable to owners of the parent entity
Dividends paid
Operating revenue growth
Change in operating income
Change in share price
Return on capital employed
2017
(2,085,018)
-
9.9%
(47.8%)
(40%)
(80%)
2016
(1,411,015)
-
-
-
-
(48%)
Profit is one of the financial performance targets considered in setting the Short Term Incentive (STI). Profit amounts have
been calculated in accordance with Australian Accounting Standards (AASB’s). Operating income is operating profit as
reported in the statement of profit or loss.
Details of remuneration
Amounts of remuneration
Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables.
The key management personnel of the consolidated entity during the year to 30 June 2017 consisted of the following directors
of Knosys Limited:
● Alan Stockdale - Non-Executive Chairman
● Peter Pawlowitsch - Non-Executive Director
● Richard Levy - Non-Executive Director
● Ashley Gall - Managing Director and Chief Executive Officer (resigned on 15 July 2016)
● Alistair Wardlaw - Executive Director (resigned 26 September 2016)
And the following persons:
●
●
●
John Thompson – Chief Executive Officer (appointed 18 July 2016)
Stephen Kerr - Company Secretary and Chief Financial Officer
Gavin Campion – Consultant (resigned 21 November 2016)
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Knosys Limited
Directors' report
30 June 2017
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-
based
payments
2017
Cash salary
and fees
$
Cash
bonus
$
Non-
Super-
monetary annuation
$
$
Long service Equity-
settled
$
leave
$
Total
$
Non-Executive Directors:
Alan Stockdale
(Chairman)
Peter Pawlowitsch
Richard Levy
Executive Directors:
Ashley Gall (resigned 15
July 2016)
Alistair Wardlaw
(resigned 26 Sept 2016)
Other Key Management
Personnel:
John Thompson
Stephen Kerr
Gavin Campion
(resigned 21 Nov 2016)
54,795
36,530
-
67,548
80,555
-
-
-
-
-
-
-
-
-
-
5,205
3,470
40,000
6,507
-
263,542
136,758
-
15,000
250,333
890,061
-
15,000
6,969
704
-
7,673
25,036
34,992
-
115,210
-
-
-
-
-
-
-
-
-
3,931
3,931
7,861
63,931
43,931
47,861
15,104
89,159
524
81,079
-
37,083
295,547
224,537
1,396
69,830
251,729
1,097,774
Short-term benefits
Post-
employment
benefits
Long-term
benefits
Share-
based
payments
Cash salary Cash
bonus
and fees
$
Non-
Super-
monetary annuation
$
$
$
Long service Equity-
settled
$
leave
$
Total
$
2016 (1)
Non-Executive
Directors:
Alan Stockdale
(Chairman)
Peter Pawlowitsch
Richard Levy
58,927
29,630
6,750
-
-
-
-
-
-
6,073
2,814
36,666
-
-
-
10,574
10,574
21,148
75,574
43,018
64,564
Executive Directors:
Ashley Gall
(Managing Director
and CEO)
Alistair Wardlaw
197,869
231,111
-
-
12,817
-
18,798
-
-
-
71,904
21,148
301,388
252,259
Other Key
Management
Personnel:
Stephen Kerr
Gavin Campion
120,190
231,111
875,588
-
-
-
1,858
-
14,675
32,363
-
96,714
8,608
-
-
21,148
- 165,104
163,019
252,259
1,152,081
(1)
The entity became an ASX listed public entity on 9 September 2015. Remuneration is presented for the full 2016 financial
year and includes remuneration structures for the period prior to the entity becoming an ASX listed entity.
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Knosys Limited
Directors' report
30 June 2017
The proportion of remuneration linked to performance and the fixed proportion are as follows:
Name
Non-Executive Directors:
Alan Stockdale (Chairman)
Peter Pawlowitsch
Richard Levy
Executive Directors:
Ashley Gall (resigned 15 July
2016)
Alistair Wardlaw (resigned 26
September 2016)
Other Key Management
Personnel:
John Thompson
Stephen Kerr
Gavin Campion (resigned 21
November 2016)
Name
Non-Executive Directors:
Alan Stockdale (Chairman)
Peter Pawlowitsch
Richard Levy
Executive Directors:
Ashley Gall
Alistair Wardlaw
Other Key Management
Personnel:
Stephen Kerr
Gavin Campion
Fixed remuneration
At risk - STI
2017
2017
At risk - LTI
2017
94%
91%
84%
83%
99%
100%
77%
99%
-%
-%
-%
-%
-%
-%
7%
-%
6%
9%
16%
17%
1%
0%
16%
1%
Fixed remuneration
At risk - STI
2016
2016
At risk - LTI
2016
86%
75%
67%
76%
92%
95%
92%
-%
-%
-%
-%
-%
-%
-%
14%
25%
33%
24%
8%
5%
8%
No cash bonuses were paid or payable for the year to 30 June 2016.
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Knosys Limited
Directors' report
30 June 2017
Service agreements
Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details
of these agreements are as follows:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
John Thompson
Chief Executive Officer
18 July 2016
No fixed term
Annual base salary for the year ending 30 June 2017 of $275,000 plus superannuation,
to be reviewed annually by the Board, 1 month termination notice by either party, non-
disclosure, non-solicitation and non-compete clauses.
Ashley Gall
Managing Director and Chief Executive Officer
16 March 2015 – employment ceased 15 July 2016
No fixed term
Annual base salary, up to date of resignation, of $182,650 plus superannuation, to be
reviewed annually by the Board, 3 month termination notice by either party,
performance bonus of $100,000 (including statutory superannuation) accruing when
the Group achieves annual earnings before interest and tax targets as set by the Board,
an additional performance bonus of up
(including statutory
superannuation) payable in fixed increments on the basis of the achievement of KPI’s
and revenue performance milestones as set by the Board, non-disclosure, non-
solicitation and non-compete clauses.
to $100,000
Stephen Kerr
Chief Financial Officer and Company Secretary
9 June 2015
No fixed term
Annual base salary for the year ending 30 June 2017 of $175,200 including
superannuation, employment is for three days per week during normal working hours
on days agreed with the CEO and reasonable additional hours during these days in
order to perform responsibilities and duties. Remuneration to be reviewed annually by
the Board, 3 month termination notice by either party, STI performance bonus of up to
$60,000 (including statutory superannuation) based on financial and non-financial
KPI’s, non-disclosure, non-solicitation and non-compete clauses. An amount of
$15,000 was paid as a bonus entitlement during the year.
Alistair Wardlaw
Chief Technical Officer and Executive Director
1 January 2015 – employment ceased 26 September 2016
No fixed term
Up to date of resignation, consultancy agreement with WFT Services Pty Ltd as trustee
for the A L Wardlaw Family Trust, for the provision of consultancy services, annual
consultancy fee of $250,000, 12 month termination notice by either party non-
disclosure, non-solicitation and non-compete clauses.
Gavin Campion
Consultant
1 January 2015 – employment ceased 21 November 2016
No fixed term
Up to date of resignation, consultancy agreement with Hydria Plenus Pty Ltd, a
company associated with Mr Campion, for the provision of consultancy services, annual
consultancy fee of $250,000, 12 month termination notice by either party, non-
disclosure, non-solicitation and non-compete clauses.
Key management personnel have no entitlement to termination payments in the event of removal for misconduct.
10
Knosys Limited
Directors' report
30 June 2017
Share-based compensation
Issue of shares
No shares were issued to directors and other key management personnel as part of compensation during the year ended 30
June 2017.
Options
The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other key
management personnel in this financial year or future reporting years are as follows:
Grant date
May 2015
June 2015
October 2016
Number of options
Expiry date
Exercise price at grant date
7,400,000
425,000
500,000
1 July 2019
1 July 2019
31 October 2020
$0.25
$0.25
$0.25
3.14 cents
3.14 cents
14.6 cents
Fair value
per option
Options granted carry no dividend or voting rights.
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.
Vesting and Entitlement
For the Directors, the Options will vest over time, in equal amounts (except for slight adjustments to avoid fractions) every
three months, commencing 1 July 2015 with the final vesting date being 1 April 2018. For 425,000 options issued to
Stephen Kerr, 20,000 Options will vest on the first two vesting dates, and 38,500 Options will vest on subsequent vesting
dates. For 500,000 options issued to Stephen Kerr through the employee share option plan (ESOP), the options are
service based and vest over time in three equal amounts every 12 months, commencing 1 October 2017 with the final
vesting date being 1 October 2019. If the relevant holder is no longer employed or engaged, as the case may be, by the
Group on a vesting date, the Options will not vest to that holder. Options that have previously vested in the holder shall be
retained by the holder. The Options will entitle the holder to subscribe for one Share upon the exercise of each Option that
has vested in the holder.
Shares issued on the exercise of options
No ordinary shares of Knosys Limited were issued during the year ended 30 June 2017 and up to the date of this report on
the exercise of options granted.
The number of options 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
Alan Stockdale
Peter Pawlowitsch
Richard Levy
Ashley Gall (resigned 15 July 2016)
Gavin Campion (resigned 21 November 2016)
Alistair Wardlaw (resigned 26 September 2016)
Stephen Kerr
Number of
options
vested and
exercisable
during the
year
2017
% of
options
vested and
exercisable
during the
year
2017
Number of
options
forfeited
during
the
year
2017
% of
options
Forfeited
during
the
year
2017
166,667
166,667
333,333
283,334
166,667
83,334
154,000
33%
33%
33%
8%
33%
20%
17%
-
-
-
983,333
500,000
583,333
-
-
-
-
29%
50%
58%
-
11
Knosys Limited
Directors' report
30 June 2017
2016
Name
Alan Stockdale
Peter Pawlowitsch
Richard Levy
Ashley Gall
Gavin Campion
Alistair Wardlaw
Stephen Kerr
Number of
options
vested and
exercisable
during the
year
2016
% of
options
vested and
exercisable
during the
year
2016
Number of
options
forfeited
during
the
year
2016
% of
options
Forfeited
during
the
year
2016
166,667
166,667
333,333
1,133,334
333,333
333,333
117,000
33%
33%
33%
33%
33%
33%
28%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 Received
as part of
the start of
the year
remuneration Additions
Ordinary shares
-
Alan Stockdale
900,000
Peter Pawlowitsch
9,921,130
Richard Levy
-
Ashley Gall (resigned 15 July 2016)
Gavin Campion (resigned 21 November 2016) 19,100,000
Alistair Wardlaw (resigned 26 September 2016) 19,471,130
100,000
Stephen Kerr
49,492,260
-
-
-
-
-
-
-
-
Disposals/
other
Balance at
the end of
the year
-
-
-
-
-
-
-
-
-
-
-
900,000
371,1301 10,292,260
-
-
- 19,100,000
(371,130) 19,100,000
-
100,000
- 49,492,260
1. On 21 June 2017, Related parties of Richard Levey acquired 371,130 shares from related parties associated with Alistair Wardlaw for consideration of $0.155 per share.
Option holding
The number of options over ordinary 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:
Options over ordinary shares
Alan Stockdale
Peter Pawlowitsch
Richard Levy
Ashley Gall (resigned 15 July 2016)
Gavin Campion (resigned 21 Nov 2016)
Alistair Wardlaw (resigned 26 Sept 2016)
Stephen Kerr
Balance at
Granted /
the start of exercised /
the year
expired /
forfeited
Balance at Balance at Balance at
the end of
the end of
the end of
the year
the year
the year
- unvested
- vested
500,000
500,000
1,000,000
3,400,000
1,000,000
1,000,000
425,000
-
-
-
(983,333)
(500,000)
(583,333)
500,0002
7,825,000 (1,566,666)
333,334
333,334
666,666
2,166,667
500,000
416,667
271,000
4,687,668
166,666
166,666
333,334
250,000
-
-
654,000
1,570,666
500,000
500,000
1,000,000
2,416,667
500,000
416,667
925,000
6,258,334
2. Options grant of 500,000 to Stephen Kerr in the current year was allocated through the ESOP
Other transactions with key management personnel and their related parties
During the financial year, payments for office rent, outgoings, technical infrastructure and software development services
supplied by MMG Interactive Partnership (director-related entity of Richard Levy and Alistair Wardlaw) of $41,109 were
made. All transactions were made on normal commercial terms and conditions and at market rates.
This concludes the remuneration report, which has been audited.
12
Knosys Limited
Directors' report
30 June 2017
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.
Corporate Governance Statement
The company’s corporate governance statement can be found on the company website at
http://www.knosys.it/investor/documents/Corporate Governance Statement.pdf
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
During the year no non-audit services were provided.
Auditor's independence declaration
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on
the following page.
Auditor
William Buck Audit (VIC) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001.
On behalf of the directors
________________________________
Hon. Alan Stockdale AO
Director
30 August 2017
Melbourne
13
AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE
CORPORATIONS ACT 2001 TO THE DIRECTORS OF KNOSYS LIMITED
I declare that, to the best of my knowledge and belief during the year ended 30 June 2017
there have been:
— no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
— no contraventions of any applicable code of professional conduct in relation to the
audit.
William Buck Audit [Vic] Pty Ltd
ABN 59 116 151 136
N. S. Benbow
Director
Dated this 30th day of August, 2017
Knosys Limited
Contents
30 June 2017
Contents
16
Statement of profit or loss and other comprehensive income
17
Statement of financial position
18
Statement of changes in equity
19
Statement of cash flows
20
Notes to the financial statements
39
Directors' declaration
Independent auditor's report to the members of Knosys Limited
40
Additional information for listed companies 46
General information
The financial statements cover Knosys Limited as a consolidated entity consisting of Knosys Limited and the entities it
controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Knosys
Limited's functional and presentation currency.
Knosys Limited is listed on the Australian Securities Exchange (ASX:KNO) and is incorporated and domiciled in Australia.
Registered office
Suite 9.08 Level 9
2 Queen Street
Melbourne VIC 3000
Principal place of business
Suite 9.08 Level 9
2 Queen Street
Melbourne VIC 3000
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 on 30 August 2017, in accordance with a resolution of directors. The
directors have the power to amend and reissue the financial statements.
15
Knosys Limited
Statement of profit or loss and other comprehensive income
For the year ended 30 June 2017
Revenue
Research and development tax refund
Other income
Expenses
Licence fee and support expenses
Payments to suppliers for research and development activities
Employee benefits expense
Depreciation and amortisation expense
Legal and accounting expenses
Travel and accommodation
Finance costs
Note
Consolidated
2017
$
2016
$
3
808,774
736,195
343,890
33,547
280,471
62,954
4
(157,887)
-
(2,214,692)
(14,288)
(104,986)
(89,463)
(118,399)
(180,334)
(138,370)
(1,501,184)
(3,782)
(86,957)
(136,444)
-
Other expenses
4
(571,514)
(443,564)
Loss before income tax
Income tax (expense) credit
(2,085,018)
(1,411,015)
5
-
-
Loss after income tax expense for the year attributable to owners of the parent
(2,085,018)
(1,411,015)
Other comprehensive income
Other comprehensive income for the year, net of tax
-
-
Total comprehensive loss for the year attributable to owners of the parent
(2,085,018)
(1,411,015)
Loss per share for loss attributable to the owners of the parent
Basic and diluted loss per share
22
Cents
(2.67)
Cents
(1.89)
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
16
Knosys Limited
Statement of financial position
As at 30 June 2017
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Accrued research and development tax refund receivable
Prepayments & sundry debtors
Total current assets
Non-current assets
Plant and equipment
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Provisions for employee benefits
Borrowings – Convertible note
Revenue billed in advance
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Convertible note equity reserve
Options reserve
Accumulated losses
Total equity
Note
Consolidated
2017
$
2016
$
6
7
2,841,416
385,152
228,071
30,099
3,484,738
2,946,975
-
467,701
65,306
3,479,982
36,928
36,928
19,754
19,754
3,521,666
3,499,736
8
23
200,177
93,740
1,494,446
1,006,714
2,795,077
222,935
74,838
-
708,228
1,006,001
2,795,077
1,006,001
726,589
2,493,735
9
4,403,765
174,958
338,675
(4,190,809)
4,403,765
-
195,761
(2,105,791)
726,589
2,493,735
The above statement of financial position should be read in conjunction with the accompanying notes
17
Knosys Limited
Statement of changes in equity
For the year ended 30 June 2017
Consolidated
Balance at 1 July 2015
Loss after income tax expense for the year
Total comprehensive loss for the year
Issued
capital
$
Reserves Accumulated
$
losses
$
Total
equity
$
853,452
-
(694,776)
158,676
-
-
-
(1,411,015) (1,411,015)
-
(1,411,015) (1,411,015)
Transactions with owners in their capacity as owners:
Contributions of equity, net of transaction costs (Note 9)
3,550,313
-
-
3,550,313
Vesting of share based payments
-
195,761
-
195,761
Balance at 30 June 2016
4,403,765
195,761
(2,105,791)
2,493,735
Consolidated
Issued
capital
$
Reserves Accumulated
$
losses
$
Total
equity
$
Balance at 1 July 2016
4,403,765
195,761
(2,105,791)
2,493,735
Loss after income tax expense for the year
Total comprehensive loss for the year
Vesting of share based payments
Equity value attributable to the issue of
convertible notes (Note 23)
-
-
-
-
-
(2,085,018) (2,085,518)
-
(2,085,518) (2,085,518)
142,914
-
142,914
174,958
-
174,958
Balance at 30 June 2017
4,403,765
513,633
(4,190,809)
726,589
The above statement of changes in equity should be read in conjunction with the accompanying notes
18
Knosys Limited
Statement of cash flows
For the year ended 30 June 2017
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Research and development tax refund
Interest received
Note
Consolidated
2017
$
2016
$
790,757
(3,044,244)
(2,253,487)
1,576,667
(2,395,821)
(819,154)
583,519
44,833
-
51,158
Net cash used in operating activities
19
(1,625,135)
(767,996)
Cash flows from investing activities
Payments for plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from issue of convertible notes
Share issue transaction costs
Convertible note transaction costs
Net cash from financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
23
(31,462)
(17,115)
(31,462)
(17,115)
-
1,650,040
-
(99,002)
4,000,000
-
(449,687)
-
1,551,038
3,550,313
(105,559)
2,946,975
2,765,202
181,773
Cash and cash equivalents at the end of the financial year
6
2,841,416
2,946,975
The above statement of cash flows should be read in conjunction with the accompanying notes
19
Knosys Limited
Notes to the financial statements
30 June 2017
Note 1. Significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
New, revised or amending Accounting Standards and Interpretations adopted
The consolidated entity has adopted all of the new, revised or amending 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.
Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and
Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate
for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board ('IASB').
Historical cost convention
The financial statements have been prepared under the historical cost convention.
Going Concern
For the year ended 30 June 2017, the consolidated entity had an operating net loss of $2,085,018 (2016: $1,411,015) and
net cash outflows from operating activities of $1,625,135 (2016: $767,996).
The ability of the consolidated entity to continue as a going concern is dependent upon a number of factors, one being the
continuation and availability of funds. The financial statements have been prepared on the basis that the consolidated
entity is a going concern, which contemplates the continuity of its business, realisation of assets and the settlement of
liabilities in the normal course of business.
In determining that the going concern assumption is appropriate, the directors have had regard to:
• Achieving expected increase in sales through both direct sales and the Company’s reseller network;
• Prudent management of costs as required;
• Previous success on being eligible for the research and development tax incentive refunds
• Potential reduction of liabilities and additional capital contribution from the conversion of convertible notes to
ordinary shares and additional capital from the exercise of options attached to the convertible notes; and
If required, being able to raise additional capital funds through conducting a capital raising.
•
The consolidated entity’s ability to continue to operate as a going concern is dependent upon the items listed above.
Should these events not occur, the consolidated entity may be unable to continue as a going concern and may be required
to realise its assets and extinguish its liabilities other than in the ordinary course of business, and at amounts that differ
from those stated in the financial statements.
Critical accounting estimates
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
financial statements, are disclosed in note 2.
Legal 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 legal parent entity is disclosed in note 16.
20
Knosys Limited
Notes to the financial statements
30 June 2017
Note 1. Significant accounting policies (continued)
Principles of consolidation
A controlled entity is any entity controlled by an accounting acquirer. Control exists where an entity has the capacity and
power to govern the decision-making in relation to the financial and operating policies of an investee and also participate in
the variable returns of that investee.
All inter-group balances and transactions between entities in the Consolidated Entity, including any unrealised profits or
losses, have been eliminated on consolidation. Accounting policies of controlled entities have been changed where
necessary to ensure consistencies with those policies adopted by the parent entity.
Accounting for purchases of non-trading entities through reverse acquisitions
On 23 March 2015 Knosys Limited acquired all of the share capital of Knosys Products Pty Ltd and Knosys Solutions Pty
Ltd. This acquisition was effected through the issue of 50,000,000 ordinary fully paid shares including tranches of
47,750,000 ordinary fully paid shares issued on 23 March 2015 and 2,250,000 ordinary fully paid shares issued on 17 July
2015 to the vendors or their nominees. This transaction is considered a reverse acquisition in accordance with Australian
Accounting Standards and Knosys Solutions Pty Ltd was deemed to be the acquirer for accounting purposes. Knosys
Solutions Pty Ltd is the larger of the combining entities, is the only entity that traded as at the date of the transaction and
holds the revenue generating contracts and has recognised assets and liabilities on its statement of financial position.
Therefore, Knosys Limited and Knosys Products Pty Ltd have been identified as the accounting acquirees. As a
consequence of the reverse acquisition, the financial information represented in the consolidated financial statements is
issued under the name of Knosys Limited but is deemed under accounting rules to be a continuation of the legal subsidiary
Knosys Solutions Pty Ltd and the number of shares on issue reflect those of Knosys Limited.
Foreign currency translation
The financial statements are presented in Australian dollars, which is Knosys Limited'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.
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.
Licence fees and rendering of services
Licence fee revenue and rendering of services revenue from implementation and consulting fees is recognised by reference
to the stage of completion of the contracts.
Stage of completion is measured by reference to the licence fee period and to labour hours incurred to date as a percentage
of total estimated labour hours for each contract. Where the contract outcome cannot be reliably estimated, revenue is only
recognised to the extent of the recoverable costs incurred to date.
Research and development tax refund income
Research and development tax refund income is measured on an accruals basis when the refund can be reliably
determined.
Interest
Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the
amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate,
which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the
net carrying amount of the financial asset.
21
Knosys Limited
Notes to the financial statements
30 June 2017
Note 1. Significant accounting policies (continued)
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, 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 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.
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 and subsequently measured at amortised cost using the effective
interest method, 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. The amount of the impairment allowance is the difference between the asset's carrying amount
and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to
short-term receivables are not discounted if the effect of discounting is immaterial.
Other receivables are recognised at amortised cost, less any provision for impairment.
Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated
impairment loss. If significant parts of an item of property plant and equipment have different useful lives, then they are
accounted for as separate items of property, plant and equipment. Any gain or loss on disposal of an item of property plant
and equipment is recognised in profit or loss.
Depreciation
Depreciation is calculated to write off the costs of the items of property, plant and equipment over their estimated useful
lives and is generally recognised in profit and loss. Depreciation methods and useful lives are reviewed at each reporting
period and adjusted if appropriate.
The estimated useful life of property, plant and equipment for current and comparative periods is as follows:
- Plant and equipment 3 years.
Trade and other payables
Trade and other payables represent the liability outstanding at the end of the reporting period for goods and services
received by the Group during the reporting period, which remains unpaid. The balance is recognised as a current liability
with the amount being normally paid within 30 days of recognition of the liability.
Provisions
Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result of a past
event, it is probable the consolidated entity will be required to settle the obligation, and a reliable estimate can be made of
the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to
settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation.
If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The
increase in the provision resulting from the passage of time is recognised as a finance cost.
22
Knosys Limited
Notes to the financial statements
30 June 2017
Note 1. Significant accounting policies (continued)
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be wholly
settled 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 wholly 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 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 national corporate bonds with terms to maturity and currency that match, as closely as possible,
the estimated future cash outflows.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.
Share-based payments
Equity-settled share-based compensation benefits are provided to employees.
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the
rendering of services.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using
the 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.
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.
23
Knosys Limited
Notes to the financial statements
30 June 2017
Note 1. Significant accounting policies (continued)
Compound financial instruments – Convertible notes
Compound financial instruments issued by the consolidated entity comprise convertible notes and attaching options, as
disclosed in Note 23, that can be converted to ordinary shares at the election of the holder by a certain date and where the
number of shares to be issued is fixed and does not vary with changes in fair value.
The liability component of compound financial instruments is initially recognised at the fair value of a similar liability that
does not have an equity conversion option. The equity component of the financial instrument is initially recognised as the
difference between the fair value of the compound financial instrument as a whole and the fair value of the liability
component. Subsequent to initial recognition, the fair value of the liability component is remeasured at each relevant
balance date. The equity component is not remeasured.
Interest calculated on the liability component of the compound financial instrument is recognised in the statement of profit
and loss. On conversion, the financial liability is reclassified to equity and no gain or loss is recognised.
Revenue billed in advance
Revenue billed in advance is recognised as a current liability in the statement of financial position. The balance of revenue
billed in advance represents the unearned revenue portion of amounts invoiced to customers, in accordance with the terms
of customer contracts, and paid or payable by the customer at reporting date. As the revenue billed in advance is earned
by the consolidated entity, the relevant portion of revenue is relieved from the balance of revenue billed in advance and
taken to the profit and loss in accordance with the consolidated entity’s revenue recognition policy.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair
value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date; and assumes that the transaction will take place either: in the principal
market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming
they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and
best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to
measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable
inputs.
Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers
between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value
measurement.
For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not
available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and
reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is
undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where
applicable, with external sources of data.
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.
24
Knosys Limited
Notes to the financial statements
30 June 2017
Note 1. Significant accounting policies (continued)
Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and
requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets
and the arrangement conveys a right to use the asset.
A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the
risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively
retains substantially all such risks and benefits.
Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower,
the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease
liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability.
Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's
useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end
of the lease term.
Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis
over the term of the lease.
Goods and Services Tax ('GST') and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of
the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of
financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities
which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.
Earnings per share
Basic earnings per share is calculated as net profit/loss attributable to members of the Company, adjusted to exclude any
costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares on issue
during the relevant period.
Diluted earnings per share is calculated as net profit/loss attributable to members of the Company, adjusted for:
• costs of servicing equity (other than dividends);
• the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised
as expenses;
• and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of
potential ordinary shares;
• divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus
element, during the relevant period.
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's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the
consolidated entity, are set out below.
25
Knosys Limited
Notes to the financial statements
30 June 2017
Note 1. Significant accounting policies (continued)
AASB 15 Revenue from Contracts with Customers
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single
standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied)
to be identified, together with the separate performance obligations within the contract; determine the transaction price,
adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance
obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no
distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be
presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be
satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the
service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied
over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised
as the performance obligation is satisfied. Contracts with customers will be presented in an entity's statement of financial
position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's
performance and the customer's payment. Sufficient quantitative and qualitative disclosure is required to enable users to
understand the contracts with customers; the significant judgments made in applying the guidance to those contracts; and
any assets recognised from the costs to obtain or fulfil a contract with a customer.
Management has considered the impact of AASB 15 and note, based on the analysis performed, that the impact on the
consolidated entity would not be material. Under AASB 15 the consolidated entity plans to adopt the modified retrospective
approach. The consolidated entity does not anticipate that there will be significant implications of this change in respect of
current contracts. The consolidated entity will consider the application of AASB 15 with respect to new contracts as they are
entered into. The consolidated entity will adopt this standard from 1 July 2018.
AASB 16 Leases
AASB 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all
leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a
right of use asset representing its right to use the underlying leased asset and a lease liability representing its obligations to
make lease payments. A lessee recognises depreciation of the right of use asset and interest on the lease liability, and
also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them in the
statement of cash flows.
Management has considered the impact of AASB 16 and note, based on the analysis performed, that there would be a
material impact on the consolidated entity. It is expected that the operating lease commitments identified in Note 14 to the
financial statements will be required to be included in the consolidated statement of financial position when AASB 16
becomes effective.
26
Knosys Limited
Notes to the financial statements
30 June 2017
Note 2. Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions that
affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in
relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and
assumptions on historical experience and on other various factors, including expectations of future events, management
believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal
the related actual results. The following key judgements are relevant to these financial statements:
As stated in Note 1 Accounting for purchases of non-trading entities through reverse acquisitions, these financial
statements are of the consolidated entity ultimately controlled by Knosys Limited, but the financial information represented
in the consolidated financial statements, although issued under the name of Knosys Limited, is deemed under reverse
acquisition accounting rules to be a continuation of the legal subsidiary Knosys Solutions Pty Ltd. Management examined
the reverse acquisition which took place on 23 March 2015 and assessed that both Knosys Limited and Knosys Products
Pty Ltd did not have the necessary inputs, processes and outputs to satisfy the accounting definition of a business. As a
consequence, the assets and liabilities acquired at this date are at their written down cost values and not their fair values.
Estimation of accrued research and development tax refund
As at 30 June 2016 the consolidated entity had accrued $218,475 in accrued research and development tax refund credits
in-respect of the 2016 tax return. The directors of the consolidated entity engaged an industry expert to prepare and lodge
this return. This amount plus an additional $116,066 was receipted into the bank in May 2017 in regard to the 2016 tax
return and R&D claim. Based upon the methodology adopted by the industry expert, the consolidated entity has accrued a
research and development tax refund receivable of $227,824 for the 2017 financial year. Key matters considered by the
directors in calculating this accrual included the following:
- The historical success of lodging and receipting such claims;
- The quantum of eligible research and development spend made during the period; and
- A consideration of any potential change in the assessment of eligibility criteria as gazetted by the Federal
government.
Convertible notes
As stated in Note 23, under Australian accounting standards AASB 132, the convertible note is classified as a compound
financial instrument. When the initial carrying amount of a compound financial instrument is allocated to its equity and
liability components, the equity component is assigned the residual amount after deducting from the fair value of the
instrument as a whole the amount separately determined for the liability component. The issuer must first determine the
carrying amount of the instrument’s liability component by measuring the fair value of a similar liability that does not have
an associated equity component. The carrying amount of the equity instrument represented by the option to convert the
instrument into ordinary shares is then determined by deducting the fair value of the financial liability from the fair value of
the compound financial instrument as a whole. Management judgements and estimates are required in referencing market
interest rates for such instruments and in determining the fair value of a similar liability that does not have an associated
equity component. Management has determined that a discount rate of 24% is appropriate, this being derived by
referencing required rates of return for private capital markets.
Share based payments
As stated in Note 1, the consolidated entity has issued options to directors, executives and staff as part of their
remuneration arrangements and has issued options and shares to third parties in consideration for consultancy services
received. Management judgements and estimates are required in determining the cost of these equity-settled transactions
which have been measured by taking 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.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is probable
that future taxable amounts will be available to utilise those temporary differences and losses.
27
Knosys Limited
Notes to the financial statements
30 June 2017
Note 3. Revenue
Sales revenue
Licence and support fees
Rendering of services
Revenue
Note 4. Expenses
Loss before income tax includes the following specific expenses:
Rental expense relating to operating leases
Minimum lease payments
Superannuation expense
Accumulation fund Superannuation expense
Share based payments expense
Consolidated
2017
$
2016
$
803,474
5,300
731,195
5,000
808,774
736,195
Consolidated
2017
$
2016
$
81,881
72,229
178,593
123,805
142,914
195,761
28
Knosys Limited
Notes to the financial statements
30 June 2017
Note 5. Income tax expense
Income tax expense
Current Tax benefit
Deferred tax - origination and reversal of temporary differences
Deferred tax assets not recognised
Adjustment recognised for prior periods
Aggregate income tax expense
Deferred tax included in income tax expense comprises:
Increase in deferred tax assets
Deferred tax - origination and reversal of temporary differences
Numerical reconciliation of income tax expense and tax at the statutory rate
Loss before income tax expense
Tax at the statutory tax rate of 27.5% (2016 30%)
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Entertainment expenses
Research and development costs
Share based payments expense
Non-assessable R&D refund
Deferred tax assets not recognised
Adjustment recognised for prior periods
Income tax expense
Note 6. Current assets - cash and cash equivalents
Cash at bank
Consolidated
2017
$
2016
$
(481,572)
(5,198)
486,769
-
(304,384)
(5,399)
309,783
-
-
-
-
-
-
-
(2,085,018)
(1,411,015)
(573,380)
(423,305)
2,653
139,226
39,301
(94,570)
2,481
145,650
49,532
(84,141)
(486,769)
486,769
-
(309,783)
309,783
-
-
-
Consolidated
2017
$
2016
$
2,841,416
2,946,975
29
Knosys Limited
Notes to the financial statements
30 June 2017
Note 7. Current assets - trade and other receivables
Trade receivables
As at 30 June 2017, the aging analysis of trade receivables is as follows:
Consolidated
2017
$
2016
$
385,152
-
2017
2016
Neither past
Total due nor impaired
$13,896
-
385,152
-
< 30 days
$1,544
-
Past due but not impaired
30-60 days
$368,168
-
61-90 days
$1,544
-
As at 30 June 2017 no trade receivables were impaired (2016 Nil)
Refer Note 1 – Trade and other receivables, which explains how the consolidated entity manages and
accounts for trade receivables.
Note 8. Current liabilities - trade and other payables
Trade payables
Related party payables
Other payables
Consolidated
2017
$
2016
$
167,071
1,000
32,106
105,262
45,834
71,839
200,177
222,935
The table below summarises the maturity profile of the consolidated entities current trade and other payables.
2017
2016
Total
$200,177
$222,935
On demand
-
-
< 3 months
$200,177
$207,193
3 to 12 months
-
$15,742
Refer Note 1 – Trade and other payables, which explains how the consolidated entity manages and accounts for trade and
other payables.
Note 9. Equity - issued capital
Ordinary shares - fully paid
78,099,386 78,099,386
4,403,765
4,403,765
Legal Parent Consolidated
2017
Shares
2016
Shares
2017
$
2016
$
30
Knosys Limited
Notes to the financial statements
30 June 2017
Note 9. Equity - issued capital (continued)
Movements in ordinary share capital
Details
Legal parent
Balance start of year
Balance at end of year
Details
Consolidated entity
As at start of the financial year
Issue of shares to effect the final component of the
consideration for the reverse acquisition of
Knosys Products Pty Ltd and Knosys Solutions Pty Ltd
Issue of share capital to shareholders
17 July 2015
1 Sept 2015
Date
No. of shares
Legal Parent
2017
No. of shares
Legal Parent
2016
78,099,386
55,849,386
-
-
2,250,000
20,000,000
78,099,386
78,099,386
Date
$
$
4,403,765
853,452
Issue of share capital to shareholders
Costs of issuing shares
1 Sept 2015
-
-
4,000,000
(449,687)
Balance as at end of the financial year
4,403,765
4,403,765
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.
Movements in options on issue
Details
Date
No. of options
Legal Parent
2017
No. of options
Legal Parent
2016
Legal parent
Balance start of year
Options issued to product resellers
Options issued to external industry advisors
Options issued under the employee share option plan
Options expired / lapsed
5 April 2016
5 April 2016
25 Oct 2016
Balance at end of year
8,625,000
-
-
1,400,000
(2,266,666)
7,825,000
500,000
300,000
-
-
7,758,334
8,625,000
5,758,334 options (of which 4,687,667 are vested at 30 June 2017) are exercisable at $0.25 and expire on 1 July 2019.
300,000 options (of which 200,000 have vested at 30 June 2017) are exercisable at $0.29 and expire on 1 July 2019.
300,000 options (all of which are vested at 30 June 2017) are exercisable at $0.29 and expire on 1 July 2020.
1,400,000 options (none of which are vested at 30 June 2017) are exercisable at $0.25 and expire on 1 October 2020.
All options are unlisted and are subject to a range of vesting conditions.
31
Knosys Limited
Notes to the financial statements
30 June 2017
Note 9. Equity - issued capital (continued)
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.
In order to maintain or adjust the capital structure, the consolidated entity may issue new shares or return capital to
shareholders.
Note 10. Financial instruments
Financial risk management objectives
The consolidated entity's activities expose it to two financial risks: credit risk and liquidity risk. The consolidated entity's
overall risk management program, which is managed at Board level, 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 ageing analysis for
credit risk and cash flow forecasting for liquidity risk.
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 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) to be able to pay debts as and when they become due and payable. All amounts payable are within agreed
terms. All third party payment terms are less than 60 days (2016: less than 60 days).
The consolidated entity manages liquidity risk by maintaining adequate cash reserves by continuously monitoring actual and
forecast cash flows and matching the maturity profiles of financial assets and liabilities.
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reasonably approximate their fair value.
Note 11. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and key management personnel of the consolidated entity is set out below:
Short-term employee benefits
Share based payments
Post-employment benefits
32
Consolidated
2017
$
2016
$
912,734
69,830
115,210
890,263
165,104
96,714
1,097,774
1,152,081
Knosys Limited
Notes to the financial statements
30 June 2017
Note 12. Remuneration of auditors
During the financial year the following fees were paid or payable for services provided by William Buck Audit (VIC) Pty Ltd
(“William Buck”), the auditor of the company, its network firms and unrelated firms:
Assurance services – William Buck
Audit or review of the financial statements
Transaction and due diligence services
Consolidated
2017
$
2016
$
21,650
-
18,500
-
21,650
18,500
Note 13. Contingent liabilities
At reporting date there is a bank guarantee in place of $60,663 in place, which relates to a security deposit for the rental of
the Melbourne premises.
The consolidated entity has no other contingent liabilities at reporting date.
Note 14. Commitments
Lease commitments - operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
More than five years
Consolidated
2017
$
2016
$
90,468
52,773
-
110,414
174,610
-
143,241
285,024
Operating lease commitments includes contracted amounts for the head office premises under a non-cancellable operating
lease, the term of which expires on 31 January 2019.
Note 15. Related party transactions
Legal Parent entity
Knosys Limited is the legal parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 17.
Key management personnel
Disclosures relating to key management personnel are set out in note 11 and the remuneration report in the directors' report.
33
Knosys Limited
Notes to the financial statements
30 June 2017
Note 15. Related party transactions (continued)
Transactions with related parties
The following transactions occurred with related parties:
In the statement of profit and loss and other comprehensive income for the Consolidated Entity the following related party
transactions took place:
Payment for goods and services:
Payment for services from MMG Interactive (a partnership associated with Alistair Wardlaw
and Richard Levy)
41,109
109,394
Consolidated
2017
$
2016
$
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Note 16. Legal parent entity information
Set out below is the supplementary information about the legal parent entity.
Statement of profit or loss and other comprehensive income
Loss after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Convertible note equity reserve
Share based payments reserve
Accumulated losses
Total equity
34
Legal Parent
2017
$
2016
$
(272,148)
(265,946)
(272,148)
(265,946)
Legal Parent
2017
$
2016
$
2,371,359
2,879,065
12,886,958 11,365,442
1,528,749
52,957
1,528,749
52,957
11,538,887 11,538,887
-
195,761
(422,163)
174,958
338,675
(694,311)
11,358,209 11,312,485
Knosys Limited
Notes to the financial statements
30 June 2017
Note 16. Legal parent entity information (continued)
Contingent liabilities
The legal parent entity had no contingent liabilities as at 30 June 2017 and 30 June 2016.
Capital commitments - Property, plant and equipment
The legal parent entity had no capital commitments for property, plant and equipment as at 30 June 2017 and 30 June 2016.
Significant accounting policies
The accounting policies of the legal parent entity are consistent with those of the consolidated entity, as disclosed in note 1.
The group does not designate any interests in subsidiaries as being subject to the requirements of accounting standards
specifically applicable to financial statements.
Note 17. Interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of Knosys Limited and the following
wholly-owned subsidiaries in accordance with the accounting policy described in note 1:
Name
Principal place of business /
Country of incorporation
Knosys Solutions Pty Ltd
Principal activities – Main operating company of the
Knosys group, providing operational infrastructure,
employees,
resources, Knosys Platform
research, development and support.
Knosys Products Pty Ltd
Principal activity – Holder of the Knosys Platform
intellectual property.
sales
Australia
Australia
Ownership interest
2016
2017
%
%
100%
100%
100%
100%
Note 18. 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.
35
Knosys Limited
Notes to the financial statements
30 June 2017
Note 19. Reconciliation of profit after income tax to net cash from operating activities
Consolidated
2017
$
2016
$
Loss after income tax expense for the year
(2,085,018)
(1,411,015)
Adjustments for:
Depreciation and amortisation
Finance costs
Share based payments expense
Change in operating assets and liabilities:
Decrease/(Increase) in trade and other receivables
(Decrease)/increase in revenue billed in advance
Increase in prepayments and other debtors
Decrease/(increase) in accrued research and development tax refund receivable
Increase/(decrease) in trade and other payables
Increase in provision for employee benefits
Net cash used in operating activities
14,288
118,367
142,914
3,782
-
195,761
(385,154)
298,485
35,208
239,630
(22,758)
18,902
814,795
(43,584)
(60,306)
(280,951)
(4,475)
17,997
(1,625,135)
(767,996)
Note 20 Share-based payments
Employee share option plan
An employee share option plan (ESOP) has been established by the consolidated entity, whereby the consolidated entity
may, at the discretion of the Board, grant options over ordinary shares in the company to personnel of the consolidated entity.
The options are issued for nil consideration and are granted in accordance with time based and/or performance targets
established by the Board. The granting of these options gives rise to an ongoing employment benefit expense each financial
period and this is accounted for in accordance with the accounting policy on employee benefits, as detailed in Note 1. The
expense is included in the share based payment expense amount listed in Note 4.
As at 30 June 2017 the following options had been granted under the ESOP:
Option
Issue date
Option
Expiry date
Exercise
price
Balance at
30 June
2016
Number
Issued
during the
period
Number
Exercised
during the
period
Number
Expired or
forfeited
during the
period
Number
Balance at
30 June
2017
Number
Vested and
exercisable
at end of
the period
Number
25/10/2016 01/10/2020
$0.25
Total
Weighted average exercise price
- 1,400,000
- 1,400,000
-
-
-
-
-
1,400,000
1,400,000
$0.25
-
-
-
For the options issued during the 2017 financial year, the valuation model inputs to be used to determine the fair value at
each vesting date, were as follows:
Issue date
Expiry date at issue date
price
Discount
volatility
yield
interest rate at issue date
Share price Exercise Marketability Expected Dividend Risk-free
Fair value
25/10/2016 01/10/2020
$0.235
$0.25
0.00%
87.57%
0.00%
1.83%
$0.14597
As at 30 June 2016 no options had been granted under the ESOP.
36
Knosys Limited
Notes to the financial statements
30 June 2017
Options issued to Directors and senior management
As at 30 June 2017 the following unvested options over ordinary shares in Knosys Limited had been issued to Directors and
senior management (Options). These Options were issued separately to the ESOP.
Set out below are summaries of Options issued to Directors and senior management:
2017
Issue date
Expiry date
price
Exercise
Balance at
the start of
the year
Exercised
Expired/
forfeited
Issued
Balance at
the end of
the year
Number
vested
09/05/2015
29/06/2015
01/07/2019
01/07/2019
$0.25
$0.25
Weighted average exercise price
7,400,000
425,000
7,825,000
$0.25
-
-
-
-
(2,066,666)
-
(2,066,666)
5,333,334
425,000
5,758,334
4,416,668
271,000
4,687,668
-
$0.25
$0.25
Vesting and Entitlement
For the options issued on 9 May 2015, the Options vest over time, in equal amounts (except for slight adjustments to avoid
fractions) every three months, commencing 1 July 2015 with the final vesting date being 1 April 2018. For the Options issued
on 29 June 2015, 20,000 Options vest on the first two vesting dates, and 38,500 Options vest on subsequent vesting dates.
If the relevant holder is no longer employed or engaged, as the case may be, by the Group on a vesting date, the Options
will not vest to that holder. Options that have previously vested in the holder shall be retained by the holder. The Options
will entitle the holder to subscribe for one Share upon the exercise of each Option that has vested in the holder.
The weighted average remaining contractual life of options outstanding at the end of the financial year was 3 years.
2016
Issue date
Expiry date
price
Exercise
Balance at
the start of
the year
Exercised
Expired/
forfeited
Issued
Balance at
the end of
the year
Number
vested
09/05/2015
29/06/2015
01/07/2019
01/07/2019
$0.25
$0.25
-
-
-
7,400,000
425,000
7,825,000
Weighted average exercise price
No options had vested or were exercisable at the end of the 30 June 2015 financial year.
$0.25
-
-
-
-
-
7,400,000
425,000
7,825,000
2,466,667
117,000
2,583,667
$0.25
-
For the options issued during the 2016 financial year, the valuation model inputs to be used to determine the fair value at
each vesting date, were as follows:
Issue date
Expiry date at issue date
price
Discount
volatility
yield
interest rate at issue date
Share price Exercise Marketability Expected Dividend Risk-free
Fair value
09/05/2015 01/07/2019
29/06/2015 01/07/2019
$0.14
$0.14
$0.25
$0.25
30.00%
30.00%
60.00%
60.00%
0.00%
0.00%
2.27%
2.27%
$0.03141
$0.03141
Note 21 Segment information
During the year the consolidated entity operated as a developer and licensor of computer software in the Australasian
region.
Concentration of customers – A major Australian customer in the finance sector represented 98.5% of sales revenue for the
year (2016:98.5% of sales revenue from unrelated parties)
37
Knosys Limited
Notes to the financial statements
30 June 2017
Note 22 Loss per share
Consolidated
2017
$'000
2016
$'000
Loss after income tax attributable to the owners the parent
(2,085,018)
(1,411,015)
Weighted average number of ordinary shares used in calculating basic and diluted
earnings per share
Basic loss per share
The 7,758,334 (2016: 8,625,000) options issued could potentially dilute basic earnings per
share in the future, but were not included in the calculation of diluted earnings per share
because they are anti-dilutive for the periods presented.
Number
Number
78,099,386
74,552,255
Cents
Cents
(2.67)
(1.89)
Note 23 Convertible Note
During the financial period the Company raised $1,650,040 through the issue of 13,750,337 convertible notes on the
following terms:
- Face value per note: 12 cents
- Conversion ratio: 1 note = 1 ordinary share
- Attaching option: 1:1 attaching option received on note conversion.
- Maturity date of convertible note: 31 May 2018.
- Conversion date of convertible note: Maturity date or earlier at the option of the noteholder
-
-
- Exercise price of an attaching option: 15 cents
- Expiry date of an attaching option: 31 May 2018
Interest payment date: At the earlier of maturity date or conversion date
Interest rate: 10% per annum
Under Australian accounting standards AASB 132, the Company has classified the convertible note as a compound financial
instrument. The initial carrying amount of the convertible note has been allocated to its equity and liability components. The
equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the
amount separately determined for the liability component.
The Company determined the carrying amount of the liability component by measuring the fair value of a similar liability that
does not have an associated equity component. The carrying amount of the convertible note represented by the option to
convert the instrument into ordinary shares was then determined by deducting the fair value of the financial liability from the
fair value of the compound financial instrument as a whole.
38
Knosys Limited
Directors' declaration
30 June 2017
In the directors' opinion:
● the attached financial statements and notes comply with the Corporations Act 2001, the Australian Accounting Standards,
the Corporations Regulations 2001 and other mandatory professional reporting requirements;
● the attached financial statements and notes comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board as described in note 1 to the financial statements;
● the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at
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; and
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
________________________________
Hon. Alan Stockdale AO
Director
30 August 2017
Melbourne
39
Knosys Limited
Independent auditor’s report to members
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Knosys Limited (the Company and its controlled
entities (the Group)), which comprises the consolidated statement of financial position as
at 30 June 2017, the consolidated statement of comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of cash flows for the year
then ended, and notes to the financial statements, including a summary of significant
accounting policies and other explanatory information, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group, is in accordance with the
Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
financial performance for the year then ended; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations
2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our
responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence requirements of
the Corporations Act 2001 and the ethical requirements of the Accounting Professional
and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants
(the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of the Company, would be in the same terms if given
to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
1
Material Uncertainty Related to Going Concern
We draw attention to the financial report, which indicates that the Group incurred a net loss of $2,085,018
and net cash outflows from operating activities of $1,625,135 during the year ended 30 June 2017. As
stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a
material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report of the current period. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going
Concern section, we have determined the matters described below to be the key audit matters to be
communicated in our report.
CONVERTIBLE NOTES
Area of focus
Refer also to notes 1 and 23
The Group issued convertible notes on 12 May 2017 for
$1.5 million with a maturity date of 31 May 2018 unless
converted into a share and an option. Because the
convertible notes have a fixed conversion formula (1 share
+ attaching option for every note) they are deemed to be a
hybrid security featuring a debt component with an equity
component.
Accounting for these transactions is complex. Upon initial
recognition the debt component is measured at fair value,
with the residual value taken to equity.
The accurate recording of the transactions associated with
the convertible notes is dependent on the following:
— The determination of an interest rate applicable to the
fair value of the debt -component, which was deemed
to be 24%, notwithstanding that the coupon rate of the
note is 10%;
— Accruing an amortised interest charge on the note
applying the fair value interest rate;
— Recording the residual value of the note in equity; and
— Classifying the note as current or non-current in the
Statement of Financial Position.
How our audit addressed it
Our audit procedures included:
— Examining the underlying convertible
notes and ensuring that the
underlying inputs were appropriately
recorded in the model used to derive
values in these financial statements;
— Assessing the allocation of the
convertible notes between equity and
debt in line with the requirements of
AASB 132;
— Consulting our Corporate Advisory
division to ascertain the
reasonableness of the 24% fair value
interest rate, in the context of like-for-
like companies with similar credit
ratings and leverage profiles.
We also assessed the adequacy of the
Group’s disclosures in the financial
statements in respect of the convertible
notes.
2
SHARE BASED PAYMENTS
Area of focus
Refer also to notes 1 and 20
The Group operates an employee share option
payment plan and also has existing plans for the
issue of options to directors and key
management personnel. Both plans include
service-based vesting periods.
Each of the arrangements which form part of the
plan required significant judgments and
estimations by management, including the
following:
How our audit addressed it
Our audit procedures included:
— Evaluating the fair values of share-based
payment arrangements by agreeing
assumptions to third party evidence. In
determining the grant dates, we evaluated
what were the most appropriate dates based
on the terms and conditions of the share-
based payment arrangements;
— The evaluation of the grant date of each
— Determining the grant dates and evaluating
arrangement, and the evaluation of the fair
value of the underlying share price of the
company as at that grant date;
what were the most appropriate dates based
on the terms and conditions of the share-
based payment arrangements;
— The evaluation of the vesting charge taken
to the profit and loss in-respect of the
accrual of service conditions attached to
those share-based payment arrangements;
and
— The evaluation of key inputs into the Black-
Scholes option pricing model, including the
significant judgment of the forecast volatility
of the share option over its exercise period.
The results of these share-based payment
arrangements materially affect the disclosures
of these financial statements, including the
vesting charge that affects disclosures of key
management personnel remuneration.
— Evaluating the progress of the vesting of
share-based payments within the service
period; and
— For the specific application of the Black-
Scholes option pricing model, we assessed
the experience of the expert used to advise
the value of the arrangement. We retested
some of the assumptions used in the model
and recalculated those fair values using the
skill and know-how of our Corporate Advisory
team. We considered that the forecast
volatility applied in the model to be
appropriately reasonable and within industry
norms.
We also reconciled the vesting of these share-
based payment arrangements to disclosures
made in both the disclosures in the Remuneration
Report and key management personnel
compensation note.
3
Other Information
The directors are responsible for the other information. The other information comprises the information
included in the Group’s annual report for the year ended 30 June 2017, but does not include the financial
report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to fraud
or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has 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.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
4
— Identify and assess the risks of material misstatement of the financial report, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
— Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.
— Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
— Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the financial report or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Group to cease to continue as a going
concern.
— Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
— Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are responsible
for the direction, supervision and performance of the Group audit. We remain solely responsible for our
audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.
5
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the directors’ report for the year ended 30 June
2017.
In our opinion, the Remuneration Report of Knosys Limited, 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.
William Buck Audit (Vic) Pty Ltd
ABN: 59 116 151 136
N.S. Benbow
Director
Melbourne, 30th August 2017
6
Knosys Limited
Additional information for listed companies
1.
Shareholding as at 24 August 2017
a.
Distribution of Shareholders
Category (size of holding)
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
Above 100,001
Number Number
Holders Ordinary
Shares
10
22
54
2,604
79,564
499,103
206
8,227,979
43 69,290,136
335 78,099,386
b.
c.
The number of shareholdings held in less than marketable parcels is 21.
The names of the substantial shareholders listed in the holding Consolidated Group’s
register as at 24 August 2017 are:
Shareholder
1 Panchito Services Pty Ltd
2 Earthrise Holdings Pty Ltd
3 Vabake Pty Ltd and Vabake Pty Ltd
Number
Ordinary
shares
19,100,000
19,100,000
10,292,260
%
24.46
24.46
13.18
d.
Voting Rights
The voting rights attached to each class of equity security are as follows:
Ordinary shares
—
Each ordinary share is entitled to one vote when a poll is called, otherwise each
member present at a meeting or by proxy has one vote on a show of hands.
e.
The names of the shareholders whose shares are escrowed until 9 September 2017 are:
Shareholder
1 Panchito Services Pty Ltd
2 Earthrise Holdings Pty Ltd
3 Vabake Pty Ltd and Vabake Pty Ltd
4 Gale Enterprises (Aust) Pty Ltd
5 Haven Super Pty Ltd
6 Vault (WA) Pty Ltd
Total
f.
20 Largest Shareholders — Ordinary Shares
46
Number
Ordinary
shares
19,100,000
19,100,000
9,550,000
2,250,000
450,000
450,000
50,900,000
Number of
Ordinary
Fully Paid
Shares Held
19,100,000
19,100,000
9,921,130
6,039,288
2,250,000
1,047,799
% Held of
Issued
Ordinary
Capital
24.46
24.46
12.70
7.73
2.88
1.34
875,978
759,116
712,900
695,000
631,897
509,645
492,506
450,000
450,000
406,864
371,130
367,500
1.12
0.97
0.91
0.89
0.81
0.65
0.63
0.58
0.58
0.52
0.48
0.47
357,142
320,000
64,857,895
0.46
0..41
83.05
Knosys Limited
Additional information for listed companies
Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Panchito Services Pty Ltd
Earthrise Holdings Pty Ltd
Vabake Pty Ltd
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd
Gale Enterprises (Aust) Pty Ltd
Alocasia Pty Limited
Rofra Investments Pty Ltd
Vonetta Pty Ltd
Netwealth Investments Limited
Hydro Nominees Pty Ltd
Netwealth Investments Limited
Jetan Pty Ltd
Peta Pty Ltd
Haven Super Pty Ltd
Vault (WA) Pty Ltd
Moonah Capital Pty Ltd
Vabake Pty Ltd
P D Williamson Super Pty Ltd
Mr Brendon Patrick Waller
Yallipse Pty Ltd
2.
The name of the Company Secretary is Mr Stephen Kerr.
3.
The address of the principal registered office in Australia is:
Suite 9.08, Level 9, 2 Queen Street
MELBOURNE VIC 3000
Telephone 03 9046 9700
4.
Registers of securities are held at the following addresses:
Automic Registry Services
Suite 310, Level 3, 50 Holt Street
SURRY HILLS NSW 2010
5.
Securities Exchange Listing
Quotation has been granted for all the ordinary shares of the Company on all Member Exchanges
of the Australian Securities Exchange Limited.
6. In accordance with ASX Listing Rule 4.10.19, the Consolidated Group advises that, since listing on
9 September 2015, it has used its cash in a way consistent with its business objectives.
47