N1 Holdings Limited
Annual Report 2017

Plain-text annual report

Page | 1 Corporate Directory Directors Ren Hor Wong Executive Chairman, CEO Jia Penny He Executive Director, CFO Tarun Kanji Non-Executive Director Corporate Office Suite 502, 77 King Street Sydney NSW 2000 Company Secretary Solicitors Anand Sundaraj Whittens McKeough & Sundaraj Pty Ltd Level 29, 201 Elizabeth Street Sydney NSW 2000 Auditors Share Registry Crowe Horwath Sydney Level 15, 1 O’Connell Street Sydney NSW 2000 Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Notice of Annual General Meeting Corporate Governance Statement Annual General Meeting of N1 Holdings Limited will be held at: Whittens McKeough & Sundaraj Pty Ltd Level 29, 201 Elizabeth Street Sydney NSW 2000 Time: 10:00 am Date: 17 November 2017 Stock Listing N1 Holdings Limited is listed on Australian Securities Exchange (ASX) under the code N1H. N1 Holdings Limited and the board are committed the highest to achieving and demonstrating standards of corporate governance. N1 Holdings Limited has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) the ASX Corporate Governance published by Council. The 2017 corporate governance statement reflects the corporate governance practices during the financial year ended 30 June 2017. The 2017 corporate governance statement was approved by the board on 20 September 2017. A description of the Group's current corporate governance practices is set out in the Group's corporate governance statement at: be can which http://www.n1holdings.com.au/. viewed Page | 2 Page | 3 Page | 4 Page | 5 Annual Report for the year ended 30 June 2017 Report from Directors and Management Directors’ Report Auditor’s Independence Declaration Consolidated Financial Statements for The Year Ended 30 June 2017 Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Section 4: Business portfolio 4.1 Businesses combination 4.2 Related party transactions Section 5: Other disclosures 5.1 Basis of preparation and compliance 5.2 Auditors’ remuneration 5.3 Lease commitments 5.4 Contingencies liabilities and Contingent assets 5.5 Taxation 5.6 Events after the reporting period Notes to the Financial Statements Section 1: Key performance metrics 1.1 Earnings per share 1.2 Segment information 1.3 Revenue and other income Section 2: Operating assets and liabilities 2.1 Cash and cash equivalents 2.2 Trade and other receivables 2.3 Plant and equipment 2.4 Intangible assets 2.5 Trade and other payables 2.6 Provisions Section 3: Group’s capital and risks 3.1 Contributed equity 3.2 Share based payments 3.3 Net debt 3.4 Financial risk management 3.5 Fair value measurement Directors’ Declaration Independent Auditor’s Report Shareholder Information 24 24 25 28 28 29 30 31 31 33 33 35 37 39 7 19 20 21 22 23 40 41 43 45 45 46 46 48 49 50 54 Page | 6 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 Directors’ Report The directors of the Company (Directors) present their report on the consolidated entity consisting of the Company and its controlled entities (the Group) for the financial year ended 30 June 2017. The information in the Chairman’s Letter forms part of this Directors’ Report and is to be read in conjunction with the following information: Directors The following persons were directors of N1 Holdings Limited during or since the end of the financial year up to the date of this report: • Mr Ren Hor Wong (Executive Chairman, CEO, appointed 24 November 2015); • Ms Jia Penny He (Executive Director, CFO, appointed 24 November 2015); and • Mr Tarun Kanji (Non-executive Director, appointed 18 March 2016). Company Secretary Mr Anand Sundaraj (Company Secretary, appointed 24 November 2015) Information relating to Directors and Company Secretary Mr Ren Hor Wong (Executive Chairman, CEO) Qualifications, experience and special responsibilities Mr Wong is the founder, Executive Chairman and Chief Executive Officer of the Company. Mr Wong has been responsible for developing the Company’s business strategy and expanding its business into Asia Pacific. Prior to establishing the Company, Mr Wong had, over a span of 6 years, applied his entrepreneurial and management skills in industries ranging from courier services, printing services and real estate. He has previously founded and successfully exited various businesses including Copiko Printing, Sydneymove.com.au and Packers Unpackers. Mr Wong is a licensed mortgage broker and fluent in both spoken and written Mandarin and Cantonese. Mr Wong conducts regular seminars and provides topical discussions across Asia in relation to Australian property investments and financing. Mr Wong has also published multiple guides and learner books for release in China. Mr Wong holds a Bachelor of Engineering with Honours from University of New South Wales. Interest in shares and options in the Company (Shares and Options, respectively) Directorships held in other listed entities during the three years prior to the current year 50,024,000 Shares None Page | 7 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 Ms Jia Penny He (Executive Director, CFO) Qualifications, experience and special responsibilities Ms He is a Certified Practising Accountant and a licenced financial adviser. She has over 10 years combined industry experience in accounting, financial planning and mortgage broking. Ms He joined the Group in May 2014 as the Accounting and Tax Adviser and Principal Financial Planner. Ms He was subsequently appointed as the Company’s Chief Financial Officer. Her current role within the Company includes all financial management, tax and reporting functions of the business. Prior to joining the Company, Ms He served as an executive for Cabot Square Chartered Accountants from July 2006 to May 2014. Ms He holds a Master of Accounting degree from Macquarie University and is also an ATO registered tax agent holding a Public Practice Certificate. Interest in Shares and Options 250,000 Shares and 750,000 Options Directorships held in other listed entities during the three years prior to the current year None Mr Tarun Kanji (Non-Executive Director) Qualifications, experience and special responsibilities Mr Kanji has nearly 25 years corporate and consulting experience spanning the US, Europe, Asia, Australia and New Zealand. After completing a Commerce Degree at Auckland University he spent over 10 years with firms spanning corporate advisory, valuation, finance, litigation support, recovery and audit disciplines in New Zealand and Europe. Thereafter Mr Kanji held a number of senior executive roles over 10 years with Fosters Group. international accounting The roles covered a range of disciplines including finance (as a CFO), commercial management, business development, mergers & acquisitions, governance, and strategic development roles. Mr Kanji currently is involved in a number of internationally focused ventures which includes the commercial globalisation of an evolutionary search technology software company, focused on the US and Asian markets. He has held and holds a range of governance roles including: • Former Independent Chairman of Tomizone Limited (ASX: TOM) • Former Chairman - Bank of India, (New Zealand) Limited (a subsidiary of the Bank of India) • Member - Portfolio Governance Authority (a committee of New Zealand’s department of Inland Revenue) • Former Chairman - Noske-Kaeser Rail & Vehicles New Zealand Limited • Independent Director - Biolytix Limited & PowerShield Limited Mr Kanji is a Fellow of The NZ Institute of Chartered Accountants Australia and New Zealand as well as a member of the New Zealand Institute of Directors, Certified Practicing Accountant of Australia, New Zealand Institute of Directors, Australian Institute. Interest in Shares and Options 1,000,000 Options Page | 8 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 Mr Anand Sundaraj (Company Secretary) Qualifications, experience and special responsibilities Mr Sundaraj is a principal of Whittens McKeough & Sundaraj, a commercial law firm based in Sydney. Prior to joining Whittens, Mr Sundaraj worked at international law firms Allen & Overy, King & Wood Mallesons and Herbert Smith Freehills, as well as for global investment bank Credit Suisse. Mr Sundaraj specialises in providing legal advice on mergers & acquisitions and capital raisings for both publicly listed and privately held entities. He also advises on funds management and general securities law matters including ASX Listing Rules compliance. In addition to acting as company secretary to N1 Holdings, Mr Sundaraj is currently the company secretary of Catapult Group International (ASX: CAT), Freedom Insurance (ASX: FIG), DroneShield (ASX: DRO), UUV Aquabotix (ASX: UUV), Tinybeans Group (ASX: TNY), Reddam House (operator of independent, co-educational, non-denominational schools) and Lille Fro Foundation (an Australian-based charity which operates in India). Mr Sundaraj holds a Bachelor of Laws (with Honours) and a Bachelor of Science from Monash University and is admitted as a solicitor of the Supreme Courts of New South Wales and Victoria. Interest in Shares and Options 10,000 Shares Directorships held in other listed entities during the three years prior to the current year None Dividends paid or recommended Dividends paid or declared for payment during the financial year are $nil (2016: $nil). Changes in state of affairs New business and acquisitions The company launched N1 Realty business in July 2016 and acquired Sydney Boutique Property Pty Ltd ACN 105 656 442, a Sydney based real estate agency business, on 21 October 2016 for consideration of $1,940,000. The Company borrowed $1,000,000 to fund this acquisition. The Company subsequently acquired 3 additional property management rent rolls for a total consideration of $191,645 excluding GST. On 17 August 2016, N1 Loans Pty Ltd acquired loan trail book from Aura Private Wealth Pty Ltd ACN 158 184 000 for a total consideration of $336,661.50 excluding GST. New capital raise and borrowings On 12 May 2017, the Company issued 1.85 million unlisted unsecured convertible notes with total value of $370,000. Each convertible note had a face value of $0.20 with 7% pa interest and 2-year term. The convertible notes can be converted at any time prior to the date of maturity at the request of the noteholder, or they will automatically be redeemed on the maturity. If the noteholders convert the maximum number of convertible notes, then 1,850,000 new shares would be issued. This is based on a conversion price of $0.20 and does not account for any accrued interest. In May 2017, the Company borrowed $180,000 at 10% pa interest for a 2-year term. In June 2017, the Company borrowed $200,000 at 7% pa interest for a 2-year term. Both amounts are borrowed from non-related parties. The purpose of issuing convertible notes and loans was to fund acquisitions and to provide general working capital. Employee share incentive plan On 1 March 2017, the Company issued total 4,791,000 options at an exercise price of $0.20 to employees with total value of $958,200 in accordance to its Employee share incentive plan. The options are issued on the same terms, with the same vesting dates, at the “Consideration Options” described in the Company’s IPO prospectus. Page | 9 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 Principal activities During the FY2017, the continuing principal activities of the consolidated group consisted of: • • • • mortgage broking services; financial planning services; migration services; and real estate property sale and management services. Review of operations Review of operating results During FY17, the Group generated revenue of $4.30m (FY16: $3.39m) delivering a net loss of $1.20m (FY16: loss $1.30m). Increased group revenue is mainly from the newly established N1 Realty business as well as increased loan trail commission. During FY17, N1 Loans (the Group’s mortgage broking business) continued to be the major revenue generator, accounting for 78.22% of the total revenue of the group. N1 Realty started its first-year operation in FY17 and Sydney Boutique Property was acquired during the year. N1 Realty generated $740,799 in revenue during FY17 representing 17.21% of the Group’s total revenue. N1 Migration generated $174,407 in revenue representing 4.05% of the group’s total revenue. Diversification Revenue (“DR”), being revenue that is not related to residential mortgage broking, is growing in line with the Company’s strategic plan. Total DR during FY17 was $1,107,155 (FY16: $121,056) representing an increase of 815%. FY17 has seen the positive results of the N1 Loans PAYG consultant model initiated during FY16 with improved client retention rates and profitability for the business. As at 30 June 2017, 87% of trail commissions were retained by N1 Loans compared to 84% for the same period last year. Company’s loan trail book valuation as at 30 June 2017 was $2.20m (FY2016: $1.53m). The Company anticipates increased estimated future trail commissions as a result of the growth of its loan book of $238m from $561m to $799m, which represents an increase of 42.42% during FY17. Among the $238m increase, $62.6 million was from loan book acquisition from Aura Private Wealth Pty Ltd ACN 158 184 000 and the balance of 175.4 million is from the Company’s organic growth. Key features of underlying operating result are summarised below: • • • • Increase in revenue by 27.04% to $4,303,727 (FY16: $3,387,683) Reduction in direct cost to commission-based brokers and referrers, FY17 $1,090,146 (FY16: $1,463,949) Increase in operational expenses which are predominantly expansion expenditures o o Employee cost in FY17 is $3,031,056 (FY16: $1,834,280) Professional fee in FY17 is $388,319 (FY16: $184,782) o Rent and Office expenses in FY17 is $672,812 (FY16: $394,871) o Depreciation and amortisation expenses has increased to $371,106 (FY16: $80,887) Reduction in finance cost to $68,343 (FY16: $282,873) During the financial year ended 30 June 2017, the Company used cash and its assets in a form readily convertible to cash that it received under its initial public offering in a way consistent with its business objectives. Review of financial position The net assets of the Group have decreased from $5,216,244 as at 30 June 2016 to $4,097,423 as at 30 June 2017. Current financial liabilities increased slightly by $4,858 from $993,352 to $998,210 during FY17. The Group’s working capital, being current assets less current liabilities, has reduced from $4,018,691 in 2016 to $1,242,468 in 2017, which is mainly due to the various acquisitions undertaken during FY17 and growth of the Company’s infrastructure base in anticipation of business expansion. The Directors believe the Group is in a stable financial position to expand and grow its operations. Prospects for future financial years The Group will continue its successful diversification strategy initiated during FY17. Being an integrated financial and property services firm, N1 will ensure its consistent approach of growth via acquisitions and to continue acquiring positive cash flow asset such as rent roll and loan trail book to achieve significant economies of scale. Page | 10 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 The Company has gained sufficient capacity both in terms of team capacity and infrastructure capacity to continue growing rent roll cash flow with minimal cost increment to strong marginal product. In addition, the Company will keep diversifying into commercial lending, car and equipment finance and financial planning via N1 Loans in the coming financial year, and currently have extensive pipeline in commercial lending revenue. The Company intends to leverage its vast network of business connections and deepen its engagement with the B2B market via various business services. with a quarter of revenue being deriving from businesses other than traditional residential mortgage broking, the Company expects to continue this momentum via commercial lending, property sales and management as well as expansion of its migration business. The Company possesses the unique strength of creating synergies between its complimentary business units - N1 Loans, N1 Realty, N1 Migration and N1 Venture. Events after the reporting period On 21 July 2017, TACQ International Pty Ltd, a fully owned subsidiary of N1 Holdings Limited was established focusing on recruitment business. On 15 August 2017, Company entered into an unsecured loan agreement with an individual lender for $200,000 at 10% interest only repayment for 2 years. Loan was settled on 1 September 2017. Purpose of the loan is to fund potential acquisitions. On 7 September 2017, Company received application from an individual investor to acquire $1,000,000 worth of Convertible Notes with face value of $0.20 each and 7% pa interest and 2 years term. The Company expects to issue the Convertible Notes after releasing its Annual Report. The resultant Convertible Notes will be convertible at any time prior to the date of maturity at the request of the Noteholder, or they will automatically be redeemed on the Maturity. If the Noteholders convert the maximum number of Convertible Notes, then 5,000,000 new Shares would be issued. This is based on a price of $0.20 and does not account for any accrued interest. Expected issue date of the Convertible Notes is 27 September 2017. Other than events mentioned above, there has been no matters or events since the end of the financial year which may significantly affect the operation of the Group, the results of those operations or the state of affairs of the Group in the future financial years. Environmental issues The Group’s operations are not subject to significant environmental regulation under the law of the Commonwealth and State. Indemnifying officers or auditor During or since the end of the financial year, the group has paid premiums to insure each of the directors (as named above) against liabilities for costs and expenses incurred by the defending legal proceedings arising from their conduct while acting in the capacity of directors of the group, other than conduct involving a wilful breach of duty in relation to the group. The premiums for the directors amounted to $17,651.90. The group has not indemnified the auditors. Proceedings on behalf of company No person has applied for leave of Court to bring proceedings on behalf of the company or 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 any part of those proceedings. The company was not a party to any such proceedings during the year. Non-audit services The Board of Directors, in accordance with advice from the audit committee, is satisfied that the provision of non- audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditors’ independence for the following reasons: • • all non-audit services are reviewed and approved prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor and the nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. Page | 11 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 The following fees were paid or payable to Crowe Horwath for non-audit services provided during the Year ended 30 June 2017: Taxation services $ 8,000 8,000 Auditor’s independence declaration The lead auditors’ independence declaration for the year ended 30 June 2017 has been received and can be found following the Directors’ Report. Options As at 30 June 2017, the number of unissued ordinary shares in the Company under option are 10,738,750. For details of Options issued to Directors and executives as remuneration, please refer to the Remuneration Report. Meetings of directors During the financial year, thirteen meetings of Directors were held. Attendance by each director during the year was as follows: Directors' meetings Directors Number eligible to attend Number attended Ren Hor Wong Jia Penny He Tarun Kanji 13 13 13 13 13 13 Remuneration policy Remuneration report Remuneration policy The remuneration policy of the Company has been designed to align key management personnel (KMP) objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance in areas affecting the Group’s financial results. The Board believes the remuneration policy to be appropriate and effective in its ability to attract and retain the high- quality KMP to run and manage the Group, as well as create goal congruence between Directors, executives and Shareholders. The Board’s policy for determining the nature and amount of remuneration for KMP of the Group is as follows: • • • • • The remuneration policy is to be developed by the Board and the Board may seek advice on the policy from independent external consultants at its discretion. All KMP receive a base salary (which is based on factors such as length of service and experience), superannuation, fringe benefits options and performance incentives. Performance incentives are generally only paid once and conditional on key performance indicators (KPIs) having been met. Incentives paid in the form of Options or rights are intended to align the interests of the Directors and the Company with those of the Shareholders. In this regard, KMP are prohibited from limiting the risk attached to those instruments by use of derivatives or other means. The Board reviews KMP packages annually by reference to the Group’s performance, executive performance and comparable information from industry sectors. The performance of KMP is measured against criteria agreed annually with each executive and is based predominantly on the forecast growth of the Group’s profits and Shareholders’ value. All bonuses and incentives must be linked to predetermined performance criteria. The Board may, however, exercise its discretion in relation to approving incentives, bonuses and options, and can recommend changes. Any change must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance results leading to long-term growth in Shareholder wealth. Page | 12 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 KMP receives, at a minimum, the superannuation guarantee contribution required by law, which is currently 9.5% of the individual's ordinary earnings. Superannuation guarantee contribution is capped at maximum concessional contribution limit of each financial year. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation. The Board's policy is to remunerate non-executive Directors at market rates for time, commitment and responsibilities. The Board determines payments to the non-executive Directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. Fees that can be paid to a non-executive Director is contained in that Directors’ consultancy service agreement. Remuneration structure There have been no significant changes after the Company’s listing on ASX. The table below summarises the remuneration components of KPM of the Group. Remuneration component Fixed remuneration Reward Type Purpose Link to performance Salaries, superannuation and other fixed benefits To provide competitive fixed remuneration set with reference to role, market and experience Company and individual performance are considered during the annual review Short-term incentive Bonus paid in cash Long-term incentive Share options Rewards executives for their contribution to achievement of Group outcome Rewards executives for their contribution to the creation of shareholder value over the longer term Revenue of the Group Vesting of the awards is dependent on absolute total Shareholder return in addition to continuous service vesting conditions. Performance-based Remuneration The KPIs are set annually, with a certain level of consultation with KMP. The measures are specifically tailored to the area each individual involved is in and has a level of control over. The KPIs target areas that the Board believes hold greater potential for Group expansion and profit covering financial and non-financial as well as short and long-term goals. The level set for each KPI is based on budgeted figures for the Group and respective industry standards. Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPIs achieved. Following the assessment, the KPIs are reviewed by the remuneration committee in light of the desired and actual outcomes, and their efficiency is assessed in relation to achieving the Group’s goals and shareholder value, before the KPIs are set for the following year. In determining whether or not a KPI has been achieved, the Company bases the assessment on audited figures, however, where the KPI involves comparison of the Group or a division within the Group to the market, independent reports are obtained from other research organisations. Relationship between remuneration policy and Company performance The remuneration policy has been tailored to increase goal congruence between Shareholders, Directors and executives. Two methods have been applied to achieve this aim, the first being a performance-based bonus (i.e. based on KPI), and the second being the issue of options to the majority of Directors and executives to encourage the alignment of personal and Shareholder interests. The Company believes this policy has been effective in increasing shareholder value over the past years. Performance conditions linked to remuneration The Group seeks to emphasise reward incentives for results and continued commitment to the Group through the provision of various cash bonus reward schemes, specifically the incorporation of incentive payments based on the achievement of revenue targets, return on equity ratios, and continued employment with the Group. Page | 13 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 The performance-related proportions of remuneration (based on KPI targets) are included in the following table. The objective of the reward schemes is to both reinforce the short and long-term goals of the Group and provide a common interest between Management and Shareholders. There has been no alteration to the terms of the bonuses paid since the grant date. The satisfaction of the performance conditions is based on a review of the audited financial statements of the Group and publicly available market indices and as such these figures reduce any risk of contention relating to payment eligibility. The Board does not believe that performance conditions should include a comparison with any other measures or factors external to the Group at this time. The performance-based bonus schedule is detailed below, which has only available to executive Directors since 1 July 2016. No bonuses were paid to executive Directors during FY2017. Minimum revenue achieved by the Company for a financial year Bonus Bonus Ren Hor Wong Jia Penny He $5 million $5.5 million $6 million + $10,000 $16,000 $20,000 $5,000 $8,000 $10,000 The below table illustrates the proportion of remuneration that was performance and non-performance based. Maximum achievable bonus is used in the calculation. Fixed Remuneration Remuneration linked to Performance 2017 2016 2017 2016 Directors Ren Hor Wong 94.74% 93.75% Jia Penny He 94.74% Tarun Kanji 100% 92.3% 100% 5.26% 5.26% 0% 6.25% 7.7% 0% Employment Details of members of KMP The following tables provide employment details of persons who were, during FY2017, members of KMP of the Group. Positions of KMPs and their employment details Position Held Ren Hor Wong Chairman, CEO Jia Penny He Executive Director, CFO Tarun Kanji Independent Director Jacqueline Wang COO Contract Duration 18/03/2016 - Ongoing 18/03/2016 - Ongoing 18/03/2016 - Ongoing 08/08/2016 - Ongoing Employment Type Termination Notice Period Permanent 3 months Permanent 3 months Consultancy agreement 3 months Permanent 3 weeks Page | 14 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 Key terms of KMP contract Chief Executive Officer • • • • • • The CEO receives fixed remuneration of $360,000 per annum plus superannuation contributions under the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Superannuation Guarantee Charge Act 1992 (Cth). In addition to the fixed remuneration, the CEO will be entitled to a bonus on the following terms: Minimum revenue achieved by the Company for a financial year $5 million $5.5 million $6 million + Bonus Ren Hor Wong $10,000 $16,000 $20,000 The Company provide a car benefit to the CEO till 30 April 2017. Company paid total car allowance of $1,904 to the CEO from 1 May 2017 to 30 June 2017. The car allowance is changed to $1,000 pm from 1 July 2017. Fixed and incentive remuneration is reviewed and determined annually. Termination notice period is 3 months or without notice in the event of breach of services agreement between Mr Wong and the Company or serious misconduct. Restraint period being up to 24 months. Chief Financial Officer • • • • • The CFO receives fixed remuneration of $180,000 per annum plus superannuation contributions under the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Superannuation Guarantee Charge Act 1992 (Cth). In addition to the fixed remuneration, the CFO will be entitled to a bonus on the following terms: Minimum revenue achieved by the Company for a financial year $5 million $5.5 million $6 million + Bonus Jia Penny He $5,000 $8,000 $10,000 Fixed and incentive remuneration will be reviewed and determined annually. Termination notice period is 3 months or without notice in the event of breach of services agreement between Ms He and the Company or serious misconduct. Restraint period being up to 24 months. Non-Executive Director • • • • • The remuneration (Service Fee) of the Non-Executive Director is $59,000 per annum. 1,000,000 options exercisable at $0.20 issued on 18 March 2016 expiring 2 years after the date of issue. The Service Fee will be reviewed and determined annually. Termination notice period is 3 months or 1 month in the event of breach of services agreement between the relevant Non-Executive Director and the Company or serious misconduct. Restraint period being up to 24 months. Chief Operation Officer • • • • The COO receives fixed remuneration of $180,000 per annum plus superannuation contributions under the Superannuation Guarantee (Administration) Act 1992 (Cth) and the Superannuation Guarantee Charge Act 1992 (Cth). COO is entitled to car allowance. Total car allowance paid to the COO in FY2017 is $3,729. Fixed and incentive remuneration will be reviewed and determined annually. Termination notice period is 3 weeks or without notice in the event of breach of services agreement between Ms Wang and the Company or serious misconduct. Page | 15 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 Remuneration of KMP 2017 Short term employee benefits Post-employment benefits Salaries Bonus Other (note 1) Superannuation Long term employee benefits Long service leave Share based payments Options Total Directors Ren Hor Wong Jia Penny He $338,604 $155,904 Tarun Kanji $44,795 Other KMP Jacqueline Wang $152,763 - - - - $13,877 $30,000 $3,914 $0 $386,395 - - - $14,251 $1,929 $13,588 $185,672 - - $0 $44,795 $14,250 $2,232 $17,581 $186,826 2016 Short term employee benefits Post-employment benefits Salaries Bonus Other Superannuation Long term employee benefits Long service leave Share based payments Options Total Directors Ren Hor Wong Jia Penny He $145,451 $105,453 Tarun Kanji $27,526 - - - $3,783 $13,713 $889 - $163,836 - - $10,044 $491 $7,445 $123,433 - - $38,500 $66,026 Note 1: The Company provides car benefits to the CEO. Options and rights granted as remuneration The terms and conditions relating to Options granted as remuneration during the year to KMP are as follows: 750,000 450,000 1,200,000 - 1,200,000 2017 Number of Options beginning of the year Granted No. Exercised during the year Lapsed during the year Ren Hor Wong - Jia Penny He 750,000 Tarun Kanji 1,000,000 - - - - - - - - - - - Jacqueline Wang 2016 Number of Options beginning of the year Granted No. Exercised during the year Lapsed during the year 1,000,000 1,000,000 Number of options at the end of the year - 750,000 Number of options at the end of the year - 750,000 Vested Unvested - - - - - 750,000 - - 750,000 - Vested Unvested Ren Hor Wong Jia Penny He Tarun Kanji - - - - 750,000 1,000,000 - - - - - - 1,000,000 1,000,000 The fair value of Options granted as remuneration and as shown in the above table has been determined in accordance with Australian accounting standards and will be recognised as an expense over the relevant vesting period to the extent that conditions for vesting are satisfied. Page | 16 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 Description of Options/rights issued as remuneration Details of the Options granted as remuneration to those KMP and executives listed in the previous table are as follows: Tranche Grant date Number of options granted Grant Value Exercising Price Vesting date Reason for grant Jia Penny He Jacqueline Wang Tarun Kanji Jacqueline Wang 1 1 2 3 14/12/2015 750,000 $150,000 $0.2 14/12/2018 14/12/2015 750,000 $150,000 $0.2 14/12/2018 Employee share option Employee share option 18/03/2016 1,000,000 $200,000 $0.2 18/03/2016 Director option 01/03/2017 450,000 $90,000 $0.2 14/12/2018 Employee share option Tranche Fair value per option at Granting date Vesting conditions Jia Penny He Jacqueline Wang Tarun Kanji Jacqueline Wang 1 1 2 3 $0.0544 $0.0544 $0.0385 $0.0475 Continuous employment with the Group from 14/12/2015 to 14/12/2018 Continuous employment with the Group from 14/12/2015 to 14/12/2018 Vested Continuous employment with the Group from 01/03/2017 to 14/12/2018 Option values at grant date were determined by applying the Binomial Approximation valuation methodology. KMP shareholdings The number of ordinary shares in the Company held by each KMP of the Group during the financial year is as follows: 2017 Ren Hor Wong (Note 1) Jia Penny He (Note 2) Number of Shares beginning of the year 50,000,000 250,000 Tarun Kanji - Jacqueline Wang 125,000 2016 Ren Hor Wong (Note 1) Jia Penny He (Note 2) Tarun Kanji Number of Shares beginning of the year 100 - - Received as remunerat ion during year - - - - Received on exercising Options Disposed Number of Shares at the end of the year - - - - - - - - 50,024,000 250,000 - 125,000 Received as remuneration during year Received on exercising Options Disposed Number of Shares at the end of the year - - - - - - - - - 50,000,000 250,000 - Note 1: Mr Ren Hor Wong received 50,000,000 Shares in the Company in exchange of his shares in N1 Loans during the IPO. Mr Ren Hor Wong acquired 24,000 Shares in the Company from the market during FY2017 Note 2: Ms Jia Penny He was issued 187,500 Shares from settlement of convertible notes and acquired 62,500 Shares during the IPO. Page | 17 N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2017 Other equity-related KMP transactions There have been no other transactions involving equity instruments apart from those described in the tables above relating to Options, rights and Shares. Loans to KMP There are no loans from the Company to KMP as at 30 June 2017. On behalf of the Board Ren Hor Wong Executive Chairman and CEO 27 September 2017 Sydney Page | 18 Crowe Horwath Sydney ABN 97 895 683 573 Member Crowe Horwath International Level 15 1 O’Connell Street Sydney NSW 2000 Australia Tel +61 2 9262 2155 Fax +61 2 9262 2190 www.crowehorwath.com.au The Board of Directors N1 Holdings Limited 77 King Street Sydney NSW 2000 Dear Board Members N1 Holdings Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the Directors of N1 Holdings Limited. As lead audit partner for the audit of the financial report of N1 Holdings Limited for the financial year ended 30 June 2017, I declare that to the best of my knowledge and belief, that there have been no contraventions of: (i) (ii) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. Yours sincerely CROWE HORWATH SYDNEY LEAH RUSSELL Senior Partner Date this 27th day of September 2017 Page | 19 N1 HOLDINGS LIMITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 30 JUNE 2017 For the year ended 30 June 2017 Continuing operations Revenue Consulting and referral fees Gross profit Other income Employee cost IT and technology Sales and marketing Rent and utilities Professional fee Office and administrative expense Finance cost Travel cost Other operation cost Depreciation and amortisation Profit/(Loss) before income tax Income tax benefit/(expense) Net profit/(loss) from continuing operations Other comprehensive income Total comprehensive income/(loss) for the year Earnings per share Basic earnings per share Diluted earnings per share 2017 $ 2016 $ Note 1.3 4,303,727 3,387,683 1.3 5.5 1.1 (1,090,146) (1,463,949) 3,213,581 110,795 1,923,734 70,829 (3,031,056) (1,834,280) (97,392) (242,609) (429,982) (388,319) (242,830) (68,343) (75,368) (20,377) (371,106) (59,034) (301,658) (254,099) (184,782) (140,772) (282,873) (124,754) (26,700) (80,887) (1,643,006) (1,295,276) 445,453 (10,124) (1,197,553) (1,305,400) - - (1,197,553) (1,305,400) cents cents (1.5) (1.5) (5) (5) The accompanying notes form part of these financial statements. Page | 20 N1 HOLDINGS LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 30 JUNE 2017 As at 30 June 2017 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other current assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Other financial assets Property, plant and equipment Deferred tax assets Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Other financial liabilities Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Other financial liabilities Deferred tax liabilities Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained earnings TOTAL EQUITY Note 2.1 2.2 3.3 (b) 2.2 3.3 (b) 2.3 5.5 (d) 2.4 2.5 3.3 (c) 2.6 3.3 (c) 5.5 (c) 2.6 3.1 3.1 2017 $ 2016 $ 912,432 1,317,026 11,220 2,240,678 1,302,252 230,946 495,178 772,511 2,653,803 5,454,690 3,856,946 1,060,440 94,657 5,012,043 949,010 195,097 182,508 349,246 155,750 1,831,611 7,695,368 6,843,654 445,153 224,531 328,526 998,210 1,541,581 1,037,877 20,277 2,599,735 462,769 33,698 496,885 993,352 149,448 477,443 7,167 634,058 3,597,945 4,097,423 1,627,410 5,216,244 5,756,156 155,610 (1,814,343) 4,097,423 5,738,586 94,448 (616,790) 5,216,244 The accompanying notes form part of these financial statements. Page | 21 N1 HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 30 JUNE 2017 For the year ended 30 June 2017 Note Share Capital $ Option Reserve $ Retained Earning $ Total $ Balance at 30 June 2015 / 1 July 2015 Comprehensive income Profit/(loss) for the year Total comprehensive income for the year Transactions with owners, in their capacity as owners, and other transfers Shares issued during the year Total transactions with owners and other transfers Share based payment 100 - - 3.1 5,738,486 5,738,486 - - - - - 3.1 - 94,448 688,610 688,710 (1,305,400) (1,305,400) (1,305,400) (1,305,400) - - - 5,738,486 5,738,486 94,448 Balance at 30 June 2016 / 1 July 2016 5,738,586 94,448 (616,790) 5,216,244 Comprehensive income Profit/(loss) for the year Total comprehensive income for the year Transactions with owners, in their capacity as owners, and other transfers - - Shares issued during the year 3.1 63,977 Total transactions with owners and other transfers Share based payment Recovery of deferred tax on IPO cost Balance at 30 June 2017 63,977 3.1 - 61,162 (46,407) - - - - - (1,197,553) (1,197,553) (1,197,553) (1,197,553) - - - - 63,977 63,977 61,162 (46,407) 5,756,156 155,610 (1,814,343) 4,097,423 The accompanying notes form part of these financial statements. Page | 22 N1 HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS 30 JUNE 2017 For the year ended 30 June 2017 Note 2017 $ 2016 $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Interest received Payments to suppliers and employees Income tax refund/(paid) 3,557,212 28,863 3,113,072 26,359 (5,469,227) (4,378,927) 19,667 (74,160) Net cash provided by (used in) operating activities 2.1 (1,863,485) (1,313,656) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of Intangible assets Acquisition of subsidiary Loans to related party Loans recovered from related parties Cash received on disposal of plants and equipment (436,556) (269,096) (1,940,000) - 50,000 - Net cash provided by /(used in) investing activities (2,595,652) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of shares Cash paid for capital raising in IPO Proceeds from borrowings Convertible notes issued Finance Cost Other Finance liability repaid Net cash provided by (used in) financing activities Net increase/(decrease) in cash held Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year 2.1 The accompanying notes form part of these financial statements. - - 1,246,300 370,000 (68,343) (33,334) 1,514,623 (2,944,514) 3,856,946 912,432 (47,241) (131,578) - (41,000) 162,996 105,419 48,596 5,000,000 (618,768) 200,000 - - (107,083) 4,474,149 3,209,089 647,857 3,856,946 Page | 23 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 1: KEY PERFORMANCE METRICS 30 JUNE 2017 These consolidated financial statements and notes represent those of N1 Holdings Limited and its controlled entities (the “Consolidated Group” or “Group”). Section 1: Key performance metrics 1.1 Earnings per share Reconciliation of earnings to profit or loss Profit/(loss) – from continuing activities Earnings/(loss) used to calculate basic EPS & dilutive Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS Weighted average number of dilutive options outstanding Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS Earnings/(loss) per share – basic (cents) Earnings/(loss) per share – diluted (cents) Consolidated Group 2016 2017 (1,197,553) (1,305,400) (1,197,553) (1,305,400) 81,045,248 24,253,895 8,276,373 2,988,818 89,321,621 27,242,713 (1.5) (1.5) (5) (5) Segment information 1.2 The Group has identified three reportable segments based on the nature of the products and services, the type of customers for those service products and the similarity of their economic characteristics in accordance with the requirement of AASB 8 Operating Segments. Description of segments and principal activities (a) Mortgage broking and other financial services The mortgage broking segment refer to the operating activities in which the Group acts as a mortgage broker that provides its customer with advice and support. The Group receives commission payments on loans originated through its network of customers. Some other minor financial services in relation to mortgage products and finance leases are also included in this segment. Real estate service The Group established a real estate service through N1 Realty Pty Ltd which acquired Sydney Boutique Properties Pty Ltd and other rent roll assets. The services currently are focused on rental property management and property sales agent service. Migration service The Group provides migration services to its customers through N1 Migration Pty Ltd which holds a migration agent licence. The services have been promoted successfully and the related revenue and profit from the service have increased significantly. Page | 24 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 1: KEY PERFORMANCE METRICS 30 JUNE 2017 (b) Segment performance and financial position Year ended 30 June 2017 Revenue Interest income Other income Total segment revenue and other income Results Segment profit/(loss) before income tax income tax expense Loan brokerage and other financial service Real estate service Migration service Other Total 3,366,449 740,799 174,407 22,072 4,303,727 4,673 42,330 48 22,454 227 10 23,915 17,138 28,863 81,932 3,413,452 763,301 174,644 63,125 4,414,522 (811,137) (401,970) 37,302 (467,201) (1,643,006) - - - 445,453 445,453 Net profit after tax (811,137) (401,970) 37,302 (21,748) (1,197,553) Assets and liabilities Total segment assets 3,023,288 2,760,570 91,300 1,820,210 7,695,368 Total segment liabilities (1,071,421) (982,356) (18,544) (1,525,624) (3,597,945) Other segment information Depreciation and amortisation 92,609 205,338 Interest expense 513 25,796 - 3 73,159 371,106 6,310 32,623 1.3 Revenue and other income (a) Revenue Origination commission Fair value of trail commission Real estate service Migration service Other service (b) Other income Bank interest Other Consolidated Group 2017 2016 3,029,983 2,945,367 336,466 740,799 174,407 22,072 4,303,727 427,000 - 7,095 8,221 3,387,683 28,863 81,932 110,795 26,359 44,470 70,829 Page | 25 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 1: KEY PERFORMANCE METRICS 30 JUNE 2017 Revenue recognition and measurement Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. When the inflow of consideration is deferred it is treated as the provision of financing and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue。 Origination commission (i) The Group provides loan origination services and receives origination commission on the settlement of loans. Origination commission is recognised upon the loan being settled and measured at fair value of the commission to be received. Trailing commissions (ii) The Group receives trailing commissions from lenders on loans they have settled that were originated by the Group. The trailing commissions are received over the life of the loans based on the individual loan balance outstanding. On initial recognition, trailing commission revenue and receivables are recognised at fair value, being the expected future trailing commission receivables discounted to their net present value. Subsequent to initial recognition, the trailing commission assets are measured at amortised cost. The carrying amount of the trailing commission asset is adjusted to reflect net present value of revised estimated future cash flows at the original effective interest rate. The resulting adjustment is recognised as income or expense in the consolidated statement of profit or loss and other comprehensive income. (iii) Real estate service The Group receives commissions and fees derived from real estate sales. They are recognised at the time of unconditional exchange of contracts between vendors and purchasers. The Group also receive property management fees which are based on a percentage of rental collected on behalf the landlords. Income is recognised in the period the service has been rendered. (iv) Render of other service (including migration service) Revenue from the rendering of services is recognised in the accounting period in which the services are rendered. For fixed-price services, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided. Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management. Critical accounting estimates and judgements – NPV of trailing commission receivable The Group receives trailing commissions from lenders on settled loans over the life of the loan based on the loan book balance outstanding. The Group is entitled to the trailing commissions without having to perform further services. The Group also makes trailing commission payments to commission based consultants when trailing commission is received from lenders. The fair value of trailing commission receivable from lenders and the corresponding payable to commission based consultants is determined by using a discounted cash flow valuation. These calculations require the use of assumptions which are determined by management with the assistance of external valuation specialist. The overall loan balance run off rate of the Group is assessed at 18.7% in FY17 (FY16: 27%). New accounting standards for application in future periods AASB 15: revenue from Contracts with customers (applicable to annual reporting periods beginning on or after 1 January 2018, as deferred by AASB 2015-8: Amendments to Australian accounting standards – effective Date of AASB 15). When effective, this standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. 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 Page | 26 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 1: KEY PERFORMANCE METRICS 30 JUNE 2017 which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provided the following five-step process: ● ● Identify the contract(s) with a customer; Identify the performance obligations in the contract(s); ● Determine the transaction price; ● Allocate the transaction price to the performance obligations in the contract(s); and ● Recognise revenue when (or as) the performance obligations are satisfied. The transitional provisions of this standard permit an entity to either: restate the contracts that existed in each prior period presented per AASB 108: Accounting Policies, Changes in Accounting Estimates and Errors (subject to certain practical expedients in AASB 15); or recognise the cumulative effect of retrospective application to incomplete contracts on the date of initial application. there are also enhanced disclosure requirements regarding revenue. The Group is still in the process of assessing the impact of the changes. Page | 27 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 2: OPERATING ASSETS AND LIABILITIES 30 JUNE 2017 Section 2: Operating assets and liabilities 2.1 Cash and cash equivalents Cash at bank and on hand Short-term bank deposits Cash flow information Reconciliation of Cash Flows from Operating Activities with Profit/(Loss) after Income Tax Profit/(loss) after income tax Depreciation & amortisation Gain on disposal of plants and equipment Finance cost Share based payments (Increase)/decrease in trade and other receivables Increase in other current assets Increase in other financial assets Increase/(decrease) in trade and other payables Increase/(decrease) in provisions Net movement in deferred tax assets or liabilities (Decrease)/increase in tax payable Cash flows from operating activities 2.2 Trade and other receivables Current Commission receivables Agent commission clawback receivable Net present value of future trailing commission receivable Non-Current Net present value of future trailing commission receivable Consolidated Group 2017 2016 912,432 2,856,946 - 1,000,000 912,432 3,856,946 Consolidated Group 2016 2017 (1,197,553) (1,305,400) 371,106 - 68,343 125,139 80,887 (3,703) 241,750 94,448 (609,828) (439,283) 13,770 26,255 (35,809) (191,587) (17,616) (155,249) (399,047) 119,554 127,459 10,124 (26,741) (74,160) (1,863,485) (1,313,656) Consolidated Group 2017 2016 338,580 76,566 285,359 193,091 901,880 581,990 1,317,026 1,060,440 1,302,252 949,010 1,302,252 949,010 Management’s estimation of agent commission clawback and NPV of future trailing commission are detailed in Note 2.6 and 3.5 in this financial report respectively. Credit risk The Group has no significant concentration of credit risk with respect to any single counter party or group of counter parties. On a geographic basis, the Group has significant credit risk exposures in Australia only. The Group has assessed that there are no trade and other receivables that are impaired at year end (30 June 2016: nil). As at 30 June 2017, all trade and other receivables but $12,704 are not past due (2016: $19,578). Page | 28 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 2: OPERATING ASSETS AND LIABILITIES 30 JUNE 2017 2.3 Plant and Equipment Office equipment At cost Accumulated Depreciation on office equipment Motor vehicles At cost Accumulated Depreciation on motor vehicles Furniture & Fittings At cost Accumulated Depreciation on Furniture & Fittings Total plant and equipment Consolidated Group 2017 2016 55,028 (30,995) 24,033 142,123 (42,811) 99,312 515,225 (143,392) 371,833 495,178 31,834 (17,543) 14,291 142,123 (9,707) 132,416 45,753 (9,952) 35,801 182,508 Plant and equipment is measured at cost less accumulated depreciation and any accumulated impairment. In the event that the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount. Impairment losses are recognised in profit or loss. Depreciation The depreciable amount of all plant and equipment and is depreciated on a diminishing basis over the asset’s useful life commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. Currently the depreciation rate is in the range of 10% to 20%. Movements in Carrying amounts Movements in carrying amounts for each class of plant and equipment between the beginning and the end of the current financial year. Balance at 30 June 2015 Additions Disposals Depreciation expense Balance at 30 June 2016 Additions Depreciation expense Accumulated depreciation transferred from acquired entity Balance at 30 June 2017 Office Equipment Motor Vehicles Furniture & Fittings Total 8,930 12,977 115,517 142,123 6,873 34,265 131,320 189,365 - (101,717) - (101,717) (7,616) 14,291 23,193 (13,451) (23,507) (5,337) (36,460) 132,416 35,801 182,508 - 469,473 492,666 (33,104) (77,332) (123,887) (56,109) (56,109) 24,033 99,312 371,833 495,178 The motor vehicles were acquired via finance lease. Page | 29 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 2: OPERATING ASSETS AND LIABILITIES 30 JUNE 2017 2.4 Intangibles Assets a) Movement schedule of intangible assets Balance at 1 July 2015 Additions Amortisation Balance at 30 June 2016 Additions Amortisation/written-down Balance at 30 June 2017 b) Goodwill Goodwill Goodwill (b) Rent Roll (c) Website and IT system (d) - - - - - - - 536,216 - - 2,138,258 (163,065) 68,599 131,578 (44,427) 155,750 70,798 (84,154) Total 68,599 131,578 (44,427) 155,750 2,745,272 (247,219) 536,216 1,975,193 142,394 2,653,803 Consolidated Group 2017 536,216 2016 - The goodwill resulted from the Group’s acquisition of Sydney Boutique Property Pty Ltd. The details of the transaction and related calculation is disclosed in note 4.1. The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments (note 1.2). Critical accounting estimates and Judgements – Key assumptions used for value-in-use calculations The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of a cash generating unit (CGU) is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a three-year period and extrapolated to five years. The following table sets out the key assumptions for the impairment test of the goodwill. The goodwill balance at reporting date only relates real estate service segment. Growth rate: 3% Growth rate is based on management estimated inflation rate. Pre-tax discount rate: 10% Terminal value: Pre-tax discount rate reflects the specific risks relating to the real estate agency industry in Australia. Terminal value is based on third year budgeted net cash flow, pre- tax discount rate of 10% and growth rate at 3%. Page | 30 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 2: OPERATING ASSETS AND LIABILITIES 30 JUNE 2017 c) Rent Roll Assets Rent Roll – Assets Rent Roll – Written-down Rent Roll – Net Consolidated Group 2017 2016 2,138,258 (163,065) 1,975,193 - - - Rent rolls are accounted for as an intangible asset with a finite life in accordance with AASB 138 Intangible Assets. They are initially recognised at cost and subsequently written down to their recoverable value at each reporting period, with reference to the reduction in rent under management times industry resale multiple being 2-5 times. The addition in rent roll assets during the year were directly purchased or acquired through the business combination. d) Website and IT System Website and IT system – Cost Website and IT system – Accumulated amortisation Website and IT system – Net Consolidated Group 2017 283,904 (141,510) 142,394 2016 213,106 (57,356) 155,750 Acquired website and computer software licences are capitalised on the basis of costs incurred to acquire them. These costs are amortised over their estimated useful lives. Costs associated with maintaining computer software programs are recognised as an expense as incurred. Amortisation is recognised in the profit and loss on a diminishing basis over the estimated useful life of the intangible assets from the date that they are suitable for use. The estimated useful life of website and IT system is 5 years. The current amortisation charges for Website and IT system are included under depreciation and amortisation expense. 2.5 Trade and other payables Trade payables Employee payables Other creditors and accruals Consolidated Group 2016 2017 160,286 101,705 161,644 181,804 445,153 167,405 135,078 462,769 Trade and other payables are recognised at fair value initially and subsequently measured at amortised cost. 2.6 Provisions Current Employee provision Provisions for Clawback Non-Current Provision for long service leave Consolidated Group 2016 2017 93,124 235,402 328,526 42,863 454,022 496,885 20,277 20,277 7,167 7,167 Page | 31 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 2: OPERATING ASSETS AND LIABILITIES 30 JUNE 2017 Beginning of the year Additions (Reductions) during the year Payment of clawbacks during the year Ending of the year 2017 454,022 (61,973) 2016 330,117 375,516 (156,647) (251,611) 235,402 454,022 Clawback Provision for clawback represents the estimate of commission to be clawed back by the lenders after loans are terminated before 24 months. Critical accounting estimates and Judgements - Clawback Receivable and Provision There is potential for origination commissions to be clawed back by lenders after loans have settled. In the event a lender claws back the commission, a corresponding clawback will be deducted from the authorised brokers contracted by the Group where the clawback relates to a broker derived borrower. As a result, the Group assess the probability of the clawbacks and determines both provision for clawbacks and clawback receivable from agents at each reporting date. The provision is based on the historical record of actual clawback and recovery. The probability used in estimate of the clawbacks is 11.35% (2016: 16.70%). Provision for employee benefits Provision for employee benefits represents amounts accrued for annual leave and long service leave. The current portion for this provision includes the total amount accrued for annual leave entitlements and the amounts accrued for long service leave entitlements that have vested due to employees having completed the required period of service. Based on past experience, the Group does not expect the full amount of annual leave or long service leave balances classified as current liabilities to be settled within the next 12 months. However, these amounts must be classified as current liabilities since the Group does not have an unconditional right to defer the settlement of these amounts in the event employees wish to use their leave entitlement. The non-current portion for this provision includes amounts accrued for long service leave entitlements that have not yet vested in relation to those employees who have not yet completed the required period of service. The probability of long service leave being taken is based on historical data. Page | 32 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2017 Section 3: Group’s capital and risks 3.1 Contributed equity Fully paid ordinary shares Option reserve Ordinary Shares As at beginning of the year Issuance of new shares Capital raising costs Deferred tax benefit for capital raising cost Consolidated Group 2016 5,738,586 2017 5,756,156 155,610 94,448 2017 $ 5,738,586 63,977 - (46,407) 2017 Number of Shares 81,043,750 Consolidated Group 2016 $ 100 2016 Number of Shares 100 511,823 6,208,750 81,043,650 - - (618,768) 148,504 - - 5,756,156 81,555,573 5,738,586 81,043,750 On 30 June 2017, the Company issued 511,823 ordinary shares at $0.20 per share (face value) to two senior managers at N1 Realty Pty Ltd in lieu of their service remuneration. The market value of the shares issued is $63,977 in accordance with the share price on the grant date 30 June 2017. Ordinary Shareholders participate in dividends and the proceeds on winding-up of the parent entity in proportion to the number of shares held. At the shareholders' meeting, each ordinary share is entitled to one vote when a poll is called; otherwise each shareholder has one vote on a show of hands. Capital management Management controls the capital of the Group in order to maintain a sustainable debt to equity ratio, generate long-term shareholder value and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital include ordinary share capital, convertible notes and other financial liabilities, supported by financial assets. The Group is not subject to any externally imposed capital requirements. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. No debt has been retired during the current year. Option Reserve As at beginning of the year Share based payment Consolidated Group 2017 94,448 61,162 155,610 2016 - 94,448 94,448 Details in relation to the options issued during the year are disclosed in note 3.2 in this financial report. 3.2 Share-based payments The group operates an employee share and option plan. Share-based payments to employees are remeasured at the fair value of the instruments issued and amortised over the vesting periods. Share-based payments to non-employees are remeasured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined that the fair value of the goods or services cannot be reliably measured, and are recorded at the date that the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using the binomial approximation and Black Scholes valuation methodology. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognised for services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest. Page | 33 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2017 Employee Option Plan (a) The establishment of the Employee Option Plan was approved by the board of directors in February 2017. The Employee Option Plan is designed to provide long-term incentives for employees (including executive directors) to deliver long-term shareholder returns. Under the plan, participants are granted Options which only vest if certain performance standards are met. Participation in the plan is at the board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. Once Options are vested, the Options remain exercisable for a period of two years. Options are granted under the plan for no consideration and carry no dividend or voting rights. When exercisable, each Option is convertible into one ordinary Share. Options granted under the employee option plan: 2017 2016 Average exercise price per Option Number of Options Average exercise price per Option Number of Options As at 30 June 2016 Granted during the year Exercised during the year Forfeited during the year As at 30 June 2017 0.20 0.20 - 0.20 5,962,500 4,791,250 - (2,015,000) 8,738,750 - 0.20 - 0.20 - 5,977,500 - (15,000) 5,962,500 Options outstanding under the employee option plan at the end of the year have the following expiry date and exercise prices: Grant Date 14 December 2015 18 March 2016 1 March 2017 Expiry Date 14 December 2018 18 March 2018 14 December 2018 Average remaining contractual life of options outstanding at end of period (b) Other share options Exercise price Fair value at grant date Options 30 June 17 Options 30 June 16 0.20 0.20 0.20 0.054 0.0385 0.0475 4,535,000 4,962,500 1,000,000 1,000,000 3,203,750 - 8,738,750 5,962,500 1.33 years 2.33 years On 18 March 2016, the Company granted 1,000,000 options to Bellaire Capital Pty Ltd, an entity controlled by parties associated with the lead manager of the IPO. Below are its Options outstanding at the end of the year and their expiry date and exercise prices: Grant Date 18 March 2016 Expiry Date 18 March 2018 Exercise price Fair value at grant date Share options 30 June 17 Share options 30 June 16 0.30 0.006685 1,000,000 1,000,000 Weighted average remaining contractual life of options outstanding at end of period 0.36 years 1.75 No other share opinions were granted during the reporting period. (c) Fair value of the options granted The fair value of the options granted is considered to represent the value of the services received over the vesting period. The weighted average fair value of options granted during the year was $227,584 (2016: 236,819). The value was calculated using the Black Scholes valuation methodology applying the following inputs: Weighted average exercise price： Weighted average life of the Option: 2.79 years $0.20 Expected share price volatility: 43.19% 1.99% Risk-free interest rate: Historical share price volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of future volatility. The life of the options is based on the historical exercise patterns, which Page | 34 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2017 may not eventuate in the future. Options included under employee benefits expense in the statement of profit or loss amount to $61,162 and relate to equity settled share based payment transactions (2016: $66,022). Net debt Financial instruments – accounting principles 3.3 (a) Recognition and initial measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the entity commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transactions costs except where the instrument is classified at fair value through profit or loss in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method, or cost. Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss. Impairment A financial asset (or a group of financial assets) is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a loss event) having occurred, which has an impact on the estimated future cash flows of the financial asset(s). In the case of available-for-sale financial assets, a significant or prolonged decline in the market value of the instrument is considered to constitute a loss event. Impairment losses are recognised in profit or loss immediately. Also, any cumulative decline in fair value previously recognised in other comprehensive income is reclassified into profit or loss at this point. In the case of financial assets carried at amortised cost, loss events may include: indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments; indications that they will enter bankruptcy or other financial reorganisation; and changes in arrears or economic conditions that correlate with defaults. For financial assets carried at amortised cost (including loans and receivables), a separate allowance account is used to reduce the carrying amount of financial assets impaired by credit losses. After having taken all possible measures of recovery, if Management establishes that the carrying amount cannot be recovered by any means, at that point the written-off amounts are charged to the allowance account or the carrying amount of impaired financial assets is reduced directly if no impairment amount was previously recognised in the allowance account. When the terms of financial assets that would otherwise have been past due or impaired have been renegotiated, the Group recognises the impairment for such financial assets by taking into account the original terms as if the terms have not been renegotiated so that the loss events that have occurred are duly considered. Derecognition Financial assets are derecognised when the contractual rights to receipt of cash flows expire or the asset is transferred to another party where by the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised when the related obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non- cash assets or liabilities assumed, is recognised in profit or loss. Page | 35 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2017 (b) Other financial assets Current Rental Deposit Loan receivable – related party Other Non-Current Rental deposit Available-for-sale investment Consolidated Group 2017 2016 11,220 24,990 - - 11,220 50,000 19,667 94,657 230,906 195,097 40 - 230,946 195,097 Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. Available-for-sale investments Available-for-sale investments are non-derivative financial assets that are either not capable of being classified into other categories of financial assets due to their nature or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. They are subsequently measured at fair value with any re-measurements other than impairment losses and foreign exchange gains and losses recognised in other comprehensive income. When the financial asset is de recognised, the cumulative gain or loss pertaining to that asset previously recognised in other comprehensive income is reclassified into profit or loss. (c) Other financial liabilities Current Bank Loan Finance lease payable - current Non-Current Bank Loan Loan from other lenders Convertible Debt Finance lease payable - non-current Consolidated Group 2016 2017 200,004 24,527 224,531 - 33,698 33,698 666,660 380,000 370,000 124,921 1,541,581 - - - 149,448 149,448 i) Loan from other lenders consists of two loans from non-related parties. The first loan has a principle amount of $ 180,000. The repayment term is 2 years and the interest is 10% per annum in accordance with the loan agreement. The second loan has a principle amount of $200,000. The repayment term is 2 years and the interest is 7% per annum in accordance with the loan agreement. ii) Convertible debt movement schedule As at the beginning of the year Borrowed Derivative expense Settled As at the end of the year 2017 - 370,000 3,477 (3,477) 370,000 2016 767,000 200,000 241,750 (1,208,750) - Page | 36 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2017 During the year, N1 Holding Limited issued 1.85 million unlisted convertible notes in exchange of a cost fund of $370,000. The holders of the convertible notes may choose to convert the notes to shares in the Company at $0.20 per share at any time before the maturity date (12 May 2019). The convertible debt in the prior year was originally due to be repaid in April 2016. As a result of successful IPO of the Group, the convertible notes were converted through issuance of 6,043,750 shares of N1 Holdings Limited according to the Secured Convertible Note Deed Poll dated 14 April 2015. iii) The bank loan was drawn down from National Australia Bank in Oct 2016. The repayment term of the loan is 5 years and the interest is 5.415% per annum with principal and interest repayment in accordance with the loan agreement. The loan is secured by the Sydney Boutique Property rent roll. Outstanding loan balance as at 30 June 2017 is $866,664. Financial risk management 3.4 The Group’s financial instruments consist mainly of deposits with banks, accounts receivable and payable, other payables and other financial liabilities. The totals for each category of financial instruments, measured in accordance with AASB139 Financial Instruments: Recognition and Measurement as detailed in the accounting policies to these financial statements, are as follows: Financial Assets - Current Cash and cash equivalents Trade and other receivables Other financial assets Financial Liabilities - Current Financial liabilities at amortised cost Trade and other payables Finance lease payables Bank loans and other loans Financial Assets - Non-current Trade and other receivables Rental deposit Other Financial Liabilities - Non-current Bank loans Finance lease payables Convertible debt Other Loan Note 2.1 2.2 3.3 (b) 2.5 3.3 (c) 3.3 (c) 2.2 3.3 (b) 3.3 (b) 3.3 (c) 3.3 (c) 3.3 (c) 3.3 (c) Consolidated Group 2017 2016 912,432 1,317,026 11,220 3,856,946 1,060,440 94,657 445,153 24,527 200,004 462,769 33,698 - Consolidated Group 2016 2017 1,302,252 230,906 40 949,010 195,097 - 666,660 124,921 370,000 380,000 - 149,448 - - Specific financial risk exposures and management The main risks the Group are exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate risk and foreign exchange risk. Financial risks are identified, measured and managed in accordance with the Group’s policies and risk objectives. The Company has a risk governance framework which is reviewed and updated by the Board constantly. There have been no substantive changes in the types of risks the Group is exposed to, how these risks arise, or the Board’s objectives, policies and processes for managing or measuring the risks from the previous period. a. Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations that could lead to a financial loss to the Group. Credit risk is managed through the maintenance of procedures (such as the utilisation of systems for the approval, granting and renewal of credit limits, regular monitoring of exposures against such limits and monitoring of the financial stability of significant customers and counterparties), ensuring to the maximum extent possible that customers and counter parties to transactions are of sound credit worthiness. Such monitoring is used in Page | 37 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2017 assessing receivables for impairment. Credit terms are generally not more than 60 days from the invoice date. Credit risk exposures The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period, is the carrying amount and classification of those financial assets (net of any provisions) as presented in the statement of financial position. The Group has no significant concentration of credit risk with any single counterparty or Group of counterparties. However, on a geographic basis, the Group has significant credit risk exposures to Australia given the substantial operations in those regions. Details with respect to credit risk of trade and other receivables is provided in Note 2. Trade and other receivables that are neither past due or impaired are considered to be of high credit quality. Aggregates of such amounts are as detailed at Note 2.2. Credit risk related to balances with banks and other financial institutions is managed by the Board. All the Group’s cash assets are deposited with Australian major banks and their credit ratings are between BBB+ to AA- based on Standard & Poor. The majority of outstanding receivables are commissions (including fair value of future trailing commissions) owed from Finsure Finance and Insurance Pty Ltd ABN 72 068 153 926 (Finsure), Accountable Financial Solutions Pty Ltd ABN 36 146 520 390 (Accountable Financial Solutions) and lenders who make commission payments directly to the Group. Finsure is an aggregator of retailing loan brokers and acts as an intermedia between the Group and the lenders (financial institutions) to pass through the commission paid by those lenders to the Group. Accountable Financial Solutions is a dealer group who pays financial planning commissions to the Group on behalf of financial institutions. The financial institutions which are owing commissions to the Group through Finsure and Accountable Financial Solutions are rated between B and AA+. b. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group managed this risk through maintaining sufficient liquid assets (mainly cash and cash equivalents and borrowing facilities). The table below reflects an undiscounted contractual maturity analysis for financial liabilities. Cash flows realised from financial assets reflect Management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. Financial liability maturity analysis 2017 Trade and other payables Convertible debts Finance lease liabilities Note 2.5 3.3(c) 3.3(c) Total contractual cash flows 445,153 No more than 1 year 445,153 1-2 years 2-5 years - - - 370,000 - 370,000 149,448 24,527 29,795 95,126 Bank loan and other borrowings 1,246,664 200,004 580,004 466,656 2,211,265 669,684 979,799 561,782 2016 Trade and other payables Finance lease liabilities c. Market risk Note 2.5 Total contractual cash flows 462,769 No more than 1 year 462,769 1-2 years 2-5 years - - 193,808 656,577 29,794 29,795 134,219 492,563 29,795 134,219 More than 5 years - - - - - More than 5 years - - - Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the reporting period where by a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The financial instruments that primarily expose the Group to interest rate risk to cash and cash equivalents. Page | 38 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2017 Term deposit Consolidated Group 2017 - 2016 1,000,000 Sensitivity Analysis: On the reporting date, the change in interest rate has no impact due to the deposit is nil. Foreign currency risk The Group held cash assets dominated in foreign currency from time to time. At the reporting date, the company held RMB 18,111 (2016: US$738,000). The movement in the exchange rate is not expected to have significant impact on the value of foreign currency cash assets. Fair value measurement 3.5 AASB 13: Fair value measurement requires the disclosure of fair value information by level of the fair value hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level that an input which is significant to the measurement can be categorised into as follows: Level 1 Level 2 Level 3 Measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Measurements based on unobservable inputs for the asset or liability. Fair value of assets and liabilities The Group measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable accounting standard. Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly (i.e. Unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market- based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (i.e. the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (i.e. the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. The fair value of liabilities and the entity’s own equity instruments (excluding those related to share-based payment arrangements) maybe valued, where there is no observable market price in relation to the transfer of such financial instruments, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. Fair value of financial assets and liabilities that are measured at fair value on a recurring basis. The Group does not have any assets or liabilities recognised and subsequently measured at fair value on a recurring basis. Fair value of financial assets and liabilities that are not measured at fair value (but fair value disclosures are required) Future trailing commission receivables are initially recognised at fair value and subsequently carried at amortised cost. The carrying amount of the trailing commission asset is adjusted to reflect net present value of revised estimated future cash flows at the original effective interest rate. The resulting adjustment is recognised as income or expense in the consolidated statement of profit or loss and other comprehensive income. The overall loan balance run off rate of the Group is assessed at 18.7% in FY17 (FY16: 27%). Page | 39 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 4: BUSINESS PORTFOLIO 30 JUNE 2017 Section 4: Business portfolio Business combination 4.1 On 21 October 2016, the Group acquired 100% of the issued shares in Sydney Boutique Property Pty Ltd, a real estate agency business, with a cash consideration of $1,940,000. The acquisition is expected to extend the Group’s business to real estate agency and management industry. Details of the purchase consideration, the net assets acquired and goodwill are as follows: Purchase consideration Cash paid Total Sydney Boutique Property 1,940,000 1,940,000 The assets and liabilities recognised as a result of the acquisition at fair value are as follows: Prepayment Other receivable - loan, no provision Property, plant and equipment Rent roll Payables Employee benefit obligations Deferred Tax Liabilities Goodwill (i) Acquisition-related costs The acquisition cost in relation to the transaction is $20,461 which is legal cost. (ii) Revenue and profit contribution From acquisition date Revenue contributed by the business acquired Net profit contributed by the business acquired From 1 July 2016 (as if) Revenue contributed by the business acquired Net profit contributed by the business acquired Sydney Boutique Property 2,820 26,150 11,948 1,949,878 (29,451) (21,345) (536,216) 536,216 1,940,000 Sydney Boutique Property 387,386 358,093 Sydney Boutique Property 678,766 371,845 Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is obtained, at which point the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration is classified as an asset or liability and is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at the acquisition date. All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument, are recognised as expenses in profit or loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. Page | 40 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 4: BUSINESS PORTFOLIO 30 JUNE 2017 4.2 Related party transactions Related Parties Parent entities (a) The Company is the parent entity of the Group. The following information has been extracted from the books and records of the parent and has been prepared in accordance with Australian Accounting Standards. STATEMENT OF FINANCIAL POSITION ASSETS Current Assets Non-current Assets TOTAL ASSETS LIABILITIES Current Liabilities Non-current Liabilities TOTAL LIABILITIES EQUITY Issued Capital Accumulated loss Option reserve TOTAL EQUITY 2017 2016 708,574 15,599,888 16,308,462 3,732,432 12,493,650 16,226,082 68,036 750,000 818,036 15,042 865,676 880,718 15,756,055 (421,239) 155,610 15,490,426 15,725,272 (474,356) 94,448 15,345,364 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Net profit/(loss) 53,118 (112,689) During the reporting period, N1 Holdings Limited has not entered into any financial guarantee arrangement. At 30 June 2016 and 30 June 2017, N1 Holdings Limited has no contingent liabilities. At 30 June 2016, N1 Holdings Limited has no contractual commitments. Subsidiaries (b) Information about principal subsidiaries The subsidiaries listed below have share capital consisting solely of ordinary shares or ordinary units which are held directly by the Group. The proportion of ownership interests held equals the voting rights held by Group. Each subsidiary’s principal place of business is also its country of incorporation. Name of subsidiary N1 Loans Pty Ltd (i) N1 Migration Pty Ltd (ii) 9c N1 Reality Pty Ltd (iii) 9c N1 Project Pty Ltd (iv) 0 N1 Venture Pty Ltd (v) Sydney Boutique Property Pty Ltd (vi) Principal place of business Australia Australia Australia Australia Australia Australia Ownership interest held by the Group 2017 (%) 2016 (%) 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - The financial statements of subsidiaries used in the preparation of these consolidated financial statements were also prepared as at the same reporting date as the Group’s financial statements. (i) N1 Loans was incorporated on 25 February 2010 and was initially owned by Mr Ren Hor Wong. Upon the completion of the IPO on 18 March 2016, the company became fully owned by the Company. (ii) N1 Migration Pty Ltd was incorporated on 14 September 2015 and has been fully owned by the Group since 11 April 2016. (iii) N1 Realty was incorporated on 3 May 2016 and, since then, it has been fully owned by the Group. (iv) N1 Project was incorporated on 9 December 2016, since then, it has been fully owned by the Group. (v) N1 Venture was incorporated on 19 November 2014 and was acquired on 1 September 2016, since then it Page | 41 N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 4: BUSINESS PORTFOLIO 30 JUNE 2017 has been fully owned by the Group. (vi) Sydney Boutique Property Pty Ltd was acquired on 21 October 2016. Since then, it has been fully owned by the Group. (c) Key management personnel: Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director (whether executive or otherwise) of that entity are considered KMP. KMP Compensation Please refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid or payable to each member of the Group’s KMP for the year ended 30 June 2017. The total of remuneration paid to or payable to KMP of the Group during the year was: Short-term employee benefits Post-employment benefits Other long-term benefit Share-based options Total KMP compensation 2017 705,943 58,501 8,075 31,169 803,688 2016 282,213 23,757 1,380 45,945 353,295 Short-term employee benefits These amounts include fees and benefits paid to non-executive directors as well as all salary, paid leave benefits, fringe benefits and cash bonuses awarded to executive directors and other key management personnel. Post-employment benefits These amounts are the current year’s estimated costs of provided for the Group’s superannuation contributions made during the year. Other long-term benefits These amounts represent long service leave benefits accruing during the year. Share-based payments These amounts represent the expense related to the participation of KMP in equity-settled benefit schemes as measured by the fair value of the options granted. Other Related Parties (d) Other related parties include entities controlled by the ultimate parent entity and entities over which key management personnel have joint control. Transactions with other related parties: Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. The following transactions occurred with other related parties: Purchases of services/goods from other related parties 2016 N1 Consultants Group Sdn Bhd - Malaysia N1 Forex Pty Ltd V1 Finance Pty Ltd Seekahome Pty Ltd Loan to related parties - balance N1 Venture Pty Ltd – receivable Ren Hor Wong – (payable)/receivable As at 1 July 2016 Drawdown Repayment As at 30 June 2017 2017 108,960 27,600 - - 55,542 111,569 64,118 72,000 2017 - (1,198) 2016 50,000 (964) Loan to Ren Hor Wong (964) - (234) (1,198) Page | 42 N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2017 Section 5: Other disclosures 5.1 Basis of preparation and compliance Basis of preparation These general purpose financial statements have been prepared in accordance with the Corporations Act, the Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and the International Financial Reporting Standards as issued by the International Accounting Standards Board. The Group is a for-profit entity for financial reporting purposes under the Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. The functional presentation currency is Australian dollars rounded to the nearest dollar. Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Principles of consolidation (a) The consolidated financial statements incorporate all of the assets, liabilities and results of the Company and all of the subsidiaries. Subsidiaries are entities that the Company controls. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. A list of the subsidiaries is provided in Note 4.2. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Inter-company transactions, balances and unrealised gains or losses on transactions between Group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. Impairment of assets (b) At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’ s fair value less costs of disposal and value in use, to the asset’ s carrying amount. Any excess of the asset’ s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another standard (e.g. in accordance with the revaluation model in AASB 116: Property, Plant and Equipment). Any impairment loss of revalued asset is treated as a revaluation decrease in accordance with that other standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for intangible assets with indefinite lives and intangible assets not yet available for use. (c) Foreign currency transactions and balances Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the Company’s functional currency. Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non- monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the maximum extent that the underlying gain or loss can be recognised in other comprehensive income, otherwise the exchange difference is recognised in the profit or loss. Page | 43 N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2017 Goods and services tax (GST) (d) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the ATO. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or payments to suppliers. Retirement benefit obligations (e) All employees of the Group other than those that receive defined benefit entitlements receive defined contribution superannuation entitlements, for which the Group pays the fixed superannuation guarantee contribution (currently 9.5% of the employee’s average ordinary salary) to the employee’s superannuation fund of choice. All contributions in respect of employees’ defined contribution entitlements are recognised as an expense when they become payable. The Group’ s obligation with respect to employees’ defined contribution entitlements is limited to its obligations for any unpaid superannuation guarantee contributions at the end of the reporting period. All obligations for unpaid superannuation guarantee contributions are remeasured at the (undiscounted) amounts expected to be paid when the obligation is settled and are presented as current liabilities in the Group’ s statement of financial position. Comparative figures (f) When required by accounting standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Where the Group retrospectively applies an accounting policy, makes a retrospective restatement or reclassifies items in its financial statements, an additional (third) statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statement is presented. New and amended accounting policies adopted by the Group (g) The Group has adopted all of the new and revised standards and interpretations, including amendments to the existing standards issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operation and effective for the current reporting period. The adoption of these amendments and new standards has not resulted in any significant changes to the Group’s accounting policies or any significant effect on the measurement or disclosure of the amounts reported for the current or prior reporting period. The impact of other new accounting standards for application in future periods has been disclosed in the relevant section. Financial instruments – New accounting standards for application in future periods AASB 9: Financial instruments and associated amending standards (applicable to annual reporting periods beginning on or after 1 January 2018). The standard will be applicable retrospectively (subject to the provisions on hedge accounting outlined below) and includes revised requirements for the classification and measurement of financial instruments, revised recognition and de recognition requirements for financial instruments and simplified requirements for hedge accounting. The key changes that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, upfront accounting for expected credit loss, and their revocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. AASB 9 also introduces a new model for hedge accounting that will allow greater flexibility in the ability to hedge risk, particularly with respect to hedges of non-financial items. Should the entity elect to change its hedge policies in line with the new hedge accounting requirements of the standard, the application of such accounting would be largely prospective. The directors anticipate that the adoption of AASB 9 will have no significant impact on the Group’s financial instruments. Page | 44 N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2017 5.2 Auditor’s Remuneration Remuneration of the auditor Crowe Horwath Sydney for: auditing or reviewing the financial report taxation services due diligence services 5.3 Lease commitments (a) Operating Lease Commitments Payable — minimum lease payments Not later than 12 months Between 12 months and 5 years Later than 5 years Consolidated Group 2016 2017 89,000 - 1,000 90,000 55,000 7,700 12,000 74,700 Consolidated Group 2016 2017 330,891 809,940 130,118 154,909 472,457 - 1,270,949 627,366 The major property lease is a non-cancellable lease with a five-year term, with rent payable monthly in advance. (b) Finance Lease Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset (but not the legal ownership) are transferred to entities in the consolidated group, are classified as finance leases. Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Within 12 months Between 12 months and 5 years Total Less: future finance lease charge Net commitment recognised as a liability Consolidated Group 2017 24,527 2016 29,795 139,486 164,013 164,013 193,808 (14,565) (20,749) 149,448 173,059 New accounting standards for application in future periods AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019). When effective, this standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. The main changes introduced by the new standard include: ● ● ● ● ● recognition of a right-to-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets); depreciation of right-to-use assets in line with AASB 116: Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components; variable lease payments that depend on an index or a rate are included in the initial measurement of the lease liability using the index or rate at the commencement date; by applying a practical expedient, a lessee is permitted to elect not to separate non- lease components and instead account for all components as a lease; and Additional disclosure requirements. The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an Page | 45 N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2017 adjustment to opening equity on the date of initial application. Although the directors anticipate that the adoption of AASB 16 will impact the Group’s financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. (c) Capital Expenditure Commitments There were no capital expenditure commitments as at 30 June 2017 (2016: nil) 5.4 Contingent liabilities and Contingent assets There are no contingent liabilities or contingent assets as at 30 June 2017 (2016: nil). 5.5 Taxation Income Tax (a) The income tax expense (income) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense (income) charged to profit or loss is the tax payable (recoverable) on taxable income (loss). Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense (income) reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled and their measurement also reflects the manner in which Management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Tax expense (i) The components of tax expense (income) comprise: Current tax Deferred tax Deferred tax for tax losses under-recognised in prior year (ii) The prima facie tax on profit from ordinary activities before income tax is reconciled to income tax as follows: Profit/(loss) before income tax At 27.5% (2016:30%) Tax effect of: Permanent differences Net deferred tax as a result of IPO impact Tax to equity Effect of change in income tax rate Deferred tax for tax losses under-recognised in prior year Income tax (benefit)/expense Consolidated Group 2016 2017 (448,788) (221,779) 12,282 (8,947) (445,453) 231,903 - 10,124 (1,643,007) (1,295,276) (451,827) (388,583) 37,634 278,891 - - 156,943 (37,127) (22,313) (8,947) - - (445,453) 10,124 As at 30 June 2017, the tax loss carried forward for the company is $1,921,172 (2016: $289,217). Page | 46 N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2017 (b) Tax position The group’s current tax payable is $nil (2016: $nil) (c) Deferred tax liabilities 2017 Trailing income Website Assets valued up in business combination Balance at 30 June 2017 Opening balance Charged to income statement Charge to equity Charge to other Closing balance 459,300 62,088 18,143 (8,164) - (29,706) 477,443 24,218 - - - - 521,388 9,979 - - 536,216 506,510 536,216 1,037,877 2016 Trailing income Website Assets valued up in business combination Balance at 30 June 2016 (d) Deferred tax assets 2017 Clawback and accrued Tax Losses IPO costs Other temporary differences Balance at 30 June 2017 2016 Clawback and accrued Tax Losses IPO costs Other temporary differences Balance at 30 June 2017 Opening balance (restated) Charged to income statement Charge to equity Charge to other Closing balance 331,200 128,100 - - 18,143 - 331,200 146,243 - - - - - 459,300 - - - 18,143 - 477,443 Opening balance Charged to income statement Charged to equity Closing balance 78,280 77,816 148,504 44,646 349,246 (34,599) 450,506 - 53,765 469,672 - - (46,407) - (46,407) 43,681 528,322 102,097 98,411 772,511 Opening balance Charged to income statement Charged to equity Closing balance 50,681 - - 13,943 64,624 27,598 77,816 - 30,704 136,118 - - 148,504 - 148,504 78,279 77,816 148,504 44,647 349,246 Page | 47 N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2017 Critical accounting estimates and Judgements - Taxation The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. 5.6 Events after the reporting period On 21 July 2017, TACQ International Pty Ltd, a fully owned subsidiary of N1 Holdings Limited was established focusing on recruitment business. On 15 August 2017, Company entered into an unsecured loan agreement with an individual lender for $200,000 at 10% interest only repayment for 2 years. Loan was settled on 1 September 2017. Purpose of the loan is to fund potential acquisitions. On 7 September 2017, Company received application from an individual investor to acquire $1,000,000 worth of Convertible Notes with face value of $0.20 each and 7% pa interest and 2 years term. The Company expects to issue the Convertible Notes after releasing its Annual Report. The resultant Convertible Notes will be convertible at any time prior to the date of maturity at the request of the Noteholder, or they will automatically be redeemed on the Maturity. If the Noteholders convert the maximum number of Convertible Notes, then 5,000,000 new Shares would be issued. This is based on a price of $0.20 and does not account for any accrued interest. Expected issue date of the Convertible Notes is 27 September 2017. Other than above mentioned events, there has been no matters or events since the end of the financial year which may significantly affect the operation of the Group, the results of those operations or the state of affairs of the Group in the future financial years. Page | 48 N1 HOLDINGS LIMITED DIRECTORS’ DECLARATION 30 JUNE 2017 Directors’ Declaration In accordance with a resolution of the Directors of the Company, the Directors of the Company declare that: 1. 2. 3. The financial statements and notes of the Company, as set out on pages 20 to 48, are in accordance with the Corporations Act and: comply with Australian Accounting Standards (including the Australian Accounting Interpretations) (a) and the Corporations Regulations 2001 (Cth); and give a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of (b) the performance for the year ended on that date. The financial statements and notes also comply with International Financial Reporting Standards as described in Note 5.1 to the financial statements. In the Directors' opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by section 295A of the Corporations Act from the Chief Executive Officer and Chief Financial Officer. On behalf of the board Ren Hor Wong Executive Chairman and CEO 27 September 2017 Sydney Page | 49 Crowe Horwath Sydney ABN 97 895 683 573 Member Crowe Horwath International Audit and Assurance Services Level 15 1 O'Connell Street Sydney NSW 2000 Australia Tel +61 2 9262 2155 Fax +61 2 9262 2190 www.crowehorwath.com.au INDEPENDENT AUDITOR’S REPORT N1 HOLDINGS LIMITED Report on the Audit of the Financial Report Opinion We have audited the financial report of N1 Holdings Limited. (the Company and its subsidiaries (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 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. 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. Crowe Horwath Sydney is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. Page | 50 Key Audit Matter How our Audit Addressed the Key Audit Matter Valuation of Trail Commission – Refer to Note 2.2 The Group has significant trail commission assets that are calculated using modelling techniques that involve the use of forward-looking assumptions and risk adjustments. Management have used judgement to establish the methodology, assumptions and adjustments used in the model, as described in Notes 2.6 and 3.5. This matter is a key audit matter because of the complexity and subjectivity involved in performing the valuation. We involved our technical specialists to assess the appropriateness of the model used for the valuation. We performed a retrospective analysis of the Group’s past estimates against actual performance and challenged the current period forecasts in areas where previous forecasts were not achieved and/or where future uncertainty is greater or volatility is expected. We challenged the key assumptions that support the valuation of the trail commission assets, using professional scepticism, as follows:  The discount rate was assessed for consistency within the context of the valuation and based on our knowledge of the Group and the industry. The lapse rate was compared to industry data and historical data for the Group; Valuation of Clawback Provision – Refer to Note 2.6 Clawbacks arise when loans are cancelled in the first two years, the value being dependent on the timing of cancellation. Management have raised a provision for these clawbacks, using judgement to estimate the timing and number of cancellations expected, as described in Note 2.6. This matter is a key audit matter because of the risk that the provision could be misstated due to a change in volume and timing of clawbacks. We evaluated the assumptions used by management when calculating the provision by:  Comparing to historical data for the Group;  Understanding trends in the industry and challenging management where the assumptions appeared to be inconsistent; and Performing sensitivity analysis  We performed a retrospective analysis of the Group’s past estimates against actual performance and challenged the current period forecasts in areas where previous forecasts were not achieved and/or where future uncertainty is greater or volatility is expected. We involved our technical specialists for assessing the appropriateness of the model used in the calculation. Page | 51 Key Audit Matter How our Audit Addressed the Key Audit Matter Business Acquisitions – Refer to Note 4.1 Management were required to assess the fair value of the assets and liabilities acquired for the new business acquired. The intangible assets then need to be assessed for useful life. This matter is a key audit matter because of the complexity and subjectivity involved in performing the fair value, and assessing useful lives of the assets. We assessed the key assumptions used by management for determining fair value against industry known data. In addition we have ensured that the useful life is consistent with current activity. Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and 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 Page | 52 if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/Home.aspx. This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 12 to 18 of the directors’ report for the year ended 30 June 2017. In our opinion, the Remuneration Report of N1 Holdings Ltd., for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Leah Russell Senior Partner Crowe Horwath Sydney Date 27 September 2017 Level 15, 1 O’Connell Street Sydney NSW 2000 Page | 53 N1 HOLDINGS LIMITED SHAREHOLDER INFORMATION 30 JUNE 2017 Additional information required by the Australian Securities Exchange Ltd (ASX) and not disclosed elsewhere in this report is set out below. The information is current as at 12 September 2017. 1. a. b. c. Shareholding Distribution of Shareholders Category (size of holding) Number of shares % 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Total 1,000 45,026 965,608 5,793,378 74,750,561 81,555,573 0.00% 0.06% 1.18% 7.10% 91.66% The number of shareholdings held in less than marketable parcels is 4. Number of holders 1 12 97 178 52 340 % 0.29% 3.53% 28.53% 52.35% 15.30% The names of the substantial shareholders listed in the holding company’s register are: Shareholder REN H WONG PTY LTD THE THREE HORSESHOES PTY LTD MR YOKE MENG CHAN TIN FAMILY SMSF PTY LTD MR TONG CHAI TAN Total d. 20 Largest Shareholders — Ordinary Shares Shareholder Number of Ordinary Fully Paid Shares Held 50,000,000 4,200,000 2,775,266 2,450,000 1,498,249 % Held of Issued Ordinary Capital 61.31% 5.15% 3.40% 3.00% 1.84% 60,923,515 74.70% Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital REN H WONG PTY LTD THE THREE HORSESHOES PTY LTD MR YOKE MENG CHAN TIN FAMILY SMSF PTY LTD MR TONG CHAI TAN BNP PARIBAS NOMS PTY LTD JIANRONG SUN MS MUN CHING WANG MXJ PTY LTD 50,000,000 1. 4,200,000 2. 2,775,266 3. 2,450,000 4 1,498,249 5 1,467,000 6 1,250,000 7 760,470 8 625,000 9 10 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 556,000 AUSTRALIA WIDE DEVELOPMENT GROUP PTY LTD 500,000 11 500,000 LC FAMILY SUPER PTY LTD 12 500,000 VEN TAN PTY LTD 13 496,253 14 MS YUEXIAN ZHAO 487,500 15 425,000 16 MISS ZHAOJIA HE 418,750 17 MRS SILIAN ZHAO 350,000 18 MS HUEY CHARNG WONG 341,115 19. MISS MANNI FU 300,000 20. MR JILIANG ZHANG IPOH YAP SMSF CO PTY LTD 61.31% 5.15% 3.40% 3.00% 1.84% 1.80% 1.53% 0.93% 0.77% 0.68% 0.61% 0.61% 0.61% 0.61% 0.60% 0.52% 0.51% 0.43% 0.42% 0.37% Total 69,900,603 85.70% Page | 54 N1 HOLDINGS LIMITED SHAREHOLDER INFORMATION 30 JUNE 2017 e. Escrowed Shares Name 1. 2. 3. REN H WONG PTY LTD JIANRONG SUN STAR PLUS SUPER PTY LTD Total Number of Escrowed Fully Paid Shares Held 50,000,000 1,250,000 187,500 51,437,500 % Held of Issued Ordinary Capital 61.31% 1.53% 0.23% 63.07% f. Vested Options 1,000,000 options exercisable at $0.20 and expiring on 18 March 2018 are held by Value Creation Holdings Limited, an entity controlled by Non-Executive Director Tarun Kanji. 1,000,000 options exercisable at $0.30 and expiring on 18 March 2018 are held by Bellaire Capital Pty Ltd, an entity controlled by parties associated with the lead manager of the IPO. g. 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. There are no other classes of equity securities. Page | 55 N1 HOLDINGS LIMITED SHAREHOLDER INFORMATION 30 JUNE 2017 Page | 56 

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