N1 Holdings Limited
Annual Report 2018

Plain-text annual report

Page | 1 For personal use only 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 Sundaraj & Ker Level 13, St James Centre 111 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 Stock Listing Corporate Governance Statement N1 Holdings Limited is listed on Australian Securities Exchange (ASX) under the code N1H. Principles Governance N1 Holdings Limited and its subsidiaries (Group) and the board are committed to achieving and demonstrating the highest standards of corporate governance. N1 Holdings Limited has reviewed its the corporate governance practices against and Corporate Recommendations (3rd edition) published by the ASX Corporate Governance Council. The 2018 corporate governance statement the corporate governance practices in place during the financial year ended 30 June 2018. The 2018 corporate governance statement was approved by the board on 27 August 2018. Governance practices is set out in the Group's corporate governance statement which can be viewed at: http://www.n1holdings.com.au/. reflects Page | 2 For personal use onlyDear fellow shareholder, Limited to the N1 Holdings 2018 (FY18). year ended 30 June on ASX in March listing are critical three years after direc­ strategic planned (Company or N1) The Compa­ and steer into the year since listing for the com­ its second full financial I am pleased to welcome you Annual Report for the financial ny has completed the first believe 2016. I always build a strong pany to foundation tion. At the time of our IPO, we emphasised drives our business to growth. the agile organisation thrives. continuing As many of us appreciate, the growth and, more importantly, sustainable ever-changing, world is business and one keyword: Diversification; that credit year, N1 tightening successfully policy the challenges During the financial lenders ing market, tial property investors' appetites. The Company recorded a $4.30m) to $4.11 m (FY17: $3.56m). expenses operating and waning residen­ of 16.43% to $3.60m (FY17: however N 1 achieved achieve from regulatory on home financing weathered by banks and from customers coupled increased cash receipts record cash receipts with a decrease in revenue decline pressure on the Q4 FY18 saw N1 FY18 quarters. from previous challenges amid these non-bank by 15.61 % hous­ $1.24m in billed trail income during and retention via its PAYG consultant operating of N1 's business in the market in significant operating June 2018 and generated acquisition talent to N1 from both an or a licensing Our loan book value was at $783m as at 30 FY18. N1 is uniquely positioned benefit model, which provides a franchises competitors Unlike many trail 86% of recurring of their brokers' commissions, N1 retains model was The success Australian in FY18 with the N1 Loans at #46 on the Fast 100, a list was recognised Australian tor business success of N1 's commercial congratulating our Women in Finance tinued hard CFO, Penny He, for her nomination Awards. work and dedication by the Australian Broking Awards as a as a finalist for the Commercial Business loans business. On the subject more than recognised of Australia's Awards as a finalist for the Diversification We are tremendously in service to N1. as Chief Financial proud of Penny's achievement finalist Mortgage Business Finsure growing fastest revenue model who take a minor clip perspective. costs and of as low as 5% June 2018). income (as at 30 Review ranking Financial for the Brokerage companies. In addition, of the Year Award, of the Year Award and by aggrega­ the growing N1 Loans the of the Year Award, evidencing of awards, I hope you will join with me in Officer of the year and grateful at the 2018 for her con­ During FY17, N1 's revenues were dominated by residential increases cross-selling opportunities acquisition average client across N1 's business cost and increases mortgage broking revenue. commercial loan broking, com­ streams of income, the synergy broaden strategy aims to increase our acquisitions. Diversification of reduced Our diversification and drive customer units and, as such, directly creates revenue per client. However during FY18 other mercial continue to evolve towards our the new stream (FY17: $99,755) among N1 's group for 10.24% of overall businesses. financial of revenue, commercial broking and accounted of complementing non-mortgage originated lending, property goal of becoming an integrated (including revenue and lending revenue increased to revenue, representing $368,283 growth the most significant and property services firm. Among in FY18 sales and property management) grew materially to 35.91 % of total revenue. We channels of lead generation Page | 3 For personal use onlywas at 247 properties-under-management in FY18. N1 Realty managed modest growth (PUM) as at June 2018. N1 Realty has clear­ while auction by 8.78% to $805,845 N1 Realty's rent roll size grown its revenue ance rates declined coming years based prices after an tivity hedge against the recurring activity. income. forced investors has in fact initial dip in FY17. Property management buy/sell slowing property is another adds to our recurring business And it viable revenue, revenue from our loan trail across the market significantly pipeline on our current to liquidate investment year. We remain optimistic and value of property listings. Downward resulting in an positions, over the for growth over pressure on property level of ac­ increasing which I see as a for N1, further diversifying great opportunities in commercial connections to venture into the As announced of Business capacity. Initial execution of this its with has strategy leverage (B2B) services, in 2017, N1 will to Business enhance N1 's revenue lending. provision generation and lending amazing growth in commercial commercial It also by N1 Venture. led us to launch our own Fund is One Lending Fund managed revenue. broking of business In FY17, we saw network the expectation to produced short-term a wholesale on-lending fund which that capital further fund -One Lending lending has been established to commercial borrowers to raise capital basis. on a short-term from wholesale investors for the purpose of manager of One Lending itself into an entrant in the funds industry. I foresee N1 Venture and funds management as a new growth opportunity for N1 transforming Fund, is N1 Venture, as the management Holdings. particular Shanghai, Other new complementary B2B services and strategies are we are looking network on our international Kuala Lumpur and Singapore. being considered of offices and alliances to capitalise and pursued. from Sydney, In we will aim to build shareholder value through continued growth in diversi­ from complementary business, improved margins via focusing resources on B2B services, increased and rent roll management revenue and flow via recurring loan book trail income ahead to the future, Looking fied revenue improved cash cross-sell provides activities. a quality N1 also aims to be a market innovator through its one-stop-shop model that holistic approach of financial and property services to retail clients. leading to the provision I would like to thank our shareholders business challenging the current through for their continued trust in the for the market conditions financial and property services industry. management of N1 as we steer the Yours sincerely, Ren Hor Wong Chairman Executive 27 September 2018 Sydney and Chief Executive Officer Page | 4 For personal use onlyPage | 5 For personal use onlyAnnual Report for the year ended 30 June 2018 Report from Directors and Management Directors’ Report Auditor’s Independence Declaration Consolidated Financial Statements for The Year Ended 30 June 2018 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 Short-term loan receivables 2.4 Plant and equipment 2.5 Intangible assets 2.6 Trade and other payables 2.7 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 23 23 25 27 27 28 28 29 31 31 32 32 33 36 38 7 18 19 20 21 22 40 40 43 44 44 45 45 48 49 50 55 Page | 6 For personal use onlyN1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 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 2018. 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 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 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 12 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 technology company, focused on the US market. He has held and holds a range of governance roles including: • • • • • • Independent Director - Tikitere Holdings Limited & PowerShield Limited Trustee / Deputy Chairman - Auckland War memorial Museum Former Independent Chairman of Tomizone Limited (ASX: TOM) Former Chairman - Bank of India, (New Zealand) Limited (a subsidiary of the Bank of India) Former Member - Portfolio Governance Authority (a committee of New Zealand’s department of Inland Revenue) Former Chairman - Noske-Kaeser Rail & Vehicles New Zealand 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 Nil Directorships held in other listed entities during the three years prior to the current year Former Independent Chairman – Tomizone Limited (ASX: TOM) Page | 8 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 Mr Anand Sundaraj (Company Secretary) Qualifications, experience and special responsibilities Anand Sundaraj is a corporate lawyer with over 18 years’ experience. He is a principal of Sydney-based law firm, Sundaraj & Ker. Mr Sundaraj specialises in advising on mergers and acquisitions and capital raisings for both publicly listed and privately held entities. He also advises on funds management and general securities law matters including listing rule compliance and corporate governance. Mr Sundaraj has worked for a number of pre-eminent law firms including Herbert Smith Freehills, King & Wood Mallesons, and Allen & Overy, as well as global investment bank, Credit Suisse AG. 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 (2017: $nil). Changes in state of affairs New business In December 2017, the Company commenced commercial lending to small and medium enterprises. The commercial loans are secured against Australian property and further backed by personal guarantees. New capital raise and borrowings On 28 September 2017, the Company issued 5 million unlisted unsecured convertible notes with a total value of $1 million. Each convertible note had a face value of $0.20 with 7% pa interest and 2 years 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 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. The purpose of issuing convertible notes was to fund acquisitions and to provide general working capital. During FY18, the Company borrowed $1,000,000 from unrelated private lenders and $150,000 from related parties each at a 10% per annum interest rate. The purpose of these loans is to fund acquisitions, provide general working capital and to provide commercial loans. Please refer to Note 3.3 for further details of the loans. In May 2018 the Company borrowed $900,000 at a 10% per annum interest rate for 3 years from BBBSA Finance. The loan is secured by the Company’s loan book. The purpose of the loan is to fund commercial lending. Employee share incentive plan Not applicable. Principal activities During the FY2018, the principal activities of the consolidated group consisted of: — mortgage broking services; — financial planning services; — commercial lending business; — migration services; and — real estate property sale and management services. Page | 9 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 Review of operations Review of operating results During FY18, the Group generated revenue of $3.60m (FY17: $4.30m) delivering a net loss of $1.85m (FY17: loss $1.20m). During FY18, N1 Loans continued to be the group’s major revenue generator, accounting for 74.33% of the total revenue of the group. The real estate business via N1 Realty and Sydney Boutique Property generated $805,845 representing 22.41% of the group’s total revenue. N1 Migration generated $111,055 in revenue representing 3.09% of the group’s total revenue. Commercial loans revenue in the second half of FY18 recorded the most uplift and is expected to become a greater source of growth for the group, offsetting the decline in residential home loan broking revenue experienced in FY18. Total commercial loan origination commission and lending revenue including interest from loans in the current reporting period amounted to $368,283 (FY17: $99,755), which represents an increase of 269%. Meanwhile, recurring trail commission income continues to be an important source of revenue for N1. The group’s loan book value as at 30 June 2018 was $783m (FY17: $799m). Despite a slight reduction in the loan book balance, billed trail commission has steadily increased by 14.18% to $1.24m in FY18 (FY17: $1.09m) this is due to a large number of loans entering a stage in their terms associated with higher commission brackets. 86% of trail revenue (based on June 2018 figures) is retained by the Company (rather than paid away to commission- based brokers) due to the Company’s PAYG mortgage consultants model. N1 Realty’s revenue grew to $805,845 in FY18 (FY17: $740,799), representing a modest increase of 8.78%. Declining market activity and falling auction clearance rates, particularly in Sydney, have undeniably had an adverse effect on the industry in general. N1 Realty, however, experienced stable performance in property management, both in terms of properties under management and recurring revenue. N1 manages 247 properties in Sydney as at June 2018, with a high concentration of those properties in Sydney’s North Shore, due to the operating activities of N1 Centres at both Chatswood and McMahons Point. Management believes the rebranding of Sydney Boutique Property at McMahons Point to “N1 Centre” Lower North Shore will bring greater awareness of N1’s brand to the local community. Key features of underlying operating result are summarised below: — Reduction in revenue in FY18 by 16.43% to $3,596,657 (FY17: $4,303,727) was primarily the result of a reduction in residential home loan upfront brokerage fees of $830,748 and a reduction in the recognition of net present value of future trail commission income of $220,320 during FY18. — Reduction in direct cost to commission-based brokers and referrers in FY18 to $813,792 (FY17: $1,090,146). — Reduction in employee cost in FY18 to $2,811,083 (FY17: $3,031,056). — Reduction in sales and marketing cost in FY18 to $121,912 (FY17: $242,609). — — Increased depreciation and amortisation expenses in FY18 to $607,821 (FY17: $371,106). Increased finance cost in FY18 to $242,494 (FY17: $68,343). 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 $4,097,423 as at 30 June 2017 to $2,262,638 as at 30 June 2018. Current liabilities have increased from $998,210 to $2,564,044 in FY18. The Group’s working capital, being current assets less current liabilities, has increased from $1,242,468 in 2017 to $1,344,031 in 2018. The Directors believe the Group is in a stable financial position to expand and grow their current operations. Prospects for future financial years Over the coming financial year, N1 will continue its diversification strategy and will seek to capitalise on the B2B market by tapping into N1’s extensive business network and relationships. The encouraging results from FY18, especially in the commercial broking and lending space, pave the way for N1 to improve its financial performance in the coming year. N1 has identified three critical principles to grow its business. — Targeting increased revenue per head – N1 aims to reduce employee expenses and increase productivity while seeking growth opportunities. Page | 10 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 — Seeking recurring revenue from diverse sources – N1 has commenced its evolution from a single source of recurring revenue (broking commissions) to multiple sources (including property management, fees and interest income from commercial lending and, potentially, funds management). It is anticipated that scaling the revenue from these sources will lead to higher margin businesses. — Higher value transactions – targeting transactions with higher value revenue opportunities (such as residential property sales, commercial lending and commercial loan broking) and funds management (focusing on opportunities unique to the local Australian Asian community). Based on our growth over the past six months, N1’s management team sees an exciting future for the group. Events after the reporting period On 1 August 2018, Company entered into 2 unsecured loan agreement with non-related lenders for $500,000 at 10% interest only repayment for 2 years. Loan purpose is to provide commercial loans. On 5 September 2018, N1 Venture Pty Ltd issued its first unregistered managed scheme - One Lending Fund through a licensed intermediary agreement with Lanterne Fund Services Pty Ltd (ABN 49 098 472 587, AFSL 238198). N1 Venture holds an AFSL 477879 and is acting as Trustee and Manager of One Lending Fund. Other than above mentioned event, 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 $25,000. 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 There were no non-audit services provided by the Crowe Horwath during the year ended 30 June 2018. Auditor’s independence declaration The lead auditors’ independence declaration for the year ended 30 June 2018 has been received and can be found following the Directors’ Report. Options As at 30 June 2018, the number of unissued ordinary shares in the Company under option are 5,991,250. For details of Options issued to Directors and executives as remuneration, please refer to the Remuneration Report. Page | 11 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 Meetings of directors During the financial year, ten 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 10 10 10 10 10 10 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. KMP receive, at a minimum, the superannuation guarantee contribution required by law, which is currently 9.5% of the individual's ordinary earnings. Some individuals, however, have chosen 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. Page | 12 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 Remuneration structure There have been no significant changes after the Company’s listing on ASX. The table below summarises the remuneration components of KMP of the Group. Reward Type Purpose Link to performance Remuneration component Fixed remuneration Short-term incentive Salaries, superannuation and other fixed benefits Bonus paid in cash Long-term incentive Share options To provide competitive fixed remuneration set with reference to role, market and experience 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 Company and individual performance are considered during the annual review 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. 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 FY2018. Page | 13 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 Minimum revenue achieved by the Company for a financial year Bonus Ren Hor Wong $5 million $5.5 million $6 million + $10,000 $16,000 $20,000 Maximum achievable bonus is used in below calculation. Bonus Jia Penny He $5,000 $8,000 $10,000 Fixed remuneration Remuneration linked to performance 2018 2017 2018 2017 Directors and secretaries Ren Hor Wong Jia Penny He Tarun Kanji 94.74% 94.74% 100% 94.74% 94.74% 100% 5.26% 5.26% 0% 5.26% 5.26% 0% Employment Details of members of KMP The following tables provide employment details of persons who were, during FY2018, members of KMP of the Group. The table also illustrates the proportion of remuneration that was performance and non-performance based. Positions of KMPs and their employment details Position held Contract duration Employment type Termination notice period Ren Hor Wong Chairman, CEO 18/03/2016 - Ongoing Permanent Jia Penny He Executive Director, CFO 18/03/2016 - Ongoing Permanent Tarun Kanji Independent Director 18/03/2016 - Ongoing Consultancy agreement 3 months 3 months 3 months Jacqueline Wang COO 01/08/2014 - Ongoing Permanent 3 weeks 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). Superannuation is capped at maximum deductible contribution cap for individual which is $25,000 in FY18. — 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 Bonus Ren Hor Wong $5 million $5.5 million $6 million + $10,000 $16,000 $20,000 — The Company provide a car benefit to the CEO and a car allowance of $1,000 pm. — 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. Page | 14 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 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 and expired on 18 March 2018. — 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 reimbursed based on actual work-related travel expenses. Total car allowance paid to the COO in FY2018 is $3,500. — 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. Remuneration of KMP 2018 Short term employee benefits Post-employment benefits Salaries Bonus Other Superannuation (note 1) $361,741 Directors and Secretaries Ren Hor Wong Jia Penny He Tarun Kanji $178,533 $59,000 Other KMP Jacqueline Wang $186,262 - - - - $14,257 $ 25,000 $ 17,100 - - - - Long term employee benefits Long service leave Share based payments Total Options $4,643 $2,249 - - $405,641 $6,874 $204,756 - $ 59,000 $17,100 $2,428 $11,416 $217,206 2017 Short term employee benefits Post-employment benefits Salaries Bonus Other Superannuation (note 1) Long term employee benefits Long service leave Share based payments Total Options Directors and Secretaries Ren Hor Wong $338,604 - $13,877 $30,000 $3,914 - $386,395 Page | 15 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 Jia Penny He Tarun Kanji Other KMP Jacqueline Wang $155,904 $44,795 $152,763 - - - - - - $14,251 $1,929 $13,588 $185,672 - - - $44,795 $14,250 $2,232 $17,581 $186,826 Note1: 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: 2018 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 1,200,000 - - - - - - - - - - 1,000,000 - - 1,200,000 Number of options at the end of the year - 750,000 2017 Number of options beginning of the year Granted No. Exercised during the year Lapsed during the year Number of options at the end of the year Vested Unvested - - - - - 750,000 - 1,200,000 Vested Unvested Ren Hor Wong - Jia Penny He 750,000 Tarun Kanji 1,000,000 - - - Jacqueline Wang 750,000 450,000 - - - - - - - - - 750,000 - - - 750,000 1,000,000 1,000,000 - 1,200,000 - 1,200,000 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. 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 Jia Penny He Jacqueline Wang 1 1 14/12/2015 750,000 $150,000 $0.2 14/12/2018 14/12/2015 750,000 $150,000 $0.2 14/12/2018 Tarun Kanji 2 18/03/2016 1,000,000 $200,000 $0.2 18/03/2016 Jacqueline Wang 3 01/03/2017 450,000 $90,000 $0.2 14/12/2018 Reason for grant Employee share option Employee share option Director option Employee share option Tranche Fair value per option at granting date Vesting conditions Jia Penny He Jacqueline Wang 1 1 $0.0544 $0.0544 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 Page | 16 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ REPORT 30 JUNE 2018 Tarun Kanji Jacqueline Wang 2 3 $0.0385 $0.0475 Expired on 18 March 2018 Continuous employment with the Group from 14/12/2015 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: 2018 Ren Hor Wong (Note 1) Jia Penny He (Note 2) Number of Shares beginning of the year 50,024,000 250,000 Tarun Kanji - Jacqueline Wang 125,000 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 Received as remuneration during year Received on exercising Options Disposed - - - - - - - - - - - - Received as remuneration during year Received on exercising Options Disposed - - - - - - - - - - - - Number of Shares at the end of the year 50,024,000 250,000 - 125,000 Number of Shares at the end of the year 50,024,000 250,000 - 125,000 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. 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 2018. On behalf of the Board Ren Hor Wong Executive Chairman and CEO 27 September 2018 Sydney Page | 17 For personal use only 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 27 September 2018 The Board of Directors N1 Holdings Limited Suite 502, 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 2018, I declare that to the best of my knowledge and belief, that there have been no contraventions of: the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (i) (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely CROWE HORWATH SYDNEY SUWARTI ASMONO Partner 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. Liability limited other than for the acts or omissions of financial services licensees. Page | 18 For personal use onlyN1 HOLDINGS LIMITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 30 JUNE 2018 For the year ended 30 June 2018 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 Note 2018 $ 2017 $ 1.3 3,596,657 4,303,727 (813,792) (1,090,146) 2,782,865 3,213,581 1.3 62,939 110,795 (2,811,083) (3,031,056) (23,741) (121,912) (479,161) (368,063) (240,879) (242,494) (90,109) (11,957) (97,392) (242,609) (429,982) (388,319) (242,830) (68,343) (75,368) (20,377) (607,821) (371,106) (2,151,416) (1,643,006) 299,388 445,453 (1,852,028) (1,197,553) - - (1,852,028) (1,197,553) cents (2.3) (2.3) cents (1.5) (1.5) 5.5 1.1 1.1 1.1 The accompanying notes form part of these financial statements. Page | 19 For personal use only N1 HOLDINGS LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 30 JUNE 2018 As at 30 June 2018 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Short-term loan receivables Other current assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Property, plant and equipment Deferred tax assets Intangible assets Other non-current assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Loan and borrowings Deferred income Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Loan and borrowings 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 2.3 3.3 (b) 2.2 2.4 5.5 (d) 2.5 3.3 (b) 2.6 3.3 (c) 2.7 3.3 (c) 5.5 (c) 2.7 3.1 3.1 The accompanying notes form part of these financial statements. 2018 $ 2017 $ 1,008,874 1,187,664 1,694,000 17,537 3,908,075 1,437,481 366,044 943,641 2,210,032 234,735 5,191,933 912,432 1,317,026 - 11,220 2,240,678 1,302,252 495,178 772,511 2,653,803 230,946 5,454,690 9,100,008 7,695,368 727,715 1,462,272 158,567 215,490 2,564,044 3,295,411 943,641 34,274 4,273,326 445,153 224,531 - 328,526 998,210 1,541,581 1,037,877 20,277 2,599,735 6,837,370 2,262,638 3,597,945 4,097,423 5,722,125 206,884 (3,666,371) 2,262,638 5,756,156 155,610 (1,814,343) 4,097,423 Page | 20 For personal use only N1 HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 30 JUNE 2018 For the year ended 30 June 2018 Note Share Capital $ Option Reserve $ Retained Earning $ Total $ 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 Total transactions with owners and other transfers Share based payment Recovery of deferred tax on IPO cost - - 3.1 63,977 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) Balance at 30 June 2017 / 1 July 2017 5,756,156 155,610 (1,814,343) 4,097,423 Comprehensive income Profit/(loss) for the year Total comprehensive income for the year Transactions with owners, in their capacity as owners, and other transfers Total transactions with owners and other transfers Recovery of deferred tax on IPO cost Balance at 30 June 2018 - - (1,852,028) (1,852,028) - - - - - - (1,852,028) (1,852,028) - - - - - - 51,274 (34,031) (34,031) - 5,722,125 206,884 (3,666,371) 2,262,638 Share based payment 3.1 51,274 The accompanying notes form part of these financial statements. Page | 21 For personal use only N1 HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS 30 JUNE 2018 For the year ended 30 June 2018 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Interest received from bank deposit Payments to suppliers and employees Net increase in commercial loans Net Increase in fund received from investor Income tax refund/(paid) Note 2018 $ 2017 $ 4,111,860 17,117 3,557,212 28,863 (5,112,773) (5,469,227) (1,694,000) 1,606,740 - - - 19,667 Net cash provided by (used in) operating activities 2.1 (1,071,056) (1,863,485) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Purchase of Intangible assets Acquisition of subsidiary Loans recovered from related parties Cash received on disposal of plants and equipment Net cash provided by /(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings Proceeds from issuance of convertible notes Payment of finance cost and interest Repayment of other finance liability 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 1,008,874 The accompanying notes form part of these financial statements. (23,616) (34,553) (436,556) (269,096) - (1,940,000) - 48,000 50,000 - (10,169) (2,595,652) 470,297 1,000,000 (207,165) (85,465) 1,177,667 96,442 912,432 1,246,300 370,000 (68,343) (33,334) 1,514,623 (2,944,514) 3,856,946 912,432 Page | 22 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 1: KEY PERFORMANCE METRICS 30 JUNE 2018 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 2017 $ 2018 $ (1,852,028) (1,852,028) (1,197,553) (1,197,553) 81,555,573 81,045,248 - - 81,555,573 81,045,248 (2.3) (2.3) (1.5) (1.5) Segment information 1.2 The group has identified three reportable segments based on the nature of the products and services offered, the type of customers for those products and services 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 This segment refers to the operating activities in the financial services business including: • Mortgage broking: the group acts as a mortgage broker that provides its customers with advice and support. the group receives commission payments on loans originated through its network of customers. • Commercial loan lending: The group lends privately raised funds to commercial borrowers and earns loan fees and interest from this lending. Real estate services The group established a real estate service which operates through N1 Realty that acquired Sydney Boutique Property and other rent roll assets. The services are currently focused on rental property management and property sales agent services. Migration services The group provides migration services to its customers through N1 Migration which holds a migration agent licence. Page | 23 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 1: KEY PERFORMANCE METRICS 30 JUNE 2018 (b) Segment performance and financial position Year ended 30 June 2018 Revenue Loan brokerage and other financial service $ 2,673,257 Real estate service Migration service Other Total $ 805,845 $ 111,055 $ 6,500 $ 3,596,657 Interest income 5,631 Other income 44,343 327 1,479 214 10,945 17,117 - - 45,822 Total segment revenue and other income Results Segment profit/(loss) before income tax Income tax benefit/(expense) Net profit/(loss) after tax Assets and liabilities Total segment assets Total segment liabilities Other segment information Depreciation and amortisation Interest expense 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 benefit/(expense) Net profit/(loss) after tax Assets and liabilities 2,723,231 807,651 111,269 17,445 3,659,596 (155,885) (660,935) (50,374) (1,284,222) (2,151,416) - (155,885) - (660,935) - 299,388 299,388 (50,374) (984,834) (1,852,028) 5,664,255 949,650 44,448 2,441,655 9,100,008 2,874,229 246,380 18,869 3,697,892 6,837,370 66,456 466,607 66,213 50,277 - - 74,758 607,821 100,498 216,988 Loan brokerage and other financial service $ Real estate service Migration service Other Total $ $ 3,366,449 740,799 174,407 4,673 42,330 48 22,454 227 10 $ 22,072 23,915 17,138 $ 4,303,727 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 (811,137) (401,970) 37,302 (21,748) (1,197,553) 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 Interest expense 92,609 205,338 513 25,796 - 3 73,159 371,106 6,310 32,623 Page | 24 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 1: KEY PERFORMANCE METRICS 30 JUNE 2018 1.3 Revenue and other income (a) Revenue Origination commission Trail commission billed Net increase in the NPV of trail commission Commercial lending fee and interest Real estate service Migration service Other service (b) Other income Bank interest Other Consolidated Group 2017 2018 1,168,395 1,940,101 1,244,395 1,089,882 116,146 144,321 805,845 111,055 6,500 3,596,657 336,466 - 740,799 174,407 22,072 4,303,727 17,117 45,822 62,939 28,863 81,932 110,795 Revenue recognition and measurement Mortgage broker 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. 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 are 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) Commercial lending fee and interest Commercial lending fee is recognised in revenue when the obligation of establishing the loan for customer is completed. Interest income generated from the commercial lending is recognised when it is earned from the loan lent to customers. (iv) 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 receives 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. Render of other service (including migration service) (v) 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. Page | 25 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 1: KEY PERFORMANCE METRICS 30 JUNE 2018 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 is assessed at 17.0% in FY18 (FY17: 18.7%). New accounting standards for application in future periods AASB 15: Revenue from Contracts with customers will be mandatory for the financial year ended 30 June 2019. AASB 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede the current revenue recognition guidance including AASB 118 Revenue and the related Interpretations when it becomes effective. Under AASB 15, an entity recognises revenue when that service (performance obligation) is satisfied. The group recognises revenue from the following major sources: • Origination commissions arising from mortgage broking activities, and • Trailing commissions arising from mortgage broking activities. Management has assessed the effects of applying the new standard on the group’s financial statements and has identified the following areas that will be affected: Measurement of trailing income asset Under AASB 15, the future trailing commissions will be recognised and measured by expected value approach in comparison with net present value of the trailing income (initially recognised at fair value) under current accounting policy. The group estimate that the trailing commission asset would have been $3,387,541 as at 30 June 2018 had AASB 15 been applied in the current financial year. Presentation of contract assets Based on the group’s preliminary assessment, it is expected that the associated future trail commission receivable would be accounted for as a contract asset, and the provision for clawback would be accounted for as a refund liability. The contract asset will become a financial asset, i.e. a receivable, when the right to the consideration is unconditional. Contract assets are subject to the impairment requirements of AASB 9. The origination commission receivable is a short-term receivable recognised in accordance with AASB 9. Page | 26 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 2: OPERATING ASSETS AND LIABILITIES 30 JUNE 2018 Section 2: Operating assets and liabilities 2.1 Cash and cash equivalents Cash at bank and on hand 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 Net increase in commercial loans Net fund received from commercial loan investor Net increase in deferred income Cash flows from operating activities 2.2 Trade and other receivables Current Commission receivables Agent commission clawback receivable NPV of future trailing income receivable Non-Current NPV of future trailing income receivable Consolidated Group 2018 $ 1,008,874 1,008,874 2017 $ 912,432 912,432 Consolidated Group 2017 2018 $ $ (1,852,028) (1,197,553) 590,709 (7,636) 207,165 51,274 (5,867) (6,317) (3,789) 282,562 (99,039) (265,366) (34,031) (1,694,000) 1,606,740 158,567 371,106 - 68,343 125,139 (609,828) 13,770 (35,809) (17,616) (155,249) (399,047) (26,741) - - - (1,071,056) (1,863,485) Consolidated Group 2018 $ 2017 $ 258,988 45,881 882,795 338,580 76,566 901,880 1,187,664 1,317,026 1,437,481 1,302,252 1,437,481 1,302,252 Page | 27 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 2: OPERATING ASSETS AND LIABILITIES 30 JUNE 2018 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 2017: nil). As at 30 June 2018, the amount of all trade and other receivables past due is $36,597 (2017: $12,704). 2.3 Short-term loan receivables Current Short-term commercial loan receivable Consolidated Group 2018 $ 1,694,000 1,694,000 2017 $ - - The group raised funds to lend money to commercial entities on a short-term basis and earns the interest as income. More detail information regarding these loans is disclosed in Note 3.3 (c). 2.4 Property, 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 2018 $ 63,759 (44,548) 19,211 74,329 (35,375) 38,954 2017 $ 55,028 (30,995) 24,033 142,123 (42,811) 99,312 530,109 515,225 (222,230) (143,392) 307,879 366,044 371,833 495,178 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. Page | 28 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 2: OPERATING ASSETS AND LIABILITIES 30 JUNE 2018 Balance at 30 June 2016 Additions Disposals Depreciation expense Office Equipment Motor Vehicles Furniture & Fittings 14,291 23,193 132,416 35,801 - 469,473 Total 182,508 492,666 (13,451) (33,104) (77,332) (123,887) (56,109) (56,109) Balance at 30 June 2017 24,033 99,312 371,833 495,178 Additions Disposals Depreciation expense Accumulated depreciation on disposal Balance at 30 June 2018 8,732 - 14,884 23,616 - (13,554) - 19,211 (67,795) (19,993) 27,430 38,954 - (78,838) - 307,879 (67,795) (112,385) 27,430 366,044 The motor vehicles were acquired via finance lease. 2.5 Intangibles Assets a) Movement schedule of intangible assets Balance at 1 July 2016 Additions Amortisation Balance at 30 June 2017 Additions Amortisation/written-down Balance at 30 June 2018 b) Goodwill Goodwill Goodwill (b) Rent Roll (c) Website and IT system (d) $ $ $ Total $ - 536,216 - 536,216 - - 2,155,370 (180,177) 1,975,193 - (417,518) 155,750 70,798 (84,154) 142,394 34,553 155,750 2,762,384 (264,331) 2,653,803 34,553 (60,806) (478,324) 536,216 1,557,675 116,141 2,210,032 Consolidated Group 2018 $ 536,216 2017 $ 536,216 The goodwill resulted from the group’s acquisition of Sydney Boutique Property in 2016. The details of the transaction and related calculation is disclosed in last year’s financial annual report. 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 the formerly described 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. Page | 29 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 2: OPERATING ASSETS AND LIABILITIES 30 JUNE 2018 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 testing of the goodwill. The goodwill balance at the reporting date only relates the real estate services segment. Growth rate: 3% Growth rate is based on management’s estimated inflation rate. Pre-tax discount rate: 8% Terminal value: Pre-tax discount rate reflects the specific risks relating to the real estate agency industry in Australia. Terminal value is based on the third year budgeted net cash flow, the pre-tax discount rate of 8% and the growth rate of 3%. c) Rent Roll Assets Rent Roll – Cost Rent Roll – Written-down Rent Roll – Net Consolidated Group 2018 $ 2017 $ 2,155,370 2,155,370 (597,695) (180,177) 1,557,675 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. d) Website and IT System Website and IT system – Cost Website and IT system – Accumulated amortisation Website and IT system – Net Consolidated Group 2017 2018 $ $ 283,904 318,457 (202,316) (141,510) 116,141 142,394 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 statement on a diminishing basis over the estimated useful life of the intangible assets from the date that they are considered 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 expenses. Page | 30 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 2: OPERATING ASSETS AND LIABILITIES 30 JUNE 2018 2.6 Trade and other payables Trade payables Employee payables Other creditors and accruals Consolidated Group 2017 2018 $ $ 101,705 122,661 235,293 369,761 727,715 161,644 181,804 445,153 Trade and other payable are recognised at fair value initially and subsequently measured at amortised cost. 2.7 Provisions Current Employee provision Provisions for Clawback Non-Current Employee provision Movement of provision for clawback Beginning of the year Additions (Reductions) during the year Payment of clawbacks during the year Ending of the year Consolidated Group 2017 2018 $ $ 78,100 137,390 215,490 34,274 34,274 93,124 235,402 328,526 20,277 20,277 2018 $ 235,402 2017 $ 454,022 27,160 (61,973) (125,172) (156,647) 137,390 235,402 Clawback Provision for clawback represented 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 11.39% (FY17: 11.35%). 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 | 31 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2018 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 2018 $ 5,756,156 - - Deferred tax benefit for capital raising cost (34,031) 5,722,125 Consolidated Group 2017 2018 $ $ 5,756,156 5,722,125 206,884 155,610 Consolidated Group 2018 Number of Shares 81,555,573 2017 $ 5,738,586 2017 Number of Shares 81,043,750 - - - 81,555,573 63,977 511,823 - (46,407) - - 5,756,156 81,555,573 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 2018 $ 155,610 51,274 206,884 2017 $ 94,448 61,162 155,610 Details in relation to the options 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 | 32 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2018 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 exercised, each Option is convertible into one ordinary Share. (b) Options granted under the Employee Option Plan: As at beginning of the year Granted during the year Exercised during the year Forfeited during the year As at end of the year Average exercise price per Option $ 0.20 - - 0.20 2018 Number of Options 8,738,750 - - (2,747,500) 5,991,250 Average exercise price per Option $ 0.20 0.20 - 0.20 2017 Number of Options 5,962,500 4,791,250 - (2,015,000) 8,738,750 Options outstanding under the Employee Option Plan at the end of the year have the following expiry dates and exercise prices: Grant Date Expiry Date Exercise price $ Fair value at grant date $ Options 30 June 18 Options 30 June 17 14 December 2015 18 March 2016 1 March 2017 14 December 2018 18 March 2018 14 December 2018 0.20 0.20 0.20 0.054 0.0385 0.0475 3,710,000 4,535,000 - 1,000,000 2,281,250 3,203,750 5,991,250 8,738,750 Average remaining contractual life of options outstanding at end of period 0.46 years 1.26 years (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 $nil (2017: $227,584). The value was calculated using the Black Scholes valuation methodology applying the following inputs: Weighted average exercise price： $0.20 Weighted average life of the Option: 2.79 years 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 may not eventuate in the future. Options included under employee benefits expense in the statement of profit or loss amount to $51,274 (2017: $61,162) and relate to equity settled share based payment transactions. 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 recognised 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. Page | 33 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2018 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. (b) Other Financial assets Current Other current assets Short-term loan receivables Non-Current Other non-current assets Other investment Consolidated Group 2018 $ 2017 $ 17,537 11,220 1,694,000 1,711,537 - 11,220 234,695 230,906 40 40 234,735 230,946 Page | 34 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2018 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. Other investment Other investments are non-derivative financial assets. 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 derecognised, the cumulative gain or loss pertaining to that asset previously recognised in other comprehensive income is reclassified into profit or loss. (c) Financial liabilities Current Bank Loan (i) Loan received for commercial lending (ii) Convertible Debt (iii) Finance lease payable - current Non-Current Bank Loan (i) Loan from other lenders (iv) Loan received for commercial lending (ii) Convertible Debt (iii) Finance lease payable - non-current Consolidated Group 2017 2018 $ $ 56,410 200,004 1,022,921 370,000 12,941 1,462,272 - - 24,527 224,531 880,551 780,000 583,819 1,000,000 51,041 3,295,411 666,660 380,000 370,000 124,921 1,541,581 i) The bank loan was borrowed from National Australia Bank and consisted of two loan drawdowns. Drawdown of $900,000 in October 2016: The repayment term of the loan is 5 years expiring 30 November 2021. Principal repayment has been extended in FY18 to be based on a 15-year period. The interest is 5.665% per annum with principal and interest repayments in accordance with the amended loan agreement. The loan is secured by the Sydney Boutique Property rent roll. The outstanding loan balance as at 30 June 2018 is $711,961 (2017: $866,664). Drawdown of $225,000 in November 2017: The repayment term of the loan is 3 years ending on 30 July 2020. The interest is 5.6480% per annum with interest repayable in accordance with the loan agreement. The loan is secured by the N1 Realty rent roll. The outstanding loan balance as at 30 June 2018 is $225,000 (2017: $nil). ii) Loan received for commercial lending is the funds being raised for commercial loan lending to customers. The BBBSA loan is secured by the Company’s loan book. The remaining loans are unsecured. Key terms of these loans are detailed in the table below. Drawdown Amount Drawdown Date Balance at 30/06/2018 Interest Rate Repayment term BBBSA 900,000 01/05/18 856,740 10% p/a Private loan batch#1 100,000 16/04/18 100,000 10% p/a Private loan batch#2 500,000 01/06/18 500,000 10% p/a Ren H Wong Family Trust 150,000 15/06/18 150,000 10% p/a 3 Years Principal and Interest 3 Months Rolling Interest only 3 Months Rolling Interest only 3 Months Rolling Interest only Page | 35 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2018 iii) Convertible debt movement schedule As at the beginning of the year Borrowed Derivative expense Settled As at the end of the year 2018 $ 370,000 1,000,000 79,023 (79,023) 1,370,000 2017 $ - 370,000 3,477 (3,477) 370,000 In FY17, the Company issued 1.85 million unlisted convertible notes in exchange for 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). On 27 September 2017, the Company issued 5 million unlisted unsecured convertible notes with a total value of $1,000,000. Each convertible note had a face value of $0.20 with a 7% per annum interest rate and a 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 date. Following completion of the issue in September 2017, the total number of convertible notes on issue increased from 1.85 million to 6.85 million. If the noteholders convert the maximum number of convertible notes, then 6,850,000 new shares would be issued. This is based on a price of $0.20 and does not account for any accrued interest. The proceeds from the issue of convertible notes were used to fund potential acquisitions and for working capital purposes. iv) Loan from other lenders consists of four loans from non-related parties. The first loan has a principle amount of $180,000. The repayment term is 2 years and extended to 3 years in FY18 and the interest rate 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 rate is 10% per annum in accordance with the loan agreement. The third loan has a principle amount of $200,000. The repayment term is 2 years and the interest rate is 10% per annum in accordance with the loan agreement. The fourth loan has a principle amount of $200,000. The repayment term is 2 years and the interest rate is 10% per annum in accordance with the loan agreement. 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 Short-term loan receivables Other current assets Financial Liabilities - Current Financial liabilities at amortised cost Trade and other payables Finance lease payables Bank loans Loan received for commercial lending Convertible debt Note Consolidated Group 2018 $ 2017 $ 2.1 2.2 3.3 (b) 1,008,874 1,187,664 1,694,000 17,537 912,432 1,317,026 - 11,220 2.5 3.3 (c) 3.3 (c) 3.3 (c) 3.3 (c) 727,715 12,941 56,410 1,022,921 370,000 445,153 24,527 200,004 Page | 36 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2018 Financial Assets - Non-current Trade and other receivables Other non-current asset Other investment Financial Liabilities - Non-current Bank loans Finance lease payables Convertible debt Other Loan Loan received for commercial lending 2.2 3.3 (b) 3.3 (c) 3.3 (c) 3.3 (c) 3.3 (c) Consolidated Group 2017 $ 2018 $ 1,437,481 234,695 40 880,551 51,041 1,000,000 780,000 583,819 1,302,252 230,906 40 666,660 124,921 370,000 380,000 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 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 1. 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 A-to AA based on Standard & Poor. The majority of outstanding receivables are commissions (including expected value of future trailing commissions) owed from Finsure Finance and Insurance Pty Ltd ABN 72 068 153 926 (Finsure) 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. The financial institutions which are owing commissions to the group through Finsure 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. Page | 37 For personal use only $ - - - - - N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2018 Financial liability maturity analysis 2018 Trade and other payables Convertible debts Finance lease liabilities Note 2.5 3.3(c) 3.3(c) Total contractual cash flows $ 727,715 No more than 1 year $ 727,715 1-2 years 2-5 years $ - $ - - 1,370,000 370,000 1,000,000 63,982 12,941 13,501 37,540 More than 5 years $ - - - Bank loan and other borrowings 3,323,701 1,079,331 1,137,911 451,547 654,912 5,485,398 2,189,987 2,151,412 489,087 654,912 2017 Trade and other payables Convertible debts Finance lease liabilities 1-2 years 2-5 years More than 5 years Note 2.5 Total contractual cash flows $ 445,153 No more than 1 year $ 445,153 $ - $ - - 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 c. Market risk 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 primarily exposed the Group to interest rate risk are disclosed as below: Bank loans Consolidated Group 2017 $ 866,664 2018 $ 936,961 If the interest rate increases or decreases by 1% pa, the future cash flow payment to the bank will be increased or decreased by $29,079 respectively over the life of the loan. Foreign currency risk The group held cash assets dominated in foreign currency from time to time. At the reporting date, the company held RMB 2,569.37 (2017: RMB 18,111). 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 categorized 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. Page | 38 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 3: GROUP’S CAPITAL AND RISKS 30 JUNE 2018 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 material assets or liabilities recognised and subsequently measured at fair value on a recurring basis. 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). AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. The group does not expect the new standard to affect the classification and measurement of those financial assets and liabilities held by the group which are disclosed in note 3.3. The new impairment model in AASB 9 requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under AASB 139. It applies to financial assets classified at amortised cost, debt instruments measured at Fair Value through Other Comprehensive Income (FVOCI), contract assets under AASB 15 Revenue from Contracts with Customers, lease receivables, loan commitments and certain financial guarantee contracts. Based on the assessments undertaken to date, the group does not expect any significant difference in the loss allowance for the financial assets between AASB 139 and AASB 9. The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the group’s disclosures about its financial instruments particularly in the year of the adoption of the new standard. Page | 39 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 4: BUSINESS PORTFOLIO 30 JUNE 2018 Section 4: Business portfolio Business combination 4.1 During the financial year, the group has not entered into any business combination transactions. In prior financial year 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. Details of this business combination were disclosed in note 4.1 of the group’s annual financial statements for the year ended 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 2018 2017 $ $ 451,163 18,018,882 18,470,045 708,574 15,599,888 16,308,462 1,351,043 1,780,000 3,131,043 68,036 750,000 818,036 15,790,087 (657,969) 206,884 15,339,002 15,756,055 (421,239) 155,610 15,490,426 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Net profit/(loss) (236,730) 53,118 During the reporting period, N1 Holdings Limited has not entered into any financial guarantee arrangement. At 30 June 2017 and 30 June 2018, N1 Holdings Limited has no contingent liabilities. At 30 June 2018, 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) N1 Realty Pty Ltd (iii) N1 Project Pty Ltd (iv) Principal place of business Australia Australia Australia Australia Ownership interest held by the Group 2018 (%) 2017 (%) 100% 100% 100% 100% 100% 100% 100% 100% Page | 40 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 4: BUSINESS PORTFOLIO 30 JUNE 2018 N1 Venture Pty Ltd (v) Sydney Boutique Property Pty Ltd (vi) N1 Franchise Pty Ltd (vii) Australia Australia Australia 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 is 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 and, 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 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 since acquisition. (vii) (vii) TACQ International Pty Ltd was incorporated on 21 July 2017 and renamed to N1 Franchise Pty Ltd on 5 March 2018, it has been fully owned by the group since incorporation. (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 2018. 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 2018 $ 799,793 59,200 9,320 18,290 886,603 2017 $ 705,943 58,501 8,075 31,169 803,688 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. Page | 41 For personal use only N1 HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS SECTION 4: BUSINESS PORTFOLIO 30 JUNE 2018 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 N1 Consultants Group Sdn Bhd - Malaysia N1 Forex Pty Ltd Loan received/(paid) to related parties Ren Hor Wong Ren Hor Wong Family Trust Balances to/(from) other related parties: Ren Hor Wong – (payable)/receivable Ren Hor Wong Family Trust 2018 $ 2017 $ 125,071 - 108,960 27,600 (2,776) (150,000) (234) - 2018 $ (3,974) (150,000) 2017 $ (1,198) - Page | 42 For personal use only N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2018 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 For personal use only N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2018 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 released but for application in future periods has been disclosed in the relevant section. 5.2 Auditor’s Remuneration Remuneration of the auditor Crowe Horwath Sydney for: auditing or reviewing the financial report 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 2017 2018 $ $ 91,532 - 91,532 89,000 1,000 90,000 Consolidated Group 2017 2018 $ $ 316,883 774,625 330,891 809,940 26,225 130,118 1,117,733 1,270,949 The major property lease is a non-cancellable lease with a five-year term, with rent payable monthly in advance. Page | 44 For personal use only N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2018 (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 2018 $ 15,387 53,928 69,315 (5,333) 63,982 2017 $ 24,527 139,486 164,013 (14,565) 149,448 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 adjustment to opening equity on the date of initial application. The directors anticipate that the adoption of AASB 16 will impact the group’s financial statements and lease asset and payable would be recognised on balance sheet as at 30 June 2018 if the new standard was adopted. (c) Capital Expenditure Commitments There were no capital expenditure commitments as at 30 June 2018 (2017: nil). 5.4 Contingent liabilities and Contingent assets There are no contingent liabilities or contingent assets as at 30 June 2018 (2017: 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 Page | 45 For personal use only N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2018 relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which Management expects to recover or settle the carrying amount of the related asset or liability. 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 Unrecognised tax losses as deferred tax asset in current year 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% (2017: 27.5%) Tax effect of: Permanent differences Effect of change in income tax rate Unrecognised tax losses as deferred tax asset in current year Deferred tax for tax losses under-recognised in prior year Income tax (benefit)/expense Consolidated Group 2017 $ 2018 $ (489,372) (448,788) (73,921) 12,282 262,851 - 1,054 (8,947) (299,388) (445,453) (2,151,416) (1,643,007) (591,639) (451,827) 28,346 37,634 - (22,313) 262,851 - 1,054 (8,947) (299,388) (445,453) As at 30 June 2018, the tax loss carried forward for the company is $3,696,874 (2017: $1,921,172). (b) Tax position The group’s current tax payable is $nil (2017: $nil) (c) Deferred tax liabilities Opening balance $ Charged to income statement $ Charge to equity Charge to other Closing balance $ $ $ 521,388 9,979 31,940 (6,652) - - - - 553,328 3,327 506,510 (119,524) - - 386,986 1,037,877 (94,236) - - 943,641 2018 Trailing income Website Assets valued up in business combination Balance at 30 June 2018 Page | 46 For personal use only N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2018 2017 Trailing income Website Assets valued up in business combination Balance at 30 June 2017 (d) Deferred tax assets Opening balance (restated) $ Charged to income statement $ 459,300 18,143 62,088 (8,164) - (29,706) 477,443 24,218 Charge to equity Charge to other Closing balance $ - - - - $ $ - - 521,388 9,979 536,216 506,510 536,216 1,037,877 2018 Clawback and accrued Tax Losses IPO costs Other temporary differences Balance at 30 June 2018 2017 Clawback and accrued Tax Losses IPO costs Other temporary differences Balance at 30 June 2017 Opening balance $ Charged to income statement $ Charged to equity Closing balance $ $ 43,681 528,322 102,097 98,411 772,511 (18,515) 225,476 - (1,799) - - (34,032) - 205,162 (34,032) 25,166 753,798 68,065 96,612 943,641 Opening balance $ 78,280 77,816 148,504 44,646 349,246 Charged to income statement $ Charged to equity Closing balance $ $ (34,599) 450,506 - 53,765 - - (46,407) - 469,672 (46,407) 43,681 528,322 102,097 98,411 772,511 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. Page | 47 For personal use only N1 HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS SECTION 5: OTHER DISCLOSURES 30 JUNE 2018 5.6 Events after the reporting period On 1 August 2018, Company entered into 2 unsecured loan agreement with non-related lenders for $500,000 at 10% interest only repayment for 2 years. Loan purpose is to provide commercial loans. On 5 September 2018, N1 Venture Pty Ltd issued its first unregistered managed scheme - One Lending Fund through a licensed intermediary agreement with Lanterne Fund Services Pty Ltd (ABN 49 098 472 587, AFSL 238198). N1 Venture holds an AFSL 477879 and is acting as Trustee and Manager of One Lending Fund. Other than the events mentioned above, there have 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 future financial years. Page | 48 For personal use only N1 HOLDINGS LIMITED DIRECTORS’ DECLARATION 30 JUNE 2018 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 19 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 group’s financial position as at 30 June 2018 and of the (b) 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 2018 Sydney Page | 49 For personal use only 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 to the Members of 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 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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. Liability limited other than for acts or omissions of financial services licensees. Page | 50 For personal use only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. Key Audit Matter How we addressed the Key Audit Matter Valuation of trail commission – Note 2.2 The Group had significant trail commission assets that were calculated using modelling technique that involved the use of forward- looking assumptions and risk adjustments. Management had used judgment to establish the methodology, assumptions and adjustments used in the model, as described in Note 1.3. We focussed on this area as a key audit matter due to the complexity and subjectivity involved in performing the valuation. Our procedures included, but were not limited to, assessing the consistency of the model used in the current year against that used in the prior year and challenging the key assumptions used by management in the valuation of the trail commission assets, as follows: (cid:131) Assessing the discount rate for relevance and consistency within the context of the valuation and based on our knowledge of the Group and the industry. (cid:131) Comparing the lapse rate to industry data and historical data for the Group. Impairment assessment of intangibles assets (goodwill and rent roll) – Note 2.5 The Group had significant goodwill and rent roll assets relating to its real-estate business. The impairment assessment of goodwill involves significant judgement in respect of factors such as: (cid:131) Cash flow projections; (cid:131) Growth rate; and (cid:131) Discount rate. The recoverable value of rent rolls was determined with reference to the reduction in rent under management and resale multiple. We focused on this area as a key audit matter due to the high degree of estimation and judgement made by the management. Our procedures included, but were not limited to, challenging the assumptions that supported the directors’ position on impairment and recoverability of these intangible assets as follows: (cid:131) Assessing the reasonableness of the cash flow projections with reference to the last actual result. (cid:131) Reviewing the accuracy of the value in use model and checking the mathematical calculation. (cid:131) Reviewing the reasonableness of key assumptions in the value in use model with reference to market available data and the Group’s historical data. Page | 51 For personal use onlyOther Information The directors are responsible for the other information. The other information comprises the information included in the Group’s Annual Report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, 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 have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (cid:131) Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Page | 52 For personal use only(cid:131) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. (cid:131) (cid:131) Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. (cid:131) (cid:131) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the group financial report. The auditor is responsible for the direction, supervision and performance of the group audit. The auditor remains solely responsible for the audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during the audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in the auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the remuneration report included in pages 12 to 17 of the directors’ report for the year ended 30 June 2018. In our opinion, the remuneration report of N1 Holdings Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Page | 53 For personal use only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. CROWE HORWATH SYDNEY SUWARTI ASMONO Partner 27 September 2018 Sydney Page | 54 For personal use onlyN1 HOLDINGS LIMITED SHAREHOLDER INFORMATION 30 JUNE 2018 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 2018. 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 1,244 40,150 907,767 5,800,122 74,806,290 81,555,573 0.00% 0.05% 1.11% 7.11% 91.72% The number of shareholdings held in less than marketable parcels is 0. Number of holders 3 10 92 174 50 329 % 0.91% 3.04% 27.96% 52.89% 15.20% 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 BNP PARIBAS NOMS PTY LTD Total d. 20 Largest Shareholders — Ordinary Shares Shareholder REN H WONG PTY LTD THE THREE HORSESHOES PTY LTD MR YOKE MENG CHAN TIN FAMILY SMSF PTY LTD BNP PARIBAS NOMS PTY LTD MR TONG CHAI TAN JIANRONG SUN MS MUN CHING WANG MS YUEXIAN ZHAO AUSTRALIA WIDE DEVELOPMENT GROUP PTY LTD LC FAMILY SUPER PTY LTD VEN TAN PTY LTD IPOH YAP SMSF CO PTY LTD 1. 2. 3. 4 5 6 7 8 9 10 11 12 13 14 MXJ PTY LTD 15 MISS ZHAOJIA HE 16 MRS SILIAN ZHAO 17 MS HUEY CHARNG WONG 18 MISS MANNI FU 19. 20. MR JILIANG ZHANG ANZI SUPER FUND PTY LTD Total Number of Ordinary Fully Paid Shares Held 50,000,000 4,200,000 2,780,266 2,450,000 2,197,367 60,923,515 % Held of Issued Ordinary Capital 61.31% 5.15% 3.41% 3.00% 2.69% 75.57% Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 50,000,000 4,200,000 2,780,266 2,450,000 2,197,367 1,498,249 1,250,000 760,470 655,833 500,000 500,000 500,000 487,500 453,167 425,000 418,750 350,000 341,115 312,500 300,000 69,900,603 61.31% 5.15% 3.41% 3.00% 2.69% 1.84% 1.53% 0.93% 0.80% 0.61% 0.61% 0.61% 0.65% 0.56% 0.52% 0.51% 0.43% 0.42% 0.38% 0.37% 85.70% Page | 55 For personal use only N1 HOLDINGS LIMITED SHAREHOLDER INFORMATION 30 JUNE 2018 e. Escrowed Shares No f. Vested Options No 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 | 56 For personal use only N1 HOLDINGS LIMITED SHAREHOLDER INFORMATION 30 JUNE 2018 Page | 57 For personal use only 

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