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Annual Report 2019

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Annual Report 2019 CHAIRMAN & CEO’S LETTER SHAREROOT LEADERSHIP DIRECTOR’S REPORT DECLARATION OF INDEPENDENCE 5 8 14 30 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 32 DIRECTORS' DECLARATION SHAREHOLDER INFORMATION 68 73 ShareRoot Ltd | ABN 81 610 858 896 Our mission is to create value by accessing and aggregating social and clinical data, with consent, to improve health and wellness, and to advance life science technologies GOALS 1. 2. 3. 4. Reposition ShareRoot to engage, contribute and generate value within the emerging global digital health market. Create a unique point of difference in developing novel AI technologies and translation methodologies with the capability to access patient/physician reported outcomes and perceptions on social media and integrate structured and unstructured data sets. Commercialise and scale technologies and services generating exponential value and advantage for stakeholders. Work within and contribute to an informed and ethical industry framework. CHAIRMAN & CEO'S LETTER Dear stakeholders To say ShareRoot has implemented a significant and rapid transformation agenda in the past year would be an understatement. The outcome of a leadership change and strategic review in February/ March 2019 repositioned the company directly into the burgeoning global digital health sector. Within four months of the leadership change and the new Chief Executive Officer appointed, ShareRoot’s strategic priorities were confirmed, operational efficiencies implemented, and the technology pipeline rebuilt. Skills and resources were realigned and a capital restructure was underway to deliver a more agile, service-ready and strategically focused offering to stakeholders with an upside potential that is achievable, scalable and within reach. ShareRoot is now resourced to create and contribute unique value into the emerging real world data-rich intelligent global health ecosystem that is shaping and rebuilding the way medicine is practiced and drug discovery undertaken. The three key value generating pillars underpinning the company are: services, technologies and partnerships, defined by a clear understanding of the emerging dynamics and opportunities within the global health market and the capability to deliver within each pillar. Digital transformation in health reveals new unmet needs In choosing to enter into the digital health sector, ShareRoot recognised it has a number of significant advantages: a first- class revenue generating client services team (in The Social Science) with strategy skills and deep networks and knowledge of the health, medical devices, clinical trials and biopharma sectors; , and; direct access to AI technologies, methodologies and translations skills. The ShareRoot leadership team also recognises the global healthcare market is undergoing a digital revolution, far more transformative than the mere introduction of electronic health records and patient oriented wellness apps. The reinvention of health and wellness within the connected environment is beginning to reveal unmet needs and commercial opportunities in every aspect of the sector, from drug discovery to patient activation and empowerment. The global artificial intelligence market in healthcare 2019-2023 is expected to post a CAGR of 28%i to as much as 43.5%ii with the Asia Pac region expected to grow, according to a various research reports as the fastest CAGR rate of any global region. A strong indication of potential for ShareRoot. ShareRoot’s new vision is to make healthcare more personal, empowering patients and physicians in accessing and implementing future treatments and clinical interventions. Utilizing AI technologies and our novel methodologies and know- how, we have the ability to capture, integrate and interpret structured and unstructured data, including real world data, from multiple sources such as social media, clinical records and apps, into actionable insights, recommendations and tools that will dramatically change the trajectory of healthcare and health technology development. Value and values in alignment – every data point is a personal story We are living in a world of a trillion sensors. Health data generated from wearables, apps, clinical records and self-reported outcomes to social media, represent a wealth of opportunity and challenge. Acknowledging and working within an ethical framework is a core guiding principle at ShareRoot – it always has been. Working with data in a compliant manner, and with consent is key. Behind every data point is a person. Throughout the strategic and operational transformation that occurred from March to June 2019, some things did not change. Data sovereignty, compliance, consent and respect remain central to our company values. ShareRoot applies a privacy-by-design approach to technology and methodology development. In achieving ShareRoot’s strategic goal, the leadership team and employees all agree that as an organisation we want to achieve this by employing a set of personal values and ethical principles, contributing to a compliant regulatory and commercial environment in which the individual’s rights and privacy are respected. MediaConsent is a legacy technology concept from ShareRoot’s past that we believe has ongoing value. It is unlikely that the MediaConsent platform will continue its development in the form originally proposed, but we agree that as a concept, providing the individual with agency and clear ownership of their health data is both valid and will become increasingly desirable. Resourcing the pivot and positioning for scale Ensuring the company has sufficient financial resources, talent and access to technology to ensure it can achieve the ambitious milestones it has set, ShareRoot has assembled an appropriate leadership team. Damon Rasheed and Marat Basyrov were instrumental in introducing new technologies, methodologies and platforms in the AI space, building skills and capabilities, assisting in the development of the technology/ services pipeline as the company went through the review period emerging with a new value proposition. It was apparent that financial resources were inadequate to achieve the 6 first stage of the new development plan and a recapitalisation strategy was launched and successfully implemented just after the close of the financial year. Partnering will be important in supporting ShareRoot’s plan to achieve scale. Local and global partnerships and alliances are being considered and actively pursued to scale service offerings and access to new AI technologies and methodologies and commercialisation pathways. The acquisition of The Social Science (TSS) in April 2018, provided ShareRoot with both a team of highly skilled digital marketing communication specialists in science, technology and healthcare as well as much needed revenues and a client group that was health and science-centric. The TSS client services team are deserving of special mention. Not only did they hold their own, in terms of revenue generation during a period of significant turbulence but continued to grow the client base and client offerings. Following the strategic review, ShareRoot’s US operation significantly reduced with further development of MediaConsent suspended and the US-based team working on the project dissolved along with all corporate roles based in the US. ShareRoot remains committed to the MediaConsent concept and will focus all efforts on the application in healthcare, leveraging the relationships and market position that The Social Science team has in health and science. ShareRoot has taken steps to bring the development of the MediaConsent platform back to Australia with the added advantage of accessing R&D tax incentives and government grants. US-based game development company, Ludomade which was acquired by ShareRoot in November 2018 was assessed as non-core to the new strategic direction in health. Since acquisition, Ludomade has failed to deliver revenue expectations and ongoing management of the asset created a drain on resources. ShareRoot announced plans to divest Ludomade, of which are ongoing. Tapping digital megatrends and creating a point of difference ShareRoot’s research indicates that patients are very willing to share health data if it will provide better care for them or help others going through the same distressing experience with illness, injury or living with disorders. As a result patient-to- patient social networks, health and wellness apps and physician-to-physician education and engagement platforms are burgeoning. Lakes of new structured and unstructured data are being created combined with traditional clinical records, offering a complex and accurate view into the real lived experience of patients and carers managing diseases, disorders and injuries. Unmet clinical needs are being revealed and highlighted in the data, which is invaluable to technology developers and healthcare providers. Finally, through the advent of artificial intelligence to aggregate, integrate and interpret these data sets, we have a window into the real world of patients and physicians as they engage and self-report outcomes, concerns, opinions, perceptions and build inclusive and diverse networks on social media, enabling better and more precise treatment and care for patients. Clinical datasets are objective and structured, but the world of patient and physician generated content is personal, subjective, perceptive unstructured data and though it’s more challenging it’s richer and more real. Ethically tapping into this more nuanced data set, combined with machine learning and natural language processing to deliver deep audience insights and predictability is where ShareRoot can develop a unique value proposition and deliver exponential value for stakeholders. The business plan and future direction of ShareRoot in the world of digital healthcare, offers a foundation to build a significant company with a competitive and unique offering to the market. The board and management is excited about the company’s future and delivering the next chapter in ShareRoot’s story. ___________________________ Michelle Gallaher CEO ___________________________ Dr Julian Chick Chairman 1 Technavio. August 23, 2019. Global AI in Healthcare Market Report. 2 Meticulous Research. July 30, 2019. Artificial Intelligence in Healthcare Market by Product, Technology, Application, End-User and Geography – Global Forecast to 2025. 7 SHAREROOT LEADERSHIP Michelle Gallaher CEO Dr Julian Chick Chairman Damon Rasheed NED Marat Basyrov NED Marat is an experienced technology investor and serial entrepreneur, applying creative and technology-forward data and digital solutions across a large cross- section of industries to solve complex digital and data challenges. As a Chief Executive Officer of artificial intelligence software and app provider, Adevi, Marat has a track record of success through building a number of data-driven startup companies including Edway Apps Studio, Intelligent Profit Solutions and Tech4Data. Marat has a broad, high value professional network of technology developers, investors and collaborators across the globe. Marat holds a Bachelor of Business in Accounting and Management from Central Queensland University and and is a Certified Practicing Accountant (Australia). Damon’s skills and expertise in data science and analytics have been applied to a wide range of industries, specifically in financial services and professional services where he co-founded one of Australia's leading data and artificial intelligence companies, Advantage Data. Damon is also the founder of Rate Detective, an Australian financial service comparison site specialising in life insurance, income protection insurance and home loans. Damon holds a Masters in Economics from the University of Melbourne and has been involved in many start-up internet businesses, regularly appears in the media as a commentator and at events as a professional industry speaker on the value of data and digital in the growing sharing economy. Prior to running his own businesses, Damon worked as an economist at the Australian Competition and Consumer Commission (ACCC). With over 25 years of experience in the biopharmaceuticals and healthcare sector and deep professional global networks, Michelle is an award-winning and recognised leader in the Australian health innovation industries. For the past 15 years Michelle has worked at an executive level in biotechnology, most recently as CEO of the peak body for biotechnology and medtech in Victoria. Establishing The Social Science in 2014, selling to ShareRoot in 2018 and guiding the medical application of ShareRoot’s key platform technology (MediaConsent), Michelle has a clear view of the opportunity and challenges that digital transformation in healthcre offers. Michelle holds an allied health qualification in applied science from La Trobe University, a postgraduate Diploma in Business from RMIT and is completing a Global Executive MBA at Monash University. Michelle is a NED on a number of health and technology related boards and co-founder of Women in STEMM Australia, Telstra Victorian Business Woman of the Year and Entrepreneur of the Year in 2017 and inducted into the Victorian Honour Roll for Women in 2018. Michelle is a GAICD and FAIM. Julian has over 20 years’ experience in capital markets and LSHC, on both the investor and operational side of businesses, giving him a unique understanding of technology companies’ value drivers, value inflection points and commercialisation strategies. Included in his previous roles, Julian has worked in funds management and venture capital and private funding. Julian’s funds under management grew from $115 million to over $300 million over a 5-year period, with an average annual return of over 20%. Julian has spent the past 15 years at an Executive level of life sciences companies across therapeutics, diagnostics and medical devices (including 8 early stage and start-up companies and achieved one trade sale exit of an Australian contract services organisation), multiple IPOs and public offerings in Australia and Singapore, 3 global product approvals (including through the US FDA and the European Medicines Agency) and launches. Julian serves and an Executive Director and NED on a number of technology and health-related boards. Julian has a BSci and PhD in Physiology from La Trobe University and Oxford University. BUSINESS STRUCTURE Services Solutions Technology Digital marketing and social media management strategies, specialist content creation, community moderation and retained management of digital platforms for clients, predominantly in the science, technology and health sectors. Identifying and developing partnership and alliances to drive value, trial emerging AI technologies, access health data, commercialise AI technologies, drive client acquisition and service delivery are key to ShareRoots future success. Revenue is derived from either; retainer, projects or training services. Unique services include: • Clinical trial recruitment from social media and digital platforms • Specialist content writers – science, tech and health • Health market access strategies using social media and digital tools • Issues and crisis management via social media • Social listening and influence using deep patient/ HCP insights Current MOU/ partnerships for MediaConsent Clinical include: • St Vincent’s Hospital (Melb) • Cancer Trials Australia • Neuroscience Trials Australia Technology alliances include: • Adevi • Advantage Data Skills development alliances include: • Swinburne University (intern program) The development and subsequent commercialisation of technologies, powered by AI to capture, aggregate and analyse health and wellness datasets is the foundation and the heart of ShareRoots business plan. It is the successful commercialisation and scale of technology opportunities that will deliver the most significant value for the company. Technologies in development include the following characteristics: • Health and wellness focus • Utilising data in combination with AI technologies and methodologies • Capacity for scale • Within priority areas of potential acquisition / investment partners • Global relevance DEVELOPMENT PIPELINE MVP Client trial Pre-launch Market Launch Scale Complete May 2019 Apr-Oct 5 Clients Nov 2019 Jan 2020 Widget Complete Feb 2019 Jan-Jun 2 Clients Nov 2019 Jan 2020 June 2019 ongoing Client trial Dec 2019 Ongoing The application of artificial intelligence to the vast lakes of real world health data being generated minute by minute via digital platforms on and in our bodies, in our homes and in clinical settings, unlocks an extraordinary opportunity to discover the real lived experience of illness and how we can maintain and enhance wellness. ShareRoot’s purpose is to identify unmet clinical need and to carefully select, craft and apply the most appropriate AI technology solution coupled with select datasets to deliver sensitive and accurate insights that influence health and wellness. Getting this technology development and roll out right has the potential to deliver life changing value. This past year has seen the development of three exciting new technologies in a relatively short period of time. On top of the continuous progression of MediaConsent, albeit slowed down and aligned to an application only in health at this stage, ShareRoot added Opyl, widget and Rank’d to the pipeline with widget and Opyl progressing rapidly to the MVP and early revenue stage. The most significant R&D effort in the second half of the year was applied to Opyl as this technology was deemed to have the greatest revenue potential in shortest period of time. Opyl was tested free of charge with a TSS client in April to demonstrate the MVP model and client acceptance, progressing quickly to address a second TSS client challenge in June. Three more beta clients were signed to Opyl within two weeks, commencing projects in July, September and October. The five beta clients will serve as a challenging MVP stage in which ShareRoot will received modest ‘test’ revenue and critical feedback. At end October ShareRoot will evaluate the Opyl beta outcomes with clients and plans to implement a soft market launch, working within the internal resource capacity available at TSS, selecting suitable clients that are market ready with projects that best match the capabilities of Opyl. ShareRoot is applying a hybrid agile stage-gate model to its technology development pipeline which ensures a faster and more adaptive response to the rapidly changing customer needs and landscape in digital health, better integration of voice-of-customer, better team communication, improved development productivity, and faster to market outcomes. The philosophy behind the model is to fail inadequate projects fast. Having a rigorous strategic approach to technology selection and development provides the company with clarity and a convention by which it can move at pace and with precision. OPERATIONS REVIEW 2018/19 has been a year for considerable change for ShareRoot. The leadership team has been completely re-cast, the core strategy sharpened, and the technology pipeline redeveloped. Revenue has significantly lifted by 137% to $927,041. The overall loss for the consolidated entity after providing for income tax amounted to $3.1m. Following the strategic review it was imperative that ShareRoot significantly reduce expenditure to ensure the company could remain operational with a 40% reduction is employee numbers. The majority of the loss during the year was due to the cost of developing MediaConsent, UGC platform development in the first half of the year and ongoing corporate activities and compliance. Client services and revenue generation Since close to inception, ShareRoot has always had a footprint in delivering digital marketing services to clients, generating revenues whilst developing technologies to address a growing digital marketing sector. The plan moving into the 2018/19 year was to continue with the acquisition strategy, building up revenue potential and supporting a scaling and leveraging of services across a number of digital platforms. Following on from the acquisition of Melbourne-based STEM and health specialist social media marketing and content creation agency, The Social Science, in April 2018, Ludomade, a US-based game development agency, was acquired in November 2018. At this time ShareRoot had three revenue generating client service divisions: The Social Science, ShareRoot Inc (US-based social media management and marketing services) and Ludomade. ShareRoot’s priority at calendar year-end was to focus on integrating the three service divisions and to improve operational efficiencies across the group, centralizing services, whilst investigating ways to leverage clients and skills across the group to drive greater revenue opportunities. Following the strategic review in March 2019, Ludomade was deemed to be non-core and misaligned. By the end of the financial year it was clear that Ludomade had failed to realise the revenues expected of the entity and a plan to divest the business was announced and actioned. The client services delivered by ShareRoot Inc (US) were also evaluated. Two of the services team were retained and they were generating revenue and involved in Widget development. Though TSS was the dominant revenue source during the year, this entity was also somewhat compromised as the Melbourne-based team took on additional, non-revenue generating roles within ShareRoot, specifically taking up the lead with MediaConsent Clinical and restructuring operational roles and approaches to integrate with ShareRoot and offset some corporate costs that would otherwise have been charged to ShareRoot. From May 2019 onward, TSS began moving to a value-based pricing model (from a time and materials model) and worked to scale the service offering, increasing the price point as automation and AI-assisted platforms come online to commence offering a bespoke and unique service to clients. A key new service offering was packaged as Opyl – a suite of AI-assisted technologies and advanced strategic methodologies offering deep audience insights – was piloted after only four weeks in development. Every client TSS approached about Opyl agreed to sign on to a pilot opportunity, posing complex market access challenges, testing Opyl methodologies and the licensed-in technologies ShareRoot had access to or was creating. Opyl presents the greatest revenue generation growth opportunity for ShareRoot in the near-midterm. The Opyl service model has been developed using similar methodologies and positioning strategies as used by some the world’s largest digital marketing and management consulting firms. Technology development pipeline ShareRoot’s user generated content (UGC) management tool was completed and fully operational in May 2018 and has been valuable in generating revenues and building the client list. Unfortunately Instagram and Snapchat changed its API and partnering arrangement late in the year which eliminated the ability of the UGC platform to operate. ShareRoot quickly acted to rebuild a new UGC tool that could add value for clients piloting ‘widget’ – an e-commerce tool designed to accelerate consumer sales on Instagram within months. The technology and strategic review undertaken by the new board in 2019 assessed MediaConsent progress had stalled and action was taken to stop all development in the US and terminate the arrangement with contractors as well as retrenching ShareRoot employees. Following the assessment, MediaConsent was retained in the pipeline with plans to re- establish development in Australia. 11 Recognising the opportunity digital health offered and now having access to new skills and knowledge, the re-formed ShareRoot board and new CEO began rebuilding the technology pipeline. Rank’d, a new digital information tool for scientists and healthcare providers, was added to the list as was Opyl, alongside further progress on widget and MediaConsent. Looking forward, ShareRoot will apply a hybrid agile stage-gate model to evaluate the progress of new technologies and service offerings with a view that fast failure at MVP stage is preferred with a pipeline of emerging technology opportunities being constantly nurtured. Relationships and professional networks of the directors and CEO will continue to be key in order to source technology development opportunities, access skills and identify market needs. A priority is to identify and progress technologies that can deliver significant revenue at the earliest stage with clients that are already active with The Social Science. It was clear that Opyl was the primary opportunity that had the potential to deliver a major uptick in revenue and would be an extension of the client work that The Social Science was already engaged in delivering. The beta Opyl projects across five clients are generating early stage modest revenue. Opyl clients are working collaboratively with ShareRoot to build out the offering and prepared to experiment with the technology and methodologies to unlock value. The five clients all come from the health sector – SME biopharma, NFP community health, medtech and government. Human capital and operational efficiencies Along with the leadership group, the employee landscape at ShareRoot has changed considerably in this period, initially expanding with the acquisition of TSS and Ludomade and then contracting by 40% from mid March (mostly from ShareRoot US) following the strategic review. Operational infrastructure, particularly in the US has been scaled back with considerable reduction in expenditure in the second half of the year as the company focuses on controlling its operational and research costs and shifts focus to revenue and value growth in the digital healthcare sector. Relationships with most US-based external technology and business advisors and the advisory board established by ShareRoot last year has been dissolved as they are no longer aligned to the trajectory of the company. The new board and leadership team recognise the value of leveraging valuable government incentives and grant opportunities in Australia – a path that ShareRoot had not accessed previously. The operational team are working toward applying for incentives available to ShareRoot stretching financial resources further and accessing scale, support and growth grant opportunities. Australia’s R&D tax incentive (43.5% refundable tax offset) is a critical offering for a growing company like ShareRoot, in which a significant portion of our historic and future R&D expenditure is genuinely experimental. Accessing skills and talent in the digital health services and technology market will become increasingly competitive as more organisations invest in the growth corridor and resources become more sought after. ShareRoot has implemented an in- house continuous AI and digital strategy skills development and training program with employees to further develop competitive edge and service offering. Accessing new graduates from a number of disciplines is seen as an important strategic priority and the Intern program successfully established by The Social Science some years ago is now a key aspect of the ShareRoot’s future resources plan and a proven stream in which the company can identify and attract talented individuals. ShareRoot’s operational focus moved from the west coast of the US to Melbourne, Australia following the leadership change early in 2019. ShareRoot HQ is now based out of The Social Science’s office in St Kilda, leveraging the advantages of working at Engine House, a new generation co-working space, with a gradual move of all advisors and corporate services to Melbourne or Sydney. Brand equity: the case for realignment Well articulated, managed and strategically positioned brands add considerable value to an organisation. Included in the strategic review of the company’s technology and services performance in March/ April was the company brand, specifically its alignment in the global digital health market. The outcome of the review concluded that ShareRoot’s present brand position is incongruent with the digital health message and market it is now targeting. The recommendation from the review was to rebrand the organization to align with the health focus to ensure ShareRoot can successfully transition its corporate narrative and service offering into a compelling and competitive position. 12 DIRECTOR'S REPORT ShareRoot Limited Directors' report 30 June 2019 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity') consisting of ShareRoot Limited (referred to hereafter as the 'company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2019. Directors The following persons were directors of ShareRoot Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Julian Chick - Chairman and Non-Executive Director Damon Rasheed - Non-Executive Director Marat Basyrov - Non-Executive Director Lee Rodne - Non-Executive Chairman Noah Abelson-Gertler - Managing Director and Chief Executive Officer Peter McLennan - Non-Executive Director Harvey Kaplan - Non-Executive Director Appointed 6 May 2019 Appointed 1 February 2019 Appointed 1 March 2019 Resigned 1 February 2019 Resigned 1 March 2019 Resigned 1 February 2019 Appointed 1 February 2019, resigned 6 May 2019 Principal activities During the period, the principal activities of the company were predominantly the development of its MediaConsent platforms and supporting the consolidation and growth of The Social Science and acquisition of Ludomade. In the final four months of the year, following a full leadership change late in Q3, 2019 and early Q4, 2019, the company undertook a major strategic and technology review and recalibrated the business plan to focus on developing digital and data technologies and services addressing the escalating needs of the global healthcare sector. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. 14 ShareRoot Limited Directors' report 30 June 2019 Review of operations Revenue for the financial year reached $927,041 which represented over a 100% growth from the previous financial year. The overall loss for the consolidated entity after providing for income tax amounted to $3,105,138 (30 June 2018: $3,035,627). Operational Progress ShareRoot’s results for the financial year ending 30 June 2019 reflect significant growth in revenue and refinement of the business model, value proposition and R&D technology investment strategy over the previous 12-month period. During the financial year, the company’s revenue growth was driven predominantly by The Social Science, the STEMM digital marketing and content services division based in Melbourne, Australia. The Social Science also led the research and development of MediaConsent Clinical. The company further invested in its MediaConsent platform, initiating a specialist application of the platform - MediaConsent Clinical, during the financial year. ShareRoot expanded its technology pipeline with the design and development to MVP stage of three new technology offerings – Opyl, Widget and Rank’d. Opyl was applied to two beta client projects in May – June, generating early modest ‘test’ revenue and critical feedback. With more beta clients expected to be signed early in the new year. The new ShareRoot strategy is to initially focus on the application of MediaConsent (clinical) into the healthcare industry, with it aiming to provide patients control of their healthcare data from a wide variety of sources, while allowing companies, institutes, medical researchers and healthcare providers consented access to real world patient data, significantly expanding and accessing new research opportunities whilst ensuring compliance with new digital privacy laws and regulations. Since the acquisition of The Social Science (TSS) in April 2018, ShareRoot has worked to integrate its UGC and MediaConsent platform into the TSS client base, as well as using TSS expertise and client networks to identify unmet needs and develop new digital and data technologies to expand its offering to customers and clients. TSS has delivered and created long term value opportunities for ShareRoot in being able to identify new market offerings and in accelerating the deployment of early stage technologies to proof of concept within the client group. The TSS client services team will continue to scale in 2019, pursuing new business and eventually be responsible for driving revenue and service delivery with Opyl when it is fully operational. The TSS digital marketing and client services team also have the internal skills and capabilities to undertake the launch and full scale marketing of Opyl, Widget, Rank’d and MediaConsent (clinical) when they are operational. Following the strategy and technology review in February/March, and in response to limited cash resources, ShareRoot undertook a significant scale back of the US operation, suspending all further development and expenses associated with MediaConsent in the US. The company’s leadership team have worked to extinguish all non-critical expenditure in the US electing to only maintain revenue generating activities associated with ongoing client services out of the US. ShareRoot anticipates that as the group grows it will continue to increase its revenue and decrease its loss, quarter over quarter, as it drives operational efficiencies, expands revenue generating client services, advances new digital and data technology offerings in healthcare via TSS and optimise overall company functionality. Board and leadership changes The resolution to approve the proposed consolidation of capital did not pass at the Company's General Meeting on 30 January 2019. Following on from this, directors Mr Lee Rodne and Mr Peter McLennan resigned as directors on 1 February 2019, replaced by Mr Damon Rasheed and Mr Harvey Kaplan. Mr Noah Abelson-Gertler has resigned as the CEO of the Company's wholly-owned subsidiary ShareRoot Inc, and as a Director of ShareRoot Limited with effect from 1 March 2019. Michelle Gallaher, Managing Director of TSS, was appointed ShareRoot CEO on 14 March 2019. On 6 May 2019, Harvey Kaplan resigned as Chairman and Dr Julian Chick was appointed to the Board and role of Chairman. Significant changes in the state of affairs As discussed above, significant changes during the year were mainly around the change in leadership in the company with a renewed focus on the digital healthcare market and developing new technologies and services. 15 ShareRoot Limited Directors' report 30 June 2019 There were no other significant changes in the state of affairs of the consolidated entity during the financial year. Matters subsequent to the end of the financial year Although the company finished the year with A$99k in cash, in July 2019 it completed a successful Rights Issue and placement of $1.2 million before costs, with an oversubscription of shortfall shares leaving the company in a stronger cash position with funds available to progress its rapidly developing digital health agenda. In July 2019, the company announced that it plans to divest the Ludomade business as it is considered non-core to ShareRoot's future strategic direction. ShareRoot is in discussion with a number of potential interested parties. No other matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years. Likely developments and expected results of operations Following the strategic and technology review in February/March 2019, ShareRoot recalibrated the effort of the organisations revenue generating and R&D activities to focus on addressing the rapidly advancing global digital health market. The outcome of the review determined that Ludomade was no longer a strategic fit with health and operationally a significant distraction given that it had so far failed to deliver expected revenues and that it should be expediently divested, thereby also eliminating further expenses supporting a push toward greater operational efficiency. ShareRoot is in discussion with three interested parties and expects to reach an agreement. The review also determined that TSS was in a position of strength as a trusted leader in delivering digital services to a high value health and science-oriented client base to be able to take the lead in developing a new suite of digital tools, powered by artificial intelligence, to address an emerging data-dependent market. Within six weeks of the review concluding, ShareRoot/TSS had designed the basis of Opyl – a suite of technologies that offers deep insights into communities or populations derived from social media and other structured and unstructured data, powered by artificial intelligence. Within weeks five beta clients were signed to Opyl, generating modest ‘test’ revenue. ShareRoot is exploring a business model with Opyl, that potentially may provide a white-label service offering to other agencies. Opyl continues to develop with each client trial project and is expected to be fully operational and entering full product launch and marketing by November 2019. If Opyl can achieve the outcomes predicted by the development team, Opyl has the capability to generate significant revenue for ShareRoot. Concurrent to the Opyl development, ShareRoot undertook the foundational design and value proposition of two more technologies with the potential to earn income and or create long term value for the company. Widget, an influencer marketing tool for Instagram and Rank’d, an app designed to keep healthcare providers and STEMM academics up to date with new papers published, new products and clinical research/ trial opportunities are both at MVP stage. Widget is being trialled with a client and generating early revenue. Rank’d is further behind and only at the basic design and test stage. MediaConsent, a significant historical investment for ShareRoot, was considered an appropriate and valuable asset to maintain and grow following the strategic review. To ensure optimal alignment with the renewed healthcare strategic focus, the platform will continue to be developed and proven initially for the healthcare market before considering expansion into other markets. In the coming year, ShareRoot will focus on moving the new technologies in the pipeline into proof of concept and through beta revenue generating status as quickly as possible towards full market launch, adding new revenue streams to the revenue generated from digital marketing services. ShareRoot will aggressively pursue government grants and R&D tax incentives it is eligible for and investigate the opportunity of linkages or other industry grant programs as appropriate to the R&D agenda. Environmental regulation The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. 16 ShareRoot Limited Directors' report 30 June 2019 Information on directors Name: Title: Experience and expertise: Dr Julian Chick (Appointed 6 May 2019) Chairman and Non-Executive Director Dr Chick is an executive with more than 25 years of experience in the biotechnology and medical technology industry as well as five years in investment banking. Leading public and private companies, Dr Chick's previous roles include investment adviser, healthcare analyst for private equity investors, portfolio manager, investment banker and venture capitalist. Dr Chick has advanced a number of technologies from discovery through to market as well as transactions, company restructuring, business development and licensing transactions. leading numerous capital raisings, M&A Dr Chick has a background with ShareRoot, as a shareholder and later worked as an independent advisor on The Social Science acquisition in April 2018. Other current directorships: N/A Former directorships (last 3 years): N/A Interests in shares: Interests in options: 4,033,333 ordinary shares 16,500,000 Name: Title: Experience and expertise: Damon Rasheed (Appointed 1 February 2019) Non-Executive Director Mr Rasheed has more than 20 years’ experience in the tech sector, including founding several successful start-ups. He is the founder of the Rate Detective Group, one of Australia’s largest financial comparison websites. He is also the co-founder of Advantage Data, a leading machine learning and AI consultancy business. His most recent venture is Aurum Data which has built a propriety AI model to value data and discover commercialisation strategies for data sets. He has sat on the boards of several private technology companies both in Australia and overseas. Mr Rasheed's former roles include CEO of iBus Media Limited, one of the world’s largest online media companies and as an economist assessing mergers at the Australian Competition and Consumer Commission (ACCC). Mr Rasheed holds a Masters Degree in Commerce (Hons) and a Degree in Economics (Hons) majoring in statistics. Other current directorships: N/A Former directorships (last 3 years): N/A Interests in shares: Interests in options: nil 11,000,000 17 ShareRoot Limited Directors' report 30 June 2019 Name: Title: Experience and expertise: Marat Basyrov (Appointed 1 March 2019) Non-Executive Director Mr Basyrov is an experienced investor and serial entrepreneur, applying creative and technology-forward data and digital solutions across a large cross-section of industries to solve complex challenges. He sits on the board of advisors to Forbes AIi. He made his first million dollars at the age of 26 by investing in the stock market. As a Chief Executive Officer of artificial intelligence software and app solutions provider, Edway Apps Studio and Intelligent Profit Solutions, Mr Basyrov has a track record of success through building a number of data-driven startup companies including Adevi.io. Mr Basyrov has a broad high-value professional network of developers, investors and collaborators across the globe. Mr Basyrov holds a Bachelor of Business in Accounting and Management from Central Queensland University and is a Certified Practicing Accountant (Australia). Other current directorships: N/A Former directorships (last 3 years): N/A Interests in shares: Interests in options: 80,200,000 ordinary shares 11,000,000 Name: Title: Experience and expertise: Lee Rodne (Resigned 1 February 2019) Non-Executive Chairman An internationally regarded executive, Mr Rodne brought more than 20 years of senior executive experience across all aspects of operational management and governance. He held numerous senior roles in the technology, healthcare, mining and renewable energy sectors in North America, the UK and Australia. Mr Rodne has a strong track record building shareholder value by growing small technology businesses into global companies with significant valuations. Previously, Mr Rodne led the spin-out of Fortescue Metals Group’s technology subsidiary Allied Medical Ltd as its CEO and Managing Director, increasing its valuation from $800,000 to a peak of circa $250 million. Allied Medical Ltd subsequently further enhanced shareholder value through a merger with bioMD Ltd, leading to the creation of market-leading diversified healthcare group Admedus Ltd. Mr Rodne was previously the Senior Executive of Sirius Minerals through a major acquisition project that saw its market capitalisation grow to over $1 billion, and has also led IT and technology consulting practices with Fortune 500 businesses in the US as a Director and Vice-President of a leading US-based consulting firm. Other current directorships: N/A Former directorships (last 3 years): N/A Interests in shares: Interests in options: 9,333,335 ordinary shares (at date of resignation) 9,000,000 (at date of resignation) 18 ShareRoot Limited Directors' report 30 June 2019 Name: Title: Experience and expertise: Noah Abelson-Gertler (Resigned 1 March 2019) Managing Director and Chief Executive Officer Mr Abelson-Gertler holds a Bachelor of Arts degree in Psychology from the University of Maryland. Mr Abelson-Gertler was the Chief Executive Officer of ShareRoot and was responsible for executing ShareRoot’s strategic development plan. Mr Abelson-Gertler has previous management experience in new products and has launched a vitamin supplement company. Mr Abelson-Gertler worked in the Facebook advertising space as the person tasked with launching AdParlor’s (one of Facebook’s largest Ads API partners) US presence and generating over 3.1 million USD in a single quarter. This experience enabled Mr Abelson to develop numerous contacts within the social landscape as well as a deep understanding of what it takes and how to build strong and lasting professional relationships. Other current directorships: N/A Former directorships (last 3 years): N/A Interests in shares: Interests in options: 55,406,075 ordinary shares (at date of resignation) nil (at date of resignation) Name: Title: Experience and expertise: Peter McLennan (Resigned 1 February 2019) Non-Executive Director Mr McLennan has over 20 years' experience in financial services and technology in Australia and the UK working for some of world’s leading companies in those sectors. He is the founder of FitzRoy Capital a corporate financial advisory business. He is also a cofounder of WG Partners LP, a life sciences sector specialist financial advisor. In 2010 Mr McLennan was a founding shareholder in York Potash now Sirius Minerals which is now a FTSE250 company. Previously he was a Principal at investment bank Piper Jaffray in London. Mr McLennan commenced his career at IBM, eventually taking leadership roles in managing some of IBM’s largest clients in Europe and Australia. Other current directorships: N/A Former directorships (last 3 years): N/A Interests in shares: Interests in options: 2,000,000 ordinary shares (at date of resignation) 11,000,000 (at date of resignation) Name: Title: Experience and expertise: Harvey Kaplan (Appointed 1 February 2019, resigned 6 May 2019) Non-Executive Director Mr Kaplan is a qualified lawyer and holds a Bachelor of Laws from the University of Western Australia. His past experience includes working as a corporate solicitor for both Phillips Fix and Mallesons Stephen Jacques. Mr Kaplan spent 15 years at Macquarie Bank as an Associate Director in the Private Wealth Division. In this role he assisted in numerous corporate transactions involving listed companies. Other current directorships: Former directorships (last 3 years): N/A Interests in shares: Interests in options: nil (at date of resignation) 11,000,000 (at date of resignation) Non-Executive Director of Strategic Energy Resources (ASX: SER) 19 ShareRoot Limited Directors' report 30 June 2019 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretaries David Hwang (Appointed 22 May 2019) Mr Hwang is an experienced corporate lawyer specialising in listings on ASX (IPOs and reverse listings), equity capital markets, mergers & acquisitions and providing advice on corporate governance and compliance issues. Mr Hwang leads the company secretarial practice at Automic Group and is the Chief Compliance Officer at Automic Group. Andrew Bursill (Resigned 22 May 2019) Mr Bursill has more than 20 years of experience as CFO of ASX listed, public and private companies in tech, biotech, medical devices, mining and VC. He has CFO experience at all stages of company development from pre-revenue start- ups to $100 million plus annual turnover. Mr Bursill is a founding partner of CFO Innovation – a provider of outsourced CFO and Company Secretarial services, where he has participated in numerous successful IPOs and backdoor listings. Mr Bursill is a member of the Chartered Accountants Australia and New Zealand. Meetings of directors The number of meetings of the company's Board of Directors ('the Board') held during the year ended 30 June 2019, and the number of meetings attended by each director were: Julian Chick Damon Rasheed Marat Basyrov Lee Rodne Noah Abelson-Gertler Peter McLennan Harvey Kaplan Full Board Attended Held 3 3 3 3 3 3 - 3 3 3 3 3 3 - Held: represents the number of meetings held during the time the director held office. There were a total of 6 Board meetings held during the year ended 30 June 2019. Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: ● ● ● ● ● ● Principles used to determine the nature and amount of remuneration Details of remuneration Service agreements Share-based compensation Additional information Additional disclosures relating to key management personnel 20 ShareRoot Limited Directors' report 30 June 2019 Principles used to determine the nature and amount of remuneration The objective of the consolidated entity's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: ● ● ● ● ● Competitiveness and reasonableness Acceptability to shareholders Performance linkage / alignment of executive compensation Transparency Capital management The company has structured an executive remuneration framework that is market competitive and complimentary to the reward strategy of the organisation. Alignment to shareholders’ and program participants’ interests: Focuses on sustained growth in shareholder wealth ● Attracts and retains high calibre executives ● Rewards capability and experience ● Provides a clear structure for earning rewards ● In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and payments are reviewed annually by the board. The board may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. ASX listing rules require the aggregate non-executive directors' remuneration be determined periodically by a general meeting. The most recent determination was at the Annual General Meeting held on 30 October 2018, where the shareholders approved a maximum annual aggregate remuneration of $300,000. Voting and comments made at the Company's 2018 Annual General Meeting ('AGM') At the 2018 AGM, more than 75% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2018. The company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables. The key management personnel of the consolidated entity consisted of the following directors and employees of ShareRoot Limited: ● ● ● ● ● ● ● ● Julian Chick - Chairman - Appointed 6 May 2019 Michelle Gallaher - Chief Executive Officer - Appointed 14 March 2019 Damon Rasheed - Non-Executive Director - Appointed 1 February 2019 Marat Basyrov - Non-Executive Director - Appointed 1 March 2019 Lee Rodne - Non-Executive Chairman - Resigned 1 February 2019 Noah Abelson-Gertler - Managing Director and Chief Executive Officer - Resigned 1 March 2019 Peter McLennan - Non-Executive Director - Resigned 1 February 2019 Harvey Kaplan - Non-Executive Director - Appointed 1 February, resigned 6 May 2019 The amount of remuneration of the directors and key management personnel is set out below: 21 ShareRoot Limited Directors' report 30 June 2019 Short-term benefits Post- employment benefits Long-term benefits Share-based payments Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Long service leave $ Equity- settled shares $ Equity- settled option $ Total $ 16,667 13,333 46,667 23,333 10,580 6,087 272,516 - - - - - - - - - - - - - - 1,583 1,267 4,433 - 1,005 578 - 67,083 456,266 - - 132,500 132,500 6,373 15,239 - - - - - - - - - - - - - - - - 5,196 3,713 (12,266) (2,935) 23,446 18,313 38,834 20,398 - 11,585 882 7,547 - 272,516 - - 26,626 21,216 232,582 625,221 2019 Non-Executive Directors: Damon Rasheed* Marat Basyrov** Lee Rodne^ Peter McLennan^ Harvey Kaplan* ^^^ Executive Directors: Julian Chick*** Noah Abelson- Gertler^^ Other Key Management Personnel: Michelle Gallaher**** * Appointed 1 February 2019 ** Appointed 1 March 2019 *** Appointed 6 May 2019 **** Appointed 14 March 2019. Non-monetary benefit relates to payment of $32,500 MBA tuition fees and $100,000 forgiveness and waiver of salary advance. ^ Resigned 1 February 2019 ^^ Resigned 1 March 2019. Included in this cash component is US$75,000 (A$104,814), 5 months payment in lieu of notice termination payment ^^^ Appointed 1 February 2019, resigned 6 May 2019 22 ShareRoot Limited Directors' report 30 June 2019 Short-term benefits Post- employment benefits Long-term benefits Share-based payments Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Long service leave $ Equity- settled shares $ Equity- settled option $ Total $ 93,000 40,000 232,138 193,449 558,587 - - - - - - - - - - 8,835 - - - 8,835 - - - - - - - - - - 26,775 20,167 128,610 60,167 - - 46,942 232,138 193,449 614,364 2018 Non-Executive Directors: Lee Rodne Peter McLennan* Executive Directors: Noah Abelson- Gertler Marc Angelone** * ** Appointed 31 July 2017 Resigned 20 April 2018 The proportion of remuneration linked to performance and the fixed proportion are as follows: Name Non-Executive Directors: Damon Rasheed* Marat Basyrov** Lee Rodne^ Peter McLennan^ Harvey Kaplan* ^^^ Executive Directors: Julian Chick*** Noah Abelson-Gertler^^ Marc Angelone***** Other Key Management Personnel: Michelle Gallaher**** Fixed remuneration 2018 2019 At risk - STI At risk - LTI 2019 2018 2019 2018 78% 80% 100% 79% 100% 88% 100% - - - 79% 66% - - 100% 100% 89% - - - - - - - - - - - - - - - - - - - 22% 20% - 21% - 12% - - 11% - - 21% 34% - - - - - * Appointed 1 February 2019 ** Appointed 1 March 2019 *** Appointed 6 May 2019 **** Appointed 14 March 2019 ***** Resigned 20 April 2018 ^ Resigned 1 February 2019 ^^ Resigned 1 March 2019 ^^^ Appointed 1 February 2019, resigned 6 May 2019 23 ShareRoot Limited Directors' report 30 June 2019 Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Term of agreement: Name: Title: Agreement commenced: Term of agreement: Michelle Gallaher (Appointed 14 March 2019) Chief Executive Officer 14 March 2019 (a) Remuneration: Fixed annual salary $230,000 (inclusive of director's fees) plus 9.5% employer superannuation contribution; (b) Non-cash benefits: the Board may, at its discretion, determine that Ms Gallaher may participate in the company’s share plan, subject to shareholder and regulatory approval; payment of remaining tuition fees in relation to MBA programme provided appointment is not terminated during the initial term (ie, 12 months from commencement date); laptop computer; mobile phone and data service; forgive and waive recovery of salary advance provided agreement not terminated during the initial term of 12 months. (c) Termination: the company and Ms Gallaher may terminate the Executive Services Agreement without cause by giving the other party six months' notice. Name: Title: Agreement commenced: Term of agreement: Noah Abelson-Gertler (Resigned 1 March 2019) Managing Director and Chief Executive Officer 14 March 2016 (a) Remuneration: Fixed annual salary of US$180,000 (A$251,553) (inclusive of Director’s fees); (b) Non-cash benefits: the Board may, at its discretion, determine that Mr Abelson- Gertler will be entitled to performance based bonus payments and participation in the company’s share plan, subject to shareholder and regulatory approval. (c) Termination: the company and Mr Abelson-Gertler may terminate the Director Service Agreement without cause by giving the other party six months' notice. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2019. 24 ShareRoot Limited Directors' report 30 June 2019 Options The terms and conditions of each grant of options over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Name Number of options granted Grant date Vesting date and exercisable date Damon Rasheed * 11,000,000 8 Feb 2019 Harvey Kaplan ** 11,000,000 8 Feb 2019 Marat Basyrov * 11,000,000 21 Mar 2019 Julian Chick * 11,000,000 13 May 2019 Three equal tranches being 11 Feb20, 21 & 22 Three equal tranches being 11 Feb20, 21 & 22 Three equal tranches being 21 Mar20, 21 & 22 Three equal tranches being 13 May20, 21 & 22 Fair value per option Expiry date Exercise price at grant date 8 Feb 2024 $0.005 $0.0020 8 Feb 2024 $0.005 $0.0020 21 Mar 2024 $0.005 $0.0020 13 May 2024 $0.005 $0.0010 * ** Approved in the shareholders meeting on 30 October 2018. The options are exercisable in 12, 24 and 36 months from date of grant in equal proportion of 3,666,666 each. Approved in the shareholders meeting on 30 October 2018. The options are exercisable in 12, 24 and 36 months from date of grant in equal proportion of 3,666,666 each. These options lapsed on Mr Kaplan's resignation on 6 May 2019. Options granted carry no dividend or voting rights. Additional information The earnings of the consolidated entity for the five years to 30 June 2019 are summarised below: 2019 $ 2018 $ 2017 $ 2016 $ 2015* $ Sales revenue Loss after income tax 927,041 (3,105,138) 390,956 (3,035,627) 169,094 (3,228,403) 56,037 (6,083,488) - (4,476,738) * Operating as Monto Minerals Limited 2019 2018 2017 2016 2015* Share price at financial year end ($) 0.001 0.005 0.007 0.034 0.035 Basic earnings per share (cents per share) Diluted earnings per share (cents per share) (0.18) (0.18) (0.33) (0.33) (0.81) (0.81) (2.74) (2.74) (0.58) (0.58) * Operating as Monto Minerals Limited 25 ShareRoot Limited Directors' report 30 June 2019 Additional disclosures relating to key management personnel Shareholding The number of ordinary shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at Received as part of the start of the year remuneration Additions Disposals/ other Balance at the end of the year Ordinary shares Julian Chick (appointed 6 May 2019) * Michelle Gallaher (appointed 14 Mar 2019) * Damon Rasheed (appointed 1 Feb 2019) * Marat Basyrov (appointed 1 Mar 2019) * Lee Rodne (resigned 1 Feb 2019) ** Noah Abelson-Gertler (resigned 1 Mar 2019) ** Peter McLennan (resigned 1 Feb 2019) ** Harvey Kaplan (appointed 1 Feb 2019, resigned 6 May 2019) ** 2,420,000 - - 80,200,000 9,333,333 55,406,075 2,000,000 - 149,359,408 - - - - - - - - - 1,613,333 - - - - - - - 4,033,333 - - - - - 80,200,000 - - - (9,333,333) (55,406,075) (2,000,000) - 1,613,333 - (66,739,408) 84,233,333 - * ** the amount in "balance at the start of the year" represents balance when became a KMP the amount in "other" represents the balance at date of resignation Option holding The number of options over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year Options over ordinary shares Julian Chick (appointed 6 May 2019) * Michelle Gallaher (appointed 14 Mar 2019) * Damon Rasheed (appointed 1 Feb 2019) * Marat Basyrov (appointed 1 Mar 2019) * Lee Rodne (resigned 1 Feb 2019) ^ Noah Abelson-Gertler (resigned 1 Mar 2019) ^^ Peter McLennan (resigned 1 Feb 2019) ^^^ Harvey Kaplan (appointed 1 Feb 2019, resigned 6 May 2019) ^^^ 5,500,000 11,000,000 - 9,000,000 - 11,000,000 - 11,000,000 - - - 11,916,666 2,916,666 11,000,000 11,000,000 40,333,332 44,000,000 - - - - - - - - - - - 16,500,000 9,000,000 - - 11,000,000 - 11,000,000 - - - (11,916,666) (2,916,666) (11,000,000) (11,000,000) - (36,833,332) 47,500,000 * the amount in "balance at the start of the year" represents balance when became a KMP ^ the amount in "other" is made up of 2,916,666 expired options and 9,000,000 balance at date of resignation ^^ the amount in "other" is made up of 2,916,666 expired options ^^^ the amount in "other" represents the balance at date of resignation 26 ShareRoot Limited Directors' report 30 June 2019 Options over ordinary shares Julian Chick Michelle Gallaher Damon Rasheed Marat Basyrov Harvey Kaplan Vested options Unvested options Balance at the end of the year 5,500,000 11,000,000 16,500,000 9,000,000 6,000,000 3,000,000 - 11,000,000 11,000,000 - 11,000,000 11,000,000 - - - - - - - - - 8,500,000 39,000,000 47,500,000 Performance rights holding The number of performance rights over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year Performance rights over ordinary shares Noah Abelson-Gertler (resigned 1 Mar 2019) 45,000,000 - - (45,000,000) - * The amount in "other" refers to performance rights lapsed upon termination due to performance hurdles of revenue milestones and share price milestones not being achieved. This concludes the remuneration report, which has been audited. 27 ShareRoot Limited Directors' report 30 June 2019 Shares under option and performance rights Unissued ordinary shares of ShareRoot Limited under option at the date of this report are as follows: Grant date 07/01/2016 05/12/2016 27/06/2017 10/11/2017 21/02/2018 21/02/2018 21/02/2018 17/04/2018 06/03/2018 04/05/2018 06/02/2017 20/03/2017 01/04/2017 24/07/2018 15/10/2018 15/10/2018 15/10/2018 15/10/2018 08/02/2019 21/03/2019 13/05/2019 Expiry date 31/12/2020 05/12/2026 27/02/2022 10/11/2022 20/02/2023 05/06/2022 13/04/2022 various 04/05/2023 04/05/2023 06/02/2027 20/03/2027 various 24/07/2023 06/03/2023 06/03/2023 18/09/2023 09/06/2023 08/02/2024 21/03/2024 13/05/2024 Exercise price Number under option $0.050 21,000,000 4,248,000 $0.012 3,000,000 $0.005 3,666,667 $0.005 3,000,000 $0.006 $0.007 8,000,000 $0.005 11,842,105 4,000,000 $0.005 9,000,000 $0.005 2,500,000 $0.005 600,000 $0.008 1,491,666 $0.025 $0.006 6,000,000 $0.001 25,000,000 2,000,000 $0.004 750,000 $0.004 300,000 $0.004 $0.004 300,000 $0.005 11,000,000 $0.005 11,000,000 $0.005 11,000,000 139,698,438 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate. Shares issued on the exercise of options There were no ordinary shares of ShareRoot Limited issued on the exercise of options during the year ended 30 June 2019 and up to the date of this report. Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor. During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services There were no non-audit services provided during the financial year by the auditor. 28 ShareRoot Limited Directors' report 30 June 2019 Officers of the company who are former partners of BDO East Coast Partnership (BDO) There are no officers of the company who are former partners of BDO East Coast Partnership (BDO). Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. Auditor BDO East Coast Partnership (BDO) continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Damon Rasheed Director 30 August 2019 29 [This page has intentionally been left blank for the insertion of the auditor's independence declaration] 30 ShareRoot Limited Contents 30 June 2019 General information The financial statements cover ShareRoot Limited as a consolidated entity consisting of ShareRoot Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is ShareRoot Limited's functional and presentation currency. ShareRoot Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office is: Level 5 126 Phillip Street SYDNEY NSW 2000 A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 30 August 2019. The directors have the power to amend and reissue the financial statements. Readers please note: The presentation of these financial statements reflects the accounting required as a result of ShareRoot Limited acquiring ShareRoot Inc, which for accounting purposes, was a reverse acquisition. While ShareRoot Limited remains the parent entity for the consolidated entity, ShareRoot Inc is the parent entity for the purposes of consolidating the financial statements. Amount shown in note 27 “Parent entity information” continue to reflect the financial statements of the legal parent, ShareRoot Limited. 31 ShareRoot Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2019 Revenue from contracts with customers Other income Expenses Employee benefits expense Depreciation and amortisation expense Impairment Finance costs Occupancy costs Administration expenses Consultancy costs Corporate compliance and management Share based payments Loss before income tax expense Income tax expense Consolidated Note 2019 $ 2018 $ 4 5 927,041 390,956 1,021,615 28,517 (1,467,826) (26,033) (1,862,584) (8,747) (39,711) (1,043,110) (417,008) (55,227) (133,548) (1,607,636) (34,857) - (946) (42,185) (1,092,461) (346,420) (96,674) (233,921) (3,105,138) (3,035,627) - - 6,7 7 7 7 8 Loss after income tax expense for the year attributable to the owners of ShareRoot Limited 19 (3,105,138) (3,035,627) Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of ShareRoot Limited Basic earnings per share Diluted earnings per share 21,547 29,143 21,547 29,143 (3,083,591) (3,006,484) Cents Cents 32 32 (0.18) (0.18) (0.33) (0.33) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 32 ShareRoot Limited Statement of financial position As at 30 June 2019 Assets Current assets Cash and cash equivalents Trade and other receivables Prepayments and other deposits Total current assets Non-current assets Property, plant and equipment Intangibles Other assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Deferred revenue Total current liabilities Non-current liabilities Deferred revenue Total non-current liabilities Total liabilities Net assets/(liabilities) Equity Issued capital Reserves Accumulated losses Total equity/(deficiency) Consolidated Note 2019 $ 2018 $ 9 10 11 12 13 14 15 16 99,140 177,999 53,015 330,154 1,546,284 185,959 129,252 1,861,495 - - - - 4,918 161,658 5,653 172,229 330,154 2,033,724 480,408 203,989 48,562 732,959 514,868 - 103,179 618,047 - - 21,560 21,560 732,959 639,607 (402,805) 1,394,117 17 18 19 14,826,597 13,673,475 921,837 (13,201,195) 1,076,931 (16,306,333) (402,805) 1,394,117 The above statement of financial position should be read in conjunction with the accompanying notes 33 ShareRoot Limited Statement of changes in equity For the year ended 30 June 2019 Consolidated Balance at 1 July 2017 Issued capital $ Reserves $ Accumulated losses $ Total equity $ 9,850,132 546,263 (10,165,568) 230,827 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year - - - - 29,143 (3,035,627) - (3,035,627) 29,143 29,143 (3,035,627) (3,006,484) Transactions with owners in their capacity as owners: Shares issued during the year Costs of issue Share option reserve on recognition of remuneration options 4,197,127 (373,784) - - - 346,431 - - - 4,197,127 (373,784) 346,431 Balance at 30 June 2018 13,673,475 921,837 (13,201,195) 1,394,117 Consolidated Issued Reserves Accumulated capital $ $ losses $ Total deficiency in equity $ Balance at 1 July 2018 13,673,475 921,837 (13,201,195) 1,394,117 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year - - - - 21,547 (3,105,138) - (3,105,138) 21,547 21,547 (3,105,138) (3,083,591) Transactions with owners in their capacity as owners: Shares issued during the year Costs of issue Share option reserve on recognition of remuneration options 1,221,772 (68,650) - - - 133,547 - - - 1,221,772 (68,650) 133,547 Balance at 30 June 2019 14,826,597 1,076,931 (16,306,333) (402,805) The above statement of changes in equity should be read in conjunction with the accompanying notes 34 ShareRoot Limited Statement of cash flows For the year ended 30 June 2019 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Consolidated Note 2019 $ 2018 $ 907,689 (3,016,124) 452,266 (3,318,552) (2,108,435) 5,578 (2,866,286) 2,193 Net cash used in operating activities 31 (2,102,857) (2,864,093) Cash flows from investing activities Payment for purchase of business, net of cash acquired Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Share issue transaction costs Repayment of director loan Drawings from director loan Proceeds from borrowings Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year 28 17 17 14 9 9 (687,853) - (499,649) 3,954 (687,853) (495,695) 1,221,772 (68,650) - - 200,000 4,197,127 (260,416) 461,364 (16,177) - 1,353,122 4,381,898 (1,437,588) 1,546,284 (9,556) 1,022,110 493,804 30,370 99,140 1,546,284 The above statement of cash flows should be read in conjunction with the accompanying notes 35 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB 9 Financial Instruments The consolidated entity has adopted AASB 9 Financial Instruments from 1 July 2018, which replaced AASB 139 Financial Instruments: Recognition and Measurement. As a result, the consolidated entity has changed its accounting policy for the recognition and measurement of receivables. The adoption of AASB 9 has not had a material impact on the consolidated entity’s financial statements. AASB 15 Revenue from Contracts with Customers The consolidated entity has adopted AASB 15 Revenue from Contracts with Customers from 1 July 2018, which replaced AASB 118 Revenue. AASB 15 establishes a principles-based approach for revenue recognition whereby revenue is recognised when performance obligations are satisfied. The standard applies a five-step approach to the timing of revenue recognition and is applicable to all contracts with customers, expect those in the scope of other standards. As a result, the consolidated entity has changed its accounting policy for revenue recognition. The adoption of AASB 15 has not had a material impact on the consolidated entity’s financial statements. Accounting Standards issued but not yet adopted AASB 16 Leases The consolidated entity will adopt AASB 16 from 1 July 2019. The standard replaces AASB 117 'Leases' and for lessees eliminates the classifications of operating leases and finance leases. Except for short-term leases and leases of low-value assets, right-of-use assets and corresponding lease liabilities are recognised in the statement of financial position. Straight- line operating lease expense recognition is replaced with a depreciation charge for the right-of-use assets (included in operating costs) and an interest expense on the recognised lease liabilities (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. For classification within the statement of cash flows, the interest portion is disclosed in operating activities and the principal portion of the lease payments are separately disclosed in financing activities. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. Management has completed an assessment by reviewing all leases. Based on the work performed to date the findings indicate that the application of AASB 16 will not have a material impact on the consolidated entity’s financial statements. Comparative figures Certain comparative figures have been reclassified to reflect a more meaningful comparison. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). The financial statements have been approved and authorised for issue on 30 August 2019 by the Board of Directors. Historical cost convention The financial statements have been prepared under the historical cost convention. 36 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. Going Concern The consolidated entity has incurred net losses after tax of $3,083,591 (2018: $3,006,484) and net cash outflows from operations of $2,102,857 (2018: $2,864,093) for the year ended 30 June 2019, and had working capital deficit of $150,254 at 30 June 2019 (2018: surplus $1,346,627). Cash balance as at 30 June 2019 was $99,140 while borrowings amounted to $203,989 (as at 30 June 2018: $1,546,284 and nil respectively). These conditions give rise to a material uncertainty that casts significant doubt upon the consolidated entity’s ability to continue as a going concern. The financial report has been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. ShareRoot completed a rights issue and share placement subsequent to the year-end in July 2019 where $1.2 million was raised before capital raising costs. The money raised is to be used predominantly to scale the existing revenue-generating digital client services capabilities and capacity; complete and launch new technology projects and roll out marketing campaigns and continue the development of MediaConsent Clinical. Following the strategic and operational review (completed in April 2019), the Board and Management decided to focus on the digital health market and introduce new data and digital technologies to expand the service offerings. At the same time, it was also decided to reduce spending in other parts of the business, most notably with the closure of US R&D and corporate activities and the divestiture of recent acquisition, Ludomade. The directors have prepared a revised cash flow forecast which takes into account - commercialisation of its new AI-powered digital insights platform (Opyl) which has already shown potential as well as other ShareRoot technologies; - further reduction in expenditure for non-core parts of the business and rationalisation and streamlining of the company structure; - the change in operational focus and significant reduction in costs. This forecast indicates that the consolidated entity can continue as a going concern for at least the next 12 months. Furthermore, the directors are reviewing the Group’s ability to apply for R&D grants and other subsidies associated with moving the bulk of R&D and development activity onshore, which have not yet been factored into the cash flow forecast but will provide cash inflows to reduce the impact of R&D expenditure should they be successfully granted. Should the commercialisation of new products and platforms take longer than forecast the directors may be required to raise further capital through either equity or debt. The company has a history of being able to raise capital and debt when required and the directors are confident that should the need arise they will be able to raise sufficient funds to meet their liabilities as they fall due. Should the consolidated entity be unable to implement the above strategies or source alternative funding, it may be necessary to realise some or all assets and discharge liabilities at amounts different to those stated in the financial statements No adjustments have been made to the recoverability and classification of asset and the amount and classification of liabilities that might be necessary should the consolidated entity be unable to continue as a going concern and meet its debts as and when they fall due. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 27. The parent entity disclosure relates to the legal parent entity, ShareRoot Limited. 37 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of ShareRoot Limited ('company' or 'parent entity') as at 30 June 2019 and the results of all subsidiaries for the year then ended. ShareRoot Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. ShareRoot Inc The consolidated entity results are based on reverse acquisition principals which results in the Legal Parent (in this case, ShareRoot Limited) being accounted for as the subsidiary, while the Legal Acquiree (in this case, ShareRoot Inc), being accounted for as the parent. The excess of fair value of the shares owned by the former ShareRoot Limited shareholders and the fair value of the identifiable net assets of ShareRoot Limited immediately prior to the completion of the merger is to be accounted for under “AASB 2: Share-based Payment” (AASB 2) as an expense and was expensed to the statement of profit or loss and other comprehensive income. The net assets of ShareRoot Limited were recorded at fair value at the completion of the acquisition. Foreign currency translation The financial statements are presented in Australian dollars, which is ShareRoot Limited's functional and presentation currency. For ShareRoot Inc (accounting parent located in United States of America) and Ludomade Inc (a subsidiary located in United States of America), its functional currency is denominated in US Dollars. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. 38 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Revenue recognition Revenue from contracts with customers Revenue is recognised upon satisfaction of the performance obligation. Performance obligations differ dependent on the nature of the contracts. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Revenue from rendering of services The consolidated entity primarily generates revenue from sale of its annual subscription services, which enable its customer to access an online platform that allows them to search and source user generated content. The consolidated entity also sells advertising and contesting services that are sold in a one-off basis rather than a subscription model. The consolidated entity recognises subscription revenue over the subscription period (generally 1 year) on a straight-line basis. For contracts where the consolidated entity is able to provide advertising services for a specific contract period, advertising revenue is recognised ratably over the advertising term. Contest revenue is recognised when the contest has concluded. In relation to the revenue streams of the consolidated entity, the main revenue streams are recognised as follows: SaaS revenue - This refers to SaaS platform that customers pay for in order to be complaint in how they market to consumers, gather data and respect consumer privacy. Revenue from the sale of annual subscription services, which enable its customer to access an online platform that allows then to search and source user generated content, is recognised over the subscription period (generally 1 year) on a straight line basis. The performance obligation is satisfied over time. Retainer revenue - For retainer contracts, revenue from its social media marketing agency arm is recognised when the performance obligations are satisfied. Project revenue - Project revenue is from ad-hoc projects. For project contracts, revenue is recognised when the performance obligations are satisfied. Web revenue - Relates to Ludomade projects. For these contracts, revenue is recognised when the performance obligations are satisfied. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Deferred revenue Deferred revenue includes billings or payments received in advance of revenue recognition and is recognised as the revenue recognition criteria are met. Deferred revenue primarily consists of unearned portion of subscription fees. 39 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. ● Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are recognised when the control of ownership of the underlying sales transactions have passed to the customer in the ordinary course of business. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The consolidated entity holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Other receivables arise principally from financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less allowance for impairment. The consolidated entity has adopted a simplified approach for trade receivables with an amount equal to the full-expected credit losses to be recognised. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. 40 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Impairment of non-financial assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables Trade and other payables represent liabilities for goods and services provided to the consolidated entity prior to year end that are unpaid and arise when the consolidated entity becomes obliged to make future payments in respect of the purchase of those goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non-current. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Employee benefits Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. 41 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. 42 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of ShareRoot Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. 43 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Note 2. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Share-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the 12-month expected credit loss unless the credit risk on a financial assets has increased significantly since initial recognition in which case the lifetime ECL method is adopted. A simplified approach is used for trade receivables. These assumptions include recent sales experience and historical collection rates. Impairment of non-financial assets The consolidated entity assesses impairment of non-financial assets at each reporting date by evaluating conditions specific to the consolidated entity and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. Income tax The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The consolidated entity recognises liabilities for anticipated tax audit issues based on the consolidated entity's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Impairment of intangible assets At each reporting date, the consolidated entity reviews the carrying amount of its goodwill to determine whether there is any indication of impairment. If any such indication exists, then the recoverable amount of the goodwill is estimated. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows (CGUs) from continuing use that are largely independent of the cash inflows of other assets of CGUs. The recoverable amounts of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset of CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Note 3. Operating segments Identification of reportable operating segments Performances are monitored per individual entity basis. 44 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 3. Operating segments (continued) The Chief Operating Decision Maker (CODM) reviews cash flows, revenue, EBITDA and profit/loss before tax of each business making up the consolidated group. The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information is reported to the CODM on a monthly basis. Types of products and services The principal products and services of each of these operating segments are as follows: The Social Science ShareRoot's social media marketing agency providing client services and account management layer behind the group’s technology properties. The main revenue streams are retainer revenue and project revenue. UGC Discovery platform ShareRoot’s Legal Rights Management protecting against unauthorised use of people's social and digital content. This platform forms part of SaaS revenue in ShareRoot Inc. MediaConsent platform ShareRoot's first platform to give consumers/citizens control of their data and privacy through a preference and consent management dashboard. This platform forms part of SaaS revenue in ShareRoot Inc. Ludomade Inc. Provides consumer data and privacy compliance. The main revenue stream is web revenue. Major customers The consolidated entity does not have any single customer which contributes more than 10% of the consolidated entity's revenue. Operating segment information 2019 Revenue Sales to external customers Total revenue EBITDA Depreciation and amortisation Impairment of assets Interest revenue Finance costs Fair value adjustments - deferred consideration Share based payments Profit/(loss) before income tax expense Income tax expense Loss after income tax expense The Social ShareRoot ShareRoot ShareRoot Science $ Inc $ Ludomade $ Limited $ Ops $ Total $ 575,898 575,898 239,092 239,092 112,813 112,813 - - (196,064) - - 4,713 (4,758) (1,249,365) (5,695) (1,700,961) - - 58,769 (20,338) - - - (708,419) - (161,623) 865 (3,989) (762) (762) (762) - - - - 927,041 927,041 (2,095,841) (26,033) (1,862,584) 5,578 (8,747) - - 1,016,037 - - - - (133,548) - - 1,016,037 (133,548) (196,109) (1,939,984) 38,431 (1,006,714) (762) (3,105,138) - (3,105,138) 45 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 3. Operating segments (continued) 2018 Revenue Sales to external customers Total revenue EBITDA Depreciation and amortisation Interest revenue Finance costs Share based payments Loss before income tax expense Income tax expense Loss after income tax expense Geographical information The Social ShareRoot ShareRoot ShareRoot Science $ Inc $ Limited $ Ops $ Total $ 134,372 134,372 256,584 256,584 - - - - 390,956 390,956 (37,397) - - (946) - (38,343) (2,003,268) (34,857) - - - (2,038,125) (718,035) - 2,193 - (233,921) (949,763) (9,396) - - - - (9,396) (2,768,096) (34,857) 2,193 (946) (233,921) (3,035,627) - (3,035,627) Sales to external customers 2019 $ 2018 $ 575,136 351,905 134,372 256,584 927,041 390,956 Consolidated 2019 $ 2018 $ 927,041 390,956 Consolidated 2019 $ 2018 $ 235,109 464,607 106,298 112,813 8,214 256,584 61,548 44,129 - 28,695 927,041 390,956 Australia USA Note 4. Revenue from contracts with customers Sales from rendering of services Details: SaaS revenue Retainer revenue Project revenue Web Other Sales from rendering of services 46 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 5. Other income Net gain on disposal of property, plant and equipment Interest income Miscellaneous other income Fair value adjustment - deferred consideration relating to Ludomade Inc * Other income Consolidated 2019 $ 2018 $ - 5,578 - 1,016,037 3,719 2,193 22,605 - 1,021,615 28,517 * On 15 November 2018, the company completed the acquisition of 100% of the ordinary shares of Ludomade, Inc. (Ludomade) for upfront consideration of US$500,000 (A$687,853) plus future contingent consideration of up to US$1,000,000 (A$1,375,706) depending on the revenue and gross margin performance milestones (see note 28 Business combinations). Based on the revenue and profit in Ludomade since acquisition, management consider there to be a remote likelihood of future payment of the deferred consideration recognised on the acquisition of Ludomade. Accordingly, a fair value adjustment has been recognised to adjust the deferred consideration liability down to nil. Note 6. Impairment Details Impairment of TSS goodwill Impairment of Ludomade goodwill Total impairment Impairment testing of goodwill on acquisition Consolidated 2019 $ 2018 $ 161,623 1,700,961 1,862,584 - - - The impairment testing of goodwill involves the use of accounting estimates and assumptions. The recoverable amount of the cash generating unit is determined on the basis of value in use calculations. The value in use is calculated using a discounted cash flow methodology covering a four-year period with an appropriate terminal value before the end of year four for the cash generating unit. The value generated from the cash flow projections to arrive at a recoverable value for goodwill is then compared with the carrying value of goodwill. Assumptions used The following describes the key assumptions on which management has based its cash flow projections to undertake impairment testing of goodwill. - Cashflow forecasts: Cash flow forecasts are based on four-year valuation forecasts for growth and profitability. - Terminal value: Terminal value is calculated using a perpetuity growth formula based on the cash flow forecast for year four. Terminal growth rate is based on past performance and management's conservative expectations for future performance. The terminal growth rate assumption is 0%. - Discount rate: Discount rate used reflects a beta and equity risk premium appropriate to the consolidated entity with risk adjustments where applicable. The pre-tax discount rate used for cash generating unit is 15%. 47 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 6. Impairment (continued) The Social Science On 9 April 2018, the company completed the acquisition of 100% of the ordinary shares of The Social Science Pty Ltd (TSS). The goodwill recognised in relation to the acquisition of TSS in the 30 June 2018 full year accounts was attributable to the skills and technical talent of the employees of the acquisition and the synergies expected to be achieved from integrating the business into the consolidated entity's existing operations. Based on impairment testing of goodwill related to TSS as at 30 June 2019, the value generated from the cash flow projections to arrive at a recoverable value for goodwill indicated that the carrying value of goodwill relating to TSS should be impaired to nil. TSS' forecast cashflows do not support the initial goodwill recognised at acquisition. Ludomade On 15 November 2018, the company completed the acquisition of 100% of the ordinary shares of Ludomade, Inc. (Ludomade). Based on impairment testing of goodwill related to Ludomade as at 30 June 2019, the value generated from the cash flow projections to arrive at a recoverable value for goodwill indicated that the carrying value of goodwill relating to Ludomade should be impaired to nil. Since Ludomade's acquisition, it has failed to generate the revenues forecast at acquisition. Note 7. Expenses Consolidated 2019 $ 2018 $ 1,862,584 - 133,548 233,921 8,747 946 39,711 42,185 8,328 16,911 Loss before income tax includes the following specific expenses: Impairment Goodwill Share based payments Options issued to employees, directors and other parties Finance costs Interest and finance charges paid/payable Rental expense relating to operating leases Minimum lease payments Superannuation expense Defined contribution superannuation expense 48 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 8. Income tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Loss before income tax expense Tax at the statutory tax rate of 27.5% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Impairment of goodwill Share-based payments Fair value adjustment - deferred consideration relating to Ludomade Inc Current year tax losses not recognised Income tax expense Note 9. Current assets - Cash and cash equivalents Cash at bank Consolidated 2019 $ 2018 $ (3,105,138) (3,035,627) (853,913) (834,797) 512,210 36,725 (279,410) - 64,328 - (584,388) 584,388 (770,469) 770,469 - - Consolidated 2019 $ 2018 $ 99,140 1,546,284 49 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 10. Current assets - Trade and other receivables Trade receivables Less: Allowance for expected credit losses Other receivables Consolidated 2019 $ 2018 $ 145,866 (12,472) 133,394 144,554 - 144,554 44,605 41,405 177,999 185,959 Allowance for expected credit losses The consolidated entity has recognised a loss of $12,472 (2018: $nil) in profit or loss in respect of the expected credit losses for the year ended 30 June 2019. Management believes that the amounts that are past due by more than 30 days are still collectable in full, based on historical payment behaviour and extensive analysis of customer credit risk, including underlying customer's credit scores if they are available. The ageing of the consolidated entity's trade receivables that were not impaired was as follows: 2019 $ 2018 $ 44,972 6,721 28,178 53,523 117,475 12,351 660 14,068 133,394 144,554 Consolidated 2019 $ 2018 $ 29,309 23,706 112,394 16,858 53,015 129,252 Trade receivables Neither past due not impaired Past due 1 - 30 days Past due 31 - 90 days Past due 90+ days Total Note 11. Current assets - Prepayments and other deposits Prepayments Deposits 50 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 12. Non-current assets - Intangibles Goodwill - at cost (see note 28 Business combinations) Intellectual property - at cost Less: Accumulated amortisation Consolidated 2019 $ 2018 $ - 161,623 97,873 (97,873) - 92,941 (92,906) 35 - 161,658 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2017 Additions through business combinations (note 28) Exchange differences Amortisation expense Balance at 30 June 2018 Additions through business combinations (note 28) Impairment of TSS goodwill (note 6) Impairment of Ludomade goodwill (note 6) Amortisation expense Balance at 30 June 2019 Impairment of goodwill is discussed in note 6. Note 13. Current liabilities - Trade and other payables Trade payables Other payables and accruals Goodwill Intellectual $ Property $ Total $ - 161,623 - - 25,200 - 3,366 (28,531) 25,200 161,623 3,366 (28,531) 161,623 1,700,961 (161,623) (1,700,961) - - 35 - - - (35) - 161,658 1,700,961 (161,623) (1,700,961) (35) - Consolidated 2019 $ 2018 $ 185,094 295,314 50,544 464,324 480,408 514,868 51 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 14. Current liabilities - Borrowings Shareholder loan Consolidated 2019 $ 2018 $ 203,989 - In April 2019, A$200,000 secured loan was advanced by major shareholder Antanas Guoga ("Tony G") to the company. The loan is fully drawn and the interest on the loan is 8% pa. The amount owing at balance date including interest is reflected above. Maturity of the loan is 30 March 2020 and it is expected that the amount will be repaid on or before that date. Note 15. Current liabilities - Deferred revenue Deferred revenue Consolidated 2019 $ 2018 $ 48,562 103,179 Deferred revenue expected to be realised more than 12 months after the reporting period are presented under non-current liabilities. Note 16. Non-current liabilities - Deferred revenue Deferred revenue Consolidated 2019 $ 2018 $ - 21,560 Deferred revenue expected to be realised in 12 months or less after the reporting period are presented under current liabilities. Note 17. Equity - Issued capital Ordinary shares - fully paid 1,569,454,374 1,231,699,788 14,826,597 13,673,475 Consolidated 2019 Shares 2018 Shares 2019 $ 2018 $ 52 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 17. Equity - Issued capital (continued) Movements in ordinary share capital Details Date Shares $ Balance Issue of shares - placement Issue of shares - placement Shares issued pursuant to Rights Issue Rights Issue Shortfall Issue of shares - placement Share issue costs Balance Issue of shares - placement Issue of shares - placement Issue of shares - placement Share issue costs Balance Movements in options Details Balance Options lapsed during the year Issue of options to broker Issue of options to director Issue of options to employees Issue of options - placement Balance Options lapsed during the year Issue of options to director Issue of options to employees Issue of options - placement 1 July 2017 11 July 2017 4 September 2017 12 January 2018 22 January 2018 22 January 2018 30 June 2018 24 July 2018 29 November 2018 10 December 2018 445,554,422 178,444,002 43,978,020 143,723,344 257,063,712 162,936,288 - 9,850,132 1,070,664 307,846 718,617 1,285,319 814,681 (373,784) 1,231,699,788 13,673,475 521,272 104,254,587 568,500 189,499,999 132,000 44,000,000 (68,650) - 30 June 2019 1,569,454,374 14,826,597 Date 1 July 2017 30 June 2018 107,271,150 (73,023,150) 22,000,000 11,000,000 46,433,771 89,222,001 202,903,772 (135,555,334) 44,000,000 3,350,000 25,000,000 Balance 30 June 2019 139,698,438 Movements in performance rights Details Balance Lapse of performance rights Balance Lapse of performance rights Balance Date 1 July 2017 30 June 2018 120,000,000 (30,000,000) 90,000,000 (90,000,000) 30 June 2019 - Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. 53 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 17. Equity - Issued capital (continued) On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The consolidated entity's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current company's share price at the time of the investment. The consolidated entity is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. Note 18. Equity - Reserves Foreign currency reserve Options reserve Consolidated 2019 $ 2018 $ (372,018) 1,448,949 (393,565) 1,315,402 1,076,931 921,837 Foreign currency reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Options reserve The reserve is used to recognise the value of equity benefits provided to employees, directors and other parties as part of their remuneration and compensation for services. 54 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 18. Equity - Reserves (continued) Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2017 Foreign currency translation Options issued during the year Balance at 30 June 2018 Foreign currency translation Options issued during the year Balance at 30 June 2019 Note 19. Equity - accumulated losses Accumulated losses at the beginning of the financial year Loss after income tax expense for the year Accumulated losses at the end of the financial year Note 20. Equity - Dividends Foreign exchange reserve $ Option reserve $ (422,708) 29,143 - 968,971 - 346,431 (393,565) 21,547 - 1,315,402 - 133,547 Total $ 546,263 29,143 346,431 921,837 21,547 133,547 (372,018) 1,448,949 1,076,931 Consolidated 2019 $ 2018 $ (13,201,195) (3,105,138) (10,165,568) (3,035,627) (16,306,333) (13,201,195) There were no dividends paid, recommended or declared during the current or previous financial year. Note 21. Financial instruments Financial risk management objectives The consolidated entity's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The consolidated entity's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market risk. Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the consolidated entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the consolidated entity's operating units. Finance reports to the Board on a monthly basis. Market risk Foreign currency risk The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity's functional currency. As each of the individual entity within the group primarily transact in their own respective functional currency, foreign currency risk is deemed to be minimal. 55 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 21. Financial instruments (continued) Price risk The consolidated entity is not exposed to any significant price risk. Interest rate risk Interest rate risk is deemed to be minimal as the consolidated entity exposure on interest risk mainly on its cash at bank. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The consolidated entity obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for expected credit losses of those assets, as disclosed in the statement of financial position and notes to the financial statements. The consolidated entity does not hold any collateral. The consolidated entity deemed its credit risk to be minimal as its financial assets are mainly cash held at financial institutions. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. Liquidity risk The consolidated entity manages liquidity risk by maintaining adequate cash reserves by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Remaining contractual maturities The following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. 2019 Non-derivatives Non-interest bearing Trade payables Other payables and accruals Interest-bearing - fixed rate Other loans Total non-derivatives 2018 Non-derivatives Non-interest bearing Trade payables Other payables Total non-derivatives Weighted average interest rate % 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Remaining contractual maturities $ - - 185,094 295,314 8.00% 203,989 684,397 - - - - - - - - - - - - 185,094 295,314 203,989 684,397 Weighted average interest rate % 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Remaining contractual maturities $ - - 50,544 464,324 514,868 - - - - - - - - - 50,544 464,324 514,868 56 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 21. Financial instruments (continued) The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Fair value of financial instruments Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. Note 22. Key management personnel disclosures Directors The following persons were directors of ShareRoot Limited during the financial year: Julian Chick Damon Rasheed Marat Basyrov Harvey Kaplan Lee Rodne Peter McLennan Noah Abelson-Gertler Appointed 6 May 2019 Appointed 1 February 2019 Appointed 1 March 2019 Appointed 1 February 2019, resigned 6 May 2019 Resigned 1 February 2019 Resigned 1 February 2019 Resigned 1 March 2019 Other key management personnel The following person also had the authority and responsibility for planning, directing and controlling the major activities of the consolidated entity, directly or indirectly, during the financial year: Michelle Gallaher Appointed 14 March 2019 Compensation The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below: Short-term employee benefits Post-employment benefits Share-based payments Note 23. Remuneration of auditors Consolidated 2019 $ 2018 $ 588,766 15,239 21,216 558,587 8,835 46,942 625,221 614,364 During the financial year the following fees were paid or payable for services provided by BDO East Coast Partnership (BDO), the auditor of the company: Audit services - BDO East Coast Partnership (BDO) Audit or review of the financial statements Consolidated 2019 $ 2018 $ 72,000 62,500 57 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 24. Contingent liabilities The Social Science On 9 April 2018, the company completed the acquisition of 100% of the ordinary shares of The Social Science Pty Ltd (TSS) for $500,000 plus future contingent consideration of up to $333,333 depending on revenue performance milestones as outlined below. As part of the Purchase Agreement, the vendors of The Social Science are entitled to receive performance shares in the company (Shares) equal to the Tranche 2 Consideration Securities ($166,667 worth of Shares calculated at 30-day VWAP as at 30 June 2019) and Tranche 3 Consideration Securities ($166,667 worth of Shares calculated at 30-day VWAP as at 30 June 2020). The revenue performance milestones for the contingent consideration are: - Tranche 2 - during the 12 month period from 1 July 2018 to 30 June 2019, minimum of $900,000 revenue - Tranche 3 - during the 12 month period from 1 July 2019 to 30 June 2020, minimum of $1,200,000 revenue At acquisition date management consider these to be stretch targets and as such considered remote in the likelihood of settlement and as such are considered a contingent liability. Ludomade On 15 November 2018, the company completed the acquisition of 100% of the issued capital of Ludomade Inc. (a Delaware corporation) for US$500,000 (A$687,853), refer note 28 Business combinations, plus future consideration of up to an additional US$1,000,000 (A$1,375,706) to be paid as follows: - 25% of revenues earned over the 39 whole months immediately following acquisition, up to a total of US$500,000 (A$687,853) ; plus - 25% of profits earned over the 39 whole months immediately following acquisition, up to a total of US$500,000 (A$687,853) At balance sheet date management considered these to be achievable targets based on the forecast revenues provided at that time. These were initially taken up as deferred consideration as a balance sheet liability. As at 30 June 2019, the forecast revenue and profit are considered to be stretch targets and as such considered remote in the likelihood of settlement. The deferred consideration has been derecognised as at 30 June 2019. Given the uncertainty of the timing and amounts of the future purchase consideration, these are now recognised as a contingent liability. Shareholder loan On 1 April 2019, Mr Antanas Guoga ("Tony G") advanced a loan $200,000 loan to the company with maturity 30 March 2020. The loan may be convertible to fully paid ordinary shares in the capital of the company as the discretion of the company. The conversion to fully paid ordinary shares may be in part or in full, with the balance being paid in cash. Note 25. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year Consolidated 2019 $ 2018 $ 49,500 - 58 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 26. Related party transactions Parent entity ShareRoot Limited is the legal parent entity. For the purposes of consolidating the financial statements, ShareRoot Inc is deemed to be the accounting parent entity. Subsidiaries Interests in subsidiaries are set out in note 29. Key management personnel Disclosures relating to key management personnel are set out in note 22 and the remuneration report included in the directors' report. Transactions with related parties The following transactions occurred with related parties: Consolidated 2019 $ 2018 $ Payment for goods and services: Payment to Franks & Associates Pty Limited, associated with Andrew Bursill, for accounting and company secretarial services. Andrew Bursill was a director in ShareRoot Limited, resigning 31 July 2017 Payment to Aretex Pty Limited, associated with Andrew Bursill, for bookkeeping services. Andrew Bursill was a director in ShareRoot Limited, resigning 31 July 2017 - - 93,913 19,327 Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties Michelle Gallaher has drawings from the company corporate credit card which are to be repaid to the company. The balance outstanding as at 30 June 2019 is A$15,823 (2018: A$16,177). In April 2019, A$200,000 secured loan was advanced by major shareholder Antanas Guoga ("Tony G") to the company. The loan is fully drawn and the interest on the loan is 8% pa. The amount owing at balance date including interest is A$203,989. Maturity of the loan is 30 March 2020 and it is expected that the amount will be repaid on or before that date. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Note 27. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Loss after income tax Total comprehensive income 59 Parent 2019 $ 2018 $ (803,634) (1,006,294) (803,634) (1,006,294) ShareRoot Limited Notes to the financial statements 30 June 2019 Note 27. Parent entity information (continued) Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Options reserve Accumulated losses Total equity/(deficiency) Parent 2019 $ 2018 $ 10,879 877,221 10,879 877,221 413,813 237,389 413,813 237,389 16,653,323 16,991,196 1,514,347 (17,865,711) 1,613,088 (18,669,345) (402,934) 639,832 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2019 and 30 June 2018. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2019 and 30 June 2018. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2019 and 30 June 2018. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following: ● ● ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in associates are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 28. Business combinations On 15 November 2018, the company completed the acquisition of 100% of the ordinary shares of Ludomade, Inc. (Ludomade) for upfront consideration of US$500,000 (A$687,853) plus future contingent consideration of up to US$1,000,000 (A$1,375,706) depending on the revenue and gross margin performance milestones as outlined below. As part of the Stock Purchase Agreement, the vendors of Ludomade are entitled to receive up to an additional US$1,000,000 (A$1,375,706) to be paid as follows: (i) Twenty five percent (25%) of revenues earned over the thirty-nine (39) whole months immediately following acquisition date. Revenues shall be calculated and paid on a monthly basis, up to a total of US$500,000 (A$687,853); plus (ii) Twenty five percent (25%) of profits earned over the thirty-nine (39) whole months immediately following acquisition date. Profits shall be calculated and paid on a quarterly basis, up to a total of US$500,000 (A$687,853). The acquired business contributed revenue of A$112,813 and income after tax of A$38,431 to the consolidated entity for the period from 15 November 2018 to 30 June 2019. If the acquisition occurred on 1 July 2018, the full year contributions would have been revenues of A$180,600 and income after tax of A$61,523. 60 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 28. Business combinations (continued) The initial accounting for the business combination was provisional due to the uncertainty around the fair value of assets and liabilities at acquisition date. This was reassessed at year end 30 June 2019. Assumptions used The following describes the key assumptions on which management has based its cash flow projections to undertake impairment testing of goodwill. - Cashflow forecasts: Cash flow forecasts are based on four-year valuation forecasts for growth and profitability. - Terminal value: Terminal value is calculated using a perpetuity growth formula based on the cash flow forecast for year four. Terminal growth rate is based on past performance and management's conservative expectations for future performance. The terminal growth rate assumption is 0%. - Discount rate: Discount rate used reflects a beta and equity risk premium appropriate to the consolidated entity with risk adjustments where applicable. The pre-tax discount rate used for cash generating unit is 15%. Fair value adjustment of deferred consideration Based on the revenue and profit in Ludomade since acquisition, management consider there to be a remote likelihood of future payment of the deferred consideration. Accordingly, a fair value adjustment has been recognised in other income (see note 5) to adjust the deferred consideration liability down to nil. The deferred consideration is now considered a contingent liability (see note 24). 61 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 28. Business combinations (continued) Impairment testing of goodwill on acquisition The impairment testing of goodwill involves the use of accounting estimates and assumptions. The recoverable amount of the cash generating unit is determined on the basis of value in use calculations. The value in use is calculated using a discounted cash flow methodology covering a four-year period with an appropriate terminal value before the end of year four for the cash generating unit. The value generated from the cash flow projections to arrive at a recoverable value for goodwill is then compared with the carrying value of goodwill. Based on impairment testing of goodwill related to Ludomade as at 30 June 2019, the value generated from the cash flow projections to arrive at a recoverable value for goodwill indicated that the carrying value of goodwill relating to Ludomade should be impaired to nil (see note 6). The fair value of the assets and liabilities acquired as at the date of acquisition and used for provisional accounting were as follows: Prepayments Plant and equipment Other payables Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid to vendor Deferred consideration Note 29. Interests in subsidiaries Fair value $ 6,722 19,842 (23,635) 2,929 1,700,961 1,703,890 687,853 1,016,037 1,703,890 (a) Ultimate parent ShareRoot Limited is the ultimate parent entity and the parent entity of the consolidated entity from a legal perspective. For accounting purposes, ShareRoot Inc is the deemed ultimate parent of the consolidated entity in line with reverse acquisition accounting. (b) Corporate structure The legal corporate structure of the consolidated entity is set out below; Name Legal parent ShareRoot Limited Legal subsidiaries ShareRoot Inc ShareRoot (Australian Ops) Pty Ltd The Social Science Pty Ltd Ludomade, Inc Ownership interest 2018 2019 % % - - - - - - 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% - Principal place of business / Country of incorporation Australia United States of America Australia Australia United States of America 62 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 30. Events after the reporting period Although the company finished the year with A$99k in cash, in July 2019 it completed a successful Rights Issue and placement of $1.2 million before costs, with an oversubscription of shortfall shares leaving the company in a stronger cash position with funds available to progress its rapidly developing digital health agenda. In July 2019, the company announced that it plans to divest the Ludomade business as it is considered non-core to ShareRoot's future strategic direction. ShareRoot is in discussion with a number of potential interested parties. No other matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years. Note 31. Reconciliation of loss after income tax to net cash used in operating activities Consolidated 2019 $ 2018 $ Loss after income tax expense for the year (3,105,138) (3,035,627) Adjustments for: Depreciation and amortisation Impairment of goodwill Share-based payments Other non-cash movement Fair value adjustment of deferred consideration in relation to Ludomade Change in operating assets and liabilities: Decrease in trade and other receivables Decrease/(increase) in prepayments Decrease/(increase) in other non-current assets Decrease in trade and other payables Increase/(decrease) in deferred revenue Net cash used in operating activities 26,033 1,862,584 133,548 - (1,016,037) 34,857 - 233,921 (4,577) - 7,960 82,959 5,653 (24,242) (76,177) 3,614 (96,685) (205) (61,542) 62,151 (2,102,857) (2,864,093) 63 Note 32. Earnings per share Consolidated 2019 $ 2018 $ Loss after income tax attributable to the owners of ShareRoot Limited (3,105,138) (3,035,627) Weighted average number of ordinary shares used in calculating basic earnings per share 1,694,417,552 906,305,094 Weighted average number of ordinary shares used in calculating diluted earnings per share 1,694,417,552 906,305,094 Number Number Basic earnings per share Diluted earnings per share Cents Cents (0.18) (0.18) (0.33) (0.33) 64 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) Note 33. Options A share option plan has been established by the consolidated entity and approved by shareholders at a general meeting, whereby the consolidated entity may, at the discretion of the Board of Directors, grant options over ordinary shares in the company to certain personnel of the consolidated entity. Share options are issued at nil consideration. In additional, options may also be issued to advisers of the company for example to assist with capital raising activities. Set out below are summaries of options granted under the plan: 2019 Grant date Expiry date price Exercise Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 07/01/2016 05/12/2016 27/06/2017 11/07/2017 10/11/2017 21/02/2018 21/02/2018 21/02/2018 17/04/2018 19/02/2018 05/04/2018 05/04/2018 18/04/2018 06/03/2018 04/05/2018 06/02/2017 20/03/2017 20/03/2017 20/03/2017 01/04/2017 01/04/2017 01/04/2017 01/04/2017 26/01/2018 24/07/2018 15/10/2018 15/10/2018 15/10/2018 15/10/2018 08/02/2019 21/03/2019 08/02/2019 13/05/2019 31/12/2020 05/12/2026 27/06/2022 31/12/2018 10/11/2022 20/02/2023 05/06/2022 13/04/2022 17/04/2023 19/02/2023 05/04/2023 05/04/2018 18/04/2023 04/05/2023 04/05/2023 06/02/2027 20/03/2027 22/03/2027 20/03/2027 01/04/2027 01/04/2027 01/04/2027 01/04/2027 26/02/2028 24/07/2023 06/03/2018 06/03/2023 18/09/2023 09/06/2023 08/02/2024 21/03/2024 08/02/2024 13/05/2024 $0.000 21,000,000 4,248,000 $0.000 $0.000 9,000,000 $0.000 22,000,000 $0.000 11,000,000 3,000,000 $0.000 $0.000 8,000,000 $0.000 11,842,105 300,000 $0.000 3,000,000 $0.000 200,000 $0.000 200,000 $0.000 300,000 $0.000 9,000,000 $0.000 2,500,000 $0.000 600,000 $0.000 425,000 $0.000 566,666 $0.000 500,000 $0.000 1,500,000 $0.000 750,000 $0.000 1,500,000 $0.000 1,500,000 $0.000 $0.000 750,000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 - - - - - - - - - - - - - - - - - - - - - - - - - 25,000,000 2,000,000 - 750,000 - 300,000 - - 300,000 - 11,000,000 - 11,000,000 - 11,000,000 - 11,000,000 113,681,771 72,350,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (6,000,000) (22,000,000) (7,333,333) - - - - - - - - - - - - - - - - - - - - - - - - - - (11,000,000) - 21,000,000 4,248,000 3,000,000 - 3,666,667 3,000,000 8,000,000 11,842,105 300,000 3,000,000 200,000 200,000 300,000 9,000,000 2,500,000 600,000 425,000 566,666 500,000 1,500,000 750,000 1,500,000 1,500,000 750,000 25,000,000 2,000,000 750,000 300,000 300,000 11,000,000 11,000,000 - 11,000,000 (46,333,333) 139,698,438 65 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) 2018 Grant date Expiry date price Exercise Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 07/01/2016 05/12/2016 13/12/2016 27/06/2017 21/02/2018 21/02/2018 21/02/2018 11/07/2017 09/11/2017 01/04/2017 01/04/2017 06/02/2017 20/03/2017 20/03/2017 20/03/2017 26/01/2018 05/04/2018 05/04/2018 19/02/2018 01/04/2017 01/04/2017 17/04/2018 18/04/2018 06/03/2018 04/05/2018 31/12/2020 05/12/2026 31/12/2017 27/06/2022 05/06/2022 20/02/2023 13/04/2022 31/12/2018 10/11/2022 01/04/2027 01/04/2027 06/02/2027 20/03/2027 20/03/2027 20/03/2027 26/01/2028 05/04/2023 05/04/2023 20/02/2023 01/04/2027 01/04/2027 17/04/2023 18/04/2023 04/05/2023 04/05/2023 - $0.050 21,000,000 - $0.012 7,559,838 - $0.050 14,272,500 - 9,000,000 $0.006 8,000,000 - $0.007 - $0.005 3,000,000 - 11,842,105 $0.005 - 22,000,000 $0.010 - 11,000,000 $0.005 1,500,000 - $0.006 750,000 - $0.006 600,000 - $0.008 425,000 - $0.025 566,666 - $0.025 500,000 - $0.025 750,000 - $0.006 200,000 - $0.005 200,000 - $0.005 3,000,000 - $0.006 1,500,000 - $0.006 1,500,000 - $0.006 300,000 - $0.005 300,000 - $0.005 9,000,000 - $0.005 2,500,000 - $0.005 51,832,338 79,433,771 The weighted average of the options remaining life is 3.9 years (2018: 3.7 years) - - - - - - - - - - - - - - - - - - - - - - - - - - - (3,311,838) (14,272,500) - - - - - - - - - - - - - - - - - - - - - - 21,000,000 4,248,000 - 9,000,000 8,000,000 3,000,000 11,842,105 22,000,000 11,000,000 1,500,000 750,000 600,000 425,000 566,666 500,000 750,000 200,000 200,000 3,000,000 1,500,000 1,500,000 300,000 300,000 9,000,000 2,500,000 (17,584,338) 113,681,771 66 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) Set out below are the options exercisable at the end of the financial year: Grant date Expiry date 07/01/2006 05/12/2016 27/06/2017 11/07/2017 10/11/2017 21/02/2018 21/02/2018 21/02/2018 17/04/2018 19/02/2018 05/04/2018 05/04/2018 18/04/2018 06/03/2018 04/05/2018 06/02/2017 20/03/2017 20/03/2017 20/03/2017 01/04/2017 01/04/2017 01/04/2017 01/04/2017 26/01/2018 24/07/2018 15/10/2018 15/10/2018 15/10/2018 15/10/2018 31/12/2020 05/12/2026 27/06/2022 31/12/2018 10/11/2022 20/02/2023 05/06/2022 13/04/2022 17/04/2023 19/02/2023 05/04/2023 05/04/2023 18/04/2023 04/05/2023 04/05/2023 06/02/2027 20/03/2027 20/03/2027 20/03/2027 01/04/2027 01/04/2027 01/04/2027 01/04/2027 26/01/2028 24/07/2023 06/03/2023 06/03/2023 18/09/2023 09/06/2023 2019 Number 2018 Number 2,956,000 3,000,000 21,000,000 21,000,000 4,248,000 - 22,000,000 22,000,000 3,666,667 11,000,000 3,000,000 3,000,000 8,000,000 8,000,000 11,842,105 11,842,105 - - - - - - - 225,000 150,000 200,000 200,000 375,000 187,500 375,000 375,000 - - - - - - 100,000 1,000,000 66,667 66,667 100,000 3,000,000 2,500,000 300,000 290,000 380,000 350,000 375,000 375,000 562,500 750,000 187,500 8,333,334 1,333,334 500,000 100,000 100,000 96,234,774 83,177,605 For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date 24/07/2018 15/10/2018 15/10/2018 15/10/2018 15/10/2018 08/02/2019 21/03/2019 08/02/2019 13/05/2019 24/07/2023 06/03/2023 06/03/2023 18/09/2023 09/06/2023 08/02/2024 21/03/2024 08/02/2024 13/05/2024 Share price Exercise at grant date price Expected volatility Dividend Risk-free Fair value yield interest rate at grant date $0.006 $0.004 $0.004 $0.006 $0.004 $0.002 $0.002 $0.002 $0.001 $0.001 $0.004 $0.004 $0.004 $0.004 $0.005 $0.005 $0.005 $0.005 158.00% 176.00% 176.00% 148.00% 170.00% 299.00% 299.00% 299.00% 299.00% - - - - - - - - - 2.31% 2.40% 2.40% 2.22% 2.43% 1.72% 1.54% 1.72% 1.34% $0.0060 $0.0038 $0.0038 $0.0036 $0.0038 $0.0020 $0.0020 $0.0020 $0.0010 67 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) In the directors' opinion: ● ● ● ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at 30 June 2019 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Damon Rasheed Director 30 August 2019 68 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) 69 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) 70 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) 71 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) [This page has intentionally been left blank for the insertion of page two of the independent auditor's report] 72 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) The shareholder information set out below was applicable as at 26 August 2019. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: Number of holders of options Number of holders of ordinary ordinary over 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: shares shares 2,045 175 74 372 945 3,611 - - - - - 38 38 - Ordinary shares % of total shares issued Number held MR ANTANAS GUOGA SCINTILLA STRATEGIC INVESTMENTS LIMITED REWOP PTY LTD (SCOTT POWER SUPER FUND A/C) MR MARAT BASYROV DR DEREK ANTHONY JELLINEK MR GAVIN JEREMY DUNHILL NOAH ABELSON MRS LUYE LI MR ELIE CHAKKOUR RCKC NOMINEES PTY LTD MRS JACINTA MAY WILKIE DR THOMAS PETER CLARKE & MRS GILDA FRANCES CLARKE (TP&GF CLARKE SUPER FUND A/C) MR YEQIAN GENG & MRS YAN HUO FUTURE LAND LIMITED MR ANDREW RICHARD JACKSON BALL MR PETER BI MARC ANGELONE LAWCKO PTY LTD (LAWCKO FAMILY A/C) MR LEGH DAVIS & MRS HELEN DAVIS (SUPER A/C) SUPERTANK PTY LTD (SUPERTANK SUPERFUND A/C) 267,863,231 120,259,778 84,066,996 73,000,000 68,315,333 50,000,000 49,118,821 45,000,000 40,000,000 33,000,000 29,525,000 27,783,000 26,666,666 25,904,022 25,560,393 25,000,000 24,952,155 21,500,000 20,916,000 20,916,000 9.40 4.22 2.95 2.56 2.40 1.75 1.72 1.58 1.40 1.16 1.04 0.98 0.94 0.91 0.90 0.88 0.88 0.75 0.73 0.73 1,079,347,395 37.88 73 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) Twenty largest unquoted equity security holders The names of the twenty largest security holders of unquoted equity securities are listed below: MR ANTANAS GUOGA JULIAN CHICK FOSTER STOCKBROKING PTY LTD BLARNEY VENTURES MR MARAT BASYROV DAMON RASHEED MICHELLE GALLAHER JASON WEAVER (WEAVER FAMILY A/C) PETER MCLENNAN LEE RODNE THOMAS RIESTER OLENA DOPIRO JULIAN CHICK CONSULTING EMMA GALLAHER NWR COMMUNICATIONS PTY LTD PRECISION CAPITAL MANAGEMENT PTY LTD SCOTT MISON (THE SCOTT MISON FAMILY A/C) OLENA DOPIRO MARA LU HERRERA COHEN SHANE LEWIS Options over ordinary shares % of total options issued Number held 25,000,000 14,000,000 14,000,000 11,842,105 11,000,000 11,000,000 9,000,000 8,000,000 3,666,667 3,000,000 3,000,000 2,608,800 2,500,000 2,000,000 1,750,000 1,750,000 1,750,000 1,500,000 1,500,000 1,500,000 17.90 10.02 10.02 8.48 7.87 7.87 6.44 5.73 2.62 2.15 2.15 1.87 1.79 1.43 1.25 1.25 1.25 1.07 1.07 1.07 130,367,572 93.30 74 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) Unquoted equity securities Unlisted Option expiry and exercise price UNL OPTIONS EXP 31/12/2020 @ $0.05 UNL OPTIONS EXP 10YRS GRANT DAY @ $0.012 UNL OPTIONS EXP 27/06/2022 @ $0.005 UNL OPTIONS EXP 10/11/2022 @ $0.005 UNL OPTIONS EXP 20/02/2023 @ $0.006 UNL OPTIONS EXP 05/06/2022 @ $0.007 UNL OPTIONS EXP 13/04/2022 @ $0.005 UNL OPTIONS EXP 17/04/23 @ $0.005 UNL OPTIONS EXP 19/02/23 @ $0.005 UNL OPTIONS EXP 05/04/23 @ $0.005 UNL OPTIONS EXP 18/04/23 @ $0.005 UNL OPTIONS EXP 04/05/23 @ $0.005 UNL OPTIONS EXP 06/02/27@ $0.008 UNL OPTIONS EXP 20/03/27@ $0.025 UNL OPTIONS EXP 01/04/27@ $0.006 UNL OPTIONS EXP 26/01/28 @ $0.006 UNL ESS OPT EXP 24/07/2023 @ $0.01 UNL OPT EXP 6/03/2023 @ $0.004 UNL OPT EXP 18/09/2023 @ $0.004 UNL OPT EXP 9/06/2023 @ $0.004 UNL OP EX 8/2/2024 @ $0.005 UNL OP EX 21/3/24 @ $0.005 UNL OP EXP 13/5/24 @ $0.005 Substantial holders Substantial holders in the company are set out below: MR ANTANAS GUOGA MR ANTANAS GUOGA FOSTER STOCKBROKING PTY LTD JULIAN CHICK BLARNEY VENTURES DAMON RASHEED MR MARAT BASYROV MICHELLE GALLAHER JASON WEAVER (WEAVER FAMILY A/C) 75 Number on issue Number of holders 21,000,000 4,248,000 3,000,000 3,666,667 3,000,000 8,000,000 11,842,105 300,000 3,000,000 400,000 300,000 11,500,000 600,000 1,491,666 5,250,000 7,500,000 25,000,000 2,750,000 300,000 300,000 11,000,000 11,000,000 11,000,000 6 4 1 1 1 1 1 1 1 2 1 2 1 3 4 1 1 2 1 1 1 1 1 Ordinary shares % of total shares issued Number held 189,333,333 6.65 Options over ordinary shares % of total options issued Number held 25,000,000 14,000,000 14,000,000 11,842,105 11,000,000 11,000,000 9,000,000 8,000,000 17.90 10.02 10.02 8.48 7.87 7.87 6.44 5.73 ShareRoot Limited Notes to the financial statements 30 June 2019 Note 31. Reconciliation of loss after income tax to net cash used in operating activities (continued) Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Options All quoted and unquoted options do not carry any voting rights. 76 77 78 CORPORATE DIRECTORY Directors Dr Julian Chick - Chairman and Non-Executive Director - Appointed 6 May 2019 Damon Rasheed - Non-Executive Director - Appointed 1 February 2019 Marat Basyrov - Non-Executive Director - Appointed 1 March 2019 Harvey Kaplan - Non-Executive Director - Appointed 1 February 2019, resigned 6 May 2019 Lee Rodne - Non-Executive Chairman - Resigned 1 February 2019 Noah Abelson-Gertler - Managing Director and CEO - Resigned 1 March 2019 Peter McLennan - Non-Executive Director - Resigned 1 February 2019 Company Secretary David Hwang - Appointed 22 May 2019 Andrew Bursill - Resigned 22 May 2019 Registered Office Principal place of business Share Register Level 5, 126 Phillip Street Sydney NSW 2000, Australia Telephone: +61 2 8072 1440 Engine House 105 Wellington Street St Kilda VIC 3182, Australia Automic Pty Ltd Level 5, 126 Phillip Street Sydney NSW 2000, Australia Telephone: +1300 288 664 (within Australia); +61 2 9698 5414 (outside Australia) Email: hello@automic.com.au Auditors BDO East Coast Partnership (BDO) Level 11, 1 Margaret Street Sydney NSW 2000, Australia Solicitors Automic Legal Pty Ltd Level 5, 126 Phillip Street Sydney NSW 2000, Australia Vault Legal 102 / 15 Corporate Drive Moorabbin VIC 3189, Australia Vasquez Benisek & Lindgren LLP 3685 Mt. Diablo Blvd., Ste. 300 Lafayette CA 94549, USA Bankers Westpac Banking Corporation Level 13 109 St Georges Tce Perth WA 6000, Australia First Republic Bank 44 Montgomery Street San Francisco, CA 94104, USA Stock Exchange Listing ShareRoot Limited shares are listed on the Australian Securities Exchange (ASX code: SRO) Website www.shareroot.co Corporate Governance Statement www.shareroot.co/investors 

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