RightCrowd
Annual Report 2018

Plain-text annual report

RIGHTCROWD LIMITED AND CONTROLLED ENTITIES ANNUAL REPORT RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 RIGHTCROWD LIMITED AND CONTROLLED ENTITIES A.B.N. 20 108 411 427 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 RightCrowd Limited Chairman’s Report For the year ended 30 June 2018 Dear Shareholder The Board of RightCrowd Limited (RCW) is pleased to provide the 2018 annual report. In this report we set out RCW’s financial results for the year ended 30 June 2018, its financial position at that date and commentary on its activities and outlook. The completion of the IPO in September 2017 was a key enabler for the Company to achieve market share in the anticipated growth in the market for physical security and compliance. Since the IPO, dedicated sales and marketing teams have been established, marketing collateral has been developed, the web site has been refreshed, and our software implementation and development teams have been increased. Execution of our strategy has delivered both sales and insights. The details of significant sales have been outlined in our Quarterly market announcements. We have also previously mentioned that some larger opportunities have long sales cycles which makes forecasting the timing of significant sales difficult. Notwithstanding that market dynamic, RCW has achieved increased revenue from new and existing customers and currently has multiple late stage sales opportunities in relation to new projects There is continuing confidence that the opportunity in the market for revenue growth is there. The Company achieved a 33.1% growth in software sales and software consulting revenue in FY 2018 and the management team expects growth to be at least this number in the FY 2019 year. From a financial perspective, RCW increased its revenue from continuing operations from $4,146,976 in FY 2017 to $5,520,755 in FY2018. As outlined in the IPO Prospectus and previous announcements it also invested in building the capabilities to sell, market, develop and deliver its solutions. All monies spent on these activities were expensed as incurred. As a result, the net loss for the year increased from $4,697,428 (FY 2017) to $5,120,083 (FY 2018). Cash at bank at 30 June 2018 was $6,609,297. In addition, RCW expects to receive an R&D tax incentive rebate of at least $1,750,000 in the next quarter. Finally, I would like to thank our entire team and all of our clients and partners for their support in this transformative year for RCW. Our team, led by Peter Hill, have shown great expertise and commitment in the execution of the Company’s strategies. I look forward to speaking with you, our shareholders, at the Company’s AGM. Yours sincerely Robert Baker Non-executive Chairman RightCrowd Limited RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 Results for Announcement to the Market Key Information Total Revenue Loss from ordinary activities after tax attributable to members 2018 $ 2017 $ % Change 9,381,950 5,997,148 56.44% (5,120,083) (4,697,428) (9.00%) Statement of Retained Earnings Showing Movements Balance at the beginning of the year 2018 $ 2017 $ (8,455,911) (3,758,483) Cash settlement of convertible note equity component 751,936 - Net (loss) attributable to members of the parent entity (5,120,083) (4,697,428) Balance at the end of the year (12,824,058) (8,455,911) Dividends / Distributions Interim dividend Final dividend Amount per security Franked amount per security 0.0c 0.0c 0.0c 0.0c Statement of Profit or Loss and Other Comprehensive Income with Notes to the Statement Refer to pages 15–56 of the 30 June 2018 financial report and accompanying notes for RightCrowd Limited. Statement of Financial Position with Notes to the Statement Refer to pages 16–56 of the 30 June 2018 financial report and accompanying notes for RightCrowd Limited. Statement of Cash Flows with Notes to the Statement Refer to pages 17–56 of the 30 June 2018 financial report and accompanying notes for RightCrowd Limited. Control Gained or Lost over Entities in the Year There was no change to the Group’s ownership of entities during the year ended 30 June 2018 having acquired a 100% interest of Reporia Pty Ltd on 29 March 2017. Reporia Pty Ltd owns intellectual property (IP). The IP is being developed by wholly owned subsidiaries of RightCrowd Limited. Reporia Pty Ltd contributed NIL profit to the Group’s consolidated profit from ordinary activities during the year ended 30 June 2018. (2017: NIL) RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 Commentary on the Results for the Period The Board are satisfied that the Company is making solid progress against the plans detailed in the IPO Prospectus (company shares commenced trading on the ASX on 18 September 2017) and at the Company's AGM in November 2017. Over the 2018 financial year, the Company grew revenue for software and related services from $4.147m (2017) to $5.521m, a growth of 33.1%. This growth has come from new software deployments and strong growth from services revenue from both new and existing customers. Total Other Income for the year included a one off Other Revenue item from settlement of the shadow equity share plan totalling $1.823m. The Company has continued with its, previously outlined, plan to invest in additional staff in order to commercialise the RightCrowd software solutions for the global market and this was the primary reason for the IPO. The outcome of this was an increase in the overall cost base and a loss for the year of $5.120m. This result is at the level that was expected for the first year of the business cycle following the IPO. During the year there has been a continued focus on developing the RightCrowd technologies and the Company has invested in excess of $4m on R&D in Australia and this has allowed it to submit a claim for an R&D tax incentive which should result in a cash rebate of approximately $1.75m. This activity will continue in the years to come as RightCrowd brings new innovative solutions to its market. The IPO has removed all the convertible note debt from the Company’s Statement of Financial Position as the holders were either repaid or converted to ordinary shareholders. The cash position at the end of the financial year was $6.609m with trade receivables of $1.116m and a receivable for an R&D tax credit cash rebate of $1.75m. This would give the Company approximately $9.4m of available cash to use in 2019 financial year to continue operating the business plan. During the financial year the Company announced a number of closed sales contracts including a sales contract with an Australian Government owned entity across selected locations nationally and two contracts with banking and financial services industry customers. One of these was in Australia and the second was a US Bank with subscription and implementation revenue of around $500k. The revenue for the latter contract will be earned in FY2019. In addition, the Company has signed and announced a contract to provide services to a large existing customer and the work will be carried out in the first quarter of FY 2019 and is valued at approximately $650k. The Board is of the opinion that these closed contracts are a good indicator of the sales momentum the Company has generated in the market. The Company continues to see significant interest from national and multi-national companies, including some in new market segments aiming to improve their physical security processes and achieve the productivity improvements offered by the RightCrowd solutions. Potential mid and large scale implementations are a complex buying decision for organisations, and the initial purchase decision and contract negotiation typically requires an extended timeframe to complete. RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 CONTENTS Corporate Governance Statement Directors’ Report Remuneration Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Additional Information for Listed Public Companies 1 2 7 14 15 16 17 18 19 57 58 61 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 CORPORATE GOVERNANCE STATEMENT RightCrowd Limited and the board are committed to achieving and demonstrating the highest standards of corporate governance. RightCrowd Limited has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. The corporate governance statement is dated as at 30 June 2018 and reflects the corporate governance practices in place throughout the 2018 financial year. The corporate governance statement was approved by the board on 18 September 2018. A description of the Group's current corporate governance practices is set out in the Group's corporate governance statement which can be viewed at https://www.rightcrowd.com/about-us/investor-relations/. Page 1 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT General Information Directors Your directors present their report on the consolidated entity (referred to herein as the Group or RightCrowd) consisting of RightCrowd Limited and its controlled entities for the financial year ended 30 June 2018. The names of directors in office at any time during or since the end of the year are: Mr Robert Baker Non-executive Chairman. Appointed 6 August 2017. Robert Baker has worked in both Australia and the UK. His main expertise and practice area was external audit, internal audit, financial reporting, internal control assessments and accounting advice. His business acumen resulted in clients (including ASX 100 companies) also engaging him to provide business and due diligence services. Robert Baker has had nearly a decade of board experience. He has had experience as a board member of PricewaterhouseCoopers (2008-2013) serving its Finance, Country Admissions (nominations) and Partner Evaluation and Income (remuneration) Committees and has also been a Managing Partner in the Brisbane Office. He is currently a Director of Flight Centre Travel Group Limited (ASX: FLT) and has held that role since September 2013. He is also Chairman of Goodman Private Wealth Ltd and is an Advisory Board member for several not for profit organisations. Mr Peter Hill Managing Director and Chief Executive Officer. Appointed 18 March 2004. Peter Hill founded the Company in 2004 and has been instrumental in growing the Company to its current level. In early 2006, Peter sold the Company to a Silicon Valley company, which was then sold to SAP shortly thereafter. In 2007, Peter successfully re-acquired the Company from SAP and spun out the company as an independent entity. Peter is responsible for the Company’s global business strategy and continues to drive partnerships with billion-dollar global physical security vendors, at both corporate and technical levels. An entrepreneur for most of his 30 years in the information technology industry, Peter previously founded and led two other business software start-ups after finishing his career as a professional basketball player in the 1990’s. Peter also holds a science degree majoring in computer science. Mr Alfred Scott Goninan Non-executive Director. Chairman of the Audit and Risk Committee. Appointed 6 August 2017. Scott Goninan joins the RightCrowd Board after 26 years’ experience as the original founder and Managing Director and CEO of the Durachrome Group. He is well practised in delivering strategic direction and implementation of business operations. The Durachrome Group imported and exported materials globally and had three production facilities that operate 24hrs a day 7 days a week. In his role with Durachrome, Scott has developed international relationships throughout Asia and Europe. Scott Goninan has experience in reporting to public company boards in his role as a Managing Director. Scott has ongoing ventures in property development; specialised imports and exports; commercial, industrial and personal finance; and research and development. Page 2 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT Directors' Interests in Securities At the date of this Report the interests of the Directors in the securities of the Company as follows: Director Listed Securities Unlisted Securities Ordinary Securities Stock Options Robert Baker (i) Peter Hill (ii) Scott Goninan (iii) 100,000 53,907,428 17,422,517 Nil Nil Nil (i) Securities purchased through the IPO. (ii) Indirect interest through CNI Pty Ltd ACN 131 410 556. (iii) Indirect interest through Goninan Property Investments Pty Ltd ACN 151 022 052 ATF The Goninan Wealth Trust. Company Secretary Mr Peter Hill was appointed Company Secretary on 18 March 2004 and resigned on 10 August 2017 in order to focus on Managing Director responsibilities. The Company appointed Joint Company Secretaries on 10 August 2017. Kim Clark is the Head of Corporate Services for Boardroom Pty Ltd’s Queensland office and currently acts as Company Secretary for various ASX listed and unlisted companies in Australia. Kim is an experienced business professional with 21 years’ experience in Banking and Finance and 6 years as in-house Company Secretary of an ASX300 company. Leslie Milne was appointed the Chief Financial Officer of the RightCrowd Group of companies on 3 January 2017. Leslie is a Fellow of Chartered Association of Certified Accountants and has more than 20 years’ finance and accounting experience across a range of companies in the technology industry and has held Corporate Reporting and Commercial Finance roles in the United Kingdom and Australia for companies listed on the FTSE and NASDAQ as well as unlisted companies. Events after Reporting Period The directors are not aware of any significant events since the end of the reporting period that impact on these financial statements. Principal Activities RightCrowd is a leading developer of physical security, safety and compliance software. Since 2004, the Company has invested in research and development to provide innovative solutions which improve security, safety and compliance for organisational workforces, including employees, contractors and visitors to sites. Significant Changes to Activities During the financial year, RightCrowd Limited gained admission to the official list of the Australian Securities Exchange after an initial public offering (IPO) raising $9,250,000. There were no other significant changes in the nature of the consolidated group’s principal activities during the financial year. Dividends Paid and Proposed No dividends have been paid or proposed by the Company during or since the end of the financial year. Page 3 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT Review of Operations Business Model The Company generates revenue from sales of its software, comprising up-front licence fees, annual subscription fees and annual support and maintenance fees. The software products include large scale enterprise software (predominantly sold direct to the customer) and ‘out of the box’ software (predominantly sold through channel partners). The Company also generates revenue from professional services that it provides to its clients. The pricing structures for sales of the Company’s various products and consulting fees are dependent on the scale and complexity of the client requirement. Review of Operations Commentary on the Results for the Period The Board are satisfied that the Company is making solid progress against the plans detailed in the IPO Prospectus (company shares commenced trading on the ASX on 18 September 2017) and at the Company's AGM in November 2017. Over the 2018 financial year, the Company grew revenue for software and related services from $4,146,976 (2017) to $5,520,755, a growth of 33.1%. This growth has come from new software deployments and strong growth from services revenue from both new and existing customers. Total Revenue for the year included a one off Other Revenue item from settlement of the shadow equity share plan totalling $1,823,049. The Company has continued with its, previously outlined, plan to invest in additional staff in order to commercialise the RightCrowd software solutions for the global market and this was the primary reason for the IPO. The outcome of this was an increase in the overall cost base and a loss for the year of $5,120,083. This result is at the level that was expected for the first year of the business cycle following the IPO. During the year there has been a continued focus on developing the RightCrowd technologies and the Company has invested in excess of $4,000,000 on R&D in Australia and this has allowed it to submit a claim for an R&D tax incentive which should result in a cash rebate of approximately $1,750,000. This activity will continue in the years to come as RightCrowd brings new innovative solutions to its market. The IPO has removed all the convertible note debt from the Company’s Statement of Financial Position as the holders were either repaid or converted to ordinary shareholders. The cash position at the end of the financial year was $6,609,297 with trade receivables of $1,115,769 and a receivable for an R&D tax credit cash rebate of $1,750,000. This would give the Company approximately $9,400,000 of available cash to use in 2019 financial year to continue operating the business plan. During the financial year the Company announced a number of closed sales contracts including a sales contract with an Australian Government owned entity across selected locations nationally and two contracts with banking and financial services industry customers. One of these was in Australia and the second was a US Bank with subscription and implementation revenue of around $500,000. The revenue for the latter contract will be earned in FY2019. In addition, the Company has signed and announced a contract to provide services to a large existing customer and the work will be carried out in the first quarter of FY 2019 and is valued at approximately $650,000. The Board is of the opinion that these closed contracts are a good indicator of the sales momentum the Company has generated in the market. The Company continues to see significant interest from national and multi-national companies, including some in new market segments aiming to improve their physical security processes and achieve the productivity improvements offered by the RightCrowd solutions. Potential mid and large scale implementations are a complex buying decision for organisations, and the initial purchase decision and contract negotiation typically requires an extended timeframe to complete. Revenue Pipeline Outlook In relation to the financial year ending 30 June 2019, the Company will earn approximately $2,100,000 (FY 2018 $2,030,000) in annual recurring revenue comprising annual subscription fees and annual support and maintenance fees as a result of sale and licensing of its software in prior periods. In addition to these recurring software-related revenue streams, pending work for professional services with new and existing clients, and identified the key opportunities provide confidence it should achieve revenue growth percentage achieved in FY 2018. Page 4 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT The Company maintains a CRM system in respect of its future opportunities, and has a significant pipeline of future opportunities at varying levels of maturity, from early discussions, scope definition through to quotes submitted for approval. There is however, no guarantee what proportion of this pipeline will result in actual revenue, or the timing of receipt of revenue. During the FY 2019 financial period, the Company will focus on activities with the aim of increasing sales, investing in development of marketing collateral to support direct selling and sales through it’s reseller channel partners, as well as continued R&D on existing and new products. Auditor’s Independence Declaration The lead auditor’s independence declaration for the year ended 30 June 2018 has been received and can be found on page 14 of the financial report. Meetings of Directors Directors attendance at Board and Committee meetings is summarised below: BOARD AND COMMITTEE ATTENDANCE [for the period 1 July 2017 to 30 June 2018] Director/Alternate Director Date Appointed Date Ceased Attended Held Attended Held Peter Leslie Hill Alfred Scott Goninan Robert Anthony Baker 18/03/2004 6/08/2017 6/08/2017 Current Current Current 11 11 11 11 11 11 4 4 4 4 4 4 Board Meetings Audit Committee Meetings Indemnification and Insurance for Directors and Officers During the year the Company paid insurance in respect of a contract insuring all of the Directors and executive officers of the Group against a liability incurred in their role as Directors and officers of the group, except where: - the liability arises out of conduct involving a wilful breach of duty; or - there has been a contravention of Sections 182 or 183 of the Corporations Act 2001. Options At the date of this report, the unissued ordinary shares of RightCrowd Limited under the Employee Share Option Plan are as follows: Grant Date 13/09/2017 13/09/2017 13/09/2017 30/05/2018 30/05/2018 30/05/2018 Date of Expiry Exercise Price Number under Option 12/12/2018 12/12/2019 12/12/2020 28/08/2019 27/08/2020 28/08/2021 $0.38 $0.43 $0.43 $0.60 $0.68 $0.68 2,096,695 2,096,661 2,096,644 106,668 106,666 106,666 6,610,000 Option holders do not have any rights to participate in any issues of shares or other interests of the company or any other entity. For details of options issued to directors and executives as remuneration, refer to the Remuneration Report. Page 5 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT Proceedings on Behalf of the Company No person has applied for leave of court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The company was not a party to any such proceedings during the year. Non-audit services No non-audit services were provided by BDO Audit Pty Ltd to the company during the year. Environmental Issues The Group’s operations are not subject to any significant environmental regulations in the countries where it operates. Page 6 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) Remuneration Policy The remuneration policy of RightCrowd Limited has been designed to align key management personnel (KMP) objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the consolidated group’s financial results. The Board of RightCrowd Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain high-quality KMP to run and manage the consolidated group, as well as create goal congruence between directors, executives and shareholders.The Remuneration Policy changed during the transition from a private to public company and was previously managed by the sole Director and since listing has been managed by the Board. The company listed on the Australian Stock Exchange in September 2017. The Board’s revised policy for determining the nature and amount of remuneration for KMP of the consolidated group is as follows: All KMP receive a base salary (which is based on factors such as length of service and experience), superannuation and specified cash bonus if included in their agreed slalary package and may, in future years, receive, additional fringe benefits, cash bonuses, options and performance incentives. Performance incentives will generally only be paid once predetermined key performance indicators (KPIs) have been met. Other than the Managing Director, Directors do not receive performance incentives. Incentives paid in the form of options or rights are intended to align the interests of the directors and company with those of the shareholders. In this regard, KMP are prohibited from limiting risk attached to those instruments by use of derivatives or other means. Other than the Managing Director, it is not envisaged that Directors receive incentives in the form of options or rights. The Board will review KMP packages annually by reference to the consolidated group’s performance, executive performance and comparable information from industry sectors. The performance of KMP is to be measured against criteria agreed annually with each executive and is based predominantly on the forecast improvement in the consolidated group’s performance and in shareholders’ value. All bonuses and incentives must be linked to predetermined performance criteria. The Board may, however, exercise its discretion in relation to approving incentives, bonuses and options. Any change must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance results leading to long-term growth in shareholder wealth. KMP receive, at a minimum, a superannuation guarantee contribution required by the government, which is currently 9.5% of the individual’s average weekly ordinary time earnings (AWOTE). Some individuals, however, have chosen to sacrifice part of their salary to increase payments towards superannuation. KMP do not receive any other retirement benefits. Upon retirement, KMP are paid employee benefit entitlements accrued to the date of retirement. Any options not exercised before or on the date of termination will lapse. All remuneration paid to KMP is valued at the cost to the company and expensed. The Board’s policy is to remunerate non-executive directors at market rates for time, commitment and responsibilities. The Board will determine payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the annual general meeting. Page 7 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) KMP are also entitled and encouraged to participate in the employee share option arrangements to align executives’ interests with shareholders’ interests. Options granted under the arrangement do not carry dividend or voting rights. Each option is entitled to be converted into one ordinary share once the interim or final financial report has been disclosed to the public. Option value is measured using the Black-Scholes methodology. KMP or closely related parties of KMP are prohibited from entering into hedge arrangements that would have the effect of limiting the risk exposure relating to their remuneration. In addition, the Board’s remuneration policy prohibits directors and KMP from using RightCrowd Limited shares as collateral in any financial transaction, including margin loan arrangements. Performance-based Remuneration KPIs will be set annually, with a certain level of consultation with KMP. The measures are specifically tailored to the area each individual is involved in and has a level of control over. The KPIs target areas the Board believes hold greater potential for group expansion and profit, covering financial and non-financial as well as short and long-term goals. The level set for each KPI is based on budgeted figures for the Group and respective industry standards. Performance in relation to the KPIs will be assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPIs achieved. Following the assessment, the KPIs will be reviewed by the Board in light of the desired and actual outcomes, and their efficiency will be assessed in relation to the Group’s goals and shareholder wealth, before the KPIs are set for the following year. In determining whether or not a KPI has been achieved the Board will base the assessment on audited figures where appropriate; however, where the KPI involves comparison of the Group, or a division within the Group, to the market, or involves a non-financial measure, independent reports will be obtained from external organisations if required. Relationship between Remuneration Policy and Company Performance The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. The Board added two non-Executive Directors and approved the Company’s Remuneration Policy after the financial year end 30 June 2017. As such the Company’s Director and KMP remuneration has been based on Company performance over the current and comparative financial periods. As part of the changes brought about by the listing of RightCrowd, the following policy items were applied to achieve the aim of increased shareholder and management goal congruence, the first being a performance-based bonus based on KPIs, and the second being the issue of options to the majority of executives to encourage the alignment of personal and shareholder interests. The following table shows the gross revenue, profit / (loss) for the last 5 years for the entity. Over recent years the company has been managed as a research and development company and as such the maximum possible investment has been made in order to utilise available tax incentives in relation to this activity. 2014 $ 2015 $ 2016 $ 2017 $ 2018 $ Revenue and other income 4,637,930 6,939,322 8,802,468 5,997,948 9,381,950 Net (loss) Loss Per Share Share Price at 30 June (554,349) (395,165) (1,181,662) (4,697,428) (5,120,083) (0.44) N/A (0.32) N/A (0.95) N/A (0.22) N/A (0.04) 0.40 Page 8 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) Despite the 33.1% increase in software and consulting revenue, the Board acknowledges that the Company is only part way through its plan to commercialise the RightCrowd software portfolio. For that reason, no bonus or incentive rewards were awarded to the Managing Director in the current or previous financial year. Employment Details of Members of Key Management Personnel One of the purposes of listing in September 2017 was to raise funds to allow the appointment of additional KMPs. The following table provides employment details of persons who were, during the financial year, members of KMP of the consolidated group. The table also illustrates the proportion of remuneration that was performance and non-performance based. Position Held as at 30 June 2018 and any Change during the Year Contract Details (Tenure) Proportions of Elements of Remuneration Related to Performance (Other than Options Issued) Proportions of Elements of Remuneration Not Related to Performance Non-salary Cash-based Incentives % Shares/ Units % Fixed Salary/ Fees % Group KMP Peter Hill CEO / Managing Director 14 years Leslie Milne CFO / Joint 18 months Company Secretary Robert Baker Non-Executive 11 months Chairman Scott Goninan Non-Executive Director 11 months 0 8 0 0 0 0 0 0 100 92 100 100 The employment terms and conditions of all KMP are formalised in contracts of employment. Leslie Milne was appointed CFO on 3 January 2017. Robert Baker and Scott Goninan were appointed as Directors on 6 August 2017. Contracts of Employment can be terminated by the employee or the Company as follows: -  CEO / Managing Director on giving 6 (six) months’ notice.  CFO on giving 2 (two) weeks’ notice.  Directors are appointed to act between AGMs of the company as per the Constitution. Employment Contracts CEO / Managing Director: The company has entered into an employment contract with Mr Peter Hill. The key terms of the contract are:  Remuneration is outlined in the contract of employment at $250,000 per annum including superannuation with further opportunity for bonus incentives based on performance;  4 weeks annual leave per annum Page 9 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) Chief Financial Officer: The company has entered into an employment contract with Mr Leslie Milne. The key terms of the contract are:  Salary of $200,000 per annum (increased 1 January 2018, (previously $180,000) plus statutory superannuation contributions; 4 weeks annual leave per annum   Previously agreed Performance bonus based on personal performance over the first 6 months of $10,000 payable in June 2017 was paid during FY 2018 Previously agreed Bonus of $10,000 should RightCrowd raise greater than $5,000,000 in new capital was paid during FY 2018 Non-Executive Chairman: The company has entered into a Directors Agreement with Robert Baker. The key terms are set out in the Appointment letter effective 6 August 2017 and includes a base salary plus statutory superannuation contributions. Non-Executive Director: The company has entered into a Directors Agreement with Scott Goninan. The key terms are set out in the Appointment letter effective 6 August 2017 and includes a base salary plus statutory superannuation contributions. Changes in Directors and Executives Subsequent to Year-end None. Remuneration Expense Details for the Year Ended 30 June 2018 The following table of benefits and payments represents the components of the current year and comparative year remuneration expenses for each member of KMP of the consolidated group. Such amounts have been calculated in accordance with Australian Accounting Standards. Page 10 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) Table of Benefits and Payments for the Year Ended 30 June 2018 and 30 June 2017 Short-term Benefits Post-employment Benefits Long-term Benefits Equity-settled Share-based Payments Salary, Fees and Leave Profit Share and Bonuses Non- mone- tary Other Pension and Super- annu- ation Other Incentive Plans LSL Shares/ Units Options/ Rights Cash- settled Share- based Pay- ments Terminat ion Benefits Total $ $ $ $ $ $ $ $ $ $ $ $ $ Group KMP Peter Hill 2018 234,593 Nil Nil 1,354 20,115 Peter Hill 2017 169,968 Nil 11,987 Nil 14,250 Robert Baker2 2018 47,307 Robert Baker 2017 Nil Scott Goninan3 2018 32,402 Scott Goninan 2017 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 4,494 Nil Nil Nil 3,078 Nil Nil Leslie Milne1 2018 199,965 20,000 Nil 432 18,050 Leslie Milne 2017 95,886 Nil Nil 395 8,484 Total KMP 2018 514,267 20,000 Nil 1,786 45,737 2017 265,854 Nil 11,987 395 22,734 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 17,808 Nil 2,501 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 7,063 Nil Nil Nil 17,808 Nil 7,063 Nil 2,501 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 273,870 Nil 198,706 Nil 51,801 Nil Nil Nil 35,480 Nil Nil Nil 245,510 Nil 104,765 Nil 606,661 Nil 303,471    1 Leslie Milne Appointed 3 January 2017 2 Robert Baker Appointed 6 August 2017 3 Scott Goninan Appointed 6 August 2017 Securities Received that Are Not Performance-related No members of KMP are entitled to receive securities that are not performance-based as part of their remuneration package. Cash Bonuses, Performance-related Bonuses and Share-based Payments During the financial year ended 30 June 2018 the company granted cash bonuses or share-based payments to members of KMP as follows. The Board will continue to review these forms of remuneration in the current year. Leslie Milne, the CFO, was paid a bonus of $20,000 on the basis of achieving performance objectives set out in his contract of employment in relation to year ended 30 June 2017. The bonus was deferred from the 2017 financial year as the criteria were principally agreed on the basis that an IPO would happen in that year. The IPO was delayed until the 2018 financial year so the bonus criteria were carried forward. The company did not set up any additional performance bonus in relation to the current financial year. Page 11 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) The Company has also implemented an Employee Share Option Plan (ESOP) as a long-term incentive plan for all employees of the company and option grants were made at 13th September 2017. The Company granted 6,505,000 options. The objective of this scheme is to incentivise the creation of additional shareholder value over the 3-year period. The only conditions in relation to exercise for each employee is a continuing employment status at the time of vesting. The Scheme is a Premium Priced Option scheme with an exercise price at year 1 (12 September 2018) of $0.38 and years 2 and 3 of $0.43. Options under the scheme were granted in 3 equal tranches at the price of $0.30 per option. The market values of the 3 tranches of options were the following; - 1 $0.05, 2 $0.07, 3 $0.09. Vesting dates of the tranches are 12/9/18, 12/9/19 and 12/9/20. Under this Plan the following KMPs were granted options during the financial year. KMP Leslie Milne Options Granted Vested and exercisable 250,000 83,334 (1/3rd of total)* *The options which have vested and are currently exercisable did so on the 13 September 2018. A second grant of Options was approved and granted on 30th May 2018 but no KMP was granted any Options at this time. KMP Shareholdings The number of ordinary shares in RightCrowd Limited held by each KMP of the Group during the financial year is as follows: Balance at Beginning of Year Granted as Remuneration during the Year Issued on Exercise of Options during the Year Other Changes during the Year (Note 1) Balance at End of Year Peter Hill (ii) 60,000,000 Leslie Milne (i) Robert Baker (i) Scott Goninan (iii) - - - 60,000,000 - - - - - - - - - - (6,092,572) 53,907,428 66,666 66,666 100,000 100,000 17,422,517 17,422,517 11,496,611 71,496,611 Note 1: On the IPO Offer completion the following transactions had an impact on the ordinary share holding of KMPs during this financial year. a. The second tranche of convertible notes with a face value of $7,200,000 were issued on 19 October 2016 and were accounted for at fair value through profit or loss as at 30 June 2017. The key terms of these convertible notes include a maturity date of 31 March 2020, interest accrues at 4% above the cash rate of the RBA and they are unsecured. Upon the completion of the Offer, these convertible notes were converted into 25,083,819 Ordinary Shares. This conversion included the settlement of any interest accrued to 31 July 2017. Of these, entities related to, Scott Goninan received 17,422,517 shares. b. Peter Hill’s shareholding was reduced by an IPO consolidation adjustment of 3,592,572 shares and the IPO Prospectus provided for a sale of 2,500,000 Ordinary Shares at a sale price of $0.30 each in the IPO. c. Leslie Milne has an indirect interest of 50% of his shareholding through his spouse. (i) (ii) Securities purchased through the IPO. Indirect interest through CNI Pty Ltd ACN 131 410 556. (iii) Goninan Wealth Trust. Indirect interest through Goninan Property Investments Pty Ltd ACN 151 022 052 ATF The Page 12 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) KMP Options The number of options in Rightcrowd Limited held by each KMP of the group during the financial year as follows: Balance of Beginning of Year Granted as remuneration Exercised Lapsed/Other Balance at end Peter Hill Leslie Milne Robert Baker Scott Goninan - - - - - 250,000 - 250,000 - - - - - - - - of year - 250,000 - 250,000 Other Equity-related KMP Transactions There have been no other transactions involving equity instruments apart from those described in the tables above relating to options, rights and shareholdings. Loans to/from KMP There have been no loans to or from KMP’s during the financial year. Other Transactions with KMP and/or their Related Parties On 10 October 2016, RightCrowd issued convertible notes with a face value of $5,000,000 to Mr Alfred Scott Goninan (who was appointed as a Director on 6th of August 2017) with a maturity date of 31 March 2020. Interest accrued on these convertible notes at 4% above the cash rate of the RBA and was accrued to 30 June 2017 at $198,904 and an additional $24,302 of interest accrued in the 2018 financial year prior to conversion. The convertible notes and accrued interest were converted to Ordinary Shares at the time of the IPO in September 2017. There were no other transactions conducted between the Group and KMP or their related parties, apart from those disclosed above relating to equity, compensation and loans, that were conducted other than in accordance with normal employee, customer or supplier relationships on terms no more favourable than those reasonably expected under arm’s length dealings with unrelated persons. End of remuneration report (Audited) This directors’ report, incorporating the remuneration report, is signed in accordance with a resolution of the Board of Directors: Peter Hill, Director Dated: 28 September 2018 Page 13 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 AUDITOR’S INDEPENDENCE DECLARATION Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY C R JENKINS TO DIRECTORS OF RIGHTCROWD LIMITED As lead auditor of RightCrowd Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of RightCrowd Limited and the entities it controlled during the year. C R Jenkins Director BDO Audit Pty Ltd Brisbane, 28 September 2018 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. Page 14 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018 Revenue Other income Employee benefits expense Depreciation and amortisation expense Finance costs Other expenses Profit/(loss) before income tax Income Tax Expense Net (loss) from continuing operations Net (loss) for the year Other comprehensive income Note Consolidated Group 2018 $ 2017 $ 3 3 4 4 4 5 5,520,755 4,146,976 3,861,195 1,850,172 (10,382,182) (7,949,007) (646,462) (208,504) (360,544) (542,429) (3,065,767) (1,994,636) (5,073,005) (4,697,428) (47,078) - (5,120,083) (4,697,428) (5,120,083) (4,697,428) Items that may be reclassified subsequently to profit or loss when specific conditions are met Exchange differences on translating foreign operations, net of tax 25 Total other comprehensive income for the year 24,241 24,241 6,115 6,115 Total comprehensive loss for the year (5,095,842) (4,691,313) Earnings per share for loss from continuing and discontinuing operations attributable to ordinary equity holders of the company Basic loss per share Diluted loss per share 8 8 (0.04) (0.04) (0.22) (0.22) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the attached notes Page 15 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 Note Consolidated Group 2018 $ 2017 $ ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Borrowings Other liabilities Tax liabilities Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS/(LIABILITIES) EQUITY Issued capital Reserves Accumulated Losses TOTAL EQUITY 9 10 14 12 13 15 16 17 17 18 16 18 6,609,297 5,177,761 2,865,769 2,835,700 312,729 23,062 9,787,795 8,036,523 218,993 134,218 - 585,773 218,993 719,991 10,006,788 8,756,514 462,994 544,631 90,956 20,871 1,507,255 2,820,720 4,944 - 891,592 648,780 2,957,741 4,035,002 - 8,908,552 158,579 124,530 158,579 9,033,082 3,116,320 13,068,084 6,890,468 (4,311,570) 19 19,468,728 3,349,925 245,798 794,416 (12,824,058) (8,455,911) 6,890,468 (4,311,570) The above Consolidated Statement of Financial Position should be read in conjunction with the attached notes Page 16 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 Note Issued Capital Accumulated Losses Transalation Reserve Payment Reserve Note Reserve Foreign Currency Share Based Convertible $ $ $ $ Total $ - - - - - - - - - - - 751,936 (220,182) - - - - - (4,697,428) 6,115 (4,691,313) 599,925 599,925 751,936 (4,311,570) 751,936 (4,311,570) - - - (5,120,083) 24,241 (5,095,842) Consolidated Group Balance at 1 July 2016 Comprehensive income (Loss) for the year Other comprehensive income for the year 25 Total comprehensive income for the year Transactions with owners, in their capacity as owners, and other transfers Shares issued during the year Total transactions with owners and other transfers 2,750,000 (3,758,483) 36,365 - - - (4,697,428) - - 6,115 (4,697,428) 6,115 599,925 599,925 - - - - Balance at 30 June 2017 3,349,925 (8,455,911) 42,480 3,349,925 (8,455,911) 42,480 (5,120,083) - - 24,241 (5,120,083) 24,241 - - - - - Balance at 1 July 2017 Comprehensive income (Loss) for the year Other comprehensive income for the year 25 Total comprehensive income for the year Transactions with owners, in their capacity as owners, and other transfers Transfer of convertible note reserve to retained earnings upon settlement in cash Share options expensed during the year Shares converted during the year Transaction costs Total transactions with owners and other transfers Balance at 30 June 2018 Shares issued during the year 19a 9,250,000 19a 19a 7,525,146 (656,343) 751,936 - - - - - - - - - - (751,936) - 179,077 - - - - - - - 179,077 9,250,000 7,525,146 (656,343) 16,118,803 751,936 19,468,728 (12,824,058) 66,721 66,721 179,077 (751,936) 16,297,880 179,077 - 6,890,468 The above Consolidated Statement of Changes in Equity should be read in conjunction with the attached notes Page 17 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Finance costs Grant income received Note Consolidated Group 2018 $ 2017 $ 6,466,694 4,450,175 (13,243,488) (9,599,056) 76,950 38,990 (33,072) (389,269) 1,647,084 792,920 Net cash provided by operating activities 21 (5,085,832) (4,706,240) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Transaction costs Proceeds from borrowings Repayment of borrowings Net cash provided by/(used in) financing activities Net increase in cash held Net foreign exchange differences Cash and cash equivalents at beginning of financial year 20,546 - (219,536) (17,082) (198,990) (17,082) 9,250,000 (656,344) - - 346,958 7,341,231 (2,276,872) - 6,663,742 7,341,231 1,378,920 2,617,909 52,616 6,114 5,177,761 2,553,738 Cash and cash equivalents at end of financial year 9 6,609,297 5,177,761 The above Consolidated Statement of Cash Flows should be read in conjunction with the attached notes Page 18 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 The consolidated financial statements and notes represent those of RightCrowd Limited and Controlled Entities (the “consolidated group” or “group”). The separate financial statements of the parent entity, RightCrowd Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. Parent information is disclosed in note 2. The financial statements were authorised for issue on 29 September 2018 by the directors of the company. NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation These general purpose financial statements have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and International Financial Reporting Standards and Interpretations as issued by the International Accounting Standards Board. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. The financial statement, except for cash flow information, have been prepared on accruals basis and are based on historical cost, modified, where applicable, by the measurement at fair value of selected non- current assets, financial assets and financial liabilities. Going Concern The financial report has been prepared on a going concern basis, which contemplates the continuity of business activities and the realisation of assets and settlement of liabilities in the normal course of business. The Group incurred a net loss for the financial year ended 30 June 2018 of $5,120,083 (2017: $4,697,428) and net cash operating outflows of $5,085,832 (2017: $4,706,240). As at 30 June 2018, the consolidated group’s total assets exceeded total liabilities by $6,890,468, and its current assets of $9,787,795 (2017: $8,036,523) exceeded its current liabilities of $2,957,741 (2017: $4,035,002) by $6,830,054 (2017: $4,001,521). As such the Group’s ability to continue to adopt the going concern assumption will depend upon a number of matters including the successful continued development and further commercialisation of the RightCrowd solution and, should the Board consider it necessary, subsequent successful raisings of funds. The Group has forecast its future cash flows requirements to 30 September 2019, which can currently be met by current level of cash reserves and expected cash inflows from sales and R&D claim. As such the directors are of the opinion that the use of the going concern assumption is appropriate. a. Principles of Consolidation The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (RightCrowd Limited) and all of the subsidiaries (including any structured entities). Subsidiaries are entities the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. A list of the subsidiaries is provided in Note 11. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. Page 19 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES b. Income Tax The income tax expense (income) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to profit or loss is the tax payable on taxable income for the current period. Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority using tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss or arising from a business combination. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. With respect to non-depreciable items of property, plant and equipment measured at fair value and items of investment property measured at fair value, the related deferred tax liability or deferred tax asset is measured on the basis that the carrying amount of the asset will be recovered entirely through sale. When an investment property that is depreciable is held by the entity in a business model whose objective is to consume substantially all of the economic benefits embodied in the property through use over time (rather than through sale), the related deferred tax liability or deferred tax asset is measured on the basis that the carrying amount of such property will be recovered entirely through use. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (i) a legally enforceable right of set-off exists; and (ii) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Page 20 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES c. Fair Value of Assets and Liabilities The Group measures some of its assets and liabilities at fair value on either a recurring or non- recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly (ie unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (ie the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (ie the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. The fair value of liabilities and the entity’s own equity instruments (excluding those related to share- based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instruments, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. d. Property, Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Plant and Equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1g) for details of impairment). The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised as expenses in profit or loss during the financial period in which they are incurred. Page 21 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Depreciation The depreciable amount of all fixed assets including buildings and capitalised leased assets, but excluding freehold land, is depreciated on a straight-line basis over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Leasehold improvements Motor vehicles Plant and equipment Depreciation 2 - 40 years 8 years 1-20 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are recognised in profit or loss in the period in which they arise. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. e. Leases Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset – but not the legal ownership – are transferred to entities in the consolidated group, are classified as finance leases. Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight- line basis over the lease term. f. Financial Instruments Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the entity commits itself to either the purchase or sale of the asset (ie trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method, or cost. Page 22 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss. The Group does not designate any interests in subsidiaries, associates or joint ventures as being subject to the requirements of Accounting Standards specifically applicable to financial instruments. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. (ii) Financial liabilities Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised. Non-derivative financial liabilities 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 financial liabilities are classified as non-current. The component of the convertible notes that exhibits characteristics of a liability is recognised as a liability in the statement of financial position, net of transaction costs. On the issue of the convertible notes that are fixed in nature, the fair value of the liability component is determined using a market rate for an equivalent non-convertible debt and this amount is carried as a non-current liability on the amortised cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time, is recognised as a finance cost. The remainder of the proceeds at initial recognition are allocated to the conversion option that is recognised and included in shareholders’ equity as a convertible note reserve, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years. The corresponding interest on convertible notes is expensed to profit or loss. On the issue of the convertible notes that are variable in nature, both a host debt (for the principal component) and an embedded derivative (for the option component) exist. For such convertible notes, the combined host debt and embedded derivative are accounted for at fair value via the profit or loss. The combined host debt and embedded derivative are remeasured at fair value at each balance date with any movement in the fair value recognised via the profit or loss. The corresponding interest on convertible notes is expensed to profit or loss. Impairment A financial asset (or a group of financial assets) is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a “loss event”) having occurred, which has an impact on the estimated future cash flows of the financial asset(s). Page 23 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES In the case of financial assets carried at amortised cost, loss events may include: indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments; indications that they will enter bankruptcy or other financial reorganisation; and changes in arrears or economic conditions that correlate with defaults. For financial assets carried at amortised cost (including loans and receivables), a separate allowance account is used to reduce the carrying amount of financial assets impaired by credit losses. After having taken all possible measures of recovery, if management establishes that the carrying amount cannot be recovered by any means, at that point the written-off amounts are charged to the allowance account or the carrying amount of impaired financial assets is reduced directly if no impairment amount was previously recognised in the allowance account. When the terms of financial assets that would otherwise have been past due or impaired have been renegotiated, the Group recognises the impairment for such financial assets by taking into account the original terms as if the terms have not been renegotiated so that the loss events that have occurred are duly considered. g. Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or joint ventures deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs of disposal and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (eg in accordance with the revaluation model in AASB 116: Property, Plant and Equipment). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for goodwill, intangible assets with indefinite lives and intangible assets not yet available for use. h. Intangible Assets Other than Goodwill Research and development Expenditure during the research phase of a project and development costs are recognised as an expense when incurred. Intellectual property in use Intellectual property are recognised at cost on acquisition. They have a finite life and are carried at cost less any accumulated amortisation and any impairment losses. Patents and trademarks are amortised over their useful lives. Software and website development costs Software and website development costs are capitalised only when the Group identifies that the project will deliver future economic benefits and these benefits can be measured reliably. Software and developed websites are considered as having finite useful lives and are amortised on a systematic basis over their useful lives so as to match the economic benefits received to the periods in which the benefits are received. Amortisation begins when the software or websites become operational. Page 24 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The amortisation rates used for each class of intangible asset with a finite useful life are: Class of Intangible Asset Amortisation Rate Software Intellectual property in use 20 - 40% 10% i. Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars, which is the parent entity’s functional currency. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income; otherwise the exchange difference is recognised in profit or loss. Group companies The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation currency, are translated as follows: – – – assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; income and expenses are translated at average exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the operation is disposed of. j. Employee Benefits Short-term employee benefits Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short-term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The Group’s obligations for short-term employee benefits such as wages, salaries and sick leave are recognised as part of current trade and other payables in the statement of financial position. The Group’s obligations for employees’ annual leave and long service leave entitlements are recognised as provisions in the statement of financial position. Page 25 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Other long-term employee benefits Provision is made for employees’ long service leave and annual leave entitlements not expected to be settled wholly within 12 months after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on corporate bonds that have maturity dates that approximate the terms of the obligations. Any remeasurements for changes in assumptions of obligations for other long-term employee benefits are recognised in profit or loss in the periods in which the changes occur. The Group’s obligations for long-term employee benefits are presented as non-current provisions in its statement of financial position, except where the Group does not have an unconditional right to defer settlement for at least 12 months after the end of the reporting period, in which case the obligations are presented as current provisions. Retirement benefit obligations Defined contribution superannuation benefits All employees of the Group receive defined contribution superannuation entitlements, for which the Group pays the fixed superannuation guarantee contribution (currently 9.5% of the employee’s average ordinary salary) to the employee’s superannuation fund of choice. All contributions in respect of employees’ defined contribution entitlements are recognised as an expense when they become payable. The Group’s obligation with respect to employees’ defined contribution entitlements is limited to its obligation for any unpaid superannuation guarantee contributions at the end of the reporting period. All obligations for unpaid superannuation guarantee contributions are measured at the (undiscounted) amounts expected to be paid when the obligation is settled and are presented as current liabilities in the Group’s statement of financial position. Termination benefits When applicable, the Group recognises a liability and expense for termination benefits at the earlier of: (i) the date when the Group can no longer withdraw the offer for termination benefits; and (ii) when the Group recognises costs for restructuring pursuant to AASB 137: Provisions, Contingent Liabilities and Contingent Assets and the costs include termination benefits. In either case, unless the number of employees affected is known, the obligation for termination benefits is measured on the basis of the number of employees expected to be affected. Termination benefits that are expected to be settled wholly before 12 months after the annual reporting period in which the benefits are recognised are measured at the (undiscounted) amounts expected to be paid. All other termination benefits are accounted for on the same basis as other long-term employee benefits. k. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. l. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short- term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are reported within borrowings in current liabilities on the statement of financial position. m. Revenue and Other Income Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when payment is made. Revenue is measured at the fair value of the consideration received or receivable after taking into account contractually defined terms of payment and excluding taxes (including GST) or duty. Page 26 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue from the sale of software licenses of a perpetual type is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of the right to use the software. Interest revenue is recognised using the effective interest method. Revenue recognition relating to the provision of services is determined with reference to the stage of completion of the transaction at the end of the reporting period, where outcome of the contract can be estimated reliably. Stage of completion is generally determined with reference to the project milestones set out in the project statement of work. Government grant income (including research and development refundable tax offsets) are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs it is compensating. All revenue is stated net of the amount of goods and services tax. n. Trade and Other Receivables Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Refer to Note 1f for further discussion on the determination of impairment losses. o. Trade and Other Payables Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. p. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or payments to suppliers. q. Issued Capital and Redeemable Preference Shares Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds net of any income tax benefit. Preference shares are classified as equity to the extent that they meet the definition of equity. r. Cash-settled Share-based Payment Transactions For cash-settled share-based payment transactions, the entity measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the entity shall re-measure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognised in profit or loss for the period. s. Equity-settled Share based Payment Transactions Page 27 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Equity-settled share based compensation by way of issue of options are provided to employees in exchange for services rendered. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is determined using various valuation methods including Black Scholes, Binomial and the Monte Carlo Simulation method that takes into account the exercise price, the term of the performance right, the impact of dilution, the share price at grant date and expect price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the performance right. 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. t. Critical Accounting Estimates and Judgements The directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Key judgement (i) Impairment The Group assesses impairment at the end of each reporting period by evaluating the conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. Key estimates (i) Provision for impairment of receivables The Group assesses that there is no requirement to make a provision for impairment for receivables at the end of the current reporting period. The Group has a process of regular assessment of recoverability of receivables. (ii) Share based payment tranactions The Group 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, including share price volatility, interest rates and vesting periods would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact the profit or loss and equity. u. New Accounting Standards for Application in Future Periods Accounting Standards issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below: – AASB 9: Financial Instruments and associated Amending Standards (applicable to annual reporting periods beginning on or after 1 July 2018). The Standard will be applicable retrospectively (subject to the provisions on hedge accounting outlined below) and includes revised requirements for the classification and measurement of financial instruments, revised recognition and derecognition requirements for financial instruments and simplified requirements for hedge accounting. Page 28 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The key changes that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, upfront accounting for expected credit loss, and the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. AASB 9 also introduces a new model for hedge accounting that will allow greater flexibility in the ability to hedge risk, particularly with respect to hedges of non-financial items. Should the entity elect to change its hedge policies in line with the new hedge accounting requirements of the Standard, the application of such accounting would be largely prospective. The Company has assessed the financial implications off AASB 9 on the financial statements and considers there to be no material impact for the following reasons. The Company’s customers are in the main large and highly credit-worthy organisations and it has not had experience of non-payment of invoicing. The Company does not currently carry out financial hedging other than to apply receivables in the United States to its local cost base. The Directors will continue to review the implications of the Standard in future accounting periods. – AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods beginning on or after 1 July 2018, as deferred by AASB 2015-8: Amendments to Australian Accounting Standards – Effective Date of AASB 15). When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. Apart from a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: - - - - - identify the contract(s) with a customer; identify the performance obligations in the contract(s); determine the transaction price; allocate the transaction price to the performance obligations in the contract(s); and recognise revenue when (or as) the performance obligations are satisfied. The transitional provisions of this Standard permit an entity to either: restate the contracts that existed in each prior period presented per AASB 108: Accounting Policies, Changes in Accounting Estimates and Errors (subject to certain practical expedients in AASB 15); or recognise the cumulative effect of retrospective application to incomplete contracts on the date of initial application. There are also enhanced disclosure requirements regarding revenue. The Company has undertaken a review of its ongoing contracts during the 2018 financial year to consider any implications of the adoption of AASB 15 in future years. From this review the company has determined that there will be no material impact to the financial performance or position on initial adoption, other than the changes required to disclosures of accounting policies. – AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 July 2019). When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. The main changes introduced by the new Standard are as follows: Page 29 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - - - - - recognition of a right-of-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets); depreciation of right-of-use assets in line with AASB 116: Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components; inclusion of variable lease payments that depend on an index or a rate in the initial measurement of the lease liability using the index or rate at the commencement date; application of a practical expedient to permit a lessee to elect not to separate non- lease components and instead account for all components as a lease; and inclusion of additional disclosure requirements. The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application. Although the directors anticipate that the adoption of AASB 16 will impact the Group's financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. Page 30 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: PARENT INFORMATION 2018 $ 2017 $ The following information has been extracted from the books and records of the parent and has been prepared in accordance with Australian Accounting Standards. Statement of Financial Position ASSETS Current assets Non-current assets TOTAL ASSETS LIABILITIES Current liabilities Non-current liabilities TOTAL LIABILITIES EQUITY Issued capital Accumulated losses Reserves TOTAL EQUITY Statement of Profit or Loss and Other Comprehensive Income Total (loss) Total comprehensive (loss) a) The parent entity has no contingent liabilities (2017: nil). b) The parent entity has no operating lease commitments. c) The parent entity has not entered into any guarantees. 2,243,456 700,322 4,647,112 4,183,082 6,890,568 4,883,404 100 286,422 - 8,908,552 100 9,194,974 19,468,728 3,349,925 (12,757,337) (8,413,431) 179,077 751,936 6,890,468 (4,311,570) (4,343,906) (5,263,164) (4,343,906) (5,263,164) Page 31 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 3: REVENUE AND OTHER INCOME Consolidated Group Note 2018 $ 2017 $ a. Revenue from continuing operations Sales revenue: – – software revenue provision of services Other revenue: – – – – – – – – – interest received export market development grant CA Project revenue travel & accommodation recharge employee contributions foreign currency exchange profit on sale of assets Fair value gain on partial settlement of shadow equity plan R&D Refund Total revenue NOTE 4: LOSS BEFORE INCOME TAX Loss before income tax from continuing operations includes the following specific expenses: a. Expenses Employee benefits expense: – – – – – – – – salaries and wages defined contribution superannuation expense WorkCover other employment expenses employee share options expense bonus payments taxes Increase in provisions 2,139,511 1,893,507 3,381,244 2,253,469 5,520,755 4,146,976 76,950 - - 22,335 16,295 171,679 887 1,823,049 38,990 8,356 79,838 27,520 30,725 17,659 - - 1,750,000 1,647,084 3,861,195 1,850,172 9,381,950 5,997,148 Note Consolidated Group 2018 $ 2017 $ 8,864,333 7,141,092 553,312 437,217 7,125 49,250 179,077 12,419 21,917 - 144,629 214,943 307,595 - 276,861 121,419 10,382,182 7,949,007 Page 32 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 4: LOSS BEFORE INCOME TAX (CONTINUED) Depreciation and amortisation expense – – depreciation expense amortisation expense Finance costs Lease expenses NOTE 5: TAX EXPENSE/(INCOME) a. Income tax expense The components of tax expense/(income) comprise: Current tax Deferred tax b. Prima facie reconciliation The prima facie tax, using tax rates applicable in the country of operation, on profit (loss) differs from the income tax provided in the financial statements as follows: (Loss) before income tax Prima facie tax on (loss) from ordinary activities before income tax at Australian tax rate 27.5% (2017: 30%) Tax effect of: – – – non-allowable (assessable) items net Impact of R&D Refund tax payable by subsidiaries Deferred tax assets not recognised as recoverability criteria not met Income tax expense Consolidated Group Note 2018 $ 2017 $ 61,460 192,581 585,002 15,923 646,462 208,504 360,544 542,429 264,223 142,915 Note Consolidated Group 2018 $ 2017 $ 47,078 - 47,078 - - - (5,073,005) (4,697,428) (1,395,076) (1,409,228) (397,220) 59,678 625,072 641,796 47,078 - 1,167,225 707,754 47,078 - Deferred tax assets are not brought to account, the benefits of which will only be realised if the conditions for deductibility set out in Note 1 occur. Operating tax losses as at 30 June available to off-set future taxable income 5,029,644 1,753,514 Page 33 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 6: KEY MANAGEMENT PERSONNEL COMPENSATION Refer to the remuneration report contained in the directors’ report for details of the remuneration paid or payable to each member of the Group’s key management personnel (KMP) for the year ended 30 June 2018. The remuneration for FY2018 includes the CFO for the full financial year and also the Board members from August 2017. During the year ended 30 June 2018 the company considers that the Group’s KMP for the purpose of this note are the CEO and CFO. The Board will consider extending this group of personnel during the 2019 financial year as its resources are expanded following listing. The totals of remuneration paid to KMP of the company and the Group during the year are as follows: Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments Total KMP compensation Short-term employee benefits 2018 $ 2017 $ 536,053 278,236 45,737 17,808 7,063 22,734 2,501 - 606,661 303,471 These amounts include salary, paid leave benefits, fringe benefits and cash bonuses awarded to executive directors and other KMP. Post-employment benefits These amounts are the current-year’s superannuation contributions and post-employment life insurance benefits. Other long-term benefits These amounts represent long service leave benefits accruing during the year. Share-based payments These amounts represent the expense related to the participation of KMP in equity-settled benefit schemes as measured by the fair value of the options, rights and shares granted on grant date. Further information in relation to KMP remuneration can be found in the Audited Remuneration Report that forms part of the Directors’ Report. NOTE 7: AUDITOR’S REMUNERATION Remuneration of the auditor (BDO Audit Pty Ltd) for: – – auditing or reviewing the financial statements IPO assurance services Consolidated Group 2018 $ 2017 $ 61,500 - 48,500 89,090 61,500 137,590 Page 34 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 8: LOSS PER SHARE a. Reconciliation of earnings to profit or loss: Profit/(Loss) Earnings used to calculate basic loss per share Consolidated Group 2018 $ 2017 $ (5,120,083) (4,697,428) (5,120,083) (4,697,428) Earnings used in the calculation of dilutive loss per share (5,120,083) (4,697,428) b. Weighted average number of ordinary shares outstanding during the year used in calculating basic and diluted loss per share 119,131,575 21,600,885 Options on issue during the year are not included in the calculation of diluted earnings per share because they are antidilutive for the year ended 30 June 2018 and 2017. These options could potentially dilute basic earnings per share in the future. NOTE 9: CASH AND CASH EQUIVALENTS Cash at bank and on hand Short-term bank deposits Reconciliation of cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash and cash equivalents NOTE 10: TRADE AND OTHER RECEIVABLES CURRENT Trade receivables R & D RefundableTax Offset receivable Total current trade and other receivables Note Consolidated Group 2018 $ 2017 $ 6,609,297 5,177,761 - - 6,609,297 5,177,761 6,609,297 5,177,761 6,609,297 5,177,761 Note Consolidated Group 2018 $ 2017 $ 1,115,769 1,188,616 1,115,769 1,188,616 1,750,000 1,647,084 1,750,000 1,647,084 2,865,769 2,835,700 Page 35 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 10: TRADE AND OTHER RECEIVABLES (CONTINUED) Credit risk The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties. The class of assets described as “trade and other receivables” is considered to be the main source of credit risk related to the Group. The balances of receivables that remain within initial trade terms (as detailed in the table) are considered to be of high credit quality. Gross Amount $ Past Due and Impaired $ Past Due but Not Impaired (Days Overdue) < 30 $ 31–60 $ 61–90 $ > 90 $ Within Initial Trade Terms $ 2018 Trade and term receivables 1,115,769 Other receivables 1,750,000 2,865,769 Total 2017 Trade and term receivables - - - 38,303 3,897 73,016 199,746 800,807 - - - - 1,750,000 38,303 3,897 73,016 199,746 2,550,807 1,188,616 - 340,049 16,384 112,234 194,928 525,021 Other receivables 1,647,084 - - - - - 1,647,084 Total 2,835,700 - 340,049 16,384 112,234 194,928 2,172,105 NOTE 11: INTERESTS IN ENTITIES a. Information about Principal Subsidiaries The subsidiaries listed below have share capital consisting solely of ordinary shares, which are held directly by the Group. The proportion of ownership interests held equals the voting rights held by the Group. Each subsidiary’s principal place of business is also its country of incorporation. Name of Subsidiary Principal Place of Business/country of incorporation Ownership Interest Held by the Group Proportion of Non- controlling Interests 2018 2017 2018 2017 % % % % Subsidiary of RightCrowd Limited RightCrowd Software Pty Ltd Australia 100% 100% 0% 0% Subsidiary of Rightcrowd Software Pty Ltd RightCrowd Inc. RightCrowd Inc. USA Philippines 100% 100% 100% 100% 0% 0% 0% 0% b Information about interest’s in other entities Reporia Pty Ltd Australia 100% 100% 0% 0% Page 36 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 12: PROPERTY, PLANT AND EQUIPMENT Land and Buildings Plant and Equipment Plant and equipment: At cost Accumulated depreciation Leasehold improvements: At cost Accumulated amortisation Total plant and equipment Total property, plant and equipment a. Movements in Carrying Amounts Consolidated Group 2018 $ 2017 $ 343,576 641,271 (124,583) (509,046) 218,993 132,225 2,558 155,188 (2,558) (153,195) - 1,993 218,993 134,218 218,993 134,218 Movements in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year: Consolidated Group: Balance at 1 July 2016 Additions Depreciation expense Balance at 30 June 2017 Additions Disposals Depreciation expense Balance at 30 June 2018 Leasehold Improvements Plant and Equipment $ $ Total $ 134,588 2,601 (135,196) 1,993 - - (1,993) - 175,128 14,481 (57,384) 132,225 219,536 (73,301) (59,467) 218,993 309,716 17,082 (192,580) 134,218 219,536 (73,301) (61,460) 218,993 Page 37 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 13: INTANGIBLE ASSETS Software and website development costs: Cost Accumulated amortisation and impairment losses Net carrying amount Intellectual property in use: Cost Accumulated amortisation and impairment losses Net carrying amount Total intangible assets Consolidated Group 2018 $ 2017 $ - - - 31,742 (30,894) 848 599,925 599,925 (599,925) (15,000) - - 584,925 585,773 It was determined during the year to re-evaluate the estimated useful life of the intangible asset of Reporia Pty Ltd. As a result, the asset was amortised in full over the 12 month period to 30 June 2018. Consolidated Group: Year ended 30 June 2017 Balance at the beginning of the year Additions Amortisation charge Closing value at 30 June 2017 Year ended 30 June 2018 Software Intellectual Property $ $ Total $ 1,771 - 1,771 - 599,925 599,925 (923) (15,000) (15,923) 848 584,925 585,773 Balance at the beginning of the year 848 584,925 585,773 Additions Disposals Amortisation charge Closing value at 30 June 2018 - (771) - - - (771) (77) (584,925) (585,002) - - - Intangible assets, other than goodwill, have finite useful lives. The current amortisation charges for intangible assets are included under depreciation and amortisation expense per the statement of profit or loss. Page 38 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 14: OTHER ASSETS CURRENT Deposits Held Prepayments NOTE 15: TRADE AND OTHER PAYABLES CURRENT Unsecured liabilities: Trade payables Payroll payables Accrued expenses Sundry payables NOTE 16: BORROWINGS CURRENT Unsecured liabilities: Insurance premium funding Secured liabilities: Finance lease liability Total current borrowings NON-CURRENT Unsecured liabilities: Fixed convertible notes at amortised cost Variable convertible notes at fair value 16b 16c Total non-current borrowings Total borrowings Consolidated Group 2018 $ 2017 $ 71,542 241,187 312,729 - 23,062 23,062 Consolidated Group 2018 $ 2017 $ 156,671 99,865 223,973 158,244 82,250 286,422 100 100 462,994 544,631 Note Consolidated Group 2018 $ 2017 $ 16a 90,956 - - - 90,956 20,871 20,871 20,871 - - - - 1,708,552 7,200,000 8,908,552 8,908,552 90,956 8,929,423 Page 39 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 16: BORROWINGS (CONTINUED) a. Insurance Premium Funding: Opening balance Proceeds Less repayments Gross convertible note b. Fixed convertible notes: Opening balance Proceeds Unwinding of the discount Cash settlement Gross convertible note - 346,958 (256,002) 90,956 - - - - 1,708,552 1,555,392 - - 1,708,552 1,555,392 291,448 153,160 (2,000,000) - - 1,708,552 On 15 September 2017 the fixed convertible notes were settled by way of repayment in cash of $2,000,000. c. Variable convertible notes: Opening balance Proceeds Conversion to ordinary shares Convertible note held at fair value Consolidated Group 2018 $ 2017 $ - - 7,200,000 7,200,000 (7,200,000) - - 7,200,000 Upon completion of the Offer these convertible notes were converted into 25,083,819 ordinary shares on 14 September 2017. This conversion included $7,200,000 convertible notes at face value plus $352,146 interest which has been accrued and capitalised in payables over the term of the convertible note up to the date of conversion. NOTE 17: OTHER LIABILITIES CURRENT Deferred revenue Cash settled share based payment at fair value (shadow equity plan) Tax liabilities Consolidated Group 2018 $ 2017 $ 1,474,590 825,720 32,665 1,995,000 1,507,255 2,820,720 4,944 - The majority of cash settled share-based payments have been settled during the year with a gain on fair value of $1,823,049 recorded as income. The income related to the fair value determination on settlement of cash settled share-based payments. Page 40 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 18: PROVISIONS Employee benefits Current Non-current Consolidated Group 2018 $ 891,592 158,579 1,050,171 2017 $ 648,780 124,530 773,310 Provision for Employee Benefits Provision for employee benefits represents amounts accrued for annual leave and long service leave. The current portion for this provision includes the total amount accrued for annual leave entitlements and the amounts accrued for long service leave entitlements that have vested due to employees having completed the required period of service. Based on past experience, the Group does not expect the full amount of annual leave or long service leave balances classified as current liabilities to be settled within the next 12 months. However, these amounts must be classified as current liabilities since the Group does not have an unconditional right to defer the settlement of these amounts in the event employees wish to use their leave entitlement. The non-current portion for this provision includes amounts accrued for long service leave entitlements that have not yet vested in relation to those employees who have not yet completed the required period of service. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits have been discussed in Note 1(j). NOTE 19: ISSUED CAPITAL a. Ordinary Shares Balance at 1 July 2016 Share movements during the 2017 financial year: – – Share split (47 to 1) 27 February 2017 Share issue 5 April 2017 Balance at 30 June 2017 Share movements during the 2018 financial year: Consolidated Group No. $ 1,250,000 750,000 58,750,000 - 2,346,778 599,925 62,346,778 1,349,925 Preference shares converted to ordinary shares 31 August 2017 20,000,016 2,000,000 Share consolidation 31 August 2017 (4,930,613) - Convertible note conversion 14 September 2017 25,083,819 7,525,146 – – – – – Share issue 14 September 2017 Share issue costs Balance at 30 June 2018 30,833,333 9,250,000 - (656,344) 133,333,333 19,468,728 Page 41 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 19: ISSUED CAPITAL (CONTINUED) On 31 August 2017, 20,000,016 preference shares were converted to ordinary shares on a 1:1 basis. The shares are eligible for dividends paid after 31 August 2017. On 31 August 2017, a share consolidation of 4,930,613 occurred prior to the IPO. For every 1 ordinary share held shareholders were issued with 0.9401 ordinary shares after consolidation. On 14 September 2017 convertible notes with a face value of $7,200,000 were converted to 25,083,819 ordinary shares. The shares are eligible for dividends paid after 14 September 2017. On 14 September 2017 the group issued 30,833,333 ordinary shares at $0.30 each under a propspectus offer dated 11 August 2017. The shares are eligible for dividends paid after 14 September 2017. Share issue costs which have been deemed to relate to the raising of capital are $656,344 and have been capitalised accordingly against share capital. b. Preference Shares Balance at 1 July 2016 Shares movements during the 2017 financial year: – Share split (47 to 1) 27 February 2017 Balance at 30 June 2017 Shares movements during the 2018 financial year: Consolidated Group No. $ 416,667 2,000,000 19,583,349 - 20,000,016 2,000,000 – Preference shares converted to ordinary 31 August 2017 (20,000,016) (2,000,000) Balance at 30 June 2018 - - On 31 August 2017, 20,000,016 preference shares were converted to ordinary shares on a 1:1 basis. c. Capital Management Management controls the capital of the Group in order to maintain a sustainable debt to equity ratio, generate long-term shareholder value and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital include ordinary share capital, convertible preference shares and financial liabilities, supported by financial assets. The Group is not subject to any externally imposed capital requirements. Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. The gearing for the years ended 30 June 2018 and 30 June 2017 are as follows: Page 42 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 19: ISSUED CAPITAL (CONTINUED) Total borrowings Less cash and cash equivalents Net debt / (funds) Total equity Note Consolidated Group 2018 $ 2017 $ 16 9 90,956 8,929,423 (6,609,297) (5,177,761) (6,518,341) 3,751,662 6,890,468 (4,311,570) NOTE 20: CONTINGENT LIABILITIES AND CONTINGENT ASSETS Contingent Liabilities In the opinion of the directors, there were no material or significant contingent liabilities at 30 June 2018 (30 June 2017: none). NOTE 21: CASH FLOW INFORMATION Consolidated Group 2018 $ 2017 $ (5,120,083) (4,697,428) 585,002 61,460 15,923 192,581 a. Reconciliation of Cash Flows from Operating Activities with Loss after Income Tax Loss after income tax Non-cash flows in profit: Amortisation depreciation – – – – – – – Fair value gain on partial settlement of shadow equity plan (1,823,049) share based payments loss on disposal of fixed assets Unrealised foreing exchange loss/(gain) convertible note amortisation 179,077 887 (171,679) 38,724 - - - 206,353 153,160 Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries: – – – – increase in trade and term receivables Increase other financial liabilities increase/(decrease) in trade payables and accruals Increase in employee provisions 319,736 (846,305) 648,870 (222,062) (81,637) 276,860 370,119 121,419 Cash flows from operating activities (5,085,832) (4,706,240) Page 43 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 21: CASH FLOW INFORMATION (CONTINUED) Consolidated Group 2018 $ 2017 $ b. Non-cash Financing and Investing Activities (i) Acquisition of intangible assets from Reporia Pty Ltd 2,346,778 ordinary shares issued - 599,925 (ii) Conversion of convertible notes 25,083,819 ordinary shares issued (inclusive of capitalised interest) 7,525,146 - c. Reconciliation of movement in liabilities to cash flows arising from financing activities Non-Cash 30 June 2017 Financing Cash Flows Unwinding of CN Discount Conversion of CN to Ordinary Shares 30 June 2018 Borrowings – Current 20,871 70,085 - - 90,956 $ $ $ $ $ Borrowings – Non-Current Total liabilities from financing activities 8,908,552 (2,000,000) 291,448 (7,200,000) - 8,929,423 (1,929,915) 291,448 (7,200,000) 90,956 NOTE 22: EVENTS AFTER THE REPORTING PERIOD The directors are not aware of any significant events since the end of the reporting period. NOTE 23: RELATED PARTY TRANSACTIONS a. Related parties The Group’s main related parties are as follows: (i) Entities exercising control over the Group: The ultimate parent entity that exercises control over the Group is RightCrowd Limited, which is incorporated in Australia. (ii) Key management personnel: Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity, are considered key management personnel. For details of disclosures relating to key management personnel, refer to Note 6. Page 44 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 Note 23: Related Party Transactions (CONTINUED) (iii) Other related parties: Other related parties include entities controlled by the ultimate parent entity and entities over which key management personnel have joint control. Two of the Directors’ shareholdings are owned by companies Peter Hill’s shares held indirectly through CNI Pty Ltd ACN 131 410 556. Scott Goninan’s shares are held indirectly through Goninan Property Investments Pty Ltd ACN 151 022 052 ATF The Goninan Wealth Trust. Page 45 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 23: RELATED PARTY TRANSACTIONS (CONTINUED) b. Transactions with related parties Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. The following transactions occurred with related parties: (i) Key management personnel: Short-term employment benefits Post-employment benefits Other long-term benefits Share-based payments c. Amounts outstanding from related parties (i) Loans to other related parties: Beginning of the period Loan repayment received End of the period d. Amounts payable to related parties (i) Loans from key management personnel: Beginning of the period Loan repaid End of the period e. Convertible notes issued to related parties (i) Convertible notes issued to directors Beginning of the period Convertible notes issued Consolidated Group 2018 $ 2017 $ 536,053 45,737 17,808 7,063 278,236 22,734 - 2,501 606,661 303,471 - - - - - - 5,000,000 24,895 (24,895) - 18,086 (18,086) - - - 5,000,000 Notes converted to ordinary shares (5,000,000) - End of the period - 5,000,000 Interest expense capitalised to payables Opening balance of interest expense capitalised Interest expense capitalised as interest payable 198,904 27,851 Interest expense captialised converted to ordinary shares (226,755) - 198,904 - End of the period - 198,904 On 10 October 2016, RightCrowd issued convertible notes with a face value of $5,000,000 to Mr Alfred Scott Goninan (who was appointed as a Director on 6th of August 2017) with a maturity date of 31 March 2020. Interest accrued on these convertible notes at 4% above the cash rate of the RBA and was accrued to 30 June 2017 at $198,904, with a further $24,302 accrued to in FY 2018, where the face value and the interst component to date was converted into 17,422,517 ordinary shares at a value of $5,226,755. Page 46 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 24: FINANCIAL RISK MANAGEMENT The Group’s financial instruments consist mainly of deposits with banks, local money market instruments, short-term investments, accounts receivable and payable, loans to and from subsidiaries, bills, leases, preference shares and convertible notes. The totals for each category of financial instruments, measured in accordance with AASB 139: Financial Instruments: Recognition and Measurement as detailed in the accounting policies to these financial statements, are as follows: Financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Financial liabilities at amortised cost: – – – trade and other payables borrowings other liabilities Total financial liabilities Financial Risk Management Policies Note Consolidated Group 2018 $ 2017 $ 9 10 15 16 17 6,609,297 5,177,761 2,865,769 2,835,700 9,475,066 8,013,461 462,994 544,631 90,956 32,665 8,929,423 1,995,000 586,615 11,469,054 The Company’s Executives have been delegated responsibility by the Board of Directors for, among other issues, managing financial risk exposures of the Group. The Executives monitor the Group’s financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to commodity price risk, counterparty credit risk, foreign currency risk, liquidity risk, and interest rate risk. The Board oversees the Executives’ management of risk. The overall risk management strategy seeks to assist the consolidated group in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of the use of hedging derivative instruments, credit risk policies and future cash flow requirements. Specific financial risk exposures and management The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk, and market risk consisting of interest rate risk, foreign currency risk and other price risk (equity price risk). There have been no substantive changes in the types of risks the Group is exposed to, how these risks arise, or the Board’s objectives, policies and processes for managing or measuring the risks from the previous period. a. Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations that could lead to a financial loss to the Group. The Group’s objective in managing credit risk is to minimise the credit losses incurred, mainly on trade and other receivables and loans. Page 47 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 24: FINANCIAL RISK MANAGEMENT (CONTINUED) Credit risk is managed through the maintenance of procedures (such as the utilisation of systems for the approval, granting and renewal of credit limits, regular monitoring of exposures against such limits and monitoring of the financial stability of significant customers and counterparties), ensuring to the extent possible that customers and counterparties to transactions are of sound credit worthiness. Such monitoring is used in assessing receivables for impairment. Depending on the division within the Group, credit terms are generally 30 days from the invoice date. For fees with longer settlements, terms are specified in the individual client contracts. In the case of any loans advanced, the terms are specific to each loan. Credit risk exposures The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period excluding the value of any collateral or other security held, is equivalent to the carrying amount and classification of those financial assets (net of any provisions) as presented in the statement of financial position. The Group has no significant concentrations of credit risk with any single counterparty or group of counterparties. Trade and other receivables that are neither past due nor impaired are considered to be of high credit quality. Aggregates of such amounts are detailed in Note 10. Credit risk related to balances with banks and other financial institutions is managed by the Executive in accordance with approved board policy. Such policy requires that surplus funds are only invested with counterparties with a Standard & Poor’s rating of at least AA–. The following table provides information regarding the credit risk relating to cash and money market securities based on Standard & Poor’s counterparty credit ratings. Cash and cash equivalents: – AA rated – A rated b. Liquidity risk Note Consolidated Group 2018 $ 2017 $ 5,626,932 4,801,764 982,365 375,997 9 6,609,297 5,177,761 Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: – – – – – – – – preparing forward-looking cash flow analyses in relation to its operating, investing and financing activities; using derivatives that are only traded in highly liquid markets; monitoring undrawn credit facilities; obtaining funding from a variety of sources; maintaining a reputable credit profile; managing credit risk related to financial assets; only investing surplus cash with major financial institutions; and comparing the maturity profile of financial liabilities with the realisation profile of financial assets. Page 48 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 24: FINANCIAL RISK MANAGEMENT (CONTINUED) The table below reflects an undiscounted contractual maturity analysis for financial liabilities at 30 June 2018. No bank overdraft facilities have been extended to the Group. Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward. Financial liability and financial asset maturity analysis Within 1 Year 1 to 5 Years Over 5 Years Total 2018 2017 2018 2017 2018 2017 2018 2017 $ $ $ $ $ $ $ $ Consolidated Group Financial liabilities due for payment Trade and other payables 462,994 544,631 - - Borrowings 90,956 20,871 Convertible Notes - - - 8,908,552 Other liabilities 32,665 1,995,000 - Total expected outflows 586,615 2,560,502 - 8,908,552 - - - - - - - - - - 462,994 544,631 90,956 20,871 - 8,908,552 32,665 1,995,000 586,615 11,469,054 Within 1 Year 1 to 5 Years Over 5 Years Total 2018 2017 2018 2017 2018 2017 2018 2017 $ $ $ $ $ $ $ $ 6,609,297 5,177,761 2,865,769 2,835,700 9,475,066 8,013,461 - - - - - - 8,888,451 5,452,959 - (8,908,552) - - - - - 6,609,297 5,177,761 - 2,865,769 2,835,700 - 9,475,066 8,013,461 - 8,888,451 (3,455,593) Consolidated Group Financial assets – cash flows realisable Cash and cash equivalents Trade, term and loan receivables Total anticipated inflows Net (outflow)/ inflow on financial instruments Page 49 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 24: FINANCIAL RISK MANAGEMENT (CONTINUED) c. Market risk (i) Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The Group is also exposed to earnings volatility on floating rate instruments. The financial instruments that primarily expose the Group to interest rate risk are borrowings, and cash and cash equivalents. Interest rate risk is managed using a mix of fixed and floating rate instruments. At 30 June 2017, the Group had interest-bearing convertible note financial liabilities and no group interest-bearing financial assets had fixed interest rates on 30 June 2018 or 2017. (ii) Foreign currency risk Exposure to foreign currency risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the Group holds financial instruments which are other than the AUD functional currency of the Group. With instruments being held by overseas operations, fluctuations in the US dollar and Philippines peso may impact on the Group’s financial results unless those exposures are appropriately hedged. The following table shows the foreign currency risk on the financial assets and liabilities of the Group’s operations denominated in currencies other than the functional currency of the operations. The foreign currency risk in the books of the parent entity is considered immaterial and is therefore not shown. 2018 Consolidated Group USD AUD PHP Other Total AUD Net Financial Assets/(Liabilities) in AUD Functional currency of entity: Australian dollar 3,331,407 5,509,617 US dollar Philippines peso Statement of financial position exposure (151,960) - - - 3,179,447 5,509,617 - - 2,146 2,146 197,241 9,038,265 - - (151,960) 2,146 197,241 8,888,451 2017 Net Financial Assets/(Liabilities) in AUD Consolidated Group USD AUD PHP Other Total AUD Functional currency of entity: Australian dollar 4,473,704 (8,581,125) US dollar Philippines peso Statement of financial position exposure 323,962 - - - 4,797,666 (8,581,125) - - 39,880 39,880 287,986 (3,819,435) - - 323,962 39,880 287,986 (3,455,593) Page 50 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 24: FINANCIAL RISK MANAGEMENT (CONTINUED) (iii) Other price risk Other price risk relates to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices largely due to demand and supply factors (other than those arising from interest rate risk or foreign currency risk) for securities. The Group has no exposure to price risk. Fair Values Fair value estimation The fair values of financial assets and financial liabilities approximate their carrying value. Differences between fair values and carrying amounts of financial instruments with fixed interest rates are due to the change in discount rates being applied by the market since their initial recognition by the Group. Most of these instruments, which are carried at amortised cost (ie term receivables, held-to-maturity assets, loan liabilities), are to be held until maturity and therefore the fair value figures calculated bear little relevance to the Group. (i) Cash and cash equivalents, trade and other receivables, and trade and other payables are short- term instruments in nature whose carrying amounts are equivalent to their fair values. NOTE 25: RESERVES a. Foreign Currency Translation Reserve The foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary. Movements in Reserve Balance at beginning of year Exchange differences on translation of foreign operations Balance at end of year Note Consolidated Group 2018 $ 2017 $ 42,480 24,241 36,365 6,115 66,721 42,480 b. Share Based Payment Reserve The share based payment reserve is used to recognise the value of equity settled share based payments. Movements in Reserve Balance at beginning of year Share based payments Balance at end of year Note Consolidated Group 2018 $ 2017 $ - 179,077 179,077 - - - Page 51 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 25: RESERVES (CONTINUED) c. Convertible Note Reserve The convertible note reserve records the equity component of issued convertible preference shares. Movements in Reserve Balance at beginning of year Transfer of convertible note reserve to retained earnings upon settlement in cash Balance at end of year Note Consolidated Group 2018 $ 2017 $ 751,936 751,936 (751,936) - - 751,936 NOTE 26: CAPITAL AND LEASING COMMITMENTS Capital commitments The Group has no capital commitments at 30 June 2018 (2017: Nil). Operating lease commitments Non-cancellable operating leases contracted for but not recognised in the financial statements as follows; Note Consolidated Group Not later than 12 months Between 12 months and five years Later than 5 years 2018 $ 375,951 204,953 - 2017 $ 351,213 256,706 - 580,904 607,919 NOTE 27: SHARE BASED PAYMENTS EXPENSE OPTIONS The RightCrowd Limited Option Plan is designed to provide long-term incentives for employees to deliver long-term shareholder returns. Under the plan, participants are granted options which only vest if certain performance standards are met.The performance standard for these options is that the option holder must remain employed by RightCrowd at the time the option vests. Participation in the plan is at the board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. Options are granted under the plan for no consideration and carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share. Page 52 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 27: SHARE BASED PAYMENTS EXPENSE (CONTINUED) Set out below are summaries of options granted under the plan: Options outstanding as at 1 July 2016 Granted Forfeited Expired Options outstanding as at 30 June 2017 Granted Forfeited Exercised Expired Number Weighted Average Exercise Price - - - - 6,825,000 (215,000) - - - - - - $0.42 $0.41 - - Options outstanding as at 30 June 2018 6,610,000 $0.42 No share options expired or exercised during the periods covered above Share options outstanding at the end of the year have the following expiry date and exercise prices: Date options granted Expiry date Exercise price Share options 30 June 2018 Share options 30 June 2017 13/09/2017 13/09/2017 13/09/2017 30/05/2018 30/05/2018 30/05/2018 12/12/2018 12/12/2019 12/12/2020 28/08/2019 27/08/2020 28/08/2021 $0.38 $0.43 $0.43 $0.60 $0.68 $0.68 Weighted average remaining contractual life of options outstanding at end of period 2,096,695 2,096,661 2,096,644 106,668 106,666 106,666 6,610,000 2.25 years - - - - - - - - Details of options issued during the financial year are as follows a. On 13 September 2017 6,505,000 share options were granted to employees under the RightCrowd Limited Employee Option Plan to take up ordinary shares. The options vest as follows: Vesting Date 13/09/2017 13/09/2018 13/09/2019 Number 2,168,363 2,168,328 2,168,309 Exercise Price $0.38 $0.43 $0.43 Expiry 12/12/2018 12/12/2019 12/12/2020 The options hold no voting or dividend rights and are not transferable. Page 53 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 27: SHARE BASED PAYMENTS EXPENSE (CONTINUED) The fair value of these options was $440,299. This value was calculated using the Black-Scholes-Merton option pricing model applying the following inputs: Number of options Exercise price Grant date Expiry date Volatility Dividend yield Risk-free interest rate Fair value at grant date Tranche 1 Tranche 2 Tranche 3 2,168,363 2,168,328 2,168,309 $0.38 $0.43 $0.43 13/09/2017 13/09/2017 13/09/2017 12/12/2018 12/12/2019 12/12/2020 58% 0% 1.8% $0.05 58% 0% 1.8% $0.07 58% 0% 1.8% $0.09 b. On 30 May 2018 320,000 share options were granted to employees under the RightCrowd Limited Employee Option Plan to take up ordinary shares. The options vest as follows: Vesting Date 30/05/2019 30/05/2020 30/05/2021 Number 106,668 106,666 106,666 Exercise Price $0.60 $0.68 $0.68 Expiry 28/08/2019 27/08/2020 28/08/2021 The options hold no voting or dividend rights and are not transferable. The fair value of these options was $32,000. This value was calculated using the Black-Scholes-Merton option pricing model applying the following inputs: Number of options Exercise price Grant date Expiry date Volatility Dividend yield Risk-free interest rate Fair value at grant date Tranche 1 Tranche 2 Tranche 3 106,668 106,666 $0.60 $0.68 106,666 $0.68 30/05/2018 30/05/2018 30/05/2018 28/08/2019 27/08/2020 28/08/2021 59% 0% 1.8% $0.07 59% 0% 1.8% $0.10 59% 0% 1.8% $0.13 The expense recognised in the profit or loss for these share based payments is $179,077 (2017: Nil). Page 54 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 28: SEGMENT REPORTING Reportable segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. The Company currently operates predominantly in one segment, being the sale and service of the RightCrowd solution. i) Revenue by geographical location Revenue by geographical location attributable to external customers is disclosed below, based on the location of the external customer: North America Europe, Middle East and Africa Latin America Australia Consolidated Group 2018 $ 2017 $ 3,450,054 2,136,316 228,708 413,152 733,952 62,039 1,428,841 1,214,669 5,520,755 4,146,976 ii) Non-current assets by geographical location Non-current assets by geographical location is disclosed below, based on the location of the assets. Asia Pacific (ex Australia) Australia Consolidated Group 2018 $ 30,858 188,135 218,993 2017 $ 13,895 702,496 716,391 iii) Major customers There is one customer that contributes more than 10% of total revenue of the Group. Page 55 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 29: COMPANY DETAILS The registered office of the company is: RightCrowd Limited Ground Floor, Suite 2 183 Varsity Parade Varsity Lakes QLD 4227 ABN 20 108 411 427 www.rightcrowd.com ASX Code RCW Incorporated in Australia Auditor BDO Brisbane Share Registry Boardroom Pty Limited Solicitor GRT Lawyers Brisbane The principal places of business are: –RightCrowd Limited Ground Floor, Suite 2 183 Varsity Parade Varsity Lakes QLD 4227 –RightCrowd Software Pty Ltd Australia Ground Floor, Suite 2 183 Varsity Parade Varsity Lakes QLD 4227 United States 2505 2nd Avenue, Suite 515 Seattle WA 98121 Philippines Unit 2401, One San Miguel Avenue Building, Corner Shaw Boulevard Ortigas Centre, Pasig City, Manila Page 56 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 DIRECTORS’ DECLARATION In accordance with a resolution of the directors of RightCrowd Limited, the directors of the company declare that: 1. the financial statements and notes, as set out on pages 15 to 56, are in accordance with the Corporations Act 2001 and: a. b. comply with Australian Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes compliance with International Financial Reporting Standards; and give a true and fair view of the financial position as at 30 June 2018 and of the performance for the year ended on that date of the consolidated group; 2. 3. in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and the directors have been given the declarations required by s 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer. At the date of this declaration, there are reasonable grounds to believe that the company will be able to meet any obligations or liabilities. Director ………………………………………………………………………………………………………………. Dated this 28 September 2018 Peter Hill Page 57 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR'S REPORT To the members of RightCrowd Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of RightCrowd Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. Page 58 Revenue recognition Key audit matter How the matter was addressed in our audit The group generates revenue from multiple streams including license sales & other services as disclosed in Note 1(m). The amount of revenue recognised during the year for license sales and other services is dependent on the appropriate identification on the timing of transfer of the significant risks and rewards of ownership to the buyer. In our view, revenue recognition is significant to our audit due to the significance of revenue to the financial report and the complex nature of accounting for the appropriate timing of revenue related to the licence sales and other services. Our audit procedures included:      Assessing the Group’s revenue recognition policy’s for compliance with Australian Accounting Standards. Selecting a sample of license sales and other services recognised as revenue in the general ledger and agreeing to supporting invoices, signed customer contracts and proof of delivery where applicable. Obtaining and evaluating credit notes issued post year end and the first and last invoices issued post and pre year end, to ensure an appropriate cut-off was achieved at balance date. Analytical review procedures on all significant revenue streams on a disaggregated basis and against expected trends and prior year. Selecting a sample of receipts and invoices from the clients’ income in advance schedule and recalculating the appropriate deferred portion of licence sales revenue. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2018, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. Page 59 In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 7 to 13 of the directors’ report for the year ended 30 June 2018. In our opinion, the Remuneration Report of RightCrowd Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit Pty Ltd C R Jenkins Director Brisbane, 28 September 2018 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. Page 60 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES The following information is current as at 31 August 2018: 1. Shareholding a. Distribution of Shareholders Category (size of holding): 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over b. c. There are eight (8) shareholdings held in less than marketable parcels. The names of the substantial shareholders listed in the holding company’s register are: Shareholder: CNI Pty Ltd Advance Marketing Technologies Pty Ltd Goninan Property Investments Pty Ltd Number Holders Units Held 15 50 61 330 53 509 6,823 145,296 526,830 12,286,241 120,368,143 133,333,333 Number Ordinary % of Issued Capital 53,907,428 40.431 18,802,491 14.102 17,422,517 13.067 Salmon Earthmoving Services Pty Ltd/Pylmon Pty Ltd 6,964,820 5.224 97,097,256 72.824 d. Voting Rights The voting rights attached to each class of equity security are as follows: Ordinary shares – Each ordinary share is entitled to one vote when a poll is called; otherwise each member present at a meeting or by proxy has one vote on a show of hands. Page 61 RightCrowd Limited ABN 20 108 411 427 and Controlled Entities Financial Report for the Year Ended 30 June 2018 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES e. 20 Largest Shareholders – Ordinary Shares Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 53,907,428 40.431 Name 1. 2. CNI Pty Ltd Advanced Marketing Technologies Pty Ltd 18,802,491 14.102 3. Goninan Property Investments Pty Ltd 17,422,517 13.067 4. 5. 6. 7. 8. 9. Salmon Earthmoving Services Pty Ltd HSBC Custody Nominees (Australia) Limited David Thomas Berne No 132 Nominees Pty Ltd Humana Pty Ltd Dr David John Ritchie & Dr Gillian Joan Ritchie 10. Charles & Cornelia Goode Foundation Pty Ltd 11. National Nominees Limited 12. Lawnhill Superannuation Pty Ltd (Holmes Family) 13. Douglas Financial Consultants Pty Ltd 14. Meek Superannuation Pty Ltd 15. Dr Darryl Leonard Goode & Mrs Lynette Evelyn Goode 16. SAS Investments Pty Ltd 6,964,820 6,346,285 2,206,262 1,851,958 1,005,000 1,000,000 660,000 625,498 581,601 479,018 425,000 400,000 384,492 17. Lawnhill Superannuation Pty Ltd (Rabscud P/L & OWMS) 348,241 18. SJMJ Super Pty Ltd 19. Masada Equities Pty Ltd 20. Tigersharek Investments Pty Ltd 333,336 300,000 300,000 5.224 4.760 1.655 1.389 0.754 0.750 0.495 0.469 0.436 0.359 0.319 0.300 0.288 0.261 0.250 0.225 0.225 114,343,947 85.759 2. 3. 4. 5. The names of the joint company secretaries are Kim Clark and Leslie Milne. The address of the principal registered office in Australia is 183 Varsity Parade, Varsity Lakes QLD 4227 Telephone 07 5593 2581. Registers of securities are held at the following addresses: New South Wales Level 12, 225 George Street, SydneyNSW 2000. Stock Exchange Listing Quotation has been granted for all the ordinary shares of the company on all Member Exchanges of the Australian Securities Exchange Limited. 6. Unquoted Securities Options over Unissued Shares: A total of 6,610,000 options are on issue. Page 62 

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