RightCrowd
Annual Report 2019

Plain-text annual report

ANNUAL AND FINANCIAL REPORT YEAR ENDING 30 JUNE 2019 RIGHTCROWD LIMITED AND CONTROLLED ENTITIES | A.B.N. 20 108 411 427 1 For personal use only CHAIRMAN’S REPORT Dear Shareholder, The Board of RightCrowd Limited (RCW) is pleased to provide the 2019 annual report. In this report we set out RCW’s financial results for the year ended 30 June 2019, its financial position at that date and commentary on its activities and outlook. Since the IPO in 2017, 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 team sizes have been increased. The completion of two strategic acquisitions during this financial year, of Offsite Vision Holdings Inc. (“Offsite Vision”) and Ticto NV (“Ticto”), help extend the company’s product range and geographic footprint to continue the company’s growth as a market leader in the physical security and compliance market. Offsite Vision has existing presence control solutions deployed. Since acquisition, RightCrowd has provided funding to accelerate the marketing and implementation of its solutions. Ticto has innovative solutions for wearable presence control. Since acquisition, RightCrowd has provided funding to further develop its products and solutions and support its early revenue growth strategies. There is continuing confidence that the opportunity in the market for revenue growth is there. The Company achieved a 69.9% growth in software sales and software consulting revenue in FY 2019 and the management team expects continued growth in the FY 2020 year. From a financial perspective, RCW increased its revenue from continuing operations from $5.520m in FY 2018 to $9.378m in FY 2019. As outlined in previous announcements the Company continues to invest in building the capabilities to sell, market, develop and deliver its solutions globally. All monies spent on these activities were expensed as incurred. As a result, and given acquisitions made during the financial year, the net loss for the year increased from $5.120m (FY 2018) to $6.171m (FY 2019). Cash and cash equivalents at the end of FY 2019 total $4.972m. The balance of accounts receivable as at the end of FY 2019 is $4.371m, which includes $1.850m relating to the R&D tax rebate. The Company anticipates that the projected balance of cash and cash equivalents, including inflows from recurring annual revenue and ongoing projects, are sufficient to sustain operations through to the end of FY 2020. This excludes consideration of additional potential cash inflows from the growing sales pipeline. Finally, I would like to thank our entire team and all of our shareholders, clients and partners for their support in this positive year for RightCrowd. 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 2 For personal use only 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 4 5 12 19 20 21 22 23 24 66 67 71 3 For personal use only 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 2019 and reflects the corporate governance practices in place throughout the 2019 financial year. The corporate governance statement was approved by the board on 18 September 2019. 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/. 4 For personal use only 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 2019. The names of directors in office at any time during or since the end of the year up to the date of this report 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 and resigned 20 August 2019. Scott Goninan joined 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. 5 For personal use only 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. Mr Craig Davies Non-executive Director. Chairman of the Audit and Risk Committee. Appointed 20 August 2019. Craig Davies is CEO of TriSecOps, a specialist cybersecurity firm and is the former CEO for the Federal Government’s AustCyber - The Australian Cyber Security Growth Network, former Head of Security at Atlassian and Chief Security Officer at Cochlear. He has spent more than twenty years in cybersecurity working in several fields, including intelligence, infrastructure operations, security architecture and web development. Craig started his career in Banking, initially with the Commercial Bank of Australia, then Westpac Banking Corporation, where worked across the organisation in Retail Banking, Legal Services and the Westpac IT Group. Craig is a passionate supporter of Australia’s startup ecosystem and has advised a range of companies including Bugcrowd and Deckee. 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 Peter Hill (i) Scott Goninan (ii) Craig Davies (iii) 433,333 53,907,428 17,422,517 104,166 Nil Nil Nil Nil (i) (ii) Indirect interest held through CNI Pty Ltd ATF RightCrowd A/c Indirect interests held through Goninan Property Investments Pty Ltd ATF The Goninan Wealth Trust and Regent Securities Pty Ltd ATF Platers & Associated CMP SF A/c. (iii) Indirect interest held through Jaune Rose Pty Ltd ATF Davies Family Trust Company Secretary Mr Peter Hill was appointed Company Secretary on 18 March 2004 and resigned as Company Secretary 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 and resigned on 7 June 2019. 6 For personal use only Events after Reporting Period RightCrowd’s non-executive director, Craig Davies, purchased 104,166 RCW shares via indirect interest on 5 September 2019. 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 New entities added under the control of RightCrowd Ltd during the year ended 30 June 2019 include: – Offsite Vision Holdings Inc (referred to as Offsite Vision) which was acquired on 29 October 2018. This is a US-based company that offers real-time life safety solutions via a cloud-based platform. Offsite Vision contributed a net loss of $0.546m during the financial year as additional investment is made to support its early stage revenue growth. – Ticto NV and Ticto Inc (referred to as Ticto) which were acquired on 16 January 2019. This is a European based company that offers innovative presence control solutions. Ticto contributed a net loss of $1.040m during the financial year as additional investment is made to support its early stage revenue growth. On the 28th of November 2018, RCW issued 11,588,431 fully paid ordinary shares pursuant to a share placement undertaken for the purposes of raising working capital. 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. 7 For personal use only 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. Commentary on the Results for the Period Over the 2019 financial year, the Company grew revenue for software and related services from $5.520m (FY 2018) to $9.378m growing at an annual rate of 69.9%. This growth has come from new software deployments and strong growth from services revenue from both new and existing customers. Investment since the IPO into the product and building a global team is beginning to pay-off. Revenue growth was truly global in nature with 83% of total sales coming from locations outside Australia. Particularly pleasing was a solid entry into the European market with some key deployments, which are being serviced by staff co-locating in our new European offices as a consequence of the acquisition made of Ticto during FY 2019. FY 2019 Revenue by Region Australia 17% EMEA 17% Latin America 6% North America 60% The company has also continued to extend its clients across various industries and in particular the finance sector has shown strong growth during FY 2019 as RightCrowd won some major sales with top global financial institutions. 8 For personal use only Convention Centers 1% Research 3% Pharmaceutical 3% Retail 8% Energy 15% Mining 13% Logistics 4% Industrial 16% Hi-Tech 11% Entertainment 3% Finance 12% Government 5% Healthcare 3% Higher Education 3% In addition to growing revenue in its core product set, RightCrowd is very excited by the opportunities presented by acquisitions made into new innovative product sets covering Presence Control. These acquisitions bring complementary products into the RightCrowd offering and help extend the position of the company as a market leader in software to support access and presence control. Furthermore, RightCrowd has continued to develop its new Access Analytics product, RightCrowd IQ and has complete roll-outs of the products to initial clients with positive feedback. During the year there has been a continued focus on developing the RightCrowd technologies via R&D investment. This investment has resulted in a submitted claim for an R&D tax incentive rebate of approximately $1.850m. R&D activity will continue in future years as RightCrowd consolidates its product portfolio and continues to bring new innovative solutions to the market. The cash position at the end of the financial year was $4.972m plus trade receivables of $2.521m and a receivable for an R&D tax credit cash rebate of $1.850m. This would give the Company approximately $9.343m of available cash to use in 2020 financial year to continue operating the business plan. Revenue Pipeline Outlook The Board is of the opinion that the contracts closed throughout the year 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. 9 For personal use only In relation to the financial year ending 30 June 2020, the Company is projecting to continue to grow as it expands its market share across existing and new industries. The Company expects revenue growth from existing customers as successful deployments lead to scope extension both in terms of geographical coverage and additional product modules. The Company also expects further growth to come from recent acquisitions and the Company’s bolstered presence with fully operational entities within the European market. 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 2020 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 its 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 2019 has been received and can be found on page 19 of the financial report. Board and Committee Attendance Director’s attendance at Board and Committee meetings is summarised below: for the period 1 July 2018 to 30 June 2019 Director Peter Leslie Hill Alfred Scott Goninan Robert Anthony Baker * Alfred Scott Goninan retired as director on 20 August 2019. Current Current* Current Date Appointed 18/03/2004 6/08/2017 6/08/2017 Board Meetings Audit Committee Meetings Date Ceased Attended Held Attended Held 12 12 12 12 12 12 5 5 5 5 5 5 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. 10 For personal use only 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 30/05/2018 30/05/2018 30/05/2018 Date of Expiry 12/12/2019 Exercise Price $0.43 Number under Option 2,013,328 12/12/2020 28/08/2019 27/08/2020 28/08/2021 $0.43 $0.60 $0.68 $0.68 2,013,328 106,668 106,666 106,666 4,346,656 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. 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. 11 For personal use only REMUNERATION REPORT 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 Board’s 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 salary 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. KMP are also entitled and encouraged to participate in the employee share option arrangements to align executives’ interests with shareholders’ interests. 12 For personal use only 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 are 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 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. Revenue and other income Net (loss) Loss Per Share Share Price at 30 June 2015 $ 6,939,322 (395,165) (0.32) N/A 2016 $ 8,802,468 (1,181,662) (0.95) N/A 2017 $ 5,997,948 (4,697,428) (0.22) N/A 2018 $ 9,381,950 (5,120,083) (0.04) 0.40 2019 $ 11,691,931 (6,170,821) (0.04) 0.26 Despite the 69.9% 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. 13 For personal use only Employment Details of Members of Key Management Personnel 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 2019 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 % CEO / Managing Director CFO/COO CFO / Joint Company Secretary Non-Executive Chairman Non-Executive Director 15 years n/a1 2.5 years 2 years 2 years - - - - - - - - - - 100 - 100 100 100 Group KMP Peter Hill James Stewart Leslie Milne Robert Baker Scott Goninan 1 James Stewart was appointed on 7 June 2019, and commenced on 15 July 2019 The employment terms and conditions of all KMP are formalised in contracts of employment. Leslie Milne was appointed CFO on 3 January 2017 and resigned 7 June 2019. James Stewart was appointed as CFO and COO on 7 June 2019 and commenced on 15 July 2019. 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 six months’ notice. – CFO / COO on giving three months’ notice – – Directors are appointed to act between AGMs of the company as per the Constitution. Former CFO on giving two weeks’ notice. 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 $228,311 per annum plus statutory superannuation contributions with further opportunity for bonus incentives based on performance; 4 weeks annual leave per annum – 14 For personal use only Chief Financial Officer / Chief Operations Officer: The company has entered into an employment contract with Mr James Stewart. The key terms of the contract are: Salary of $200,000 per annum plus statutory superannuation contributions; 4 weeks annual leave per annum; – – – Up to $35,000 cash bonus per annum, subject to satisfying performance conditions. Former Chief Financial Officer: The company had entered into an employment contract with Mr Leslie Milne. The key terms of the contract are: – – – Salary of $200,000 per annum 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 2018 was paid during prior financial year; 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 On 20th August 2019, the Company announced the retirement of Scott Goninan from the Company’s Board, and the subsequent appointment of Craig Davies as a Non-Executive Director on the Board. Remuneration Expense Details for the Year Ended 30 June 2019 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. 15 For personal use only Short-term Benefits Salary, Fees and Leave $ Profit Share and Bonuses Other $ $ Post- employment Benefits Pension and Super- annuation $ Long-term Benefits Termination Equity- settled Share- based Payments Total Performance related % Incentive Plans $ LSL $ Termination Benefits $ Options/ Rights $ $ Group KMP 2019 220,221 Peter Hill 234,593 2018 Peter Hill Robert Baker1 60,000 2019 47,307 2018 Robert Baker Scott Goninan2 41,096 2019 32,402 Scott Goninan 2018 James Stewart3 2019 - - 2018 James Stewart Leslie Milne4 2019 183,334 2018 Leslie Milne 199,965 2019 504,651 Total KMP 514,267 2018 - 281 - 1,354 - - - - - - - - - - - - - 2,179 432 - 2,460 20,000 1,786 20,000 21,003 20,115 5,700 4,494 3,904 3,078 - - 19,738 18,050 50,345 45,737 - - - - - - - - - - - - 3,805 17,808 - - - - - - - - 3,805 17,808 - - - - - - - - 24,432 - 24,432 - 1 Robert Baker Appointed 6 August 2017 2 Scott Goninan Appointed 6 August 2017 3 James Stewart appointed 7 June 2019; commenced 15 July 2019 4 Leslie Milne Appointed 3 January 2017; resigned 7 June 2019 Securities Received that Are Not Performance-related - 245,310 273,870 - 65,700 - 51,801 - 45,000 - 35,480 - - - - - 813 230,496 245,510 813 586,506 606,661 7,063 7,063 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 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 2019 the company granted no cash bonuses or share-based payments to members of KMP. The Board will continue to review these forms of remuneration in the coming year. In the 2018 financial year, Leslie Milne, the former 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 2018. 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. The Company implemented an Employee Share Option Plan (ESOP) as a long-term incentive plan for all employees of the company. Tranche 1 - Granted 13 September 2017 The Company granted 6,505,000 options to employees. 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. 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 12/09/18, 12/09/19 and 12/09/20. 16 For personal use only Under this Plan the following KMPs were granted options during the previous financial year. KMP Options Granted Expired/ Forfeited during year1 Leslie Milne 250,000 (250,000) 1 Leslie Milne resigned on 7 June 2019 and his unvested 166,667 options were forfeited 30 days post resignation. During the year 83,333 options lapsed without exercise. Tranche 2 - Granted 30 May 2018 A second grant of Options was approved and granted on 30 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 53,907,428 66,666 - 100,000 Granted as Remuneration during the Year - - - - Issued on Exercise of Options during the Year - - - - Other Changes during the Year - (66,666) - 333,333 Balance at End of Year 53,907,428 - - 433,333 17,422,517 71,496,611 - - - - - 266,667 17,422,517 71,763,278 Peter Hill (i) Leslie Milne (ii) James Stewart Robert Baker (iii) Scott Goninan (iv) (i) (ii) (iii) (iv) Indirect interest through CNI Pty Ltd ACN 131 410 556 Leslie Milne resigned on 7 June 2019 and ceased being KMP. Securities purchased through placement offering. Indirect interest through Goninan Property Investments Pty Ltd ACN 151 022 052 ATF The Goninan Wealth Trust and Regent Securities Pty Ltd ATF Platers & Associated CMP SF A/c KMP Options The number of options in RightCrowd Limited held by each KMP of the group during the financial year as follows: Balance Granted as remuneration Peter Hill James Stewart Leslie Milne1 Robert Baker Scott Goninan 1 July 2018 - - 250,000 - - 250,000 Exercised Lapsed/Other Balance 30 June 2019 - - - - - - - - - - - - - - (250,000) - - (250,000) - - - - - - 1 Leslie Milne resigned on 7 June 2019 and his unvested 166,667 options were forfeited 30 days post resignation. During the year 83,333 options lapsed without exercise. 17 For personal use only 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 during the financial year. Other Transactions with KMP and/or their Related Parties 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: 27 September 2019 18 For personal use only AUDITOR’S INDEPENDENCE DECLARATION AUDITOR’S INDEPENDENCE DECLARATION UNDER S 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF RIGHTCROWD LIMITED 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 K HENRY TO THE DIRECTORS OF RIGHTCROWD LIMITED As lead auditor of RightCrowd Limited for the year ended 30 June 2019, 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 period. C K Henry Director BDO Audit Pty Ltd Brisbane, 27 September 2019 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. 9 19 For personal use only CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 Note Consolidated Group 2019 $ 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) for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss when specific conditions are met Exchange differences on translating foreign operations, net of tax Total other comprehensive income for the year Total comprehensive loss for the year Earnings per attributable to ordinary equity holders of the company Basic loss per share Diluted loss per share 3 3 4 4 4 4 5 8 8 9,378,615 2,313,316 5,520,755 3,861,195 (13,128,451) (9,560,768) (278,856) (11,096) (4,380,988) (6,107,460) (646,462) (360,544) (3,887,181) (5,073,005) (63,361) (47,078) (6,170,821) (5,120,083) 49,738 49,738 24,241 24,241 (6,121,083) (5,095,842) (0.037) (0.037) (0.043) (0.043) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the attached notes 20 For personal use only CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories 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 Other liabilities Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS/(LIABILITIES) EQUITY Issued capital Reserves Accumulated Losses TOTAL EQUITY Note Consolidated Group 2019 $ 2018 $ 10 11 15 13 14 16 17 18 19 17 18 19 20 26 4,972,136 4,370,775 202,891 395,287 9,941,089 284,004 15,814,459 16,098,463 26,039,552 707,652 87,154 2,485,776 30,849 1,065,713 4,377,142 27,623 45,408 150,767 223,799 4,600,942 21,438,610 6,609,297 2,865,769 - 312,729 9,787,795 218,993 - 218,993 10,006,788 462,994 90,956 1,507,255 4,944 891,592 2,957,741 - - 158,579 158,579 3,116,320 6,890,468 39,650,533 782,956 (18,994,879) 21,438,610 19,468,728 245,798 (12,824,058) 6,890,468 The above Consolidated Statement of Financial Position should be read in conjunction with the attached notes 21 For personal use only  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 Note Issued Capital $ Accumulated Losses $ Foreign Currency Trans- lation Reserve $ Share Based Payment Reserve $ Convert- ible Note Reserve Total $ Consolidated Group Balance at 1 July 2017 Comprehensive income (Loss) for the year Other comprehensive income for the year Total comprehensive income for the year 3,349,925 (8,455,911) 42,480 - 751,936 (4,311,570) - (5,120,083) - - - (5,120,083) - - 24,241 - - 24,241 - (5,120,083) 66,721 - - (5,095,842) 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 issued during the year Shares converted during the year Transaction costs 20a 20a 20a Total transactions with owners and other transfers - - 9,250,000 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 66,721 179,077 (751,936) 16,297,880 Balance at 30 June 2018 19,468,728 (12,824,058) 66,721 179,077 - 6,890,468 Balance at 1 July 2018 Comprehensive income (Loss) for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners, in their capacity as owners, and other transfers Share options expensed during the year Shares issued during the year Transaction costs Total transactions with owners and other transfers 19,468,728 (12,824,058) 66,721 179,077 - - - (6,170,821) - - 49,738 (6,170,821) 49,738 - - - - - - - 6,890,468 (6,170,821) 49,738 (6,121,083) - - - 20a 20a 20,392,079 (210,274) 20,181,805 - - - - - - - 487,420 487,420 - - - 487,420 20,392,079 (210,274) 20,669,225 21,438,610 - - - Balance at 30 June 2019 39,650,533 (18,994,879) 116,459 666,497 The above Consolidated Statement of Changes in Equity should be read in conjunction with the attached notes 22 For personal use only CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Finance costs Income tax refunded (paid) Grant income received Net cash from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Purchase of intangibles Cash acquired from acquisition of subsidiaries Net cash from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Transaction costs Proceeds from borrowings Repayment of borrowings Net cash from financing activities Net increase in cash held Net foreign exchange differences Cash and cash equivalents at beginning of financial year Cash and cash equivalents at end of financial year 10 Note Consolidated Group 2018 2019 $ $ 8,837,203 (16,601,408) - (11,096) (37,457) 1,854,782 (5,957,976) 6,466,694 (13,243,488) 76,950 (33,072) - 1,647,084 (5,085,832) 22 - (96,048) (9,566) 120,326 14,712 4,562,719 (210,274) 208,298 (304,378) 4,256,365 (1,686,899) 49,738 6,609,297 4,972,136 20,546 (219,536) - - (198,990) 9,250,000 (656,344) 346,958 (2,276,872) 6,663,742 1,378,920 52,616 5,177,761 6,609,297 The above Consolidated Statement of Cash Flows should be read in conjunction with the attached notes. 23 For personal use only NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 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 27 September 2019 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 statements, except for cash flow information, have been prepared on accruals basis and are based on historical cost. 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 after tax for the financial year ended 30 June 2019 of $6,170,821 (FY 2018: $5,120,083) and net cash operating outflows of $5,957,976 (FY 2018: $5,085,832). As at 30 June 2019, the consolidated group’s total assets exceeded total liabilities by $21,438,610, and its current assets of $9,941,089 (FY 2018: $9,787,795) exceeded its current liabilities of $4,377,142 (FY 2018: $2,957,741) by $5,563,947 (FY 2018: $6,830,054). As such the Group’s ability to continue to adopt the going concern assumption will depend upon a number of matters including the successful continued development and further commercialisation of the RightCrowd solution and, should the Board consider it necessary, subsequent successful raisings of funds. The Group has forecast its future cash flows requirements to 30 September 2020, which can currently be met by current level of cash reserves and expected cash inflows from sales and R&D claims. As such the directors are of the opinion that the use of the going concern assumption is appropriate. Foreign currency translation Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Foreign exchange differences arising on translation are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than the Australian Dollars ($AUD) are translated into $AUD upon consolidation. The functional currency of the entities in the Group has remained unchanged during the reporting period. On consolidation, assets and liabilities have been translated into $AUD at the closing rate at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into $AUD at the closing rate. Income and expenses have been 24 For personal use only translated into $AUD at the average rate over the reporting period. Exchange differences are charged/credited to other comprehensive income and recognised in the foreign currency translation reserve in equity. On disposal of a foreign operation the cumulative translation differences recognised in equity are reclassified to profit or loss and recognised as part of the gain or loss on disposal. 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. 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 12. 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. 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. 25 For personal use only 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. 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 less, where applicable, accumulated depreciation and any impairment losses. 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 in profit or loss. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1g) for details of impairment). 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. 26 For personal use only Depreciation The depreciable amount of all fixed assets including buildings and capitalised leased assets 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. 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 Applied from 1 July 2018 Initial recognition and measurement Except for certain trade receivables, under AASB 9, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (‘FVPL’), transaction costs. 27 For personal use only Classification and subsequent measurement (i) Financial Assets Under AASB 9, financial assets are subsequently measured at fair value through profit or loss (FVPL), amortised cost, or fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Group’s business model for managing the financial assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding (the ‘SPPI criterion’). The new classification and measurement of the Group’s debt financial assets are, as follows: – Debt instruments at amortised cost for financial assets that are held within a business model with the objective to hold the financial assets in order to collect contractual cash flows that meet the SPPI criterion. This category includes the Group’s Trade and other receivables. The assessment of the Group’s business models was made as of the date of initial application, 1 July 2018, and then applied to those financial assets that were not derecognised before 1 July 2018. The assessment of whether contractual cash flows on debt instruments are solely comprised of principal and interest was made based on the facts and circumstances as at the initial recognition of the financial assets. (ii) Financial liabilities The accounting for the Group’s financial liabilities remains the same as it was under AASB 139. Similar to the requirements of AASB 139, AASB 9 requires contingent consideration liabilities to be treated as financial instruments measured at fair value, with the changes in fair value recognised in the profit or loss. The Group has not identified any embedded derivatives, nor does it use hedging contracts. Impairment Expected credit losses are to be determined as follows at the end of each reporting date: – – – Stage 1: Credit risk has not increased significantly since initial recognition – recognise 12 months of ECL Stage 2: Credit risk has increased significantly since initial recognition – recognise lifetime ECL, and interest is presented on a gross basis Stage 3: Financial asset is credit impaired (using the criteria currently included in AASB 139) – recognise lifetime ECL but present interest on a net basis (i.e. gross carrying amount less credit allowance). The Group will assess at each reporting date whether there has been a significant increase in credit risk of financial assets since initial recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial recognition. Expected credit losses are a probability-weighted estimate of credit losses. They are measured as follows: – – financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive); financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows; 28 For personal use only Applied before 1 July 2018 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. 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) (ii) 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. Financial liabilities Non- 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. 29 For personal use only 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). 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 Non-Financial 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. 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 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. 30 For personal use only 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. The amortisation rates used for each class of intangible asset with a finite useful life are: Class of Intangible Asset Software TICTO Wearable tech Intellectual property in use Amortisation Rate 20 - 40% 20% 10% j. 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. 31 For personal use only k. 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. Other long-term employee benefits Provision 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. 32 For personal use only l. m. n. 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. 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. Revenue from Contracts with Customers and Other Income Applied after 1 July 2018 Refer to Note 1u. which describes the new accounting policy for Revenue from Contracts with Customers which has been applied for the first time in the current year. Interest revenue is recognised using the effective interest method. 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. Applied before 1 July 2018 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. 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. 33 For personal use only o. p. q. r. s. 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. 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. 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. Issued Capital 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. Equity-settled Share based Payment Transactions 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. 34 For personal use only Key judgement and estimates (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 assumption. (ii) (iii) (iv) Goodwill The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 1. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Refer to note 14 for details of key assumptions contained in impairment assessment on cash generating units containing goodwill. Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience and historical collection rates. The Group assesses that there is no requirement to make a provision for impairment for receivables at the end of the current reporting period. Share based payment transactions 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. (v) Revenue recognition for multiple element arrangements Revenue is measured at the stand-alone selling price as allocated to the contractual performance obligations. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. The Group derives its revenues from the sale of perpetual software and hardware sales, subscription software and support and maintenance sales and consulting services incorporating implementation costs. The Group recognises revenue by applying the five-step model to the group’s activities as described in note 1(u). The Group basis its estimates on historical results, taking into consideration the type of customers, type of transactions and the specifics of each arrangement. 35 For personal use only u. New Accounting Standards and Interpretations Adopted for the first time The Group applies, for the first time, AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers. The adoption of these new and revised Standards and Interpretations did not have any material impact on the amounts recognised in the financial statements of the group for the current or prior years. However, the accounting policies have changed from that disclosed in the 30 June 2018 financial statements. The new accounting policies for the group adopted for the first time in these financial statements are as follows: Applied from 1 July 2018 AASB 15 Revenue from Contracts with Customers AASB 15 supersedes AASB 111 Construction Contracts, AASB 118 Revenue and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under AASB 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. The adoption of AASB 15 has been applied retrospectively however has not impacted the amounts disclosed within the financial statements. The Group is in the business of development and sale 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. Therefore, the major sources of income are: Perpetual software and hardware sales The Group has determined that revenue from the provision of software and hardware licensing is to be recognised when the products are provided to the client and they are invoiced. AASB 15 contains a practical expedient that allows revenue to be recognised when the entity has the right to invoice if the amount invoiced corresponds directly with the performance completed to date. This is the case with product sold on a perpetual license basis where the Group provides the software at a point in time which will be defined in the contract with the customer. It is at this point that the customer has the right to use the software and hardware. Subscription software and support and maintenance sales For software sold on a subscription basis the Group provides the software and, bundled, support on a rental basis for the period of the subscription term. In this method of sale, the Group considers that the performance obligation in the support element and the requirement that a customer would stop using the software at the end of the term would mean that the revenue should only be recognised in full at the point the performance obligation is satisfied. Therefore, revenue is recognised over time. The costs to fulfil the contract are also recognised over the term of the contract. With product support and maintenance, a continual assessment of the performance obligations is made, and revenue is only recognised at the point when the performance obligation is satisfied. Therefore, revenue is recognised over time. 36 For personal use only Consulting Services The Group supports the delivery and implementation of customer software with services provided by its professional services team. Customer contracts will include a statement of work, which will describe the work to be completed and the time frame for its completion. These services are invoiced at the point in time of completion of milestones within the statement of work. Therefore, revenue is recognised when the milestone (being the performance obligation) is completed. Variable consideration and warranties and refunds Contracts do not provide for discounts or rebates which give rise to variable consideration. Neither do they contain provision for warranties. Generally, refunds are not provided to customers. AASB 9 Financial Instruments AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. The adoption of this standard has not impacted the amounts disclosed in these financial statements. The implementation of AASB 9 has had no material impact. (a) Classification and measurement Except for certain trade receivables, under AASB 9, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Under AASB 9, debt financial instruments are subsequently measured at fair value through profit or loss (FVPL), amortised cost, or fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Group’s business model for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding (the ‘SPPI criterion’). The new classification and measurement of the Group’s debt financial assets are, as follows: – Debt instruments at amortised cost for financial assets that are held within a business model with the objective to hold the financial assets in order to collect contractual cash flows that meet the SPPI criterion. This category includes the Group’s Trade and other receivables, and Loans included under other non-current financial assets. The assessment of the Group’s business models was made as of the date of initial application, 1 July 2018, and then applied retrospectively to those financial assets that were not derecognised before 1 July 2018. The assessment of whether contractual cash flows on debt instruments are solely comprised of principal and interest was made based on the facts and circumstances as at the initial recognition of the assets. There has been no adjustment made to the amounts disclosed as a result of the application of this standard. The accounting for the Group’s financial liabilities remains largely the same as it was under AASB 139. Similar to the requirements of AASB 139, AASB 9 requires contingent consideration liabilities to be treated as financial instruments measured at fair value, with the changes in fair value recognised in the statement of profit or loss. 37 For personal use only (b) Impairment The adoption of AASB 9 has altered the Group’s accounting for impairment losses for financial assets by replacing AASB 139’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. AASB 9 requires the Group to record an allowance for ECLs for all loans and other debt financial assets not held at FVPL. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate. For trade and other receivables, the Group has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group has established a provision matrix that is based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The adoption of the ECL requirements of AASB 9 has not resulted in any material change in impairment allowances of the Group’s debt financial assets. (c) Hedge accounting The Group doesn’t enter into any hedging arrangements. (d) Fair value of financial instruments no carried at fair value Due to the short-term nature of financial assets and financial liabilities, the Group has determined that their fair value approximates their carrying amount. v. 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 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: - 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. - - - - 38 For personal use only  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. Management have assessed that on adopting AASB 16, non-current assets would increase by $494,698 for take up of Right-of-Use Property assets; increase current financial liabilities by $304,392 for current lease liabilities; increase non-current financial liabilities by $260,433 for the non-current lease liability; decrease retained earnings by $67,692 for finance and amortisation charges in excess of operating lease payments made. NOTE 2: PARENT INFORMATION 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 profits Reserves TOTAL EQUITY 2019 $ 2018 $ 4,141,045 17,403,113 21,544,158 53,075 52,473 105,548 39,650,533 (18,878,420) 666,497 21,438,610 2,243,456 4,647,112 6,890,568 100 - 100 19,468,728 (12,757,337) 179,077 6,890,468 Statement of Profit or Loss and Other Comprehensive Income Total profit / (loss) Total comprehensive income (loss) (19,472,552) (19,472,552) (4,343,906) (4,343,906) a) The parent entity has no contingent liabilities (2018: nil). b) The parent entity has no operating lease commitments. c) The parent entity has not entered into any guarantees. 39 For personal use only  NOTE 3: REVENUE AND OTHER INCOME a. Revenue from contracts with customers Sales revenue: – – Perpetual software and hardware sales Subscription software and support and maintenance sales – Consulting services Other Income: – – – – – – – interest received travel & accommodation recharge employee contributions foreign currency exchange gain profit on sale of assets Fair value gain on partial settlement of shadow equity plan R&D Refund Total revenue & Other Income NOTE 4: LOSS BEFORE INCOME TAX Consolidated Group Note 2019 $ 2018 $ 1,337,102 2,617,212 5,424,301 9,378,615 71,175 82,125 152 205,082 - - 1,954,782 2,313,316 11,691,931 106,122 2,033,389 3,381,244 5,520,755 76,950 22,335 16,295 171,679 887 1,823,049 1,750,000 3,861,195 9,381,950 Note Consolidated Group 2018 2019 $ $ 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 payroll taxes Increase in provisions Depreciation and amortisation expense: – – depreciation expense amortisation expense 11,147,999 610,024 10,489 211,555 487,420 228,018 334,716 98,230 13,128,451 91,650 187,206 278,856 7,900,266 553,312 7,125 191,903 179,077 144,629 307,595 276,861 9,560,768 61,460 585,002 646,462 Finance costs: 11,096 360,544 Other expenses: Rent expense Travel expense Professional and consulting expense Other expenses Rent expenses include: Lease expenses 655,583 988,731 1,930,690 805,984 4,380,988 519,097 691,531 1,622,029 1,055,524 3,887,181 452,501 264,223 40 For personal use only NOTE 5: TAX EXPENSE/(INCOME) a. Income tax expense The components of tax expense/(income) comprise: Current tax Note Consolidated Group 2018 2019 $ $ 63,361 63,361 47,078 47,078 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% (2018: 27.5%) Tax effect of: – – – Deferred tax assets not recognised as recoverability criteria not met Income tax expense non-allowable (assessable) items net Impact of R&D Refund tax payable by subsidiaries - overseas tax 64,048 698,217 63,361 (6,107,460) (1,679,552) 917,287 63,361 (397,220) 625,072 47,078 1,167,225 (5,073,005) (1,395,076) 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 7,821,268 5,029,644 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 2019. During the year ended 30 June 2019 the company considers that the Group’s KMP for the purpose of this note are the CEO and CFO. 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 Termination benefits Share-based payments Total KMP compensation 2019 $ 507,111 50,345 3,805 24,432 813 586,506 2018 $ 536,053 45,737 17,808 - 7,063 606,661 Short-term employee benefits 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 accrued during the year. 41 For personal use only 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 NOTE 8: LOSS PER SHARE a. Reconciliation of earnings to profit or loss: Profit/(Loss) Earnings used to calculate basic loss per share Earnings used in the calculation of dilutive loss per share b. Weighted average number of ordinary shares outstanding during the year used in calculating basic and diluted loss per share Consolidated Group 2019 $ 2018 $ 84,000 84,000 61,500 61,500 Consolidated Group 2019 $ 2018 $ (6,170,821) (6,170,821) (6,170,821) (5,120,083) (5,120,083) (5,120,083) 165,222,143 119,131,575 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 2019 and 2018. These options could potentially dilute basic earnings per share in the future. 42 For personal use only NOTE 9: ACQUISITION OF SUBSIDIARIES (i) Offsite Vision Acquisition On the 29 October 2018, 100% of the shares in Offsite Vision Holdings Inc (“Offsite”) were acquired. The Group acquired this entity as it saw a potential to extend the current core product offering and provide a footprint into the east cost of the US market. Details of the acquisition and the fair values of the assets and liabilities acquired are as follows: Purchase consideration Shares issued Cash consideration Contingent consideration Total consideration Assets and liabilities acquired: Cash and cash equivalents Trade and other receivables Inventories Property, plant and equipment Trade and other payables Long term payables Fair value of assets and liabilities acquired Identifiable assets acquired Software Total identifiable assets and liabilities acquired Goodwill on acquisition Cashflows on acquisition Cash consideration Cash acquired Total cashflow inflows on acquisition 29-Oct-18 Offsite USD AUD 831,502 1,171,295 5,000 7,065 69,842 98,383 906,344 1,276,743 7,511 26,848 84,500 54 (126,325) (85,118) (92,530) 10,581 37,819 119,031 76 (177,949) (119,901) (130,343) 284,000 400,056 284,000 400,056 714,874 1,007,030 (5,000) 7,511 2,511 (7,065) 10,581 3,516 Results included in the consolidated results relating to Offsite for the year since acquisition date Revenue Profit or loss 307,367 (376,100) 429,550 (546,350) The goodwill recognised represents expected synergies to be gained from combining the operations and the growth potential that the directors and management see in Offsite. All trade receivables are classified as current and are expected to be received within terms (30 days). 43 For personal use only As part of the acquisition agreement there are two contingent consideration components. Both of these relate to contracted revenue targets and a maximum of 2,777,778 shares can be issued should the targets be achieved. Of these shares 2,410,848 are attributable to two key employees who were retained as part of the acquisition. These shares have been determined by management to be share based payments and have been accounted for in accordance with AASB 2 Share-based payment. Refer also to note 18 for assumptions used in determining the fair value of the contingent consideration reflected above. (ii) Ticto NV acquisition On the 15 January 2019, 100% of the shares in Ticto NV (“Ticto”) were acquired. The Group acquired this entity as it saw a potential to extend the current core product offering and provide a footprint into the European market, with Ticto NV based in Belgium. At 30 June 2019 provisional accounting has been applied for the acquisition. Details of the acquisition and the fair values of the assets and liabilities acquired are as follows: Purchase consideration Shares issue Total consideration Assets and liabilities acquired: Cash and cash equivalents Trade and other receivables Inventories Other financial assets Other current assets Property, plant and equipment Trade and other payables Fair value of assets and liabilities acquired Identifiable assets acquired Software Wearable Tech Total assets and liabilities acquired Goodwill on acquisition Cashflows on acquisition Cash consideration Cash acquired Total cashflow outflows on acquisition 15 January 2019 Ticto NV EUR AUD 9,208,196 14,658,065 9,208,196 14,658,065 73,380 31,748 55,998 70,280 10,703 38,030 (234,247) 45,892 116,810 50,538 89,140 111,875 17,037 60,537 (372,885) 73,052 883,000 387,500 1,405,603 616,842 1,316,392 2,095,497 7,891,804 12,562,568 15 January 2019 Ticto NV EUR - 73,380 AUD - 116,810 Results included in the consolidated results relating to Ticto NV and its controlled entities for the year since acquisition date Revenue Profit or loss The goodwill recognised represents expected synergies to be gained from combining the operations and the growth potential that the directors and management see in Ticto. 60,228 (668,679) 96,064 (1,040,045) 44 For personal use only (iii) Impact of the acquisitions on the results of the Group Results of the Group had Offsite and Ticto NV and its controlled entities been consolidated for the full year Revenue Profit or loss 9,791,261 (7,745,650) All trade receivables are classified as current and are expected to be received within terms (30 days). Key Estimate and Judgement Management has identified and valued software and wearable technology assets acquired as part of the Ticto NV acquisition. Software had been valued based on a fair value of forecasted future cashflows discounted at an appropriate discount rate and was cross-checked against market valuation methods for similar types of assets. Wearable Tech was modelled based on a Relief from Royalty method, given it is pre-revenue, using typical market royalties generated from similar assets. NOTE 10: CASH AND CASH EQUIVALENTS Cash at bank and on hand 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 11: TRADE AND OTHER RECEIVABLES CURRENT Trade receivables R & D Refundable Tax Offset receivable Total current trade and other receivables Note Consolidated Group 2018 $ 6,609,297 6,609,297 2019 $ 4,972,136 4,972,136 4,972,136 4,972,136 6,609,297 6,609,297 Note Consolidated Group 2018 2019 $ $ 2,520,775 2,520,775 1,850,000 1,115,769 1,115,769 1,750,000 1,850,000 1,750,000 4,370,775 2,865,769 Credit risk The Group through relationships with partners and growing relationship with major clients does have 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. 45 For personal use only 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) 61–90 31–60 $ $ > 90 $ < 30 $ 2019 Trade and term receivables Other receivables Total 2018 Trade and term receivables Other receivables Total 2,520,775 1,850,000 4,370,775 1,115,769 1,750,000 2,865,769 - - - - - - 20,380 - 15,750 - 20,380 15,750 - - - 54,058 - 54,058 38,303 - 38,303 3,897 - 3,897 73,016 - 199,746 - 73,016 199,746 Within Initial Trade Terms $ 2,430,587 1,850,000 4,280,587 800,807 1,750,000 2,550,807 NOTE 12: 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. There is no non-controlling interest for any entities in either the 2018 or 2019 financial years. Name of Subsidiary Subsidiary of RightCrowd Limited RightCrowd Software Pty Ltd RightCrowd NV Offsite Vision Holdings Inc. Subsidiary of RightCrowd Software Pty Ltd RightCrowd Inc. RightCrowd Inc. Subsidiary of RightCrowd NV Ticto NV Subsidiary of Ticto NV Ticto Inc. Principal Place of Business/country of incorporation Ownership Interest Held by the Group 2018 2019 % % Australia Belguim U.S.A. USA Philippines Belgium USA 100% 100% 100% 100% 100% 100% 100% 100% - - 100% 100% - - b Information about interests in other entities Reporia Pty Ltd Australia 100% 100% 46 For personal use only NOTE 13: PROPERTY, PLANT AND EQUIPMENT Plant and Equipment At cost Accumulated depreciation Leasehold improvements: At cost Accumulated amortisation Consolidated Group 2019 $ 2018 $ 486,019 (202,015) 343,576 (124,583) 284,004 218,993 - - 2,558 (2,558) Total property, plant and equipment 284,004 218,993 a. Movements in Carrying Amounts 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 2017 Additions Disposals Depreciation expense Balance at 30 June 2018 Acquired through business combination Additions Disposals Depreciation expense Balance at 30 June 2019 NOTE 14: INTANGIBLE ASSETS Goodwill: Cost Software and website development costs: Cost Accumulated amortisation and impairment losses Net carrying amount Wearable tech: 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 Leasehold Improvements $ Plant and Equipment $ Total $ 1,993 - - (1,993) - - - - - - 132,225 219,536 (73,301) (59,467) 218,993 60,613 96,048 - (91,650) 284,004 134,218 219,536 (73,301) (61,460) 218,993 60,613 96,048 - (91,650) 284,004 Consolidated Group 2018 2019 $ $ 13,569,598 1,815,224 (150,489) 1,644,736 616,842 (36,717) 580,125 - - - - - - - - - - 15,814,459 599,925 (599,925) - - 47 For personal use only Goodwill $ Software $ Ticto Wearable Tech $ Intellectual Property $ Total $ - - - - - 848 - (771) (77) - - - - - - 584,925 585,773 - - - (771) (584,925) (585,002) - - Consolidated Group: Year ended 30 June 2018 Balance at 1 July 2017 Additions Disposals Amortisation charge Closing value at 30 June 2018 Year ended 30 June 2019 Acquired through business combination 13,569,598 1,805,659 616,842 - 16,001,664 Amortisation charge - (150,488) (36,717) Closing value at 30 June 2019 13,569,598 1,664,736 580,125 - (187,205) - 15,814,459 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 and other comprehensive income. Impairment testing Goodwill acquired through business combinations have been allocated to the following cash-generating units (CGU): Ticto division Offsite division Consolidated Group 2019 $ 12,562,568 1,007,030 13,569,598 2018 $ - - - The recoverable amount of the consolidated entity's goodwill has been determined by a value-in-use calculation using a discounted cash flow model, based on a 1 year projection period approved by board of directors and extrapolated for a further 4 years, together with a terminal value. Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive. The following key assumptions were used in the discounted cash flow model for the Ticto operations CGU:     21% pre-tax discount rate; 3% Terminal growth rate; 50% per annum revenue growth after board approved budget for the final 4 years of the forecast period; 10% increase in FY21 then a further 15% per annum increase in operating costs and overheads for final 3 years of forecast period. The discount rate of 21% pre-tax reflects management’s estimate of the time value of money and the consolidated entity’s weighted average cost of capital, the risk free rate and the volatility of the share price relative to market movements. 48 For personal use only Directors believe the projected 50% revenue growth rate is appropriate, based on the ability of RightCrowd to convert new opportunities as the entity builds revenue from a currently nascent base and leverages available resources and customer relationships across the broader RightCrowd business. Directors believe the projected 10% and 15% operating cost growth rate is appropriate, based on the current level of costs within the entity which are sufficient to support the growth assumptions. There were no other key assumptions for the Ticto division. Based on the above, the recoverable amount of the Ticto division exceeded the carrying amount by $1,968,000. The following key assumptions were used in the discounted cash flow model for the Offsite division:    21% pre-tax discount rate; 15% and 20% per annum projected revenue growth rate; 5% per annum growth in operating costs and overheads. The discount rate of 21% pre-tax reflects management’s estimate of the time value of money and the consolidated entity’s weighted average cost of capital adjusted for the Offsite division, the risk free rate and the volatility of the share price relative to market movements. Directors believe a 15% & 20% revenue growth rate is appropriate, based on the ability of to convert new opportunities as the entity builds revenue from a currently nascent base and leverages available resources and customer relationships across the broader RightCrowd business. Directors believe a 5% operating cost growth rate is appropriate, based on the current level of costs within the entity which are sufficient to support the growth targets. Based on the above, the recoverable amount of the Offsite division exceeded the carrying amount by $1,897,000. Sensitivity As disclosed in note 1, the directors have made judgements and estimates in respect of impairment testing of goodwill. Should these judgements and estimates not occur the resulting goodwill carrying amount may decrease. The sensitivities are as follows:     Forecast revenue would need to decrease by more than 12% for the Ticto division before goodwill would need to be impaired, with all other assumptions remaining constant. The discount rate would be required to increase by more than 1% (i.e. movement from 21% to 22%) for the Ticto division before goodwill would need to be impaired, with all other assumptions remaining constant. Forecast revenue would need to decrease by more than 20% for the Offsite division before goodwill would need to be impaired, with all other assumptions remaining constant. The discount rate would be required to increase by more than 10% (i.e. movement from 21% to 31%) for the Offsite division before goodwill would need to be impaired, with all other assumptions remaining constant. Management believes that other reasonable changes in the key assumptions on which the recoverable amount of Ticto and Offsite division's goodwill is based would not cause the cash-generating unit’s carrying amount to exceed its recoverable amount. 49 For personal use only NOTE 15: OTHER ASSETS CURRENT Deposits Held Employee advances Prepayments NOTE 16: TRADE AND OTHER PAYABLES CURRENT Unsecured liabilities: Trade payables Payroll payables Accrued expenses Sundry payables NOTE 17: BORROWINGS CURRENT Unsecured liabilities: Insurance premium funding Unsecured loan Total current borrowings NON-CURRENT Unsecured liabilities: Unsecured loan Total non-current borrowings Total borrowings a. b. Insurance Premium Funding: Opening balance Proceeds Less repayments Closing balance Fixed convertible notes: Opening balance Proceeds Unwinding of the discount Cash settlement Gross convertible note Consolidated Group 2018 2019 $ $ 104,355 4,458 286,473 395,287 71,542 - 241,187 312,729 Consolidated Group 2018 2019 $ $ 516,987 47,855 142,710 100 707,652 156,671 223,973 82,250 100 462,994 Consolidated Group 2018 2019 $ $ 20,830 66,324 87,154 27,623 27,623 114,777 90,956 - 90,956 - - 90,956 90,956 208,298 (278,422) 20,830 - 346,958 (256,002) 90,956 - - - - - - 1,708,552 - 1,708,552 291,448 (2,000,000) - In the prior year, on 15 September 2017 the fixed convertible notes were settled by way of repayment in cash of $2,000,000. 50 For personal use only c. Variable convertible notes: Opening balance Proceeds Conversion to ordinary shares Convertible note held at fair value Consolidated Group 2018 2019 $ $ - 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. d. Unsecured loans: Opening balance Additions through acquisitions Less repayments Closing balance NOTE 18: OTHER LIABILITIES CURRENT Contract liabilities Contingent consideration Cash settled share-based payment at fair value (shadow equity plan) NON-CURRENT Contingent consideration Contract liabilities Consolidated Group 2018 2019 $ $ - 119,901 (25,956) 93,945 - - - - Consolidated Group 2018 2019 $ $ 2,432,801 52,975 - 1,474,590 - 32,665 2,485,776 1,507,255 45,408 2,531,184 - 1,507,255 Contract liabilities are considerations received in advance of the performance obligations being fully satisfied. The majority of liabilities relate to software and service and maintenance contracts. Contingent consideration The contingent consideration is related to the acquisition of Offsite Vision Holdings, Inc and is estimated using a present value technique. The value is estimated by probability-weighting the estimated future share issues, adjusting for risk and discounting. There are two milestones contained within this acquisition and probabilities were assigned to each of the milestones as to whether the conditions will be achieved. Milestone 1 was assessed as more likely to be achieved than Milestone 2. The fair value of the share price was determined to be $0.33 in calculating the fair value of the contingent consideration. It was also assumed that each milestone would be assessed as the end of each financial year and the shares would be issued at that point in time. 51 For personal use only NOTE 19: PROVISIONS Employee benefits Current Non-current Consolidated Group 2018 2019 $ $ 891,592 158,579 1,050,171 1,065,713 150,767 1,216,480 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(k). NOTE 20: ISSUED CAPITAL a. Ordinary Shares Balance at 1 July 2017 Share movements during the 2018 financial year: – Preference shares converted to ordinary shares 31 August 20171 – Share consolidation 31 August 20172 – Convertible note conversion 14 September 20173 – Share issue 14 September 20174 – Share issue costs Balance at 30 June 2018 Consolidated Group No. 62,346,778 $ 1,349,925 20,000,016 (4,930,613) 25,083,819 30,833,333 - 2,000,000 - 7,525,146 9,250,000 (656,344) 133,333,333 19,468,728 1 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. 2 On 31 August 2017 a share consolidation of 4,930,613 occurred prior to the IPO. For every 1 ordinary share held shareholders received 0.9401 ordinary shares after consolidation. 3 On 14 September 2017 the convertible notes with a face value of $7,200,000 were converted into 25,083,819 ordinary shares. The shares are eligible for dividends paid after 14 September 2017. 4 On 14 September 2017, 30,833,333 ordinary shares were issued at $0.30 each under a prospectus 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. 52 For personal use only Share movements during the 2019 financial year: Share issue on 29 October 2018 5 – Share issue on 28 November 2018 6 – Share issue on 3 December 2018 6 – Share issue on 12 December 2018 6 – Share issue on 16 January 2019 7 – Share issue on 18 January 2019 8 – – Share issue costs Balance at 30 June 2019 Consolidated Group $ No. 3,549,377 11,588,431 2,620,632 666,666 45,806,452 333,333 - 197,898,224 1,171,295 3,476,529 786,190 200,000 14,658,065 100,000 (210,274) 39,650,533 5 On 29 October 2018, 3,549,377 shares were issued at $0.33 each in relation to the acquisition of Offsite Vision Holdings, Inc. Refer to Note 9 for further details of the acquisition. 6 These shares issues were pursuant to the share placement undertaken for the purpose of raising working capital. They were issued at $0.30 each. Total cash inflows of $4,462,719 resulted from these share issues. 7 On 16 January 2019, 45,806,452 ordinary shares were issued at $0.32 each in relation to the acquisition of Ticto NV. 8 On 18 January 2019 333,333 ordinary shares were issued at $0.30 per share to a sophisticated investor pursuant to the share placement for working capital purposes. b. Preference Shares Balance at 1 July 2017 Shares movements during the 2018 financial year: – Preference shares converted to ordinary 31 August 2017 Balance at 30 June 2018 Shares movements during the 2019 financial year: Balance at 30 June 2019 Consolidated Group No. $ 20,000,016 2,000,000 (20,000,016) (2,000,000) - - - - - - In the prior year, 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 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 2019 and 30 June 2018 is as follows: 53 For personal use only Total borrowings Less cash and cash equivalents Net debt / (funds) Total equity Note 17 10 Consolidated Group 2018 $ 2019 $ 114,777 (4,972,136) (4,857,359) 21,438,610 90,956 (6,609,297) (6,518,341) 6,890,468 NOTE 21: CONTINGENT LIABILITIES AND CONTINGENT ASSETS In the opinion of the directors, there were no material or significant contingent liabilities or assets at 30 June 2019 (30 June 2018: none). NOTE 22: CASH FLOW INFORMATION a. b. 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 – share based payments – loss on disposal of fixed assets – unrealised foreign exchange loss/(gain) – – convertible note amortisation Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries: – – – – – – – – Cash flows from operating activities (increase)/decrease in trade and other receivables increase in other assets decrease in inventory decrease in other current assets increase other financial liabilities Increase/(decrease) in trade payables and accruals increase in employee provisions increase in current tax liabilities Non-cash Financing and Investing Activities (i) Acquisition of subsidiaries- shares issued for Offsite Vision and Ticto NV acquisitions Conversion of convertible notes 25,083,819 ordinary shares issued (inclusive of capitalised interest) (ii) Consolidated Group 2018 2019 $ $ (6,170,821) (5,120,083) 187,206 91,650 - 487,420 - (218,636) - (1,198,013) (65,521) 5,280 111,875 925,546 (306,175) 166,309 25,904 (5,957,976) 585,002 61,460 (1,823,049) 179,077 887 (171,679) 38,724 319,736 - - - 648,870 (81,637) 276,860 - (5,085,832) 15,829,360 - - 7,525,146 54 For personal use only c. Reconciliation of movement in liabilities to cash flows arising from financing activities 30 June 2018 $ Financing Cash Flows $ Non-Cash Acquired $ 30 June 2019 $ Borrowings – Current Borrowings – Non-Current Total liabilities from financing activities 90,956 - 90,956 (72,384) (23,696) (96,080) 68,582 51,319 119,901 87,154 27,623 114,777 Non-Cash 30 June 2017 Financing Cash Flows Unwinding of CN Discount $ 20,871 8,908,552 $ $ 70,085 (2,000,000) - 291,448 - (7,200,000) Conversion of CN to Ordinary Shares $ 30 June 2018 $ 90,956 - 8,929,423 (1,929,915) 291,448 (7,200,000) 90,956 Borrowings – Current Borrowings– Non-Current Total liabilities from financing activities NOTE 23: EVENTS AFTER THE REPORTING PERIOD RightCrowd’s non-executive director, Craig Davies, purchased 104,166 RCW shares via an indirect interest on 5 September 2019. NOTE 24: RELATED PARTY TRANSACTIONS a. Related parties The Group’s main related parties are as follows: Entities exercising control over the Group: (i) 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. (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 and Regent Securities Pty Ltd ATF Platers & Associated CMP SF A/c. 55 For personal use only 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: Refer to note 6. c. Amounts payable to related parties No amounts are payable to related parties at balance date. d. Convertible notes issued to related parties (i) Convertible notes issued to directors Beginning of the period Convertible notes issued Notes converted to ordinary shares End of the period Interest expense capitalised to payables Opening balance of interest expense capitalised Interest expense capitalised as interest payable Interest expense capitalised converted to ordinary shares End of the period Consolidated Group 2019 $ 2018 $ - - - - - - - - 5,000,000 - (5,000,000) - 198,904 27,851 (226,755) - In the prior year, Mr Alfred Scott Goninan held convertible notes in the Group. 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 interest component to date was converted into 17,422,517 ordinary shares at a value of $5,226,755. NOTE 25: 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 9: Financial Instruments 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 Note Consolidated Group 2019 $ 2018 $ 10 11 16 17 18 4,972,136 4,370,775 9,342,911 6,609,297 2,865,769 9,475,066 707,653 114,777 98,383 920,813 462,994 90,956 32,665 586,615 56 For personal use only Financial Risk Management Policies 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. 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. 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 through relationships with partners and growing relationship with major clients does have significant concentration of credit risk with respect to any single counterparty or group of counterparties 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 – BBB rated 2019 $ 2018 $ 2,798,597 2,049,083 124,456 4,972,136 5,626,932 982,365 - 6,609,297 10 57 For personal use only b. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group 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; obtaining funding from a variety of sources; – – monitoring undrawn credit facilities; – – 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. The table below reflects an undiscounted contractual maturity analysis for financial liabilities at 30 June 2019. 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 2018 2019 1 to 5 Years Over 5 Years Total 2019 2018 2019 2018 2019 2018 Weighted average interest rate 2019 2018 $ $ $ $ $ $ $ $ % % Consolidated Group Financial liabilities due for payment Trade and other payables Borrowings Other liabilities Total anticipated outflows 707,653 462,994 90,956 87,154 - 27,623 52,975 32,665 45,408 - - - 847,782 586,615 73,031 - Financial assets – cash flows realisable Cash and cash equivalents 4,972,136 6,609,297 Trade receivables 4,370,775 2,865,769 Total anticipated inflows 9,342,911 9,475,066 - - - Net (outflow)/ inflow on financial instruments 8,495,129 8,888,451 (73,031) - - - - n/a n/a 2.70 n/a 5.58 n/a - 707,653 462,994 - 114,777 90,956 - 98,383 32,665 - 920,813 586,615 - - 4,972,136 6,609,297 1.23 1.31 4,370,775 2,865,769 n/a n/a - 9,342,911 9,475,066 - - - - - - - - - 8,422,098 8,888,451 58 For personal use only 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 2018, the Group had interest-bearing convertible note financial liabilities. At 30 June 2019 the group had no financial assets nor financial liabilities with fixed interest rates. (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. Net Financial Assets / (Liabilities) in AUD 2019 Consolidated Group Functional currency of entity: USD AUD EUR PHP Other Total AUD Australian dollar 1,932,309 4,676,362 1,021,001 US dollar Euro 518,086 Philippines peso - - - 60,520 (17) - 112,842 100,995 7,730,650 - - 518,086 60,520 112,842 Statement of financial position exposure 2,450,395 4,676,362 1,081,521 112,825 100,995 8,422,098 59 For personal use only 2018 Net Financial Assets/(Liabilities) in AUD Consolidated Group USD AUD PHP Other Total AUD Functional currency of entity: Australian dollar 3,331,407 5,509,617 US dollar Philippines peso (151,960) - - - - - 2,146 197,241 9,038,265 - - (151,960) 2,146 Statement of financial position exposure (iii) Other price risk 3,179,447 5,509,617 2,146 197,241 8,888,451 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 (i.e. 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 approximate to their fair values. 60 For personal use only Financial Liabilities at fair value through the profit and loss Contingent consideration Consolidated Group Level 1 Level 2 Level 3 - - - - 98,383 98,383 Reconciliation of Level 3 fair value movements Opening balance at 1 July 2017 Recognition on acquisition / funding Closing balance at 30 June 2018 Recognition on acquisition / funding Closing balance at 30 June 2019 NOTE 26: RESERVES a. Foreign Currency Translation Reserve Contingent Consideration - - - 98,383 98,383 The foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary. Balance at beginning of year Exchange differences on translation of foreign operations Balance at end of year b. Share Based Payment Reserve 2019 $ 66,721 49,739 116,459 2018 $ 42,480 24,241 66,721 The share based payment reserve is used to recognise the value of equity settled share based payments. Balance at beginning of year Share based payments Balance at end of year c. Convertible Note Reserve 2019 $ 179,077 487,420 666,497 2018 $ - 179,077 179,077 The convertible note reserve records the equity component of issued convertible preference shares. Balance at beginning of year Transfer of convertible note reserve to retained earnings upon settlement in cash Balance at end of year 2019 $ - - - 2018 $ 751,936 (751,936) - TOTAL RESERVES 782,956 245,798 61 For personal use only NOTE 27: CAPITAL AND LEASING COMMITMENTS Capital commitments The Group has no capital commitments at 30 June 2019 (2018: Nil). Operating lease commitments Non-cancellable operating leases contracted for but not recognised in the financial statements as follows; Not later than 12 months Between 12 months and five years Later than 5 years Note Consolidated Group 2019 $ 348,542 214,771 - 563,313 2018 $ 375,951 204,953 - 580,904 NOTE 28: 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. Set out below are summaries of options granted under the plan: Number Weighted Average Exercise Price Options outstanding as at 1 July 2017 Granted Forfeited Expired Options outstanding as at 30 June 2018 Granted Forfeited Exercised Expired Options outstanding as at 30 June 2019 No share options were exercised during the periods covered above. 6,825,000 (215,000) - 6,610,000 - (166,666) - (2,096,695) 4,346,639 $0.42 $0.41 - $0.42 - $0.42 - $0.38 $0.43 Share options outstanding at the end of the year have the following expiry date and exercise prices: Date options granted Expiry date 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 Exercise price $0.38 $0.43 $0.43 $0.60 $0.68 $0.68 Weighted average remaining contractual life of options outstanding at end of period Share options Share options 30 June 2019 - 2,013,328 2,013,311 106,668 106,666 106,666 4,346,639 1.04 years 30 June 2018 2,096,695 2,096,661 2,096,644 106,668 106,666 106,666 6,610,000 2.25 years 62 For personal use only No new share options were granted in the current year. Details of options issued during the prior 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 13/09/2018 13/09/2019 Number 2,168,328 2,168,309 Exercise Price $0.43 $0.43 Expiry 12/12/2019 12/12/2020 The options hold no voting or dividend rights and are not transferable. The fair value of these options was $425,966. 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 2,168,363 $0.38 13/09/2017 12/12/2018 58% 0% 1.8% $0.05 Tranche 2 2,168,328 $0.43 13/09/2017 12/12/2019 58% 0% 1.8% $0.07 Tranche 3 2,168,309 $0.43 13/09/2017 12/12/2020 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 27/08/2021 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 1 106,668 $0.60 30/05/2018 28/08/2019 59% 0% 1.8% $0.07 Tranche 2 106,666 $0.68 30/05/2018 27/08/2020 59% 0% 1.8% $0.10 Tranche 3 106,666 $0.68 30/05/2018 28/08/2021 59% 0% 1.8% $0.13 The expense recognised in the profit or loss for these share-based payments is $487,420 (2018: $179,077). The total amount recognised in equity is $666,497 (2018: $179,077). 63 For personal use only NOTE 29: 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. Revenue by geographical location: i) 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 Oceania and Australia ii) Non-current assets by geographical location: North America Europe, Middle East and Africa Latin America Oceania and Australia iii) Major customers Consolidated Group 2019 $ 5,607,387 1,575,700 555,462 1,640,066 9,378,615 2018 $ 3,450,054 228,708 413,152 1,428,841 5,520,755 Consolidated Group 2019 $ 1,395,047 14,503,322 - 200,094 16,098,463 2018 $ 30,858 - - 188,135 218,993 There is one customer that contributes more than 10% of total revenue of the Group. 64 For personal use only NOTE 30: 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: – Australia Ground Floor, Suite 2 183 Varsity Parade Varsity Lakes QLD 4227 United States 2505 2nd Avenue, Suite 515 Seattle WA 98121 1 Rossmoor Drive, Suite 103 Monroe Two, NJ 08831 Philippines Unit 2401, One San Miguel Avenue Building, Corner Shaw Boulevard Ortigas Centre, Pasig City, Manila Belgium Co. Station, Oktrooiplein 1 bus 201 9000 Gent 65 For personal use only 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 20 to 65, are in accordance with the Corporations Act 2001 and: a. 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 2019 and of the performance for the year ended on that date of the consolidated group; b. 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. ……………………………………………………………………………………………… Peter Hill Director Dated this 27 September 2019 66 For personal use only 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 2019, 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 2019 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. 67 For personal use only Accounting for the acquisition of Offsite Vision Holdings Inc. and Ticto NV Key audit matter How the matter was addressed in our audit   The Group’s disclosures about the acquisition of Offsite Vision Holdings Inc. (Offsite) and Ticto NV (Ticto) are included in Note 9, which details the key events that occurred in the transaction including the consideration transferred, assets, and liabilities acquired. The acquisition of Offsite and Ticto are considered significant transactions for the group. The presentation, measurement and disclosures around these transactions are important in the users’ understanding of the financial statements. The transactions are material in the context of the audit and involved significant auditor effort, and was therefore key to our audit.  Management have completed a process to determine the purchase consideration and the fair value of the identifiable net assets acquired, including assessment of other intangible assets such as customer contracts and relationships and licenses and accreditations and the allocation of the difference to goodwill. This process involved estimation and judgement to calculate both the consideration and the fair value of identified intangible assets. Our procedures included, amongst others:    Assessing management’s determination of whether the acquisition was a business combination or an asset acquisition Evaluating management’s assessment of the purchase consideration including contingent consideration arrangements Evaluating management’s assessment of the fair value of the identifiable assets and liabilities acquired including: o Obtaining management's external valuation of the intangible assets acquired o Assessing the professional competence and objectivity of the valuer o Evaluating the appropriateness of the methods and assumptions used o Challenging management in relation to the inputs and assumptions used by the valuer o Providing the external valuation to the internal experts to assess the reasonableness of the structure and assumptions applied in the model including the discount rate.  Assessing the disclosures related to the acquisitions to ensure they are in compliance with applicable accounting standards. Valuation of goodwill Key audit matter How the matter was addressed in our audit   The Group’s disclosures about goodwill impairment are included in Note 14, which details the allocation of goodwill to the groups various CGU’s, sets out the key assumptions for value-in-use calculations and the impact of possible changes in these assumptions. This annual impairment test was significant to our audit because the balance of goodwill as of 30 June 2019 is material to the financial statements. In addition, management’s assessment process is complex and highly judgmental and is based on assumptions, specifically forecast future cash flows, growth rate, and discount rate, which are affected by expected future market or economic conditions. Our procedures included, amongst others:      Assessing management’s allocation of goodwill and assets and liabilities, including corporate assets to Cash Generating Units ("CGU's"). Evaluating the inputs used in the value in use calculation including the growth rates, discount rates and underlying cash flows applied by management Assessing the sensitivity of the assumptions used by management on the value in use calculation Involving our internal specialists to assess the discount rates against comparable market information Assessing the disclosures related to the goodwill and the impairment assessment by comparing these disclosures to our understanding of the matter and the applicable accounting standards. 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. 68 For personal use only Revenue recognition and measurement Key audit matter How the matter was addressed in our audit   The Group’s disclosures about revenue recognition are included in Note 1, which details the accounting policies applied following the implementation of AASB 15 Revenue from Contracts with Customers. The assessment of revenue recognition was significant to our audit because revenue is a material balance in the financial statements for the year ended 30 June 2019 and the Group was required to change its accounting policies to align with the new standard.  The assessment of revenue recognition and measurement required significant auditor effort. Our procedures included, amongst others:      Assessing the revenue recognition policy for compliance with AASB 15 Revenue from Contracts with Customers Documenting the processes and assessing the internal controls relating to revenue processing and recognition Tracing a sample of revenue transactions to supporting documentation Performing cut-off testing to ensure that revenue transactions around year end have been recorded in the correct reporting period Assessing the adequacy of the Group's disclosures within the financial statements Going Concern Key audit matter How the matter was addressed in our audit Note 1 of the financial statements outlines the basis of Our audit procedures included amongst others: preparation of financial statements which indicates being  Obtaining and evaluating management’s prepared on a going concern basis which contemplates that assessment of the group’s ability to continue the group will continue to meet its commitments and can as a going concern therefore continue normal business activities and the  Assessing cash-flow forecasts and challenging realisation of assets and settlement of liabilities in the management’s assumptions around future ordinary course of business. Our assessment of the going concern basis was considered a key audit matter due to the judgements and assumptions made by the Directors. The ability of the Group to continue as a going concern is supported by the cash flow forecasts prepared by the Directors. These forecasts include the Directors’ assumptions regarding the timing of future cash flows and operating results which are by their nature uncertain. performance, including considering post balance date performance  Analysing the impact of reasonable possible changes in cash flow forecasts and their timing by applying sensitivities to key inputs  Performing a sensitivity analysis over cash flow forecasts as prepared by management. 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 2019, 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. 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. 69 For personal use only In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. 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 12 to 18 of the directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of RightCrowd Limited, for the year ended 30 June 2019, 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 Henry Director Brisbane, 27 September 2019 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. 70 For personal use only ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES The following information is current as at 26 August 2019: 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 There are twenty seven (27) 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 and related parties b. c. d. Number Holders 14 43 46 310 126 539 Units Held 4,548 125,429 404,699 12,349,765 185,013,784 197,898,225 Number Ordinary 53,907,428 18,802,491 17,422,517 90,132,436 % of Issued Capital 27.240 9.501 8.804 45.545 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. 71 For personal use only e. 20 Largest Shareholders – Ordinary Shares Name Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 1. CNI PTY LTD 53,907,428 27.240 2. ADVANCED MARKETING TECHNOLOGIES PTY LTD 18,802,491 9.501 3. GROUP GONINAN PROPERTY INVESTMENTS PTY LTD 17,422,517 8.804 8,852,110 4.473 REGENT SECURITIES PTY LTD 8,570,407 4.331 4. 5. JOHAN VINCKIER SALMON EARTHMOVING CONTRACTORS PTY LTD 6. KMO Fin 2 7. National Nominees Limited 8. HSBC Custody Nominees (Australia) Limited 9. KAREL VINCKIER 10. Risk Capital LLC 11. Bart Vansevenant 12. Maarten Van Speybroeck 13. Maarten Vandenbroucke 14. HSBC Custody Nominees (Australia) Limited A/C 2 15. EOS Invest NV 16. David Thomas 17. Pegavica SCRL 18. Alex Vinckier 19. Humana Pty Ltd 5,814,971 5,571,856 4,806,594 4,003,066 3,898,348 3,886,167 3,430,098 3,111,176 3,111,176 3,111,176 2,823,586 2,500,245 2,206,262 2,099,986 2,072,801 2,044,682 20. BERNE NO 132 NOMINEES PTY LTD 1,821,958 2.938 2.816 2.429 2.023 1.970 1.964 1.733 1.572 1.572 1.572 1.427 1.263 1.115 1.061 1.047 1.033 0.921 146,446,584 74.001 2. The name of the company secretary is Kim Clark. 3. The address of the principal registered office in Australia is 183 Varsity Parade, Varsity Lakes QLD 4227. Telephone 07 5593 2581. 4. Registers of securities are held at the following addresses: New South Wales Level 12, 225 George Street, Sydney, NSW 2000. 72 For personal use only 5. 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 4,346,656 options are on issue. 73 For personal use only RIGHTCROWD LIMITED AND CONTROLLED ENTITIES | A.B.N. 20 108 411 427 74 For personal use only 

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