RIGHTCROWD ANNUAL AND FINANCIAL REPORT YEAR ENDING 30 JUNE 2020 Contact Us. (07) 5619 7854 info@rightcrowd.com www.rightcrowd.com RightCrowd Limited and Controlled Entities | A.B.N 20 108 411 427 1 CHAIRMAN’S REPORT Dear Shareholder, The Board of RightCrowd Limited (Company) is pleased to provide the 2020 annual report covering the operations of the Company and its controlled entities (Group). In this report we set out the Group’s financial results for the year ended 30 June 2020. The Company’s sales performance in the last quarter of our 2020 financial year was adversely impacted by the COVID 19 pandemic, the effects of which will continue to be felt for some time. The pandemic has created an incredibly dynamic operating environment: for RightCrowd, for our partners and the customers we serve. To this end, we are very proud of the way in which the RightCrowd team has responded and adapted to the changed operating environment, which includes the vast majority of staff moving to remote working, with limited interruption to their technical and client facing activities. With inclusion of the first full year of operating costs of our FY19 Ticto and Offsite Vision acquisitions, the delay to executing new sales contracts due to COVID-19 impacts and an impairment charge of $1.3m, the Group’s statutory loss after tax grew by only $0.6m. Despite these difficult trading conditions, the COVID-19 pandemic has provided strong tailwinds for our solutions that help companies intelligently manage the presence and access of people in their facilities. COVID-19 has challenged organisations globally to take a new approach to workplace safety, and how they manage the operational and legal risks the virus presents. The Company has continued to add features to its existing solutions to help customers address immediate security and safety issues exposed by the pandemic. Leveraging customer feedback, the Company is also developing innovative solutions to help organisations to manage the ongoing operational risks of COVID-19 in the workplace. The pandemic has delivered significant market interest for the Company’s solutions that assist organisations return to the workplace and implement their ongoing COVID-19 management plans. In addition to progressing paid trial deployments with large multinational corporations, since year end the Company has commenced fulfilling significant sales orders. During the year, the Company achieved a 23% growth in software sales and software consulting revenue from FY19 levels. The Company’s total revenue and other income grew to $16.2m, exceeding the prior year total by 38%. The management team expects the revenue growth rate to return to above 40% in FY21. The majority of the growth is expected to be achieved in the second half of FY21 as large organisations return their employees to work. 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. Cash and cash equivalents at the end of FY20 total $1.472m. The balance of accounts receivable as at the end of FY20 is $5.131m, which includes $2.946m relating to the R&D tax rebate. Since year end the Company has raised $4m of capital and obtained access to other funding which coupled with inflows from recurring annual revenue and ongoing projects, should be sufficient to comfortably sustain operations through to the end of FY21. Finally, I would like to thank our team, shareholders and clients for their support during this volatile period. I look forward to speaking with you, our shareholders, at the Company’s AGM. Yours sincerely Robert Baker Non-executive Chairman RightCrowd Limited RightCrowd Limited and Controlled Entities | A.B.N 20 108 411 427 2 3 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 13 20 21 22 23 24 25 79 80 87 4 CORPORATE GOVERNANCE STATEMENT RightCrowd Limited and the board are committed to achieving and demonstrating the highest standards of corporate governance. The Company has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (4th edition) published by the ASX Corporate Governance Council. The corporate governance statement is dated as at 30 June 2020 and reflects the corporate governance practices in place throughout the 2020 financial year. The corporate governance statement was approved by the board on 30 September 2020. 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/. 5 DIRECTORS’ REPORT General information Directors Your directors present their report on the consolidated entity (referred to herein as the Group, the Company or RightCrowd) consisting of RightCrowd Limited and its controlled entities for the financial year ended 30 June 2020. 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 has worked in the professional services industry both in 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 has had nearly a decade of board experience. His board experience includes as a board member of PricewaterhouseCoopers (2008-2013) serving its Finance, Country Admissions (nominations) and Partner Evaluation and Income (remuneration) Committees and 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 a director of Apollo Tourism & Leisure Limited (ASX: ATL), Chairman of Goodman Private Wealth Ltd and Neurosensory Limited and is an Advisory Board member for several not for profit organisations. He is a Fellow of Chartered Accountants Australia & New Zealand and a Graduate of the Australian Institute of Company Directors. Mr Peter Hill Managing Director and Chief Executive Officer. Appointed 18 March 2004. Peter 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 Craig Davies Non-executive Director. Chairman of the Audit and Risk Committee. Appointed 20 August 2019. Craig is an executive with over 25 years’ experience in technology and cybersecurity. Previously, he was the Chief Executive Officer at the Australian Government’s cybersecurity industry growth centre, AustCyber, the Head of Security at Atlassian (NASDAQ:TEAM), and Chief Security Officer at Cochlear Ltd (ASX:COH) and held various technology roles with Westpac. He is a Non-Executive Director of Trimantium GrowthOps Ltd (ASX:TGO) and is a member of the Australian Institute of Company Directors. Craig also plays an active role in Australia’s start-up ecosystem, including acting as an adviser to Bugcrowd and Deckee. 6 Mr Alfred Scott Goninan Non-executive Director and Chairman of the Audit and Risk Committee. Appointed 6 August 2017 and resigned 20 August 2019. Scott joined the RightCrowd Board after 26 years’ experience as the 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 operated 24hrs a day 7 days a week. In his role with Durachrome, Scott has developed international relationships throughout Asia and Europe. Scott 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. Directors interests in securities At the date of this Report the interests of the Directors in the securities of the Company as follows: Director Robert Baker Peter Hill (i) Scott Goninan (ii) Craig Davies (iii) Fully paid ordinary Shares 433,333 53,907,428 17,422,517 104,166 Unissued shares under option Nil Nil Nil Nil (i) (ii) Indirect interest held through CNI PTY LTDIndirect interests held through GONINAN PROPERTY INVESTMENTS PTY LTD + REGENT SECURITIES PTY LTD (iii) Indirect interest held through JAUNE ROSE PTY LTD Board and Committee Attendance Director’s attendance at Board and Committee meetings is summarised below: for the period 1 July 2019 to 30 June 2020 Board Meetings Audit Committee Meetings Date Ceased Attended Held Attended Held Director Peter Leslie Hill Alfred Scott Goninan Robert Anthony Baker Craig Davies * Alfred Scott Goninan retired as director on 20 August 2019. Current 20/08/2019 Current Current Date Appointed 18/03/2004 6/08/2017 6/08/2017 20/08/2019 13 1 13 13 13 1 13 13 7 1 7 7 7 1 7 7 7 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 Other than matters disclosed elsewhere in this Annual Report, 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. REVIEW OF OPERATIONS Business Model The Company’s business model remained unchanged across FY20. The Company continues to generate revenue from sales of its software, comprising up-front licence fees, annual subscription fees and annual support and maintenance fees. The Company also generates revenue from professional services that it provides to its clients. The pricing structures for sales of the Company’s various software and consulting solutions are dependent on the scale and complexity of the client requirement. Following the outbreak of the COVID-19 pandemic the Company added functionality to existing solutions to deliver Social Distancing Monitoring and Contact Tracing features. This solution is offered as an annual subscription fee for the software and reporting features, and an up upfront purchase cost per item of hardware. Results for the Period The Company increased revenue for software and related services from $9.378m (in FY19) to $11.534m, an annual growth rate of 23%. Sales revenue growth has been generated through new software sales and strong growth from subscription and support services revenue. A total of 85% of FY20 revenue has been generated from outside Australia, up from 83% in FY19. The North American market generated 67% of the FY20 revenue, courtesy of strong relationships with existing clients and new sales across the banking, technology and industrial sectors. During the first half of FY20 revenue was generated through the delivery of major project milestones to a number of the world’s leading banking and technology companies. New project wins across North America further cemented RightCrowd as a leading provider of physical access control automation software in the world’s largest market. These project wins also enabled integrations with market leading physical access control systems, as well as commercial collaboration with their vendors. With a vast addressable market RightCrowd executed a targeted go- to-market strategy focussed on direct customer acquisition within the banking and finance industry. The second half of FY20 was over shadowed by the outbreak of the COVID-19 pandemic which saw a weakening in trading conditions with the temporary suspension of a number of large projects and delays in the signing of several new substantial contracts, particularly towards the end of the fourth quarter. The Company qualified for the Australian Government’s Job-Keeper program and the equivalent program in the USA. This government assistance helped retain our full team which maintained customer service levels. During the fourth quarter of FY20 RightCrowd also saw significant market interest for the Company’s solutions that assist organisations return to the workplace and manage the ongoing operational risks of COVID-19 to their business. Functionality was added to the Company’s patented Presence Control technology to deliver a highly 8 differentiated solution that turns existing security access cards into a privacy sensitive Social Distancing Monitoring tool. RightCrowd IQ’s reporting function was reconfigured to deliver a highly flexible Contact Tracing and hot spot reporting engine. There has been significant international interest in the solution as organisations plan their return to the workplace and implement their ongoing COVID-19 management strategies. A targeted go-to-market plan has delivered a material pipeline of new to market opportunities across Europe, the Middle East, South Asia, North America and South America. The Company is progressing over 30 paid trial deployments, many being large multinational corporations representing potentially significant order volumes. Several trials have successfully concluded with larger orders now being placed as new interest across the globe continues to register. Leveraging customer feedback, the Company is also developing innovative solutions to further enhance its core technology and Presence Control solution to assist organisations to address the immediate security and safety issues exposed by the pandemic and manage the ongoing operational risks of COVID-19. The Company has continued to focus on developing RightCrowd technologies via R&D investment and successfully applied for relevant parts of its significant overseas innovation investment to be included in the R&D tax incentive scheme. This has resulted in a submitted claim for an R&D tax incentive rebate of approximately $2.6m. R&D activity will continue in future years as RightCrowd enhances its product portfolio and continues to bring new innovative solutions to the market. The statutory loss after tax for the year was $6.8m (2019 $6.2m). FY20 saw the first full year of the cost base from the Company’s FY19 acquisitions and includes an impairment charge of $1.3m. Revenue Pipeline Outlook The Company continues to see significant interest from national and multinational companies for its core solutions, including some in new market segments aiming to improve their physical security processes and achieve the productivity improvements offered by the RightCrowd solutions. The Company has also seen significant interest from companies of all sizes for its COVID-19 solutions. Since executing a targeted go-to-market strategy focussed on its Social Distancing Monitoring and Contact Tracing features, the Company has built a material pipeline of market opportunities across new and existing markets. In addition, the Company is also rapidly expanding its channel program and expects to announce new partnerships in the first half of FY21. During the FY21 financial period, the Company will focus on activities to increase sales through both direct selling and through its reseller channel partners. The Company expects its sales revenue growth rate in FY21 to return to above 40%, with the majority of the growth expected in the second half of FY21 as large organisations return their employees to the workplace. Impact of COVID-19 on going concern assumption The COVID-19 pandemic has had a varying impact on the going concern position of the RightCrowd Group. Offsite Vision, which is the Group’s subsidiary located in New Jersey on the USA East Coast and part of the Group's New Products operating segment, has been most significantly impacted with a number of projects delayed as a result of the financial impact of the pandemic on key customers. The subsidiary has also experienced delays in forecast pipeline opportunities. As a result, the directors have recognised impairment of $1.3m, being the full balance of goodwill and intangible assets in respect of the CGU as at 30 June 2020. Refer to note 14 for further details of the impairment loss recognised. The core business unit was also impacted by the pandemic, with two large new contracts originally budgeted to finalise in FY20 experiencing delays which pushed execution into FY21. One of these contracts has already been signed (August 2020) representing a multi-year deal with a Fortune 50 customer. The second major contract continues to progress and is expected to be recognised before the half year ended 31 December 2020. As a direct result, total revenue fell below the initial FY20 forecast of $13m, ending at $11.5m for the year ended 30 June 2020. As at March 2020, the Group had a clear line of sight towards achieving the forecast revenue target, however as a 9 result of the delays outlined above, this target was not met at year end. The Group has subsequently reforecast FY21 to include revenue in respect of the contracts mentioned above. While there have been a number of negative impacts of COVID-19 on the Group’s ability to continue as a going concern, COVID-19 has also presented additional funding sources and opportunities for pathways into the rapidly developing market for technology solutions to address social distancing monitoring, contact tracing and managing the safe return to the workplace. Through the year ended 30 June 2020, the Group secured additional funding to support continued growth through COVID-19 government assistance programs. The support payments received in FY20, totalling approximately $2m include payments under the Australian Government ‘Job-keeper’ scheme, the ‘Payroll Protection Program’ scheme in the USA, and various low interest, long term government funded loans. The Group has also received an advanced finding for the first time in the current year for the overseas R&D grant for work performed in connection with the development of Presence Control solutions and expects to receive the rebate post year-end. This contributed to a 101% increase in other income in comparison to the prior year (FY19: $2.3m, FY20: $4.6m). The increase has served to offset the delay in revenue recognition on major new contracts and has resulted in the Group’s total revenue and other income exceeding the prior year total by 38%, or approximately $4.5m (FY20 total income: $16.2m; FY19: $11.7m). Total cash and cash equivalents for the Group as at 30 June 2020 totalled $1.5m, down from $5m in FY19. The reduction in the cash balance is primarily due to the cash flow impact of delays outlined above and also the continued investment into the businesses acquired in FY19. The Group’s cash position has improved significantly subsequent to year end due to the receipt of $4m in funding via direct capital placements. The funding will be utilised to support the continued growth of the RightCrowd business. The Research and Development tax incentive scheme payments for both the overseas and local operations are due to be received early in FY21 totalling approximately $3m. The Group has a number of other debt finance options available should the need arise. Contracts and implementation projects delayed as a result of the COVID-19 pandemic are expected to recommence during the FY21 year as restrictions ease worldwide and employees return to the workplace. As a result of the above factors and in conjunction with the $4m direct capital placement occurring in FY21, and the significant demand for the Group’s COVID-19 solutions, the Directors are of the opinion that the RightCrowd Group can continue as a going concern for at least the next twelve months. 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. The directors covered under the policy are Peter Leslie Hill, Robert Anthony Baker and Craig Davies. The Directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors and officers liability and legal expenses insurance contracts, as such disclosure is prohibited under the terms of the contract. Company Secretary The Company appointed Kim Clark as Company Secretary on 10 August 2017. Kim 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. 10 Events after Reporting Period The Group has raised an additional $4m of capital in a placement of 22.2m shares at an issue price of $0.18 per share to sophisticated investors on 12th of August 2020. The Group has also secured an export business loan facility of $1.4m with the Australian Government’s Export Finance Australia Ltd. The purpose of funding is to finance additional growth opportunities following the successful acquisition of new clients in the North American and European markets. The Group has also finalised a major ongoing contract with a large fortune 50 customer. Auditor’s Independence Declaration The lead auditor’s independence declaration for the year ended 30 June 2020 has been received and can be found on page 20 of the financial report. Options & Performance Rights At the date of this report, the unissued ordinary shares of RightCrowd Limited under the various employee share option and rights plans are as follows: Grant Date Date of Expiry Exercise Price 13/09/2017* 30/05/2018* 30/05/2018* 28/02/2020# 28/02/2020# 29/10/2018# *Options # Performance Rights 12/12/2020 27/08/2020 28/08/2021 30/09/2020 30/09/2021 29/10/2020 $0.43 $0.68 $0.68 $0.00 $0.00 $0.00 Number unissued shares 1,789,980 93,333 93,333 1,692,774 4,029,806 1,388,8891 9,088,115 Option and Performance Rights 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 performance rights issued to the CFO as remuneration, refer to the Remuneration Report. No shares were issued due to exercising of options in the current year. 1Of the 1,388,889 performance rights issued, 1,205,424 are classified as share based payments to employees and the remainder are treated as contingent consideration and classified as a financial liability. 11 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 During the year KPMG, the Group’s auditors, has performed certain other services in addition to the audit and review of the financial statements. The board has considered the non-audit services provided during the year by the auditor and in accordance with advice provided by the audit committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: - - all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Group, KPMG, and its network firms for audit and non audit assurance services provided during the year are set out below: Services other than audit and review of the financial statements Tax consultancy work Environmental Issues 2020 $ 12,267 The Group’s operations are not subject to any significant environmental regulations in the countries where it operates. Rounding off The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that instrument, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest dollar, unless otherwise stated. 12 REMUNERATION REPORT (Audited) Remuneration Policy The remuneration policy of RightCrowd Limited has been designed to align key management personnel (KMP) objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the Consolidated Group’s financial results. The Board of RightCrowd Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain high-quality KMP to run and manage the Consolidated Group, as well as create goal congruence between directors, executives and shareholders. The 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 CFO/COO, Directors do not receive performance incentives. Incentives paid in the form of options or rights are intended to align the interests of the KMP 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. It is not envisaged that Directors receive incentives in the form of options or rights. The Board reviews 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/or 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 based in Australia receive, at a minimum, a superannuation guarantee contribution required by the Australian 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 or performance rights not vested 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. The current maximum aggregate amount is $225,000. 13 Options and performance rights granted as part of remuneration to employees do not carry dividend or voting rights. Each option or performance right is entitled to be converted into one ordinary share once the vesting conditions have been met. Option and performance right 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. The following policy items were applied to achieve the aim of increased shareholder and management goal congruence: (i) performance-based bonus based on KPIs, (ii) the issue of options to the majority of executives to encourage the alignment of personal and shareholder interests, and (iii) the issue of performance rights to employees to encourage retention and alignment of personal effort to 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 primarily managed as a research and development company while transforming into a commercial operation. All research and development expenditure is expensed as incurred. FY20 results reflect the first full year of ownership of business acquired in Europe and the USA during FY19. Both of these acquisitions are in the early stage of product commercialisation. Sales Revenue Revenue and other income Net (loss) Loss Per Share Share Price at 30 June 2016 $ 7,015,630 8,802,468 (1,181,662) (0.95) N/A 2017 $ 4,146,976 5,997,948 (4,697,428) (0.22) N/A 2018 $ 5,520,755 9,381,950 (5,120,083) (0.04) 0.40 2019 $ 9,378,615 11,691,931 (6,170,821) (0.04) 0.26 2020 $ 11,534,107 16,192,273 (6,786,378) (0.03) 0.17 Despite the 23.0% increase in software and consulting revenue over the last financial year, 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. 14 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 2020 and any Change during the Year CEO / Managing Director CFO / COO Non-Executive Chairman Non-Executive Director Non-Executive Director Tenure At Risk Short term incentive Long term incentive Fixed remuneration 16 years 1 year 3 years 1 year 2 years - 14% - - - - 3% - - - 100% 83% 100% 100% 100% Group KMP Peter Hill James Stewart Robert Baker Craig Davies* Scott Goninan* * Craig Davies was appointed on 20 August 2019 and Scott Goninan retired on that date. The employment terms and conditions of all KMP are formalised in contracts of employment. 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. 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; and 4 weeks annual leave per annum The contract was executed on the 10th of August 2017 and could be ended by either party giving 6 months’ notice. – – The Board has the power to change the payment terms of the contract in future periods. 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; and 4 weeks annual leave per annum; Inclusion in the Group’s Long Term Incentive program. – – – – Commenced on the 15th of July 2019 and could be ended by either party giving 3 months’ notice. – Up to $35,000 cash bonus per annum, subject to satisfying performance conditions. During the financial year 100% of the bonus was achieved, with 75% paid in the year and the remainder paid after year end. 15 Non-Executive Chairman: The company has entered into a Directors Agreement with Mr Robert Baker. The key terms are set out in the Appointment letter effective 6 August 2017 and includes a base salary of $60,000 plus statutory superannuation contributions. Non-Executive Director: The company has entered into a Directors Agreement with Mr Craig Davies. The key terms are set out in the Appointment letter effective 20 August 2019 and includes a base salary of $40,000 plus statutory superannuation contributions. Non-Executive Director (retired): The company had entered into a Directors Agreement with Mr Scott Goninan. On 20th August 2019, the Company annoucned 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 2020 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. Short-term Benefits Salary, Fees and Leave $ 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 2020 228,311 Peter Hill 220,221 2019 Peter Hill Robert Baker 60,000 2020 60,000 2019 Robert Baker Scott Goninan1 5,638 2020 Scott Goninan 41,096 2019 James Stewart2 2020 190,256 2019 - James Stewart Leslie Milne4 2019 183,334 Craig Davies3 2020 31,706 - 2019 Craig Davies 2020 515,911 Total KMP 504,651 2019 - - - - - - 35,000 - - - - 35,000 - - 281 - - - - - - 2,179 - - - 2,460 21,003 21,003 5,700 5,700 536 3,904 18,906 - 19,738 3,012 - 49,157 50,345 - - - - - - - - - - - - - 4,379 3,805 - - - - - - - - - 4,379 3,805 - - - - - - - - - 24,432 - - - 24,432 1 Scott Goninan appointed 6 August 2017; resigned 20 August 2019 2 James Stewart appointed 7 June 2019; commenced 15 July 2019 3 Craig Davies appointed 20 August 2019 4 Leslie Milne resigned on the 7th of June 2019 Securities Received that Are Not Performance-related - 253,693 245,310 - 65,700 - 65,700 - 6,174 - 45,000 - 8,137 252,299 - 230,496 34,718 - 8,137 603,834 586,506 - 813 - - 813 0% 0% 0% 0% 0% 0% 17% 0% 0% 0% 0% 6% 0% No members of KMP with the exception of James Stewart (as disclosed) are entitled to receive securities that are not performance-based as part of their remuneration package. 16 Cash Bonuses, Performance-related Bonuses and Share-based Payments During the financial year ended 30 June 2020 the company granted no cash bonuses or share-based payments to any Director, including the Managing Director. James Stewart, the CFO / COO who was paid a bonus of $26,250 (75% of the maximum bonus available) on the basis of achieving performance objectives set out in his contract of employment in relation to year ended 30 June 2020. The Board will continue to review these forms of remuneration in the coming year. In the Financial Year ending 30 June 2020, the Company issued performance rights to all eligible employees of the company with the following tranches in accordance with the Employee Share Plan: Tranche A – Granted 28th February 2020 The Company granted 1,716,774 performance rights to employees. The objective of this scheme is to incentivise the creation of additional shareholder value with the award of performance rights to staff on the basis of meeting FY20 company targets and being in the employment of the company at vesting date. The Scheme is a performance right which vests on 1st of September 2020 based on the extent to which the company meets the budgeted FY20 revenue of $13.7m and net loss targets of $7.8m. Conditions were not met as at the 30th of June 2020 and no related expense has been recognised. Tranche B – Granted 28th February 2020 The Company granted 4,029,806 performance rights to employees. The objective of this scheme is to incentivise the creation of additional shareholder value with the award of performance rights to staff on the basis of meeting FY21 company targets and being in the employment of the company at vesting date. The Scheme is a performance right which vests on 1st of September 2021 based on the extent to which the company meets the budgeted FY21 revenue of $19.15m and net loss targets of $2.4m. Under this Plan the following KMPs were granted options during the financial year. KMP Performance Rights Granted Tranche A Performance Rights Granted Tranche B Expired/ Forfeited during year James Stewart Number: 60,000 Number: 140,000 - Fair value at grant date: $0.21 per performance right Fair value at grant date: $0.21 per performance right Exercise price: $0 Exercise price: $0 Vesting date: 30 September 2020 Vesting date: 30 September 2021 Performance rights can be exercised only after the vesting date of the plan. 17 KMP Shareholdings The number of ordinary shares in RightCrowd Limited held by each KMP of the Group during the financial year is as follows: 30 June 2020 Peter Hill (i) James Stewart Robert Baker Craig Davies (ii) Scott Goninan (iII) Balance at Beginning of Year 53,907,428 - 433,333 - 17,422,517 71,763,278 Granted as Remuneration during the Year - - - Issued on Exercise of Options during the Year - - - - - - - Purchase of ordinary shares - - - 104,106 - 104,106 Balance at End of Year 53,907,428 - 433,333 104,106 17,422,517 71,867,384 (i) (ii) (iii) Indirect interest through CNI Pty Ltd Indirect interest through JAUNE ROSE PTY LTD Indirect interest through GONINAN PROPERTY INVESTMENTS PTY LTD + REGENT SECURITIES PTY LTD 30 June 2019 Peter Hill (i) James Stewart Robert Baker (iii) Leslie Milne (ii) Scott Goninan (iv) Balance at Beginning of Year 53,907,428 - 100,000 66,666 17,422,517 71,496,611 Granted as Remuneration during the Year - - - Issued on Exercise of Options during the Year - - - - - - - Purchase (forfeit) of ordinary shares - - 333,333 (66,666) - 266,667 Balance at End of Year 53,907,428 - 433,333 - 17,422,517 71,763,278 (i) (ii) (iii) (iv) Indirect interest through CNI Pty Ltd Leslie Milne resigned on 7 June 2019 and ceased being KMP. Securities purchased through placement offering. Indirect interest through GONINAN PROPERTY INVESTMENTS PTY LTD + REGENT SECURITIES PTY LTD 90 $ Within Initial Trade Terms $ 2,186,222 2,945,727 5,131,949 - - - 407,393 - 407,393 - - - 429,578 51,927 1,297,324 - 2,945,727 - 429,578 51,927 4,243,051 2,520,775 1,850,000 4,370,775 - - - 20,380 15,750 - - 20,380 15,750 - 54,058 2,430,587 - 1,850,000 - - 54,058 4,280,587 47 NOTE 11: TRADE AND OTHER RECEIVABLES (CONT) Expected credit loss assessment for Corporate Customers The Group allocates each exposure to a credit risk grade based on data that is determined to be predictive of the risk of loss (including but not limited to external ratings, audited financial statements, management accounts and cash flow projections and available press information about customers) and applying experienced credit judgement. Credit risk grades are defined using qualitative and quantitative factors that are indicative of the risk of default and are aligned to external credit rating definitions from a variety of agencies. The following table provides information about the exposure to credit risk and ECL’s for trade receivables for corporate customers as at 30 June 2020: Equivalent to external credit rating Weighted average loss rate $ Gross carrying amount Credit impaired ECL 30 June 2020 Grade Low risk Fair risk Total 30 June 2019 Grade Low risk Fair risk Total BBB- to AAA BB- to BB+ 0% 0% - 2,945,727 2,186,222 5,131,949 - - - No No Equivalent to external credit rating Weighted average loss rate $ Gross carrying amount ECL Credit impaired BBB- to AAA BB- to BB+ 0% 0% - 1,850,000 2,520,775 4,370,775 - - - No No There has been minimal impact on credit risk for the Group’s customers as a result of the COVID-19 pandemic. Low risk trade receivables identified above relate to research and development grants payable by the Australian Government and as such have no risk of default. Fair risk trade receivable balances above relate to amounts receivable from the Group’s customers. The vast majority of customers are large corporate institutions, including Fortune 50 and ASX listed entities. These companies have continued to meet their credit obligations to the Group as and when they have fallen due. The group has not received any requests for payment extensions from these customers. NOTE 12: INTEREST IN SUBSIDIARIES 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 are no significant restrictions on the ability of RightCrowd Limited to access of use the assets and settle the liabilities of the Group. No significant judgements or assumptions have been applied in determining that control over a subsidiary exists given all subsidiaries are 100% owned. There are no non-controlling interests for any entities in either the 2019 or 2020 financial years. 48 NOTE 12: INTEREST IN SUBSIDIARIES (CONT) 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 2019 2020 % % Australia Belguim U.S.A. USA Philippines Belgium USA 100% 100% 100% 100% 100% 100% 0% 100% 100% 100% 100% 100% 100% 100% b Information about interests in other entities Reporia Pty Ltd Australia 100% 100% Ticto Inc. was dissolved during the current year. All assets and liabilities of Ticto Inc were transferred to Ticto NV after dissolution. The financial statements of Offsite Vision Holdings Inc. are as of a period different to the reporting period of the consolidated financial statements of the Group. Offsite Vision Holdings Inc. financial year end is 31 December. This was the existing financial year end of the subsidiary when it was acquired on 29 October 2018. The Directors plan to align the year end of the subsidiary to the year end of the Group in a future period. Reporia Pty Ltd was acquired to bring the intellectual property of the ‘RightCrowd IQ’ product into the RightCrowd Group during the 2017 financial year. The company is dormant and has no transactions or balances. NOTE 13: PROPERTY, PLANT AND EQUIPMENT Plant and equipment At cost Accumulated depreciation Furniture and Fittings: At cost Accumulated depreciation Consolidated Group 2020 $ 2019 $ 442,532 (220,619) 455,228 (202,015) 221,913 253,213 168,673 (31,440) 137,233 30,791 - 30,791 49 NOTE 13: PROPERTY, PLANT AND EQUIPMENT (CONT) Buildings: At cost Accumulated depreciation Vehicles Right of Use Asset: At cost Accumulated depreciation Leasehold improvements At cost Accumulated depreciation s 1,890,599 (498,048) 1,392,551 104,993 (41,395) 63,598 54,802 (5,450) 49,352 - - - - Total property, plant and equipment 1,864,107 284,004 Movements in carrying amounts: Consolidated Group: Balance as at 1 July 2018 Acquired through business combination Additions Disposals Depreciation expense Re-presentation* Plant and Equipment $ Furniture and fittings $ Buildings $ Vehicles $ Leasehold improvements $ Total $ 218,993 60,613 96,048 - (91,650) - - - - - (30,791) 30,791 - - - - - - - - - - - - - - - - - - - - 218,993 60,613 96,048 - (91,650) - 284,004 Closing value at 30 June 2019 253,213 30,791 Year ended 30 June 2020 Plant and Equipment $ Furniture and fittings $ Buildings $ Vehicles $ Leasehold improvements $ Total $ Balance at 1 July 2019 253,213 30,791 - Recognition of right-of-use asset on Initial application of AASB 16 - - 547,573 - 0 - - 284,004 547,573 Additions Disposals 97,129 137,882 1,343,026 104,993 54,802 1,737,832 - - - - - - Depreciation expense (128,969) (31,440) (498,048) (41,395) (5,450) (705,302) Closing value at 30 June 2020 221,373 137,233 1,392,551 63,598 49,352 1,864,107 *Prior year disclosure did not include split between plant and equipment and furniture and fittings. Restated in current year. 50 NOTE 14: INTANGIBLE ASSETS Goodwill: Cost Foreign currency revaluation Accumulated impairment losses Net carrying amount Software and website development costs: Cost Foreign currency revaluation Accumulated amortisation Accumulated impairment Net carrying amount Wearable tech: Cost Foreign currency revaluation Accumulated amortisation and impairment losses Net carrying amount Consolidated Group 2019 2020 $ $ 13,569,598 13,569,598 383,403 (1,007,030) - 12,945,971 13,569,598 1,664,736 28,364 (277,055) (308,927) 1,107,118 1,815,224 (150,489) - 1,644,736 580,125 17,261 (82,469) 514,917 616,842 (36,717) 580,125 Total intangible assets 14,568,006 15,814,459 Movements in carrying amounts: Consolidated Group: Year ended 30 June 2019 Balance at 1 July 2018 Goodwill $ Software $ Ticto Wearable Tech $ Total $ - - - - Acquired through business combination 13,569,598 1,805,659 616,842 16,001,664 Amortisation charge - (150,488) (36,717) (187,205) Closing value at 30 June 2019 13,569,598 1,664,736 580,125 15,814,459 Year ended 30 June 2020 Balance at 1 July 2019 13,569,598 1,664,736 580,125 15,814,459 Foreign currency revaluation 383,403 28,364 17,261 429,028 Amortisation charge Impairment expense - (277,055) (82,469) (359,524) (1,007,030) (308,927) - (1,315,957) Closing value at 30 June 2020 12,945,971 1,107,118 514,917 14,568,006 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. 51 NOTE 14: INTANGIBLE ASSETS (CONT) Impairment testing Goodwill acquired through business combinations have been allocated to the following cash-generating units (CGU): Ticto division Offsite division Consolidated Group 2020 $ 12,945,971 - 12,945,971 2019 $ 12,562,568 1,007,030 13,569,598 Both the Ticto and Offsite CGU’s generate cash flows independently and represent the lowest level at which goodwill is monitored for internal management purposes. Impairment was recognised in the current year in respect of the Offsite Division cash generating unit intangible assets and goodwill balances. 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. Ticto CGU – Key assumptions Key assumptions are those to which the recoverable amount of an asset or cash-generating unit is most sensitive. The following key assumptions were used in the discounted cash flow model for the Ticto CGU at 30 June 2020: 12.2% post-tax discount rate; 2% terminal growth rate; Forecast revenues of $3,921,000 for 2021 which are driven by pipeline opportunities adjusted for risk of non- achievement and rate of success to date and expected costs to achieve the forecast sales 50% per annum revenue growth rate for 2022, with growth thereafter reducing by 10% per annum over the final three years of the forecast period; 22% per annum increase in staff costs over the forecast period. Discount rate The discount rate of 12.2% post-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. The discount rate reflects the geographical location of the CGU’s key customers, being primarily the USA and Europe. Terminal growth rate The terminal growth rate represents management’s best estimate of the growth rate of the Ticto CGU beyond the forecast period. The rate assumes the Ticto CGU will grow at a set rate into perpetuity beyond the forecast period. Sensitivities in relation to the terminal growth rate are shown below. Revenue growth rate Directors believe the first year forecast and subsequent projected 50% revenue growth rate is appropriate. Although the COVID-19 pandemic has delayed some pipeline opportunities within the Ticto CGU, the Group has reacted quickly and developed new social distancing and contract tracing solutions for organisations looking to return employees to the workplace and has generated signficant interest for these products. Additional material orders are forecast to be placed throughout FY21. 52 NOTE 14: INTANGIBLE ASSETS (CONT) The social distancing solutions, which have been developed using existing RightCrowd Presence Control technology, have been sold with the inclusion of Presence Control functionality. The Directors are of the view that even after the COVID-19 pandemic has eased, growth in Ticto NV will be ongoing as customers continue to utilise the product for both social distancing and Presence Control applications Refer to below section ‘changes in key assumptions from the prior year’ for additional discussion on the increase in revenue growth rate through year one of the forcast period and beyond. Staff costs growth rate Directors believe the projected 22% per annum staff cost growth rate is appropriate. Signficant revenue growth has been incorporated into the Ticto Value in Use model, and although the manufacuring of the social distancing solutions are largely outsourced and the CGU already has an established development team in place, signficant revenue growth is likely to necessitate an increase in the staff base in order to meet manufacturing requirements. The Directors have assessed annual growth in staff costs of 22% to be a reasonable approximation of staff costs growth moving forward. 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 $7.3m. Changes in key assumptions from the prior year The following key assumptions have changed from the prior year for the Ticto CGU: Key assumption Post tax discount rate Terminal growth rate Staff costs growth rate Revenue growth rate after year one 30 June 2020 12.2% 2% 22% 50% year 2, thereafter 10% decline in revenue growth per year 30 June 2019 15.2% 3% 15% 50% annual growth rate over full forecast period Year one forecast revenue $3,921,000 $633,000 Movement (=-%) -3% -1% +7% -10% per annum for the final three years of the forecast period. +$3,288,000 (+519%) Comments on changes in key assumptions Post tax discount rate: The Directors have assessed the post tax discount rate utilised in the impairment model and made amendments to make the rate more reflective of the location of the CGU’s key customers, being primariliy in the U.S.A. Key customers in the prior year were mainly located in the European market. Terminal growth rate: The terminal growth rate has been adjusted to more accurately reflect the medium term inflation target within the CGU’s resident country. This was assessed as indicating the highest rate of growth available into perpetuity. Staff costs growth rate: The directors have increased the staff costs growth rate as a result of the signficant growth in the customer pipeline for the CGU’s social distancing solutions. As noted above, although the manufacturing of the solution is largely outsourced and the CGU has an established development team in place, the Directors have concluded that additional staff costs are more supportive of a signficant increase in revenue growth. 53 NOTE 14: INTANGIBLE ASSETS (CONT) Revenue growth rate and Year 1 forecast revenue: The directors have forecast a signficant increase in year one revenue in comparison to the prior period. The key reasons for the signficant increase in forecast revenue are as follows: - Material increase in pipeline opportunities. As at 30 June 2020, the CGU had a significant pipeline of open opportunities. These opportunities consist of a mix of very large fortune 50 customers, and equally large international businesses steadily returning their employees to the workplace post COVID-19. Given this material increase in pipeline opportunities and early high rates of conversion, the directors believe the significant year one revenue growth and significant growth thereafter is appropriate. Specific Sensitivity Analysis – Revenue growth rate The achievement of forecast revenue growth in year one, and growth thereafter, is dependent on a number of critical assumptions including the conversion of forecast pipeline oppurtunties and the continuity of customer demand for social distancing solutions in the future. There is a risk that should these critical assumptions not materialise, the Ticto CGU would be impaired. The following tables present the impacts of variability in the achievement of these critical assumptions on the impairment / headroom calculated under the Ticto CGU value in use model. The table presents sensitivities calculated on year one revenue growth and growth rate thereafter. All other variables in the value in use model have remained constant under the sensitivity modelling. Sensitivity calculated on other components of the model is presented further below. Revenue Revenue in 2021 decreases by 25% Revenue growth in 2022 decreases to 40% Headroom/(impairment) ($2.8 million) ($2 million) Sensitivity analysis – other key assumptions in Ticto Value is use model 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 and the Ticto CGU may be impaired. The following tables present sensitiviites run on the following model inputs, assuming all other inputs remain constant: Assumption changes Discount rate increases to 13% Terminal growth rate decreases to 1% Staff costs growth rate increases to 40% Headroom /(impairment) $5.4 million $5.6 million ($264k) Management believes that other reasonable changes in the key assumptions on which the recoverable amount of Ticto division's goodwill is based would not cause the cash-generating unit’s carrying amount to exceed its recoverable amount. 54 NOTE 14: INTANGIBLE ASSETS (CONT) Offsite Vision Key assumptions The following key assumptions were used in the discounted cash flow model for the Offsite division as at 30 June 2020: 13.6% post-tax discount rate (2019: 15.3%); Forecast revenues of $894,000 for 2021 which are driven by pipeline opportunities adjusted for risk of non- achievement and rate of success to date and expected costs to achieve the forecast sales; 20% per annum projected revenue growth rate from year 2 onwards (2019: 20%); 14% per annum growth in staff costs (2019: 5%); 2% terminal value (2019: 3%). Discount rate The discount rate of 13.6% post-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. The discount rate reflects the geographical location of the CGU’s key customers, being the USA. Terminal growth rate The terminal growth rate represents management’s best estimate of the growth rate of the Offsite Vision CGU beyond the forecast period. The rate assumes the Offsite Vision CGU will grow at a set rate into perpetuity beyond the forecast period. Staff costs growth rate The staff costs growth rate of 14% represents the Directors best estimate of the growth in staff costs required to support the revenue growth rate of 20% detailed below. Revenue growth rate Directors believe the projected 20% revenue growth rate is appropriate. Offsite Vision was heavily impacted by the COVID-19 pandemic, with the majority of the small or initial customer base being located on the USA East Coast, one of the hardest hit regions globally. The pandemic resulted in delays in both the commencement of new projects and execution of forecast pipeline opportunities. COVID-19 continues to impact Offsite Vision’s market. Regardless of this, the Directors are of the opinion that the Offsite Vision CGU will convert a number of existing pipeline oppurtunites once the pandemic has eased and existing customers for which ongoing projects were put on hold as a result of the pandemic will re-commence in the 2021 financial year. The Directors therefore believe the 20% annual revenue growth rate is appropriate. There were no other key assumptions for the Offsite division. 55 NOTE 14: INTANGIBLE ASSETS (CONT) Offsite Vision Impairment As a result of the carrying amount of the Offsite Vision CGU exceeding the recoverable amount, impairment was recognised in respect of the CGU in the current year. Total impairment of $1,315,957 was recognised relating to the following balances: Balance Book value prior to impairment Impairment recognised Goodwill 1,007,030 Software 308,927 Investment in Offsite Vision* 1,276,743 *parent entity balance refer to note 2 (1,007,030) (308,927) (1,276,743) NOTE 15: OTHER ASSETS CURRENT Deposits Held and advances Prepayments NOTE 16: TRADE AND OTHER PAYABLES CURRENT Unsecured liabilities: Trade payables Payroll payables Accrued expenses Consolidated Group 2019 2020 $ $ 39,788 384,358 424,146 108,814 286,473 395,287 Consolidated Group 2019 2020 $ $ 619,319 63,734 389,281 1,072,334 516,987 47,855 142,810 707,652 Information about the Group’s exposure to currency and liquidity risks is shown in note 24. 56 br NOTE 17: BORROWINGS CURRENT Unsecured liabilities: Insurance premium funding Lease liabilities Other Unsecured loan Secured liabilities R & D factoring* Total current borrowings NON-CURRENT Unsecured liabilities: Lease liabilities Payroll protection program Small Business Administration Loan Unsecured loan Secured liabilities QRIDA Loan* Total non-current borrowings Consolidated Group 2019 2020 $ $ 100,055 590,503 68,023 497,800 1,256,381 925,759 196,377 43,516 - 187,463 1,353,115 20,830 - 66,324 - 87,154 - - - 27,623 - 27,623 Total borrowings 2,609,496 114,777 *secured by a General Security Agreement over the relevant company’s assets Terms and conditions Borrowings disclosed above have the following terms and conditions: Balance Insurance premium funding Payroll Protection Program R & D factoring QRIDA loan SBA Loan Other unsecured loan Lease Liabilities Interest rate per annum 2.28% 1% 12% 2.5% 3.75% 2% Repayment terms Principal and interest, Repayable in full by 30 October 2020 Principal and interest, 30-year repayment term commencing 12 months after facility commencement. Principal and interest, Repayable in full by 30 November 2020 10 year total term. Two years interest only from commencement of facility, balance repayable over remaining eight years. Principal and interest, 30-year repayment term commencing 12 months after entering into the facility Repayable in full by 30 August 2020 Refer to note 1(a) in the ‘Changes to Significant Accounting Policies’ section and note 29 for detailed information on Right of Use liabilities, including repayment terms and details of incremental borrowing rate utilised. 57 br NOTE 17: BORROWINGS (CONT) Movements in carrying amounts: Insurance Premium Funding: a. Opening balance Proceeds Less repayments Closing balance b c d e f Unsecured loans: Opening balance Additions through acquisitions Proceeds Less repayments Closing balance Lease liabilities: Opening balance Amounts recognised on initial application of AASB 16 Additions Less repayments Interest expense Closing balance Payroll Protection Program (PPP) Opening balance Proceeds Less repayments Closing balance R&D Factoring Opening balance Proceeds Less repayments Closing balance QRIDA Loan Opening balance Proceeds Day 1 gain* Less repayments Closing balance 2020 $ 2019 $ 20,832 250,198 (170,975) 100,055 90,956 208,298 (278,422) 20,830 93,945 - 43,516 (25,922) 111,539 - 119,901 - (25,956) 93,945 - 547,573 1,612,737 (549,708) (94,340) 1,516,262 - 196,377 - 196,377 - 497,800 - 497,800 - 250,000 (62,537) - 187,463 - - - - - - - - - - - - - - - - - Information about the Group’s exposure to interest rate, foreign currency and liquidity risks is shown in note 24. *adjustment to fair value relates to recognition as other income of low interest component of loan. Refer note 1(m) 58 NOTE 18: OTHER LIABILITIES CURRENT Contract liabilities Contingent consideration NON-CURRENT Contingent consideration Reconciliation of contract liabilities Opening contract liabilities Revenue recognised from opening contract liabilities Billing received Closing contract liabilities Revenue recognised from opening contract liabilities comprises: Subscription licenses Support and maintenance Total Contract liabilities Consolidated Group 2019 2020 $ $ 3,160,777 27,427 3,188,204 2,432,801 52,975 2,485,776 - 3,188,204 45,408 2,531,184 2,432,801 (1,495,757) 2,223,733 3,160,777 1,474,590 (1,317,905) 2,276,116 2,432,801 592,870 902,887 1,495,757 445,608 872,297 1,317,905 Contract liabilities relate to consideration 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. On initial recognition management assessed whether the shares should be classified as debt or equity in accordance with AASB 132 Financial Instruments: Presentation. The contingent consideration was classified as a liability due to the fact that a variable number of shares are issuable. The liability is initially recognised at fair value at transaction date and remeasured at each period end with movements in fair value recognised in profit and loss as incurred. The fair value is estimated by probability-weighting the estimated future share issues at market share price, adjusting for risk and discounting. There were two milestones contained within this acquisition and probabilities were assigned to each of the milestones as to whether the conditions would be achieved. The fair value of the share price was determined to be $0.33 in calculating the fair value of the contingent consideration at initial recognition. The liability is remeasured at the end of each reporting period to the fair value at that date with judgements made over whether the milestone will be hit and the number of shares that will be issued to extinguish the liability. Milestone 1 was achieved and shares were issued accordingly, with the fair value of the contingent consideration component adjusted. Contingent consideration and options on issue in respect of milestone 2 are outstanding as at 30 June 2020. NOTE 19: PROVISIONS Employee benefits Current Non-current Lease make good costs Non-current 2020 $ Consolidated Group 2019 $ 1,065,713 150,767 1,216,480 1,549,055 62,571 1,611,626 29,233 - 59 br NOTE 20: ISSUED CAPITAL Ordinary Shares The company does not have authorised capital or par value in respect of its issued shares. Holders of ordinary shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the company. a. Ordinary Shares Balance at 1 July 2018 Share movements during the 2019 financial year: – Share issue on 29 October 2018 1 – Share issue on 28 November 2018 2 – Share issue on 3 December 2018 2 – Share issue on 12 December 2018 2 – Share issue on 16 January 2019 3 Share issue on 18 January 2019 4 Share issue costs Balance at 30 June 2019 Consolidated Group No. $ 133,333,333 19,468,728 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 1 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. 2 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. 3 On 16 January 2019, 45,806,452 ordinary shares were issued at $0.32 each in relation to the acquisition of Ticto NV. 4 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. Share movements during the 2020 financial year: Balance at 1 July 2019 Consolidated Group No. 197,898,224 39,650,533 $ – Share issue on 13 December 2019 5 1,388,889 438,253 Balance at 30 June 2020 199,287,114 40,088,786 5 On 13 December 2019, 1,388,889 ordinary shares were issued at $0.31 per share to Offsite Vision KMP as a result of the subsidiary meeting specified performance milestones as part of the acquisition agreement executed in the prior year b. Capital Management Management controls the capital of the Group, given the companies stage of development, the Board seeks to carry only low levels of debt, 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. 60 br NOTE 20: ISSUED CAPITAL (CONT) 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. As a result of the COVID-19 pandemic, the Group has introduced additional capital management strategies in order to mitigate short term cash flow shortages associated with contract delays caused by the pandemic. These include sourcing additional debt facilities to support the Group’s growth trajectory and accessing COVID-19 government support grants. In addition, prior year operating lease commitments are now recorded as debt liabilities. This has resulted in a higher level of debt gearing for the year ended 30 June 2020 in comparison to the prior year. The gearing for the years ended 30 June 2020 and 30 June 2019 is as follows: Total borrowings Less cash and cash equivalents Net (debt) / funds Total equity Note 17 10 Consolidated Group 2019 2020 $ $ (2,609,496) 1,471,918 (1,137,578) 15,175,122 (114,777) 4,972,136 4,857,359 21,438,610 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 2020 (30 June 2019: nil). NOTE 22: CASH FLOW INFORMATION Consolidated Group 2019 2020 $ $ a. Reconciliation of Cash Flows from Operating Activities with Loss after Income Tax Loss after income tax Non-cash flows in profit: amortisation – depreciation – Impairment – Equity settled share-based payments – – unrealised foreign exchange loss/(gain) 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) decrease in other assets decrease in inventory increase other liabilities Increase/(decrease) in trade payables and accruals increase in employee provisions Increase (decrease) in current tax liabilities (6,786,378) (6,170,821) 359,524 705,302 1,315,957 367,937 (8,038) 187,206 91,650 - 487,420 (218,636) (761,174) (28,868) 91,251 729,428 364,682 424,378 (25,329) (3,417,450) (1,198,013) 46,354 5,280 925,546 (306,175) 166,309 25,904 (5,957,976) 61 br NOTE 23: 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 family controlled entities. Peter Hill’s shareholding is held indirectly through CNI PTY LTD . 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. 62 NOTE 24: FINANCIAL RISK MANAGEMENT The Group’s financial instruments consist mainly of short-term investments, being term deposits with maturities greater than 3 months, accounts receivable and payable, bills and leases. 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 Financial assets Total financial assets Financial liabilities Financial liabilities at amortised cost: – Trade and other payables – Borrowings – Other liabilities Total financial liabilities Note Consolidated Group 2020 $ 2019 $ 10 11 16 17 18 1,471,918 5,131,949 119,769 6,723,636 4,972,136 4,370,775 - 9,342,911 1,072,334 2,609,496 27,427 3,709,257 707,652 114,777 129,152 951,581 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 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. 63 NOTE 24: FINANCIAL RISK MANAGEMENT (CONT) The COVID-19 pandemic has not resulted in a significant increase in the credit risk of the group. The groups customers are generally large multi-nationals and fortune 50 companies. While these companies have been impacted by the pandemic, they still have significant resources and high liquidity and therefore have continued to meet credit obligations pertaining to the RightCrowd group within payment terms. 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 (net of any provisions) as presented in the statement of financial position. Specific credit risk considerations in relation to the Group’s trade and other receivables are shown in note 11 to the financial statements. The Group through relationships with partners and major clients does have some concentration of credit risk with a group of counter parties. This is managed primarily through ensuring payment terms are strictly enforced for key customers. 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 BBB. 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 b. Liquidity risk 2020 $ 2019 $ 299,121 1,083,324 89,473 1,471,918 2,798,597 2,049,083 124,456 4,972,136 9 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 2020. 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. 64 NOTE 24: FINANCIAL RISK MANAGEMENT (CONT) Financial liability and financial asset maturity analysis Within 1 Year 2020 2019 1 to 5 Years 2020 2019 Over 5 Years 2020 2019 Total 2020 2019 2020 2019 Consolidated Group $ $ $ $ $ $ $ $ % % interest rate 1,072,334 707,653 - Financial liabilities due for payment Trade and other payables Borrowings QRIDA Facility SBA Loan R & D Factoring Lease liabilities Payroll Protection Program - - 497,800 590,503 114,621 - - - - - Insurance funding 100,055 87,154 Other unsecured loan 68,023 - - - - - - - - 27,623 - - 1,072,334 707,653 n/a n/a 58,067 22,778 - - - - - - - - - - - - 187,463 43,516 497,800 1,516,262 2.5 - - 3.75 12 - - 7.32 1 196,377 100,055 68,023 - 87,154 2.28 2 27,623 - - - - - - 2 129,396 20,738 - 925,759 81,756 - - Total borrowings 1,371,002 87,154 1,157,649 - 80,845 - 2,609,496 114,777 Other liabilities Total anticipated outflows 27,427 52,975 - 45,408 - - 27,427 98,383 n/a n/a 2,470,623 874,782 1,157,649 73,031 80,845 - 3,709,257 920,813 Financial assets – cash flows realisable Cash and cash equivalents 1,471,918 4,972,136 Financial assets 119,769 - Trade receivables Total anticipated inflows 5,131,949 4,370,775 6,723,636 9,342,911 c. Market risk - - - - - - - - - - - - - 1,471,918 4,972,136 - 119,769 - - 5,131,949 4,370,775 - 6,723,636 9,333,911 (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 financial instruments that primarily expose the Group to interest rate risk are borrowings, and cash and cash equivalents. Interest rate risk is managed using fixed rate instruments. At 30 June 2020, all the group’s borrowings have 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. 65 NOTE 24: FINANCIAL RISK MANAGEMENT (CONT) With instruments being held by overseas operations, fluctuations in the US dollar, Euro and Philippines peso may impact on the Group’s financial results. The following table shows the Group’s net exposure to 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. 2020 Consolidated Group USD AUD EUR PHP Other Total AUD Functional currency of entity: Australian dollar 1,860,655 30,246 (168,501) 108,145 1,830,545 Statement of financial position exposure 2019 Consolidated Group Functional currency of entity: 1,860,655 0 30,246 (168,501) 108,145 1,830,545 USD AUD EUR PHP Other Total AUD Australian dollar 1,932,309 1,021,001 (17) 100,995 3,054,288 Statement of financial position exposure 1,932,309 0 1,021,001 (17) 100,995 3,054,288 Foreign currency sensitivity analysis The table below estimates the impact of a 10% change in the closing exchange rate of the AUD against significant currencies, on financial assets and financial liabilities. The impact is expressed in terms of the effect on net profit or loss. The sensitivities are based on financial assets and financial liabilities held at 30 June 2020, where balances are denominated in the functional currency of the subsidiary: 10% strengthening/weakening of AUD Effect on profit/(loss) ($000) USD EURO PESO FX rates used for sensitivity: 245/ (245) 2/ (2) 16/ (16) Spot rate Rates: 30 June 2020 plus 10% minus 10% AUD/USD AUD/EURO AUD/PESO 0.6863 0.6111 34.385 0.75493 0.67221 37.8235 0.610807 0.543879 30.60265 66 NOTE 24: FINANCIAL RISK MANAGEMENT (CONT) 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. Financial Liabilities at fair value through the profit and loss Contingent consideration Reconciliation of Level 3 fair value movements Opening balance at 1 July 2018 Recognition on acquisition / funding Closing balance at 30 June 2019 Fair value adjustment on achievement of milestone Closing balance at 30 June 2020 Consolidated Group Level 1 Level 2 Level 3 - - - - 27,427 27,427 Contingent Consideration - 98,383 98,383 (70,956) 27,427 67 NOTE 25: RESERVES a. Foreign Currency Translation Reserve 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 2020 $ 116,459 114,490 230,949 2019 $ 66,720 49,739 116,459 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 Options expired Shares under option issued Balance at end of year 2020 $ 666,497 367,937 (141,049) (397,790) 495,595 2019 $ 179,077 487,420 - 666,497 TOTAL RESERVES 726,544 782,956 NOTE 26: CAPITAL AND LEASING COMMITMENTS Capital commitments The Group has no capital commitments at 30 June 2020 (2019: 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 Consolidated Group 2020 $ - - - - 2019 $ 348,542 214,771 - 563,313 The Group has applied the recognition, measurement, and disclosure requirements of AASB 16 for the first time in the current year, which has resulted in the transfer of all operating leases to the statement of financial position. Refer to note 29 for further details of the Group’s adoption of AASB 16. 68 NOTE 27: SHARE BASED PAYMENTS At 30 June 2020, the Group had the following share-based payment arrangements: Performance Rights RightCrowd have implemented a new long-term incentive plan in the current year through the issue of performance rights to eligible RightCrowd employees. Each performance right is convertible to one ordinary share in the company which only vests if certain performance conditions are met. The plan is split into two tranches, both of which have been granted in the current year. Performance rights are granted under the plan for no consideration and carry no voting rights. The performance conditions attached to each Tranche include being a current employee of the company at vesting date and the achievement of performance targets related to revenue and net income as determined by the Board which are set out below: - Tranche A Performance Target Sales revenue of $13.7m and net loss of $7.8m for the year ended 30 June 2020 - Tranche B Performance Target Sales revenue of $19.15m and net loss of $2.4m for the year ended 30 June 2020 Set out below is a summary of performance rights granted under the plan. The performance rights for Tranche A and Tranche B were granted on 28 February 2020: Performance rights issued at grant date: Forfeited Performance rights outstanding as at 30 June 2020 Grant date fair value per Performance Right Tranche A 1,716,774 (24,000) 1,692,774 Tranche B 4,029,806 (19,192) 4,010,614 0.18 0.17 The fair value of the performance rights relating to the year ended 30 June 2020 was $247,381 and was calculated using the Black Scholes valuation model using the following inputs: Number of performance rights Exercise price Grant date Expiry date Vesting period (yrs.) Volatility Dividend yield Risk-free interest rate Fair value at grant date Tranche 1 1,716,774 - 28/02/2020 30/09/2020 0.6 68% 0% 1.12% $309,019 Tranche 2 4,005,806 - 28/02/2020 30/09/2021 1.5 68% 0% 1.12% $685,067 Weighted average remaining contractual life of performance rights on issue at 30 June 2020: 1.23 years The probability of performance rights being converted to ordinary shares based on satisfaction of non-market performance conditions was incorporated into the total share based payments expense by adjusting the number of performance rights ultimately expected to vest under the plan. 69 NOTE 27: SHARE BASED PAYMENTS (CONT) Offsite Vision Performance Rights As part of the acquisition of subsidiary ‘Offsite Vision’ in the prior year, performance rights were offered to two key employees to retain them. A maximum of 2,410,848 shares can be issued in two components, subject to the individuals meeting their service conditions, and contracted revenue targets. The first component was met in full and shares were issued under the agreement. The second component is outstanding as at 30 June 2020. Details of the performance rights under the agreement are as follows: Number of performance rights (maximum) Exercise price Grant date Expiry date Vesting period (yrs.) Volatility Dividend yield Risk-free interest rate Grant date fair value Milestone 1 1,205,424 - 29/10/2018 29/10/2019 1 61.9% 0% 1.96% 0.33 Milestone 2 1, 205,424 - 29/10/2018 29/10/2020 2 61.4% 0% 1.97% 0.33 Set out below are the vesting conditions which includes a service condition and performance targets as follows: Service condition Milestone 1 12 months from 29 October 2018 Milestone 2 12 months from 1 November 2019 to 29 October 2020 Performance condition Contracted revenue in first twelve months as follows: $US 250,000 to $US 500,000 - pro rata of Contracted revenue in first twelve as follows: $US500,000 to $US 1,000,000 pro rata of 1,205,424 shares. 1,205,424 shares. Greater than $US 500,000 - 1,205,424 Greater than $US 1,000,000 – 1,205,424 shares. shares. Details of performance Rights outstanding in relation to the milestones is shown below: Performance rights outstanding as at 1 July 2018 Granted Forfeited Exercised Expired Performance rights outstanding as at 30 June 2019 Granted Forfeited Exercised Expired Performance rights outstanding as at 30 June 2020 Weighted average remaining contractual life: 0.33 years Number - 2, 410,848 - - - 2, 410,848 - - 1,205,424 - 1,205,424 70 NOTE 27: SHARE BASED PAYMENTS (CONT) 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 employees remain employed by RightCrowd over the service period. 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. The terms of the award required the employee to remain in employment at vesting date. When exercisable, each option is convertible into one ordinary share. Set out below are summaries of options granted under the plan: Options outstanding as at 1 July 2018 Granted Forfeited Exercised Expired Options outstanding as at 30 June 2019 Granted Forfeited Exercised Expired Options outstanding as at 30 June 2020 No share options were exercised during the periods covered above. Share options outstanding at the end of the year have the following expiry date and exercise prices: Number 6,610,000 - (166,666) - (2,096,695) 4,346,639 - (328,347) - (1,908,312) 1,976,646 Weighted Average Exercise Price $0.42 - $0.42 - $0.38 $0.43 - $0.43 - $0.44 $0.45 Date options granted 13/09/2017 13/09/2017 30/05/2018 30/05/2018 30/05/2018 Expiry date 12/12/2019 12/12/2020 28/08/2019 27/08/2020 28/08/2021 Exercise price $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 2020 - 1,789,980 - 93,333 93,333 1,976,646 0.47 years 30 June 2019 2,013,328 2,013,311 106,668 106,666 106,666 4,346,639 2.25 years No new share options were granted in the current year. Details of options issued during the prior financial years 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 remaining unexpired 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. 71 NOTE 27: SHARE BASED PAYMENTS (CONT) 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 Tranche 2 2,168,328 $0.43 13/09/2017 13/09/2017 12/12/2018 12/12/2019 58% 0% 1.8% $0.05 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 $367,937 (2019: $487,420). The total amount recognised in equity is $458,202 (2019: $666,497). 72 NOTE 28: SEGMENT REPORTING Basis for segmentation The Group’s Board of Directors review the performance of the Group from the perspective of monitoring the continual growth of the core RightCrowd product, evaluating the success of new RightCrowd products introduced to the market and monitoring the progress of the Offsite Vision business for the purpose of reviewing progress against contingent consideration acquisition targets. The board monitor the Group internally on this basis. As such, the Board of Director’s have identified three operating segments as shown below: Core – This segment reports the results and performance of the Group’s core product, being the provision of workforce and visitor management solutions. New Products – This segment reports the results and performance of the Group’s new products outside of the Group’s core product offering. Offsite Vision – This segment reports the results of the Offsite Vision segment. The number of operating segements reviewed by the Chief Operating Decision maker has increased from one reportable segment for the year ended 30 June 2019, to three reportable segments for the current year. This was a decision made by the Board of Directors in order to facilitate better resource allocation and performance management decisions for new RightCrowd products. (a) Information about reportable segments The Board of Directors, being the Chief Operating Decision Maker, review the internal management reports of each segment on a monthly basis. Performance management and resource allocation decisions are made based primarily on segment revenue and segment net income. Information related to each reportable segment is set out below: For the year ended 30 June 2020: Segment Revenue External revenues Total revenue Core New Products Offsite Vision Total 11,200,250 11,200,250 192,472 192,472 141,385 141,385 11,534,107 11,534,107 Segment profit/loss before tax Impairment expense Employee benefits expense Interest income Interest expense Depreciation and Amortisation Equity settled share based payments (1,130,140) - (13,757,654) 12,278 (71,182) (439,307) (367,937) (3,277,077) - (1,587,000) - (22,534) (496,819) - (2,428,161) (1,315,957) (868,569) 218 (9,264) (128,700) - (6,835,378) (1,315,957) (16,213,223) 12,496 (102,980) (1,064,826) (367,937) Segment assets Segment liabilities 8,948,905 (7,316,610) 14,399,864 (711,399) 342,766 (488,404) 23,691,535 (8,516,413) 1. Segment revenue reported above represents revenue generated from external customers. There were no inter- segment sales in the current year. There is no income tax payable in the Group’s reportable segments. 73 NOTE 28: SEGMENT REPORTING (CONT) For the year ended 30 June 2019: Segment Revenue External revenues Total revenue Core New Products Offsite Vision Total 8,674,501 8,674,501 274,564 274,564 429,550 429,550 9,378,615 9,378,615 Segment profit/loss before tax Impairment expense Employee benefits expense Interest income Interest expense Depreciation and Amortisation Equity settled share based payments (4,085,833) - (11,880,202) 70,898 (11,096) (76,560) (487,420) (2,084,988) - (772,455) - - (171,607) - (546,350) - (475,794) 278 - (30,688) - (6,717,171) - (13,128,451) 71,176 (11,096) (278,855) (487,420) Segment assets Segment liabilities 9,656,168 (7,316,610) 14,671,772 (468,529) 1,711,612 (230,275) 26,039,552 (8,015,414) 1. Segment revenue reported above represents revenue generated from external customers. There were no inter- segment sales in the current year. There is no income tax payable in the Group’s reportable segments. Reconciliations of reportable segment revenues and profit or loss Profit or loss Total loss for reportable segments Unallocated amounts: Net other corporate income Consoldiated loss before tax Reconciliations of reportable assets and liabilities Assets Total assets for reportable segments Unallocated corporate assets Consolidated total assets Liabilities Total liabilities for reportable segments Unallocated corporate liabilities Consolidated total liabilities Consolidated Group 2020 $ (6,835,378) - 56,430 (6,778,948) 23,691,535 - 23,691,535 (8,516,413) - (8,516,413) 2019 $ (6,717,171) - 609,711 (6,107,460) 26,039,552 - 26,039,552 (8,015,414) - (4,600,942) 74 NOTE 28: SEGMENT REPORTING (CONT) Revenue by geographical location: Revenue by geographical location attributable to external customers is disclosed below, based on the location of the external customer. North America Europe, Middle East and Africa Latin America Oceania and Australia ii) Non-current assets by geographical location*: USA Belgium Latin America Oceania and Australia Consolidated Group 2020 $ 2019 $ 7,763,262 1,172,675 895,148 1,703,022 11,534,107 5,607,387 1,575,700 555,462 1,640,066 9,378,615 Consolidated Group 2020 $ 214,815 253,908 - 1,395,384 1,864,107 2019 $ 30,858 - - 188,135 218,993 *non-current assets exclude goodwill recognised on business combinations which is recognised on consolidation and not part of the foreign operation. The Group has some degree of reliance on major customers. Total revenue earned from customers greater than 10% of the group and the segment to which the revenue relates: 30 June 2020 Revenue ($) 4,980,806 Segment Core 30 June 2019 Revenue ($) 4,378,829 Segment Core NOTE 29: LEASES a. Leases as lessee The Group leases buildings and motor vehicles. The building leases relate to lease payments for the Group’s global offices and typically run for periods between two and five years with options to renew at the end of the lease term, subject to lessor approval. 75 NOTE 29: LEASES (CONT) The motor vehicle leases relate to lease payments on the Group’s leased vehicles situated in Belgium. These leases typically run for a period of four years, with options to purchase the vehicles at the end of the lease term. Monthly lease payments are adjusted from to time based on vehicle usage. b. Right-of-Use Assets Right of Use assets and associated depreciation charges for the year are shown below: Initial recognition of Right of use assets on initial application of AASB 16 Additions to Right of Use assets Depreciation charge for the year Buildings Motor Vehicles 547,573 - 1,343,026 (498,048) 104,993 (41,395) Total 547,573 1,448,018 (539,443) Balance at 30 June 2020 1,392,551 63,598 1,456,149 c. Amounts included in profit and loss Buildings Motor Vehicles Total Interest expense on lease liabilities 88,056 6,285 94,341 d. Amounts recognised in statement of cash flows Buildings Motor Vehicles Total Total cash outflow for leases 588,544 55,504 644,048 e. Extension options Some property leases contain extension options exercisable by the Group up to one year before the end of the non-cancellable contract period. The Group assesses at lease commencement date whether it is reasonably certain to exercise the extension options and re-assesses this determination each reporting period. Where the group has yet to determine whether an extension option will be exercised, the extension option is not included in the lease term. The exercise of extension options would result in an increase in the lease term and subsequent increase in the amount of the Right of Use liability for the lease in question. f. Leases as lessor The Group does not have any lease arrangements in which the Group acts as lessor. Expenses relating to short term and low value leases The group has excluded some short term leases from recognition as permitted by AASB 16. The following table shows the expenses relating to these short term leases recognised within rent expense in the statement of profit or loss and other comprehensive income for the year ended 30 June 2020. There were no leases excluded on the basis of low value: Nature of Lease Expiry date Amount recognised in profit or loss ($) for the year ended 30 June 2020 Old head office building, Gold Coast Australia 31 October 2019 129,473 76 NOTE 30: EVENTS AFTER THE REPORTING PERIOD The Group notes the following significant events occurring after the end of the 30 June 2020 financial reporting period: $4 million capital raise On 12 August 2020, the Group finalised a placement of 22,222,222 fully paid ordinary shares for a total consideration of $4 million. The funds raised under the placement will be used to support current revenue growth projections, and to accelerate necessary product manufacturing in order to meet the anticipated high demand for RightCrowd’s COVID-19 related products and strengthen the statement of financial position. Additional debt finance approval Subsequent to year end, the Group obtained approval for the establishment of a short-term debt facility with the Australian Government’s Export Finance agency. The amount of the facility available for drawdown is $1.4 million. No amounts have been drawn down as at the date of this report. The funding will be used to support the set up phase of major new contracts won by the RightCrowd Group. Signing of major Fortune 50 customer During July 2020, the Core segment of the Group finalised a major ongoing contract with a large fortune 50 customer. The contract was originally expected to finalise during FY20, however due to delays as a result of the COVID-19 pandemic, execution of the contract was delayed until August 2020. No other events after the reporting period requiring disclosure in these financial statements were identified. 77 NOTE 31: COMPANY DETAILS The registered office of the company is: RightCrowd Limited Suite 501, Level 5/203 Robina Town Centre Dr, Robina QLD 4226 ABN 20 108 411 427 Incorporated in Australia www.rightcrowd.com ASX Code: RCW Auditor: KPMG Share Registry: Boardroom Pty Limited Solicitor: GRT Lawyers Brisbane The principal places of business are: –Australia Suite 501, Level 5/203 Robina Town Centre Dr, Robina QLD 4226 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 78 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 78, 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 2020 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. ……………………………………………………………………………………………… Peter Hill Director Dated this 30 September 2020 79 Independent Auditor’s Report To the shareholders of RightCrowd Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of RightCrowd Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2020; • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; • Notes including a summary of significant accounting policies; • Directors' Declaration. The Group consists of RightCrowd Limited (the Company) and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. 80 Key Audit Matters We have determined the matters described below to be the Key Audit Matters: • Going concern basis of accounting 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. • Revenue recognition • Recoverability of Goodwill 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. Going concern basis of accounting Refer to Note 1 to the Financial Report The key audit matter How the matter was addressed in our audit The Group’s use of the going concern basis of accounting and the associated extent of uncertainty is a key audit matter due to the high level of judgement required by us in evaluating the Group’s assessment of going concern and the events or conditions that may cast significant doubt on their ability to continue as a going concern. These are outlined in Note 1. The Directors have determined that the use of the going concern basis of accounting is appropriate in preparing the financial report. Their assessment of going concern was based on cash flow projections. The preparation of these projections incorporated a number of assumptions and significant judgements, and the Directors have concluded that the range of possible outcomes considered in arriving at this judgement does not give rise to a material uncertainty casting significant doubt on the Group’s ability to continue as a going concern. We critically assessed the levels of uncertainty, as it related to the Group’s ability to continue as a going concern, within these assumptions and judgements, focusing on the following: The Group’s planned levels of operational expenditures incorporating potential further impacts resulting from business interruption from COVID-19 on the Group, and the ability of the Group to manage cash outflows within available funding, particularly in light of loss making operations and business interruption from COVID-19. Working with our risk management partner our procedures included: • We analysed the cash flow projections by: • Evaluating the underlying data used to generate the projections. We specifically checked the cash flow projections were updated for COVID-19 implications to the business based on credible authoritative sources. We looked for their consistency with those used by the Directors, and tested by us, as set out in the Recoverability of Goodwill key audit matter, their consistency with the Group’s intentions, as outlined in Directors minutes and budgets and their comparability to past practices. We specifically assessed this against our understanding of Directors COVID-19 impact plans, obtained from our additional inquiries with them. Critical elements considered included an estimated rate of recovery, and expectations of full return to business as usual. • Analysing the impact of reasonably possible changes in projected cash flows and their timing, to the projected periodic cash positions. Assessing the resultant impact to the ability of the Group to pay debts as and when they fall due and continue as a going concern. The specific areas we focused on were the sensitivity analysis on key cash flow projection assumptions and the impact of the pandemic and continued market uncertainty. • Assessing the planned levels of operating expenditures for consistency of relationships and trends to the Group’s historical results, particularly in light of the loss making operations and business interruption from COVID-19 on the Group, results since year end, and our understanding of the business, industry and expected market conditions due to COVID-19. We read correspondence from the government grant bodies and using the conditions for eligibility in these agreements, compared the expected R&D expenditure 81 The Group’s entitlement to receive future government grants, namely the Research and Development tax incentive. This included the Group’s eligibility to receive the grant, the projected quantum and timing of receipt. The Group’s ability to meet current and future financing commitments. This included nature of planned methods to achieve this, feasibility, particularly in light of sustained uncertain market conditions due to COVID-19, and progress of those plans; The Group’s plans to achieve revenue growth forecasts to fund operational costs. This included the feasibility, projected timing, quantum of potential proceeds, and progress of the proposed sales, particularly in considering the current expected market conditions due to COVID-19. As the additional funds from shareholders raised subsequent to year end was critical to the Group’s ability to continue as a going concern, the receipt of these funds necessitated additional scrutiny by us. In assessing this key audit matter, we involved our risk management partner and senior audit team members who understand the Group’s business, industry and the economic environment it operates in. against this criteria to assess the feasibility of forecast cash inflows related to expected additional R&D tax incentives in the forecast going concern period. We read correspondence with existing and potential financiers to understand and assess the options available to the Group including negotiation of existing debt facilities, and negotiation of additional funding arrangements, particularly in considering the expected market conditions due to COVID-19. In addition, we have assessed the ability of the Group to raise additional shareholder funds which included obtaining evidence of funds secured from shareholders subsequent to balance date. We read the sales contracts of existing and potential customers and evaluated the proposed sales opportunities to understand and assess the Group’s plans to achieve the forecast revenue growth for feasibility, quantum and timing, and their impact to going concern and funding conditions. We used our knowledge of the client and its industry as well as previous performance to assess the level of associated uncertainty. We checked funds raised from shareholders since year end to the Group's bank statement. We evaluated the Group’s going concern disclosures in the financial report by comparing them to our understanding of the matter and COVID-19 implications for the Group, the events or conditions incorporated into the cash flow projection assessment, the Group’s plans to address those events or conditions, and accounting standard requirements. Revenue recognition (AUD $11,534,107) Refer to Note 3 and Accounting policy at Note 1(l) The key audit matter How the matter was addressed in our audit Revenue recognition relating to the provision of hardware, software and software related services is a key audit matter due to the significant audit effort and judgement we have applied in assessing the Group’s recognition and measurement of revenue. This was driven from the: • Multiple revenue types with different recognition criteria across different products and services, increasing the possibility of the Our procedures included: We considered the appropriateness of the Group’s revenue recognition policies against the requirements of AASB 15 and our understanding of the business; Reading a sample of executed customer contracts to understand the key terms and conditions. We clarified elements of our understanding of the contracts through inquiries with the Group; Comparing the relevant features of a sample of the underlying customer contracts to the criteria in the accounting standard, 82 those in the Group’s policies, and against what the Group identified as performance obligations; Using statistical sampling for each significant revenue type we checked the timing of revenue recognised by the Group to underlying documentation such as signed customer contracts, customer invoices, proof of acceptance from the customer, and against the Group’s revenue recognition policies; Using statistical sampling for each significant revenue type we recalculated the amount of revenue recognised by the Group. This necessitated also assessing how the Group allocated revenue to separately identified performance obligations from the same transaction or contract. We used underlying documentation obtained from our audit procedures above, such as, signed revenue contracts, proof of acceptance from the customer and criteria in the accounting standards for allocation of revenue. We compared our assessment to the amount recorded by the Group. We also checked customer receipts to the Group’s bank statements; Assessing the adequacy of the Group’s revenue disclosures using our understanding obtained from our testing against the requirements of AASB 15. Group inappropriately identifying performance obligations and incorrectly recognising revenue using AASB 15 Revenue from Contracts with Customers (‘AASB 15’). • Complexity arising from the various terms and conditions included in revenue contracts entered into with the Group’s customers. The various terms and conditions increases the risk of interpretational differences in accounting outcomes against the principles based criteria contained in AASB 15. RightCrowd generates revenue across its operating segments for a variety of product offerings and services. Significant revenue streams include fees from the: - - - - - Sale of software on a subscription or perpetual license Sale of hardware Sale of software as a service Provision of software support and maintenance Provision of software delivery and implementation services Recoverability of goodwill ($14,568,006) Refer to Note 13 Intangible assets The key audit matter How the matter was addressed in our audit A key audit matter for us was the Group’s annual testing of goodwill for impairment, given the size of the balance (being 56% of total assets) and the significantly higher estimation uncertainty continuing from the business disruption impact of the COVID-19 global pandemic. Certain conditions impacting the Group increased the judgement applied by us when evaluating the evidence available. We focused on the significant forward-looking assumptions the Group applied in their value in use models, including: forecast cash flows, growth rates and terminal growth rates – the Group has experienced challenging market conditions in the current year as a result of COVID-19. This impacted the Group through a reduction in the demand for certain products and services mainly relating to the Offsite CGU. These conditions and the uncertainty of their Our procedures included: We considered the appropriateness of the value in use method applied by the Group to perform the annual test of goodwill for impairment against the requirements of the accounting standards. We, along with our modelling specialists, assessed the integrity of the value in use models used, including the accuracy of the underlying calculation formulas. We met with management to understand the impact of COVID- 19 to the Group and impact of government response programs to the FY20 results. We compared the forecast cash flows contained in the value in use models to revised forecasts reflecting the Group’s COVID- 19 adjusted working models. We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models. We noted previous trends, in particular, for the 83 interdependencies of key assumptions and how they impacted the business, for use in further testing. We considered the sensitivity of the models by varying key assumptions, such as forecast growth rates, terminal growth rates and discount rates, within a reasonably possible range. We considered the interdependencies of key assumptions when performing the sensitivity analysis and what the Group consider to be reasonably possible. We did this to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. We challenged the Group’s significant forecast cash flow and growth assumptions in light of the expected continuation of unprecedented uncertainty of business disruption, impacts of the COVID-19 global pandemic and the increasing demand in certain of the Group’s product offerings. Working with our valuation specialists we compared terminal growth rates to authoritative published studies of industry trends and expectations, and considered differences for the Group’s operations. We assessed key assumptions such as forecast revenues and costs against past performance and post year-end performance. We used our knowledge of the Group, business and customers, and our industry experience. We sourced authoritative and credible inputs from our specialists and market advisors. We checked the consistency of the growth rates to the Group’s revised plans and our experience regarding the feasibility of these in the COVID-19 economic environment in which they operate. Working with our valuation specialists we analysed the Group’s discount rate against publicly available data of a group of comparable entities. We independently developed a discount rate range considered comparable using publicly available market data for comparable entities, adjusted by risk factors specific to the Group and the industry it operates in. We assessed the disclosures in the financial report using our understanding of the issue obtained from our testing and against the requirements of the accounting standards. We recalculated the impairment charge against the recorded amount disclosed. continuation increase the possibility of goodwill being impaired, plus the risk of inaccurate forecasts or a significantly wider range of possible outcomes, for us to consider. We focused on the expected rate of recovery for the Group, what the Group considers as their future business model, and continued access to government relief/stimulus measures when assessing the feasibility of the Group’s revised COVID-19 forecast cashflows. forecast growth rates and terminal growth rates – The Group is in its growth phase and has been impacted by COVID-19. In addition to the uncertainties described above, the Group’s models are highly sensitive to small changes in these assumptions, indicating possible impairment. This drives additional audit effort specific to their feasibility and consistency of application to the Group’s strategy. discount rate - these are complicated in nature and vary according to the conditions and environment the specific Cash Generating Unit (CGU) is subject to from time to time, and the models approach to incorporating risks into the cash flows or discount rates. We involve our valuations specialists with the assessment. The Group uses complex models to perform their annual testing of goodwill for impairment. The models are largely manually developed, use adjusted historical performance, and a range of internal and external sources as inputs to the assumptions. The Group have not met prior forecasts, raising our concern for reliability of current forecasts. Complex modelling, particularly those containing highly judgemental allocations of corporate assets and costs to CGUs, using forward-looking assumptions tend to be prone to greater risk for potential bias, error and inconsistent application. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. In addition to the above, the Group recorded an impairment charge of $1,315,597 against goodwill and intangible 84 assets in relation to the Offsite Division CGU. This resulted from the delay in business growth due to COVID-19 impacts on their local market being located on the USA East Coast, and thereby the ability of the business to produce profitable results within the expected timeframe, increasing the sensitivity of the model to small changes. This further increased our audit effort in this key audit area. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. Other Information Other Information is financial and non-financial information in RightCrowd Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error • assessing the Group and Company's ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. 85 Auditor’s responsibilities for the audit of the Financial Report Our objective is: • 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 Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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 the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of RightCrowd Limited for the year ended 30 June 2020, complies with Section 300A of the Corporations Act 2001. 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 responsibilities We have audited the Remuneration Report included in pages 12 to 18 of the Directors’ report for the year ended 30 June 2020. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Adam Twemlow Partner Gold Coast 30 September 2020 86 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES The following information is current as at 30 June 2020: 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 Holders 13 38 41 280 131 503 Number Units Held 4,574 117,352 353,140 11,850,962 186,961,086 199,287,114 % 0.002% 0.059% 0.177% 5.947% 93.815% 100% b. c. d. There are twenty five (25) shareholdings holding in less than a marketable parcel of shares. 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 Number Ordinary 53,907,428 18,802,491 17,422,517 % of Issued Capital 27.05 9.43 8.74 90,132,436 45.22 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. 87 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 27.05 2. ADVANCED MARKETING TECHNOLOGIES PTY LTD 18,802,491 9.43 3. GONINAN GROUP GONINAN PROPERTY INVESTMENTS PTY LTD 17,422,517 8,789,110 8.74 4.41 REGENT SECURITIES PTY LTD 8,633,407 4.33 4. 5. JOHAN VINCKIER SALMON EARTHMOVING CONTRACTORS PTY LTD 6. KMO Fin 2 7. National Nominees Limited 8. 9. KAREL VINCKIER Risk Capital LLC 10. Bart Vansevenant 11. Maarten Van Speybroeck 12. Maarten Vandenbroucke 13. HSBC Custody Nominees (Australia) Limited A/C 2 14. EOS Invest NV 15 HSBC Custody Nominees (Australia) Limited 16. David Thomas 17. Pegavica SCRL 18. Alex Vinckier 5,814,971 5,571,856 4,806,594 3,909,922 3,886,167 3,430,098 3,111,176 3,111,176 3,111,176 2,823,586 2,500,245 2,337,213 2,206,262 2,099,986 2,072,801 19. BERNE NO 132 NOMINEES PTY LTD 1,821,958 20. PYLMON PTY LTD 1,821,958 2.92 2.80 2.41 1.96 1.95 1.72 1.56 1.56 1.56 1.42 1.25 1.17 1.11 1.05 1.04 0.91 0.87 144,473,920 72.5 2. The name of the company secretary is Kim Clark. 3. The address of the principal registered office in Australia is Suite 501, Level 5/203 Robina Town Centre Dr, Robina QLD 4226 88 4. Registers of securities are held at the following address: Boardroom Limited Level 12, 225 George Street, Sydney, NSW 2000. 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 1,976,646 options are on issue. There are also a total of 5,722,580 performance rights on issue. 89