annual report 2022 seeingmachines Computershare Investor Services PLC The Pavilions, Bridgwater Road Bristol BS996ZY United Kingdom Seeing Machines Limited shares are listed on the London Stock Exchange AIM market. Solicitors Herbert Smith Freehills ANZ Tower 161, Castlereagh Street, Sydney NSW 2000 Australia Fieldfisher LLP Riverbank House 2 Swan Lane London EC4R 3TT United Kingdom Bankers HSBC Commercial Bank 580 George Street Sydney NSW 2000 Australia Auditors PricewaterhouseCoopers 2 Riverside Quay Southbank VIC 3006 Australia ABN 34 093 877 331 This annual report covers Seeing Machines Limited as a consolidated entity. The Group’s functional and presentation currency is AUD ($). A description of the Group's operations and its principal activities is included in the review of operations and activities in the directors' report commencing on page 3. The following information is current as at 30 June 2022. Directors Kate Hill, Non-Executive Director and Chair Paul McGlone, Executive Director & Chief Executive Officer (CEO) Yong Kang (YK) Ng, Non-Executive Director Gerhard Vorster, Non-Executive Director John Murray, Non-Executive Director Michael Brown, Non-Executive Director Rudolph Burger, Non-Executive Director (resigned 30 November 2020) Les Carmichael, Non-Executive Director (resigned 30 November 2020) Company Secretary Susan Dalliston Registered office 80 Mildura Street Fyshwick ACT 2609 Principal place of business 80 Mildura Street Fyshwick ACT 2609 Phone: + (61) 2 6103 4700 Email: info@seeingmachines.com Share register Computershare Investor Services Pty Limited 452 Johnston Street Abbotsford VIC 3067 Australia seeingmachines contents Our mission and purpose Letter from the chair CEO report Financial Highlights OEM Highlights Aftermarket Highlights 2022 ESG Highlights Directors Report 04 06 08 10 11 12 13 14 seeingmachines our mission: zero transport fatalities. 4 seeingmachines our purpose: to get everyone home safely. 5 seeingmachines letter to shareholders Seeing Machines is now well established as the leading supplier of driver and occupant monitoring system technology across its key transport sectors. The past year has been transformational for the company as the structural tailwinds drive significant opportunity in Automotive, but also in our Aftermarket and Aviation businesses. The world is now focused on a clear safety agenda and Seeing Machines’ technology is at the heart of that. Turning vision zero into a reality At the end of the 2022 financial year, there were more than 447,000 cars on the road enabled by Seeing Machines’ driver monitoring system (DMS) technology. While this has a positive impact on the shape of our revenue mix, moving us towards more highly profitable royalty license, it is also clear that following more than twenty-two years of R&D and commercial effort, we are actually achieving our purpose of getting people home safely. This is underpinned by our presence in commercial transport around the world, with Guardian installed in just under 40,000 individual vehicles at 30 June 2022, protecting professional drivers and the communities through which they drive. Driving safe, supervised automation Transport industries have traditionally maintained a strong safety focus and culture, and this is being reinforced and enhanced by a wider global focus on enhancing safety and reducing road related death and trauma. This growing focus on safety is manifesting in a range of regulations being rolled out around the world that will require technology in vehicles, including DMS technology, to keep people safe. Seeing Machines has influenced these outcomes closely with a deep involvement in European New Car Assessment Program’s (Euro NCAP) assessment of DMS technology and its pragmatic application in cars to improve safety. We welcome these interactions and are extremely proud of our team and their ability to successfully support this agenda as the lead Tier 2 supplier. We look forward to continued momentum in Europe as the protocols advance over time, extend to all road-going vehicles, and are replicated in other geographies around the world including with the National Highway and Safety Transport Authority (NHTSA) in the USA and other bodies across Asia Pacific. The road to full autonomy in the Automotive industry is still a way off and the interim semi- autonomous features being developed today will require significant oversight, including what we are calling ‘supervised automation’. As advanced driver assistance system (ADAS) features continue to appear in cars to improve safety and convenience, understanding what the driver is, or isn’t doing is of increasingly critical importance. DMS is fundamental to that understanding, being the cornerstone of safe automation. And in this environment, our Backup-driver Monitoring System (BdMS) solution, once viewed as a product with limited, time-bound opportunity, is a world-first and unique proposition for self-driving companies as they strive to implement safe innovation around the world. An evolving landscape As we move forward in the new post COVID-19 world, Seeing Machines has successfully navigated the associated supply chain challenges and access 6 seeingmachines to customers, however we watch closely and monitor vigilantly in these less than certain times and against the current geo-political backdrop. Especially impactful in the Aftermarket business where hardware sales are at the core of the Guardian solution, this continues to be managed closely to ensure that the momentum continues and supply can support the very welcome, increasing demand around the world. I visited the team in Canberra recently and am inordinately proud to be working with such a great bunch of hard-working industry experts. I continue to see significant momentum across each area within the company, be it engineering, sales or corporate support groups. We are delighted to continue to welcome new customers, some significant new partners and of course, shareholders. We are driven to save lives. Our focus remains squarely on our customers and ultimately, returning value to our shareholders. Kate Hill Chair Seeing Machines Limited As dynamics change and our customers view the pending regulations and the requirements associated for compliance, our Aftermarket team has taken the opportunity to develop an additional segment focus that will specifically support the manufacturers of commercial vehicles, with Guardian provided as an ‘after manufacture’ fitment to enable the compliant sale of new vehicles to their customers. This additional segment has uncovered many new customer opportunities and is building the foundation for significant momentum as we move towards the launch of the third generation of Guardian next year. Conclusion As I said last year, we conclude another financial year substantially further along our journey than we were twelve months ago. We continue to evolve as an organisation and, like many other companies our size, will begin to report against Sustainability Goals with some key metrics representing our environmental, social and government (ESG) impacts, this year. We are proud of what we are achieving at Seeing Machines and look forward to the opportunity of providing transparency and importantly, progress to all our stakeholders. 7 seeingmachines CEO report Future proof Seeing Machines has made great strides to transition the business on many fronts in FY2022. We have concentrated our efforts this past year on reinforcing our position as market leader, by focusing on enhancing our driver and operator monitoring system technology. We have developed and delivered a range of new and challenging features for our customers and importantly, worked closely with our ecosystem across Automotive and Aftermarket to secure market share today in order to materially grow the business and return value to our shareholders, in the future. Our work with regulators and government bodies around the world has helped establish DMS as a key enabling technology for the foreseeable future and this is set to extend beyond Europe, USA and China to all corners of the globe as transport safety continues as a key focus. The post period exclusive collaboration and associated investment by Magna International has been game-changing and will see our two companies work together to secure a significant share of the interior monitoring market, jointly pursuing business where DMS is integrated into the rear-view mirror, an ideal location to support driver, occupant and even full cabin monitoring. We believe this location to be significant as innovation inside the vehicle continues to develop and OEMs are faced with increasing cost, limited space and the integration of a range of technology to power safety and convenience features across their extensive vehicle lines. The additional investment by Magna in Seeing Machines has secured our balance sheet and we are now funded to deliver on our business plan. This is a meaningful milestone for Seeing Machines and really sets the company apart in a maturing market. We can confidently commit to reliable, long-term delivery and I believe we are well positioned to achieve our market share target of at least 40% across the Automotive DMS market. Steady progress Seeing Machines was appointed to deliver 5 additional automotive programs over the past financial year and is now engaged with 10 automotive OEMs on 14 expanding programs to deliver its FOVIO DMS. One of these awards, to be delivered with Magna, represents the largest driver and occupant monitoring program awarded to date, with an initial lifetime value of A$125 million. These additional program awards, including the company’s first win in Japan, bring our cumulative OEM order book to A$395 million, with the majority of this revenue set to be realised over the next 4 years. The company continues to deliver on its three- pillar embedded product strategy for Automotive, supporting Tier 1 and OEM customers in the rapidly expanding camera-based interior monitoring market. This strategy comprises delivery via the company’s FOVIO Chip, embedded Driver Monitoring Engine software (e-DME) and the Occula® Neural Processing Unit, available for license, in ASIC form, to world-leading semiconductor companies. During the financial year, a range of semiconductor company collaborations continued, including with 8 seeingmachines Omnivision to develop a world-first ASIC featuring Occula® as well as with Ambarella to bring integrated Advanced Driver Assistance Systems (ADAS) and occupant and driver monitoring systems to market. Our success in developing the Aviation market for eye-tracking with some of the world’s largest companies, across an industry that is renowned for tech innovation and safety, has been remarkable. We have announced delivery of the world’s first cockpit-based operating monitoring system with Air Ambulance Victoria and continue to work with major carriers, OEMs, Tier 1 Avionics companies and Air Traffic Controllers to develop and deliver solutions focused on safety and efficiency. This is certainly a space to keep a close eye on as we work, largely uncontested, to closely meet the needs across this fascinating and highly regulated industry. The Aftermarket division is critical to the success of the business, and as regulation and compliance requirements extends to all road-going vehicles, we are seeing huge momentum in Europe and around the world for Guardian. By 30 June 2022, Seeing Machines Guardian technology was connected to 39,832 individual trucks, contributing to the growth in Annual Recurring Revenue to A$20.1 million, secured by our market-leading customer retention rate. Guardian has travelled over 10 billion kilometres protecting drivers, collecting a unique set of naturalistic data that is fed back into our technology to further advance our human machine interaction. Our team in the Netherlands is well established, managing the roll-out of UK and EMEA sales but also focusing closely on commercial vehicle OEMs to install Guardian ‘After Manufacture’ as Europe’s General Safety Regulation and associated compliance begins. We are looking forward to the launch of our third Guardian generation to expand our footprint into the After Manufacture segment as well as into Enterprise across the world, including into the USA. Our expansion of direct sales across Europe, Australia and Asia, while supporting our growing distribution channel, drives a positive margin mix and enables delivery to key global clients, like Shell. A bright future There is no doubt that Seeing Machines has a bright future. We are working in fewer, deeper collaborations to deliver on a growing number of programs across all our sectors. Our team is recognised as expert across each industry we work in and I feel privileged to lead them as we invent, innovate and deliver our technology in many, evolving forms. It’s actually incredible to see our people in action and I am immensely proud of the life-saving work we do. Paul McGlone CEO Seeing Machines Limited 9 seeingmachines the year in review financial highlights $54.4m revenue↑15% from FY 2021 $58.8m cash position at 30 June 2022 22% underlying revenue growth based on constant currency $17.6m annual reoccuring revenue↑18% from FY 2021 Post period investment of $65m(US) at 11 p by Magna International 10 seeingmachines oem highlights $14.7m revenue↑21%on previous year 49% CAGR over 5 years 447,225 DMS fitments on the road. Expected to double year on year. activation world first World-first delivery of cockpit based solution to Air Ambulance Victoria exclusive agreement with Magna International to jointly sell DMS integrated into rear-view mirror 11 seeingmachines aftermarket highlights $39.8m revenue↑13% from FY 2021 28% CAGR aftermarket profitable business hardware sales increase 13,363 units ↑36% from FY 2021 guardian installations at 30 June 2021 39,832 key contributor to ARR naturalistic driving data collected from over 10billion kms of Guardian fitted vehicles 12 seeingmachines Our Environmental, Social and Governance Highlights for FY2022 Seeing Machines will begin reporting on Environmental, Social and Governance goals aligned with the Sustainability Accounting Standards Board (SASB) guidelines. Here are a few of our initial highlights. We exist with a purpose that underpins everything we do: SAFETY is our DNA – we exist to get people home safely 10.9 billion kilometres travelled by Guardian 13.9 million driver distraction events detected by Guardian 224,000 driver fatigue interventions in the past 12 months with Guardian IP and security: ISO27001:2013 Information Security Management System (ISMS)’ certification TISAX Level 2 (connection to 3rd Parties with High Protection Needs) accreditation A diverse workforce: 45% of our Australian based workforce is a foreign national 22% of our Management are female 19% of our Technical Staff are female 32% of all other staff are female 13 seeingmachines directors’ report Your Directors submit their report for the year ended 30 June 2022. Directors The names and details of the directors of Seeing Machines Limited (the “ Company”) in office during the year and until the date of this report are listed below. All directors were in office for this entire period covered by the report unless otherwise stated. Kate Hill Non-Executive Director and Chair Paul McGlone CEO and Executive Director Yong Kang (YK) Ng Non-Executive Director Gerhard Vorster Non-Executive Director John Murray Non-Executive Director Michael Brown Non-Executive Director 14 seeingmachines review of operations Financial Results The Company’s total revenue for the financial year (excluding foreign exchange gains and finance income) was A$54,435,000 compared to the 2021 revenue of A$47,167,000, representing an 15% increase on prior year results. Product FY2022 FY2021 Variance A$’000 A$’000 OEM 14,660 12,088 Aftermarket 39,775 35,079 Sales Revenue 54,435 47,167 % 21 13 15 With the start of customer production for our Original Equipment Manufacturer (“OEM”) business unit (Automotive) in FY21 and the continuing increase in production in the FY22, royalty revenues increased by 141% to A$5,505,000 from A$2,280,000 in FY21. An increasing royalty licence revenue stream will continue to be received over the model lifetime of awarded OEM programs. The remainder of the revenue in the OEM segment primarily represents NRE (Non-Recurring Engineering) revenue which is software development activities undertaken to embed DMS technologies into the specific OEM vehicle configuration prior to the commencement of vehicle production. NRE revenue increased by A$3,286,000 to A$8,172,000 (2021: A$4,886,000). Aftermarket grew by 13% on the prior year despite a slowdown in installations arising from local and global pandemic-related changes to business conditions, including supply chain related challenges which have now been resolved. Revenue momentum accelerated through the second half of the year with revenue in H2 increasing by 42% on H1 results to A$23,354,000 (H1: A$16,421,000). Hardware and installation revenue increased by 10% over the prior year to A$20,709,000 (2021: A$18,798,000) and driver monitoring revenues increased by 19% to A$13,169,000 (2021: A$11,064,000). Gross profit increased from A$20,765,000 in FY2021 to A$24,410,000 in FY22. Removing the impact of the one off licence revenue in FY21 amounting to A$4,190,000, operational gross profit improved 6% year on year from 39% in FY21 to 45% in FY22 primarily reflecting increased high- margin OEM royalty licence revenues. Increased sales of Guardian units and a 6% improvement in Aftermarket gross margin also contributed to the improvement in group gross profit. In line with the continued accelerating momentum in Automotive safety legislation in both Europe and more recently in the US, the Company continued to invest in its core technology development across global OEM and Aftermarket industries. As a result, Seeing Machines has reflected a portion of development expenditure which meets recognition criteria as an intangible asset amounting to A$32,767,000 (2021: A$8,311,000). During FY22, such development expenditure amounting to A$25,659,000 (2021: A$8,311,000) was capitalised and A$1,203,000 (2021: Nil) was amortised. 16 seeingmachines The remaining research and development costs have been expensed and amount to A$15,487,000. The total investment in research and development for the current year amount is A$41,146,000 (2021: A$18,187,000). Corporate costs increased by $4,389,000 to A$17,214,000 (2021: A$12,825,000) with a combination of one-off and incremental costs that support organisational scale and sustainable growth. Maintained focus on business performance and cost optimisation has partly offset the increase, which will stabilise in future years. The resultant loss for the period represented an increase of A$7,903,000 at A$25,323,000 (2021: A$17,420,000). Cash used in operations fell from A$19,641,000 to A$15,843,000 as a result of improved revenue receipts exceeding increases in the operating cost base and reflecting that capitalised development costs are disclosed as cash flows from investing activities. Increased revenues, particularly in the later months of the financial year have not all converted to cash within the reporting cycle. Net cash and cash equivalents at 30 June 2022 totalled A$58,756,000 (2021: A$47,393,000). On 23 November 2021, Seeing Machines issued 277,123,492 new ordinary shares of no par value each (the “New Ordinary Shares”) at a price of 11 British pence per New Ordinary Share, raising gross proceeds of approximately A$56,855,000 (US$41,000,000) (the “Placing”). The net proceeds of the Placing are being used to strengthen the Company’s balance sheet, fund core technology expansion, and enhance OEM Business pursuit and Aftermarket product development and regional expansion. Operational Highlights It is clear that Seeing Machines is a world-leader in driver and occupant monitoring system technology and is making significant advancements across each of its target transport sectors. The growth across the business has continued despite the pandemic and supply chain related challenges. The regulatory landscape remains a key growth driver and, with compliance dates fast approaching (and already in place for some vehicle classes in Europe and China) this is quickly transforming market opportunities across Aftermarket and is accelerating the requests for information and quotes in Automotive. North American legislation will happen, and Seeing Machines is working closely with regulatory bodies there to shape protocols and assist with policy and rule-making, as was done in Europe, specifically to shape Euro NCAP (New Car Assessment Program) protocol. Driver and Occupant Monitoring System (DMS/OMS) technology is fundamental to transport safety but is also a key enabler in Automotive as the intelligent cabin continues to advance and the industry sees semi-automated features emerge across an increasing number of vehicles. Where semi-automated features are enabled, understanding what the driver is doing is critical in maintaining driver attention and overall vehicle safety. Seeing Machines is now actively engaged with ten automakers on fourteen expanding automotive programs to deliver its FOVIO DMS, and with 447,225 cars on road featuring the Company’s technology, the shape of the automotive revenue is rapidly changing from lower margin NRE to high margin royalties, which are expected to continue to significantly ramp over the coming two to three years. The Automotive pipeline continues to grow with the Company actively working on RFQ’s (Request for Quote) from OEMs in Europe, North America and Asia. The announcement, post-period, that Seeing Machines and Magna International will exclusively co-market DMS/OMS integrated into the rear-view mirror is a big step-change for the Company as this location is predicted to experience the biggest growth (integration location) across all markets. Working with one of the world’s largest automotive tier-one suppliers, with a focus on mirrors, will enable Seeing Machines to grab market share as OEMs work hard to meet regulatory requirements, deliver a reliable driver and occupant monitoring solution and respond to the integration challenge inside the cabin. The Aviation industry has now emerged from many of the pressures associated with the global pandemic and Seeing Machines remains engaged 17 seeingmachines Subsequent Events after the Balance Date On 4 October 2022, Seeing Machines entered into an exclusive collaboration agreement (“Agreement”) with Magna International (“Magna”), to pursue driver and occupant monitoring system business targeting the vehicle’s interior rear-view mirror. Under the terms of the Agreement, subject to certain exceptions, Seeing Machines and Magna will exclusively co-market driver and occupant monitoring, solely where the Company’s IP is fully integrated inside the rear-view mirror, until the end of June 2025. In return for Seeing Machines granting exclusivity to Magna for the mirror, Magna will make an upfront payment to Seeing Machines of US$10m, with an additional US$7.5m payable over the following 2 years. At the same time, Magna has also agreed to invest up to an additional US$47.5m into Seeing Machines via a non-transferable 4-year convertible note maturing in October 2026 (the “Convertible Note”). The Convertible Note, which can be drawn down in two tranches across the 4-year term, subject to the satisfaction of certain closing conditions, is convertible into ordinary shares at a price of 11 British pence per share. The first tranche, being US$30m, was drawn on 5 October 2022 with the remainder available until December 2024. The Convertible Note has an all-in yield of 8%, inclusive of fees. Magna may elect to convert the principal and at Seeing Machines’ election, interest outstanding under the Convertible Note at any time during its term, up to a maximum of 349,650,350 shares which, when added to Magna’s existing shareholding in the Company, will represent approximately 9.9% of the fully diluted share capital of the Company. The Convertible Note contains standard covenants, and anti-dilution provisions. The interest due at the end of the facility can be paid in cash or converted into equity at Seeing Machines’ election. on key opportunities associated with Simulated Training as well as Air Traffic Control applications of the Company’s eye-tracking technology. A world first, Air Ambulance Victoria will also work with Seeing Machines to install an operator monitoring solution inside the cockpit, signalling validation of the Company’s eye-tracking technology and its application across the Aviation spectrum. With customers and partners such as Collins Aerospace, the Royal Australian Air Force and Airservices Australia, Seeing Machines continues to invest in the Aviation business as it experiences good momentum, with limited competition, in this growing market. Seeing Machines’ Aftermarket business has also achieved good growth as Guardian sales have continued to accelerate, despite the economic challenges. The offering is attracting the interest of key global organisations as they seek to enhance safety across their vehicle fleets. Large, multi-national companies, such as Shell Global Solutions International, are now working with Seeing Machines as safety receives its due focus across the professional driving industry. These opportunities, while initially slow to expand, will see the Company realise significant growth in direct business with entities capable of installing the hardware independently, swiftly and efficiently. Further, and also due to regulatory pressure, there is growing interest in “After Manufacture” opportunities, where commercial vehicle OEMs are working with Seeing Machines to fit Guardian as standard, before the vehicle is on-sold. Services will then be sold directly or indirectly to the commercial vehicle operator market. Already profitable, excluding corporate costs, this division is well positioned to take advantage of these favourable market opportunities. Guardian is now connected to 39,832 vehicles, up 25% on prior year and has travelled more than 10 billion kilometres globally providing Seeing Machines unrivalled access to naturalistic driving data which is key to the Company’s algorithm improvement and technology performance. Supply chain issues were a problem for Seeing Machines during FY 2022 and all stock on hand was sold during the year. Now that these issues have been engineered out of the technology, supply will resume and be sufficient to meet demand for FY2023, and until the next generation of hardware is available. The Guardian 3 product is currently in development and scheduled for release during CY2023. 18 seeingmachines Position Holders during the period Chief Executive Officer The Company’s Chief Executive Officer (CEO) is Paul McGlone was formally appointed to the role on 4 July 2019. Company Secretary Susan Dalliston was appointed on 4 July 2019. Susan Dalliston is the Company Secretary at the date of this report. Employee Numbers At 30 June 2022 the Group had 266 full-time employees (213 employees at 30 June 2021). Directors The names and particulars of the directors of the Company are set out in the following table. The directors were in office for the entire period unless otherwise stated. Name Experience and special responsibilities Kate Hill Chair of the Board and Member of the Risk, Audit and Finance Committee and of the People, Culture and Risk Committee. Appointed as a Non-Executive Director on 13 December 2018, as interim Chair of the Board on 5 June 2019, as Chair of the Board on 22 July 2019. Kate is a non-executive director of CountPlus Limited (ASX: CUP), where she is the Chair of the Audit and Risk Committee and a member of the Acquisitions Committee. She is also a non- executive director of Elmo Software Limited (ASX: ELO) where she serves as Chair of the Audit and Risk Committee and is a member of the Remuneration and Nominations Committee. Kate had a distinguished 20+ year career with Deloitte Touche Tomatsu as an audit partner where she worked with Australian Securities Exchange (ASX) listed and privately owned clients. She has worked extensively in regulated environments including assisting with Initial Public Offerings, capital raising and general compliance, as well as operating in an audit environment. She held a variety of leadership and executive roles in Deloitte and was the first woman appointed to the Board of Partners of the Australian firm. Kate holds a Bachelor of Science (Honours) in Mathematics and Statistics from Bristol University, is a Member of Chartered Accountants in Australia and New Zealand, and a Graduate of the Australian Institute of Company Directors. Kate is considered to be an Independent Director. 19 seeingmachines Name Experience and special responsibilities Paul McGlone CEO & Executive Director Appointed on 4 July 2019 Paul has held the CEO position for 3 years, previously he led the Fleet, Mining and Off- road business as the Senior Vice President (SVP). Paul has extensive experience in public company leadership, supply chain and technology driven businesses. During his 10-year career at Australian listed company, Brambles, Paul held operational and corporate leadership roles including President of CHEP Asia Pacific and Group Vice President Strategy, Planning and Innovation. He was the architect of its global growth plan which resulted in a threefold increase in the company’s market capitalisation. Paul was appointed as a Director of Canberra Institute of Technology (CIT) in July 2021. Gerhard Vorster Non-Executive Director and Chair of the People, Culture and Remuneration Committee Appointed on 1 December 2019. Gerhard is an accomplished senior executive and former Deloitte partner with a growing board portfolio and significant expertise in strategy and technology. Gerhard is currently an alternate director of the Brisbane Airport Corporation and Chairman of the Bio Capital Impact Fund. Gerhard began his career at Deloitte in 1987 in the consulting business as a strategic management consultant and partner. Over a 28-year career with the firm, Gerhard was appointed to various executive roles, including Managing Partner for Consulting for the Australia and Asia Pacific region and his most recent role, Chief Strategy Office for the region. Gerhard holds a Bachelor of Science in Civil Engineering from the University of Pretoria and a Master of Business Administration (Cum Laude) from the University of Potchefstroom. He is a member of the Australian Institute of Company Directors. Gerhard is considered an Independent Director. John Murray Non-Executive Director and Chair of the Risk, Audit and Finance Committee Appointed on 1 December 2019. John is a highly experienced board director with significant expertise in the technology sector. He is currently Chairman of PainChek Limited, listed on the Australian Stock Exchange (ASX: PCK). John has been non-executive director and Chair of several ASX-listed and high growth companies throughout his career, which began in audit and investment banking, involved rising through various positions at large organisations, and eventually becoming Vice President and Head of Investment Banking at Bank of America Asia in 1989. From there, John joined the Australian Technology Group where he identified and managed investments into early-stage technology companies and went on to co-found the venture capital firm, Technology Venture Partners, in 1997, establishing a 20 year career of investing in, advising and directing technology companies. John holds an Honours Degree in Law from Edinburgh University and is a member of the Australian Institute of Company Directors. He is also a CA and a Member of the Institute of Chartered Accountants of Scotland. John is considered an Independent Director. 20 seeingmachines Name Experience and special responsibilities Yong Kang (YK) Ng Non-Executive Director and member of the Risk, Audit and Finance Committee Appointed on 22 March 2016. YK has extensive engineering and operations experience in the manufacturing sector with multinational corporations. Based in Johor, Malaysia, YK has been managing the manufacturing operations of V S Industry Berhad (VSI) since 2002 and was appointed as executive director in 2005. VSI is a leading integrated electronics manufacturing services provider and a strategic investor in Seeing Machines Limited. YK has a Bachelor of Science in Mechanical Engineering from the National Taiwan University and an MBA from Heriot-Watt University in Edinburgh, UK. Michael Brown Non-Executive Director and member of the People, Culture and Remuneration Committee Appointed on 14 May 2020. Michael Brown is a highly experienced financial markets professional based in London and comes to the Seeing Machines board with a deep knowledge of the AIM market and small to mid-cap technology companies, as well as previous plc non-executive and observer board roles. He is currently a portfolio manager within the Volantis team at Lombard Odier Investment Managers. Michael has a BA (Economics and Politics) from Durham University, UK. 21 seeingmachines Principal activities Performance rights and share options The Company’s principal activities during the year were: • Developing, selling and licensing products, services and technology to detect and manage driver fatigue and distraction, including continued market development to secure sustainable channels to market for the product; • Entering commercial agreements with partners for the development, manufacturing and sale of products into key target markets; and • Research and development of the Company’s core vision processing technologies to support the development and refinement of the Company’s products. Changes in State of Affairs During the financial year there was no significant change in the state of affairs of the Company other than those referred to elsewhere in this report and in the financial statements or notes thereto. Likely developments and expected results The likely developments and expected results are disclosed in Note 3(c) of the financial statements. Environmental Regulations The Company holds no licences issued by relevant Environmental Protection Authorities and there have been no known breaches of any environmental regulations. Dividends No dividends or distributions have been made to members during the year ended 30 June 2022 (2021: nil) and no dividends or distributions have been recommended or declared by the Directors in respect of the year ended 30 June 2022 (2021: nil). Unissued shares Reference is made to Note 33 of the financial statements in respect of performance rights and options in relation to directors and staff members. (i) Performance rights granted during or since the end of the year During the year, 64,996,414 (2021: 29,964,495) performance rights were granted by the Company under the performance rights scheme for employees. The terms and conditions of these rights are disclosed in Note 33 to the financial report. (ii) Shares Issued as a result of the Vesting of Performance rights and options During the year 23,829,206 (2021: 28,552,140) rights vested and ordinary shares were transferred to the employee participants from the Group Trust (the “Trust”). On the exercise of such performance rights and / or options, the Trust will transfer the shares to the relevant beneficiary Indemnification of Directors and Officers During the financial year, the Company paid a premium in respect of a contract insuring the Directors of Seeing Machines Limited (and its wholly owned subsidiaries), the Company Secretary, and all executive officers of those companies against a liability incurred as such a Director, secretary, or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. 22 seeingmachines Directors’ Meetings During the 2022 financial year, eleven Board meetings were held. The following table sets out the number of Board and Committee meetings each Director attended and the number they were eligible to attend. Meetings Attended / Meetings Eligible to Attend Director Kate Hill Paul McGlone Yong Kang (YK) Ng Gerhard Vorster John Murray Michael Brown Board Risk, Audit & Finance Committee People, Culture & Remuneration Committee 11/11 11/11 11/11 11/11 11/11 11/11 4/4 * 4/4 * 4/4 * 6/6 * * 6/6 * 6/6 *Not a member of the committee Indemnification of Auditors Non-Audit Services To the extent permitted by law, the Company has agreed to indemnify its auditors, PricewaterhouseCoopers, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify PricewaterhouseCoopers during or since the financial year. Rounding The amounts contained in the financial report have been rounded to the nearest A$1,000 (where rounding is applicable) where noted (A$000) under the option available to the Company under ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies. Auditor’s Independence Declaration We have obtained an independence declaration from our auditors, PricewaterhouseCoopers. The signed declaration is included after this report. PricewaterhouseCoopers rendered advisory services to Seeing Machines Limited as disclosed at Note 37. The Board of Directors is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services did not compromise the external auditor’s independence as the nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. Signed at Canberra on in accordance with a resolution of the Directors made pursuant to section 298(2) of the Corporations Act 2001. Paul McGlone Executive Director & Chief Executive Officer Canberra 24 seeingmachinesDirectors' declaration 64 In accordance with a resolution of the Directors of Seeing Machines Limited, I state that: 1. In the opinion of the Directors: (a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the consolidated entity's financial position as at 30 June 2020 and of its performance for the year ended on that date; and (ii) Complying with Accounting Standards (including Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) The financial statements and notes comply with International Financial Reporting Standards as disclosed in note 3.6; and (c) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2020. On behalf of the board Paul McGlone Executive Director & Chief Executive Officer Canberra Auditor’s Independence Declaration As lead auditor for the audit of Seeing Machines Limited for the year ended 30 June 2022, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Seeing Machines Limited and the entities it controlled during the period. Jon Roberts Partner PricewaterhouseCoopers Melbourne 27 October 2022 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 25 seeingmachines consolidated statement of financial position As at 30 June ASSETS CURRENT ASSETS Cash and cash equivalents Other short-term deposits Trade and other receivables Inventories Other current assets TOTAL CURRENT ASSETS ASSETS NON-CURRENT ASSETS Property, plant & equipment Intangible assets Right-of-use assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Lease liabilites Provisions Contract liabilities TOTAL CURRENT LIABILITIES Notes 2022 A$000 2021 A$000 14 20 15 16 17 18 19 29 21 25, 29 22 24 58,756 472 26,983 1,305 8,243 95,759 4,404 34,277 3,449 42,130 137,889 16,391 948 5,098 3,622 26,059 47,393 472 19,851 2,627 5,438 75,781 3,361 9,540 4,252 17,153 92,934 8,839 918 4,893 772 15,422 26 seeingmachines As at 30 June LIABILITIES NON-CURRENT LIABILITIES Provisions Lease liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Accumulated losses Other reserves Equity attributable to the owners of the parent TOTAL EQUITY Notes 2022 A$000 2021 A$000 22, 23 25, 29 356 4,356 4,712 30,771 107,118 26 313,029 (227,369) 21,458 107,118 107,118 192 5,272 5,464 20,886 72,048 257,382 (202,046) 16,712 72,048 72,048 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 27 seeingmachines consolidated statement of comprehensive income FOR THE YEAR ENDED 30 June Notes 7 8 8 9 2022 A$000 22,397 21,491 10,547 54,435 2021 A$000 18,840 18,346 9,981 47,167 (30,025) (26,402) 24,410 20,765 1,564 106 392 (15,487) (9,067) (11,266) (417) 1,669 322 (9,876) (6,092) (8,087) (15,486) (14,590) (453) (518) (25,287) (16,824) 10 (36) (596) (25,323) (17,420) (25,323) (17,420) Sale of goods Services revenue Royalty and licence fees Revenue Cost of sales Gross profit Net gain/(loss) in foreign exchange Other income Finance income Expenses Research and development expenses Customer support and marketing expenses Operations expenses General and administration expenses Finance costs Loss before income tax Income tax expense Loss after income tax Loss for the period attributable to: Equity holders of the Company 28 seeingmachines FOR THE YEAR ENDED 30 June Other comprehensive (loss)/income Notes 2022 A$000 2021 A$000 Exchange differences on translation of foreign operations (413) (169) Other comprehensive (loss)/income net of tax (413) (169) Total comprehensive loss (25,736) (17,589) Total comprehensive loss attributable to: Equity holders of the Company (25,736) (17,589) Total comprehensive loss for the year (25,736) (17,589) Loss per share for loss attributable to the ordinary equity holders of the Company: Basic loss per share Diluted loss per share 12 12 ($0.01) ($0.01) ($0.01) ($0.01) The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 29 seeingmachines consolidated statement of changes in equity FOR THE YEAR ENDED 30 June Contributed Equity A$000 Accumulated Losses A$000 Foreign Currency Translation Reserve A$000 Employee Equity Benefits & Other Reserve A$000 Total Equity A$000 As at 1 July 2020 217,204 (184,626) (1,516) 15,147 46,209 Loss for the period Other comprehensive loss Total comprehensive loss - - - (17,420) - (17,420) Transactions with owners in their capacity as owners: Shares issued Capital raising costs Share-based payments 41,199 (1,021) - - - - - (169) (169) - - - - - - - - 3,250 (17,420) (169) (17,589) 41,199 (1,021) 3,250 At 30 June 2021 257,382 (202,046) (1,685) 18,397 72,048 As at 1 July 2021 257,382 (202,046) (1,685) 18,397 72,048 Loss for the period Other comprehensive loss Total comprehensive loss - - - (25,323) - (25,323) Transactions with owners in their capacity as owners: Shares issued Capital raising costs Share-based payments 57,063 (1,416) - - - - - (413) (413) - - - - - - - - 5,159 (25,323) (413) (25,736) 57,063 (1,416) 5,159 At 30 June 2022 313,029 (227,369) (2,098) 23,556 107,118 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 30 seeingmachines consolidated statement of cash flows FOR THE YEAR ENDED 30 June Operating activities Receipts from customers Payments to suppliers and employees Interest received Interest paid Income tax paid Receipt of government grants Note 2022 A$000 2021 A$000 52,335 37,990 (68,303) (58,985) 392 (1) (266) - 322 (518) (15) 1,565 Net cash flows used in operating activities 28 (15,843) (19,641) Investing activities Proceeds from sale of property, plant and equipment Purchase of plant and equipment Payments for intangible assets (patents, licences and trademarks) Payments for intangible assets (capitalised development costs) Maturity of term deposits - (1,853) (343) (25,659) - 5 (446) (484) (8,311) 40 Net cash flows used in investing activities (27,855) (9,196) Financing activities Proceeds from issue of new shares Cost of capital raising Principal repayment of lease liabilities 57,063 (1,415) (1,271) 41,071 (1,021) (1,459) Net cash flows from financing activities 54,377 38,591 Net increase in cash and cash equivalents Net increase/ (decrease) due to foreign exchange difference Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June 14 10,681 682 47,393 58,756 9,754 (499) 38,138 47,393 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 31 seeingmachines notes to the financial statements 1. Corporate Information Seeing Machines Limited (the “Company”) is a limited liability company incorporated and domiciled in Australia and listed on the AIM market of the London Stock Exchange. The address of the Company’s registered office is 80 Mildura Street, Fyshwick, Australian Capital Territory, Australia. Seeing Machines Limited and its subsidiaries (the “Group”) provide operator monitoring and intervention sensing technologies and services for the automotive, mining, transport and aviation industries. The consolidated financial report of the Group (the “financial report”) for the year ended 30 June 2022 was authorised for issue in accordance with a resolution of the Directors on 27 October 2022. 2. Basis of Accounting The principal accounting policies applied in the preparation of the financial report are set out in Notes 2 and 3 below. These policies have been applied consistently to all periods presented, unless otherwise stated. a. Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements as issued by the Australian Accounting Standards Board (“AASB”). The financial report also complies with International Financial Reporting Standards (“IFRS”) and interpretations (“IFRICs”) adopted by the International Accounting Standards Board (“IASB”). The financial report has been prepared under the historical cost convention. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand (A$000), except when otherwise indicated under the option available to the company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies. b. Going concern The financial report has been prepared on the going concern basis which assumes the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. The Group has made a loss for the year of A$25,323,000 (2021: Loss of A$17,420,000) and incurred net cash outflows in operating activities of A$15,843,000 (2021: A$19,641,000). The Group has net current assets at 30 June 2022 of A$69,700,000 (30 June 2021: A$60,359,000). The balance of cash and cash equivalents at 30 June 2022 is A$58,756,000 (30 June 2021: A$47,393,000). The ability of the Group to continue its activities as a going concern is dependent on a range of factors including: i. ii. iii. iv. the ability to meet projected revenue levels; timing of cash receipts; the ability to manage overheads to budgeted levels; and the ability to generate additional funds from further licensing activity, through lending arrangements or from investors. Also refer to Note 36 for details of additional funds raised subsequent to balance date. 32 seeingmachines The Directors have reviewed the Company’s financial position and cash flow forecasts for the next twelve months, including giving consideration to the range of options the Group is exploring for obtaining further funding if required, and are of the opinion that the use of the going concern basis of accounting is appropriate. subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. c. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries (as outlined in Note 30) as at 30 June each year (the Group). Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: • Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee • The ability to use its power over the investee to affect its returns Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: Profit or loss and each component of other comprehensive income (“OCI”) are attributed to the equity holders of the parent of the Group. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation, with an exception to foreign currency profit or loss on monetary items. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in the statement of comprehensive income. Any investment retained is recognised at fair value. d. Current versus non-current classification The Group presents assets and liabilities in the statement of financial position based on current/ non-current classification. An asset is current when it is: • The contractual arrangement(s) with the other vote holders of the investee • Rights arising from other contractual arrangements • Expected to be realised or intended to be sold or consumed in the normal operating cycle; • Held primarily for the purpose of trading; • The Group’s voting rights and potential • Expected to be realised within twelve months voting rights after the reporting period; Or The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the • Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. 33 seeingmachines All other assets are classified as non-current. A liability is current when: • It is expected to be settled in the normal operating cycle; • It is held primarily for the purpose of trading; • It is due to be settled within twelve months after the reporting period; Or • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively). e. Segment reporting (refer to Note 7) iii. Group companies Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers. The chief operating decision makers, who are responsible for allocating resources and assessing performance of the operating segments, have been identified as the Executives and Board of the Company. f. Foreign currency translation i. Functional and presentation currency Items included in the financial statements of each Group entity are measured using the currency of the primary economic environment in which the entity operates (functional currency). The functional currency of the Company is Australian dollars (A$), which is also the presentation currency of the Group. ii. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or reporting date where monetary items are remeasured. On consolidation, the assets and liabilities of foreign operations are translated into Australian dollars at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is reclassified to profit or loss. g. Climate-related risks The AASB and the Auditing and Assurance Standards Board (AUASB) issued a joint bulletin in December 2018 (and updated in April 2019), Climate-related and other emerging risks disclosures: assessing financial statement materiality using AASB Practice Statement 2. The bulletin states that Qualitative external factors, such as the industry in which the company operates and investor expectations, may make climate-related risks material and may require such risks to be disclosed in the financial statements as they pertain to specific financial statement line items. The Group has performed an assessment based on the guidance prescribed in the bulletin and concluded that there are no material impacts 34 seeingmachines of climate change that may impact specific financial statement line items. This is based on management’s assumption that the transition to a greener economy will result in a move to electric vehicles, and not the cessation of the use of vehicles. with a maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value. e. Inventories (refer to Note 16) 3. Summary of Significant Accounting Policies Inventories are valued at the lower of cost and net realisable value. a. Changes in accounting policies and disclosures The accounting policies and disclosures adopted are consistent with those of the previous year. Where applicable, certain comparatives have been reclassified to comply with accounting presentation adopted in the current year (refer to Note 3(t)). b. New and amended standards and interpretations effective and adopted in 2022 Costs incurred in bringing each product to its present location and condition are accounted for, as follows: Finished goods: weighted average cost. The cost of purchase comprises the purchase price and other ancillary costs, where appropriate. Volume discounts and rebates are included in determining the cost of purchase. The group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 July 2021: Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale, including direct costs. • AASB 2020-8 Amendments to Australian f. Property, plant and equipment (refer to Note 18) Accounting Standards – Interest Rate Benchmark Reform – Phase 2 [AASB 4, AASB 7, AASB 9, AASB 16 & AASB 139]. Cost The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. Assets under construction are stated at cost less accumulated impairment losses, if any. Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. c. New and amended standards and interpretations that have been issued but not yet effective or early adopted by the Group Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for 30 June 2022 reporting periods and have not been early adopted by the Group. These standards, amendments or interpretations are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions. d. Cash and cash equivalents (refer to Note 14) Cash and cash equivalents comprise cash at banks and on hand and short-term highly liquid deposits Cost includes the purchase consideration, and those costs directly attributable to bringing the asset to the location and condition necessary for its intended use. Such cost includes the cost of replacing parts of plant and equipment if the recognition criteria are met. When significant parts of plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. 35 seeingmachines Depreciation The major categories of property, plant and equipment are depreciated over the estimated useful lives of the assets on a diminishing value or straight-line basis using the following depreciation rates of the specific asset as follows: • Office furniture, fittings and equipment - 2 to 20 years • Research and development equipment - 3 to 10 years • Asset under construction - Not depreciated Depreciation commences when an asset is available for use. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss when the asset is derecognised. g. Intangibles (refer to Note 19) Cost Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred. Amortisation lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. Derecognition An intangible asset is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss when the asset is derecognised. i. Patents, Trademarks and Licences The Group made upfront payments to acquire patents, trademarks and licences. The patents and trademarks have been granted for periods ranging between 15 to 20 years, depending on the patent or trademark, by the relevant government agency with the option of renewal at the end of the period. Licences for the use of intellectual property (“IP”) are granted for periods ranging between 3 to 20 years depending on the specific licences. ii. Research and Development Costs Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in the statement of comprehensive income when incurred. The useful lives of the Group’s intangible assets are assessed to be finite. Intangible assets with finite Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially 36 seeingmachines feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Other research and development expenditure is recognised in the statement of comprehensive income when incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when the development is complete and the asset is available for use. The asset is amortised over the period of expected future benefit and amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually. A summary of the policies applied to the Group’s intangible assets is, as follows: Useful lives Finite (10-20 years) Finite (3-20 years) Finite (7-10 years) Patents and Trademarks Licences Development Costs Amortisation method used Internally generated or acquired Amortised on a straight- line basis over the period of the patent or trademark Amortised on a straight- line basis over the period of the licence Amortised on a straight-line basis over the period of expected future sales from the related project Acquired Acquired Internally generated h. Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The Group conducts an annual internal review of asset values, which is used as a source of information to assess for any indicators of impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated. Impairment losses, including write-down of inventories to net realisable value, are recognised in profit or loss in expense categories consistent with the function of the impaired asset. For non-financial assets other than goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. 37 seeingmachines i. Leases (refer to Note 29) ii. Lease liabilities The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Group as a lessee The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. i. Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets in which the Group are reasonably certain to obtain ownership of the underlying leased asset at the end of the lease term is depreciated from commencement date to the end of the useful life. Otherwise, right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows: • Office Space 3 to 10 years • Other equipment 3 to 5 years The right-of-use assets are also subject to impairment. Refer to the accounting policies in Note 3(h). At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in- substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are not included in the measurement of lease liabilities and right-of-use assets and are recognised as an expense (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate (“IBR”) at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group presents right-of-use assets as a separate line item on the consolidated statement of financial position. The Group’s lease liabilities are further disclosed at Note 29. 38 seeingmachines iii. Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. j. Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through OCI, and fair value through profit or loss. The classification of debt financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price as disclosed in Note 3(p). In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (“SPPI”)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Subsequent measurement For purposes of subsequent measurement, the Group classifies its financial assets as financial assets at amortised cost. Financial assets at amortised cost are subsequently measured using the effective interest (“EIR”) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost include cash and cash equivalents, term deposits and trade and other receivables. Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when: • The rights to receive cash flows from the asset have expired; or 39 seeingmachines • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Impairment The Group recognises an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. Financial liabilities (refer to Note 25) Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at amortised cost, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, and lease liabilities. Subsequent measurement For purposes of subsequent measurement, the Group classifies its financial liabilities as financial liabilities at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in profit or loss. 40 seeingmachines Derecognition i. Employee leave entitlements A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. k. Provisions (refer to Notes 22 and 23) Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss net of any reimbursement. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Employee entitlements to annual leave are recognised when they are accrued by employees. A provision is made for the estimated liability for annual leave because of services rendered by employees up to the reporting date. Employee entitlements to sick leave and maternity leave are not recognised until the time of leave. Annual leave is recognised in current liabilities, as it is expected to be wholly settled within 12 months of the reporting date. ii. Long service leave Long service leave is a period of paid leave granted to an employee in recognition of a long period of service to an employer. The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Long service leave is recognised in current and non-current liabilities, provided there is an unconditional right to defer settlement of the liability. iii. Warranty provisions The Group provides warranties for general repairs of defects that existed at the time of sale, as required by law. Provisions related to these assurance-type warranties are recognised when the product is sold. Initial recognition is based on historical experience. The estimate of warranty- related costs is revised annually. l. Contingent liabilities (refer to Note 35) Contingent liabilities are possible obligations that arise from past events and whose existence will only be confirmed by the occurrence of one or more future events not wholly within the control of the Group. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the 41 seeingmachines obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. m. Share-based payments (refer to Note 33) The Group provides benefits to employees, including Key Management Personnel (“KMP”), in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). The cost of these equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model, further details of which are given in Note 33. That cost is recognised in employee benefits expense (Note 9), together with a corresponding increase in equity (other reserves), over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in profit or loss for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. Service and non-market performance conditions are not considered when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. No expense is recognised for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/ or service conditions are satisfied. When the terms of an equity-settled award are modified, the minimum expense recognised is the grant date fair value of the unmodified award, provided the original vesting terms of the award are met. An additional expense, measured as at the date of modification, is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect of outstanding awards is reflected as additional share dilution in the computation of diluted earnings per share (refer to Notes 3(o) and 12). n. Contributed equity (refer to Note 26) Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. o. Earnings per share (refer to Note 12) Basic earnings per share (“EPS”) is calculated as net profit or loss attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit or loss attributable to members of the parent divided by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. p. Revenue recognition Revenue of the Group arises mainly from the sale and licensing of Driver Monitoring System (“DMS”) and Occupant Monitoring System (“OMS”) hardware and software, after-sales monitoring and consulting services. 42 seeingmachines Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services (i.e., transaction price). Licences that provide a right to access Seeing Machines IP are performance obligations satisfied over time because the customer simultaneously receives and consumes the benefits provided by the Group. The Group uses time elapsed to measure progress toward complete satisfaction of the service and recognises revenue on that basis. The disclosures of significant accounting judgements relating to revenue from contracts with customers are provided in Note 4. iv. Royalty revenue i. Hardware and installation Revenue from the sale of hardware units is recognised when control of the hardware units is transferred to the customer. Revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur (reflecting, for example, expected levels of returns). The normal credit term is 30 to 60 days upon invoicing. Revenue from installation service is recognised when the previously sold hardware unit has been installed and connected to the driver monitoring platform, as per the arrangement customer. ii. Driver Monitoring Revenue from driver monitoring service is recognised periodically with reference to the hardware units that are connected to the driver monitoring platform during that period, typically every month. iii. Licence fees Licences granted to customers are perpetual licences for use of IP (usually in the form of software). Where the software is provided on a hardware kit this is treated as one deliverable of a licence due to the fact that the hardware provided is of no value to the customer without the inclusion of the software and that the software cannot be delivered through any other acceptable mechanism to the customer. Recognition of revenue from licence fees is dependent on the nature of the licence and whether it is a right to access or a right to use licence. Licences granted to customers generally provide a right to use IP, and therefore these performance obligations are satisfied at a point in time, generally upon provision of access to the software. Revenue from royalties relate to performance obligations that may be satisfied at a point in time (for example, royalty payments related to a right to use licence) or over time (for example, royalty payments related to sale of customised software). Where the predominant item in the contract to which the royalties relate is right to use licence, the royalties are recognised as revenue when the sale or usage that gives rise to the royalty occurs, given this is generally after the performance obligation has been satisfied. Where the predominant item in the contract to which the royalties relate is sale of customised software, the royalties are recognised as the associated performance obligation is satisfied, to the extent that the amount of revenue recognised is highly probable of not being subject to significant reversal. v. Non-recurring engineering services The Group grants perpetual software licence to its customers for use of its Background Intellectual Property (“Background IP”) which includes DMS and OMS licences. The Group also renders non- recurring engineering (“NRE”) services to make significant customisations to the Background IP to make it commercially viable for the customer. The software licence and the non-recurring engineering services are inputs into a combined output, which is a promise to deliver customised software, and therefore the software licence is not considered to be distinct from the non-recurring engineering services. This customised software is delivered in packages (“Samples”) with increasing levels of customisation in each Sample delivery with reference to the arrangement with the customer. This performance obligation is satisfied over time, as the services create an asset without an alternative use to the group, and the group has an enforceable right to payment for performance completed to date. 43 seeingmachines This revenue is recognised over time using the input method based on costs incurred to date relative to the estimated total cost to complete a Sample, including a reasonable margin. vi. Consulting If the Company satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. Revenue from consultancy and support is recognised by reference to the stage of completion of a contract or contracts in progress at reporting date or at the time of completion of the contract and billing to the customer. These contracts are typically customer-specific, and revenue recognition is therefore dependent on the facts and circumstances of each arrangement. For each contract of this type, the Group will determine whether the performance obligation is satisfied at a point in time or over time. For performance obligations satisfied over time, the Group will use the method to measure progress that best depicts transfer of control to the customer, which could be an output or an input method. Contract balances Contract assets A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group transfers goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. Trade receivables A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). vii. Interest revenue Contract liabilities Revenue is recognised as interest accrues using the EIR method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. viii. Agreements with multiple deliverables Where the Group enters into agreements for the provision of both goods and services as part of a single arrangement, the group identifies the separate performance obligations in the contract. The consideration from the arrangement is allocated to each performance obligation based on their relative stand-alone selling prices. Timing of revenue recognition Revenue is recognised either at a point in time or over time, when or as the Company satisfies performance obligations by transferring the promised goods or services to its customers. A contract liability is recognised if a payment is received from a customer before the Group transfers the related goods or services. Contract liabilities are recognised as revenue when the Group performs under the contract (i.e., transfers control of the related goods or services to the customer). q. Government grants Government grants are recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset. 44 seeingmachines r. Taxes (refer to Note 10) Current income tax Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not through profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except: • When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except: • When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Tax consolidation legislation Seeing Machines Limited and its wholly owned Australian controlled entities implemented the tax consolidation legislation as of 1 July 2005. 45 seeingmachines The head entity, Seeing Machines Limited and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, Seeing Machines Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details of the tax funding agreement are disclosed in Note 10. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities. Sales tax Expenses and assets are recognised net of the amount of sales tax, except: • When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable; and • When receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Commitments and contingencies are disclosed net of the amount of sales tax recoverable from, or payable to, the taxation authority. s. Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • In the principal market for the asset or liability; or • In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Cash flows are included in the statement of cash flows on a gross basis and the sales tax component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. • Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable 46 seeingmachines • Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable Significant accounting judgements Capitalised development costs For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is based on management’s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. t. Comparatives Taxation Where necessary, comparatives have been reclassified to ensure consistency with current year disclosures. 4. Significant accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial report. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements. The Group’s accounting policy for taxation requires management’s judgement in assessing whether deferred tax assets are recognised on the statement of financial position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered probable that taxable profit will be available against which the deductible temporary differences and tax losses can be utilised. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. Given the recent history of tax losses, management’s judgement is that there is not convincing evidence of future taxable profits, and therefore deferred tax assets are only recognised to the extent that there are taxable temporary differences against which these deferred tax assets can be recovered. Determination of useful lives of development intangible assets The determination of the useful lives of development intangible assets has been based on historical experience and expectations of future forecast economic benefits to be derived from the underlying intellectual property which was developed. Adjustments to useful lives are made when considered necessary. Management’s conclusion regarding the useful lives of the development intangible assets is set out in note 3(g). 47 seeingmachines Revenue recognition - Non-recurring engineering The Group grants perpetual software licence to its customers for use of its Background Intellectual Property (“Background IP”) which includes DMS and OMS licences. The Group also renders non-recurring engineering services to make significant customisations to the Background IP to make it commercially viable for the customer. and trade payables. The Group has various other financial assets and liabilities such as sundry receivables and lease liabilities. The Group manages its exposure to key financial risks, including interest rate and currency risk in accordance with the Group’s financial risk management policy. The objective of this policy is to support the delivery of the Group’s financial targets whilst protecting future financial security. Judgement was required to determine the nature of the performance obligation in this contract. Management’s judgement is that the software licence and the non-recurring engineering services are inputs into a combined output, which is a promise to deliver customised software, and therefore that these services are not distinct from each other. Judgement was also required to determine whether this performance obligation was satisfied at a point in time or over time. Management’s judgement is that the performance obligation is satisfied over time, as the development services generate an asset without an alternative use to the group, and the group has an enforceable right to payment for work performed to date. 5. Financial Risk Management Objectives and Policies The Group’s principal financial instruments comprise cash, trade receivables, term deposits Primary responsibility for identification and control of risk rests with the Board. The Board reviews and agrees policies for managing each of its risks identified below, including, credit allowances and future cash flow forecast projections. Risk Exposures and Responses Interest rate risk The Group’s exposure to market interest rates relates to the Group’s short-term cash holdings. The Group did not enter into any forward contracts during the 30 June 2022 financial year. The Group’s exposure to interest rate risk is minimal. At reporting date, the Group had the following mix of financial assets exposed to variable interest rates at the designated variable interest rate: FOR THE YEAR ENDED Financial Assets Cash and cash equivalents: Exposed to Australian variable interest rate risk Exposed to United States of America variable interest rate risk Exposed to United Kingdom variable interest rate risk Exposed to European variable interest rate risk Exposed to New Zealand variable interest rate risk Exposed to Japanese variable interest rate risk Consolidated 2022 A$000 2021 A$000 49,179 4,332 5,101 89 34 21 19,001 18,539 9,791 - - 62 Total cash and cash equivalents 58,756 47,393 In addition to the above, the group had term deposits classified as financial assets at amortised cost totalling A$472,000 (2021: A$472,000) that were subject to short-term fixed interest rates (refer to Note 20). 48 seeingmachines Interest rate risk sensitivity Foreign currency risk The Group’s policy is to not hedge against interest rate movements as funds held are in cash and short-term deposits. At 30 June 2022, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post-tax profit would have been affected as follows: Post Tax Profit Higher / (Lower) FOR THE YEAR ENDED Consolidated + 1% (100 basis points) - 0.5% (50 basis points) 2022 A$000 2021 A$000 588 (294) 474 (237) The movement in profit is due to interest rate changes on cash balances. Interest rates on the lease arrangements outstanding at year end are fixed and range from 6% to 10%. As a result of sales in North America, New Zealand and Europe (denominated in those currencies) and purchases of inventory denominated in United States dollars, the Group’s statement of financial position can be affected by movement in exchange rates generally and the US$/A$ exchange rate in particular. The Group seeks to mitigate the effect of its foreign currency exposure by operating US Dollar (US$), British Pound (GB£), Euro (EUR), New Zealand Dollar (NZD) and Japanese Yen (JP¥) bank accounts. Approximately 67% of the Group’s sales and approximately 37% of the Group’s expenses and inventory purchases are denominated in currencies other than the functional currency of the operating entity making the transaction. The Group evaluates the concentration of risk with respect to foreign currency as low, as the Group is naturally hedged by holding funds in multiple operating currency accounts, with revenues and expenses being closely aligned on an annual basis. At 30 June 2022 the Group had the following exposure to foreign currency: Financial Assets Cash and cash equivalents (US$) Cash and cash equivalents (GB£) Cash and cash equivalents (EUR) Cash and cash equivalents (NZD) Cash and cash equivalents (JP¥) Trade and other receivables (US$) Trade and other receivables (EUR) Trade and other receivables (GB£) Trade and other receivables (NZD) Trade and other receivables (ZAR) Consolidated 2022 A$000 2021 A$000 4,332 5,101 89 34 21 13,918 17 1,051 4 13 18,539 9,791 - - 62 9,710 8 1,091 97 14 49 seeingmachines At 30 June 2021 the Group had the following exposure to foreign currency: Trade and other receivables (JP¥) Other Current Assets (EUR) Total Financial Liabilities Trade and other payables (US$) Trade and other payables (GBP) Trade and other payables (EUR) Trade and other payables (JP¥) Trade and other payables (NZD) Trade and other payables (ZAR) Total Net exposure Consolidated 2022 A$000 6 39 2021 A$000 13 - 24,625 39,325 (1,588) (361) (135) (69) (30) (1) (2,184) 22,441 (436) (105) (69) (52) - - (662) 38,663 The following tables demonstrate the sensitivity to a reasonably possible change in exchange rates, with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities. CONSOLIDATED Change in USD rate AUD / foreign currency +5% AUD / foreign currency -5% Change in GBP rate AUD / foreign currency +5% AUD / foreign currency -5% Change in EUR rate AUD / foreign currency +5% AUD / foreign currency -5% Effect on profit before tax Equity Higher / (Lower) 2022 A$000 2021 A$000 2022 A$000 2021 A$000 (793) 877 (276) 305 (0.5) 0.5 (1,324) 1,464 (513) 567 3 (3) (793) 877 (276) 305 (0.5) 0.5 (1,324) 1,464 (513) 567 3 (3) 50 seeingmachines Foreign currency risk (continued) Effect on profit before tax Equity Higher / (Lower) 2022 A$000 2021 A$000 2022 A$000 2021 A$000 Change in NZD rate AUD / foreign currency +5% AUD / foreign currency -5% Change in ZAR rate AUD / foreign currency +5% AUD / foreign currency -5% Change in JPY rate AUD / foreign currency +5% AUD / foreign currency -5% (0.4) 0.4 (1) 1 2 (2) (5) 5 (1) 1 (0.5) 1 (0.4) 0.4 (1) 1 2 (2) (5) 5 (1) 1 (0.5) 1 Management believes the reporting date risk exposures are representative of the risk exposure inherent in financial instruments. Credit risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other receivables, contract assets and other financial assets. The Group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at reporting date is addressed in each particular note. The Group accounts for expected credit losses in accordance with its policy on impairment of financial assets detailed in Note 3(j). The Group does not hold any credit derivatives to offset its credit exposure. Trade receivables It is the Group’s policy that all customers who wish to trade are subject to credit verification procedures. In addition, receivables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. Collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables. Customer credit risk is managed in line with the Group’s established policy, procedures and control relating to customer credit risk management. The Group also engaged a Credit Assessment Provider for a list of recommendations and insurance policy limits and has insurance policies in place for the most significant customers. The internal assessment of each customer is based on the payment history and the reputation and size of the customer. Outstanding customer receivables are regularly monitored and followed up. Refer to Note 15 for credit risk disclosures on trade and other receivables. Capital management and liquidity risk The Group manages liquidity risk by maintaining adequate cash reserves and by undertaking ongoing monitoring of actual and forecast cash flows and maturity profiles of financial assets and liabilities, in particular, the impact of differing sources of funds on cost and shareholder dilution are taken into consideration when contemplating any funding shortfalls. The following table reflects all contractually fixed pay-offs for settlement, repayments and interest resulting from recognised financial liabilities as of 30 June 2022. 51 seeingmachines Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing at 30 June 2022. Maturity analysis of liabilities based on management’s expectation The risk implied from the table below reflects a balanced view of cash inflows and outflows. Trade payables and other financial liabilities mainly originate from the financing of assets used in our ongoing operations such as plant, equipment and investments in working capital (e.g., inventories and trade receivables). To monitor existing financial liabilities as well as to enable an effective controlling of future risks, Seeing Machines Limited has established risk reporting systems that reflects expectations of management of expected settlement of financial liabilities. The table below summarises the maturity profile of the Group’s liabilities based on contractual undiscounted payments: FOR THE YEAR ENDED 30 JUNE 2022 Trade and other payables Lease liabilities Total FOR THE YEAR ENDED 30 JUNE 2021 Trade and other payables Lease liabilities Total <=6 months A$000 6-12 months A$000 >1 year A$000 Total A$000 Carrying Value A$000 16,391 647 17,038 8,839 685 9,524 - 656 656 - 694 694 - 5,050 16,391 6,353 16,391 5,304 5,050 22,744 21,695 - 6,345 6,345 8,839 7,724 8,839 6,190 16,563 15,029 The group monitors rolling forecasts of liquidity reserves on the basis of expected cash flows. Fair values As at 30 June 2022, the carrying values of the financial instruments approximate their fair value. 6. Business combinations and acquisition of non-controlling interests No business combinations or acquisitions of non-controlling interests have occurred throughout the year ended 30 June 2022 (2021: none). 7. Segment information An operating segment is a component of the entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s chief operational decision makers to make decisions about resources to be allocated to the segment and to assess its performance and for which discrete financial information is available. Operating segments that meet the qualitative criteria as prescribed by AASB 8 Operating Segments are reported separately. However, an operating segment that does not meet the qualitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. There are no inter-segment revenues and there have been no changes to how each segment’s profit or loss is measured. No segment assets and assets and liabilities are disclosed because there is no measure of segment assets and liabilities regularly reported to the entity’s chief operational decision makers. 52 seeingmachines a. Segment Revenue based on operating segment For management purposes, the Group is organised into key business units based on the nature of its products and services. The Company has identified two key operating segments, OEM and Aftermarket. The OEM segment includes the Automotive and Aviation business units which generate largely licence- based royalty and non-recurring engineering services-based revenue, channelled through Tier 1 customers. The Aftermarket segment includes Fleet and Off-Road business units, which generate revenue from a mix of direct and indirect customers who retro-fit Seeing Machines technology into commercial vehicles. OEM Aftermarket Other Total Segment Revenue Segment Profit/(Loss) 2022 A$000 14,660 39,775 - 2021 A$000 12,088 35,079 2022 A$000 (11,161) 3,052 2021 A$000 (7,634) 3,039 - (17,214) (12,825) 54,435 47,167 (25,323) (17,420) b. Revenue from contracts with customers In the following tables, revenue segments have been disaggregated by type of goods or services which also reflects the timing of revenue recognition. FOR THE YEAR ENDED 30 JUNE 2022 OEM A$000 Aftermarket A$000 Total A$000 REVENUE TYPES SALES AT A POINT IN TIME Paid Research Consulting Hardware and Installations Royalties Licencing SALES OVER TIME Driver monitoring Non-recurring engineering Royalties Total revenue - - 983 - - - 8,172 5,505 14,660 - 855 20,709 5,042 - 13,169 - - - 855 21,692 5,042 - 13,169 8,172 5,505 39,775 54,435 53 seeingmachines b. Revenue from contracts with customers (continued) FOR THE YEAR ENDED 30 JUNE 2021 REVENUE TYPES SALES AT A POINT IN TIME Paid Research Consulting Hardware and Installations Royalties Licencing SALES OVER TIME Driver monitoring Non-recurring engineering Royalties Total revenue c. Geographic Information REVENUES FROM EXTERNAL CUSTOMERS Australia North America Asia-Pacific (excluding Australia) Europe Other Total revenue from external customers OEM A$000 Aftermarket A$000 Total A$000 5 - 727 - 4,190 - 4,886 2,280 - 5 1,706 1,706 18,798 19,525 3,511 - 3,511 4,190 11,064 11,064 - - 4,886 2,280 12,088 35,079 47,167 2022 A$000 2021 A$000 18,860 21,936 6,654 4,280 2,705 54,435 14,874 19,566 6,172 3,407 3,148 47,167 The revenue information above is based on the locations of the customers. 54 seeingmachines 8. Other income a. Net gain/(loss) on foreign exchange Unrealised gain/(loss) Realised gain/(loss) Total gain on foreign exchange b. Other income Government Grants Other income Total other income Consolidated 2022 A$000 2021 A$000 1,120 444 1,564 - 106 106 (217) (200) (417) 1,565 99 1,664 For the year ended 30 June 2021, a total of A$1,565,000 is included in Government grants, relating to the Job Keeper Payment scheme subsidy issued by the Australian Government for businesses significantly affected by COVID-19. No such grants were received during the year ended 30 June 2022. 9. Expenses a. Depreciation, impairment and amortisation expense Depreciation expenses Amortisation expense - Development Costs Amortisation expense – Others Total depreciation, impairment and amortisation expense b. Employee benefits expense Wages and salaries and on-costs (excluding superannuation) Superannuation expense Share-based payment expense Wages and salaries reported as cost of sales Wages and salaries capitalised to development costs Total employee benefits expense c. Other expenses Impairment of receivable Total other expenses Consolidated 2022 A$000 2021 A$000 814 1,203 876 2,893 48,219 3,282 5,159 (11,508) (19,774) 25,378 6 6 525 - 787 1,312 40,188 2,362 3,250 (9,259) (7,314) 29,226 26 26 55 seeingmachines 10. Income Tax The major components of income tax expense for the years ended 30 June 2022 and 2021 are: The major components of income tax expense are: Current income tax: Current income tax charge Adjustments in respect of current income tax of previous year Taxation loss not recognised Deferred tax: Relating to the origination and reversal of temporary differences Temporary differences not recognised Income tax expense reported in the statement of comprehensive income Consolidated 2022 A$000 2021 A$000 (6,202) 18 6,220 (263) 263 36 (1,319) - 1,915 (791) 791 596 a. Reconciliation between tax expense and the product of the accounting profit before income tax multiplied by the Group's applicable income tax rate is as follows: Reconciliation of tax expense and the accounting profit multiplied by Australia’s domestic tax rate for 2021 and 2022: 2022 A$000 2021 A$000 (25,287) (17,420) (7,587) 1,548 17 78 - (263) 6,208 18 - 17 - 36 (4,529) 844 8 - (81) (791) 1,915 - 50 737 2,443 596 Loss before income tax At the parent entity's statutory income tax rate of 30.0% (2021:26%) Share based payments (equity settled) Entertainment Other permanent differences Origination and reversal of temporary differences Other temporary differences Temporary differences not recognised Taxation loss not recognised Adjustments in respect of current income tax of previous years Other non-deductible Foreign tax-withholding not recoverable Impact of tax rate change on deferred tax balances not recognised Total 56 seeingmachines b. Deferred income tax at 30 June relates to the following: Deferred tax relates to the following: Consolidated Statement of Financial Position 2022 A$000 2021 A$000 (i) Deferred tax liabilities Intangible assets Right of use assets Fixed assets Unrealised foreign exchange gain Gross deferred tax liabilities Set off deferred tax assets Net deferred tax liabilities (ii) Deferred tax assets R&D offset Provision for expected credit loss Accrued expenses Annual leave Long service leave Warranties Makegood S. 40-880 deduction Finance lease liabilities Accrued bonuses Unrealised foreign exchange loss OPEX interest Others Gross deferred tax assets Set-off deferred tax liabilities Net deferred tax balance not brought to account Tax losses Losses not recognised Net deferred tax asset (29) (1,035) (13) (336) (1,413) 1,413 - 3,244 29 154 1,017 354 227 21 494 1,591 894 - 46 10 8,081 (1,413) 6,668 (53,223) 53,223 - (16) (1,106) (97) - (1,219) 1,219 - 3,244 29 28 763 217 167 - 427 1,626 640 56 78 - 7,275 (1,219) 6,056 (39,997) 39,997 - 57 seeingmachines c. Unrecognised temporary differences At 30 June 2022, Seeing Machines Limited (consolidated) has unrecognised temporary differences in relation to unbooked tax losses of A$177,448,000 (DTA of A$53,234,000) for which no deferred tax asset has been recognised on the statement of financial position (2021: unrecognised tax losses of A$153,836,000 and DTA of A$39,997,000). These losses are available for recoupment subject to satisfaction of relevant statutory tests in each jurisdiction. of the tax consolidated group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below. In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. As at 30 June 2022 there are net unrecognised deductible temporary differences of A$22,227,000 (DTA of A$6,668,000) for which no deferred tax asset has been recognised on the statement of financial position (2021: net unrecognised deductible temporary differences of A$23,294,000 and DTA of A$6,056,000). d. Tax consolidation i. Members of the tax consolidated group and the tax sharing arrangement Seeing Machines Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group with effect from 1 July 2005. Seeing Machines Limited is the head entity of the tax consolidated group. Members of the tax consolidated group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote. Nature of the tax funding agreement Members of the tax consolidated group have entered into a tax funding agreement. Under the funding agreement, the funding of tax within the Group is based on accounting profit, which is not an acceptable method of allocation under AASB Interpretation 1052. The tax funding agreement requires payments to/from the head entity to be recognised via an inter-entity receivable (payable) which is at call. To the extent that there is a difference between the amount charged under the tax funding agreement and the allocation under AASB Interpretation 1052, the head entity accounts for these as equity transactions with the subsidiaries. The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax installments. 11. Dividends Paid and Proposed ii. Tax effect accounting by members of the tax consolidated group Measurement method adopted under AASB Interpretation 1052 Tax Consolidation Accounting No dividends or distributions have been made to members during the year ended 30 June 2022 (2021: nil) and no dividends or distributions have been recommended or declared by the directors in respect of the year ended 30 June 2022 (2021: nil). The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members 58 seeingmachines 12. Earnings Per Share The following table reflects the income and share data used in the basic and diluted earnings per share computations: Earnings used in calculating earnings per share For basic and diluted earnings per share: Net loss Net loss attributable to ordinary equity holders of the Company Weighted average number of shares Consolidated 2022 A$000 2021 A$000 (25,323) (25,323) (17,420) (17,420) 2022 Thousands 2021 Thousands Weighted average number of ordinary shares for basic earnings per share 4,042,854 3,634,037 Weighted average number of ordinary shares adjusted for the effect of dilution 4,042,854 3,634,037 There are no instruments (e.g. share awards) excluded from the calculation of diluted earnings per share that could potentially dilute basic earnings per share in the future because they are either non-dilutive or anti-dilutive for both of the periods presented. Other than the transaction highlighted in Note 36, there have been no transactions involving ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of these financial statements. Information on the classification of securities Awards granted to employees (including KMP) as well as in the form of capital raising cost as described in Note 33 are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent that they are dilutive. These shares have not been included in the determination of basic earnings per share. 13. Parent Entity Information Information relating to Seeing Machines Limited Current assets Total assets Current liabilities Total liabilities Issued capital Accumulated losses Reserves Total shareholders’ equity Loss of the Parent entity Total comprehensive income of the Parent entity 2022 A$000 95,919 137,898 24,275 28,889 2021 A$000 72,783 89,716 13,657 18,969 313,029 257,380 (227,391) (204,884) 23,371 18,212 109,009 70,748 (25,747) (18,297) (25,747) (18,297) 59 seeingmachines Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in Note 3, except, investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. 14. Current Assets – Cash and Cash Equivalents Cash at bank Total cash and cash equivalents 15. Current Assets – Trade and Other Receivables Current Trade receivables Provision for expected credit losses Deferred finance income Other receivables Total trade and other receivables - current a. Allowance for expected credit loss Consolidated 2022 A$000 58,756 58,756 Consolidated 2022 A$000 26,560 (226) (152) 26,560 801 26,983 2021 A$000 47,393 47,393 2021 A$000 19,125 (110) (302) 19,125 726 19,851 Trade receivables are non-interest bearing and are generally 30-60 days terms. The Group applies a simplified approach in calculating ECLs and recognises a loss allowance based on lifetime ECL’s at reporting date (refer to Note 3(j)). The provision for impairment loss recognised by the Group at 30 June 2022 was A$226,000 (2021: A$110,000). Set out below is the movement in the allowance for expected credit losses of trade receivables: As at 1 July Provision for expected credit losses increase/(decrease) As at 30 June Individually Impaired 2022 A$000 2021 A$000 110 116 226 150 (40) 110 60 seeingmachines Set out below is the information about the credit risk exposure on the Group’s trade receivables and contract assets using a provision matrix: Trade receivables Days past due 2022 Current 0-30 days 31-60 days 61-90 days 91+ days Total A$000 Expected credit loss rate 0.30% 1.20% 1.80% 2.20% 2.70% Estimated total gross carrying amount assessed 20,712 2,669 Expected credit loss1 73 24 572 11 334 2,273 26,560 45 73 226 2021 Expected credit loss rate 0.30% 1.60% 3.60% 6.60% 10.60% Estimated total gross carrying amount assessed 18,426 386 Expected credit loss 57 6 391 14 69 5 265 19,537 28 110 1 A specific provision for A$127,000 was created for certain balances in addition to the expected credit loss calculated using the provision matrix. The specific provision and expected loss amount in total constitute the allowance for expected credit loss as shown in the previous table on page 61. The Group considers a financial asset in default when contractual payments are 90 days past due unless the Group has entered into discussion with the customer to agree varied payment terms. An impairment of A$6,000 (2021: A$26,000) has been recognised and included in other expenses. Receivables 90 days past due but not considered in default are A$2,206,000 (2021: A$265,000). Payment terms on these amounts have been re-negotiated, and satisfaction has been gained that payment will be received in full. It is expected that all other balances will be received when due. b. Fair value and credit risk All trade receivables are short-term in nature and therefore, the carrying values approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables. c. Foreign exchange risk Detail regarding foreign exchange risk exposure is disclosed in Note 5. 16. Current Assets – Inventories Finished goods Write-down of inventories for the period Total inventories Consolidated 2022 A$000 1,328 (23) 1,305 2021 A$000 2,640 (13) 2,627 61 seeingmachines 17. Other Current Assets Prepayments Rental bonds Unbilled revenue Other Total other current assets Consolidated 2022 A$000 2021 A$000 3,115 3,098 104 4,985 133 2,151 39 56 8,243 5,438 18. Non-current Assets – Property, Plant and Equipment a. Reconciliation of carrying amounts at the beginning and end of the year Consolidated At 1 July 2021 net of accumulated depreciation and impairment Additions Disposals Depreciation charge for the year Write offs Foreign exchange differences At 30 June 2022 net of accumulated depreciation and impairment At 30 June 2022 Cost Accumulated depreciation and impairment Net carrying amount Office Furniture, Fittings and Equipment A$000 Research and Development Equipment A$000 Asset under construction A$000 Total A$000 3,072 1,310 (3) (706) (1) 4 125 543 - (104) - - 164 3,361 - - - - - 1,853 (3) (810) (1) 4 3,676 564 164 4,404 7,888 (4,212) 3,676 1,263 (699) 564 164 9,315 - (4,911) 164 4,404 62 seeingmachines a. Reconciliation of carrying amounts at the beginning and end of the year (continued) Consolidated At 1 July 2020 net of accumulated depreciation and impairment Additions Disposals Depreciation charge for the year Foreign exchange differences Transferred from right-of-use assets1 (Note 29) At 30 June 2021 net of accumulated depreciation and impairment At 30 June 2021 Cost Accumulated depreciation and impairment Net carrying amount Office Furniture, Fittings and Equipment A$000 Research and Development Equipment A$000 Asset under construction A$000 Total A$000 3,000 439 - (500) (7) 140 56 87 - (18) - - 152 3,208 12 - - - - 538 - (518) (7) 140 3,072 125 164 3,361 7,461 (4,389) 3,072 728 (603) 125 164 8,353 - (4,992) 164 3,361 1 Office equipment leased at 30 June 2020 was purchased during the financial year ending 30 June 2021, thereby extinguishing the lease. The transfer to property, plant and equipment consisted of original cost of A$418,000 and accumulated depreciation of A$278,000. 19. Non-current Assets – Intangible Assets and Development Costs a. Reconciliation of carrying amounts at the beginning and end of the year Consolidated At 1 July 2021 net of accumulated amortisation and impairment Additions Disposals Amortisation charge for the year At 30 June 2022 net of accumulated amortisation and impairment At 30 June 2022 Cost Accumulated amortisation and impairment Development Costs A$000 Patents, Licences and Trademarks A$000 Total A$000 8,311 1,229 9,540 25,659 - (1,203) 32,767 33,970 (1,203) 343 (1) (61) 26,002 (1) (1,264) 1,510 34,277 1,820 35,790 (310) (1,513) Net carrying amount 32,767 1,510 34,277 63 seeingmachines 19. Non-current Assets – Intangible Assets and Development Costs (continued) a. Reconciliation of carrying amounts at the beginning and end of the year (continued) Consolidated At 1 July 2020 net of accumulated amortisation and impairment Additions Disposals Amortisation charge for the year At 30 June 2021 net of accumulated amortisation and impairment At 30 June 2021 Cost Accumulated amortisation and impairment Net carrying amount Development Costs A$000 Patents, Licences and Trademarks A$000 - 8,311 - - 899 484 (106) (48) Total A$000 899 8,795 (106) (48) 8,311 1,229 9,540 8,311 - 8,311 1,751 10,062 (522) (522) 1,229 9,540 The Group capitalises costs for product development projects. Initial capitalisation of costs is based on management’s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. Refer to Note 3(g) for the relevant accounting policy related to intangible assets, including development costs. In accordance with the Group’s accounting policies and processes, the Group performs its impairment testing annually at 30 June. Intangible assets are reviewed at each reporting period to determine whether there is an indication of impairment or impairment reversal. Where an indicator of impairment or impairment reversal exists, a formal estimate of the recoverable amount is made at the reporting period. At 30 June 2022, no impairment indicators were noted. 20. Other Financial Assets Financial assets at amortised cost Term deposits Total other financial assets Consolidated 2022 A$000 2021 A$000 472 472 472 472 At 30 June 2022, term deposits held are classified as short-term and consist of a term deposit of $140,000 maturing on 27 February 2023 with an interest rate of 0.3775% and a term deposit of $332,000 maturing on 2 May 2023 with an interest rate of 1.78%. The term deposits are short-term in nature and therefore, the carrying values approximate their fair value. 64 seeingmachines 21. Current Liabilities – Trade and Other Payables Trade payables Accrued expenses GST, Payroll Tax and Payroll Liabilities Other current liabilities Total trade and other payables a. Fair value Consolidated 2022 A$000 2021 A$000 3,932 5,483 6,959 17 2,186 1,981 4,631 41 16,391 8,839 Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value. Included in the GST, Payroll Tax and Payroll Liabilities is the accrual for the FY22 STI (short-term incentive) amounting to A$2,979,000 (2021: A$2,461,000). b. Foreign exchange, interest rate and liquidity risk Information regarding foreign exchange, interest rate and liquidity risk exposure is set out in Note 5. 22. Provisions Current Annual leave Long service leave Warranties provision (Note 23) Provision for income tax Total provisions - current Non-Current Long service leave Other provisions Total provisions - non-current Consolidated 2022 A$000 2021 A$000 3,390 2,936 894 758 56 705 641 611 5,098 4,893 287 69 356 128 64 192 a. Nature and timing of provisions Refer to Note 3(k) for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of the provisions. 65 seeingmachines 23. Movement in Provisions At 1 July 2020 Arising during the year Utilised As at 30 June 2021 Arising during the year Utilised At 30 June 2022 24. Contract liabilities Deferred revenue Total contract liabilities Maintenance Warranties A$000 475 212 (46) 641 549 (432) 758 Consolidated 2022 A$000 2021 A$000 3,622 3,622 772 772 Contract liabilities totalling A$362,000 included in the balance at 30 June 2021 were satisfied and recognised as revenue during the year ended 30 June 2022. 25. Financial Liabilities Consolidated 2022 A$000 2021 A$000 948 948 948 918 918 918 4,356 5,272 4,356 5,272 4,356 5,272 Current Financial liabilities at amortised cost Lease liabilities Total financial liabilities at amortised cost Total financial liabilities - current Non-Current Financial liabilities at amortised cost Lease liabilities Total financial liabilities at amortised cost Total financial liabilities - non-current 66 seeingmachines 26. Contributed Equity Ordinary shares Total contributed equity Number of ordinary shares Issued and fully paid Consolidated 2022 A$000 2021 A$000 313,029 257,382 313,029 257,382 Consolidated 2022 Thousands 2021 Thousands 4,156,019 3,875,618 Fully paid shares carry one vote per share and carry the right to dividends. The Company has no set authorised share capital and shares have no par value. Movement in ordinary shares: As at 1 July 2020 Shares issued Transaction costs At 30 June 2021 As at 1 July 2021 Shares issued Transaction costs As at 30 June 2022 27. Accumulated Losses and Reserves a. Movements in accumulated losses and reserves Consolidated 2022 A$000 Shares Thousands 2021 A$000 A$000 3,365,214 217,204 510,404 41,199 - (1,021) 3,875,618 257,382 3,875,618 257,382 280,401 57,062 - (1,415) 4,156,019 313,029 Refer to the statement of changes in equity for movements in accumulated losses and other reserves. b. Nature and purpose of reserves Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. Employee equity benefits reserve The employee equity benefits reserve is used to record the value of share-based payments provided to employees, including KMP, as part of their remuneration. Refer to Note 33 for further details of the plan. 67 seeingmachines 28. Statement of Cash Flow Information a. Reconciliation of net loss after tax to net cash flows For the year ended 30 June Reconciliation of net loss after tax to net cash flows from operations Loss after tax Depreciation Amortisation Net gain on foreign exchange (unrealised) (Profit)/loss on sale of assets Share-based payments Changes in assets / liabilities net of the effect of purchases Decrease in inventories (Increase) in trade and other receivables (Increase) in other current assets Increase in provisions Increase in trade and other payables (Decrease)/ Increase in other liabilities Increase in contract liabilities Consolidated 2022 A$000 2021 A$000 (25,323) (17,420) 814 2,079 158 - 5,159 1,322 (7,132) (2,805) 369 7,552 (886) 2,850 525 787 219 (5) 3,376 2,116 (9,386) (2,283) 1,108 969 353 - Net cash used in operating activities (15,843) (19,641) 29. Leases Group as a lessee The Group has lease contracts for office space and other equipment used in its operations. Leases of office space and other equipment generally have lease terms between 3 and 15 years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Group is restricted from assigning and subleasing the leased assets. The Group also has certain leases of machinery with lease terms of 12 months or less and leases of office equipment with low value. The Group applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases. 68 seeingmachines Group as a lessee (continued) Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period: As at 1 July 2020 Additions Amortisation expense Foreign exchange differences Transferred to property, plant and equipment1 (Note 18) As at 30 June 2021 Additions Lease terminations Amortisation expense Foreign exchange differences As at 30 June 2022 Office space A$000 Other equipment A$000 Total A$000 4,231 729 (739) 31 - 4,252 166 (170) (815) 16 3,449 140 - - - (140) - - - - - - 4,371 729 (739) 31 (140) 4,252 166 (170) (815) 16 3,449 1 Office equipment leased at 30 June 2020 was purchased during the financial year ended 30 June 2021, thereby extinguishing the lease. The transfer to property, plant and equipment consisted of original cost of A$418,000 and accumulated depreciation of A$278,000 Set out below are the carrying amounts of lease liabilities and the movements during the period: As at 1 July Additions Accretion of interest Lease terminations Payments At 30 June Current Non-current 2022 A$000 6,190 166 453 (235) (1,270) 5,304 948 4,356 2021 A$000 6,420 757 472 - (1,459) 6,190 918 5,272 69 seeingmachines The maturity analysis of lease liabilities are disclosed in Note 5. The following are the amounts recognised in profit or loss: Amortisation expense of right-of-use assets Interest expense on lease liabilities Expense relating to short-term leases (included in operations expense) At 30 June 2022 A$000 2021 A$000 815 453 - 1,268 739 472 - 1,211 The incremental borrowing rate at 30 June 2022 is between 6 - 10% per annum (2021: 8% per annum). The Group has lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Group’s business needs. Management exercises significant judgement in determining whether these extension and termination options are reasonably certain to be exercised (refer to Note 4). 30. Related Party Disclosure a. Information about subsidiaries The consolidated financial statements include the financial statements of Seeing Machines Limited and its subsidiaries’ as follows: Name % Equity Interest Investment Country of incorporation 2022 2021 2022 2021 Seeing Machines Incorporated United States 100% 100% 770,307 770,307 Seeing Machines Executive Share Plan Pty Ltd Australia 100% 100% 100 100 Seeing Machines Share Plans Trust Australia 100% 100% Seeing Machines (Sales) Pty Ltd Australia 100% 100% Fovio Pty Limited (formerly Fovionix Pty Limited) Australia 100% 100% Fovio Incorporated United States 100% 100% Seeing Machines (UK) Ltd United Kingdom 100% 100% 10 12 100 50 169 10 12 100 50 169 Seeing Machines Japan Ltd Japan 100% 100% 13,636 13,636 Seeing Machines Germany* Germany 100% 100% 41,689 41,689 Seeing Machines New Zealand New Zealand 100% - 91 - * During the current year, a new branch office of Seeing Machines Germany was set up in the Netherlands effective 1 November 2021. 70 seeingmachines b. Materially owned subsidiaries There are no subsidiaries held at 30 June 2022 that have non-controlling interests. c. Key management personnel Details relating to key management personnel, including remuneration paid are included in Note 32. d. Director-related transactions (i) Shareholdings of Directors Directors K Hill P McGlone (iv) Y K NG (i) J Murray (ii) G Vorster M Brown (iii) Directors K Hill Y K NG (i) J Murray (ii) G Vorster M Brown (iii) R Burger (resigned 30 Nov 2020) L Carmichael (resigned 30 Nov 2020) Notes: Balance 1 July 2021 Granted as remuneration Acquired or sold for cash Net change other Balance 30 June 2022 2,762,080 250,000 2,160,349 432,291 109,375 - 5,714,095 - - - - - - - 637,920 - - 200,000 - - 837,920 - - - - - - - 3,400,000 250,000 2,160,349 632,291 109,375 - 6,552,015 Balance 1 July 2020 Granted as remuneration Acquired or sold for cash Net change other Balance 30 June 2021 2,187,080 375,000 200,000 1,785,349 375,000 - 182,291 250,000 - - - 109,375 - 793,463 187,500 2,070,813 375,000 - - - - - - (980,963) (2,445,813) 2,762,080 250,000 2,160,349 432,291 109,375 - - - - - - - 6,836,705 1,604,166 700,000 (3,426,776) 5,714,095 P McGlone (iv) - - 250,000 (i) Yong Kang NG has an additional indirect interest in the Company by virtue of his deemed (by virtue of his spouse) ownership of shares in V S Industry Berhard (VSI). (ii) John Murray’s interest in the Company is held by virtue of his direct ownership of shares in Nanjop Pty Ltd. (iii) Michael Brown has an additional indirect interest in the Company by virtue of his relationship with Lombard Odier Asset Management (Europe) Limited. (iv) Paul McGlone has unvested performance rights and options on 30 June 2022. Please refer to Note 33(b)(ii) & (iii) for more details. 71 seeingmachines (ii) Other Director related transactions All transactions with director-related entities were made under normal commercial terms and conditions. 31. Key Management Personnel a. Details of Key Management Personnel (i) Directors Kate Hill Non-Executive Director and Chair Paul McGlone CEO and Executive Director Yong Kang NG Non-Executive Director Gerhard Vorster Non-Executive Director John Murray Non-Executive Director Michael Brown Non-Executive Director (ii) Executives (Other Key Management Personnel) Paul McGlone Chief Executive Officer Naomi Rule Chief Financial Officer Nicolas DiFiore Senior Vice President (SVP) OEM Solutions Mike Lenné Chief Science and Innovation Officer Max Verberne General Manager - (GM) Aftermarket Solutions Ryan Murphy Chief Operating Officer (role terminated 4 June 2021) 72 seeingmachines 32. Compensation for Key Management Personnel FOR THE YEAR ENDED 30 June 2022 Salary/Fees/ Bonus/Leave Superannuation Rights/ Options Short-Term A$000 Post-Employment A$000 Share-Based Payments A$000 Total A$000 Chair Kate Hill CEO and Executive Paul McGlone Non-Executive Directors Y K NG John Murray Gerhard Vorster Michael Brown Other Key Management Personnel1 Total 1 Other key management personnel include the Executives as listed at Note 31(a)(ii). 137 885 75 85 79 75 2,155 3,491 14 29 - 8 8 - 143 202 - 151 210 1,124 - - - - 75 93 87 75 1,009 1,219 3,307 4,912 FOR THE YEAR ENDED 30 June 2021 Salary/Fees/ Bonus/Leave Superannuation Rights/ Options Short-Term A$000 Post-Employment A$000 Share-Based Payments A$000 Total A$000 Chair Kate Hill CEO and Executive Paul McGlone (appointed 4 Jul 2019) Non-Executive Directors Y K NG John Murray Gerhard Vorster Michael Brown R Burger (resigned 30 Nov 2020) L Carmichael (resigned 30 Nov 2020) Other Key Management Personnel1 Total 123 705 72 68 74 47 27 32 2,810 3,958 7 25 - 6 4 - - - 98 140 - 130 331 1,061 - - - - - - 72 74 78 47 27 32 688 1,019 3,596 5,117 1 Other key management personnel include the Executives as listed at Note 31(a)(ii). The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel. 73 seeingmachines 33. Share-based payments plans a. Recognised share-based payment expenses The expense recognised for employee services received during the year is shown in the table below: Expense arising from the performance rights long term incentive Expense arising from options under long term incentive Total expense arising from share-based payment transactions Consolidated 2022 A$000 5,022 137 5,159 2021 A$000 3,249 1 3,250 b. Type of share-based payment plan 2010 Executive Share Plan In July 2010 the Company adopted an Executive Share Plan (2010 Plan). Under the 2010 Plan the Board may offer and issue ordinary fully paid shares (Shares) to employees or officers (including Directors) of the Company from time to time. The Company has made the following types of offers under the 2010 Plan: Options were issued to a key staff member in October 2016, the options were valued using a binomial model using volatility as a proxy for implied volatility, long term UK government bond prices for the risk free rate and AIM share price information. All options expire after 10 years. At 30 June 2022 the weighted average remaining life for the outstanding share options was 5.21 years (2021: 6.21 years) and the exercise price for all outstanding options was £0.0561. No new options were granted during the year. i. Long Term Incentive – 2020 Performance rights or share options offers – Executive and key staff In November 2021 the Company awarded a total of 64,996,414 performance rights in respect of ordinary shares to Executive and key staff to be issued at nil cost. From 1 July 2015, senior staff and other key staff are offered long term incentive (LTI) performance rights or share options. Under this structure, the staff are only able to exercise the rights, and have new ordinary shares issued to them, if any performance, market and vesting conditions are met. These conditions typically include a performance condition requiring the staff member to achieve a minimum “meets expectations” rating and some rights have included a market condition in the form of a minimum Target Share Price (TSP). The vesting period ranges from 9 months to 5 years from the end of the relevant financial year or grant date. Performance rights or options are often offered as part of the annual remuneration review and may be offered at other times. Any offer of performance rights or options requires Board approval and, when granted, is announced to the market. 14,845,702 of the performance rights under the LTI have been awarded in recognition of the past achievement of the Company's objectives in FY2021. The rights were valued at the spot rate of the shares at grant date, and the value is amortised over the vesting period. The rights vest annually over 3 years in equal tranches with the first vesting date being 1 July 2022 and require the employee to remain continuously employed by the Company until each relevant vesting date. If an employee leaves before the rights vest and the service condition is therefore not met, the rights lapse. In some cases, for ‘good leavers’, determined on a discretionary basis by management, options are prorated for service in the current period and that portion are vested on termination, and the remaining rights are cancelled. 74 seeingmachines to the CEO to be issued at nil cost. The rights vest annually over 5 years in equal tranches with the first vesting date being 1 July 2020, with each issue conditional on the satisfaction of key conditions including TSP performance and require the employee to remain continuously employed by the Company until each relevant vesting date. For the purposes of determining whether the TSP has been achieved at a particular vesting date the share price will be determined by the 30-day VWAP immediately prior to the particular vesting date. If the employee leaves before the rights vest and the service condition is therefore not met the rights lapse. Achievement of the following TSP performance is required for each tranche to vest: Tranche 1: £0.061 Tranche 2: £0.076 Tranche 3: £0.095 Tranche 4: £0.119 Tranche 5: £0.149 If the TSP has been achieved at the particular vesting date, then 100% of the performance rights allocated to that tranche will vest. Where at least 90% of the TSP has been achieved at the particular vesting date the corresponding Performance Rights equal to the proportion of the TSP achieved for that year will vest. Where less than 90% of the TSP is achieved 0% of the rights will vest. However, the performance rights issued under the tranche will have the opportunity to achieve 50% vesting two years later by way of re-test. The re-test feature is such that 50% will vest if the original TSP is achieved at the following two consecutive LTI vesting dates. The remaining 50% will lapse. Due to the COVID-19 pandemic and geopolitical factors adversely influencing the share-price during FY22 the Board has agreed to roll 100% of the Tranche 3 rights (5,000,000 rights) for retesting on 1 July 2023 and 1 July 2024. The remaining 50,150,712 performance rights have been granted under Key Person Agreements in respect of a total of 27 nominated key people. These people have been identified as having key roles directly related to the Company's long- term success and the allocation of accelerated performance rights has been implemented by the Board to successfully retain these employees and affirm successful delivery on a range of projects and customer commitments. These awards have an accelerated grant with delayed vesting taking place on 1 July 2024 and require the employee to remain continuously employed by the Company until the vesting date. If an employee leaves before the rights vest and the service condition is therefore not met, the rights lapse. In some cases, for 'good leavers', determined on a discretionary basis by management, options are prorated for service in the current period and that portion are vested on termination, the remaining rights are cancelled. There is no cash settlement of the rights. The Group accounts for the Executive Share Plan as an equity-settled plan. ii. 2019 CEO Call Options Scheme In September 2019 the Company awarded rights to acquire 12,000,000 ordinary shares as part of the Company's Call Option Scheme to the CEO. These rights will vest on 1 July 2022, providing the CEO remains continuously employed by the company, and will be exercisable at any point within one year at a price of £0.0441 per ordinary share, being the average daily volume weighted average price (VWAP) over the 5 trading days to 27 September 2020. There is no cash settlement of the options and the options will expire if they are not exercised by 1 July 2023. Taking into account the terms and conditions upon which the options were granted, and the assumptions outlined below, the weighted average fair value of the options at grant date is £0.0182. At 30 June the weighted average remaining life for the outstanding share options was 1 year (2021: 2 years). iii. 2019 CEO LTI Performance Rights In September 2019 the Company awarded 25,000,000 rights in respect of ordinary shares 75 seeingmachines In some cases, for ‘good leavers’, the Board, in its absolute discretion, may partially allow some of the rights to acquire Shares to be exercised or allocate cash on a pro rata basis, having regard to the group performance to that point and the likelihood that the group will achieve the KPIs by the performance date. Any remaining rights are cancelled. Taking into account the terms and conditions upon which the options were granted, and the assumptions outlined below, the following fair values have been calculated: Tranche 1: £0.0190 Tranche 2: £0.0193 Tranche 3: £0.0193 Tranche 4: £0.0192 Tranche 5: £0.0192 The table below summarises the number of performance rights issued, vested, cancelled and open for testing/ retesting on 30 June 2022. Tranche Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5 Total Original Vesting date No. of rights Rights vested Rights cancelled Open for testing/ retesting 1 July 2020 5,000,000 2,500,000 2,500,000 1 July 2021 5,000,000 5,000,000 1 July 2022 5,000,000 1 July 2023 5,000,000 1 July 2024 5,000,000 - - - - - - - - - 5,000,000 5,000,000 5,000,000 25,000,000 7,500,000 2,500,000 15,000,000 The fair values at grant date are estimated using a binomial pricing model using historic volatility as a proxy for implied volatility, long term UK government bond prices for the risk-free rate and share price information from DataStream. The following assumptions have been used in calculating the fair values in relation to offers made to the CEO: Dividend yield: 0% Volatility: 63% Post-vesting Withdrawal Rate (options only): 0% Risk-free interest rate: 1 Year: 0.56% 2 Year: 0.44% 3 Year: 0.39% 4 Year: 0.36% 5 Year: 0.35% 6 Year: 0.36% 7 Year: 0.37% For the year ended 30 June 2022, the Company has recognised A$5,159,000 of share - based payment expense in the statement of comprehensive income (2021: A$3,250,000). 76 seeingmachines c. Summaries of shares issued and held in Trust 2022 No ‘000 2022 WAP* (pence) 2021 No ‘000 2021 WAP* (pence) Shares held in Trust at 1 July Issued during the year 85,790 - Vested and transferred during the year (36,073) Shares held in Trust at 30 June 49,717 9.64 - 10.43 9.06 41,405 70,000 (25,615) 85,790 6.92 9.50 6.80 9.64 d. Summaries of rights granted under the Performance Right Scheme: Outstanding at 1 July Granted during the year Forfeited during the year Exercised during the year Outstanding at 30 June Exercisable at 30 June 2022 No ‘000 2022 WAP* (pence) 2021 No ‘000 2021 WAP* (pence) 131,215,354 64,996,414 (3,284,533) (30,466,951) 162,460,284 45,168,455 5.65 9.55 7.47 7.88 6.75 5.39 132,333,408 29,964,495 (7,072,085) (24,010,464) 131,215,354 51,806,200 5.97 5.60 4.79 7.69 5.65 7.02 * Weighted Average Price (WAP) is the Market price at the time of grant. 34. Commitments As at 30 June 2022, the Group had commitments of A$36,287,850 (2021: A$15,981,803) relating to the manufacturing contract for the Group's Guardian 2.1 product for the period July 2022 to July 2023. 35. Contingent Liabilities As at 30 June 2022, there were no contingent liabilities (2021: Nil). 77 seeingmachines 36. Events After the Reporting Date On 4 October 2022, Seeing Machines entered into an exclusive collaboration agreement (“Agreement”) with Magna International (“Magna”), to pursue driver and occupant monitoring system business targeting the vehicle’s interior rear-view mirror. Under the terms of the Agreement, subject to certain exceptions, Seeing Machines and Magna will exclusively co-market driver and occupant monitoring, solely where the Company’s IP is fully integrated inside the rear-view mirror, until the end of June 2025. In return for Seeing Machines granting exclusivity to Magna for the mirror, Magna will make an upfront payment to Seeing Machines of US$10m, with an additional US$7.5m payable over the following 2 years. At the same time, Magna has also agreed to invest up to an additional US$47.5m into Seeing Machines via a non-transferable 4-year convertible note maturing in October 2026 (the “Convertible Note”). The Convertible Note, which can be drawn down in two tranches across the 4-year term, subject to the satisfaction of certain closing conditions,is convertible into ordinary shares at a price of 11 British pence per share. The first tranche, being US$30m, was drawn on 5 October 2022 with the remainder available until December 2024. The Convertible Note has an all-in yield of 8%, inclusive of fees. Magna may elect to convert the principal and at Seeing Machines’ election, interest outstanding under the Convertible Note at any time during its term, up to a maximum of 349,650,350 shares which, when added to Magna’s existing shareholding in the Company, will represent approximately 9.9% of the fully diluted share capital of the Company. The Convertible Note contains standard covenants, and anti-dilution provisions. The interest due at the end of the facility can be paid in cash or converted into equity at Seeing Machines' election. 37. Auditors' Remuneration The auditor of the Group is PricewaterhouseCoopers (2021: Ernst & Young). Consolidated 2022 A$ 2021 A$ Amounts received or due and receivable by our auditors for: An audit or review of the financial report of the entity and any other entity in the consolidated group 270,914 139,000 Other services in relation to the entity and any other entity in the consolidated group Tax compliance Accounting advisory services Total - 74,861 51,000 - 321,914 213,861 78 seeingmachines directors’ declaration In accordance with a resolution of the Directors of Seeing Machines Limited, I state that: 1. In the opinion of the Directors: (a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the consolidated entity's financial position as at 30 June 2022 and of its performance for the year ended on that date; and (ii) Complying with Accounting Standards (including Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) The financial statements and notes comply with International Financial Reporting Standards as disclosed in Note 2(a); and (c) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2022. On behalf of the board Paul McGlone Executive Director & Chief Executive Officer Canberra 79 seeingmachines Independent auditor’s report To the members of Seeing Machines Limited Independent auditor’s report Report on the audit of the financial report To the members of Seeing Machines Limited Our opinion Report on the audit of the financial report In our opinion: The accompanying financial report of Seeing Machines Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: Our opinion financial performance for the year then ended In our opinion: (a) giving a true and fair view of the Group's financial position as at 30 June 2022 and of its The accompanying financial report of Seeing Machines Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. (a) giving a true and fair view of the Group's financial position as at 30 June 2022 and of its What we have audited The Group financial report comprises: financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. ● ● ● ● ● ● ● ● ● ● ● What we have audited The Group financial report comprises: the consolidated statement of financial position as at 30 June 2022 the consolidated statement of comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of financial position as at 30 June 2022 the consolidated statement of cash flows for the year then ended the consolidated statement of comprehensive income for the year then ended the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information the consolidated statement of changes in equity for the year then ended the directors’ declaration. the consolidated statement of cash flows for the year then ended the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information the directors’ declaration. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. Basis for opinion Basis for opinion ● We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis those standards are further described in the Auditor’s responsibilities for the audit of the financial for our opinion. report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also We are independent of the Group in accordance with the auditor independence requirements of the fulfilled our other ethical responsibilities in accordance with the Code. Corporations Act 2001 and the ethical requirements of the Accounting Professional & 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 also fulfilled our other ethical responsibilities in accordance with the Code. PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331 MELBOURNE VIC 3001 T: +61 3 8603 1000, F: +61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331 MELBOURNE VIC 3001 T: +61 3 8603 1000, F: +61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. Materiality ● For the purpose of our audit we used overall Group materiality of $1 million, which represents approximately 4% of the Group’s loss before tax. ● We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. ● We chose Group loss before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured. ● We utilised a 4% threshold based on our professional judgement, noting it is within the range of commonly ● Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. acceptable thresholds. Audit Scope Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit 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. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We communicated the key audit matters to the Risk, Audit and Finance Committee. Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. the notes to the consolidated financial statements, which include significant accounting policies approximately 4% of the Group’s loss before tax. Materiality ● For the purpose of our audit we used overall Group materiality of $1 million, which represents ● We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. ● We chose Group loss before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured. ● We utilised a 4% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. Audit Scope ● Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit 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. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We communicated the key audit matters to the Risk, Audit and Finance Committee. Independent auditor’s report To the members of Seeing Machines Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Seeing Machines Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group's financial position as at 30 June 2022 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: the consolidated statement of financial position as at 30 June 2022 the consolidated statement of comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended ● ● ● ● ● ● and other explanatory information the directors’ declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & 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 also fulfilled our other ethical responsibilities in accordance with the Code. PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331 MELBOURNE VIC 3001 T: +61 3 8603 1000, F: +61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Key audit matter How our audit addressed the key audit matter Key audit matter How our audit addressed the key audit matter Revenue recognition for non-recurring engineering services (Refer to notes 4 & 7) [$8.2 million] The Group recognised revenue from pre-production non-recurring engineering services of $8.2 million. Revenue recognition is a key audit matter due to the significant judgement associated with the recognition of this revenue, particularly: ● Identification of performance obligations within the contract including a number of identifiable goods from non-engineering services and an Intellectual Property (IP) licence, ● Allocating the transaction price to separate performance obligations, ● Determining when performance obligations have been satisfied in order to recognise revenue over time. Capitalised development costs (Refer to notes 4 & 19) [$25.7 million] During the year the Group capitalised $25.7 million of internally generated project development costs. The capitalisation of project development costs is a key audit matter due to the size of the internal costs capitalised and the significant judgement involved by the Group in assessing whether the criteria set out in the Australian Accounting Standards required for capitalisation of such costs had been met, particularly: ● The technical feasibility of the project, Our audit procedures included, amongst others: ● The likelihood of the project delivering sufficient ● On a sample basis, agreeing capitalised costs to ● Obtaining an understanding of the terms and conditions of the contracts. ● Assessing whether the Group’s revenue recognition policies are in accordance with Australian Accounting Standards. ● Assessing distinct goods within the contract that qualify as separate performance obligations, and assessing the allocation of the transaction price based on the relative stand-alone selling price of each good. ● Agreeing a sample of non-recurring engineering services revenue transactions to relevant supporting documentation for performance obligations completed during the year. ● For non-recurring engineering services commenced but not completed, assessing total forecasted contract costs and evaluating the percentage of completion based on the actual costs incurred to date and the estimated costs to complete for performance obligations in progress as of the reporting date. ● Assessing the Group’s forecasting accuracy by comparing historical actual costs incurred relative to the forecast of those costs. ● Evaluating the reasonableness of the disclosures in light of the requirements of Australian Accounting Standards. Our audit procedures included, amongst others: ● Evaluating the Group’s policy and process for calculating the time and cost spent by staff on product development activities eligible for capitalisation in accordance with Australian Accounting Standards. ● Developing an understanding of the capitalised product development projects undertaken during the year and assessing whether the costs meet the criteria for capitalisation in accordance with Australian Accounting Standards. future economic benefits, ● The useful lives over which costs should be amortised, ● Recoverability of project development costs. supporting documentation, including time sheets and employee contracts, to assess whether labour hours were authorised and to assess the capitalisation rate used in determining the amount of costs to be capitalised. ● Assessing the appropriateness of the useful life attributed to these costs through consideration of the economic life of the projects and benchmarking the useful life based on the industry. of impairment. ● Evaluating the Group’s assessment for indicators ● Evaluating the reasonableness of the disclosures in light of the requirements of Australian Accounting Standards. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2022, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. Key audit matter How our audit addressed the key audit matter ● The likelihood of the project delivering sufficient future economic benefits, ● The useful lives over which costs should be amortised, ● Recoverability of project development costs. ● On a sample basis, agreeing capitalised costs to supporting documentation, including time sheets and employee contracts, to assess whether labour hours were authorised and to assess the capitalisation rate used in determining the amount of costs to be capitalised. ● Assessing the appropriateness of the useful life attributed to these costs through consideration of the economic life of the projects and benchmarking the useful life based on the industry. ● Evaluating the Group’s assessment for indicators of impairment. ● Evaluating the reasonableness of the disclosures in light of the requirements of Australian Accounting Standards. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2022, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of 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. PricewaterhouseCoopers Jon Roberts Partner Melbourne 27 October 2022 In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of 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. PricewaterhouseCoopers Jon Roberts Partner Melbourne 27 October 2022