Spirit Technology Solutions Ltd
Annual Report 2021

Plain-text annual report

Do IT with Spirit Annual Report 2021 ASX:ST1 If you do business, Do IT with Spirit 2 Annual Report 2021 Annual Report 2021 3 Table of Contents Highlights of the Year Letter from the Chair Letter from the Managing Director Spirit Technology Solutions New Look Board Members Executive Team Spirited Women Introducing our Brands Directors' Report Auditor’s Independence Declaration Statement of Profit or Loss & Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 6 9 11 14 16 18 22 24 36 61 63 65 67 71 73 133 135 141 144 4 Annual Report 2021 Annual Report 2021 5 FY21 Highlights Underlying $11.5M EBITDA 209% Underlying Earnings Before Interest, Taxes, Depreciation and Amortization 2 Underlying Integration 10 Completed integrations 3 remaining acquisitions to be integrated $4.5M NPBT 1010% Underlying Net Profit Before Tax (NPBT) 3 $104.5M Revenue 200% Year on Year revenue 1 Annual Recurring Revenue $65M $1.34M Statutory NPBT 166% FY21 exit Run Rate Annual Recurring Revenue Statutory Net Profit Before Tax 1. Revenue refers to sales revenue and other income 2. EBITDA is a financial measure which is not prescribed by Australian Accounting Standards ('AAS') and represents the profit under AAS adjusted for depreciation, amortisation, interest and tax. Underlying EBITDA adjusts the Statutory financial metrics to exclude business acquisition & integration costs, net fair value loss on remeasurement of contingent consideration on business combinations, business restructuring costs and share-based payments. 3. Underlying Net Profit Before Tax takes into account the Underlying EBITDA adjustments and also adjusts depreciation & amortisation to exclude the impact of amortisation of customer relationships. 6 Annual Report 2021 FY21 Evolved to Spirit Technology Solutions (from Spirit Telecom) New purpose and brand launched “Do IT with Spirit” activated in April 2021 Launched Spirited Women May 2021 Transformational acquisition of Nexgen in April 2021 Google Rating 4.3 Google business 4.3 star rating Customers 10.5K B2B customers nationally Staff 445 445 staff currently employed. 250% increase from FY20 Resellers 350 Resellers nationally Annual Report 2021 7 A Letter 8 Annual Report 2021 A Letter From the Chair Dear Shareholder, growth, complementary products and scale going forward. We are working hard to identify more opportunities for Spirit I’m pleased to share our Annual Report for 2021 – a year in to deliver our strategic vision. which Spirit has focused on consolidating our base and investing for the future as we prepare for the next phase of Unifying our team has been central to our integration strategy growth. and forms the backbone to any growth strategy which remains an ongoing focus for the business. We have recruited Over the last 18 months, we have made no secret about the best in class talent including Todd Brooker as new Chief Spirit’s ambitious growth plans and goal to become Australia’s Sales Officer and Zoe Rosenwax as our Head of People. leading provider of Technology & Telecommunication services for businesses of all sizes. As a result of our investments across the board, we had record new business lead flow coming through Spirit. And the In April, we were delighted to introduce our new purpose and performance of our business goes from strength to strength positioning “Do IT with Spirit” with the launch of our new with consistent growth in contract value, recurring revenue brand and name ‘Spirit Technology Solutions’. It’s a line in and retention growing quarter on quarter. the sand that heralds a rethink of our strategy, ambition and spirit. This new identity reflects our vision and values in how Importantly, we now provide a complete customer offering we work with our customers, to become a valued partner and at Spirit which includes Cyber Security, Cloud, high-speed support their vital work. Internet, Mobile, Voice, Managed Service and Security solutions. We are now selling across the whole spectrum of As we have grown and learned over the past 12 months, for Australian businesses and our intention is to bundle more to Spirit to realise our strategy and full potential, it’s more than grow a recurring revenue book, grow the contract tenure and just improving sales, profit, customer experience, footprint improve customer stickiness. We expect to see strong organic and product. We are a partner for businesses. growth opportunities going forward through cross selling products and services with Nexgen. Today, we are laser-focused on our vision to create a modern telco and IT business that is profitable and sustainable, and Spirit has not been immune from the impacts of the COVID-19 helping Australian businesses from SMB to mid-market and pandemic however the robust nature of the business has corporates. For Spirit to stand out confidently in an ever- meant that we have continued to deliver record growth and consolidating market we need to be better than we ever have profits the past year, with high demand for our products and been. And we are, but we aren’t stopping. services set to continue. As part of our ongoing transformation journey, we have made We are confident our plans will solidify our intention to further successful acquisitions and worked hard to ensure provide the best customer experience and be the one stop these businesses are fully integrated. Of the 13 most recent shop for our Australian businesses. We have grown, we have acquisitions, Spirit has successfully integrated 10 of those matured, we are vibrant and we have a high-market product companies into our standard operating environment with only offering. Reliance and the recent purchases of Intalock and Nexgen remaining. On behalf of the Board and the team at Spirit, I thank you, our shareholders, for your ongoing support. The Nexgen acquisition in April this year has been transformational, with synergies and combined technology opportunities providing new business and scale. The deal brings 5,000 new business customers, doubling our B2B customer base, and 100 new salespeople to drive organic James Joughin | Chairman Annual Report 2021 9 A Letter 10 Annual Report 2021 A Letter From the Managing Director Dear Shareholders, I would like to start by thanking you for your support during Acquisitions to become a fully integrated Financial Year 2021. Despite unique challenges caused by the technology provider pandemic, Spirit Technology Solutions has transformed from a small Telco to a national fully integrated technology provider for businesses across Australia. Over the past year Spirit has been rebuilt and repositioned to become the go-to tech provider for Australian businesses – both big and small. We have created a truly modern Telco and IT business with a refreshed brand that is resonating with the market – ‘If you do business, Do IT with Spirit.’ Our vision is to be the first port of call for Australian businesses to meet all their technology needs. We are striving to give Australian businesses the service they deserve, along with an integrated product suite – one monthly bill, one account manager and one provider – to manage their needs from collaboration, managed IT services, Cloud migration, high-speed Internet and Cyber Security. Our financial results, demonstrate the successful integration of our acquisitions and bundling of services as we build a business of scale with growing profitable margins. We are genuinely excited to embark on realising the synergies and growth opportunities as the business positions further into the mid and corporate markets across FY22-FY23. Spirit strategy delivers record growth and profit Spirit’s record growth and revenue have been boosted by the transformational acquisition of telecommunications provider and sales-led powerhouse, Nexgen for $50 million in April, providing scale, a portfolio of 5,500 new business customers and a very impressive sales process. After multiple acquisitions during the year, including cybersecurity firm Intalock in December 2020, Spirit is now a fully integrated Telco and IT business. The Intalock acquisition brings a highly sophisticated Cyber Security offering, including an international security operations centre. A number of esteemed Cyber Security leaders from Intalock have joined Spirit, along with a blue-chip customer base of household brands. This has propelled Spirit into a new area of the market and positions us as a credible contender for market share in the enterprise and government space and provides us with a sophisticated Cyber Security offering. Through these acquisitions, we are now focused on transitioning to being a pure business to business provider. We see an opportunity to move the revenue mix towards mid-level and larger corporates which is more defensive and attracts larger and longer contract sizes to create clearer revenue stability for Spirit. Spirit recorded record revenue 1 of $104.5M, up 200% in Building a national brand FY21 which was driven by strong performances across new business sales in the mid-corporate markets and SMB market. The business also became profitable with Underlying Net Profit Before Tax 3 of $4.5M up 1010%. Our growth strategy is paying off as we see strong and growing demand for our product set across Data, Cyber, Managed Services and Voice. We trebled Underlying EBITDA2 to $11.5M, up 209% and are increasingly seeing this momentum carry us into larger contract success in the mid and corporate markets. This is backed by a strong balance sheet with $8.5M of cash at 30 June 2021. References 1, 2, 3 refer to page 6. Annual Report 2021 FY21 saw Spirit expand into new product markets and geographies across Australia. The product sets include Cloud, re-seller, virtual collaboration, Cyber Security and a vast array of managed IT services in a bundled offering. We now have more than 10,000 business customers nationally, an army of salespeople and a very active reseller channel. This gives Spirit a competitive advantage across the product suite and creates demand driven growth. This has also enabled Spirit to win larger accounts nationally via IT and Telco products. 11 Looking forward, we see continued consolidation in the fragmented IT & Telco markets, in which Spirit will thrive. Australian businesses are becoming more dependent on the technology that only an integrated IT & Telco business like Spirit can provide, which has created structural change in the industry that we are responding early to. In closing, I would like to thank my fellow Board members and the entire Spirit team for their hard work, motivation and commitment to our evolution to a fully immersed technology provider for businesses across Australia; and doing it with excellence. To our shareholders, thank you for your support of the company – we look forward to sharing the next phase of our growth with you. Sol Lukatsky | Managing Director 12 Annual Report 2021 Annual Report 2021 13 2021, the birth of Spirit Technology Solutions Spirit Brand Evolution Telecom 2016 2021 Sydney International Airport Sydney George St 14 Annual Report 2021 Melbourne Monash Freeway Melbourne Westgate Freeway Melbourne International Airport Annual Report 2021 15 The Spirit Group's Board Members James Joughin Chairman James brings over 30 years of general corporate experience, having been a senior partner of Ernst & Young until 2013. He was a partner of the firm for 17 years and headed the Mergers and Acquisitions division in Melbourne. Sol Lukatsky Managing Director Sol is a Spirit executive and board member. He has experienced multiple company transactions across ASX and Private Equity backed firms. Sol has over 15 years experience in senior leadership roles covering; marketing, sales management, digital, customer experience, big data, capital markets, innovation and operations within blue chip organisations including: Dun & Bradstreet, Challenger Financial Services and NAB. 16 Inese Kingsmill Non-executive Director Inese brings over 20 years of experience in major corporations and is recognised as one of Australia’s most effective customer-focused business leaders. Her wealth of experience has seen Inese drive growth and transform brands and culture across large enterprises, including Microsoft, Telstra and Virgin Australia. Inese is also currently a Non-executive Director of ASX-listed IT Professional Services company, Rhipe Limited, hipages Group Holdings Limited and NobleOak Life Limited. Mark Dioguardi Executive Director and Chief Operating Officer Mark is a Spirit executive and board member. An experienced CTO and COO with over 25 years’ experience predominantly in Tier 1 and 2 Telco operators in Australia and Asia. A qualified engineer, Mark commenced his career in engineering at Telstra before building his corporate career as CTO at Maxis, where he led 1,350 engineers and managed a $600m USD budget to grow their network. Greg Ridder Non-executive Director Greg is currently the Chairman of Kogan.com. Formerly Asia Pacific Regional President at NYSE-listed Owens-Illinois, Greg led growth and diversification from its traditional Australian base through joint ventures and acquisitions in China and Southeast Asia. Recently he has focused on intensive business improvement, acting as CEO at the Australian Institute of Architects, CEO at Phoenix Australia and as CFO at World Vision Australia. Greg is experienced in leading businesses in multiple countries, cultures, economic circumstances and market conditions. 17 The Spirit Group's Executive Team Paul Miller Chief Financial Officer Paul is a Chartered Accountant with more than 25 years of financial experience. Having commenced his career with PwC in Australia and London, Paul has specialised expertise working in high growth companies. Chris Hayes Chief Commercial Officer Chris is an experienced executive with over twenty years' financial management and professional practice experience. He has worked in Australia, China and the UK across publicly listed entities and private equity backed operations. 18 Julian Haber CEO Intalock Julian is a highly respected Cyber Security leader and has built the Intalock brand as a leading security service provider over the past 11 years. He has business experience within Industry-leading security vendors and integrators with over 20 years’ in information security solutions, Managed Services and sales. Katie Bentley CEO Trident As CEO of Trident, Katie places a strong emphasis on leading business transformation, value creation and growth for clients in essential services. Jason Wade Chief Product & Technology Officer Jason is Spirit's Chief Growth Officer, with a wealth of technical knowledge and strong commercial acumen. A modern-day veteran within the IT and Telecommunications sector, he brings more than 25 years of experience to the table. Jason is innovative and client- focused, with a proven ability to deliver results. 19 Todd Brooker Chief of Sales Todd has over 20 years experience helping Australia's leading businesses solve their most complex technology challenges. Under Todd's guidance, the Spirit sales team have a very impressive track record working direct and also via our partner channel to find the best and most cost- effective solutions for customers. Elie Ayoub Co Managing Director - Nexgen Elie co-founded Nexgen in 2009 and has over 23 years’ experience in the telco industry across SMB, residential, corporate & government segments. James Harb Co Managing Director - Nexgen James co-founded Nexgen in 2009 and has over 20 years’ experience in the telco industry. He has led the development of structure, strategy, systems and coaching disciplines required to maintain a high-performance sales culture. Kate Hawker Head of Corporate Services Kate brings valuable experience supporting business operations across various industries. Highly experienced in business strategy execution, particularly in business growth and expansion, Kate's skills are diverse, assisting and supporting most aspects of the business, from the Board to our technicians. 20 Spirit Technology Solutions, Shaking Things Up in the Tech Industry 21 Connect, Empower & Inspire Women in Technology Spirited Women About the Initiative Spirited Women is a safe and supportive network dedicated to the advancement of women in the technology sector to connect, empower and inspire each other. We serve to tackle the challenges women face in the technology industry. We drive and lead the future of tech diversity. With technology changing faster than ever before, it is necessary to stay up to date. Spirited Women allows women in technology to come together to learn from one another, find mentors and new business or partnership opportunities. We want to inspire and be inspired by the women in our group. Through our range of events and gatherings, you can expect knowledge sharing, collaboration, fun and spirited conversation. Let us connect, start sharing your success stories, grow your network and keep informed of our upcoming events. Start your journey today and join Spirited Women! Of course, you are welcome to invite all the women and men in your organisation to join. Empower, Advance & Grow Learning & Development Support Network Our Goals About The Initiative Short term  ▶ To cultivate an internal culture that will resonate across all departments within the Spirit Group ▶ To create momentum and traction across all levels and departments ▶ To foster a safe environment where Spirit employees can grow and be respected by their peers Mid/Long term ▶ To establish a nurturing culture that sets the benchmark across the Telco & Techo industry ▶ To generate external interests and attract high caliber talents to join the Spirit team ▶ To set a benchmark that Spirit is the desired career destination ▶ To set a benchmark that Spirit is the desired partner of choice by customers and vendors 22 Annual Report 2021 Connect, Empower & Inspire Women in Technology About The Initiative Introducing our Brands 24 25 We Make IT Happen The Spirit Technology Group Difference So, Who are We? Put simply. We’re a disruptor in the Australian business technology industry. What started with incredibly fast, Sky-Speed Internet has become a full tech service offering. In less than two decades, we have established ourselves as Australia's leading Cyber Security experts, built one of the nation's leading Voice platforms, and offer a huge range of hardware, software, Managed IT services, and Cloud-based solutions. Our solutions feature a range of best-of-breed products, so Australian businesses can count on us to keep them running, no matter what gets thrown at them. We’re agents of change. And because of that, we’ve paved the way for the nation to do business better, by merging the worlds of IT and Telco under one roof. That’s why we take care of IT. And by that, we mean all of it. So whatever the technology needs... Do IT with Spirit. Your entire IT & Telco A single point of contact A single clean invoice for all Stack under one roof for everything your tech, every month An all Australian based business One of Australia's top ASX Industry-leading listed tech companies customer satisfaction 26 Annual Report 2021 Experts in best of breed communication solutions Masters of merging the worlds of telco & IT under one roof World-class account management and bespoke technology solutions Industry-leading cyber security solutions Small business specialists Medium-large business specialists Essential services specialists Enterprise & Government specialists The Spirit Difference By doing business with any member of the Spirit family, our customers immediately have access to the finest technology specialists and solutions available in the country. Our group portfolio allows them to have one single point of contact for all tech needs, whilst also ensuring that you are delivered the best-in-class solutions for businesses of any shape and size. On the surface, you won't realise you are dealing with other business units across the group. By having a structured portfolio we are able to give customers a single brand and contact to work with. This also allows us to focus and grow our research & development in specialist tech areas to deliver you the latest & greatest innovations. All services cyber secure by design Annual Report 2021 27 Nexgen's Story Powering Business Communications We’re more than just business telecommunication specialists. We’re here to simplify the way Australia does business. By providing businesses with the right tools, we help improve your customer journey and enhance productivity and efficiency. All while helping your staff communicate and collaborate more effectively. It’s what we do. Today’s sales processes have seemingly endless touchpoints, and keeping up with them all is critical to business success. We have the tech to make that possible. When a customer gets in touch, our solutions ensure our customers have all the information they need at their fingertips, right down to what was discussed on their last call to the products they own. Together, we improve customer service and help our customers grow as a result of this. At Nexgen, we only partner with best-of-breed vendors to bring the most innovative and affordable communications solutions to the market. We're not just here to meet current needs. We're here to future proof businesses. 24x7 Australian support team available Australia owned and operated Trusted, with over 5,000 business customers One bill & one touchpoint for all your services Expert in-house technicians Tailored solutions for your business 28 Annual Report 2021 Nexgen's Key Customers Customer Diversification Nexgen has a diversified and resilient customer base. Ī Medical & Health Care Ī Construction & Engineering Ī Prof. Serv. - Finance, Acctg. & Legal Ī Prof. Serv. - Other Ī Manufacturing & Industrial Ī Other services - Beauty Services, etc. Ī Automotive Ī Retail Ī Wholesale, Transport, & Logistics Ī Accommodation & Dining Ī Real Estate Services Ī Education, NGOs, & Government Ī Other 3% 4% 13% 5% 5% 5% 8% 8% 13% 10% 8% 9% 9% Customer breakdown by industry Nexgen's Key Customers Over 5,500 Business Customers, Including… Annual Report 2021 29 Spirit's Story To build a successful business, you need to throw everything at it, with purpose, ambition and energy. And when you have a technology partner who is efficient, reliable and future focused it means that you can get on with doing what you do best. When choosing the perfect partner to do the things you can’t, make sure that they do what they do, with the same spirit. So when it comes to your technology needs... Do IT with Spirit Specialties We’re prepared to challenge the old way to deliver new solutions, platforms, products and services. We’ll partner with you to improve the way your business technology operates, because we believe in making Australian businesses even better. Our expert teams are on the ground all around Australia and available to help you 24/7. With decades of Industry-leading experience and an arsenal of world-leading tech, there’s nobody better placed to deliver solutions that can be relied on. No confusing jargon, just great service (and even better results). Internet Connections Communications Cyber Security Managed Services Cloud Solutions ▶ Business Fibre ▶ Mobile ▶ NBN Enterprise ▶ ▶ Fixed Wireless Private Network ▶ Managed Router ▶ ▶ ▶ ▶ LivePBX LivePBX + Mitel LiveCall Teams Connector ▶ ▶ ▶ ▶ ▶ SD-WAN ▶ Managed Print ▶ Hybrid Cloud Custom SD-WAN ▶ DR & BCP Firewall ▶ IT Support Endpoint Security ▶ Managed IT Advanced ▶ Managed Wi-Fi Security Services ▶ Professional Service ▶ ▶ ▶ ▶ ▶ Private Cloud Public Cloud LiveOffice LiveOffice Desktop LiveOffice Exchange One-stop-shop for all Telco Best-practice design and Tech solutions shaped to Bundle and save with other and Technology needs configuration each business Spirit solutions 24x7 Australian One bill & one touchpoint for Available as a fully support team available all your services Managed Service 30 Annual Report 2021 Spirit's Customers Over 3,000 Business Customers, Including… Annual Report 2021 31 Trident's Story To provide essential services, organisations on the front-line need a technology partner they can count on. That’s where Trident comes in. We have over 30 years experience delivering tailored information technology, infrastructure and services to schools, healthcare and organisations across Australia. From PC installation through to end-to-end IT solutions, we deliver solutions that are unique to essential services needs. Off-the-peg has never really been our style! In 2020, Trident joined with ASX listed Spirit Technology Solutions, to become one of Australia’s most trusted Internet and technology businesses. Our partnership means we can offer an unrivaled portfolio of services to keep our essential organisation's performing at their best. We are innovators and known as one of Australia’s leading integration providers. Our priority is to deliver innovative technical design, thoughtful Managed Service solutions, beneficial consulting outcomes and exceptional events. We understand that every organisation is different – because we are too! Our expert team and dedicated account managers ensure our customers find the right technology solutions to suit their needs. We can be counted on for ongoing support to make sure that essential operations never stop. Deep industry Experts in designing Greatly experienced Agile and adaptable knowledge in education and delivering complex technical team and healthcare/aged care tailored solutions 32 Annual Report 2021 Technology Solutions Trident's Clients Over 100+ Clients, Including… Customer Testimonials The difference with Trident is that they always deliver on what they promise, which can’t be said of every technology provider. The skill sets and experience of their engineers means they can get the solution implemented faster, and ensure it works from day one. Graeme Newland Director of Information Technology Peninsula Grammar Trident is working collaboratively and quickly with us to adapt our IT services and high-speed Internet. I am very pleased this critical service can be provided reliably and effectively from the Spirit and Trident teams. Tim Rowler Business Manager and Company Secretary, Loreto Mandeville Hall Toorak From our perspective, Trident are always reliable and efficient with every piece of technology they deliver, and this scenario was no different. From the proposal through to the team working on-site, the entire process ran smoothly and on-time Ian Foster The Knox School The real difference with Trident is their Customer Service. You can easily pick up the phone, explain a problem, and have it solved immediately Peter Gunn Homestyle Aged Care Annual Report 2021 33 Intalock's Story Peace of mind with Cyber Security services from experts We are one of Australia’s leading Cyber Security partners. And we’re leading the way for a reason. For over ten years we have specialised in developing innovative and effective Cyber Security services, and we haven’t stopped doing it since. It’s in our DNA. Our expertise comes from working with a variety of leading enterprises and government organisations, which has given us the knowledge and experience to develop world-class security solutions that’ll be sure to keep your business (and its data) safe. Specialties Many businesses believe that good security means building higher walls around their networks. This takes a lot of time, money and resources, which isn't effective or sustainable. We show our customers a better, more cost-effective way. Giving them more time and money to focus on what their organisation does best. We pride ourselves on being different. And we’re willing to bet our customers do to. That’s why we take a strategic, data centric approach to Cyber Security. We will always take the time to understand our customer's data, its sensitivity, and how it gets used, stored and shared. In fact, we’ll get to know everything about a client, all so we can better protect them from online threats. Advisory services Technical Services Managed Services ▶ Gap Assessments against NIST, ▶ Design, deploy and configure ▶ Security Operations Centre (SOC) and ISO27001, CPS234, ASD Essential technical security controls Managed Detection and Response Eight or Government ISM ▶ Identity management, threat and (MDR) ▶ ISMS implementation, audit and information protection platforms ▶ Vulnerability Management as a compliance ▶ Cloud Security implementation Service ▶ Cyber Security Roadmaps & Risk and migrations ▶ Backup as a Service Management Frameworks ▶ Security testing and threat ▶ Managed security operations and ▶ Threat and risk assessments, incl emulation, incl penetration testing, tools 3rd party, supply chain risk phishing and red/purple teaming ▶ Digital Forensics and Incident ▶ Cyber incident response planning Response ▶ Ongoing Information Security Awareness Training program Intalock Security Operations Centre (SOC) The Intalock Security Operation Centre (SOC) provides protection for some of Australia's leading organisation’s information and systems, including the network, endpoints and data. It provides 24x7 management, threat detection and response. Our managed SOC services are delivered by a dedicated, specialist team of technical leaders, analysts and engineers. We apply our own, unique methodology and processes alongside leading Cyber Security technologies, offering our national businesses the best possible protection. Our SOC is supported by our Advanced Threat Response Unit, whose specialists provide threat intelligence, threat emulation and digital forensics support to our partners. 34 Annual Report 2021 Some of Intalock's Customers Annual Report 2021 35 Directors' Report 36 Annual Report 2021 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Consolidated Entity') consisting of Spirit Technology Solutions Ltd (referred to hereafter as the 'Company', 'parent entity' or 'Spirit') and the entities it controlled at the end of, or during, the year ended 30 June 2021. Directors The following persons were Directors of Spirit Technology Solutions Ltd during the whole of the financial year and up to the date of this report, unless otherwise stated: Mr James Joughin (Non-Executive Chairman) Mr Sol Lukatsky (Managing Director) Mr Mark Dioguardi (Executive Director) Mr Gregory Ridder (Non-Executive Director) Ms Inese Kingsmill (Non-Executive Director) (appointed on 1 July 2020) Mr Terence Gray (Non-Executive Director) (resigned on 7 July 2020) Principal activities During the financial year the principal activities of the Consolidated Entity consisted of the provision of IT&T services. This includes the provision of Telecommunication services, Cloud services, Managed IT services and Cyber Security services (referred to hereafter as IT&T Services). Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations The profit for the Consolidated Entity after providing for income tax amounted to $1.157M (30 June 2020: loss of $1.515M). Total revenue and other income for the Consolidated Entity for the financial year ended 30 June 2021 was $104.5M (30 June 2020: $34.9M). The following table summarises key financial metrics for the period: Annual Report 2021 37 2 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Sales revenue Other income Earnings before interest, taxes, depreciation & amortisation (EBITDA*) Business acquisition & integration costs Net fair value loss on remeasurement of contingent consideration on business combinations Business restructuring costs Share-based payments Underlying EBITDA* Profit/(Loss) after income tax (expense)/benefit 2021 $'000 2020 $'000 Change Change $'000 % 102,786 1,683 104,469 34,429 445 34,874 68,357 1,238 69,595 8,619 2,100 2,182 640 6,437 1,460 199% 278% 200% 295% 228% 168 - 621 11,508 - 426 479 3,727 168 (426) 142 7,781 100% (100%) 30% 209% 1,157 (1,515) 2,672 176% *EBITDA is a financial measure which is not prescribed by Australian Accounting Standard (‘AAS’) and represents the profit under AAS adjusted for depreciation, amortisation, interest and tax. Underlying EBITDA is EBITDA adjusted to exclude business acquisition & integration costs, net fair value loss on remeasurement of contingent consideration on business combinations, business restructuring costs and share-based payments. The basic and diluted earnings per share for the financial year ended 30 June 2021 was $0.21 (30 June 2020: loss of $0.42). The net assets of the Consolidated Entity increased by $71.6M to $109.7M as at 30 June 2021 (30 June 2020: $38.1M). During the financial year the Consolidated Entity continued its evolution to become a Modern Telco, by providing a complete offering across Telecommunications, Internet, Cloud, IT Managed Services and Cyber Security. Spirit accelerated its acquisition strategy to enable the Consolidated Entity to create a contemporary and customer relevant IT&T company for Australian businesses. Spirit continues to execute to strategy and is building a highly valuable IT&T asset for its shareholders and customers. Organic demand for the product set across: Data, Cyber, Managed Services, Voice and importantly Spirit’s bundled offering continues to be very positive. The Company is seeing continued growth momentum with larger contracts in the mid and corporate markets. The acquisition of the Nexgen Group in April 2021 expanded the Consolidated Entity’s customer base in the Small & Medium Business market with the addition of over 5,500 Data & Voice business customers and 100+ sales team members. The Consolidated Entity has invested heavily in integration and migration projects throughout the year and now has a truly scalable and end-to-end customer focused platform to enable the sales organisation to execute and provide multiple product solutions to our customers. Spirit enters financial year 2022 in a position to take advantage of growth opportunities and leverage the investments made in financial year 2021. 38 Annual Report 2021 3 Spirit Technology Solutions Limited Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Significant changes in the state of affairs On 1 July 2020, the Consolidated Entity announced it completed the acquisition of the VPD Group and 29,000,000 fully paid ordinary shares were issued (subject to voluntary escrow until 1 July 2021), at a fair value issue price of $0.25 (25 cents) per share. On 20 August 2020, the Consolidated Entity announced the agreement to acquire three Managed IT Service providers, which were rebranded as Spirit Solutions Partners. The three providers were: 1. Reliance IT, a Cloud Managed Services provider based in Central NSW and one of the largest providers of IT services in regional NSW; 2. Beachhead Group, a Sydney based Managed IT Services provider, specialising in Cloud and Infrastructure deployment to businesses and private schools; and 3. Altitude IT, a Sydney based Managed IT Services provider with a diverse base of recurring revenue across the commercial and industrial sectors. The total purchase price of up to $10.4M including an earnout component, will be settled as a combination of cash and Spirit equity. The acquisition of the three IT Managed Service providers was completed on 1 September 2020 and 7,940,080 fully paid ordinary shares were issued (subject to voluntary escrow until 1 September 2021), at a fair value issue price of $0.36 (36 cents) per share. On 20 August 2020, the Consolidated Entity announced: ● ● ● that it successfully raised $18.2M in a strongly supported Placement, which comprised an unconditional placement of approximately $17.88M to institutional and sophisticated investors and a conditional placement to Directors and Management of approximately $0.36M (subject to shareholder approval). the launch of a Share Purchase Plan (SPP) to raise up to $5.0M at the same issue price as the Placement. CBA (the Group’s banker) had expanded the Spirit debt facility by $5.0M, raising the debt facility limit to $15.9 M. On 27 August 2020, 55,881,401 fully paid ordinary shares were issued under the unconditional placement to institutional and sophisticated investors at an issue price of $0.32 (32 cents) per share for a total consideration of $17.9M. On 17 September 2020, the Consolidated Entity announced that the SPP had received overwhelming support and was heavily oversubscribed. On 18 September 2020, 15,624,581 fully paid ordinary shares were issued under the SPP at an issue price of $0.32 (32 cents) per share for a total consideration of $5M. $5.0M. On 14 October 2020, the Consolidated Entity advised that following approval by shareholders at the Annual General Meeting (“AGM”) held on Tuesday, 13 October 2020, the Company changed its name from “Spirit Telecom Limited” to “Spirit Technology Solutions Ltd”, effective from 13 October 2020. On 22 October 2020, following shareholder approval at the 2020 AGM, 1,125,000 fully paid ordinary shares were issued under the conditional placement to Directors and Management at an issue price of $0.32 (32 cents) per share for a total consideration of $360,000. On 22 October 2020, the Consolidated Entity issued 189,320 fully paid ordinary shares for $nil consideration, upon conversion of vested Performance Rights. Annual Report 2021 39 4 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T On 12 November 2020, the Consolidated Entity announced the issue of a total of 2,232,387 Performance Rights to Managing Director, Sol Lukatsky and Chief Operating Officer, Mark Dioguardi, following shareholder approval at the Company’s Annual General Meeting held on 13 October 2020, pursuant to the terms of the Spirit Technology Solutions Employee Incentive Plan, of which 1,418,115 vest on satisfaction of performance hurdles over the three-year period from 1 July 2020 to 30 June 2023 and 814,272 vest subject to both the Company's share price reaching $0.30 (30 cents) at any time prior to 1 July 2023 (already achieved) and continued employment until 1 July 2023. On 2 December 2020, the Consolidated Entity announced the acquisition of Intalock Technologies Pty Ltd (“Intalock”), one of Australia’s leading cyber security services businesses with a market leading and sophisticated full Security Operations Centre (SOC) for $15.0M upfront consideration. The acquisition allows Spirit to cross sell and deliver highly secure bundled Cyber Security Services with Data, Cloud and Voice. The upfront consideration of $15.0M was paid as a combination of cash (85%) and Spirit equity (15%) with a deferred consideration component. An additional earn-out consideration component is also available for out-performance in FY22 capped to maximum total transaction value of $22.5M. Any earnout component payable remains contingent upon certain agreed hurdles being met in FY22. The acquisition of Intalock was completed on 3 December 2020 and 5,921,053 fully paid ordinary shares were issued (subject to voluntary escrow until 3 December 2021), at a fair value issue price of $0.415 (41.5 cents) per share. On 27 January 2021, the Consolidated Entity announced Trident's achievement of the Target 1 Incentive (earnout) terms and accordingly issued 703,366 fully paid ordinary shares at a fair value issue price of $0.39 (39 cents) per share. On 18 March 2021, in line with the Consolidated Entity’s shift to focus on the business market, it announced the intention to divest its consumer infrastructure assets. On 31 March 2021, the Consolidated Entity announced the acquisition of Nexgen. Nexgen sells a range of high growth Data, Security & Voice products and represented a material geographic and commercial expansion with the acquisition being the largest completed by Spirit to date – which doubles the Consolidated Entity’s portfolio of B2B customers. Consideration for the acquisition of Nexgen is capped at $50M, including a deferred component of up to $10M linked to milestone incentives based on performance targets for the FY22 and FY23 years. Both the up front and deferred consideration comprised 70% cash and 30% shares in the Consolidated Entity. On 31 March 2021, the Consolidated Entity also announced: ● ● the successful raising of approximately $23.8M through an unconditional placement to institutional and sophisticated investors; and an increase of $10M in the CBA debt facility to $25M to support the Nexgen acquisition. On 8 April 2021, the Consolidated Entity announced the completion of the Nexgen acquisition and issued $12.2M in shares to Nexgen vendors, being 32,876,712 fully paid ordinary shares (subject to voluntary escrow until 8 April 2021) at a fair value issue price of $0.37 (37 cents) per share. On 8 April 2021, the Consolidated Entity completed the $23.8M placement to institutional and sophisticated investors and issued 72,121,213 fully paid ordinary shares at a fair value issue price of $0.33 (33 cents) per share. 40 Annual Report 2021 5 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T On 11 June 2021, the Consolidated Entity announced the issue of 620,685 Performance Rights to employees pursuant to the terms of the Spirit Technology Solutions Employee Incentive Plan, vesting on satisfaction of performance hurdles over the three-year period from 1 July 2020 to 30 June 2023. There were no other significant changes in the state of affairs of the Consolidated Entity during the financial year. Matters subsequent to the end of the financial year The Consolidated Entity navigated the business disruptions related to COVID-19 during the financial year ended 30 June 2021 and was not materially impacted. The Consolidated Entity did not receive any Government subsidies by way of Job Keeper. In July and August 2021, the Australian economy has experienced disruption related to COVID-19 triggered State-wide lockdowns across all major markets. These lockdowns have caused disruption to the broader business community and Spirit’s operations have not been immune. The Company continues to manage its operations to navigate through the uncertainty and impacts that these lockdowns create and more broadly assist its customer base respond and adapt. No other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect the Consolidated Entity's operations, the results of those operations, or the Consolidated Entity's state of affairs in future financial years. Likely developments and expected results of operations The Consolidated Entity is well placed to continue its strategy execution in FY22 through the integration of recent acquisitions and leveraging cross selling and bundling to its expanded customer base. The Consolidated Entity continues its growth momentum with larger contracts being secured in the mid and corporate markets and executing consistently in this market space is a core focus in the forward 12 months. The organic demand that Spirit is seeing in its product set capability must be balanced by the cost pressures being experienced in the current tight labour market combined with our intention to accelerate investment in brand, sales people and systems. As outlined, the organic growth focus will be challenged by the continuing lockdowns being experienced across Australia as a consequence of COVID-19. Environmental regulation The Consolidated Entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. Annual Report 2021 41 6 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Information on Directors Name: Title: Qualifications: Experience and expertise: Mr James Joughin Non-Executive Chairman Bachelor of Business, CPA, GAIDC James Joughin brings over 30 years of general corporate experience, having been a senior partner of Ernst & Young until 2013. He was a partner of that firm for 17 years and headed the Mergers and Acquisitions division in Melbourne. James is also an experienced company Director and holds non-executive Directorships of a number of private companies and a public company. He has wide business experience and has previously held the position of Chair of a private company and is currently Chair of a number of Risk and Audit Committees. For most of his career, James has been providing advice to Boards in relation to growth strategies, improving shareholder value, mergers and acquisitions, funding (both debt and equity) and IPO’s. Other current Directorships: MyDeal.com.au Ltd (ASX: MYD) Former Directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Name: Title: Qualifications: Experience and expertise: Bio-Gene Technology Ltd (ASX:BGT) None Member, Audit and Risk Committee, Member, Nomination and Remuneration Committee 4,353,736 fully paid ordinary shares Nil Nil Mr Sol Lukatsky Managing Director Masters of Marketing, Bachelor of Business (Marketing) Mr Lukatsky is a C-Suite Executive with multiple company transactions across: ASX and Private Equity backed companies. He has over 15 years in senior leadership roles covering: marketing, sales management, digital, customer experience, big data, capital markets, innovation and operations within blue chip organisations including: Dun & Bradstreet, Challenger Financial Services and NAB. In addition, as CEO he has led two Private Equity backed companies in the online services and digital technology markets (GLS & Workstar). This included, Global P&L responsibilities, +650 team members with offices across Australia, Asia and Europe. Educated at Harvard, Melbourne Business School, RMIT and awarded a Fellowship by Leadership Victoria. Other current Directorships: None None Former Directorships (last 3 years): Interests in shares: Interests in options: Interests in rights: 3,252,583 fully paid ordinary shares 3,000,000 unlisted options, vesting on 1 July 2022, exercisable at $0.15 (15 cents) per option, expiring 1 July 2023; 3,000,000 unlisted options, vesting on 1 July 2022, exercisable at $0.18 (18 cents) per option, expiring 1 July 2023; 3,000,000 unlisted options, vesting on 1 July 2022, exercisable at $0.215 (21.5 cents) per option, expiring 1 July 2023. 1,619,428 Performance Rights 42 Annual Report 2021 7 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Name: Title: Qualifications: Experience and expertise: Mr Mark Dioguardi Executive Director Master of Business Administration, Bachelor of Engineering Hons Mr Dioguardi is an experienced CTO and COO with over 25 years’ experience predominantly in Tier 1 and 2 Telco operators in Australia and Asia. A qualified engineer, Mark commenced his career in engineering and engineering construction management in Telstra before building his corporate career as CTO at Maxis, where he led 1350 engineers and managed a USD600mil budget to grow their network. He then moved into a Chief Operating Officer role at Maxis before returning to Australia to join iiNet as Chief Technology Officer. Mark joined Spirit as Chief Operating Officer in November 2018 to develop and lead Spirit’s network growth and drive operational excellence across the business. He is also an Executive Director of Spirit and a Non-Executive Director of TimedotCom (a listed Malaysia telecommunications company). Other current Directorships: Time Dotcom Bhd (KLSE: TIMECOM) Former Directorships (last 3 years): Interests in shares: Interests in options: None 1,444,128 fully paid ordinary shares 3,000,000 unlisted options, vesting on 1 July 2022, exercisable at $0.15 (15 cents) per option, expiring 1 July 2023; 3,000,000 unlisted options, vesting on 1 July 2022, exercisable at $0.18 (18 cents) per option, expiring 1 July 2023; 3,000,000 unlisted options, vesting on 1 July 2022, exercisable at $0.215 (21.5 cents) per option, expiring 1 July 2023; 1,380,018 Performance Rights Mr Gregory Ridder Non-Executive Director BBus (Acc), Grad Dip (Mktg), GAICD, CPA Mr Ridder is an experienced Non-Executive Director currently serving on the boards of Kogan.com, Life Without Barriers, Ethical Property Australia, all of which he chairs, and PNG Sustainable Development Program. Formerly Asia Pacific Regional President at NYSE-listed Owens- Illinois, he led growth and diversification from its traditional Australian base through numerous joint ventures and acquisitions. . Interests in rights: Name: Title: Qualifications: Experience and expertise: Other current Directorships: Chairman, Kogan.com (ASX: KGN) None Former Directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Chair, Audit and Risk Committee from 15 July 2020 Member, Nomination and Remuneration Committee from 15 July 2020 1,650,000 fully paid ordinary shares Nil Nil Annual Report 2021 43 8 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Name: Title: Qualifications: Experience and expertise: Ms Inese Kingsmill Non-Executive Director (appointed 1 July 2020) B. Bus in Marketing, MAICD Over the course of a career spanning 25 years, Inese has earned a reputation as a growth focussed and customer orientated business leader, with leadership experience across a broad spectrum of accountabilities at Microsoft, Telstra and Virgin Australia. Inese has been involved with and led major transformations across a range of scenarios including enterprise -wide business restructuring, culture change, digital transformations, customer experience and design, brand re-launches and re-positioning as well as developing fit for purpose operating models. In addition to the Company Directorships detailed below, Inese is also a Director of WorkVentures Ltd and a member of the Advisory Board of Waltzing Matilda Aviation. Other current Directorships: Non-Executive Director, Rhipe Limited (ASX: RHP) Former Directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Name: Title: Qualifications: Experience and expertise: Non-Executive Director, hipages Group Holdings Limited (ASX: HPG) Non-Executive Director, NobleOak Life Limited (ASX: NOL) None Chair, Nomination and Remuneration Committee from 15 July 2020 Member, Audit and Risk Committee from 15 July 2020 187,500 fully paid ordinary shares Nil Nil Mr Terence Gray Non-Executive Director (to 7 July 2020) B.Bus, Grad Dip App Fin Terence is a corporate consultant to Lodge Partners Pty Ltd offering investment management and corporate advisory services. He has over 20 years’ financial markets experience including funds management and corporate finance. Terence has held roles as Head of Equities at ANZ Funds Management, Chief Investment Officer at Allianz Equity Management, Head of Research with Allianz Dresdner Asset Management and Director of Corporate Finance with Grange Securities. He has deep knowledge of funds management and the Australian equity market. His grounding as an institutional investor running large investment teams and as a corporate advisor to junior companies provides insight and expertise in company valuation, corporate fund raising and M&A activity. Other current Directorships: None None Former Directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Interests in rights: Chair, Audit and Risk Committee to 7 July 2020 Member, Nomination and Remuneration Committee to 7 July 2020 1,825,360 fully paid ordinary shares (on the date of resignation) Nil Nil 44 Annual Report 2021 9 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T 'Other current Directorships' quoted above are current Directorships for listed entities only and excludes Directorships of all other types of entities, unless otherwise stated. 'Former Directorships (last 3 years)' quoted above are Directorships held in the last 3 years for listed entities only and excludes Directorships of all other types of entities, unless otherwise stated. Company secretary Ms Melanie Leydin, BBus (Acc. Corp Law) CA FGIA Melanie Leydin holds a Bachelor of Business majoring in Accounting and Corporate Law. She is a member of the Institute of Chartered Accountants, Fellow of the Governance Institute of Australia and is a Registered Company Auditor. She graduated from Swinburne University in 1997, became a Chartered Accountant in 1999 and since February 2000 has been the principal of Leydin Freyer. The practice provides outsourced company secretarial and accounting services to public and private companies across a host of industries including but not limited to the Resources, technology, bioscience, biotechnology and health sectors. Melanie has over 25 years’ experience in the accounting profession and over 15 years as a Company Secretary. She has extensive experience in relation to public company responsibilities, including ASX and ASIC compliance, control and implementation of corporate governance, statutory financial reporting, reorganisation of Companies and shareholder relations. Meetings of Directors The number of meetings of the Company's Board of Directors ('the Board') and of each Board committee held during the year ended 30 June 2021, and the number of meetings attended by each Director were: Full Board Nomination and Remuneration Committee Audit and Risk Committee Attended Held Attended Held Attended Held Mr James Joughin Mr Sol Lukatsky Mr Mark Dioguardi Mr Gregory Ridder Ms Inese Kingsmill * Mr Terence Gray ** 15 15 15 15 15 - 15 15 15 15 15 - 9 - - 9 9 - 9 - - 9 9 - 3 - - 3 3 - 3 - - 3 3 - Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee. * ** Ms Inese Kingsmill was appointed to the Board effective 1 July 2020. Mr Terence Gray resigned from the Board on 7 July 2020. No Board meeting was held from the start of the financial year to the date of his resignation. Remuneration Report (audited) The Remuneration Report details the key management personnel remuneration arrangements for the Consolidated Entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all Directors. 10 Annual Report 2021 45 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 'Other current Directorships' quoted above are current Directorships for listed entities only and excludes Directorships of all other types of entities, unless otherwise stated. 'Former Directorships (last 3 years)' quoted above are Directorships held in the last 3 years for listed entities only and excludes Directorships of all other types of entities, unless otherwise stated. Company secretary Ms Melanie Leydin, BBus (Acc. Corp Law) CA FGIA Melanie Leydin holds a Bachelor of Business majoring in Accounting and Corporate Law. She is a member of the Institute of Chartered Accountants, Fellow of the Governance Institute of Australia and is a Registered Company Auditor. She graduated from Swinburne University in 1997, became a Chartered Accountant in 1999 and since February 2000 has been the principal of Leydin Freyer. The practice provides outsourced company secretarial and accounting services to public and private companies across a host of industries including but not limited to the Resources, technology, bioscience, biotechnology and health sectors. Melanie has over 25 years’ experience in the accounting profession and over 15 years as a Company Secretary. She has extensive experience in relation to public company responsibilities, including ASX and ASIC compliance, control and implementation of corporate governance, statutory financial reporting, reorganisation of Companies and shareholder relations. The number of meetings of the Company's Board of Directors ('the Board') and of each Board committee held during the year ended 30 June 2021, and the number of meetings attended by Meetings of Directors each Director were: Full Board Nomination and Remuneration Committee Audit and Risk Committee Attended Held Attended Held Attended Held 15 15 15 15 15 - 15 15 15 15 15 - 9 - - 9 9 - 9 - - 9 9 - 3 - - 3 3 - 3 - - 3 3 - Mr James Joughin Mr Sol Lukatsky Mr Mark Dioguardi Mr Gregory Ridder Ms Inese Kingsmill * Mr Terence Gray ** the relevant committee. Held: represents the number of meetings held during the time the Director held office or was a member of * ** Ms Inese Kingsmill was appointed to the Board effective 1 July 2020. Mr Terence Gray resigned from the Board on 7 July 2020. No Board meeting was held from the start of the financial year to the date of his resignation. D I R E C T O R S' R E P O R T Remuneration Report (audited) The Remuneration Report details the key management personnel remuneration arrangements for the Consolidated Entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Spirit Technology Solutions Limited Directors' report Key management personnel are those persons having authority and responsibility for planning, 30 June 2021 directing and controlling the activities of the entity, directly or indirectly, including all Directors. The Remuneration Report is set out under the following main headings: ● ● ● ● ● ● Principles used to determine the nature and amount of remuneration Details of remuneration Service agreements Share-based compensation Additional information Additional disclosures relating to key management personnel 10 Principles used to determine the nature and amount of remuneration The objective of the Consolidated Entity's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: ● competitiveness and reasonableness ● acceptability to shareholders ● performance linkage / alignment of executive compensation ● transparency. The Board is responsible for determining and reviewing remuneration arrangements for its Directors and executives. The performance of the Consolidated Entity depends on the quality of its Directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The reward framework is designed to align executive reward to shareholders' interests. The Board has considered that it should seek to enhance shareholders' interests by: ● ● having economic profit as a core component of plan design focusing on sustained growth in shareholder wealth, particularly growth in share price, and delivering constant or increasing return on capital as well as focusing the executive on key non-financial drivers of value attracting and retaining high calibre executives. ● Additionally, the reward framework should seek to enhance executives' interests by: ● ● ● rewarding capability and experience reflecting competitive reward for contribution to growth in shareholder wealth providing a clear structure for earning rewards. In accordance with best practice corporate governance, the structure of non-executive Director and executive Director remuneration is separate. 46 Annual Report 2021 11 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Non-executive Directors remuneration The annual Non-Executive Director Chairman fees for the financial year increased from $80,000 per annum to $100,000 per annum for the period 1 January 2021 to 30 June 2021 and increased from $100,000 to $120,000 per annum from 1 July 2021. The annual Non-Executive Director member fees for the financial year increased from $60,000 per annum to $67,500 per annum for the period 1 January 2021 to 30 June 2021 and increased from $67,500 to $75,000 per annum from 1 July 2021. During the financial year, the Board agreed to implement additional Committee Chair fees, with the Chair of the Audit and Risk Committee and Nomination and Remuneration Committee to each receive $5,000 per annum for the period 1 January 2021 to 30 June 2021 and increased from $5,000 per annum to $10,000 per annum from 1 July 2021. Committee members will not receive any additional fees at this time. Under the Constitution the Directors decide the total amount paid to each Director as remuneration for their services. Under ASX Listing Rules, the total amount paid to all non-executive Directors must not exceed in total in any financial year the amount fixed at the annual general meeting of the Company held on 13 October 2020, which is presently $500,000. Remuneration must not include a commission on, or a percentage of, the profits or income of the Company. Non-executive Directors' fees and payments are reviewed annually by the Board. The Board may, from time to time, receive advice from independent remuneration consultants to ensure non- executive Directors' fees and payments are appropriate and in line with the market. No advice was sought during the course of the financial year. The Chairman's fees are determined independently of the fees of other non-executive Directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to the determination of his own remuneration. Directors may also be reimbursed for travel and other expenses incurred in attending to the Company's affairs. Non-executive Directors may be paid such additional or special remuneration as the Directors decide is appropriate where a Director performs extra work or services which are not in the capacity as a Director of the Company. There are no proposed retirement benefit schemes for Directors other than statutory superannuation contributions. Executive remuneration The Consolidated Entity aims to reward executives based on their position and responsibility with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has four components: ● ● ● ● base pay and non-monetary benefits short-term performance incentives long-term incentives in the form of share-based payments other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. Annual Report 2021 47 12 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Fixed remuneration consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee based on individual and business unit performance, the overall performance of the Consolidated Entity and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the Consolidated Entity and provides additional value to the executive. Use of remuneration consultants The Company engages the services of independent and specialist remuneration consultants from time to time to benchmark the remuneration of Directors and Key Management Personnel, and to assist the Company in ensuring that its remuneration arrangements remain competitive. During the year ended 30 June 2021, the Company engaged a specialist remuneration consultant, SLM Corporate for remuneration benchmarking purposes (2021: $11,000 for consultancy assistance provided). Consolidated Entity performance and link to remuneration Currently, the consolidated entity assesses its performance from achievement of operational goals and shareholder value. The performance measures for both the Company’s Short-term Incentive Plan (STI Plan) and Long-term Incentive Plan (LTI Plan) are tailored to align at-risk remuneration and performance hurdle thresholds to the delivery of the Consolidated Entity’s operational and financial objectives and sustained shareholder value growth. This is achieved through certain executives being entitled to both short-term and long-term incentives. The STI Plan primarily incorporates operational and financial performance objectives into its hurdles. The LTI Plan incorporates into its performance measures both a Total Shareholder Return (TSR) and actual performance against budgeted Return on Invested Capital (ROIC) hurdles. The relative TSR measures performance against peers and reflects investor returns generated by the Consolidated Entity compared to a broad index of other investment opportunities for shareholders. The relative TSR is only achieved subject to the Performance Period being met and subject to the Company's TSR being at least equal to the median of the comparator group performance. The ROIC hurdle was chosen as a measure that reflects returns generated relative to the deployment of the Company’s capital. The Board retains the right to, at its discretion, to determine if the rights holder has met the ROIC hurdle at the end of the 3 Years Series Return. Further details on the LTI Plan are presented in Share Based Compensation on page 15 of this Directors’ report. page 51 Voting and comments made at the Company's 13 October 2020 Annual General Meeting ('AGM') At the 13 October 2020 AGM, 99.39% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2020. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. 48 Annual Report 2021 13 Spirit Technology Solutions Limited Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Details of remuneration The key management personnel of the Consolidated Entity consisted of the following Directors and the Chief Financial Officer of Spirit Technology Solutions Ltd: ● ● ● ● ● ● ● James Joughin, Non-Executive Chairman Sol Lukatsky, Managing Director Mark Dioguardi, Executive Director Gregory Ridder, Non-Executive Director Inese Kingsmill, Non-Executive Director (appointed 1 July 2020) Terence Gray, Non-Executive Director (resigned 7 July 2020) Paul Miller, Chief Financial Officer Amounts of remuneration Details of the remuneration of key management personnel of the Consolidated Entity are set out in the following tables. Short-term benefits Post- employme nt benefits Long-term benefits Share- based payments 2021 Non-Executive Directors: James Joughin Terence Gray* Gregory Ridder Inese Kingsmill** Executive Directors: Sol Lukatsky*** Mark Dioguardi*** Other Key Management Personnel: Paul Miller*** Cash salary and fees Cash bonus Non- Super- monetary annuation Long service leave Equity- settled $ $ $ $ $ $ 81,815 1,249 66,250 66,250 - - - - 381,538 330,000 163,000 89,650 241,667 66,250 1,168,769 318,900 - - - - - - - - 8,181 - - - - - - - Total $ - - - - 89,996 1,249 66,250 66,250 47,154 33,000 14,766 7,016 341,092 299,022 947,550 758,688 24,167 112,502 2,541 20,069 354,694 24,323 660,183 2,284,677 * ** *** Mr Terence Gray resigned from the Board on 7 July 2020. Ms Inese Kingsmill was appointed to the Board effective 1 July 2020. Mr Lukatsky, Mr Dioguardi and Mr Miller were awarded cash bonuses in respect of their FY21 performance, determined and paid in FY22. Annual Report 2021 49 14 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Short-term benefits Post- employme nt benefits Long-term benefits Share- based payments Cash salary and fees Cash bonus Non- Super- monetary annuation Long service leave Equity- settled $ $ $ $ $ $ Total $ 73,357 59,000 35,500 - - - 277,577 250,667 311,934 90,000 20,000 - 131,827 93,812 - 27,864 1,233,674 137,864 - - - - - - - - - 5,336 - - - - - - - - 78,693 59,000 35,500 27,758 27,067 21,270 5,068 2,376 - 211,731 218,006 34,320 612,134 518,116 367,524 13,183 10,836 440 - 3,314 - 148,764 132,512 105,450 7,884 467,371 1,952,243 2020 Non-Executive Directors: James Joughin Terence Gray* Gregory Ridder** Executive Directors: Sol Lukatsky*** Mark Dioguardi**** Geoff Neate Other Key Management Personnel: Paul Miller Donovan Newton**** Mr Terence Gray resigned from the Board on 7 July 2020. * ** *** Mr Sol Lukatksy was awarded a cash bonus for FY 2020, determined and paid in FY 2021 **** Cash bonuses awarded to Mr Mark Dioguardi and Mr Donovan Newton as disclosed were in respect of their Mr Gregory Ridder was appointed to the board on 21 November 2019. Mr Sol Lukatsky FY19 performance, determined and paid in FY20. **** ***** * Following the outbreak of COVID-19 in March 2020, the Directors elected to take a short term 10% pay reduction whilst the Company assessed the impacts. As outlined, there has not been a material impact to business operations and accordingly the pay reduction was only applied for a two-month period. The proportion of remuneration linked to performance and the fixed proportion are as follows: Name Non-Executive Directors: James Joughin Terence Gray* Gregory Ridder Inese Kingsmill** Executive Directors: Geoff Neate*** Sol Lukatsky Mark Dioguardi Other Key Management Personnel: Paul Miller Donovan Newton**** Fixed remuneration 2021 2020 At risk - STI At risk - LTI 2021 2020 2021 2020 100% 100% 100% 100% - 47% 49% 100% 100% 100% - 91% 51% 54% - - - - - 17% 12% 76% - 98% 79% 19% - - - - - - 15% 4% - 21% - - - - - - - - - 36% 39% 9% 34% 42% 5% - 2% - Mr Terence Gray resigned from the Board on 7 July 2020. Ms Inese Kingsmill was appointed to the Board on 1 July 2020. Mr Geoff Neate resigned from the Board on 2 September 2019. * ** *** **** Mr Donovan Newton resigned on 30 August 2019. 50 Annual Report 2021 15 Spirit Technology Solutions Ltd Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Sol Lukatsky Managing Director 23 April 2018; terms revised on 27 July 2020 No fixed term. Ongoing until terminated by either party with three months written notice. Effective 1 July 2020, fixed remuneration of $400,000 per annum, plus 10% superannuation. In the 2021 financial year, Mr Lukatsky will be entitled to a potential short-term incentive (STI) of up to $200,000, representing 50% of his base remuneration. In the 2021 financial year, Mr Lukatsky was also entitled to a long-term incentive (LTI) of up to $200,000, representing 50% of his base remuneration (excluding superannuation), which was approved by shareholders at the Annual General Meeting held on 13 October 2020. Mr Mark Dioguardi Executive Director and Chief Operating Officer 7 November 2018, terms revised on 27 July 2020 No fixed term. Ongoing until terminated by either party with three months written notice. Effective 1 July 2020, fixed remuneration of $330,000 per annum, plus 10% superannuation. In the 2021 financial year, Mr Dioguardi will be entitled to a potential short-term incentive (STI) of up to $110,000, representing 33.3% of his base (excluding superannuation). In the 2021 financial year, Mr Dioguardi was also entitled to a potential long-term incentive (LTI) of up to $110,000, representing 33.3% of his base (excluding superannuation) which was approved by shareholders at the Annual General Meeting held on 13 October 2020. remuneration remuneration Name: Title: Agreement commenced: Term of agreement: Details: Mr Paul Miller Chief Financial Officer 25 November 2019 No fixed term. Ongoing until terminated by either party with three months written notice. Effective 1 February 2021, fixed remuneration of $265,000 per annum, plus 10% superannuation. In 2021 financial year Mr Miller is entitled to a potential short-term incentive (STI) of up to $66,250, representing 25% of his base remuneration (excluding superannuation). Mr Miller is eligible to participate in the Spirit Long Term Incentive program (LTI). Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Share-based compensation Issue of shares There were no shares issued to Directors and other key management personnel as part of compensation during the year ended 30 June 2021. Annual Report 2021 51 16 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Options The terms and conditions of each grant of options over ordinary shares affecting remuneration of Directors and other key management personnel in this financial year or future reporting years are as follows: Grant date 14 May 2019 14 May 2019 14 May 2019 Name Sol Lukatsky Sol Lukatsky Sol Lukatsky Mark Dioguardi Mark Dioguardi Mark Dioguardi Vesting date and exercisable date 1 July 2022 1 July 2022 1 July 2022 Expiry date 1 July 2023 1 July 2023 1 July 2023 Grant date Number of options granted 3,000,000 14 May 2019 3,000,000 14 May 2019 3,000,000 14 May 2019 3,000,000 14 May 2019 3,000,000 14 May 2019 3,000,000 14 May 2019 Vesting date and exercisable date Expiry date 1 July 2022 1 July 2022 1 July 2022 1 July 2022 1 July 2022 1 July 2022 1 July 2023 1 July 2023 1 July 2023 1 July 2023 1 July 2023 1 July 2023 Exercise price Fair value per option at grant date $0.0780 $0.0690 $0.0600 $0.150 $0.180 $0.215 Exercise price Fair value per option at grant date $0.0780 $0.0690 $0.0600 $0.0780 $0.0690 $0.0600 $0.150 $0.180 $0.215 $0.150 $0.180 $0.215 Options granted carry no dividend or voting rights. There were no options over ordinary shares granted to or vested by Directors and other key management personnel as part of compensation during the year ended 30 June 2021. Performance Rights The terms and conditions of each grant of Performance Rights over ordinary shares affecting remuneration of Directors and other key management personnel in this financial year or future reporting years are as follows: Grant date Vesting date and exercisable date Expiry date 12 September 2018 12 September 2018 18 February 2019 18 February 2019 22 April 2020 22 April 2020 13 October 2020 13 October 2020 13 October 2020 11 June 2021 11 June 2021 1 July 2021 1 July 2021 1 July 2021 1 July 2021 1 July 2022 1 July 2022 30 June 2023 1 July 2023 30 June 2023 30 June 2023 30 June 2023 12 September 2021 12 September 2021 18 February 2022 18 February 2022 22 April 2023 22 April 2023 12 November 2023 12 November 2023 12 November 2023 11 June 2024 11 June 2024 Share price Fair value hurdle for per right at grant date vesting $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.300 $0.000 $0.000 $0.000 $0.1692 $0.2000 $0.0355 $0.1400 $0.1084 $0.1250 $0.3417 $0.3661 $0.3700 $0.1815 $0.2800 52 Annual Report 2021 17 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 Name Number of rights Grant date Vesting date and exercisable date Expiry date granted D I R E C T O R S' R E P O R T Share price Fair value hurdle for per right at grant date vesting Sol Lukatsky 123,530 Sol Lukatsky Name Mark Dioguardi Mark Dioguardi Paul Miller Paul Miller Sol Lukatsky Sol Lukatsky Sol Lukatsky Sol Lukatsky Sol Lukatsky Mark Dioguardi Mark Dioguardi Paul Miller Paul Miller Sol Lukatsky Sol Lukatsky Sol Lukatsky Mark Dioguardi Mark Dioguardi Mark Dioguardi Mark Dioguardi Paul Miller Paul Miller Paul Miller Paul Miller Mark Dioguardi Mark Dioguardi exercisable date 12 September 2018 12 September 2018 1 July 2021 1 July 2021 Vesting date 123,529 Number of rights and Grant date 457,457 457,456 granted 1 July 2023 260,000 18 February 2019 1 July 2021 260,000 18 February 2019 1 July 2021 1 July 2022 164,634 22 April 2020 1 July 2022 164,634 22 April 2020 1 Jul 2021 30 June 2023 1 Jul 2021 1 Jul 2021 1 Jul 2021 1 Jul 2022 30 June 2023 1 Jul 2022 30 June 2023 1 Jul 2023 30 June 2023 30 June 2023 1 Jul 2023 30 June 2023 30 June 2023 30 June 2023 123,530 12 Sept2018 13 October 2020 123,529 12 Sept2018 260,000 18 Feb2019 13 October 2020 260,000 18 Feb2019 164,634 22 Apr 2020 13 October 2020 164,634 22 Apr 2020 457,457 13 Oct 2020 13 October 2020 457,456 13 Oct 2020 457,456 13 Oct 2020 13 October 2020 251,601 13 Oct 2020 356,816 13 Oct 2020 13 October 2020 251,601 13 Oct 2020 154,391 11 June 2021 154,392 11 June 2021 251,601 154,391 11 June 2021 154,392 11 June 2021 30 June 2023 30 June 2023 30 June 2023 30 June 2023 1 July 2023 457,456 356,816 251,601 12 September 2021 12 September 2021 Expiry date 18 February 2022 18 February 2022 22 April 2023 22 April 2023 12 November 2023 12 November 2023 12 November 2023 12 November 2023 12 November 2023 12 November 2023 11 June 2024 11 June 2024 12 Sept2021 12 Sept2021 18 Feb2022 18 Feb2022 22 Apr 2023 22 Apr 2023 12 Nov 2023 12 Nov 2023 12 Nov 2023 12 Nov 2023 12 Nov 2023 12 Nov 2023 11 June 2024 11 June 2024 $0.000 $0.1692 $0.2000 Fair value $0.0355 hurdle for per right $0.1400 at grant $0.1084 date $0.1250 $0.000 Share price $0.000 $0.000 $0.000 $0.000 vesting $0.000 $0.3417 $0.300 $0.3661 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.300 $0.000 $0.000 $0.300 $0.000 $0.000 $0.000 $0.000 $0.3700 $0.000 $0.3417 $0.300 $0.3661 $0.000 $0.000 $0.000 $0.3700 $0.1815 $0.2800 $0.1692 $0.2000 $0.0355 $0.1400 $0.1084 $0.1250 $0.3417 $0.3661 $0.3700 $0.3417 $0.3661 $0.3700 $0.1815 $0.2800 Performance Rights granted carry no dividend or voting rights. The Performance Rights were issued for $Nil consideration, and the vesting of the rights is contingent on the Company achieving certain hurdles over a three-year performance period, and in some cases share price performance hurdles. The number of Performance Rights which vest is determined by assessing the performance of the Company, as measured by Total Shareholder Return (TSR) at the Performance Date relative to a comparator group of companies. The VWAP of the Shares in the one-month preceding the Performance Date compared to the VWAP of the Shares in the one-month preceding the grant date, will be used in calculating the TSR over the three year period. The TSR incorporate capital returns as well as dividends notionally reinvested and is considered the most appropriate means of measuring the Company’s performance. The performance hurdles will be split 50% subject to meeting the TSR, and 50% for exceeding the budgeted Return on Invested Capital (ROIC). For the Performance Rights granted during FY20 and FY21, 30% of the maximum amount of Performance Rights that may vest are at risk, if appropriate behaviours, as measured by a 360- degree feedback review are not met. An overall 75% of agreed or strongly agreed needs to be achieved in the 360-degree feedback result. Each year the Board will determine the budgeted ROIC. This budgeted ROIC will be the hurdle return used to calculate the 3 years series return. The Board may exercise its discretion in determining if the rights holder has met the ROIC hurdle at the end of the 3 Years Series Return. 18 Annual Report 2021 53 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' report 30 June 2021 D I R E C T O R S' R E P O R T In relation to the 50% portion meeting the TSR, the Performance Rights will only convert to shares subject to the Performance Period being met and subject to the Company's TSR being at least equal to the median of the comparator group performance. The entire annual allocation will convert if the Company's TSR is at the 75th percentile or higher than the comparator group performance. The detailed breakdown of the relationship between the Company's performance and the conversion of Performance Rights is: ● ● ● 0% converting if the Company TSR performance is below the median performance of the comparator group. Straight line pro-rata conversion if the Company TSR performance is at or above the median performance of the comparator group, but below the 75th percentile performance of the comparator group. 100% converting if the Company TSR performance is at or above the 75th percentile performance of the comparator group. The number of Performance Rights over ordinary shares granted to and vested by Directors and other key management personnel as part of compensation during the year ended 30 June 2021 are set out below: Number of Number of Number of Number of rights rights granted during the during the during the during the granted rights vested rights vested Name Sol Lukatsky Mark Dioguardi Paul Miller year 2021 1,372,369 860,018 308,783 year 2020 - - 329,268 year 2021 year 2020 - - - - - - Additional information The earnings of the Consolidated Entity for the five years to 30 June 2021 are summarised below: Revenue and other income Net profit/(loss) before tax Net profit/(loss) after tax Share price 2021 $'000 104,469 1,345 1,157 $0.26 2020 $'000 2019 $'000 2018 $'000 2017 $'000 34,874 (2,043) (1,515) $0.24 17,452 (1,009) (824) $0.26 16,300 1,031 571 $0.245 11,539 829 468 $0.12 54 Annual Report 2021 19 Spirit Technology Solutions Ltd Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Additional disclosures relating to key management personnel Shareholding The number of shares in the Company held during the financial year by each Director of the Company and other members of key management personnel of the Consolidated Entity, including their personally related parties, is set out below: Balance at Balance Additions Disposals/ Balance at the start of the year on the date of appointmen t Ordinary shares James Joughin Sol Lukatsky Terence Gray* Mark Dioguardi Gregory Ridder Inese Kingsmill** Paul Miller 4,045,455 2,957,755 1,825,360 1,287,878 1,000,000 - 121,213 11,237,661 - - - - - - - - other the end of 308,281 294,828 - 156,250 650,000 187,500 74,914 - - (1,825,360) - - - - the year 4,353,736 3,252,583 - 1,444,128 1,650,000 187,500 196,127 1,671,773 (1,825,360) 11,084, 074 * ** Mr Terence Gray resigned from the Board on 7 July 2020. The balance disclosed in "Disposals/other" column represents his shareholding on the date of resignation. Ms Inese Kingsmill was appointed to the Board effective 1 July 2020. Upon appointment, Ms Kingsmill had no shareholding in the Company. Option holding The number of options over ordinary shares in the Company held during the financial year by each Director and other members of key management personnel of the Consolidated Entity, including their personally related parties, is set out below: Options over ordinary shares Sol Lukatsky Mark Dioguardi Balance at Granted the start of the year Exercised Expired/ Balance at forfeited/ the end of other* the year 9,000,000 9,000,000 18,000,000 - - - - - - - - - 9,000,000 9,000,000 18,000,000 Performance Rights holding The number of Performance Rights over ordinary shares in the Company held during the financial year by each Director and other members of key management personnel of the Consolidated Entity, including their personally related parties, is set out below: Performance Rights over ordinary shares Geoff Neate* Sol Lukatsky Mark Dioguardi Paul Miller Balance at Granted the start of the year Vested Expired/ Balance at forfeited/ the end of other the year 512,820 247,059 520,000 329,268 - 1,372,369 860,018 308,783 (189,320) - - - (323,500) - - - - 1,619,428 1,380,018 638,051 1,609,147 2,541,170 (189,320) (323,500) 3,637,497 * Mr Geoff Neate resigned from the Board on 2 September 2019. This concludes the remuneration report, which has been audited. Annual Report 2021 55 20 Spirit Technology Solutions Ltd Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Shares under option Unissued ordinary shares of Spirit Technology Solutions Ltd under option at the date of this report are as follows: Description Unlisted options Unlisted options Unlisted options Expiry date 1 July 2023 1 July 2023 1 July 2023 Exercise Number price under option $0.150 $0.180 $0.215 6,000,000 6,000,000 6,000,000 18,000,000 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate. Shares under Performance Rights Unissued ordinary shares of Spirit Technology Solutions Ltd under Performance Rights at the date of this report are as follows: Grant date 12 September 2018 18 February 2019 22 April 2020 13 October 2020 11 June 2021 Expiry date 12 September 2021 18 February 2023 22 April 2023 12 November 2023 11 June 2024 Number under rights 247,059 520,000 653,943 2,232,387 620,685 4,274,074 No person entitled to exercise the Performance Rights had or has any right by virtue of the performance right to participate in any share issue of the Company or of any other body corporate. Shares issued on the exercise of options There were no ordinary shares of Spirit Technology Solutions Ltd issued on the exercise of options during the year ended 30 June 2021 and up to the date of this report. Shares issued on the exercise of Performance Rights The following ordinary shares of Spirit Technology Solutions Ltd were issued during the year ended 30 June 2021 and up to the date of this report on the exercise of Performance Rights granted: Date Performance Rights granted 20 November 2018 Conversion Number of price shares issued $0.000 189,320 Indemnity and insurance of officers The Company has indemnified the Directors and executives of the Company for costs incurred in their capacity as a Director or executive, for which they may be held personally liable, except where there is a lack of good faith. 56 Annual Report 2021 21 Spirit Technology Solutions Limited Directors' report 30 June 2021 D I R E C T O R S' R E P O R T During the financial year the Company paid a premium in respect of a contract to insure the Directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The Company has not during or since the end of the financial year indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 33 to the financial statements. The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in note 33 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. ● Officers of the Company who are former partners of PKF Melbourne Audit & Assurance Pty Ltd There are no officers of the Company who are former partners of PKF Melbourne Audit & Assurance Pty Ltd. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest ,000 dollars, or in certain cases, the nearest dollar. Annual Report 2021 57 22 Spirit Technology Solutions Limited Directors' report 30 June 2021 D I R E C T O R S' R E P O R T Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this Directors' report. Auditor PKF Melbourne Audit & Assurance Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors ___________________________ James Joughin Non-Executive Chairman 24 August 2021 58 Annual Report 2021 23 This page is intentionally left blank. Annual Report 2021 59 AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF SPIRIT TECHNOLOGY SOLUTIONS LTD In relation to our audit of the financial report of Spirit Technology Solutions Ltd for the year ended 30 June 2021, I declare to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001; and (b) no contraventions of any applicable code of professional conduct. PKF Melbourne, 24 August 2021 Steven Bradby Partner AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF SPIRIT TECHNOLOGY SOLUTIONS LTD In relation to our audit of the financial report of Spirit Technology Solutions Ltd for the year ended 30 June 2021, I declare to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001; and (b) no contraventions of any applicable code of professional conduct. PKF Melbourne, 24 August 2021 Steven Bradby Partner 21 PKF Melbourne Audit & Assurance Pty Ltd ABN 75 600 749 184 Level 12, 440 Collins Street, Melbourne, Victoria 3000 T: +61 3 9679 2222 F: +61 3 9679 2288 www.pkf.com.au Liability limited by a scheme approved under Professional Standards Legislation PKF Melbourne Audit & Assurance Pty Ltd is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. Auditor’s Independence Declaration 60 Annual Report 2021 PKF Melbourne Audit & Assurance Pty Ltd ABN 75 600 749 184 Level 12, 440 Collins Street, Melbourne, Victoria 3000 T: +61 3 9679 2222 F: +61 3 9679 2288 www.pkf.com.au Liability limited by a scheme approved under Professional Standards Legislation 21 PKF Melbourne Audit & Assurance Pty Ltd is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF SPIRIT TECHNOLOGY SOLUTIONS LTD In relation to our audit of the financial report of Spirit Technology Solutions Ltd for the year ended 30 June 2021, I declare to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001; and (b) no contraventions of any applicable code of professional conduct. PKF Melbourne, 24 August 2021 Steven Bradby Partner A U D I T O R’ S I N D E P E N D E N C E D E C L A R A T I O N AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF SPIRIT TECHNOLOGY SOLUTIONS LTD In relation to our audit of the financial report of Spirit Technology Solutions Ltd for the year ended 30 June 2021, I declare to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001; and (b) no contraventions of any applicable code of professional conduct. PKF Melbourne, 24 August 2021 Steven Bradby Partner 21 PKF Melbourne Audit & Assurance Pty Ltd ABN 75 600 749 184 Level 12, 440 Collins Street, Melbourne, Victoria 3000 T: +61 3 9679 2222 F: +61 3 9679 2288 www.pkf.com.au Liability limited by a scheme approved under Professional Standards Legislation PKF Melbourne Audit & Assurance Pty Ltd is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. PKF Melbourne Audit & Assurance Pty Ltd ABN 75 600 749 184 Level 12, 440 Collins Street, Melbourne, Victoria 3000 T: +61 3 9679 2222 F: +61 3 9679 2288 www.pkf.com.au Liability limited by a scheme approved under Professional Standards Legislation 21 PKF Melbourne Audit & Assurance Pty Ltd is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. Annual Report 2021 61 Statement of Profit or Loss & Other Comprehensive Income 62 Annual Report 2021 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Statement of profit or loss and other comprehensive income For the year ended 30 June 2021 S T A T E M E N T O F P R O F I T O R L O S S A N D O T H E R C O M P R E H E N S I V E I N C O M E Revenue Other income Cost of sales Expenses Employee benefits expense Share-based payments Administration and corporate expenses Business acquisition and integration costs Selling Marketing Net fair value loss on remeasurement of financial liabilities Depreciation and amortisation expense Finance costs Note Consolidated 2021 $'000 2020 $'000 5 102,786 34,429 6 7 7 7 1,683 (51,220) 445 (12,701) (31,550) (621) (7,497) (2,100) (1,163) (1,531) (168) (6,666) (608) (11,826) (479) (5,267) (640) (888) (891) - (3,855) (370) Profit/(loss) before income tax (expense)/benefit 1,345 (2,043) Income tax (expense)/benefit 8 (188) 528 Profit/(loss) after income tax (expense)/benefit for the year attributable to the owners of Spirit Technology Solutions Ltd 1,157 (1,515) Other comprehensive income for the year, net of tax - - Total comprehensive income/(loss) for the year attributable to the owners of Spirit Technology Solutions Ltd 1,157 (1,515) Earnings per share for profit/(loss) attributable to the owners of Spirit Technology Solutions Ltd Basic earnings per share Diluted earnings per share 41 41 0.21 0.21 (0.42) (0.42) Cents Cents The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 25 Annual Report 2021 63 Statement of Financial Position Spirit Technology Solutions Ltd Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) (Formerly known as Spirit Telecom Limited) Statement of financial position Statement of financial position As at 30 June 2021 As at 30 June 2021 S T A T E M E N T O F F I N A N C I A L P O S I T I O N Assets Assets Current assets Current assets Cash and cash equivalents Cash and cash equivalents Trade and other receivables Trade and other receivables Inventories Inventories Contract assets Contract assets Other Other Total current assets Total current assets Non-current assets Non-current assets Contract assets Contract assets Property, plant and equipment Property, plant and equipment Assets held for sale Assets held for sale Right-of-use assets Right-of-use assets Intangible assets Intangible assets Deferred tax Deferred tax Deposits and other receivables Deposits and other receivables Total non-current assets Total non-current assets Total assets Total assets Liabilities Liabilities Current liabilities Current liabilities Trade and other payables Trade and other payables Borrowings Borrowings Lease liabilities Lease liabilities Provisions Provisions Unearned revenue Unearned revenue Deferred consideration Deferred consideration Contingent consideration Contingent consideration Total current liabilities Total current liabilities Non-current liabilities Non-current liabilities Borrowings Borrowings Lease liabilities Lease liabilities Deferred tax Deferred tax Provisions Provisions Unearned revenue Unearned revenue Contingent consideration Contingent consideration Total non-current liabilities Total non-current liabilities Total liabilities Total liabilities Net assets Net assets Equity Equity Issued capital Issued capital Reserves Reserves Accumulated losses Accumulated losses Total equity Total equity Note Note 10 10 11 11 12 12 14 14 13 13 14 14 15 15 9 9 16 16 17 17 18 18 19 19 20 20 21 21 27 27 22 22 37 37 23 23 24 24 25 25 26 26 27 27 37 37 28 28 29 29 Consolidated Consolidated 2021 2021 $'000 $'000 2020 2020 $'000 $'000 8,493 8,493 12,784 12,784 2,577 2,577 143 143 4,130 4,130 28,127 28,127 1,544 1,544 13,895 13,895 1,301 1,301 3,891 3,891 119,403 119,403 2,619 2,619 1,375 1,375 144,028 144,028 172,155 172,155 16,142 16,142 - - 2,004 2,004 3,444 3,444 3,655 3,655 15,327 15,327 2,399 2,399 42,971 42,971 10,000 10,000 2,016 2,016 712 712 352 352 2,823 2,823 3,603 3,603 19,506 19,506 62,477 62,477 109,678 109,678 112,689 112,689 1,187 1,187 (4,198) (4,198) 109,678 109,678 6,400 6,400 4,410 4,410 950 950 - - 838 838 12,598 12,598 - - 13,821 13,821 - - 1,563 1,563 25,359 25,359 1,479 1,479 234 234 42,456 42,456 55,054 55,054 5,656 5,656 20 20 816 816 951 951 1,775 1,775 - - 998 998 10,216 10,216 3,268 3,268 787 787 - - 165 165 1,557 1,557 997 997 6,774 6,774 16,990 16,990 38,064 38,064 42,852 42,852 567 567 (5,355) (5,355) 38,064 38,064 The above statement of financial position should be read in conjunction with the accompanying notes The above statement of financial position should be read in conjunction with the accompanying notes 26 26 Annual Report 2021 65 Statement of Changes in Equity Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Statement of changes in equity For the year ended 30 June 2021 Consolidated Reserves Accumulate Issued capital $'000 $'000 d losses $'000 Total equity $'000 Balance at 1 July 2019 25,512 476 (3,932) 22,056 S T A T E M E N T O F C H A N G E S I N E q U I T Y - - - - (1,515) (1,515) - - Issued capital $'000 - (1,515) Reserves Accumulate - $'000 d losses $'000 Spirit Technology Solutions Ltd Loss after income tax benefit for the year (Formerly known as Spirit Telecom Limited) Other comprehensive income for the year, net of Statement of changes in equity tax For the year ended 30 June 2021 Total comprehensive loss for the year Transactions with owners in their capacity as Consolidated owners: Contributions of equity, net of transaction costs Balance at 1 July 2019 (note 28) Share-based payments (note 42) Loss after income tax benefit for the year Transfers Other comprehensive income for the year, net of Issue of shares to the vendor as part tax consideration in relation to the Arinda IT acquisition Total comprehensive loss for the year Issue of shares to the vendor as part consideration in relation to the Phoenix Austec Transactions with owners in their capacity as Group acquisition owners: Issue of shares to the vendor as part Contributions of equity, net of transaction costs consideration in relation to the Cloud Business (note 28) Technology acquisition Issue of shares to the vendor as part Share-based payments (note 42) consideration in relation to the Trident & Transfers Neptune Group acquisition Issue of shares to the vendor as part consideration in relation to the Arinda IT acquisition Balance at 30 June 2020 Issue of shares to the vendor as part consideration in relation to the Phoenix Austec Group acquisition Issue of shares to the vendor as part consideration in relation to the Cloud Business Technology acquisition Issue of shares to the vendor as part consideration in relation to the Trident & Neptune Group acquisition (1,515) Total equity $'000 22,056 14,766 478 (1,515) - - 607 (1,515) (3,932) - - (1,515) 92 - - (1,515) - 320 - - - 92 - 14,766 130 478 - 1,222 25,512 14,766 20 - 275 476 - 458 - (367) - 607 - 320 - - - - 14,766 130 20 275 1,222 - - 458 (367) - 42,852 607 567 - (5,355) - 607 38,064 320 130 1,222 - - - - - - 320 130 1,222 Balance at 30 June 2020 42,852 567 (5,355) 38,064 The above statement of changes in equity should be read in conjunction with the accompanying notes 27 The above statement of changes in equity should be read in conjunction with the accompanying notes 27 Annual Report 2021 67 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Statement of changes in equity For the year ended 30 June 2021 Consolidated Issued capital $'000 Reserves Accumulate $'000 d losses $'000 Total equity $'000 S T A T E M E N T O F C H A N G E S I N E q U I T Y 42,852 567 (5,355) 38,064 Spirit Technology Solutions Ltd Balance at 1 July 2020 (Formerly known as Spirit Telecom Limited) Statement of changes in equity Profit after income tax expense for the year For the year ended 30 June 2021 Other comprehensive income for the year, net of tax Total comprehensive income for the year Consolidated Transactions with owners in their capacity as Balance at 1 July 2020 owners: Contributions of equity, net of transaction costs Profit after income tax expense for the year (note 28) Other comprehensive income for the year, net of Share-based payments (note 42) tax Issue of shares to the vendor as part consideration in relation to the VPD Group Total comprehensive income for the year acquisition Issue of shares to the vendor as part Transactions with owners in their capacity as consideration in relation to the Ancore Pty Ltd owners: acquisition Contributions of equity, net of transaction costs Issue of shares to the vendor as part (note 28) consideration in relation to the Beachhead Share-based payments (note 42) acquisition Issue of shares to the vendor as part Issue of shares to the vendor as part consideration in relation to the VPD Group consideration in relation to the Reliance IT acquisition acquisition Issue of shares to the vendor as part Issue of shares to the vendor as part consideration in relation to the Ancore Pty Ltd consideration in relation to the Intalock acquisition acquisition Issue of shares to the vendor as part Issue of shares to the vendor as part consideration in relation to the Beachhead consideration in relation to the Nexgen acquisition acquisition Issue of shares to the vendor as part Issue of shares to vendor on achievement of consideration in relation to the Reliance IT earnout milestone (Trident Group) acquisition Issue of shares to the vendor as part Balance at 30 June 2021 consideration in relation to the Intalock acquisition Issue of shares to the vendor as part consideration in relation to the Nexgen acquisition Issue of shares to vendor on achievement of earnout milestone (Trident Group) - - 1,157 1,157 Issued capital $'000 - - Reserves Accumulate - - $'000 - d losses $'000 1,157 - Total equity $'000 1,157 42,852 567 (5,355) 38,064 - 44,835 - - - 7,250 573 44,835 - 624 7,250 1,660 573 2,457 624 12,164 274 1,660 - - 620 - - - - - 620 - - - - - - - - - 1,157 - - - 1,157 - - - - - - - - - - - - - 1,157 44,835 620 - 1,157 7,250 573 44,835 620 624 7,250 1,660 573 2,457 624 12,164 274 1,660 112,689 1,187 (4,198) 109,678 2,457 12,164 274 - - - - - - 2,457 12,164 274 Balance at 30 June 2021 112,689 1,187 (4,198) 109,678 The above statement of changes in equity should be read in conjunction with the accompanying notes 28 The above statement of changes in equity should be read in conjunction with the accompanying notes 28 68 Annual Report 2021 This page is intentionally left blank. Annual Report 2021 69 Statement of Cash Flows Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Statement of cash flows For the year ended 30 June 2021 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) S T A T E M E N T O F C A S H F L O W S Statement of cash flows For the year ended 30 June 2021 Cash flows from operating activities Receipts from customers (inclusive of GST) Government grants received Payments to suppliers and employees (inclusive of GST) Deposits (placed)/refunded Interest received Cash flows from operating activities Interest and other finance costs paid Receipts from customers (inclusive of GST) Income taxes paid Government grants received Payments to suppliers and employees (inclusive of GST) Net cash from operating activities Deposits (placed)/refunded Interest received Interest and other finance costs paid Cash flows from investing activities Income taxes paid Payments for property, plant and equipment Payments for intangibles Net cash from operating activities Cash payments to acquire businesses, net of cash acquired Acquired income tax liabilities paid Business acquisition and integration costs Cash flows from investing activities Proceeds from disposal of assets & right of use Payments for property, plant and equipment Payments for intangibles Net cash used in investing activities Cash payments to acquire businesses, net of cash acquired Acquired income tax liabilities paid Business acquisition and integration costs Cash flows from financing activities Proceeds from disposal of assets & right of use Proceeds from issue of shares Share issue transaction costs Net cash used in investing activities Proceeds from borrowings Repayment of borrowings Repayment of lease liabilities Cash flows from financing activities Proceeds from issue of shares Net cash from financing activities Share issue transaction costs Proceeds from borrowings Repayment of borrowings Net increase in cash and cash equivalents Repayment of lease liabilities Cash and cash equivalents at the beginning of the financial year Note Consolidated 2021 $'000 2020 $'000 2021 $'000 110,058 Consolidated 83 (104,528) (100) 3 (471) 110,058 - 83 (104,528) 5,045 (100) 3 (471) - (3,482) (1,581) 5,045 (45,798) (481) (2,100) 541 (3,482) (1,581) (52,901) (45,798) (481) (2,100) 541 47,042 (2,207) (52,901) 9,732 (3,000) (1,618) 41,891 992 2020 (38,218) $'000 83 27 (285) 41,891 - 992 (38,218) 4,490 83 27 (285) - (5,826) (1,103) 4,490 (6,779) (145) (640) 125 (5,826) (1,103) (14,368) (6,779) (145) (640) 125 15,267 (691) (14,368) - (932) (743) Note 40 40 37 37 28 28 47,042 49,949 (2,207) 9,732 (3,000) 2,093 (1,618) 6,400 49,949 8,493 15,267 12,901 (691) - (932) 3,023 (743) 3,377 12,901 6,400 Net cash from financing activities Cash and cash equivalents at the end of the financial year 10 Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 2,093 6,400 3,023 3,377 Cash and cash equivalents at the end of the financial year 10 8,493 6,400 The above statement of cash flows should be read in conjunction with the accompanying notes 29 The above statement of cash flows should be read in conjunction with the accompanying notes 29 Annual Report 2021 71 Notes to the Financial Statements Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 1. General information The financial statements cover Spirit Technology Solutions Ltd as a Consolidated Entity consisting of Spirit Technology Solutions Ltd and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars which is Spirit Technology Solutions Ltd's functional and presentation currency. Spirit Technology Solutions Ltd is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are: Registered office Principal place of business Level 4, 100 Albert Road South Melbourne Victoria 3205 Level 2, 19-25 Raglan Street South Melbourne Victoria 3205 A description of the nature of the Consolidated Entity's operations and its principal activities are included in the Directors' report which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 24 August 2021. The Directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Consolidated Entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention. Annual Report 2021 73 30  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) Going concern The Directors have, at the time of approving the financial statements, a reasonable expectation that the Consolidated Entity has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. The Consolidated Entity has a net current liability position as at 30 June 2021 of $14,844,000 (30 June 2020 net current asset position: $2,382,000). This financial position needs to be considered noting the following key factors: § The Consolidated Entity recorded a positive Net Profit After Tax and positive net Operating Cashflow position for the year ended 30 June 2021. § Current liabilities includes deferred and contingent consideration payable of $17.7M. The estimated cash component of this consideration totals $14.2M. The balance is to be settled in equity. The Consolidated Entity has available cash and debt facilities to settle these cash liabilities. § Current liabilities includes unearned revenue of $3.7M. This liability unwinds to revenue rather than being a cash settled liability. § As outlined in note 9 the Consolidated Entity has announced its intention to divest its consumer infrastructure assets and is well advanced in that process. A successful divestment will yield additional working capital back into the Company. § The Consolidated Entity remains confident that it has the ability to request additional support from existing shareholders if financial assistance is required. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Consolidated Entity's accounting policies. The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Consolidated Entity only. Supplementary information about the parent entity is disclosed in note 36. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Spirit Technology Solutions Ltd ('Company' or 'parent entity') as at 30 June 2021 and the results of all subsidiaries for the year then ended. Spirit Technology Solutions Ltd and its subsidiaries together are referred to in these financial statements as the 'Consolidated Entity'. Subsidiaries are all those entities over which the Consolidated Entity has control. The Consolidated Entity controls an entity when the Consolidated Entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Consolidated Entity. They are de-consolidated from the date that control ceases. 74 Annual Report 2021 31 Spirit Technology Solutions Ltd N O T E S T O T H E F I N A N C I A L S T A T E M E N T S (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Revenue recognition Revenue is recognised and measured in accordance with the principles of AASB 15 Revenue from contracts with customers at the fair value of the consideration received or receivable, after taking into account any trade discounts and volume rebates allowed, to the extent that it is probable that economic benefit will flow to the Consolidated Entity and the revenue can be reliably measured. Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Consolidated Entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Consolidated Entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Recurring revenue Internet access, equipment rentals, line rentals and managed IT services are recognised in the period in which the service is provided. Where Income for services is invoiced in advance, the amount is recorded as Unearned Income and recognition in the income statement is delayed until the service has been provided. Non-recurring revenue Call charges, hardware sales and set-up charges are recognised in the period in which the services or goods are delivered. Grants Grants received on the condition that specified services are delivered, or conditions are fulfilled, are initially recognised as a liability, and revenue is recognised as services are performed or conditions fulfilled. Grants related to assets are presented in the statement of financial position either as deferred income or by deducting the relevant amount in determining the carrying amount of the asset. Annual Report 2021 75 32  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. ● Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non- current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Consolidated Entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. 76 Annual Report 2021 33 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) A liability is classified as current when: it is either expected to be settled in the Consolidated Entity's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non- current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are initially recognised at fair value, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. The Consolidated Entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. Contract assets Contract assets are recognised when the Consolidated Entity has transferred goods or services to the customer but where the Consolidated Entity is yet to establish an unconditional right to consideration. Contract assets are treated as financial assets for impairment purposes. The contract assets relate to costs incurred to both obtain or fulfil a contract with a customer. Costs typically included sales commissions, customer contract buy-out costs and costs related directly to fulfilling a customer contract such as direct labour. The contract assets are amortised to cost of sales over the average contract life which is assessed to be in the range of 4 - 4.5 years. There are management judgements required in assessing both the types of costs capitalised and amortisation periods as outlined. Inventories Stock on hand is stated at the lower of cost and net realisable value. Cost comprises purchase and delivery costs, net of rebates and discounts received or receivable. Non-current assets or disposal groups classified as held for sale Non-current assets and assets of disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continued use. They are measured at the lower of their carrying amount and fair value less costs of disposal. For non-current assets or assets of disposal groups to be classified as held for sale, they must be available for immediate sale in their present condition and their sale must be highly probable. An impairment loss is recognised for any initial or subsequent write down of the non-current assets and assets of disposal groups to fair value less costs of disposal. A gain is recognised for any subsequent increases in fair value less costs of disposal of a non-current assets and assets of disposal groups, but not in excess of any cumulative impairment loss previously recognised. Annual Report 2021 77 34  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of assets held for sale continue to be recognised. Non-current assets classified as held for sale and the assets of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current assets. The liabilities of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current liabilities. Investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Consolidated Entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, its carrying value is written off. Financial assets at amortised cost A financial asset is measured at amortised cost only if both of the following conditions are met: (i) it is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and (ii) the contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest. Impairment of financial assets The Consolidated Entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Consolidated Entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets mandatorily measured at fair value through other comprehensive income, the loss allowance is recognised in other comprehensive income with a corresponding expense through profit or loss. In all other cases, the loss allowance reduces the asset's carrying value with a corresponding expense through profit or loss. 78 Annual Report 2021 35 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation commences from the time the asset is available for its intended use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. Depreciation is calculated on a straight-line basis to write off the net cost of each item of plant and equipment over their expected useful lives as follows: Leasehold improvements Plant and equipment* Motor vehicles Furniture and fixtures Right of use assets 7 – 10 years 2 – 10 years 4 – 5 years 2 – 10 years 1 – 5 years * Plant and equipment includes network and customer infrastructure. The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date to ensure it is not in excess of the assets recoverable amount. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have not been discounted in determining recoverable amounts. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Consolidated Entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits. Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Consolidated Entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. Annual Report 2021 79 36  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the de-recognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill is recorded at the amount by which the purchase price for a business combination exceeds the fair value attributed to the interest in the net fair value of identifiable assets, liabilities and contingent liabilities acquired at date of acquisition. Goodwill is subsequently measured at cost less any impairment losses. Goodwill is subject to impairment testing on an annual basis. Impairment losses are calculated based on the Director’s assessment of the business’s recoverable amount. Recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. Directors' Gains and losses on the disposal of a business include the carrying amount of goodwill relating to the business sold. Intellectual property Significant costs associated with intellectual property are deferred and amortised on a straight- line basis over the period of their expected benefit, being their finite life of 7 years. Brand names Acquired brand names are stated at cost less any impairment. Brand names are subject to impairment testing on an annual basis. Impairment losses are calculated based on the Director’s assessment of the business’s recoverable amount. Recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. Directors' Gains and losses on the disposal of a business include the carrying amount of brand names relating to the business sold. Customer relationships Customer relationships acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 10 years. Customer contracts Customer contracts acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 10 years. Software Significant costs associated with software are deferred and amortised on a straight-line basis over the period of their expected benefit being their finite life of 3-5 years. 37 80 Annual Report 2021 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) Other intangible assets Other intangible assets that are acquired by the Consolidated Entity and have finite lives are stated at cost less accumulated amortisation and any accumulated impairment losses. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Consolidated Entity's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Annual Report 2021 81 38  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) Provisions Provisions are recognised when the Consolidated Entity has a present (legal or constructive) obligation as a result of a past event, it is probable the Consolidated Entity will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Non-accumulating sick leave is expensed to profit or loss when incurred. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. 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 high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Consolidated Entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. 82 Annual Report 2021 39 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Consolidated Entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Consolidated Entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. Annual Report 2021 83 40  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) On the acquisition of a business the Consolidated Entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Consolidated Entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Consolidated Entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Spirit Technology Solutions Ltd, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Basic and diluted earnings per share from operations has been presented in the statement of profit or loss and other comprehensive income. Basic and diluted earnings is presented in note 41 to the financial statements. 84 Annual Report 2021 41 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 2. Significant accounting policies (continued) Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from or payable to the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from or payable to the tax authority are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from or payable to the tax authority. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest,000 dollars, or in certain cases, the nearest dollar. Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on various other factors, including expectations of future events management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Coronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the Consolidated Entity based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the Consolidated Entity operates. Refer note 2 Going Concern and note 39 Events after the reporting period for additional information. Revenue recognition The Group’s contracts are recognised as and when performance obligations are met. Identifying performance obligations, allocating the transaction price to performance obligations, and determining the timing of revenue recognition of these contracts at times requires the application of judgement due to the complexity and nature of the customer arrangements. The assumptions made in the estimates are based on the information available to Management at the reporting date. A change in the estimated stage of completion could have an impact on the timing of the revenue recognition. Refer to note 2 for further information on revenue recognition. Annual Report 2021 85 42  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 3. Critical accounting judgements, estimates and assumptions (continued) Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each company. These assumptions include recent sales experience and historical collection rates. Estimation of useful lives of assets The Consolidated Entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or other events. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or impaired. Goodwill and other indefinite life intangible assets The Consolidated Entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Impairment of property, plant and equipment The Consolidated Entity assesses impairment of property, plant and equipment at each reporting date by evaluating conditions specific to the Consolidated Entity and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the Consolidated Entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred and contingent consideration The deferred and contingent consideration liabilities are the difference between the total purchase consideration, usually on an acquisition of a business combination, and the amounts paid or settled up to the reporting date, discounted to net present value. The Consolidated Entity applies provisional accounting for any business combination. Any reassessment of the liability during the earlier of the finalisation of the provisional accounting or 12 months from acquisition-date is adjusted for retrospectively as part of the provisional accounting rules in accordance with AASB 3 'Business Combinations'. Thereafter, at each reporting date, a deferred and contingent consideration liability is reassessed against revised estimates and any increase or decrease in the net present value of the liability will result in a corresponding gain or loss to profit or loss. The increase in the liability resulting from the passage of time is recognised as a finance cost. Business combinations As discussed in note 2, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the Consolidated Entity taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported. 86 Annual Report 2021 43 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 4. Operating segments Identification of reportable operating segments The Consolidated Entity is organised into one operating segment, being the provision of IT&T services. This included the provision of Telecommunication services, Cloud services, Managed IT services and Cyber Security services to small, medium and enterprise size businesses. Major customers During the year ended 30 June 2021 there are no individual customers which accounted for 5% or more of sales. Note 5. Revenue Consolidated 2021 $'000 2020 $'000 Sales revenue 102,786 34,429 Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Major product lines Managed services Internet and data services Security services Voice services Cloud services Other Geographical regions Australia Timing of revenue recognition Goods transferred at a point in time Services transferred over time Consolidated 2021 $'000 2020 $'000 49,959 17,586 13,369 14,300 4,428 3,144 14,018 15,696 - 4,024 - 691 102,786 34,429 102,786 34,429 55,127 47,659 10,772 23,657 102,786 34,429 Annual Report 2021 87 44  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 6. Other income Government infrastructure grants Profit on sale of assets and right of use Government subsidies Miscellaneous income Interest income Other income Consolidated 2021 $'000 2020 $'000 665 529 305 181 3 400 2 - 16 27 1,683 445 88 Annual Report 2021 45 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 7. Expenses Profit/(loss) before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Motor vehicles Furniture and fixtures Total depreciation Amortisation Right-of-use assets Customer relationships Software and projects Intellectual property Total amortisation Total depreciation and amortisation Finance costs Borrowings Finance leases Finance costs expensed Superannuation expense Defined contribution superannuation expense Employee benefits expense excluding superannuation Employee benefits expense excluding superannuation Impairment of receivables Bad and doubtful debts expense* Consolidated 2021 $'000 2020 $'000 47 3,928 62 69 4 2,645 52 49 4,106 2,750 1,527 299 690 44 692 - 413 - 2,560 1,105 6,666 3,855 471 137 608 285 85 370 2,613 913 28,937 10,913 321 280 *The Consolidated Entity has recognised a loss of $321,000 in profit or loss in respect of impairment of receivables for the year ended 30 June 2021 (2020: $280,000), including bad debts expense of $221,000 (2020: $189,000). Annual Report 2021 89 46  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 8. Income tax expense/(benefit) Numerical reconciliation of income tax expense/(benefit) and tax at the statutory rate Profit/(loss) before income tax (expense)/benefit Tax at the statutory tax rate of 30.0% (27.5% at 30 June 2020) Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Acquisition related Share options and employee shares scheme Impact of change in corporate tax rate Other balances and permanent differences Income tax expense/(benefit) Consolidated 2021 $'000 2020 $'000 1,345 (2,043) 403 (562) 506 - 50 132 (99) - (622) (148) 188 (528) Note 9. Divestment of consumer infrastructure assets’ On 18 March 2021, the Consolidated Entity announced its intention to divest its consumer infrastructure assets. The Consumer assets now account for a small amount of Spirit’s revenue compared to its B2B portfolio of assets. Considering this focus, and that the Consumer offering represents a small proportion of the customers utilising the underlying data and internet product lines operated by Spirit, the product is not a component that historically or upon disposal comprises operations and cash flows distinguishable, operationally and for financial reporting purposes, from Spirit’s single CGU. The divestment is in line with Spirit’s shift to focus on the business market, from SME to large enterprise. As of the date of adoption of the financial report multiple bids have been received with the due diligence process well advanced. Note 10. Current assets - cash and cash equivalents Cash at bank Consolidated 2021 $'000 2020 $'000 8,493 6,400 90 Annual Report 2021 47 Spirit Technology Solutions Ltd N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 11. Current assets - trade and other receivables Trade receivables Less: Allowance for expected credit losses Other receivables Consolidated 2021 $'000 2020 $'000 13,270 (487) 12,783 1 4,581 (176) 4,405 5 12,784 4,410 Allowance for expected credit losses The Consolidated Entity retains a provision of $487,000 in respect of impairment of receivables for the year ended 30 June 2021 (2020: $176,000). The ageing of the receivables and allowance for expected credit losses provided for above are as follows: 3 to 6 months overdue Over 6 months overdue Movements in the allowance for expected credit losses are as follows: Opening balance Additions and releases Closing balance Note 12. Current assets - inventories Stock on hand - at cost Less: Provision for impairment Consolidated 2021 $'000 2020 $'000 412 75 487 98 78 176 Consolidated 2021 $'000 2020 $'000 176 311 487 66 110 176 Consolidated 2021 $'000 2020 $'000 2,801 (224) 1,005 (55) 2,577 950 Annual Report 2021 91 48  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd Notes to the financial statements 30 June 2021 Note 13. Current assets - other Accrued revenue Prepayments Vendor loans Other current assets Note 14. Contract assets Contract assets Accumulated amortisation Consolidated 2021 $'000 2020 $'000 2,513 1,079 532 6 244 587 - 7 4,130 838 Consolidated 2021 $'000 2020 $'000 1,881 (194) 1,687 - - - - - - - - - - The classification of contract assets into current and non-current is set out below: Current Non-current Reconciliation of the written down values at the beginning and end of the current and previous financial year are set out below: Opening balance Additions Amortisation to the profit and loss Closing balance Consolidated 2021 $'000 2020 $'000 143 1,544 1,687 Consolidated 2021 $'000 2020 $'000 - 1,881 (194) 1,687 92 Annual Report 2021 49 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 30 June 2021 Note 15. Non-current assets - property, plant and equipment Leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment at cost Less: Accumulated depreciation Motor vehicles - at cost Less: Accumulated depreciation Furniture & Fixtures at Cost Less: Accumulated depreciation Work in progress Reconciliations Consolidated 2021 $'000 2020 $'000 599 (195) 404 103 (80) 23 22,010 (8,890) 13,120 21,027 (7,538) 13,489 854 (799) 55 820 (553) 267 294 (232) 62 592 (353) 239 49 8 13,895 13,821 Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Leasehold improvement s Plant and equipment Motor vehicles Furniture & Fixtures Work in progress Total $'000 $'000 $'000 $'000 $'000 $'000 Balance at 1 July 2019 Additions through business combinations (note 37) Additions/transfers Disposals Depreciation expense Balance at 30 June 2020 Additions through business combinations (note 37) Transfers to held for sale Additions/transfers Disposals Depreciation expense - 9,448 23 4 - (4) 264 6,454 (32) (2,645) 23 13,489 85 35 17 (23) (52) 62 233 29 126 (100) (49) 239 415 1,462 - (1,301) 3,410 (12) (3,928) 13 - (47) 55 79 - 18 - (69) - - - (62) 55 Balance at 30 June 2021 404 13,120 50 784 10,550 - (775) (1) - 351 5,826 (156) (2,750) 8 13,821 - 2,011 - (1,301) 41 3,482 (12) (4,106) - - 267 49 13,895 Annual Report 2021 93  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd Notes to the financial statements 30 June 2021 Note 16. Non-current assets - right-of-use assets Right-of-use assets Less: Accumulated amortisation Consolidated 2021 $'000 2020 $'000 6,473 (2,582) 2,255 (692) 3,891 1,563 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2019 Adoption AASB 16 Leases Additions Amortisation expense Balance at 30 June 2020 Net additions through business combinations (note 37) Additions Disposals Amortisation expense Balance at 30 June 2021 Total $'000 - 2,255 - (692) 1,563 3,473 416 (34) (1,527) 3,891 94 Annual Report 2021 51 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Note 17. Non-current assets - intangibles (continued) Note 17. Non-current assets - intangibles Goodwill - at cost Intellectual property - at cost Less: Accumulated amortisation Software Less: Accumulated amortisation Brand names - at cost Customer relationships Less: Accumulated amortisation Consolidated 2021 $'000 2020 $'000 100,087 23,974 561 (44) 517 5,305 (2,254) 3,051 4,105 11,942 (299) 11,643 - - - 2,125 (740) 1,385 - - - - 119,403 25,359 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Goodwill Brand names Software & projects at cost $'000 at cost $'000 at cost $'000 Customer relationship s at cost $'000 Intellectual property Indefinite life intangibles Total at cost $'000 $'000 $'000 Consolidated Balance at 1 July 2019 Reclassification Additions through business combinations (note 37) Additions Amortisation expense Balance at 30 June 2020 Additions through business combinations (note 37) Additions Amortisation expense 10,557 2,005 11,412 - - 23,974 - - - - - - 695 - - 1,103 (413) 1,385 - - - - - - 76,113 - - 4,105 - - 1,336 1,020 (690) 11,942 - (299) Balance at 30 June 2021 100,087 4,105 3,051 11,643 52 - - - - - - - 561 (44) 517 2,005 (2,005) 13,257 - - - - - - - - 11,412 1,103 (413) 25,359 93,496 1,581 (1,033) - 119,403 Annual Report 2021 95  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 17. Non-current assets - intangibles (continued) Goodwill, Brand Names & Intangible Assets with Indefinite Lives Goodwill, brand names and indefinite life intangibles, including those acquired during the year, are allocated to a single cash-generating unit (CGU), that being the Consolidated Entity’s single operating segment. The recoverable amount of the CGU is determined based on a value-in-use model. The model uses a pre-tax discount of 13% (2020: 14%), cash flow projections based on the financial budget for the 12 months immediately following reporting date, cash flows beyond 12 months extrapolated through a 4-5 year outlook utilising conservative growth rates, and a terminal value growth rate of 3%. Upon applying the test across both intangible assets, including goodwill, it is concluded that no impairment has occurred. Sensitivity analysis on the key assumptions employed in the value-in-use calculations has been performed by Management. The sensitivities applied were decreasing sales and associated cost of goods sold by 10% throughout the model period (whilst holding operating costs stable), increasing the post-tax discount rate by 2- 3% percentage points and reducing the terminal value growth rate by half. These sensitivity tests did not result in the CGU’s carrying amounts exceeding their recoverable amount, giving rise to impairment. Note 18. Non-current assets - deferred tax Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Employee benefits Expenses deductible in future periods Other provisions/accruals Tax credits from tax losses Deferred tax asset Consolidated 2021 $'000 2020 $'000 675 775 1,169 - 318 294 446 421 2,619 1,479 96 Annual Report 2021 53 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Limited Notes to the financial statements 30 June 2021 Note 19. Current liabilities - trade and other payables Trade payables GST payable Other payables Refer to note 31 for further information on financial instruments. Note 20. Current liabilities - lease liabilities Lease liability Refer to note 31 for further information on financial instruments. Note 21. Current liabilities - provisions Annual leave Long service leave Provision for income tax Lease make good Note 22. Current liabilities - deferred consideration Deferred consideration Refer to note 37 for further information on deferred consideration. Consolidated 2021 $'000 2020 $'000 9,431 706 6,005 4,047 319 1,290 16,142 5,656 Consolidated 2021 $'000 2020 $'000 2,004 816 Consolidated 2021 $'000 2020 $'000 1,999 919 478 48 668 249 34 - 3,444 951 Consolidated 2021 $'000 2020 $'000 15,327 - Annual Report 2021 97 54  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd Notes to the financial statements 30 June 2021 Note 23. Non-current liabilities - borrowings Bank loans Refer to note 31 for further information on financial instruments. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Bank loans Hire purchase Assets pledged as security Consolidated 2021 $'000 2020 $'000 10,000 3,268 Consolidated 2021 $'000 2020 $'000 10,000 - 3,268 20 10,000 3,288 The bank loan of $10M (2020: $3.3M) is a first ranking secured over the assets and undertakings of Spirit Technology Solutions Ltd and its wholly owned subsidiaries. Note 24. Non-current liabilities - lease liabilities Lease liability Refer to note 31 for further information on financial instruments. Note 25. Non-current liabilities - deferred tax Deferred tax liability comprises temporary differences attributable to: Property, plant and equipment Deferred tax liability Consolidated 2021 $'000 2020 $'000 2,016 787 Consolidated 2021 $'000 2020 $'000 712 712 - - 98 Annual Report 2021 55 Spirit Technology Solutions Limited N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 26. Non-current liabilities - provisions Long service leave Note 27. Unearned revenue Customer contract unearned revenue Government infrastructure grants Consolidated 2021 $'000 2020 $'000 352 165 Consolidated 2021 $'000 2020 $'000 4,964 1,514 1,236 2,096 6,478 3,332 The Government infrastructure grant proceeds primarily related to Horsham and Morwell high speed internet projects that will be recognised over a four-year period. The classification of unearned revenue into current and non-current is set out below: Current Non-current Consolidated 2021 $'000 2020 $'000 3,655 2,823 1,775 1,557 6,478 3,332 Annual Report 2021 99 56  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 27. Unearned revenue (continued) Reconciliations Reconciliations of the movements at the beginning and end of the current and previous financial year are set out below: Total Customer contract unearned revenue Governm ent infrastruc ture grants $'000 $'000 $'000 430 1,544 1,974 790 16 - 552 790 568 1,236 2,096 3,332 4,059 (331) - (582) 4,059 (913) 4,964 1,514 6,478 Consolidated Balance at 1 July 2019 Additions through business combinations (note 37) Net other movements Balance at 30 June 2020 Additions through business combinations (note 37) Net other movements Balance at 30 June 2021 Note 28. Equity - issued capital Ordinary shares - fully paid 652,292,046 430,909,320 112,689 42,852 Consolidated 2021 Shares 2020 Shares 2021 $'000 2020 $'000 100 Annual Report 2021 57 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Spirit Technology Solutions Ltd Notes to the financial statements (Formerly known as Spirit Telecom Limited) 30 June 2021 Notes to the financial statements 30 June 2021 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Note 28. Equity - issued capital (continued) Note 28. Equity - issued capital (continued) Movements in ordinary share capital Movements in ordinary share capital Details Date Shares Issue price $'000 Issue price Details Balance Exercise of ST1O listed options Balance Exercise of ST1O listed options Exercise of ST1O listed options Issue of shares to the vendor as part Exercise of ST1O listed options consideration in relation to the Arinda IT Issue of shares to the vendor as part acquisition consideration in relation to the Arinda IT Exercise of ST1O listed options acquisition Exercise of unlisted options Exercise of ST1O listed options Exercise of ST1O listed options Exercise of unlisted options Exercise of ST1O listed options Exercise of ST1O listed options Issue of shares to the vendor as part Exercise of ST1O listed options consideration in relation to the Phoenix Austec Issue of shares to the vendor as part Group acquisition consideration in relation to the Phoenix Austec Exercise of ST1O listed options Group acquisition Issue of shares pursuant to the underwriting Exercise of ST1O listed options arrangement for ST1O listed options Issue of shares pursuant to the underwriting Issue of shares to incentivise employees arrangement for ST1O listed options Exercise of unlisted options Issue of shares to incentivise employees Conversion of vested Performance Rights Exercise of unlisted options Issue of shares to the vendor as part Conversion of vested Performance Rights consideration in relation to the Cloud Business Issue of shares to the vendor as part Technology acquisition consideration in relation to the Cloud Business Issue of shares to the vendor as part Technology acquisition consideration in relation to the Trident & Neptune Issue of shares to the vendor as part Group acquisition consideration in relation to the Trident & Neptune Issue of Tranche 1 Placement shares Group acquisition Issue of Tranche 2 Placement shares Issue of Tranche 1 Placement shares Transfer from option reserve Issue of Tranche 2 Placement shares Cost of capital raising Transfer from option reserve Cost of capital raising Balance Issue of shares to the vendor as part Balance consideration in relation to the VPD Group Issue of shares to the vendor as part acquisition consideration in relation to the VPD Group Issue of Tranche 1 Placement shares acquisition Issue of shares to the vendor as part Issue of Tranche 1 Placement shares consideration in relation to the Ancore Issue of shares to the vendor as part acquisition consideration in relation to the Ancore Issue of shares to the vendor as part acquisition consideration in relation to the Beachhead Issue of shares to the vendor as part acquisition consideration in relation to the Beachhead Issue of shares to the vendor as part acquisition consideration in relation to the Reliance IT Issue of shares to the vendor as part acquisition consideration in relation to the Reliance IT Issue of shares in accordance with Share acquisition Purchase Plan Issue of shares in accordance with Share Issue of Tranche 2 Placement shares Purchase Plan Conversion of vested Performance Rights Issue of Tranche 2 Placement shares Issue of shares to the vendor as part Conversion of vested Performance Rights consideration in relation to the Intalock Issue of shares to the vendor as part acquisition consideration in relation to the Intalock Issue of shares to the vendor as part of acquisition contingent consideration in relation to the Issue of shares to the vendor as part of Trident acquisition upon achievement of earnout contingent consideration in relation to the target 1 Trident acquisition upon achievement of earnout Spirit Technology Solutions Ltd Issue of placement shares target 1 (Formerly known as Spirit Telecom Limited) Issue of shares to the vendor as part Issue of placement shares Notes to the financial statements consideration in relation to the Nexgen Issue of shares to the vendor as part 30 June 2021 acquisition consideration in relation to the Nexgen Cost of capital raising acquisition Cost of capital raising Balance Date 1 July 2019 4 July 2019 1 July 2019 10 July 2019 4 July 2019 10 July 2019 11 July 2019 16 July 2019 11 July 2019 17 July 2019 16 July 2019 25 July 2019 17 July 2019 26 July 2019 25 July 2019 26 July 2019 29 July 2019 2 August 2019 29 July 2019 2 August 2019 9 August 2019 16 September 2019 9 August 2019 22 November 2019 16 September 2019 20 December 2019 22 November 2019 20 December 2019 3 February 2020 3 February 2020 18 February 2020 20 April 2020 18 February 2020 1 June 2020 20 April 2020 1 June 2020 30 June 2020 30 June 2020 1 July 2020 27 August 2020 1 July 2020 27 August 2020 1 September 2020 1 September 2020 1 September 2020 1 September 2020 1 September 2020 1 September 2020 18 September 2020 22 October 2020 18 September 2020 22 October 2020 22 October 2020 22 October 2020 3 December 2020 3 December 2020 27 January 2021 8 April 2021 27 January 2021 8 April 2021 8 April 2021 8 April 2021 58 30 June 2021 58 Shares 305,723,988 1,508,509 305,723,988 13,326,593 1,508,509 13,326,593 2,380,952 3,233,587 2,380,952 1,250,000 3,233,587 742,906 1,250,000 158,806 742,906 158,806 1,333,333 8,137,215 1,333,333 8,137,215 1,624,640 88,480 1,624,640 1,250,000 88,480 332,084 1,250,000 332,084 700,000 700,000 5,818,750 78,754,022 5,818,750 4,545,455 78,754,022 - 4,545,455 - - - 430,909,320 430,909,320 29,000,000 55,881,401 29,000,000 55,881,401 1,592,988 1,592,988 1,734,888 1,734,888 4,612,204 4,612,204 15,624,581 1,125,000 15,624,581 189,320 1,125,000 189,320 5,921,053 5,921,053 703,366 72,121,213 703,366 72,121,213 32,876,712 - 32,876,712 - 652,292,046 $0.196 $0.196 $0.196 $0.196 $0.255 $0.196 $0.255 $0.190 $0.196 $0.196 $0.190 $0.196 $0.196 $0.196 $0.240 $0.196 $0.240 $0.196 $0.196 $0.226 $0.196 $0.190 $0.226 $0.000 $0.190 $0.000 $0.185 $0.185 $0.210 $0.110 $0.210 $0.110 $0.110 $0.000 $0.110 $0.000 $0.000 $0.000 $0.250 $0.320 $0.250 $0.320 $0.360 $0.360 $0.360 $0.360 $0.360 $0.360 $0.320 $0.320 $0.320 $0.000 $0.320 $0.000 $0.415 $0.415 $0.390 $0.330 $0.390 $0.330 $0.370 $0.000 $0.370 $0.000 $'000 25,512 297 25,512 2,624 297 2,624 607 636 607 237 636 146 237 31 146 31 320 1,602 320 1,602 320 20 320 238 20 - 238 - 130 130 1,222 8,663 1,222 500 8,663 275 500 (528) 275 (528) 42,852 42,852 7,250 17,882 7,250 17,882 573 573 624 624 1,660 1,660 5,000 360 5,000 - 360 - 2,457 2,457 274 23,800 274 23,800 12,164 (2,207) 12,164 (2,207) 112,689 Note 28. Equity - issued capital (continued) Movements in unquoted options Annual Report 2021 Details Balance Exercise of unlisted options Exercise of unlisted options Balance Balance Ordinary shares Date Options $'000 101 1 July 2019 17 July 2019 22 November 2019 20,500,000 (1,250,000) (1,250,000) 30 June 2020 18,000,000 30 June 2021 18,000,000 - - - - - Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The Consolidated Entity's objectives when managing capital is to safeguard its ability to continue as a going concern so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Consolidated Entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. the investment. The Consolidated Entity would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company's share price at the time of The Consolidated Entity is subject to certain financing arrangement covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. The capital risk management policy remains unchanged from the 30 June 2020 Annual Report. 59 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Balance 30 June 2021 652,292,046 112,689 Note 28. Equity - issued capital (continued) Movements in unquoted options Details Date Options $'000 Balance Exercise of unlisted options Exercise of unlisted options Balance Balance Ordinary shares 1 July 2019 17 July 2019 22 November 2019 20,500,000 (1,250,000) (1,250,000) 30 June 2020 18,000,000 30 June 2021 18,000,000 - - - - - Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management The Consolidated Entity's objectives when managing capital is to safeguard its ability to continue as a going concern so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Consolidated Entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Consolidated Entity would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company's share price at the time of the investment. The Consolidated Entity is subject to certain financing arrangement covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. The capital risk management policy remains unchanged from the 30 June 2020 Annual Report. 59 102 Annual Report 2021 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 29. Equity - reserves Share-based payments reserve (Note 42) Capital reserve Consolidated 2021 $'000 2020 $'000 1,181 6 561 6 1,187 567 Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and Directors as part of their remuneration, and other parties as part of their compensation for services. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2019 Share-based payments expense Transfers Balance at 30 June 2020 Share-based payments expense (note 42) Balance at 30 June 2021 Note 30. Equity - dividends Share- based payments reserve $'000 Capital reserve $'000 Total $'000 6 - - 6 - 6 470 458 (367) 561 620 476 458 (367) 567 620 1,181 1,187 There were no dividends paid, recommended or declared during the current or previous financial year. Note 31. Financial instruments Financial risk management objectives The Consolidated Entity's activities expose it to a variety of financial risks as set out below. Risk management is carried out by senior finance executives ('finance') under the guidance of the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the Consolidated Entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and if required, hedges financial risks within the Consolidated Entity's operating units. Finance reports to the Board on a monthly basis. Annual Report 2021 103 60  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 31. Financial instruments (continued) Market risk Foreign currency risk The Consolidated Entity undertakes transactions denominated in foreign currencies and therefore has exposure to foreign currency risk. Offshore Customer Care, Service delivery and Finance teams are located in Manilla and cost around $19,000 USD per week. The Consolidated Entity also sources security based software products and spends approximately $4M USD per annum. Conversion is at the applicable exchange rate at the time the transaction is authorised. No hedging activity is undertaken to minimise currency fluctuations. Price risk The Consolidated Entity is not exposed to any significant price risk. Interest rate risk The Consolidated Entity's main interest rate risk arises from long-term borrowings. Borrowings obtained at variable rates expose the Consolidated Entity to interest rate risk. Borrowings obtained at fixed rates expose the Consolidated Entity to fair value interest rate risk. The entire Facility is exposed to variable interest rates. The Consolidated Entity paid $471,000 in interest during the 2021 financial year (2020: $285,000). The facility is structured such that a line fee is payable on the facility limit ($25M), a usage fee payable on funds drawn and an interest charge based on BBSY plus 3.6%. As at the reporting date the Consolidated Entity had the following variable rate borrowings. The net weighted average interest rate detailed below is calculated on the aggregation of the usage fee and interest charge over the average balance drawn down during the year ended 30 June 2021. 2021 2020 Consolidated Bank loan Weighted average interest rate % Balance Weighted average interest rate % $'000 Balance $'000 2.0% 10,000 2.1% 3,268 Net exposure to cash flow interest rate risk 10,000 3,268 An analysis by remaining contractual maturities is shown in 'liquidity and interest rate risk management' below. For the Consolidated Entity the bank loans outstanding, totalling $10.0M (2020: $3.3M), are interest bearing loans. On 20 August 2020, the Consolidated Entity announced an increase of $5M to $15.9M and on 31 March 2021 announced a further increase to $25M. 104 Annual Report 2021 61 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 31. Financial instruments (continued) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Consolidated Entity. The Consolidated Entity has a strict code of credit and follows a rigorous collection process. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Consolidated Entity does not hold any collateral. The Consolidated Entity has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. The credit loss model takes into consideration the industry dynamics and exposures of the customer base. With regards to Debtors, amounts older than 90 days owing are reviewed and where appropriate taken up as a provision for doubtful debts. This process is completed monthly. As at 30 June 2021 $487,000 was booked as an allowance for expected credit losses against the total amount owed by debtors. There are no guarantees against this receivable but management closely monitors the receivable balance on a monthly basis and is in regular contact with its customers to mitigate risk. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. Liquidity risk Vigilant liquidity risk management requires the Consolidated Entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Consolidated Entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Annual Report 2021 105 62  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 31. Financial instruments (continued) Remaining contractual maturities The following tables detail the Consolidated Entity's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Weighted average interest rate % Consolidated - 2021 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years $'000 $'000 $'000 $'000 Non-derivatives Non-interest bearing Trade and other payables Contingent consideration Deferred consideration Interest-bearing - variable Bank loan Lease liability - - - 16,142 2,399 15,327 - 3,603 - - - - 2.00% 5.27% - 2,004 10,000 368 - 1,648 Total non-derivatives 35,872 13,971 1,648 Weighted average interest rate % Consolidated - 2020 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years $'000 $'000 $'000 $'000 Non-derivatives Non-interest bearing Trade and other payables Contingent consideration Interest-bearing - variable Bank loan Lease liability - - 5,656 - - - 998 997 2.10% 5.27% - 816 3,268 519 - 268 Total non-derivatives 6,472 4,785 1,265 Remaining contractua l maturities $'000 - - - - - - 16,142 6,002 15,327 10,000 4,020 51,491 Remaining contractua l maturities $'000 - - - - - 5,656 1,995 3,268 1,603 12,522 Fair value of financial instruments Unless otherwise stated the carrying amounts of financial instruments reflect their fair value. 106 Annual Report 2021 63 Spirit Technology Solutions Limited N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 32. Key management personnel disclosures Directors The following persons were Directors of Spirit Technology Solutions Ltd during the financial year: Mr James Joughin (Non-Executive Chairman) Mr Sol Lukatsky (Managing Director) Mr Mark Dioguardi (Executive Director) Mr Gregory Ridder (Non-Executive Director) Ms Inese Kingsmill (Non-Executive Director) (appointed on 1 July 2020) Mr Terence Gray (Non-Executive Director) (resigned on 7 July 2020) Other key management personnel The following person also had the authority and responsibility for planning, directing and controlling the major activities of the Consolidated Entity, directly or indirectly, during the financial year: Paul Miller (Chief Financial Officer) Compensation The aggregate compensation made to Directors and other members of key management personnel of the Consolidated Entity is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Consolidated 2021 $ 2020 $ 1,487,669 112,502 24,323 660,183 1,371,538 105,450 7,884 467,371 2,284,677 1,952,243 Annual Report 2021 107 64 Spirit Technology Solutions Limited N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 33. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by PKF Melbourne Audit & Assurance Pty Ltd, the auditor of the Company, and its related practices: Consolidated 2021 $ 2020 $ 125,000 68,225 90,000 - 24,000 31,500 215,416 10,000 - 43,500 464,141 143,500 Audit and assurance services - PKF Melbourne Audit & Assurance Pty Ltd Audit or review of the financial statements Assurance related services in respect of acquisition date accounting Other services – PKF Melbourne Tax compliance services Tax due diligence services Corporate advisory due diligence services Note 34. Contingent liabilities There were no contingent liabilities at 30 June 2021 and 30 June 2020. Note 35. Related party transactions Parent entity Spirit Technology Solutions Ltd is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 38. Key management personnel Disclosures relating to key management personnel are set out in note 32 and the remuneration report included in the Directors' report. Transactions with related parties There were no transactions with related parties during the current and previous financial year. Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. 108 Annual Report 2021 65 Spirit Technology Solutions Limited N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 36. Legal parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit/(loss) after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Reserves (Note 29) Accumulated losses Total equity Parent 2021 $'000 2020 $'000 (17,348) (17,348) 94 94 Parent 2021 $'000 2020 $'000 746 5,115 125,020 48,410 375 1,044 29,616 6,115 112,689 1,187 (18,472) 42,852 567 (1,124) 95,404 42,295 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The bank loan of $10M is secured first over the assets and undertakings of Spirit Technology Solutions Ltd and its wholly owned subsidiaries. The parent entity had no other guarantees in relation to the debts of its subsidiaries as at 30 June 2021 and 30 June 2020. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2021 and 30 June 2020. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2021 and 30 June 2020. Annual Report 2021 109 66  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 36. Legal parent entity information (continued) Significant accounting policies The accounting policies of the parent entity are consistent with those of the Consolidated Entity, as disclosed in note 2, except for the following: ● ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 37. Business combinations Voice Print Data Group The Company acquired 100% of Voice Print Data Group ("VPD"), with effective control on 1 July 2020. The acquisition has been accounted for as a Business Combination under AASB 3. VPD becomes the new Wholesale Business arm for Spirit selling a range of Cloud, Internet and Voice services via its channel partners. The fair values of the identifiable net assets acquired are detailed below: Cash and cash equivalents Trade receivables Vendor loan Inventories Prepayments Property, plant and equipment Right-of-use assets GST payable Trade and other payables Provision for income tax Employee benefits Unearned revenue Finance lease liabilities Deferred tax liabilities Net liabilities acquired Goodwill Acquisition-date fair value of the total consideration transferred Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: shares issued by Company as part of consideration Net cash used 67 Fair value $'000 1,302 1,216 600 103 143 1,252 934 (136) (2,007) (125) (480) (2,717) (934) (239) (1,088) 14,338 13,250 13,250 (7,250) 6,000 110 Annual Report 2021 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) i. Consideration transferred Acquisition-related costs amounting to $226,000 are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement. ii. Identifiable net assets The fair value of the trade receivables acquired as part of the business combination amounted to $1,216,000. As of the acquisition date, the Company’s best estimate is that all cash will be collected. iii. Goodwill Goodwill of $14,338,000 was primarily related to the Company’s growth expectations through customer expansion. The Consolidated Entity operates as one operating segment and goodwill was allocated to the IT&T cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes. iv. Contingent consideration The acquisition of VPD included a contingent consideration element by way of an earn-out structure in equal proportion based upon EBITDA performance over a 12 month period ended 30 June 2021 (FY21) and the 12 month period ended 30 June 2022 (FY22). The earnout consideration was split in the proportion of cash (50%) and equity (50%). The earn-out structure facilitated a scaled achievement against targets for FY21 and FY22 and the contingent consideration was payable in a range exceeding 100% against the FY21 target and in a range exceeding 110% of the FY22 target. At the date of acquisition, the Board and management assessed the probability of achieving the relevant EBITDA performance targets and assessed the likelihood to be at or below the minimum hurdles and accordingly no contingent consideration was recognised. Subsequent to acquisition date, the Company and the vendors of VPD signed a variation to the Share Purchase Agreement dated 21 June 2021, agreeing that there would be no contingent consideration payable for FY21 or FY22. v. Contribution to the Consolidated Entity’s results VPD contributed revenues of $16,714,000 to the Consolidated Entity from the date of the acquisition to 30 June 2021. The Consolidated Entity’s business growth generates increased revenue opportunities across the entire Group's portfolio, also being reflected in VPD's revenue performance. VPD does not receive any allocations of acquisition costs, corporate overhead, listing or finance costs, which are all absorbed by the Consolidated Entity’s core operations and accordingly it is impractical to disclose VPD’s contribution to the Consolidated Entity's profit. Annual Report 2021 111 68  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) Acquisition of Altitude IT The Company acquired 100% of Ancore Pty Ltd (trading as Altitude IT), with effective control on 1 September 2020. The acquisition has been accounted for on a provisional basis as a Business Combination under AASB 3. Altitude IT is a Sydney based Managed IT Services Provider with a diverse base of recurring revenue across the commercial & industrial sectors. The fair values of the identifiable net assets acquired are detailed below: Cash and cash equivalents Trade receivables Deposits Inventories Vendor loan Property, plant and equipment Trade and other payables GST payable Provision for income tax Employee entitlements Net assets acquired Goodwill Net fair value loss on remeasurement of financial liabilities Acquisition-date fair value of the total consideration transferred Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: contingent consideration Less: shares issued by Company as part of consideration Net cash used Fair value $'000 230 257 6 6 141 41 (140) (50) 11 (93) 409 1,711 275 2,395 2,395 (275) (573) 1,547 i. Consideration transferred Acquisition-related costs amounting to $37,000 are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement. ii. Identifiable net assets The fair value of the trade receivables acquired as part of the business combination amounted to $257,000. As of the acquisition date, the Company’s best estimate is that all cash will be collected. 112 Annual Report 2021 69 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) iii. Goodwill Goodwill of $1,711,000 was primarily related to the Company’s growth expectations through customer expansion. The Consolidated Entity operates as one operating segment and goodwill was allocated to the IT&T cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes. iv. Contingent consideration The acquisition of Altitude IT included a contingent consideration element by way of an earn-out structure based upon EBITDA performance over a 12 month period ended 30 June 2021 (FY21). The earnout consideration is to be split in the same proportion of cash (70%) and equity (30%) as the upfront consideration. The earn-out structure facilitated a scaled achievement of the FY21 targets whereby the contingent consideration is payable where FY21 EBITDA exceeds 110% of the agreed target EBITDA. At the date of acquisition, the Board and management assessed the probability of achieving the relevant EBITDA performance target and assessed the likelihood to be at or below the minimum hurdle and accordingly no FY21 contingent consideration had been recognised. Subsequent to the assessment date of 30 June 2021, the amount of contingent consideration payable where the FY21 EBITDA performance target has been exceeded has been estimated to be $275,000 (classified as current). v. Contribution to the Consolidated Entity’s results Altitude IT contributed revenues of $2,354,000 to the Consolidated Entity from the date of acquisition to 30 June 2021. The Consolidated Entity’s business growth generates increased revenue opportunities across the entire Group's portfolio, also being reflected in Altitude IT's revenue performance. Altitude IT’s employees have been transferred to Spirit Telecom (Australia) Pty Ltd and the Company does not receive any allocations of acquisition costs, corporate overhead, listing or finance costs which are all absorbed by the Consolidated Entity’s core operations and accordingly it is impractical to disclose Altitude IT's contribution to the Consolidated Entity's profit. Annual Report 2021 113 70  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) Beachhead Group The Company acquired 100% of Beachhead Group Pty Ltd, with effective control on 1 September 2020. The acquisition has been accounted for on a provisional basis as a Business Combination under AASB 3. Beachhead Group is a Sydney based Managed IT Services Provider, specialising in Cloud and Infrastructure deployment to businesses and private schools. The fair values of the identifiable net assets acquired are detailed below: Cash and cash equivalents Trade receivables Deposit Vendor loan Prepayments Right-of-use assets Deferred tax asset Trade payables GST payables Deferred revenue Provision for income tax Deferred tax liability Employee entitlements Make good provision Lease liabilities Net assets acquired Goodwill Net fair value gain on remeasurement of financial liabilities Acquisition-date fair value of the total consideration transferred Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: deferred consideration Less: contingent consideration Less: shares issued by Company as consideration Net cash used Fair value $'000 414 670 15 2 8 97 26 (247) (20) (142) (173) (2) (99) (1) (98) 450 3,025 (267) 3,208 3,208 (1,190) (64) (624) 1,330 i. Consideration transferred Acquisition-related costs amounting to $44,000 are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement. ii. Identifiable net assets The fair value of the trade receivables acquired as part of the business combination amounted to $670,000. As of the acquisition date, the Company’s best estimate is that all cash will be collected. 114 Annual Report 2021 71 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) iii. Goodwill Goodwill of $3,025,000 was primarily related to the Company’s growth expectations through customer expansion. The Consolidated Entity operates as one operating segment and goodwill was allocated to the IT&T cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes. iv. Deferred consideration The acquisition of Beachhead Group included a deferred consideration element of $1,190,000 that is due and payable by 31 August 2021.The deferred consideration is to be split in the same proportion of cash (65%) and equity (35%) as the upfront consideration. v. Contingent consideration The acquisition of Beachhead Group included a contingent consideration element by way of an earn-out structure based upon EBITDA performance over a 12 month period ended 30 June 2021 (FY21). The earnout consideration is to be split in the same proportion of cash (65%) and equity (35%) as the upfront consideration. The earn-out structure facilitates a scaled achievement of the FY21 target whereby the contingent consideration is payable in a range of 80% - 120% achievement against the FY21 target. At the date of acquisition, the Board and management assessed the likelihood of achieving the relevant EBITDA performance targets at the 100% level with $331,000 of contingent consideration recognised. Subsequent to assessment date of 30 June 2021, the amount of contingent consideration payable where the FY21 EBITDA performance target has been exceeded has been estimated to be $64,000 (classified as current). vi. Contribution to the Consolidated Entity’s results Beachhead Group contributed revenues of $3,931,000 to the Consolidated Entity from the date of the acquisition to 30 June 2021. The Consolidated Entity’s business growth generates increased revenue opportunities across the entire Group's portfolio, also being reflected in Beachhead Group's revenue performance. Beachhead Group employees have been transferred to Spirit Telecom (Australia) Pty Ltd and the Company does not receive any allocations of acquisition costs, corporate overhead, listing or finance costs which are all absorbed by the Consolidated Entity’s core operations and accordingly it is impractical to disclose Beachhead Group’s contribution to the Consolidated Entity's profit. Annual Report 2021 115 72  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) Reliance Technology The Company acquired 100% of Reliance Technology Pty Ltd (“Reliance IT”), with effective control on 1 September 2020. The acquisition has been accounted for on a provisional basis as a Business Combination under AASB 3. Reliance IT is a Cloud Managed Services Provider based in Central NSW and one of the largest providers of IT services in regional NSW. The fair values of the identifiable net assets acquired are detailed below: Cash and cash equivalents Trade and other receivables Inventories Right-of-use assets Trade payables GST payables Provision for income tax Employee entitlements Lease liabilities Net assets acquired Goodwill Net fair value loss on remeasurement of financial liabilities Acquisition-date fair value of the total consideration transferred Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: contingent consideration Less: shares issued by Company as part of consideration Net cash used Fair value $'000 412 212 11 142 (42) (67) (146) (134) (142) 246 5,609 188 6,043 6,043 (913) (1,660) 3,470 i. Consideration transferred Acquisition-related costs amounting to $44,000 are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement. ii. Identifiable net assets The fair value of the trade receivables acquired as part of the business combination amounted to $212,000. As of the acquisition date, the Company’s best estimate is that all cash will be collected. iii. Goodwill Goodwill of $5,609,000 was primarily related to the Company’s growth expectations through customer expansion. The Consolidated Entity operates as one operating segment and goodwill was allocated to the IT&T cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes. 73 116 Annual Report 2021 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) iv. Contingent consideration The acquisition of Reliance IT included a contingent consideration element by way of an earn-out structure based upon EBITDA performance over a 12 month period ended 30 June 2021 (FY21). The earnout consideration is split in the same proportion of cash (70%) and equity (30%) as the upfront consideration. The earn-out structure facilitates a scaled achievement of the FY21 target whereby the contingent consideration is payable in a range exceeding 80% of the FY21 target. At the date of acquisition, the Board and management assessed the likelihood of achieving the relevant EBITDA performance targets at the 111% level with $725,000 of contingent consideration recognised. Subsequent to assessment date of 30 June 2021, the amount of contingent consideration payable where the FY21 EBITDA performance target has been exceeded has been estimated to be $913,000 (classified as current). v. Contribution to the Consolidated Entity’s results Reliance IT contributed revenues of $3,963,000 to the Consolidated Entity from the date of the acquisition to 30 June 2021. The Consolidated Entity’s business growth generates increased revenue opportunities across the entire Group's portfolio, also being reflected in Reliance IT's revenue performance. Reliance IT's employees have been transferred to Spirit Telecom (Australia) Pty Ltd and the Company does not receive any allocations of acquisition costs, corporate overhead, listing or finance costs which are all absorbed by the Consolidated Entity’s core operations and accordingly it is impractical to disclose Reliance IT's contribution to the Consolidated Entity's profit. Annual Report 2021 117 74  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) Intalock Technologies The Company acquired 100% of Intalock Technologies Pty Ltd (“Intalock”), with effective control on 1 December 2020. The acquisition has been accounted for on a provisional basis as a Business Combination under AASB 3. Intalock is one of Australia’s leading cyber security services businesses with a market leading and sophisticated full Security Operations Centre. This acquisition allows Spirit to cross sell and deliver highly secure bundled Cyber Security Services with Data, Cloud and Voice. The fair values of the identifiable net assets acquired are detailed below: Cash and cash equivalents Trade and other receivables Prepayments Deposits Plant and equipment Right-of-use assets Intangible assets Deferred tax assets Trade payables GST payables Unearned revenue Provision for income tax Employee entitlements Make good provision Lease liabilities Net assets acquired Goodwill Net fair value gain on remeasurement of financial liabilities Acquisition-date fair value of the total consideration transferred Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: deferred consideration Less: contingent consideration Less: shares issued by Company as part of consideration Net cash used Fair value $'000 2,575 2,237 143 235 150 733 191 124 (2,194) (56) (1,200) (279) (275) (45) (755) 1,584 17,227 (177) 18,634 18,634 (3,000) (623) (2,457) 12,554 i. Consideration transferred Acquisition-related costs amounting to $190,000 are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement. 118 Annual Report 2021 75 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) ii. Identifiable net assets The fair value of the trade receivables acquired as part of the business combination amounted to $2,237,000. As of the acquisition date, the Company’s best estimate is that all cash will be collected. iii. Goodwill Goodwill of $17,227,000 was primarily related to the Company’s growth expectations through customer expansion. The Consolidated Entity operates as one operating segment and goodwill was allocated to the IT&T cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes. iv. Deferred consideration The acquisition of Intalock included a deferred consideration element to be settled by 31 August 2021. The deferred consideration is to be settled 100% in cash capped at $3,000,000, classified as current as at 30 June 2021. v. Contingent consideration The acquisition of Intalock included a contingent consideration element by way of an earn-out structure based upon EBITDA performance over a 12 month period ended 30 June 2022 (FY22). The earnout consideration is to be settled 100% in cash. The FY22 earnout structure facilitates a scaled achievement of the FY22 target whereby the contingent consideration is payable in a range exceeding 105% of the FY22 Target. At the date of acquisition, the Board and management assessed the likelihood of achieving the relevant EBITDA performance targets at the 105% level with $800,000 of contingent consideration recognised. Subsequent to the assessment date of 30 June 2021, the amount of contingent consideration payable where the FY22 EBITDA is likely to exceed the performance target has been estimated to be $623,000 (classified as non-current). Any contingent consideration payable where the performance targets for FY22 are exceeded is capped to an amount whereby the total purchase price including the upfront consideration, the deferred consideration and the contingent consideration cannot exceed $22.5M. vi. Contribution to the Consolidated Entity’s results Intalock contributed revenues of $13,369,000 to the Consolidated Entity from the date of the acquisition to 30 June 2021. Intalock does not receive any allocations of acquisition costs, corporate overhead, listing or finance costs which are all absorbed by the Consolidated Entity’s core operations and accordingly it is impractical to disclose Intalock's contribution to the Consolidated Entity's profit. Annual Report 2021 119 76  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) Acquisition of Nexgen The Company acquired 100% of Nexgen Australia Group Pty Ltd (“Nexgen"), with effective control on 1 April 2021. The acquisition has been accounted for on a provisional basis as a Business Combination under AASB 3. Nexgen sells a range of high growth Data, Security & Voice products. The acquisition brings over 5,000 new B2B clients and one hundred new sales people to Spirit to drive organic growth, complementary products and scale. The fair values of the identifiable net assets acquired are detailed below: Cash and cash equivalents Trade and other receivables Inventories Accrued revenue Deposits Property, plant and equipment Deferred tax assets Right-of-use assets Brand names Customer Relationships Other intangible assets Trade and other payables GST payables Provision for income tax Employee benefits Lease liability Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: deferred consideration Less: contingent consideration Less: shares issued by Company as part of consideration Net cash used Fair value $'000 20 271 681 1,713 148 567 382 1,567 4,105 11,942 1,145 (2,934) (106) (167) (730) (1,567) 17,037 34,203 51,240 51,240 (11,137) (2,980) (12,164) 24,959 i. Consideration transferred Acquisition-related costs amounting to $423,000 are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement. 120 Annual Report 2021 77 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) ii. Identifiable net assets The fair value of the trade receivables acquired as part of the business combination amounted to $271,000. As of the acquisition date, the Company’s best estimate is that all cash will be collected. iii. Goodwill Goodwill of $34,203,000 was primarily related to the Company’s growth expectations through customer expansion. The Consolidated Entity operates as one operating segment and goodwill was allocated to the IT&T cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes. iv. Deferred consideration The acquisition of Nexgen included a deferred consideration of $11,137,000 to be settled in the second half of 2021. The net debt working capital component of the deferred consideration totalling $2,884,000 estimated at completion is to be settled 100% in cash. The remaining component of deferred consideration totalling $8,253,000 is to be settled 30% in shares of the Company and 70% in cash and is capped at $10,000,000, classified as current as at 30 June 2021. v. Contingent consideration The acquisition of Nexgen included a contingent consideration element by way of an earn-out structure based upon Milestone Incentives available based on performance targets for FY22 and FY23. The earnout consideration is to be settled 30% in shares of the Company and 70% in cash. The earnout structure facilitates a scaled achievement of the FY22 and FY23 targets whereby the contingent consideration is payable based on the achievement of the relevant EBTDA performance targets. At the date of acquisition, the Board and management assessed the likelihood of achieving the relevant EBITDA performance targets and accordingly recognised total contingent consideration of $2,980,000, all of which is classified as non-current. Any contingent consideration payable is not capped. iv. Contribution to the Consolidated Entity’s results Nexgen contributed revenues of $10,386,000 to the Consolidated Entity from the date of the acquisition to 30 June 2021. Nexgen does not receive any allocations of acquisition costs, corporate overhead, listing or finance costs which are all absorbed by the Consolidated Entity’s core operations and accordingly it is impractical to disclose Nexgen's contribution to the Consolidated Entity's profit. Annual Report 2021 121 78  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) Acquisition of Arinda IT during the previous financial year The Company acquired 100% of Bigscreensound Pty Ltd, trading as Arinda IT, with effective control on 1 July 2019. The acquisition has been accounted as a Business Combination under AASB 3. Arinda IT was a long-term partner of Spirit’s having worked together on mutual customers and the acquisition was undertaken by the Company to expand its product offering and the flagship entry into the Managed Service Provider sector. The fair values of the identifiable net assets acquired are detailed below: Cash and cash equivalents Trade receivables Prepayments Deposits Property, plant and equipment Trade and other payables Provision for income tax Employee benefits Unearned revenue Finance leases Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: shares issued by Company as part of consideration Net cash used Fair value $'000 163 415 129 13 33 (355) (40) (66) (171) (27) 94 2,732 2,826 2,826 (607) 2,219 i. Consideration transferred Acquisition-related costs amounting to $41,000 are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement. ii. Identifiable net assets The fair value of the trade receivables acquired as part of the business combination amounted to $415,000. As of the acquisition date, the Company’s best estimate is that all cash will be collected. iii. Goodwill Goodwill of $2,732,000 was primarily related to the Company’s growth expectations through customer expansion. The consolidated entity operates as one operating segment and goodwill was allocated to the IT&T cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes. 122 Annual Report 2021 79 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) iv. Contribution to the Consolidated Entity’s results Arinda IT’s operations were fully absorbed into the Consolidated Entity during the course of the 2020 financial year. Accordingly, separate disclosure of revenues and EBITDA directly attributable to this operation as a stand alone entity is not achievable. Acquisition of Phoenix Austec Group Pty Ltd during the previous financial year The Company acquired 100% of Phoenix Austec Group Pty Ltd, trading as 'Phoenix Austec' (Phoenix), with effective control on 1 July 2019. The acquisition has been accounted as a Business Combination under AASB 3. Phoenix had been operating since 2007 providing Small-Medium Enterprise's (SME) with managed IT support, IT security and consulting services. The acquisition was undertaken by the Company to expand and strengthen Spirit's entry into the Managed Service Provider sector for SMEs. The fair values of the identifiable net assets acquired are detailed below: Cash and cash equivalents Trade receivables Trade and other payables Provision for income tax Employee benefits Net liabilities acquired Goodwill Acquisition-date fair value of the total consideration transferred Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: shares issued by Company as part of consideration Net cash used Fair value $'000 171 75 (220) (47) (67) (88) 1,634 1,546 1,546 (320) 1,226 i. Consideration transferred Acquisition-related costs amounting to $39,000 are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement. ii. Identifiable net assets The fair value of the trade receivables acquired as part of the business combination amounted to $75,000. As of the acquisition date, the Company’s best estimate is that all cash will be collected. iii. Goodwill Goodwill of $1,634,000 was primarily related to the Company’s growth expectations through customer expansion. The consolidated entity operates as one operating segment and goodwill was allocated to the IT&T cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes. 80 Annual Report 2021 123  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) iv. Contribution to the Consolidated Entity’s results Phoenix’s operations were fully absorbed into the Consolidated Entity during the course of the 2020 financial year. Accordingly, separate disclosure of revenues and EBITDA directly attributable to this operation as a stand alone entity is not achievable. Acquisition of Cloud Business Technology during the previous financial year The Company acquired the business assets and liabilities of Cloud Business Technology ("Cloud BT"), with effective control on 1 February 2020. The acquisition has been accounted for as a Business Combination under AASB 3. This acquisition provides growth and expansion of Internet, Cloud and Managed IT services in the Sydney market. Details of the acquisition are as follows: Employee benefits Net liabilities acquired Goodwill Acquisition-date fair value of the total consideration transferred Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: shares issued by Company as part of consideration Net cash used Fair value $'000 (26) (26) 690 664 664 (130) 534 i. Consideration transferred Acquisition-related legal costs amounting to $15,000 are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement. ii. Identifiable net assets As of the acquisition date, the Company acquired only the employee benefits. iii. Goodwill Goodwill of $690,000 was primarily related to the Company’s growth expectations through customer expansion. The consolidated entity operates as one operating segment and goodwill was allocated to the IT&T cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes. iv. Contribution to the Consolidated Entity’s results Cloud BT’s operations were fully absorbed into the Consolidated Entity from the date of acquisition. Accordingly, separate disclosure of revenues and EBITDA directly attributable to this operation as a stand alone operation is not achievable. 124 Annual Report 2021 81 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) Acquisition of Trident & Neptune Group during the previous financial year The Company acquired 100% of Trident Computer Services Pty Ltd and Neptune Managed Services Pty Ltd referred to as ("Trident Technology Solutions or TTS’’), with effective control on 1 February 2020. The acquisition has been accounted as a Business Combination under AASB 3. TTS is an established Managed IT services and security business. This highly strategic move created a new business division, Trident Technology Solutions. Spirit’s new division will focus on delivering custom designed cloud-based IT & Internet solutions for high growth verticals such as Schools, Hospitals, Aged Care and Medium sized businesses. These types of clients are moving through a major generational technology change as they migrate to the cloud and require high speed Internet and specialised IT services which Spirit can now provide nationally. Details of the acquisition are as follows: Cash and cash equivalents Trade receivables Other receivables Prepayments Deposits Inventories Property, plant and equipment Trade and other payables GST payables Unearned revenue Provision for income tax Employee benefits Net assets acquired Goodwill Net fair value loss on remeasurement of financial liabilities Acquisition-date fair value of the total consideration transferred Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: contingent consideration Less: shares issued by Company as part of consideration Net cash used Fair value $'000 104 7,470 5 64 45 900 318 (7,122) (414) (619) (138) (544) 69 6,573 149 6,791 6,791 (2,144) (1,222) 3,425 i. Consideration transferred Acquisition-related legal costs amounting to $58,000 are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement. Annual Report 2021 125 82  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 37. Business combinations (continued) ii. Identifiable net assets The fair value of the trade receivables acquired as part of the business combination amounted to $7,470,000. As of the acquisition date, the Company’s best estimate is that all cash will be collected. The fair value of the acquired identifiable net assets decreased by $49,000 following completion of the acquired entity’s tax returns. iii. Goodwill Goodwill of $6,573,000 was primarily related to the Company’s growth expectations through customer expansion. The consolidated entity operates as one operating segment and goodwill was allocated to the IT&T cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes. v. Contingent consideration The acquisition of TTS included a contingent consideration element by way of an earn-out structure based upon EBITDA performance over a 12 month period ended ended 30 November 2020 (Target 1) and a subsequent period ended 30 June 2022 (Target 2). The earnout consideration is split in the proportion of cash (75%) and equity (25%). The earn-out structure facilitates a scaled achievement against Target 1 and Target 2. The contingent consideration is payable in the range of 80% - 120% achievement against Target 1 and a range of 90% - 115% achievement against Target 2. At the date of acquisition, the Board and management assessed the likelihood of achieving the relevant EBITDA performance targets at the 100% level for both Target 1 and Target 2 with $997,500 of contingent consideration recognised for Target 1 and $997,500 recognised for Target 2. Subsequent to the acquisition date, the amount of contingent consideration paid where the Target 1 EBITDA performance was exceeded amounted $997,251. The amount of contingent consideration payable where the Target 2 EBITDA performance target has been exceeded has been calculated to be $1,147,125 (classified as current). v. Contribution to the Consolidated Entity’s results TTS contributed revenues of $9,857,000 to the Consolidated Entity from the date of the acquisition to 30 June 2020. TTS does not receive any allocations of acquisition costs, corporate overhead, listing, finance, or other overhead costs which is all absorbed by Spirit’s core operations. Spirit’s business growth generates increased revenue opportunities across the entire Spirit network which are also reflected in the revenue performance of TTS. 126 Annual Report 2021 83 Spirit Technology Solutions Limited (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 38. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name Ownership interest Principal place of business / Country of incorporation 2021 % 2020 % Spirit Telecom (Australia) Pty Ltd Phone Name Marketing Australia Pty Ltd World Without Wires Pty Ltd Anttel Communications Group Pty Ltd Ignite Broadband Pty Ltd LinkOne Pty Ltd Wells Research Pty Ltd Building Connect Pty Ltd Bigscreensound Pty Ltd, trading as Arinda IT Phoenix Austec Group Pty Ltd Trident Computer Services Pty Ltd Neptune Managed Services Pty Ltd VPDA Group Holdings Limited Voice Print and Data Australia Pty Ltd Live Call Pty Ltd Now IT Solutions Pty Ltd Ancore Pty Ltd, trading as Altitude IT Beachhead Group Pty Ltd Reliance Technology Pty Ltd Intalock Technologies Pty Ltd Nexgen Capital Pty Ltd Nexgen Investment Group Pty Ltd Business Telecom Australia Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - - - - - - - - - For the purposes of this note the parent entity has been deemed as the legal parent entity Spirit Technology Solutions Ltd. Annual Report 2021 127 84  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd Notes to the financial statements 30 June 2021 Note 39. Events after the reporting period The Consolidated Entity navigated the business disruptions related to COVID-19 during the financial year ended 30 June 2021 and was not materially impacted. The Consolidated Entity did not receive any Government subsidies by way of Job Keeper. In July and August 2021, the Australian economy has experienced disruption related to COVID-19 triggered State wide lockdowns across all major markets. These lockdowns have caused disruption to the broader business community and Spirit’s operations have not been immune. The Company continues to manage its operations to navigate through the uncertainty and impacts that these lockdowns create and more broadly assist its customer base respond and adapt. No other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect the Consolidated Entity's operations, the results of those operations, or the Consolidated Entity's state of affairs in future financial years. Note 40. Reconciliation of profit/(loss) after income tax to net cash from operating activities Profit/(loss) after income tax (expense)/benefit for the year 1,157 (1,515) Consolidated 2021 $'000 2020 $'000 Adjustments for: Depreciation and amortisation Net gain on disposal of property, plant and equipment Share-based payments Business acquisition and integration investing costs Net fair value loss on remeasurement of financial liabilities Capital raise fees tax impact Interest and other finance costs paid Change in operating assets and liabilities: (Increase)/Decrease in trade and other receivables (Increase)/Decrease in inventories (Increase)/Decrease in other current assets (Increase)/Decrease in contract assets (Increase) in deferred tax assets (net) Increase/(Decrease) in trade and other payables Increase/(Decrease) in employee benefit Other Net cash from operating activities 6,666 (529) 620 2,100 168 - 137 3,855 (2) 479 640 - 190 85 (3,481) 3,998 (827) 950 (732) 174 - (728) (3,473) (128) (35) (1,687) (138) 1,213 378 - 5,045 4,490 128 Annual Report 2021 85 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 30 June 2021 Note 41. Earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share 554,674,861 357,066,698 Weighted average number of ordinary shares used in calculating diluted earnings per share 554,674,861 357,066,698 Number Number Profit/(loss) attributable to the owners of Spirit Technology Solutions Ltd Basic earnings per share Diluted earnings per share Note 42. Share-based payments 2021 Total $'000 2020 Total $'000 1,157 (1,515) 2021 Total Cents 2020 Total Cents 0.21 0.21 (0.42) (0.42) During the financial year ended 30 June 2021, 2,038,800 Performance Rights were granted by the Company to key management personnel and certain employees with a vesting period ending 30 June 2023, of which 1,019,400 Performance Rights have a Total Shareholder Return ("TSR") performance hurdle and 1,019,400 have a performance hurdle linked to return on invested capital ("ROIC'"). Furthermore, during the financial year ended 30 June 2021, 814,272 Performance Rights were granted to certain employees with a vesting period ending 1 July 2023 with a performance hurdle linked to attaining a share price of $0.30 at any time prior to 1 July 2023, which has already been achieved, and continued employment up until 1 July 2023. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Consolidated Entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. 86 Annual Report 2021 129  N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 42. Share-based payments (continued) Set out below are summaries of options granted under the Spirit Technology Solutions 2020 Ltd Long Term Incentive Plan: Grant date Expiry date Balance at Granted Exercised Forfeited Balance at the start 2021 of Grant date Expiry date Exercise Balance at Granted Exercised Expired/ Balance at the year forfeited/ the end of price the end of the year 24/11/2016 12/09/2018 14/05/2019 01/07/2023 20/11/2018 14/05/2019 01/07/2023 18/02/2019 14/05/2019 01/07/2023 22/04/2020 24/11/2019 12/09/2021 20/11/2020 18/02/2023 22/04/2023 770,000 1,239,598 512,820 520,000 - 3,042,418 $0.150 6,000,000 $0.180 6,000,000 $0.215 6,000,000 18,000,000 - - - - - - - 653,943 - 653,943 other (332,084) - - - - the year (437,916) (992,539) - 6,000,000 - - - 6,000,000 - - - 6,000,000 - - - 18,000,000 - (332,084) (1,430,455) - 247,059 512,820 520,000 653,943 1,933,822 the start of the year The weighted average remaining contractual life of Performance Rights outstanding at the end of 2020 the financial year was 1.98 years (2020: 1.92 years). Grant date For the Performance Rights granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Expired/ Balance at forfeited/ the end of Balance at the start of the year Exercise price Expiry date the year Exercised Granted other date Expiry date $0.190 2,500,000 $0.150 6,000,000 $0.180 6,000,000 $0.215 6,000,000 20,500,000 Grant date 24/11/2016 24/11/2019 14/05/2019 01/07/2023 14/05/2019 01/07/2023 14/05/2019 01/07/2023 13/10/2020 13/10/2020 13/10/2020 Weighted average exercise price 11/06/2021 11/06/2021 The weighted average remaining contractual life of options outstanding at the end of the financial year was 2 years (2020: 3 years). Share price Expected Dividend Risk-free Fair value - (2,500,000) at grant at grant - - volatility yield - - - - 60.00% - (2,500,000) 60.00% 60.00% - 60.00% 60.00% - - interest - 6,000,000 rate - 6,000,000 - 6,000,000 0.15% - 18,000,000 0.15% 0.15% 0.09% 0.09% 12/11/2023 12/11/2023 12/11/2023 11/06/2024 11/06/2024 $0.370 $0.370 $0.370 $0.305 $0.305 $0.3417 $0.3661 $0.3700 $0.1815 $0.2800 $0.190 - - - - - $0.183 $0.182 date - Consolidated 2021 $ 2020 $ Set out below are summaries of Performance Rights granted under the plan: 2021 Share-based payments expense reconciliation Issue of share options to Directors and employees under incentive option Grant date scheme Issue of Performance Rights to Directors and employees under Performance Rights plan Issue of shares to employees Balance at the start of the year Expiry date Exercised Granted Forfeited Balance at 396 the end of 224 the year - 12/09/2018 Total share-based payments expense reconciliation 20/11/2018 18/02/2019 22/04/2020 13/10/2020 11/06/2021 12/09/2021 20/11/2020 18/02/2023 22/04/2023 12/11/2023 11/06/2024 247,059 512,820 520,000 653,943 - - - - - - 2,232,387 620,685 1,933,822 2,853,072 - (189,320) (323,500) - 247,059 620 - - 520,000 - 653,943 - 2,232,387 - 620,685 (189,320) (323,500) 4,274,074 - - - - 397 61 20 478 130 Annual Report 2021 88 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Notes to the financial statements 30 June 2021 Note 42. Share-based payments (continued) 2020 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Notes to the financial statements 30 June 2021 Note 42. Share-based payments (continued) Grant date Expiry date Balance at Granted Exercised Forfeited Balance at 24/11/2016 12/09/2018 20/11/2018 18/02/2019 22/04/2020 24/11/2019 12/09/2021 20/11/2020 18/02/2023 22/04/2023 the start of the year 770,000 1,239,598 512,820 520,000 - - - - - 653,943 the end of the year - 247,059 512,820 520,000 653,943 - - - (332,084) (437,916) (992,539) - - - - 3,042,418 653,943 (332,084) (1,430,455) 1,933,822 2020 Grant date Expiry date Balance at Granted Exercised Forfeited Balance at the start 24/11/2016 12/09/2018 20/11/2018 18/02/2019 22/04/2020 24/11/2019 12/09/2021 20/11/2020 18/02/2023 22/04/2023 of the year 770,000 1,239,598 512,820 520,000 - 3,042,418 the end of the year - - - - 653,943 653,943 (332,084) - - - - (437,916) (992,539) - - - (332,084) (1,430,455) - 247,059 512,820 520,000 653,943 1,933,822 The weighted average remaining contractual life of Performance Rights outstanding at the end of the financial year was 1.98 years (2020: 1.92 years). The weighted average remaining contractual life of Performance Rights outstanding at the end of the financial year was 1.98 years (2020: 1.92 years). For the Performance Rights granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: For the Performance Rights granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price Expected Dividend Risk-free Fair value Grant date Expiry date at grant interest at grant date volatility yield rate date Share price Expected Dividend Risk-free Fair value at grant at grant interest rate date date volatility yield 13/10/2020 13/10/2020 13/10/2020 11/06/2021 11/06/2021 12/11/2023 12/11/2023 12/11/2023 11/06/2024 11/06/2024 $0.370 $0.370 $0.370 $0.305 $0.305 60.00% 60.00% 60.00% 60.00% 60.00% - - - - - 0.15% 0.15% 0.15% 0.09% 0.09% $0.3417 $0.3661 $0.3700 $0.1815 $0.2800 13/10/2020 13/10/2020 13/10/2020 11/06/2021 11/06/2021 12/11/2023 12/11/2023 12/11/2023 11/06/2024 11/06/2024 $0.370 $0.370 $0.370 $0.305 $0.305 60.00% 60.00% 60.00% 60.00% 60.00% - - - - - 0.15% 0.15% 0.15% 0.09% 0.09% $0.3417 $0.3661 $0.3700 $0.1815 $0.2800 Share-based payments expense reconciliation Issue of share options to Directors and employees under incentive option Issue of Performance Rights to Directors and employees under scheme Performance Rights plan Issue of shares to employees Share-based payments expense reconciliation Issue of share options to Directors and employees under incentive option scheme Issue of Performance Rights to Directors and employees under Performance Rights plan Issue of shares to employees Total share-based payments expense reconciliation 620 478 Total share-based payments expense reconciliation Consolidated 2021 $ 2020 $ 396 397 224 - 61 20 Consolidated 2021 $ 2020 $ 396 397 224 - 61 20 620 478 88 88 Annual Report 2021 131 Directors' Declaration 132 Annual Report 2021 Spirit Technology Solutions Ltd (Formerly known as Spirit Telecom Limited) Directors' declaration 30 June 2021 D I R E C T O R S' D E C L A R A T I O N In the Directors' opinion: ● ● ● ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; the attached financial statements and notes give a true and fair view of the Consolidated Entity's financial position as at 30 June 2021 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors ___________________________ James Joughin Non-Executive Chairman 24 August 2021 Annual Report 2021 133 89 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SPIRIT TECHNOLOGY SOLUTIONS LTD INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SPIRIT TECHNOLOGY SOLUTIONS LTD Report on the Financial Report Auditor’s Opinion Report on the Financial Report We have audited the accompanying financial report of Spirit Technology Solutions Ltd (the Company) and its controlled Auditor’s Opinion entities (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes We have audited the accompanying financial report of Spirit Technology Solutions Ltd (the Company) and its controlled in equity, and the consolidated statement of cash flows for the year then ended, notes comprising a summary of entities (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2021, significant accounting policies and other explanatory information, and the Directors’ Declaration of the Company and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the in equity, and the consolidated statement of cash flows for the year then ended, notes comprising a summary of financial year. significant accounting policies and other explanatory information, and the Directors’ Declaration of the Company and of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the In our opinion, the financial report of Spirit Technology Solutions Ltd is in accordance with the Corporations Act 2001, financial year. including: including: the year ended on that date; and Basis for Opinion the year ended on that date; and In our opinion, the financial report of Spirit Technology Solutions Ltd is in accordance with the Corporations Act 2001, (a) giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for (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 2021 and of its financial performance for (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards Basis for Opinion are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Key Audit Matters financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the matter below, our description of how our audit addressed the matter is provided in that context. financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each Key audit matter – Business combinations matter below, our description of how our audit addressed the matter is provided in that context. How our audit addressed this matter As described in note 37, the Company entered into Key audit matter – Business combinations agreements to acquire 100% of the equity of the following entities: Voice Print Data Group (‘VPD’) on 1 July 2020, As described in note 37, the Company entered into Ancore Pty Ltd (‘Altitude IT’), Beachhead Group Pty Ltd agreements to acquire 100% of the equity of the following (‘Beachhead’), Reliance Technology Pty Ltd (‘Reliance IT’), entities: Voice Print Data Group (‘VPD’) on 1 July 2020, each on 1 September 2020, Intalock Technologies Pty Ltd Ancore Pty Ltd (‘Altitude IT’), Beachhead Group Pty Ltd (‘Intalock’) on 1 December 2020, and Nexgen Investment (‘Beachhead’), Reliance Technology Pty Ltd (‘Reliance IT’), Group Pty Ltd (‘Nexgen’) on 1 April 2021. each on 1 September 2020, Intalock Technologies Pty Ltd (‘Intalock’) on 1 December 2020, and Nexgen Investment The acquisitions were accounted in accordance with AASB Group Pty Ltd (‘Nexgen’) on 1 April 2021. 3 Business Combinations. The acquisitions were accounted in accordance with AASB The acquisition-date fair value of the total consideration 3 Business Combinations. transferred in respect of each acquisition amounted to: The acquisition-date fair value of the total consideration $’000 transferred in respect of each acquisition amounted to: • VPD • Altitude IT • Beachhead • VPD • Reliance IT • Altitude IT • • Beachhead Intalock • Nexgen • Reliance IT • Intalock • Nexgen 13,250 $’000 2,395 13,250 3,208 6,043 2,395 18,634 3,208 51,240 6,043 18,634 51,240 Our procedures included, but were not limited to, the How our audit addressed this matter following: Our procedures included, but were not limited to, the evaluating the Group’s accounting treatment against • following: the requirements of AASB 3, key transaction agreements, our understanding of each business evaluating the Group’s accounting treatment against acquired and its industry; the requirements of AASB 3, key transaction agreements, our understanding of each business assessing the methodology applied to recognise the acquired and its industry; fair value of identifiable assets and liabilities; assessing the methodology applied to recognise the validating inputs of the components of the business fair value of identifiable assets and liabilities; to underlying combinations support including settlement contracts; validating inputs of the components of the business combinations assessing Management’s determination of the point at to underlying including support settlement contracts; which control was gained of each acquiree; assessing Management’s determination of the point at calculation of contingent assessing the the which control was gained of each acquiree; consideration and its accuracy in accordance with the contractual arrangements and relevant accounting calculation of contingent assessing the the standards; consideration and its accuracy in accordance with the contractual arrangements and relevant accounting reviewing the accounting entries associated with the standards; business combinations; and reviewing the accounting entries associated with the business combinations; and PKF Melbourne Audit & Assurance Pty Ltd ABN 75 600 749 184 Level 12, 440 Collins Street, Melbourne, Victoria 3000 T: +61 3 9679 2222 F: +61 3 9679 2288 www.pkf.com.au PKF Melbourne Audit & Assurance Pty Ltd ABN 75 600 749 184 Liability limited by a scheme approved under Professional Standards Legislation Level 12, 440 Collins Street, Melbourne, Victoria 3000 PKF Melbourne Audit & Assurance Pty Ltd is a member firm of the PKF International Limited family of legally independent firms and does not accept any T: +61 3 9679 2222 F: +61 3 9679 2288 www.pkf.com.au responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. Liability limited by a scheme approved under Professional Standards Legislation PKF Melbourne Audit & Assurance Pty Ltd is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. • • • • • • • • • • • 84 84 Independent Auditor’s Report 134 Annual Report 2021 I N D E P E N D E N T A U D I T O R ’ S R E P O R T INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SPIRIT TECHNOLOGY SOLUTIONS LTD the year ended on that date; and Report on the Financial Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SPIRIT TECHNOLOGY SOLUTIONS LTD Auditor’s Opinion Report on the Financial Report We have audited the accompanying financial report of Spirit Technology Solutions Ltd (the Company) and its controlled Auditor’s Opinion entities (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes We have audited the accompanying financial report of Spirit Technology Solutions Ltd (the Company) and its controlled in equity, and the consolidated statement of cash flows for the year then ended, notes comprising a summary of entities (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2021, significant accounting policies and other explanatory information, and the Directors’ Declaration of the Company and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the in equity, and the consolidated statement of cash flows for the year then ended, notes comprising a summary of financial year. significant accounting policies and other explanatory information, and the Directors’ Declaration of the Company and of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the In our opinion, the financial report of Spirit Technology Solutions Ltd is in accordance with the Corporations Act 2001, financial year. including: In our opinion, the financial report of Spirit Technology Solutions Ltd is in accordance with the Corporations Act 2001, (a) giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for 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 2021 and of its financial performance for Basis for Opinion (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards Basis for Opinion are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Key Audit Matters financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the matter below, our description of how our audit addressed the matter is provided in that context. financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each How our audit addressed this matter Key audit matter – Business combinations matter below, our description of how our audit addressed the matter is provided in that context. the year ended on that date; and As described in note 37, the Company entered into Key audit matter – Business combinations agreements to acquire 100% of the equity of the following entities: Voice Print Data Group (‘VPD’) on 1 July 2020, As described in note 37, the Company entered into Ancore Pty Ltd (‘Altitude IT’), Beachhead Group Pty Ltd agreements to acquire 100% of the equity of the following (‘Beachhead’), Reliance Technology Pty Ltd (‘Reliance IT’), entities: Voice Print Data Group (‘VPD’) on 1 July 2020, each on 1 September 2020, Intalock Technologies Pty Ltd Ancore Pty Ltd (‘Altitude IT’), Beachhead Group Pty Ltd (‘Intalock’) on 1 December 2020, and Nexgen Investment (‘Beachhead’), Reliance Technology Pty Ltd (‘Reliance IT’), Group Pty Ltd (‘Nexgen’) on 1 April 2021. each on 1 September 2020, Intalock Technologies Pty Ltd (‘Intalock’) on 1 December 2020, and Nexgen Investment The acquisitions were accounted in accordance with AASB Group Pty Ltd (‘Nexgen’) on 1 April 2021. 3 Business Combinations. The acquisitions were accounted in accordance with AASB The acquisition-date fair value of the total consideration 3 Business Combinations. transferred in respect of each acquisition amounted to: The acquisition-date fair value of the total consideration transferred in respect of each acquisition amounted to: • VPD • Altitude IT • Beachhead • VPD • Reliance IT • Altitude IT • • Beachhead Intalock • Nexgen • Reliance IT • Intalock • Nexgen $’000 13,250 $’000 2,395 3,208 13,250 6,043 2,395 18,634 3,208 51,240 6,043 18,634 51,240 • • • Our procedures included, but were not limited to, the How our audit addressed this matter following: Our procedures included, but were not limited to, the evaluating the Group’s accounting treatment against • following: the requirements of AASB 3, key transaction agreements, our understanding of each business evaluating the Group’s accounting treatment against • acquired and its industry; the requirements of AASB 3, key transaction agreements, our understanding of each business assessing the methodology applied to recognise the acquired and its industry; fair value of identifiable assets and liabilities; assessing the methodology applied to recognise the validating inputs of the components of the business fair value of identifiable assets and liabilities; including combinations settlement contracts; validating inputs of the components of the business combinations including support assessing Management’s determination of the point at settlement contracts; which control was gained of each acquiree; assessing Management’s determination of the point at contingent calculation of assessing which control was gained of each acquiree; consideration and its accuracy in accordance with the contractual arrangements and relevant accounting contingent calculation of assessing standards; consideration and its accuracy in accordance with the contractual arrangements and relevant accounting reviewing the accounting entries associated with the standards; business combinations; and reviewing the accounting entries associated with the business combinations; and to underlying to underlying support the the the the • • • • • • • 84 PKF Melbourne Audit & Assurance Pty Ltd ABN 75 600 749 184 Level 12, 440 Collins Street, Melbourne, Victoria 3000 T: +61 3 9679 2222 F: +61 3 9679 2288 www.pkf.com.au PKF Melbourne Audit & Assurance Pty Ltd ABN 75 600 749 184 Liability limited by a scheme approved under Professional Standards Legislation Level 12, 440 Collins Street, Melbourne, Victoria 3000 PKF Melbourne Audit & Assurance Pty Ltd is a member firm of the PKF International Limited family of legally independent firms and does not accept any T: +61 3 9679 2222 F: +61 3 9679 2288 www.pkf.com.au responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. Liability limited by a scheme approved under Professional Standards Legislation PKF Melbourne Audit & Assurance Pty Ltd is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. 84 Annual Report 2021 135  I N D E P E N D E N T A U D I T O R ’ S R E P O R T Key audit matter – Business combinations (continued) How our audit addressed this matter (continued) Significant judgements were formed by Management in valuing the acquired identifiable assets and allocation to goodwill. Based on this we have considered resultant business combinations to be a Key Audit Matter. • reviewing the related financial statement disclosures for the acquisitions for consistency with the relevant financial reporting standards. Key audit matter – Impairment of goodwill and indefinite life intangibles How our audit addressed this matter As at 30 June 2021, the carrying value of goodwill and indefinite life intangibles totalled $104,192,000 (2020: $23,974,000), as disclosed in note 17 of the financial report. The accounting policy in respect of these assets is outlined in note 2 Intangibles. An annual impairment test for goodwill and other indefinite life intangibles is required under AASB 136 Impairment of Assets. Management’s testing has been performed using a discounted cash flow model (Impairment Model) to estimate the value-in-use of the Cash Generating Unit (CGU) to which the intangible assets have been allocated. The evaluation of the recoverable amount requires the Group to exercise significant judgement in determining key assumptions, which include: • • • The outcome of the impairment assessment could vary if different assumptions were applied. As a result, the evaluation of the recoverable amount of intangibles is an area of significant Management estimation and judgement, and a Key Audit Matter. 5-year cash flow forecast; growth rate and terminal growth factor; and discount rate. Our procedures included, but were not limited to, assessing and challenging: • • • • • • the appropriateness of Management’s determination of the CGU to which goodwill and indefinite life intangibles are allocated; the application of an indefinite useful life to these intangible assets; the reasonableness of the financial year 2022 budget approved by the Directors, comparing to current actual results, and considering trends, strategies and outlooks; the testing of inputs used in the Impairment Model, including the approved budget; the determination of the discount rate applied in the Impairment Model, comparing to available industry data; the short to medium term growth rates applied in the forecast cash flow, considering historical results and available industry data; the arithmetic accuracy of the Impairment Model; • • Management’s sensitivity analysis around the key drivers of the cash flow projections, to consider the likelihood of such movements occurring sufficient to give rise to an impairment; and • the appropriateness of the disclosures including those relating to sensitivities in assumptions used in note 17. Key audit matter – Revenue recognition How our audit addressed this matter The Group’s sales revenue amounted to $102,786,000 during the year (2020: $34,429,000). Note 2 Revenue Recognition describes the following accounting policies applicable to distinct revenue streams in accordance with AASB 15 Revenue from Contracts with Customers: • Recurring revenue - Internet access, equipment rentals, line rentals and managed IT services are recognised in the period in which the service is provided. Where income for services is invoiced in is recorded as unearned advance, the amount income and recognition is delayed until the service has been provided. • Non-recurring revenue - Call charges, hardware sales and set-up charges are recognised in the period in which the services or goods are delivered. Our procedures included, but were not limited to, the following: • assessing Management’s alignment of the Group accounting policy with the requirements of AASB 15 and application of the policy to the revenue recognition processes, focusing on key areas of risk in respect of Management’s determination of: - - - - assessing including implementation of Group processes to acquired businesses from the date of acquisition; performance obligations recognition at point of time or over time significant judgements and estimates, and the impacts of business combinations; the design of controls, • 136 Annual Report 2021 85 I N D E P E N D E N T A U D I T O R ’ S R E P O R T Key audit matter – Revenue recognition (continued) How our audit addressed this matter (continued) The recognition of revenue and associated unearned revenue is considered a Key Audit Matter due to the varied timing of revenue recognition relative to the different revenue streams, consideration of business combinations, and the relative complexity of processes supporting the accounting for each. • testing the consistent operation of the processes designed to account for the recognition of revenue and related costs of sale, against the design of the Group’s accounting policies, using the following techniques: - the for a sample of contracts across each revenue stream, evaluating the contracts and agreeing recognised revenue to the records accumulated as inputs to the financial statements, while also assessing the timing of revenue recognition against satisfaction of performance obligations, whether related to product delivery or period of service provision, assessing the accuracy of revenue and related costs cut off, the accuracy of accrued revenue, and completeness of deferred revenue, utilising analytical to assess reasonableness of tested revenue streams. review the - - Other Information The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2021 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 an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report. In connection with our audit of the financial report, our responsibility is to read the other information and in doing so, we consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If based on the work we have performed, we conclude that there is a material misstatement of this information, we are required to report that fact. We have nothing to report in this regard. Directors’ Responsibilities 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 Group’s ability 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 and auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individual or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may intentional omissions, misrepresentations, or the override of internal control. involve collusion, forgery, Annual Report 2021 137 86.  I N D E P E N D E N T A U D I T O R ’ S R E P O R T • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and other related disclosures made by the Directors. • Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the group financial report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Auditor’s Opinion We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of the Company for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. PKF Melbourne, 24 August 2021 Steven Bradby Partner 138 87 Annual Report 2021 I N D E P E N D E N T A U D I T O R ’ S R E P O R T This page is intentionally left blank. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and other related disclosures made by the Directors. • Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair continue as a going concern. presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the group financial report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Auditor’s Opinion of the Corporations Act 2001. Responsibilities We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of the Company for the year ended 30 June 2021, complies with section 300A The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. PKF Melbourne, 24 August 2021 Steven Bradby Partner 87 Annual Report 2021 139 Shareholder Information 140 Annual Report 2021 Spirit Technology Solutions Ltd Shareholder information 30 June 2021 S H A R E H O L D E R I N F O R M A T I O N The shareholder information set out below was applicable as at 21 September 2021. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: Number of holders of ordinary shares Number of ordinary shares % of ordinary shares Number of holders of unquoted options Number of unquoted options % of unquoted options Number of holders of performance rights Number of performance rights % of Performance rights 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over 171 1,156 718 24,508 3,432,420 5,694,782 1,277 44,973,833 309 602,275,014 3,631 656,400,557 0.00% 0.52% 0.87% 6.85% 91.76% 100.00% - - - - - - - - 2 18,000,000 100.00% 2 18,000,000 100.00% - - - - Holding less than a marketable parcel 569 680,452 0.10% - - - - - - - 4 4 - - - - - 3,610,859 3,610,859 - - - - 100.00% 100.00% - - Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: Ordinary shares % of total Number held shares issued UBS NOMINEES PTY LTD CRAZY DIAMOND PTY LTD MR PETER DIAMOND & MRS DIANA DIAMOND

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED CS THIRD NOMINEES PTY LIMITED MARQUEE HOLDINGS PTY LTD HARB HOLDINGS PTY LTD CS FOURTH NOMINEES PTY LIMITED BRIGGS GROUP CONSULTING PTY LTD WADE TECHNOLOGIES PTY LTD BRISPOT NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED THE BENTLEY GROUP (AUST) PTY LTD MR TODD ALLEN MAUNDER NIKALA HABER LPB CORPORATE PTY LTD SEABIRD INVESTMENTS (WA) PTY LTD MDJD PTY LTD 84,931,141 54,000,000 52,000,000 44,452,814 32,218,367 25,440,065 17,790,838 16,438,356 16,438,356 15,079,470 12,606,789 12,578,750 12,049,604 8,824,732 7,546,334 5,800,000 5,693,092 5,683,244 5,500,000 5,000,000 12.94 8.23 7.92 6.77 4.91 3.88 2.71 2.50 2.50 2.30 1.92 1.92 1.84 1.34 1.15 0.88 0.87 0.87 0.84 0.76 440,071,952 67.05 Annual Report 2021 141 Spirit Technology Solutions Ltd Shareholder information 30 June 2021 Unquoted equity securities S H A R E H O L D E R I N F O R M A T I O N Unquoted options over ordinary shares on issue Performance rights over ordinary shares on issue Number Number on issue of holders 18,000,000 3,610,859 2 4 Substantial holders Substantial holders in the Company, as disclosed in substantial holding notices given to the Company, are set out below: Ordinary shares % of total shares Number held issued CRAZY DIAMOND PTY LTD / PETER + DIANA DIAMOND ATF (PETER + DIANA DIAMOND SUPER FUND) REGAL FUNDS MANAGEMENT PTY LTD TIGA TRADING PTY LTD THORNEY OPPORTUNITIES LTD THORNEY TECHNOLOGIES LTD 107,000,000 61,396,909 42,616,596 42,616,596 42,616,596 16.50 11.22 6.60 6.60 6.60 Voting rights The voting rights attached to each class of equity security are set out below: Ordinary shares All issued shares carrying voting rights on a one-for-one basis. Unquoted options There are no voting rights attached to unquoted options. Performance rights There are no voting rights attached to performance rights. There are no other classes of equity securities. Securities subject to voluntary escrow Class Ordinary fully paid shares Ordinary fully paid shares Expiry date 3 December 2021 8 April 2022 Number of shares 5,921,053 32,876,712 38,797,765 Corporate Governance Statement The Company’s 2021 Corporate Governance Statement is available on the Company’s website at: https://www.spirit.com.au/investor-centre/ Annual General Meeting Spirit Technology Solutions Ltd advises that its Annual General Meeting will be held on Monday, 29 November 2021. The time and other details relating to the meeting will be advised in the Notice of Meeting to be sent to all shareholders and released to ASX in due course. In accordance with ASX Listing Rules and the Company’s 142 Annual Report 2021 Spirit Technology Solutions Ltd Shareholder information 30 June 2021 Unquoted equity securities Unquoted options over ordinary shares on issue Performance rights over ordinary shares on issue Substantial holders in the Company, as disclosed in substantial holding notices given to the Company, are set Substantial holders out below: Number Number on issue of holders 18,000,000 3,610,859 2 4 Ordinary shares % of total shares Number held issued 107,000,000 61,396,909 42,616,596 42,616,596 42,616,596 16.50 11.22 6.60 6.60 6.60 Number of shares 5,921,053 32,876,712 38,797,765 CRAZY DIAMOND PTY LTD / PETER + DIANA DIAMOND ATF (PETER + DIANA The voting rights attached to each class of equity security are set out below: DIAMOND SUPER FUND) REGAL FUNDS MANAGEMENT PTY LTD TIGA TRADING PTY LTD THORNEY OPPORTUNITIES LTD THORNEY TECHNOLOGIES LTD Voting rights Ordinary shares All issued shares carrying voting rights on a one-for-one basis. Unquoted options There are no voting rights attached to unquoted options. Performance rights There are no voting rights attached to performance rights. There are no other classes of equity securities. Securities subject to voluntary escrow Class Ordinary fully paid shares Ordinary fully paid shares Expiry date 3 December 2021 8 April 2022 Corporate Governance Statement S H A R E H O L D E R I N F O R M A T I O N The Company’s 2021 Corporate Governance Statement is available on the Company’s website at: https://www.spirit.com.au/investor-centre/ Annual General Meeting Spirit Technology Solutions Ltd Spirit Technology Solutions Ltd advises that its Annual General Meeting will be held on Monday, 29 November Shareholder information 2021. The time and other details relating to the meeting will be advised in the Notice of Meeting to be sent to all 30 June 2021 shareholders and released to ASX in due course. In accordance with ASX Listing Rules and the Company’s Constitution, the closing date for receipt of nominations for the position of Director are required to be lodged at the registered office of the Company by 5.00pm (AEDT) on 18 October 2021. Annual Report 2021 143 Corporate Directory Auditor PKF Melbourne Audit & Assurance Pty Ltd Level 12, 440 Collins Street Melbourne, Victoria 3000 Stock exchange listing Spirit Technology Solutions Ltd securities are listed on the Australian Securities Exchange (ASX code: ST1) ACN 089 224 402 Website spirit.com.au Directors James Joughin (Non-Executive Chairman) James Joughin (Non-Executive Chairman) Sol Lukatsky (Managing Director) Sol Lukatsky (Managing Director) Mark Dioguardi (Executive Director) Mark Dioguardi (Executive Director) Gregory Ridder (Non-Executive Director) Gregory Ridder (Non-Executive Director) Inese Kingsmill (Non-Executive Director) Inese Kingsmill (Non-Executive Director) Company secretary Melanie Leydin Registered office Level 4, 100 Albert Road South Melbourne, Victoria 3205 Phone: 03 9692 7222 Principal place of business Level 2, 19-25 Raglan Street South Melbourne, Victoria 3205 Phone: 1300 007 001 Share register Automic Group Level 5, 126 Phillip Street Sydney, New South Wales 2000 Phone: 1300 288 664 (within Australia) +61 (0) 2 9698 5414 (International) 144 Annual Report 2021 Thanks for reading. Annual Report 2021 145 Locations Queensland Level 7, 60 Edward Street, Brisbane City qLD 4000 5 Cribb Street, Milton qLD 4064 5 Commercial Dr, Ashmore qLD 4214 Victoria 19-25 Raglan Street, South Melbourne VIC 3025 Level 11, 14 - 16 Mason Street, Dandenong VIC 3175 Western Australia 1st Floor, 27 Teddington Road, Burswood WA 6100 New South Wales Unit C14, 74 Mileham Street, South Windsor NSW 2756 Suite 510, 46 Kippax Street, Surry Hills NSW 2010 Level 14, 130 Pitt Street, Sydney NSW 2000 Level 6, 379 Kent Street, Sydney NSW 2000 46A Bultje Street, Dubbo NSW 2830 Level 4, 460 Church Street, Parramatta NSW 2150 P 1800 Spirit E Investor@Spirit.com.au W Spirit.com.au/Investor-Centre 

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