Sunstone Hotel Investors
Annual Report 2019

Plain-text annual report

SportsHero Limited ACN 123 423 987 Annual Report for the year ended 30 June 2019 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 CORPORATE DIRECTORY Directors Michael Higginson (Chairman) Tom Lapping (Director and CEO) Wayne Johnson (Non-Executive Director – appointed 28 November 2018) Company Secretary Michael Higginson Registered Office and Principal Place of Business 29 Brookside Place Lota, QLD 4179 Telephone: +61 (7) 3901 0751 Facsimile: +61 (7) 3901 0751 Website: http://sportshero.live/ Auditor RSM Australia Partners Level 32/2 The Esplanade Perth WA 6000 Share Registry Advanced Share Registry Services Limited 110 Stirling Highway Nedlands WA 6009 Telephone: +61 (8) 9389 8033 Facsimile: +61 (8) 9262 3723 Stock Exchange Listing Australian Securities Exchange ASX Code: SHO 2 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 CONTENTS PAGE CHAIRMAN’S LETTER OPERATIONS REPORT DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION STATEMENT OF FINANCIAL POSITION STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT SHAREHOLDER INFORMATION General information 4 5 7 16 17 18 19 20 21 51 52 55 The financial statements cover SportsHero Limited as a consolidated entity consisting of SportsHero Limited and its subsidiaries. The financial statements are presented in US dollars, which is SportsHero Limited’s functional and presentation currency. SportsHero Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: 29 Brookside Place Lota, QLD 4179 Telephone: +61 (7) 3901 0751 Facsimile: +61 (7) 3901 0751 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 27 September 2019. The Directors have the power to amend and reissue the financial statements. 3 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 CHAIRMAN’S LETTER Dear Shareholder On behalf of the Board of Directors of SportsHero Limited, I am pleased to be able to present the 2019 Annual Report of the Group. The year certainly delivered a significant transformation for the Group, that culminated with the development and launch on both the Apple App Store and Google Play of the white label Kita Garuda mobile application for the Football Association of Indonesia (PSSI). PSSI being one of the world’s largest sports federations that boasts of having an engaged fan base of 80 million, over 4 leagues and 128 teams. On 25 March 2019, SportsHero executed an exclusive multi-revenue stream digital partnership agreement with PSSI that resulted in SportsHero developing Kita Garuda, an intelligent, engaging sports prediction digital platform that offers a broad range of revenue streams. The Indonesian market and the opportunity for the Group to leverage PSSI’s significant fan base is an exciting opportunity, which both PSSI and SportsHero intend to monetise. Having developed a white label digital solution, the Group is now able to offer that digital solution across multiple sports to sporting groups and other partners globally. Importantly, the Group also has a partnership with one of the world's most popular sporting leagues, Spain's LaLiga, as the exclusive Indonesian partner in the sports prediction category. During the March 2019 quarter, the Group executed binding agreements with Cross Bet Holdings Pty Ltd (CBH) for the purpose of enabling the granting of a Sports Bookmaker Licence (regulated by the Northern Territory Racing Commission) to facilitate the Australian launch of a SportsHero pay-to-play sports prediction platform. Conditional approval for the granting of the Licence, from the Department of the Attorney General and Justice Licencing, has been received by CBH. Subsequent to year end, the Group executed an underwriting agreement with Veritas Securities Pty Ltd for the exercise of 30 million options each exercisable at AU$0.05 and expiring 31 August 2019. As a consequence of that underwriting agreement, on 12 September 2019 the Group announced the raising of AU$1,862,500 following the exercise of 37.25 million options. The securing of additional equity capital and the introduction of institutional investors to the Group’s register, augers well for the Group as it seeks to fully capitalise on the company making opportunities that it has created and developed throughout the year. Whilst the past year has delivered many challenges, I very sincerely commend our laterally thinking and resourceful CEO and his team for delivering what can only be described as significant opportunity and upside for the Group. As a consequence, I very much look forward to the challenges and anticipated achievements that await the Group during the coming year. Yours sincerely Michael Higginson Chairman 4 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 OPERATIONS REPORT SportsHero Limited has developed an intelligent, engaging sports prediction platform, designed to provide a dynamic immersive social experience, coupled with both monetary and other prizes. On 25 March 2019, SportsHero executed an exclusive multi-revenue stream digital partnership agreement with the Football Association of Indonesia (PSSI), with over 80 million PSSI fans targeted for connection on a newly developed digital platform offering a broad range of revenue streams and powered by SportsHero. The Group also has a partnership with one of the world's most popular sporting leagues, Spain's LaLiga, as the exclusive Indonesian partner in the sports prediction category. Having developed a white label digital solution, the Group is now able to offer that digital solution across multiple sports to sporting groups and other partners globally. Kita Garuda and PSSI Throughout the year, the Group undertook and delivered significant technical achievements, culminating in the development and launch in June 2019 on the Apple App Store and Google Play of the white label mobile application “Kita Garuda” for PSSI. In accordance with a partnership agreement with PSSI, SportsHero has been appointed for a term of 3 years (with the option to extend for 2 further periods of 3 years) as PSSI’s exclusive provider and partner to build PSSI’s first official platform, including apps that incorporate SportsHero’s gamified sports prediction platform, a ticketing platform, live streaming, social media, merchandise/e-commerce, game highlights and player access. Pursuant to the partnership agreement, the parties have agreed that net revenue from direct advertising will be split 70/30% in favour of the party that introduces the advertiser. Included under the agreement revenue is generated from: • Direct advertising • Brand sponsorship • Competition revenue • Video streaming • eCommerce • Match ticketing • Gamification-related ticket sales – which are required to participate in weekly, monthly and season long prediction competitions and PSSI promotions. With respect to revenue generated from third party sponsorships, direct advertising and relevant competitions, the party who introduces the revenue source will receive 70% of the revenue, less all applicable taxes and deductions (the other party will receive 30%). Throughout the term of the partnership agreement, PSSI will exclusively provide rich content, including access to video footage of games, events and features of the Indonesian national teams and its players. In addition, PSSI intends to use the app, built by SportsHero, to stream live and recorded matches to their estimated 80 million fan base in Indonesia – thereby meaningfully expanding the potential advertising and sponsorship revenue base through a wider audience and an extended app user engagement time. The parties further intend that users will be offered the right to subscribe to exclusive access to premium content, such as international match video highlights, live streaming of games and featured video stories and education. LaLiga Partnership Agreement On 23 August 2018, the Group announced a landmark partnership with Spain’s top football division, LaLiga. Pursuant to the partnership, SportsHero was appointed as LaLiga’s exclusive Indonesian partner in the sports prediction app category. 5 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 OPERATIONS REPORT Licensing Agreement with Linius Technologies Subsequent to year end, on 1 July 2019 the Group announced a binding Agreement with leading hyper- personalised video content provider, Linius Technologies Limited (“Linius”) (ASX: LNU), via their respective wholly-owned subsidiaries. Pursuant to the Agreement, SportsHero secured the rights to use the Linius technology in the SportsHero app and other ‘white label’ solutions, including the mobile application ‘Kita Garuda’, developed for PSSI. The Linius technology allows a user to customise a video to show only content that is relevant to the individual requirements and viewing preferences of the user. For example, once integrated, a user of the PSSI app will be able to search for and watch highlights of their favourite players, the best goals scored, or customise their viewing content based on virtually any criteria, such as shots on target, goalkeeper saves, injuries, substitutions, penalties, red cards and many more. The integration of the Linius technology into the PSSI mobile app has the potential to significantly increase user engagement and viewer numbers for the ‘Kita Garuda’ mobile app, which in turn is expected to result in the generation of more substantive advertising revenue for both PSSI and SportsHero. Sports Bookmaker License During the March quarter, SportsHero executed binding agreements with Cross Bet Holdings Pty Ltd (CBH) for the purpose of enabling the granting of a Sports Bookmaker Licence (regulated by the Northern Territory Racing Commission) to facilitate the Australian launch of a SportsHero pay-to-play sports prediction platform. Conditional approval for the granting of the Licence, from the Department of the Attorney General and Justice Licencing, has been received by CBH. Precise details of events and activities undertaken throughout the year are as set out in the Directors’ Report under the heading “Significant changes in state of affairs” and “Subsequent events”. 6 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 DIRECTORS REPORT The Directors present their report together with the consolidated financial report for SportsHero Limited (“SportsHero” or the “Company”) and its controlled entities (collectively the “Group”), for the year ended 30 June 2019. Directors (i) Names, qualifications and experience The names and details of the Group’s Directors in office at any time during the financial period and until the date of this report are as follows: Michael Higginson Tom Lapping Wayne Johnson Christopher Green Non-Executive Director and Chairman Director and CEO Non-Executive Director (appointed 28 November 2018) Non-Executive Director (resigned 27 November 2018) Michael Higginson – Chairman Qualification: B.Bus Fin & Admin Mr Higginson is the holder of a Bachelor of Business Degree with majors in both Finance and Administration. Mr Higginson is a professional director and company secretary with extensive experience in public company administration, ASX Listing Rules, the Corporations Act, capital raisings, corporate governance, financial reporting and due diligence. Mr Higginson was formerly an executive officer with the Australian Securities Exchange and has, over the last 30 years, held numerous directorship and company secretarial roles with a number of public listed companies across a range of industry sectors. Mr Higginson is a director of Cape Range Limited and VIP Gloves Limited. Tom Lapping – Director and CEO Mr Lapping is highly experienced across the securities and media sectors. Since 2016, he has played an integral role within SportsHero and was a key member of the team during the transition of the SportsHero business from a Singaporean unlisted entity to an ASX listed public company in February 2017. Tom is a successful entrepreneur who has accumulated extensive experience leading both established and early stage ventures in the Asia-Pacific region. Tom has a keen understanding of consumer behaviour and was recognised as a 40under40 business entrepreneur award winner in Western Australia in 2003 Mr Wayne Johnson (Non-Executive Director) – Appointed 28 November 2018 Mr Johnson has over 30 years business and financial transaction experience gained in Australia, New Zealand, Asia and North America. He has extensive experience in managing businesses, corporate advisory, governance and compliance as a result of building, managing and directing public and private companies from start up to established public corporations. Mr Johnson’s hands on experience in business management and operations, often in markets undergoing significant change, is a rare attribute not held by many corporate advisors. The knowledge and skills accumulated through being at the helm of a range of successful enterprises has been at the core of his ability to drive many merger and acquisition transactions, restructures and recapitalisations. Mr Johnson’s expertise spans a variety of industries, including telecommunications, electronic payments, financial services and the resources sector. Mr Johnson is the principal of Noblemen Ventures Pty Ltd, a Sydney based corporate and investment advisory firm providing services to select public and private entities, primarily in the middle market. He also provides services as a professional director to public companies. Mr Johnson is chairman of Cape Range Limited (ASX code: CAG) and a non-executive director of VIP Gloves Limited (ASX code: VIP) and Enhanced Oil & Gas Recovery Ltd (ASX code: EOR). 7 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 DIRECTORS REPORT Christopher Green – Non Executive Director – Resigned 27 November 2018 Qualification: B.Sc (Applied Geology) and Grad Dip Computer Science Mr Green has been working in the mining and IT industries for 41 years, in the areas of exploration and mining as a geologist, and in the areas of software development as a programmer, technical analyst, IT Manager and as a Manager of Innovation. With his professional qualifications in Geology, Computer Science and Complexity Theory, Chris has over 41 years professional experience with the last 26 years almost exclusively within the practical application of IT and IT innovation. (ii) Interests in the Shares and Options of the Group As at the date of this report, the interest of the Directors in the shares and options of the Group are: M Higginson T Lapping W Johnson TOTAL Number of shares 20,834 11,782,143 - 11,802,977 Number of options - - - - 16,714,286 options held of Tom Lapping at year end expired on 31 of August 2019 and were disposed of unexercised. There are no options held by Tom Lapping as at the date of the report. Company Secretary Michael Higginson Qualification: B.Bus Fin & Admin Directors’ meetings The number of meetings attended by each of the Directors of the Group during the financial year was: Michael Higginson Tom Lapping Wayne Johnson Christopher Green Directors’ Meetings (a) 3 3 3 - (b) 3 3 3 - (a) Number of meetings held and entitled to attend (b) Number of meetings attended Given the size of the Group and current level of activities, the Board has assumed the duties and responsibilities typically delegated to an audit committee, risk committee, remuneration committee and nomination committee. Corporate structure SportsHero Limited is a company limited by shares that is incorporated and domiciled in Australia. For details of the Company’s controlled entities, please refer to note 27. Nature of operations and principal activities The principal activity of the Group during the year was the development of the Group’s sports gamification platform. 8 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 Results of operations DIRECTORS REPORT The operating loss after income tax of the Group for the year ended 30 June 2019 was US$2,276,625 (2018: US$4,335,566). As set out in the Statement of Comprehensive Income, the two most significant expense categories for the financial year were: • Administration expenses, totalling US$1,259,352; and • Employee and consulting expenses, totalling US$844,977. Included within these two expense categories are the following items: • Product development and maintenance - US$724,911 (100% of development expenditure being expensed and not capitalized) of which US$247,468 is under Administration expenses and US$477,443 is under Employee and consulting expenses); • Marketing and promotions – US$303,183, and • Legal expenses – US$149,813. Other factors that contributed to the US$2,276,625 loss included an impairment loss of US$146,738 as a result of monies not received from Walletku (refer Significant changes in state of affairs) and share based payments to non-related parties that totalled US$223,333. The Group’s basic loss per share for the year was 0.93 US cents (2018: 1.84 US cents). Dividends No dividend has been paid during or is recommended for the financial year ended 30 June 2019 (2018: nil). Review of operations The principal activity of the Group during the financial year was the development of the Group’s sports gamification platform. An overview of the Group’s operations during the financial year is set out in the Operations Report. Significant changes in state of affairs On 23 August 2018, the Group announced a landmark partnership with Spain’s top football division LaLiga. Pursuant to the partnership, SportsHero was appointed as LaLiga’s exclusive Indonesian partner in the sports prediction app category. Following the launch of Version 3 of SportsHero’s app in September 2018 and the commencement of the LaLiga Hero of the Month competitions in Indonesia, the Group commenced generating revenue through its joint venture with Indonesia’s Walletku. As a consequence of Walletku withholding SportsHero’s share of the generated revenue of US$146,738 for the period July 2018 to December 2018, SportsHero elected to stop all joint venture activities with Walletku. On 31 May 2019, SportsHero received from Walletku a payment of US$32,030. On 3 October 2018, the Group issued 3,582,500 shares at an issue price of AU$0.20 per share raising AU$716,500 in working capital. Following the resignation of Mr Christopher Green as a Director on 27 November 2018, on 28 November 2018 Mr Wayne Johnson was appointed as a Director. On 10 January 2019, the Group announced that it had entered into a heads of agreement with Cross Bet Holdings Pty Ltd (CBH) for the purpose of enabling SportsHero to launch its existing pay-to-play sports prediction platform in Australia. Subsequent to the heads of agreement, the parties established a joint venture vehicle for the purpose of securing the grant of a Sports Bookmaker Licence regulated by the Northern Territory Racing Commission. 9 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 DIRECTORS REPORT On 8 February 2019, the Group issued 10,808,334 shares at an issue price of AU$0.10 per share raising AU$1,080,833 (before costs) in working capital. In addition, the Group completed the raising of AU$175,417 pursuant to the issue of 3,508,334 shares following the exercise of 3,508,34 options each exercisable at AU$0.05 and expiring 31 August 2019. On 25 March 2019, the Group announced that it had entered into an exclusive multi revenue stream digital partnership with PSSI (refer Operations Report). Future developments Likely future developments in the operations of the Group are referred to in the Chairman’s Letter and Operations Report. Other than as referred to in this report, further information as to likely developments in the operations of the Group and expected results of those operations would, in the opinion of the Directors, be speculative and prejudicial to the interests of the Group and its shareholders. Subsequent events On 1 July 2019, the Group announced a licensing agreement with Linius Technologies Limited whereby SportsHero secured the rights to use the Linius video customisation technology. For further information, please refer to the Operations Report. On 24 July 2019, the Group issued 4,283,333 shares at an issue price of AU$0.10 per share raising AU$428,333 in working capital. In addition, the Group raised a further AU$2,682,717 (before costs) following the exercise of 53,654,334 options each exercisable at AU$0.05 and expiring 31 August 2019. On 1 August 2019, the Group announced an extension of the partnership with PSSI for a term of 3 years, plus the right to further extend for 2 further periods of 3 years (ie a total of 9 years). On 21 August 2019, the Group announced that full exclusivity for Indonesia’s FIFA World Cup qualifying match ticket sales, merchandise and other exclusive World Cup content had been secured for the Kita Garuda mobile application. On 12 September 2019, the Group completed the raising of AU$1,862,500 (before costs) pursuant to the issue of 37,250,000 shares following the exercise of 37,250,000 options each exercisable at AU$0.05 and expiring 31 August 2019 and issued 20,000,000 options each exercisable at AU$0.10 and expiring 30 September 2021. Financial position The Group’s working capital, being current assets less current liabilities, was negative US$1,162,990 as at 30 June 2019 (2018: negative US$218,653). In the Directors’ opinion there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. Proceedings on behalf of the Group No person has applied for leave of court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. Additional information The earnings of the consolidated entity for the five years to 30 June 2019 are summarised below: Income EBITDA EBIT Loss after income tax 2019 US$ 2018 US$ 2017 US$ 2016 US$ 2015 US$ 463,791 (2,276,050) (2,276,625) (2,276,625) 16,841 9,113 (3,830,964) (3,410,171) (4,335,566) (3,850,447) (4,335,566) (4,266,614) - (151,228) (151,260) (151,260) - - - - 10 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 DIRECTORS REPORT The factors that are considered to affect total shareholders return are summarised below: Share price at financial year end (US cents) Total dividends declared (US cents per share) Basic and diluted loss per share for continued operations (US cents per share) Basic diluted loss per share for discontinued operations (US cents per share) Basic loss per share (US cents per share) 2019 US 4.5 - 0.93 - 0.93 2018 US 5.91 - 1.55 0.29 1.84 2017 US 3.1 - 3.48 0.37 3.85 2016 US - - - - - 2015 US - - - - - Remuneration report (Audited) Details of Remuneration for the Year Ended 30 June 2019 Details of the remuneration for each Director and the key management personnel of the Group during the year are set out in the following tables. The Board’s policy for determining the nature and amount of remuneration for Directors and senior executives of the Group is as follows: • All executives receive a base salary (which is based on factors such as length of service and experience). • The Board reviews executive packages annually by reference to the Group’s performance, executive performance and comparable information from industry sectors. • All remuneration paid to Directors and executives is valued at the cost to the Group and expensed. Options are valued using the Black-Scholes methodology. • Remuneration of non-executive Directors at market rates for time, commitment and responsibilities. The Board determines payments to the non-executive Directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought if required. During the financial year ended 30 June 2019, the consolidated entity did not engage any external parties for a review of remuneration practices. At the 2018 Annual General Meeting, 99.98% of the eligible votes received supported the adoption of the remuneration report for the year ended 30 June 2018. The Group did not receive any specific feedback at the Annual General Meeting regarding its remuneration practices. The key management personnel of the Group include the Directors and Company Secretary. There were no other persons considered key management personnel as defined in AASB 124 Related Party Disclosures. 11 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 DIRECTORS REPORT The tables below show the 2019 and 2018 remuneration of the Directors and other key management personnel: 2019 Short-term Post- employment Share- based payments Value of options as a % Salary & fees US$ Cash Bonus US$ Superannuatio n US$ Shares US$ Total US$ Chairman Michael Higginson Directors Tom Lapping Wayne Johnson* Christopher Green** 75,384 107,340 25,903 7,800 Total key management personnel compensation 216,427 * Appointed on 28 November 2018 ** Resigned on 27 November 2018 - 28,624 - - 28,624 - - - - - - - - - - 75,384 135,964 25,903 7,800 0% 0% 0% 0% 245,051 0% 2018 Short-term Post- employment Share-based payments Salary & fees US$ Superannuation US$ Shares US$ Chairman Michael Higginson Directors Tom Lapping Christopher Green Total key management personnel compensation 74,982 81,733 19,384 176,099 - - - - - - - - Value of options as a % Total US$ 74,982 81,733 19,384 0% 0% 0% 176,099 0% Performance Shares as a Proportion of Total Remuneration There were no performance shares issued to Directors during the year ended 30 June 2019 (2018: nil). Ordinary Shares held by Directors 2019 Directors M Higginson C Green1 T Lapping W Johnson2 Balance at beginning of year 20,834 - 11,782,143 - 11,802,977 Allotted during the year Purchased during the year Sold during the year Balance at end of year - - - - - - - - - - - - - - - 20,834 - 11,782,143 - 11,802,977 1- Closing balance represents shareholding upon resignation as a Director on 27 November 2018 2- Opening balance represents shareholding upon appointment at 28 November 2018 12 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 DIRECTORS REPORT 2018 Directors M Higginson C Green T Lapping Balance at beginning of year 20,834 - 11,782,143 11,802,977 Allotted during the year Purchased during the year Sold during the year Balance at end of year - - - - - - - - 20,834 - - - - 11,782,143 - 11,802,977 Group Performance, Shareholder Wealth and Director and Executive Remuneration The remuneration policy has been tailored to increase goal congruence between shareholders, Directors and executives. The achievement of this aim has been through the issue of options or performance rights to Directors and executives to encourage the alignment of personal and shareholder interests. Executive and non-executive Directors and other key management personnel may be granted options or performance rights over ordinary shares. The recipients of options or performance rights are responsible for growing the Group and increasing shareholder value. If they achieve this goal the value of the options or performance rights granted to them will also increase. Therefore, the options or performance provide an incentive to the recipients to remain with the Group and to continue to work to enhance the Group’s value. Options Granted for the Year Ended 30 June 2019 2019 Directors Balance at beginning of year M Higginson C Green1 T Lapping W Johnson 2 Total - - 16,714,286 - 16,714,286 Option movements for the year Granted as Allotted compensation Exercised Expired Other changes Balance at end of year - - - - - - - - - - - - - - - - - - - - - - - - - 16,714,286 - - - 16,714,286 1.Closing balance represents number of options held upon resignation as a Director on 27 November 2018. 2.Opening balance represents number of options held upon appointment at 28 November 2018. 2018 Directors Balance at beginning of year M Higginson T Lapping C Green Total - 16,714,286 - 16,714,286 Option movements for the year Granted as Allotted compensation Exercised Expired Other changes Balance at end of year - - - - - - - - - - - - - - - - - - - 16,714,286 - - - 16,714,286 Performance Options as a Proportion of Total Remuneration The value of performance options issued during the year to key management personnel as a percentage of the total remuneration paid to key management personnel was 0% (2018: 0%). 13 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 DIRECTORS REPORT Employment Contracts of Directors and Senior Executives As of 30 June 2019 there were no formal contracts for Non-Executive Directors. Mr Johnson is paid fees at the rate of AU$60,000 per annum. Mr Higginson, as Chair of the Group, is paid fees at the rate of AU$50,000 per annum. Share-based compensation The issue of options and/or performance rights to Directors and executives is to encourage the alignment of personal and shareholder returns. The intention is to align the objectives of Directors and executives with that of the business and shareholders. In addition, all Directors and executives are encouraged to hold shares in the Group. During the financial year, the Group paid Mr Lapping a bonus of AU$40,000. The Group has not paid bonuses to any other Directors or executives. End of remuneration report Share options At the date of this report, the unissued ordinary shares of the Group under option are as follows: Grant date 7 February 2018 Date of Expiry 1 February 2021 Exercise Price Number Under Option AU$0.20 1,000,000 Options granted but not issued At the date of this report, the unissued options not yet granted are as follows: Grant date Date of Expiry Exercise Price Number Under Option 28 February 20181 28 February 20181 28 February 2022 28 February 2023 AU$0.30 AU$0.30 1,000,000 1,000,000 2,000,000 Issue of options is subject to vesting conditions outlined in note 20(b). In current financial year these options were forfeited as the vesting conditions were not met. During the financial year ended 30 June 2019, 3,508,334 SportsHero Limited shares were issued following the exercise of 3,508,334 options expiring 31 August 2019. Performance rights At the date of this report, the following unissued shares are subject to vesting conditions: Grant date Date of Expiry 27/3/17 27/3/17 8/12/17 1/04/20 1/04/20 8/12/19 Share price at grant date US$ - - 0.05 Performance rights 1,000,000 1,000,000 4,000,000 6,000,000 Since the end of the financial year 53,653,334 shares have been issued following the exercise of options. Since the end of the financial year 20,000,000 options have been issued and 13,809,760 options lapsed. No amounts are unpaid on any of the shares on issue. 14 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 DIRECTORS REPORT No person entitled to exercise an option had or has any right by virtue of the option to participate in any share issue of any other body corporate. Indemnification During the financial year, the Group did not pay premiums to insure the Directors and Company Secretary of the Group. Non-audit services No fees for non-audit services were paid/payable to the Group’s auditors during year (2018:nil). Auditor’s independence declaration The auditor’s independence declaration for the year ended 30 June 2019 has been received and immediately follows the Directors’ Report. Officers of the Group who are former partners of RSM Australia Partners There are no officers of the Group who are former partners of RSM Australia Partners. Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of the Group support and have adhered to the principles of sound corporate governance. The Board recognises the recent recommendations of the Australian Securities Exchange Corporate Governance Council, and considers that SportsHero Limited is in compliance with those guidelines which are of importance to the commercial operation of a small cap company. The Group’s corporate governance statement and disclosures are contained on the Group’s website at: http://sportshero.live/ This report is made in accordance with a resolution of the Directors. Michael Higginson Chairman 15 RSM Australia Partners Level 32, Exchange Tower 2 The Esplanade Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 (0) 8 9261 9100 F +61 (0) 8 9261 9111 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of SportsHero Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. David Wall Partner RSM Australia Partners Perth, WA Dated: 27 September 2019 THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 STATEMENT OF FINANCIAL POSITION As at 30 June 2019 Current assets Cash and cash equivalents Trade and other receivables Assets associated with discontinued operations Total current assets Non-current assets Plant and equipment Investment accounted for using the equity method Other assets Total non-current assets Total assets Current liabilities Trade and other payables Total current liabilities Total liabilities Net (liabilities)/assets Equity Issued capital Share based payments reserve Foreign currency translation reserve Accumulated losses Total equity Note 8 9 16 10 18 11 Consolidated 30 June 2019 US$ 30 June 2018 US$ 49,781 44,246 94,027 - 94,027 323,333 1,411 324,744 11,423 336,167 1,507 24,623 140,260 166,390 5,007 - - 5,007 260,417 341,174 12 1,257,017 1,257,017 554,820 554,820 1,257,017 554,820 (996,600) (213,646) 13 14 14 10,097,370 92,515 (156,390) (11,030,095) (996,600) 8,559,488 97,751 (117,415) (8,753,470) (213,646) The above statement of financial position should be read in conjunction with the accompanying notes. 17 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2019 Continuing operations Income Revenue Other revenue Expenses Administration expenses Commission expense Employee and consulting expenses Depreciation and amortisation expense Impairment of intangible assets Impairment expense Share based payments Share of net loss of joint venture accounted for using equity method Loss before income tax expense Income tax expense Loss after tax expense for continuing operations Loss from discontinued operations Loss for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Total comprehensive loss for the year Consolidated 2019 US$ 2018 US$ Note 3 3 4a 4b 5 10 9 20 18 7 16 423,242 40,549 - 16,841 (1,259,352) (990,340) (243,364) (844,977) (575) - (158,161) (223,333) (10,654) - (477,875) (504,602) (1,063,889) - (624,340) - (2,276,625) (3,644,205) - - (2,276,625) (3,644,205) - (691,361) (2,276,625) (4,335,566) (38,975) (150,009) (2,315,600) (4,485,575) Basic and diluted loss per share for continued operations (US cents per share) Basic and diluted loss per share for discontinued operations (US cents per share) Basic and Diluted loss per share (US cents per share) 6 6 6 0.93 - 0.93 1.55 0.29 1.84 The above statement of comprehensive income should be read in conjunction with the accompanying notes. 18 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2019 Issued Capital Share Based Payments Reserve Foreign Currency Translation Reserve Accumulated Losses Total Equity Note US$ US$ US$ US$ US$ Consolidated Balance at 01/07/2017 Comprehensive loss for the year Exercise of options Performance rights issued during the year Shares issued during the year Share based payments Transaction costs 13 14 13,14 20 13 7,209,342 - 39,922 - 782,800 544,940 (17,516) 16,682 - - 32,594 (150,009) - 445,235 (364,166) - - - - - - (4,417,904) (4,335,566) - - - - - 2,840,714 (4,485,575) 39,922 445,235 418,634 544,940 (17,516) Balance at 30/06/2018 8,559,488 97,751 (117,415) (8,753,470) (213,646) Balance at 01/07/2018 Total comprehensive loss for the year Performance rights issued during the year Shares issued during the year Share based payments Transaction costs 8,559,488 97,751 (117,415) (8,753,470) (213,646) - - (38,975) (2,276,625) (2,315,600) 14 13 20 13 117,035 1,397,136 111,534 (87,823) (117,035) - 111,799 - - - - - - - - - - 1,397,136 223,333 (87,823) Balance at 30/06/2019 10,097,370 92,515 (156,390) (11,030,095) (996,600) The above statement of changes in equity should be read in conjunction with the accompanying notes. 19 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 STATEMENT OF CASH FLOWS For the year ended 30 June 2019 Cash Flows from Operating Activities Receipts from customers Payments to suppliers Interest received Consolidated 2019 US$ 2018 US$ Note 54,469 5,541 (1,910,731) (1,839,497) 2,042 10,757 Net cash flows used in operating activities 15 (1,854,220) (1,823,199) Cash Flows from Investing Activities Payments for plant and equipment (note 10) Cash received as part of acquisition Net cash flows used in investing activities Cash Flows from Financing Activities Issue of new share capital (note 13) Share issue transaction costs Net cash provided by financing activities Net (decrease) / increase in cash and cash equivalents Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 8 (2,086) (35,277) (37,363) - - - 1,744,829 (87,823) 1,657,006 822,722 (17,516) 805,206 (234,577) (1,017,993) (38,975) 323,333 49,781 (148,340) 1,489,666 323,333 The above statement of cash flows should be read in conjunction with the accompanying notes 20 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 1. CORPORATE INFORMATION The financial report of SportsHero Limited and its controlled entities (the “Group” or “consolidated entity”) for the year ended 30 June 2019 was authorised for issue in accordance with a resolution of the Director’s on 27 September 2019. SportsHero Limited (“SportsHero” or the “Company”) is a company limited by shares, incorporated in Australia, and whose securities are publicly traded on the Australia Securities Exchange. The nature of the operations and principal activities of the Group are described in the Director’s Report. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES New or amended Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new or amended 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. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB 9 Financial Instruments The Group has adopted AASB 9 from 1 July 2018. The standard introduced new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading or contingent consideration recognised in a business combination) in other comprehensive income ('OCI'). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available. AASB 15 Revenue from Contracts with Customers The Group has adopted AASB 15 from 1 July 2018. The standard provides a single comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. This is described further in the accounting policies below. Credit risk is presented separately as an expense rather than adjusted against revenue. Contracts with customers are presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Customer acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contract period. 21 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Impact of adoption AASB 9 and AASB 15 were adopted using the modified retrospective approach and as such comparatives have not been restated. There was no impact of adoption. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2019. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The consolidated entity has made an assessment and determined that the impact of this standard will not be material to the financial statements. The following is a summary of the material accounting policies adopted by the Group in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. (a) 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 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. Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial instruments. 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 2(y). 22 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 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 17. The report is presented in US dollars, unless otherwise stated. (b) Going concern These financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activities and the realisation of assets and settlement of liabilities in the normal course of business. As disclosed in the financial statements, the consolidated entity incurred a net loss from continuing operations of US$2,276,625, had net cash outflows from operating activities of US$1,854,220 and a net cash outflow from investing activities of US$37,363 for the year ended 30 June 2019. As at that date, the consolidated entity had net current liabilities of US$1,162,990 and net liabilities of US$996,600. The Directors are of the view that there are reasonable grounds to believe that the consolidated entity will continue as a going concern, after consideration of the following factors: • As disclosed in note 25, AU$428,333 was raised following the issue of 4,283,333 shares on 24 July 2019 and a further AU$2,682,717 (before costs) was raised following the exercise of 53,654,334 options each exercisable at AU$0.05 and expiring 31 August 2019. • The Group may reasonably expect to maintain continued support from shareholders and other financiers that have supported the Group’s previous capital raisings to assist with future funding needs. • The Group has ability to curtail administrative, discretionary expenditure and overhead cash outflows as and when required. Accordingly, the Directors believe that the consolidated entity will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report. (c) Statement of Compliance The financial report complies with Australian Accounting Standards and International Financial Reporting Standards. Principles of Consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of SportsHero Limited as at 30 June 2019 and the results of all subsidiaries for the year then ended. 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. Associates and Joint venture entities are consolidated using the equity method. The initial recognition of the investment in the joint venture has been recognised at cost, with the carrying amount increased or decreased to recognise SportsHero Limited share of the profit or loss of the investee after the date of acquisition. The share of the investee’s profit or loss is recognised in the investor’s profit or loss. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. 23 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. (d) 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 current when: it is expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within twelve 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 twelve months after the reporting period. All other assets are classified as non-current. A liability is current when: it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within twelve months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. (e) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker is responsible for allocating resources and assessing performance of any operating segments. (f) Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: 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 initially recognised as deferred revenue in the form of a separate refund liability. Competition sales Revenue from competitions is recognised at the point in time when the competition prize is drawn. 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 24 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 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. (g) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank and short-term deposits with an original maturity 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. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above. The Group does not have any bank overdraft facilities. (h) Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 90 days. The Group 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. (i) Plant and equipment Plant and equipment is stated at historical cost less depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of these items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation is calculated using the straight-line method to allocate their cost over their estimated useful lives. The expected useful lives are. - Equipment - 3 years The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end. (j) Joint venture Joint ventures are entities over which the consolidated entity has joint control. Investments in joint ventures are accounted for using the equity method. Under the equity method, the share of the profits or losses of the joint venture is recognised in profit or loss and the share of the movements in equity is recognised in other comprehensive income. Investments in joint ventures are carried in the statement of financial position at cost plus post-acquisition changes in the consolidated entity's share of net assets of the joint venture. Dividends received or receivable from joint ventures reduce the carrying amount of the investment. When the consolidated entity's share of losses in an joint venture equals or exceeds its interest in the joint venture, including any unsecured long-term receivables, the consolidated entity does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture. The consolidated entity discontinues the use of the equity method upon the loss of joint control and significant influence over the joint venture and recognises any retained investment at its fair value. Any 25 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS difference between the joint venture's carrying amount, fair value of the retained investment and proceeds from disposal is recognised in profit or loss. (k) Impairment of assets At each reporting date, the consolidated entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income. Where it is not possible to estimate the recoverable amount of an individual asset, the Consolidated Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. (l) 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, it's carrying value is written off. Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the consolidated entity intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition. 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 measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss. 26 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS (m) Trade and other payables Trade payables and other payables are carried at the transaction price minus principal repayments. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. (n) 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. (o) Employee entitlements Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. 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 recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as 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 national government 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 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 an appropriate 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. 27 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 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. (p) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. (q) Income tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at the end of the reporting period. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at the end of the reporting period. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Tax consolidation SportsHero Limited and its wholly-owned subsidiaries have not formed an income tax consolidated group under tax consolidation legislation. 28 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS (r) Equity based payments The Group provides benefits to its Directors and employees in the form of share-based payments, whereby Directors and employees render services in exchange for options to acquire shares or rights over shares (equity-settled transactions). The cost of these equity-settled transactions is measured by reference to the fair value to the Group of the equity instruments at the date at which they were granted. The fair value is determined using the Black-Scholes model, taking into account the terms and conditions upon which the options were granted. The cost of equity-settled transactions is recognised as an expense, together with a corresponding increase in equity, on a straight-line basis, over the period in which the vesting and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant Directors and employees become fully entitled to the options (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to the statement of comprehensive income reflects: a. b. c. the grant date fair value of the options; the current best estimate of the number of options that will ultimately vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of vesting conditions being met, based on best available information at balance date; and the extent to which the vesting period has expired. The charge to the statement of comprehensive income for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. If an equity-settled award is cancelled, it is treated as if it has vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. (s) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (t) Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Group. (u) Earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. 29 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for: - - - costs of servicing equity (other than dividends); the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (v) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: - - where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financial activities, which are recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (w) Foreign currency transactions and balances The financial statements are presented in US dollars, which is SportsHero Limited's functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into US dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into US dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into US dollars using the average exchange rates, which approximate the rate at the date of the transaction, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. (x) Comparative information Where required by accounting standards comparative figures have been adjusted to conform to changes in presentation for the current financial year. (y) Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management take judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually 30 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 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 other various 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. Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience and historical collection rates Share-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. 31 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 3. Revenue Revenue from customers Competition sales Other revenue Interest revenue Other income Consolidated 2019 US$ 2018 US$ 423,242 423,242 2,042 38,507 463,791 - - 11,855 4,986 16,841 For the year ended 30 June 2019 and 30 June 2018, all revenue was recognised at a point in time once the relevant performance obligation was met. Administration expenses 4a. Administration expenses include the following : Advertising and marketing Professional fees Sports subscription services Legal 4b. Commission expense Consolidated 2019 US$ 303,183 497,518 37,872 149,813 243,364 243,364 2018 US$ 408,949 90,918 42,371 118,716 - - Commission was paid in relation to the revenue generated form the LaLiga Hero of the Month competitions in Indonesia (please refer to “Significant changes in state of affairs”). 5. Employee and consulting expenses Salary and wages 6. Loss per share The following reflects the loss used in the basic and diluted loss per share computations. Loss used in calculating earnings per share For basic and diluted earnings per share: Loss for year attributed to continued operations Loss attributed to discontinued operations Loss for the year attributable to ordinary shareholders 32 Consolidated 2019 US$ 844,977 844,977 2018 US$ 477,875 477,875 Consolidated 2019 US$ 2018 US$ 2,276,625 - 2,276,625 3,644,205 691,361 4,335,566 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Weighted average number of shares 2019 No. of shares 2018 No. of shares Weighted average number of ordinary shares for basic and diluted loss per share 245,674,218 235,191,364 Loss per share Basic and diluted loss per share for continued operations (US cents) Basic and diluted loss per share for discontinued operations (US cents) Basic and diluted loss per share (US cents) 0.93 - 0.93 1.55 0.29 1.84 (i) Anti-dilutive options on issue are excluded from the dilutive earnings per share calculation. (ii) Other than the issue of the securities disclosed in note 12, there has been no other transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of these financial statements. 7. Income taxes Consolidated 2019 US$ 2018 US$ Income tax recognised in profit or loss Prima facie tax benefit on operating loss before income tax at 27.5% (2018: 27.5%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Other non-deductible items Unrecognised deferred tax asset attributable to tax losses and temporary differences Income tax attributable to operating loss (626,072) (1,174,798) 61,417 715,698 564,655 - 459,100 - The consolidated entity has US$8,034,788 (2018: US$5,981,498) tax losses arising in Australia that are available indefinitely for offset against future profit of the Group in which the losses arose. The potential deferred tax asset of US$1,209,566 (2018: US$644,911), arising from tax losses and temporary differences (as disclosed above), has not been recognised as an asset because recovery of tax losses and temporary differences is not considered probable given the development stage of the company’s app. The potential deferred tax asset will only be obtained if: • • the Group derives future assessable income of a nature and an amount sufficient to enable the benefit to be realised; the Group continues to comply with the conditions for deductibility imposed by tax legislation; and • no changes in tax legislation adversely affect the Group in realising the benefit from the related deduction for the losses. 33 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 8. Cash and cash equivalents Cash at bank 9. Trade and other receivables Trade receivables Less: allowance for expected credit losses Other receivables Consolidated 2019 US$ 2018 US$ 49,781 49,781 323,333 323,333 Consolidated 2019 US$ 2018 US$ 158,161 (158,161) 44,246 44,246 - - 1,411 1,411 Allowance for expected credit losses The consolidated entity has recognised a loss of US$158,161 (2018: nil) in profit or loss in respect of the expected credit losses for the year ended 30 June 2019. Movements in the allowance for expected credit losses are as follows: Opening balance Additional provisions recognised Closing balance Credit Risk Consolidated 2019 US$ 2018 US$ - 158,161 158,161 - - - The maximum exposure to credit risk at balance date is the carrying amount (net of allowance for expected credit losses) of those assets as disclosed in the statement of financial position and notes to the financial statements. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored, and the aggregate value of transactions concluded are spread amongst approved counterparties. 10. Property, plant and equipment Equipment – at cost Less: Accumulated depreciation Foreign exchange differences Consolidated 2019 US$ 2,086 (575) (4) 1,507 2018 US$ 13,806 (8,799) - 5,007 34 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Consolidated Balance as at 1 July 2018 Additions Disposals Depreciation expense Foreign exchange differences Balance as 30 June 2019 Balance at 1 July 2017 Additions Depreciation expense Balance as 30 June 2018 11. Other assets Equipment US$ 5,007 2,086 (5,007) (575) (4) 1,507 9,609 - (4,602) 5,007 Other assets of US$140,260 is a bond paid to the Northern Territory Racing Commission (NTRC) for the grant by the NTRC of a Sports Bookmakers Licence to Pay-to-Play Australia Pty Ltd. Other assets are classified as non-current assets as the bond will remain for the term of the Licence. As at 30 June 2019 the application for the Sports Bookmakers Licence is being reviewed by the NTRC. 12. Trade and other payables Current Payables Trade payables Receipts for shares not issued at year end Accrued expenses Other payables Consolidated 2019 US$ 497,640 455,144 47,147 257,086 1,257,017 2018 US$ 137,806 - 165,836 251,178 554,820 (i) Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value. (ii) Trade payables are non-interest bearing. 35 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 13. Contributed Equity (a) Share capital 2019 Number 2019 US$ 2018 Number 2018 US$ Ordinary fully paid shares 270,269,397 10,097,370 249,370,229 8,559,488 (b) Movements in ordinary shares Opening balance Shares issued at US$0.063 per share ₁ Shares issued at US$0.039 per share ₂ Shares issued at US$0.039 per share ₂ Shares issued at US$0.038 per share ₂ Transaction cost on share issue Shares issued at US$0.031 per share ₂ Shares issued at US$0.052 per share ₃ Shares issued at US$0.041 per share ₂ Shares issued at US$0.051 per share ₃ Shares issued at US$0.036 per share ₂ Shares issued at US$0.081 per share ₄ Shares issued at US$0.142 per share ₆ Shares issued at US$0.078 per share ₄ Shares issued at US$0.071 per share ₅ Shares issued at US$0.035 per share ₂ Shares issued at US$0.061 per share ₇ Transaction cost on share issue (ii) (iv) (vi) (viii) (ii) (i) (iii) (v) (vii) (vii) (ix) (x) (xi) (xii) (xiii) (xiv) (xii) 249,370,229 - - - - - - - - - - 1,000,000 3,582,500 1,500,000 10,808,334 3,508,334 500,000 - 8,559,488 222,841,657 7,209,342 782,800 12,500,000 8,446 214,286 27,146 700,000 4,330 114,286 (17,516) - 108,010 3,500,000 232,491 4,500,000 82,204 2,000,000 51,190 1,000,000 71,045 2,000,000 - - - - - - - - - - - - - - - - - - - - - - - - 81,224 508,213 117,035 764,797 124,125 30,311 (87,823) 270,269,397 10,097,370 249,370,229 8,559,488 ₁ Issue price AU$0.08 translated to US$ at grant date ₅ Issue price AU$0.10 translated to US$ at grant date ₂ Issue price AU$0.05 translated to US$ at grant date ₆ Issue price AU$0.20 translated to US$ at grant date ₃ Issue price AU$$0.07 translated to US$ at grant date ₇ Issue price AU$0.085 translated to US$ at grant date ₄ Issue price AU$0.11 translated to US$ at grant date (i) On 2 November 2017, 3,500,000 shares were issued to Mr Randhawa following the conversion of 3,500,000 performance rights. (ii) On 10 January 2018, the Group issued 12,500,000 shares to IPV Capital at an issue price of AU$0.08 per share (iii) On 10 January 2018 the Group issued the following shares; • 1,500,000 shares to Mr Flintoft (500,000 shares in consideration for the engagement of Mr Flintoft and 1,000,000 shares following the conversion of 1,000,000 performance rights), and 3,000,000 shares in consideration for the engagement of Mr Tony Wee. • (iv) On 7 February 2018, the Group issued 214,286 shares following the exercise of 214,286 options each exercisable at AU$0.05 and expiring 31 August 2019. (v) On 7 February 2018, 2,000,000 shares were issued to Mr Tony Wee following the conversion of 2,000,000 performance rights. (vi) On 2 March 2018, the Group issued 700,000 shares following the exercise of 700,000 options each exercisable at AU$0.05 and expiring 31 August 2019. (vii) On 2 March 2018, the Group issued the following shares • • 1,000,000 shares to Mr Chris Flintoft following the conversion of performance rights, and 2,000,000 shares to Mr Tony Wee following the conversion of 2,000,000 performance rights. (viii) On 28 May 2018, the Group issued 114,286 shares following the exercise of 114,286 options each exercisable at AU$0.05 and expiring 31 August 2019. (ix) On 12 July 2018, the Group issued 1,000,000 ordinary shares and 1,500,000 performance rights in consideration for the engagement of Mr Flintoft as the Group’s Chief Digital Officer. 36 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS (x) On 3 October 2018, the Group issued 3,582,500 ordinary shares at an issue price of AU$0.20 per share. (xi) On 3 October 2018, 1,500,000 shares were issued to Mr Flintoft following the conversion of 1,500,000 performance rights. (xii) On 8 February 2019, the Group issued 10,808,334 ordinary shares at an issue price of AU$0.10 per share. (xiii) On 8 February 2019, the Group issued 3,508,334 shares following the exercise of 3,508,334 options each exercisable at AU$0.05 and expiring 31 August 2019. (xiv) On 27 February 2019, the Group issued the following shares; • 250,000 shares to Mr Giteau in consideration for being appointed as a SportsHero Rugby Ambassador, and • 250,000 shares to Mr Mitchell in consideration for being appointed as a SportsHero Rugby Ambassador Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Group in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Group does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Capital risk management When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. In order to maintain or adjust the capital structure, the entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, enter into joint ventures or sell assets. The entity does not have a defined share buy-back plan. No dividends were paid in 2019 (2018: nil) and no dividends are expected to be paid in 2020. There is no current intention to incur debt funding on behalf of the Group The Group is not subject to any externally imposed capital requirements. 14. Reserves Reserves Share-based payments reserve As at 1 July 2018 Share based payments Conversion of rights As at 30 June 2019 Foreign currency reserve As at 1 July 2018 Foreign currency translation As at 30 June 2019 Nature and purpose of reserves Share-based payment reserve Consolidated 2019 US$ 2018 US$ 97,751 111,799 (117,035) 92,515 16,682 445,235 (364,166) 97,751 (117,415) (38,975) (156,390) 32,594 (150,009) (117,415) The share-based payments reserve records the value of share options and performance rights issued by the Group. 37 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Foreign currency reserve The reserve is used to recognise exchange differences arising from translation of the financial statements of international operations to US dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. 15. Notes to Statement of Cash Flows (a) Reconciliation of net cash used in operating activities to operating loss after income tax Operating loss after tax (2,276,625) (4,335,566) Consolidated 2019 US$ 2018 US$ Add non-cash items: Depreciation and amortisation Loss on Disposal of property plant and equipment Share-based payments expense Impairment expense Impairment of intangible assets Changes in net assets and liabilities: Movement in receivables Movement in payables Share of loss on joint venture Net cash flow used in operating activities (b) Non-cash financing and investing activities Shares issued for provision of services 16. Discontinued Operations 575 5,007 223,333 158,161 - 504,602 - 624,340 - 1,063,889 (329,828) 354,503 10,654 (1,854,220) (476) 320,012 - (1,823,199) Consolidated 2019 US$ 228,570 228,570 2018 US$ - - On 29 June 2018, the consolidated Group terminated all employees of Sportshero Information Technology (Shanghai) Co Limited and ceased operations. The subsidiary was reported as discontinued operations in the financial statements for the year ending 30 June 2018. Financial information relating to the discontinued operations for the period to the date of disposal is set out below. (a) Financial performance for the disposal entity The financial performance information is presented for the 12 months ended 30 June 2019 and the year ended 30 June 2018. 38 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Income Other revenue Expenses Administration expenses Employee and consulting expenses Loss before income tax expense Income tax expense Loss after tax expense for discontinuing operations Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Total comprehensive loss for the year (b) Carrying values of Assets and Liabilities in the disposal entity Cash and cash equivalents Other receivables Total Assets Net Assets 2019 US$ - - - - - - - - 2019 US$ - - - - 2018 US$ - (165,246) (526,115) (691,361) - (691,361) - (691,361) 2018 US$ 65 11,358 11,423 11,423 For the year ending 2018 liabilities of US$324,338 relating to discontinued operations were to be absorbed by the parent entity and have not been included in the discontinued operations note. 17. Parent Information ASSETS Current assets Non-current assets TOTAL ASSETS LIABILITIES Current liabilities TOTAL LIABILITIES Parent 2019 US$ 2018 US$ 59,700 247,266 164,883 224,583 - 247,266 1,221,183 460,912 1,221,183 460,912 NET (LIABILITIES)/ASSETS (996,600) (213,646) 39 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS EQUITY Contributed equity Reserves Accumulated losses TOTAL EQUITY Loss for the year Total comprehensive loss 7,597,370 6,059,488 (19,645) (24,437) (8,569,533) (996,600) (6,253,489) (213,646) (2,316,044) (3,607,744) (2,316,044) (3,607,744) Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2019 (2018: US$91,461). Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment at as 30 June 2019 and 30 June 2018. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 2. 18. Details of Associates and Joint Venture entities Name of associate / joint venture Pay-to-Play Australia Pty Ltd Group's aggregate share of associates and joint venture entities' profit /(loss) (where material) Profit/(loss) from ordinary activities before income tax Income tax on operating activities Reporting entity's percentage holding 2019 % 2018 % 50% - Contribution to profit/(loss) (where material) 2018 2019 US$ US$ - (10,654) (10,654) - - - The above joint venture is accounted for using the equity method in the consolidated financial statements. 19. Related Party Transactions (a) Directors and Specified Executives The names and positions held by key management personnel in office at any time during the year are: M Higginson T Lapping W Johnson C Green Non-Executive Director and Chair Director and CEO Non-Executive Director Non-Executive Director All of the above persons were key management personnel during the year ended 30 June 2019. 40 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS (b) Key management personnel remuneration Short-term employee benefits Share based payments (c) Payables to key management personnel Amounts payable to Directors and Director related entities at the end of the financial year, included in current liabilities (d) Other transactions with key management personnel Consolidated 2019 US$ 245,051 - 245,051 2018 US$ 176,099 - 176,099 35,049 4,818 During the year the Group paid rent of US$4,293 (2018: US$4,264) to Mr Higginson for the provision of the Group’s registered and principal office. There were no other sale or purchase related transactions between the Group and key management personnel during the year ended 30 June 2019 (2018: nil). (e) Other transactions with related parties During the year the Group reimbursed Noblemen Ventures Pty Ltd (an entity controlled by Mr Johnson) for costs of US$21,466 (2018: Nil). There were no other transactions with related parties throughout the year. (f) Other Entities There were no other transaction with other entities. 20. Share based payments Recognised share-based payment expenses Consolidated 2019 US$ 2018 US$ Shares issued for services rendered Performance rights vesting over period – issued in current year 111,534 117,035 179,105 - Performance options vesting over period – issued in prior year - 35,272 Forfeiture of performance options issued in prior year Forfeiture of performance rights issued in prior year Performance rights vesting over a period – issued in prior year (42,586) (24,429) 61,779 223,333 - - 409,963 624,340 41 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Employee share option plan The Group has established an Employee Share Option Plan that allows for share options to be granted to eligible employees and officers of the Group. The number of share options that can be issued under the plan cannot exceed 5% of the total number of shares on issue. The terms and conditions of the share option issued under the plan are at the discretion of the Board, however, the maximum term of the share option is five years. (a) Performance rights The performance rights were granted during the year at no consideration, do not have an exercise price and will lapse if the vesting conditions are not met. Details of the performance rights issue and their vesting conditions are set out below: 2019 i) 1,500,000 shares will be issued to Chief Digital Officer, Chris Flintoft for the re-design of the software and upgrade of application to include new sports, such as cycling, AFL and rugby – vested on 30 September 2018, 2018 ii) 1,000,000 shares will be issued to the consultant (Mr Chris Flintoft) for the development of a implementation plan and strategy for Version 3 SportsHero app which delivers an even better user experience than improved Version 2.4 of the app – vested before 31 December 2017; iii) 1,000,000 shares will be issued to the consultant (Mr Chris Flintoft) for the delivery on or before 7/2/18 of an implementation plan and strategy for the introduction of a SportsHero cryptocurrency/coin – vested on 10 January 2018; iv) 1,500,000 shares will be issued based on the consultant (Mr Chris Flintoft) for the successful release to the market on or before 31.5.18 of Version 3 of the SportsHero app that delivers as per milestone 1 and 2 above – lapsed before 30 June 2018. v) 2,000,000 shares will be issued to Mr Tony Wee based on the market capitalisation of the Group increasing to $30,000,000. vi) 2,000,000 shares will be issued to Mr Tony Wee based on the market capitalisation of the Group increasing to $40,000,000. vii) 2,000,000 shares will be issued to Mr Tony Wee based on the market capitalisation of the Group increasing to $50,000,000. viii) 2,000,000 shares will be issued to Mr Tony Wee based on the market capitalisation of the Group increasing to $60,000,000. Set out below are performance rights issued in current financial year Grant Date 12/07/18 Expiry Date 30/09/18 Share price at grant date *** 0.011 Rights issued 1,500,000 FV at grant date (US$) 117,035 Probability 100% i Following performance rights were issued in prior year Grant Date 8/12/17 8/12/17 8/12/17 8/12/17 8/12/17 8/12/17 8/12/17 Expiry Date 31/12/17 7/2/18 31/5/18 8/12/19 8/12/19 8/12/19 8/12/19 Share price at grant date *** 0.05 0.05 0.05 0.05 0.05 0.05 0.05 Rights issued 1,000,000 1,000,000 1,500,000 2,000,000 2,000,000 2,000,000 2,000,000 FV at grant date (US$) 51,173 51,173 76,759 80,853 71,022 62,803 56,135 Probability 100% 100% - N/A N/A N/A N/A ii iii iv * v ** vi ** vii** viii** * Performance condition was not met and such the rights were forfeited. ** Rights are market-based condition and therefore no probability was assigned. On 7 February 2018, 2,000,000 shares were issued upon reaching the condition. The full expense was recognised in this period. *** Share price has been converted to US$ at grant date. 42 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS (b) Performance options The following performance options were issued in financial year 2018 for no consideration and will lapse if the vesting conditions are not met. In current financial year these options were forfeited as the vesting conditions were not met. i) 1,000,000 options to be granted exercisable at AU$0.20 expiring on 1 February 2021 subject to 1,000,000 cycling users within 36 months. The following performance options were granted but not issued in financial year 2018. In current financial year these options were forfeited as the vesting conditions were not met. Details of the option issues and their vesting conditions are set out below: i) ii) 1,000,000 options to be granted exercisable at AU$0.30 expiring on February 2022 subject to 2,000,000 users and US$4m revenue generated within 24 months; and 1,000,000 options to be granted exercisable at AU$0.30 expiring on February 2023 subject to 4,000,000 users and US$6m revenue generated within 36 months. The following options were issued in the previous financial year: Grant date Type Dividend yield (%) Expected price volatility Risk-free interest rate (%) Expected life of options (years) Option exercise price (AU$) Option exercise price in AU$ translated to US$ at grant date Share price at grant date AU$ Share price in AU$ translated to US$ at grant date Number of options issued Probability FV at grant date (AU$) FV at grant date (US$) 1/2/18 Consultant Tranche 1 - 100% 1.94% 3 0.20 0.16 0.19 0.15 1,000,000 65% 75,963 58,897 The following options were granted but not issued in the previous financial year: Grant date Type Dividend yield (%) Expected price volatility Risk-free interest rate (%) Expected life of options (years) Option exercise price (AU$) Option exercise price in AU$ translated to US$ at grant date Share price at grant date AU$ Share price in AU$ translated to US$ at grant date0 Number of options issued Probability FV at grant date (AU$) FV at grant date (US$) 28/2/18 Consultant Tranche 2 - 100% 2.11% 3 0.30 0.23 0.18 0.14 1,000,000 40% 94,415 73,204 28/2/18 Consultant Tranche 3 - 100% 2.25% 4 0.30 0.23 0.18 0.14 1,000,000 70% 110,360 85,567 28/2/18 Consultant Tranche 4 - 100% 2.38% 5 0.30 0.23 0.18 0.14 1,000,000 70% 122,819 95,227 43 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 2019 2018 Weighted Average Exercise Price US$ 0.035 Number of Options 71,971,428 - - (3,508,334) 68,463,094 - - - - At beginning of reporting year Granted during the year - Lapsed - Early exercise of options expiring on 31 August 2019 Subtotal - Lapsed - Lapsed - Lapsed - Exercised Balance the end of reporting year Exercisable at end of reporting year 68,463,094 68,463,094 Weighted Average Exercise Price US$ 0.16 0.79 0.96 0.77 0.038 Number of Options 76,757,940 1,000,000 - - 77,757,940 (30,000) (30,000) (4,697,940) (1,028,572) 71,971,428 71,971,428 Not included in the total number of options are 3,000,000 performance options granted on 28 February 2018. These options have not been issued and have been forfeited in current financial year as the vesting conditions as stated in Note 20(b) have not been met. The following table sets out the movements in the number of options throughout the year: Grant date Expiry date Balance at start of year Number issued during year Number exercised during year Number expired during year Balance at end of year Number exercisable at end of year 7 Feb 17 31 Aug 19 70,971,428 1,000,000 1 Feb 18 1 Feb 22 71,971,428 Total - - - (3,508,334) - (3,508,334) - 67,763,094 - 1,000,000 - 68,763,094 67,763,094 1,000,000 68,763,094 21. Auditors’ Remuneration Audit of the financial statements - RSM Australia Partners Audit or review of financial reports Audit services - Network firms Audit or review of the financial statements - Ruihua Certified Public Accountants Audit or review of the financial statements - RSM Chio Lim LLP Consolidated 2019 US$ 2018 US$ 32,558 32,558 34,890 34,890 - 15,383 - 47,941 10,000 9,500 19,500 54,390 44 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 22. Commitments There were no outstanding commitments which are not disclosed in the financial statements as at 30 June 2019 other than: Office rental commitments Within 1 year After 1 year but not more than 5 years Consolidated 2019 US$ 73,660 25,843 99,503 2018 US$ - - - 23. Financial Risk Management Objectives and Policies The Group’s principal financial instruments comprise cash and short-term deposits. The main purpose of these financial instruments is to finance the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. It is, and has been throughout the entire year under review, the Group’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are cash flow interest rate risk and equity price risk. Other minor risks are either summarised below or disclosed at note 9 in the case of credit risk and note 13 in the case of capital risk management. The Board reviews and agrees policies for managing each of these risks. Cash Flow Interest Rate Risk The Group’s exposure to the risks of changes in market interest rates relates primarily to the Group’s short-term deposits with a floating interest rate. These financial assets with variable rates expose the Group to cash flow interest rate risk. All other financial assets and liabilities in the form of receivables and payables are non-interest bearing. The Group does not engage in any hedging or derivative transactions to manage interest rate risk. The following tables set out the carrying amount by maturity of the Group’s exposure to interest rate risk and the effective weighted average interest rate for each class of these financial instruments. The Group has not entered into any hedging activities to cover interest rate risk. In regard to its interest rate risk, the Group does not have a formal policy in place to mitigate such risks. 45 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Floating Interest Rate 1 year or less US$ Over 1- 5 years US$ Non- interest bearing US$ Total US$ 0% 0% - - - - - - - - - - - - - - - - - - - - - - 323,333 323,333 1,411 324,744 1,411 324,744 65 65 11,358 11,358 11,423 11,423 554,820 554,820 554,820 554,820 (230,076) (230,076) 11,423 11,423 (218,653) (218,653) Floating Interest Rate 1 year or less US$ Over 1- 5 years US$ Non- interest bearing US$ Total US$ Consolidated 2018 Note 8 9 16 16 12 Financial assets Continuing operations Cash and cash equivalents Trade and other receivables Total financial assets for continuing operations Discontinuing operations Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Continuing operations Trade and other payables Total financial liabilities Net financial liabilities from continuing operations Net financial assets from discontinuing operations Net financial assets Consolidated 2019 Note Financial assets Continuing operations Cash and cash equivalents Trade and other receivables 8 9 0% Total financial assets Financial liabilities Trade and other payables 12 Total financial liabilities Net financial assets 46 - - - - - - - - - - 49,781 49,781 44,246 44,246 94,027 94,027 1,257,017 1,257,017 1,257,017 (1,162,990) 1,257,017 (1,162,990) SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Interest rate sensitivity At 30 June 2019, if interest rates had changed by 15% during the entire year with all other variables held constant, income for the year and equity would have been nil lower/higher (30 June 2018: Nil), as a result of lower/higher interest income from cash and cash equivalents. A sensitivity of 15% (15%: 2018) has been selected as this is considered reasonable given the current level of both short term and long term Australian interest rates. A 15% sensitivity would move short term interest rates at 30 June 2019 from around 1.50% to1.75% representing a 25 basis point decrease. Market expectations are that interest rates in Australia are more likely to move down than down in subsequent periods. Based on the sensitivity analysis only interest revenue from variable rate deposits and cash balances are impacted resulting in a decrease or increase in overall income. Liquidity risk The Group manages liquidity risk by maintaining sufficient cash reserves and marketable securities, and through the continuous monitoring of budgeted and actual cash flows. Contracted maturities of payables at 30 June Payable - less than 6 months Foreign exchange risk Consolidated 2019 US$ 2018 US$ Note 12 544,787 303,642 The Group has cash and cash equivalents denominated in AU$ of US$22,299 (2018: US$284,189). At 30 June 2019, if USD/AUD rates had changed by 15% with all other variables held constant, loss for the year and equity would have been US$3,345 lower/higher (30 June 2018: US$42,628), as a result of with change in fair value of cash and cash equivalents. A sensitivity of 15% (15%: 2018) has been selected as this is considered reasonable given the current level of volatility in the USD/AUD rate. Net fair values For financial assets and liabilities, the net fair value approximates their carrying value. No financial assets and financial liabilities are readily traded on organised markets in standardised form, other than listed investments. The consolidated entity has no financial assets where carrying amount exceeds net fair values at balance date. 24. Segment Information For management purposes the Group is organised into two strategic units: - corporate head office in Australia - technology development and marketing based in Singapore Such structural organisation is determined by the nature of risks and returns associated with each business segment and define the management structure as well as the internal reporting system. It represents the basis on which the Group reports its primary segment information to the Board. The operating segment analysis presented in these financial statements reflects operations analysis by business. It best describes the way the Group is managed and provides a meaningful insight into the business activities of the Group. 47 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS The following table presents details of revenue and operating loss by business segment as well as reconciliation between the information disclosed for reportable segments and the aggregated information in the financial statements. The information disclosed in the table below is derived directly from the internal financial reporting system used by the Board of Directors to monitor and evaluate the performance of our operating segments separately. Consolidated - 2019 Revenue Intersegment sales Income Total segment income Intersegment eliminations Total revenue EBITDA Profit before income tax expense Income tax expense Loss after income tax expense Material items include: Share based payments Depreciation Impairment Assets Segment assets Total assets Liabilities Segment liabilities Intersegment eliminations Total liabilities Consolidated - 2018 Revenue Intersegment sales Other revenue Total segment revenue Intersegment eliminations Total revenue EBITDA Profit before income tax expense Income tax expense Loss after income tax expense Material items include: Share based payments Impairment Amortisation Assets Segment assets Total assets Australia US$ Singapore China US$ US$ Total US$ - 463,168 463,168 - 463,168 - 623 623 - 623 (1,845,380) (1,845,380) - (1,845,380) (430,670) (431,245) - (431,245) 223,333 - 158,161 - 557 - 224,583 224,583 35,834 35,834 - - - - - - - - - - - - - - 463,791 463,791 - 463,791 (2,276,050) (2,276,625) - (2,276,625) 223,333 557 158,161 260,417 260,417 1,093,044 - 1,093,044 2,196,522 (2,032,549) 163,973 - - - 3,289,566 (2,032,549) 1,257,017 Australia US$ Singapore China US$ US$ Total US$ - 10,757 10,757 - 10,757 - 6,084 6,084 - 6,084 - - - - - - 16,841 16,841 16,841 (1,560,684) (1,578,919) (691,361) (1,560,684) (2,083,521) (691,361) - (1,560,684) (2,083,521) (691,361) - - (3,830,964) (4,335,566) - (4,335,566) 624,340 - - 1,063,889 - 504,602 - - - 624,340 1,063,889 504,602 284,189 284,189 45,562 45,562 11,423 11,423 341,174 341,174 48 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS Liabilities Segment liabilities Intersegment eliminations Total liabilities 25. Subsequent Events 80,140 - 80,140 1,820,888 1,040,470 (716,131) 324,339 (1,670,547) 150,341 2,941,498 (2,386,678) 554,820 On 1 July 2019, the Group announced a licensing agreement with Linius Technologies Limited whereby SportsHero secured the rights to use the Linius video customisation technology. For further information, please refer to the Operations Report. On 24 July 2019, the Group issued 4,283,333 shares at an issue price of AU$0.10 per share raising AU$428,333 in working capital. In addition, the Group raised a further AU$2,682,717 (before costs) following the exercise of 53,654,334 options each exercisable at AU$0.05 and expiring 31 August 2019. On 1 August 2019, the Group announced an extension of the partnership with PSSI for a term of 3 years, plus the right to further extend for 2 further periods of 3 years (ie a total of 9 years). On 21 August 2019, the Group announced that full exclusivity for Indonesia’s FIFA World Cup qualifying match ticket sales, merchandise and other exclusive World Cup content had been secured for the Kita Garuda mobile application. On 12 September 2019, the Group completed the raising of AU$1,862,500 (before costs) pursuant to the issue of 37,250,000 shares following the exercise of 37,250,000 options each exercisable at AU$0.05 and expiring 31 August 2019, and issued 20,000,000 options each exercisable at AU$0.10 and expiring 30 September 2021. 26. Contingent Liabilities and Contingent Assets The Group does not have any contingent liabilities as at 30 June 2019. For the prior financial year, the Group had following contingent liability: During the period leading up to the 15 February 2017 ASX listing of SportsHero Limited, TradeHero Limited incurred operational cost expenditure for and on behalf of SportsHero Limited. After considerable negotiation and subject to SportsHero completing a further capital raising, SportsHero Limited agreed to reimburse TradeHero an amount of US$91,461. This contingent liability was settled on 16 April 2019. The Group does not have any contingent assets as at 30 June 2019 (2018: Nil). 27. Investment in Controlled Entities The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned subsidiaries in accordance with the accounting policy described in note 1: Parent entity SportsHero Limited Name of Controlled Entity Sportz Hero Pty Limited SportsHero Enterprise Pte Ltd Country of Incorporation Principal Activities Ownership % Australia Parent Australia Singapore Investment holding Technology development & marketing 100% 100% 49 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 NOTES TO THE FINANCIAL STATEMENTS 28. Company Details The registered office and principal place of business of the Group is: 29 Brookside Place Lota, QLD 4179 50 SPORTSHERO LIMITED ANNUAL REPORT 30 JUNE 2019 DIRECTORS’ DECLARATION In accordance with a resolution of the Directors of SportsHero Limited, I state that: In the opinion of the Directors: (a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2019 and of its performance for the year ended on that date; and (ii) complying with the Australian Accounting Standards (including the Australian Accounting Interpretations) and Corporations Regulations 2001; and (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2; and (c) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2019. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Board Michael Higginson Chairman Dated this 27th day of September 2019 51 RSM Australia Partners Level 32, Exchange Tower 2 The Esplanade Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 (0) 8 9261 9100 F +61 (0) 8 9261 9111 www.rsm.com.au www.rsm.com.au INDEPENDENT AUDITOR’S REPORT To the Members of SportsHero limited Opinion We have audited the financial report of SportsHero Ltd (Company) and its subsidiaries (Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group's financial position as at 30 June 2019 and of its financial performance for the year then ended; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report. Key audit matter Going Concern As disclosed in the financial statements, the Group incurred a net loss of US$2,276,625 and had net cash outflows from operating activities and investing activities of US$1,854,220 and $37,363 respectively for the year ended 30 June 2019. As at that date, the Group had net current liabilities and net liabilities of US$1,162,990 and US$996,600 respectively. The Directors believe that it is reasonably foreseeable that the Group will continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report. The Directors’ assessment of the Group’s ability to continue as a going concern is based on the factors disclosed in Note 2(b) to the financial statements. We determined this assessment of going concern to be a key audit matter as it relies on the continued support of shareholders to generate sufficient cashflows to cover necessary expenditure. Other information How our audit addressed this matter Our audit procedures included:  Assessing the and mathematical accuracy of the cash flow budget prepared by management; appropriateness  Challenging the reasonableness of key assumptions used, including the likelihood of future capital raisings;  Considering potential downside scenarios and the resultant impact on available funds;  Critically assessing the directors’ reasons of why they believe it is appropriate to prepare the financial report on a going concern basis; and  Assessing the adequacy of the going concern disclosures in the financial report. 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 2019 but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included within the directors' report for the year ended 30 June 2019. In our opinion, the Remuneration Report of SportsHero Limited, for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. David Wall Partner RSM Australia Partners Perth, Western Australia 27 September 2019 SPORTHERO LIMITED ANNUAL REPORT 30 JUNE 2019 SHAREHOLDER INFORMATION Additional information required by Australian Securities Exchange Limited and not shown elsewhere in this Annual Report is as follows. The information is made up to 9 September 2019. Distribution schedules of security holders Fully Paid Shares 149 274 169 358 200 1 -1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Number of Holders 1,150 Holders of nonmarketable parcels AU$ 0.20 Options Expiring 1/02/21 - - - - 1 1 There are 510 fully paid ordinary shareholders who hold less than a marketable parcel of shares. Twenty largest shareholders The names of the twenty largest shareholders are: Number of shares 60,000,000 16,650,000 12,500,000 11,535,762 8,357,143 6,798,671 6,405,511 5,757,143 5,396,156 5,142,156 5,076,099 5,018,310 5,000,000 4,400,000 4,242,857 4,000,000 4,000,000 4,000,000 3,885,510 3,425,000 181,591,019 % Held 20.62% 5.72% 4.30% 3.96% 2.87% 2.34% 2.20% 1.98% 1.85% 1.77% 1.74% 1.72% 1.72% 1.51% 1.46% 1.37% 1.37% 1.37% 1.34% 1.18% 62.41% 1 MyHero Limited 2 IPV Capital II HK Limited 3 Sunshore Holdings Pty Ltd 4 BNP Paribas Nominees Pty Ltd 5 TNL Lapping 6 Allgreen Holdings Pty Ltd 7 J & TW Dekker Pty Ltd 8 CJF Low 9 JP Morgan Nominees Australia Ltd 10 Timriki Pty Ltd 11 CJF Low 12 JG Lim 13 Kortana Pty Ltd 14 CJF Low 15 AS & NF Paul 16 One Managed Investment Funds Limited 17 One Managed Investment Funds Limited 18 L Kulisev 19 A Mehra 20 KM Lapping 55 SPORTHERO LIMITED ANNUAL REPORT 30 JUNE 2019 SHAREHOLDER INFORMATION Restricted securities The Group has no Restricted Securities on issue. Unquoted equity securities Options to acquire fully paid shares at A$0.20 per share and expiring 1 February 2021 Performance rights to acquire fully paid shares 1,000,000 6,000,000 1 2 Number on issue Number of holders Substantial shareholders MyHero Limited – as per Form 603 lodged with ASX on 10 Feb 2017 60,000,000 23.96% IPV Capital II HK Limited – as per Form 603 lodged with ASX on 26 July 2019 16,650,000 5.72% No. of Shares Held % of Shares Held On-market buy-back There is no current on-market buy-back. Acquisition of voting shares No issues of securities have been approved for the purposes of Item 7 of section 611 of the Corporations Act 2001. Voting Rights Ordinary fully paid shares – on a show of hands, every member present in person or by proxy shall have one vote and upon a poll, each member shall have one vote per share. Tax status The Group is treated as a public company for taxation purposes. Franking credits The Group has nil franking credits. 56 

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