TZ Limited
Annual Report 2017

Plain-text annual report

2017 annual report > Cisco Day Lockers Australia "We are a technology company, one focused on an emerging market for real-time security, monitoring and reporting." contents 02 06 15 chairman's letter review of operations financial statements TZ LIMITED / 2017 ANNUAL REPORT / CONTENTS chairman's letter "We have built off existing and solid IP foundations to develop a range of new generation smart devices." 02 TZ LIMITED / 2017 ANNUAL REPORT / CHAIRMAN'S LETTER Dear Shareholders, The share price is disappointingly low and to the market, the Company continues to fall short of its promises. While the numbers cannot be ignored and there is no question that the road to recovery has taken significantly longer and required more investment than originally expected, I submit that the building blocks for the Company are stronger today than they ever have been and the potential for sustained profitable growth is well within our reach. It’s easy to look at the current share price and question the fundamentals of the business. What I see however, is a completely different picture. We are a technology company, one focused on an emerging market for real-time security, monitoring and reporting. A market where security is front of mind and the desire for transactional granular data is recognised as the key to unlock new services and offerings. We are a Company at the forefront of its specific field of technology, in a sweeping new world called the “internet of things”. With over 180 patent applications in this area and next generation devices and electronics in the commercialisation pipeline, the world of untapped applications across healthcare, residential and industrial is not only on our radar but within our reach. The first of what we hope to be many new applications are about to become real business and licensing opportunities with early adopter customers. While many will look at this Company as being a Locker supplier, this is a credit to our success in being able to build a Locker business from scratch and in six years becoming one the world’s recognised players with offerings to the corporate, residential, educational, retail and postal sectors. We can point to the extensive retained base of customers who continue to purchase our products and extend our offerings as an integral part of their facility planning, to demonstrate that we are clearly a leader in this field. I am proud of what we have been able to achieve with our IXP and PAD businesses and I remain extremely confident that the relationships that we have established with partners like Ricoh in the US and Europe will continue to underpin and fuel growth in our high value sectors. Now couple this with anticipated manufacturing cost and system cost reductions this coming year, and the established IXP and PAD businesses are primed for continued growth and delivery of strong returns for the Company. Our Locker success has however, over shadowed what this business is really about which is ultimately revolutionising the security and manufacturing world with ubiquitous locking and fastening devices so smart that they can change the way things are used, serviced and maintained. This year, our development work has culminated in the launch of our new SMArtBus infrastructure and new platform SMArtLink and SMArtGateway electronics. We have built off existing and solid IP foundations to develop a range of new generation smart devices with improved form factor, reduced power use and increased intelligence. Our work on wireless, battery operated, Bluetooth and Smartphone connectivity will also help to drive engagement into new sectors. I have always maintained that we must continually seek to expand our technology and application reach and am pleased to see the team proactively engaging with new prospective customers and promoting our technology at IOT events across the world. These new opportunities will leverage the successful commercial platforms we have already built and will ultimately deliver long term value to shareholders. As has been announced in some of the ASX releases I have now restructured the board, cutting significant amount of costs out of the company’s overheads, and have handed over future management of the company to John Wilson as the new Managing Director and his team. It has been a significant part of my life steering this company from its very difficult position in 2009 as virtually a start up to a company today with industrialised technology and multi-national customers. I feel confident it’s time for this company to be run by the competencies of John and his team. I welcome onboard Graham Lenzner, a non-executive with significant commercial and financial experience which will further support the key managers in the TZ business going forward. To our shareholders who continue to believe … thank you. To my fellow Board members, management and employees, thank you again for your continued drive forwards. Mark Bouris TZ LIMITED / 2017 ANNUAL REPORT / CHAIRMAN'S LETTER 03 04 TZ LIMITED / 2017 ANNUAL REPORT > Urbanest Parcel Lockers Australia TZ LIMITED / 2017 ANNUAL REPORT 05 review of operations > IOT Asia 2017 Singapore "Average margins recorded in Q3 and Q4 were over 60%." 06 TZ LIMITED / 2017 ANNUAL REPORT / REVIEW OF OPERATIONS Kenneth Ting Executive Director and Company Secretary Mark Bouris Chairman and Executive Director Paul Casey Non-Executive Director Performance Overview For the year ended 30 June 2017, the Company achieved top line revenue of $21.8 million. This is a marginal improvement of 4.5% compared to FY2016 however, the business achieved an overall improvement of 44% in EBITDA to a loss of $2.95m. Top line revenue fell short of internal revenue targets mainly due to a slow third quarter performance. The fourth quarter is normally the Company’s strongest quarter however, due to the slippage in projects in Q3 FY2017 and manufacturing lead-times, several projects have been delayed to the first and second quarter of FY2018. Gross Margins improved from the low of 30% in FY2016 to a 46% average over the year. While this does reflect an expected shift in the sales mix from larger low margin Postal sales towards a higher percentage of early stage, smaller value, higher margin Corporate Mail and Corporate Day Locker sales, margin improvement was also supported by an underlying market trend where customers are starting to seek more sophisticated fit-for-purpose technology and software offerings, a clear indicator of Smart Locker market maturity. Average margins recorded in Q3 and Q4 were over 60%, demonstrating that the manufacturing cost saving initiatives that the Company implemented two years ago are delivering the benefits of that investment. Operating expenses were up 7% overall with employee costs contributing to the bulk of the increase. Anticipated growth in the business internationally has justified the appointment of Senior Managers in each geographical region that the Company operates in which will lay the foundation for greater accountability and performance management across the business moving forward. This should also reduce travel and accommodation costs in the medium term. Operational efficiency gains implemented in June 2017 to rationalise end-of-lease office rental space and operating expenses such as travel and accommodation costs should deliver cost reductions in the new fiscal year. Bottom line performance has improved and continues to head in the right direction towards achieving positive EBITDA in 2018 with a FY2017 EBITDA loss of $2.95M versus a loss of $5.28M last year. The overall net loss for the year was $6.5M which was a marginal improvement on FY2016 although this figure includes non-cash expense for impairment of intangibles of $1.3M. TZ LIMITED / 2017 ANNUAL REPORT / REVIEW OF OPERATIONS 07 > TZ SwingHandle™ 08 TZ LIMITED / 2017 ANNUAL REPORT / REVIEW OF OPERATIONS 08 TZ LIMITED / 2017 ANNUAL REPORT "Recent activity demonstrates that many of these infrastructure projects should progress to completion this fiscal year." > TZ SMArtLink™ Business Segment Highlights While the IXP business suffered from delays in infrastructure starts, dropping to $1.5M in sales for the year, a fall of 29% from last year, overall confidence for improved business performance in FY2018 remains positive. Recent activity demonstrates that many of these infrastructure projects should progress to completion this fiscal year FY2018, and that the pipeline of potential business is solid. Despite the threat of increasing market competition, the IXP product is maintaining its niche position and has successfully been specified as the product of choice on a number of new data centre projects. With the Electronic SwingHandle now released to production, TZ can offer our customers an extensive range of IXP hardware and software solutions that more fully meets the needs of the target market. TZ LIMITED / 2017 ANNUAL REPORT / REVIEW OF OPERATIONS 09 TZ LIMITED / 2017 ANNUAL REPORT 09 The PAD business, which covers our Smart Locker offerings to the Corporate Mail, Corporate Day Locker, Residential and Educational sectors, continues to grow very strongly, pushing to $10.4M in aggregate sales in FY2017, an increase of 46%. With the US PAD business almost doubling in size this fiscal year, there are very encouraging signals that the distribution partnership with Ricoh USA is starting to deliver some tangible benefits. A key strategy for the Company this year was to successfully segment the market and create a strongly differentiated position through the launch of application specific Smart Locker offerings. We are pleased to confirm successful launch of a number of new software products. For the Corporate sector, we have our new Accountable Mail platform – Courier 4.0, our standalone and networked Day Locker solution and our latest Inventory Management System. Accountable Mail Locker sales continue to grow through penetration of existing customer accounts and increasing demand from new prospects who are seeking to improve package delivery across their operations. Day Locker sales momentum is still underpinned by the established Australian business with customers like Westpac, KPMG and Suncorp, who continue to deploy across their broader office network. Day Locker opportunities are also being pursued in the US and Asia and while we do have traction, we are still waiting to secure our first high profile sale in order to establish local reference points. There has also been interest in our latest offering, the Inventory Management System, which also has a number of projects progressing with a number of major accounts in the US, Europe and Asia. In the high-density Residential sector, we have deployed our new Cloud-based Residential offering for established customers such as Prometheus Real Estate Group and Ironstate Development. Our focus in this market is the high-end residential niche, with specific targeting of multi-property owners and developers. For the Educational sector, we have our Campus Software which has already been successfully deployed at East Tennessee State University, Vanderbilt University and Gonzaga University. 10 TZ LIMITED / 2017 ANNUAL REPORT / REVIEW OF OPERATIONS "These new offerings have been developed in cooperation with opinion leaders in each of the specific application areas." > Couriers Please POPStation Australia The last three months have seen a number of tenders and request for pricing proposals as universities contemplate their capital programs for the next budget year. So far, we have won University of Hawaii, St Edwards College and Virginia Tech. These new offerings have been developed in cooperation with opinion leaders in each of the specific application areas so that the resulting solution is fit-for-purpose and specifically caters for the needs of the segment. TZ’s approach is a departure from the competition who have a “one product fits all” approach. Our Postal segment, which has underpinned most of the revenue growth in previous years, albeit at lower margins, has been slow this year, with sales dropping 16% to $8.6M. These sales represented the backlog of contracts already secured with Sing Post, Pos Malaysia, Couriers Please and a US Transport and Logistics Company. Deployments in each of these respective markets have been hindered by the availability and/or time taken to secure locker sites. All of these programs have experienced some form of delay from the original program which in turn has impacted the potential for on-going sales and expanded roll-out. While the Company has built credibility through its well-publicised Postal tender wins, on-going engagement with these Postal and Logistics operators is dependent on achieving better terms of engagement and the ability for our business to generate acceptable margins. Having deployed over 500 Postal Locker Banks in the last two years, the Company has learnt from its experiences and have now put in place many initiatives to eliminate margin leakage and to better manage the significant effort associated with locker deployment. These learnings form the basis on how the Company now manages all its deployments, maintenance and service offerings and underpins new costing models that ensure that minimum margin expectations can be achieved. TZ LIMITED / 2017 ANNUAL REPORT / REVIEW OF OPERATIONS 11 TZ LIMITED / 2017 ANNUAL REPORT 11 "These efforts have yielded a number of developments which will support a push into new industry sectors and the potential licensing of our technology." Regional Highlights The US is a key growth market for the Company and represents greater than 60% of our sales. Accordingly, much time in FY2017 has been invested in rebuilding the US operating structure including: the appointment of a new Regional General Manager; reorganisation of the functional leadership team and team members; transition to centrally controlled supply chain management leveraging the established Asian supplier network; shutting down the Chicago office; establishing the Redwood City, CA headquarters and the setting up of a small warehouse/operations branch office in Chicago. These initiatives all work towards building the right operational conditions to facilitate and support growth and to improve overall business efficiencies. From a US business growth perspective, demand creation is being effectively driven by the partnership with Ricoh USA. With the large number of opportunities coming through, the Company has established a more streamlined approach to pricing and proposal development. FY2018 should benefit from some of the ground work that has already been laid and will focus on continuing to improve overall sales effectiveness in terms of accelerating the time to purchase order and the % conversion rate of opportunities to sales. The relocation of our General Manager from Singapore to London to establish and build the European operation, demonstrates the Company’s commitment to develop the EMEA business. This, together with a restructure of the contracted sales resources and the signed distribution partnership with Ricoh Europe have laid the foundations for a serious push into the European market. Momentum is already building with Ricoh Europe with the appointment of dedicated Ricoh Smart Locker business development resources in the UK, Italy and Spain and the growing pipeline of business opportunities which highlight the potential for sales in FY2018 and onwards. In Australia, business continues to move forward steadily with about 60% of the FY2018 sales target secured against existing customer roll-out plans. The outlook for the Day Locker business remains positive as we see continuing development of a number of major corporate prospects as they progress Agile Workplace practices and in so doing open the door to technology based enabling systems like our solutions. Demand in new application areas such as Residential and Educational sectors are also starting to emerge as Parcel Management and Last Mile Delivery considerations start to influence the business case for deploying Smart Lockers. 12 TZ LIMITED / 2017 ANNUAL REPORT / REVIEW OF OPERATIONS > Next DC Data Center Australia In Asia, we have appointed a new General Manager and although Postal deployments have slowed, business has continued to show encouraging signs for new opportunities outside the Postal arena as enquiry levels for Smart Parcel Lockers and Day Lockers in Corporate, Government, Residential and Educational sectors are noticeably increasing. With news imminent about the Federated Locker initiative by the Singapore Government, FY2018 could see new developments in the region. Corporate Initiatives The market for "Internet of Things" (“IOT”) devices is starting to take shape and wireless and mobile IOT devices are becoming more prevalent. As these IOT devices become ubiquitous, industry participants are starting to realize that low power, small form factor and lightweight locking and fastening technology are required in many applications. TZ is one of only a few companies in the world to be at the forefront of this type of locking and fastening technology. So while the IXP and PAD business have been focal operating areas for the business, the Company has always maintained a commitment to invest in the broader and underlying vision of Smart Locking and Fastening “IOT” Device technology in order to pursue a more capital light licensing strategy with its large well-protected intellectual property portfolio. This year continued to follow the path established previously for the next generation of smart locking devices, leveraging the advancements in electronics, smartphone technologies, energy harvesting and wireless connectivity. These efforts have yielded a number of developments which will support a push into new industry sectors and the potential licensing of our technology. Although not yet finalised, three prospective deals are on the table with two having progressed to the agreement negotiation stage while the other, a more strategic licensing partnership, is still in the early stages of engagement. The development of a new form factor, low cost, low power SMArt Locking Device and next generation electronics and firmware plus access to new wireless technology and next generation platforms has also enabled the Company to actively pursue new applications. An example of this is the New Generation Mailbox Solution which is currently in field trial with East Tennessee State University. This new application area has the potential to be a significant business opportunity for the Company replacing traditional key operated mail and PO boxes. Today many people and organisations still maintain dedicated post boxes for their mail even though mail volume has rapidly decreased due to email. This is a big problem for Universities and Postal organizations globally as these post boxes usually occupy expensive real estate that can be better utilised. TZ LIMITED / 2017 ANNUAL REPORT / REVIEW OF OPERATIONS 13 "Overall business performance is trending in the right direction." > Buckingham Apartments Parcel Lockers USA With TZ’s New Generation Mailbox Solution, significantly less real estate is needed as individuals and organisations no longer need a dedicated post box that may not be utilised on a daily basis. Like our Parcel Locker solution, our New Generation Mailbox Solution automatically allocates empty mailboxes to individuals and organisations as needed saving on the total number of mail boxes that need to be deployed. If finalised, these opportunities will take the TZ business into new and potentially large market applications and have developed as a result of the interest in the Company’s lower cost, low power SMArt Locking Devices, together with the next generation SMArt Gateway electronics and firmware and SMArt Bus infrastructure. Both of these programs are moving into pre-production and are expected to be commercially available by the end of the calendar year. Improving the Company’s cost base has also been a key focal area for the Company. We have transitioned our device manufacturing and sourcing to Asia and have established a production platform that is scalable and delivers our proprietary devices at a significantly improved cost. The impact of these programs can be seen in the margin improvements that the Company has been able to achieve this last fiscal year. Going forward, more initiatives are already in train that address system level efficiencies and optimisation that should deliver further and substantial savings in terms of manufacturing cost. More importantly, these initiatives are expected to deliver increased device reliability and simplification of service and support protocols which impact life cycle costs. Many of the new development initiatives across hardware, firmware and software work to expand and open up the TZ platform enabling TZ systems to leverage much cheaper ancillary hardware while improving system modularity and system capability. Several of these programs should enable TZ to deliver attractive lower cost Smart Locker Solutions to our established volume Postal and Logistics customers to support broader network expansion while maintaining good operating margins. Overall business performance is trending in the right direction as we pursue our strategies to build a profitable high growth technology business. Organisational structure is fully operational, performance metrics are in place to drive accountability and the Senior Management team have clear objectives for each of their respective responsibility areas. With good visibility of pipeline and demand on IXP and PAD opportunities and margins continuing to improve, internal confidence in the business is high and the drive for a successful FY2018 is top of mind. 14 TZ LIMITED / 2017 ANNUAL REPORT / REVIEW OF OPERATIONS financial statements TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 15 Annual Report - 30 June 2017ABN 26 073 979 27216 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedCorporate directory30 June 20171DirectorsMark Bouris - ChairmanKenneth TingPaul Casey Company secretaryKenneth TingNotice of annual general meetingThe details of the annual general meeting of TZ Limited are:10:00am, Wednesday, 29 November 2017 at:Radisson Blu Plaza Hotel27 O’Connell Street Sydney NSW 2000Registered officeLevel 11, 1 Chifley SquareSydney NSW 2000Head office Tel: +61 2 9222 8890Principal place of businessTZ Limited and TZI Australia Pty LimitedLevel 11, 1 Chifley Square, Sydney NSW 2000 AustraliaTelezygology Inc., 3 Twin Dolphin Drive, Suite 325, Redwood City, CA 94065, USATZI Singapore Pte Limited, Centennial Business Suites, Suntec Tower 2, 9 Temasek Boulevard #29-01 Singapore 038989Share registerComputershare Investor Services Pty LimitedYarra Falls452 Johnston StreetAbbotsford VIC 3067Tel: 1300 787 272Fax: +61 3 9473 2500AuditorGrant Thornton Audit Pty LtdLevel 17, 383 Kent StreetSydney NSW 2000SolicitorsLanderer & CompanyLevel 31, 133 Castlereagh StreetSydney NSW 2000BankersSt George Bank LimitedLevel 3, 1 Chifley SquareSydney NSW 2000Stock exchange listingTZ Limited shares are listed on the Australian Securities Exchange (ASX code: TZL)Websitewww.tz.netTZ Limited's public website contains information regarding its products and the company, including an investor services sectionE-mail: info@tz.netCorporate Governance StatementThe Corporate governance statement which was approved at the same time as the annual report can be found at http://tz.net/investors/corporate-governance/TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 17 TZ LimitedDirectors' report30 June 20172The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity') consisting of TZ Limited (referred to hereafter as the 'company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2017.DirectorsThe following persons were directors of TZ Limited during the whole of the financial year and up to the date of this report, unless otherwise stated:Mark Bouris - ChairmanKenneth TingPaul CaseyPrincipal activitiesDuring the financial year the principal continuing activities of the consolidated entity consisted of the development of intelligent devices and smart device systems that enable the commercialisation of hardware and software solutions for the management, control and monitoring of business assets and the provision of associated value added services through its subsidiaries globally.Currently this technology is monetised through the sale of its IXP and PAD product lines. Infrastructure Protection (IXP) offers a cost effective, cabinet level locking solution that delivers physical security, environmental monitoring, authorised access control and real-time compliance reporting for the data centre market. Package Asset Delivery (PAD) solutions feature state-of-the-art system of modular lockers that integrate a network of TZ SMArt™ locking devices and proprietary system software. PAD solutions are used in the postal / logistics sector and for accountable mail and corporate day lockers in the commercial market.All of the operations of the consolidated entity are based in Australia, the United States of America, Singapore and the United Kingdom.DividendsThere were no dividends paid, recommended or declared during the current or previous financial year.Review of operationsThe loss for the consolidated entity after providing for income tax amounted to $6,481,000 (30 June 2016: $7,034,000).Further information on the review of operations is detailed in the Chairman's letter on pages 2-3and in the Review of Operations on pages 6 - 14 of the Annual Report.Significant changes in the state of affairsThere were no significant changes in the state of affairs of the consolidated entity during the financial year.Matters subsequent to the end of the financial yearNo matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.Likely developments and expected results of operationsFurther information on the future strategies is detailed in the review of operations which precedes the Directors' Report and Annual Financial Statements.Environmental regulationThe consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law.18 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedDirectors' report30 June 20173Information on directorsName:Mark BourisTitle:Executive ChairmanQualifications:BCom (UNSW), MCom (UNSW), HonDBus (UNSW), HonDLitt (UWS), FCAExperience and expertise:Mark Bouris is the Executive Chairman of TZ Limited and has over 27 years’ experience in the finance and property sectors. Mark is also the Executive Chairman of Yellow Brick Road and a board member of the Sydney Roosters. He is an Adjunct Professor at the University of NSW Business School and he sits on boards for the University of NSW Business Advisory Council and the Western Sydney University Foundation Council. In 2015, Mark was appointed a Member of the Order of Australia for significant service to the finance industry, particularly the home loan mortgage sector, to education, and to charitable organisations. Mark is also the author of three business and finance books.Other current directorships:Executive Chairman of Yellow Brick Road Holdings Limited (ASX: YBR).Former directorships (last 3 years):Non-Executive Chairman of Anteo Diagnostics Limited (ASX: ADO) and Non-Executive Chairman of Serena Resources LimitedSpecial responsibilities:NoneInterests in shares:3,104,677 ordinary sharesInterests in options:8,500,000 options over ordinary sharesName:Kenneth TingTitle:Executive Director and Company SecretaryQualifications:BCom, BLaw, CAExperience and expertise:Kenneth Ting has a background in accounting, law and investment banking with a focus on the commercialisation of technology and public and private equity raisings. Kenneth joined Deutsche Bank in 1997 after 4 years at PricewaterhouseCoopers Corporate Finance and Tax division. He was Vice President of Technology Investment Banking at Deutsche Bank and worked in Deutsche Bank's Sydney, San Francisco and London offices. Kenneth has a passion for technology and has worked with technology companies throughout his career. He has been involved in the completion of over $5 billion in M&A, private equity and IPO assignments in Australia, USA and Europe. His industry specialisation is in the electronics manufacturing, software, IT services, telecommunication and internet sectors.Other current directorships:NoneFormer directorships (last 3 years):Non-Executive Director of Serena Resources Limited.Special responsibilities:NoneInterests in shares:3,664,172 ordinary sharesInterests in options:8,250,000 options over ordinary sharesName:Paul CaseyTitle:Non-Executive DirectorExperience and expertise:Paul Casey brings over 32 years' experience in international travel and tourism and early stage investing. Paul was President and Chief Executive Officer ('CEO') of Hawaiian Airlines, a New York Stock Exchange ('NYSE') listed company, from 1997 until 2002. Prior to that he led the Hawaii Visitors and Convention Bureau ('HVCB') as President and CEO and he held a succession of senior management positions with Continental Airlines and Thomas Cook. Paul has run a travel software start-up in Bangkok, was the CEO of an investment firm focused on rolling up travel-related businesses in China and was involved in restructuring a number of travel and tourism projects. He is also an investor and adviser to several Hawaii early stage companies and is a non-executive director of Kineticor.com, a start up company focused on motion correction for MRI machines. Other current directorships:NoneFormer directorships (last 3 years):NoneSpecial responsibilities:NoneInterests in shares:236,363 ordinary sharesInterests in options:None'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships in all other types of entities, unless otherwise stated.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 19 TZ LimitedDirectors' report30 June 20174'Former directorships (in the last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships in all other types of entities, unless otherwise stated.Company secretaryKenneth Ting is the company secretary and also a director of the company. See 'Information on directors'.Meetings of directorsThe number of meetings of the company's Board of Directors ('the Board') held during the year ended 30 June 2017, and the number of meetings attended by each director were:Full BoardAttendedHeldMark Bouris11 11 Kenneth Ting11 11 Paul Casey11 11 Held: represents the number of meetings held during the time the director held office.Remuneration report (audited)The remuneration report, which has been audited, outlines the director and key management personnel remuneration arrangements for the consolidated entity and the company, in accordance with the requirements of the Corporations Act 2001 and its Regulations.Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors.The remuneration report is set out under the following main headings:●Principles used to determine the nature and amount of remuneration●Details of remuneration●Service agreements●Share-based compensation●Additional information●Additional disclosures relating to key management personnelPrinciples used to determine the nature and amount of remunerationThe objective of the consolidated entity's and company's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms with the market best practice for delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices:●set competitive remuneration packages to attract and retain high calibre employees;●link executive rewards to shareholder value creation; and●establish appropriate demanding performance hurdles for variable executive remuneration.The Board reviews and is responsible for the consolidated entity’s remuneration policies, procedures and practices.The consolidated entity established a Director and Executive Equity Plan in 2009 to attract, retain, motivate and reward senior executives and directors (including non-executive directors) of the company (collectively the 'Participants') by issuing either or both rights and options to the Participants to allow the Participants to acquire fully paid ordinary class shares in the company upon exercising the rights or options, as the case may be. The exercise of each right or option entitles the holder of that right or option, as the case may be, to acquire one fully paid ordinary class share in the capital of the company.Under the Director and Executive Equity Plan, the number of rights and options that may be issued to a Participant and the performance criteria and hurdles to be met prior to the issue or exercise of such Rights and Options is to be set by the board of directors of the company.20 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedDirectors' report30 June 20175Non-executive directors remunerationFees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors' fees and payments are reviewed annually by the Board. The Board considers advice from shareholders, and takes into account the fees paid to non–executive directors of comparable companies, when undertaking the annual review process. Non-executive directors do not receive share options or other incentives.ASX listing rules require that the aggregate non-executive directors remuneration shall be determined periodically by a general meeting. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The most recent determination was at the AGM held on 30 November 2006, where the shareholders approved an aggregate remuneration of $500,000.Executive remunerationThe consolidated entity and company aims to reward executives with a level and mix of remuneration based on their position and responsibility, which is both fixed and variable.The executive remuneration and reward framework has four components:●base pay and non-monetary benefits●short-term performance incentives●share-based payments●other remuneration such as superannuation and long service leaveThe combination of these comprises the executive's total remuneration.Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Board, based on individual and business unit performance, the overall performance of the consolidated entity and comparable market remunerations.Executives can receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the consolidated entity and adds additional value for the executive.The short-term incentives ('STI') program is designed to align the targets of the business units with the targets of those executives in charge of meeting those targets. STI payments are granted to executives based on specific annual targets and key performance indicators ('KPI') being achieved. KPI’s include profit contribution, customer satisfaction, leadership contribution and product management.The long-term incentives ('LTI') includes long service leave and share-based payments. As noted above, a Director and Executive Equity Plan has been set up to reward executives based on long term incentive measures in the form of options and rights. These include increase in shareholders' value relative to the entire market and the increase compared to the consolidated entity's direct competitors.Consolidated entity performance and link to remunerationRemuneration for certain individuals is directly linked to the performance of the consolidated entity. Executives and other employees can be issued with options and rights to acquire shares in the company. The number and the terms of the options and rights issued are determined by the directors after consideration of the employee's performance and their ability to contribute to the achievement of the consolidated entity's objectives. Refer to the additional information section of the remuneration report for details of the last five years earnings and total shareholders return ('TSR').Use of remuneration consultantsDuring the financial year ended 30 June 2017, the company did not engage remuneration consultants to review its existing remuneration policies.Voting and comments made at the company's 2016 Annual General Meeting ('AGM')At the last AGM 79.6% of the shareholders voted to adopt the remuneration report for the year ended 30 June 2016. The company did not receive any specific feedback at the AGM regarding its remuneration practices.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 21 TZ LimitedDirectors' report30 June 20176Details of remunerationAmounts of remunerationThe key management personnel of the consolidated entity consisted of the directors of TZ Limited and the following persons:●William Leong - Chief Operating Officer of Telezygology Inc.●Craig Sowden - Chief Financial Officer TZ Limited (appointed as CFO on 10 October 2016)●Brent Allan Henley - Chief Financial Officer (appointed as CFO on 14 January 2016; resigned on 9 August 2016)Short-term benefitsPost-employment benefitsLong-term benefitsShare-based paymentsCash salarySuper-Employee and feesOtherBonusannuationleaveOptionsTotal2017$$$$$$$Non-Executive Directors:P Casey 99,483 -----99,483Executive Directors:M Bouris440,917 10,200 ----451,117 K Ting462,574 6,000 ----468,574 Other Key Management Personnel:W Leong**250,890 19,435 33,161 6,272 --309,758B A Henley*33,499 --2,304 --35,803C Sowden*135,333 --34,767 --170,1001,422,696 35,635 33,161 43,343 --1,534,835*Represents remuneration from date of appointment and/or to date of resignation.**Bonus represents a discretionary cash bonus granted on 1 June 2017 and awarded as part of a salary package restructure. No performance criteria were attached to the bonus. No share of the bonus was forfeitedShort-term benefitsPost-employment benefitsLong-term benefitsShare-based paymentsCash salaryNon-Super-Employeeand feesOthermonetaryannuationleaveOptionsTotal2016$$$$$$$Non-Executive Directors:P Casey 103,396 -----103,396Executive Directors:M Bouris440,917 10,200 ---70,144 521,261 K Ting399,461 6,000 ---70,144 475,605 Other Key Management Personnel:W Leong231,982 19,369 33,784 6,644 --291,779B Ford*68,536 --2,475 --71,011B A Henley*101,821 --9,673 --111,494C Holden*102,103 12,000 -9,700--123,8031,448,216 47,569 33,784 28,492 -140,288 1,698,349*Represents remuneration from date of appointment and/or to date of resignation.22 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedDirectors' report30 June 20177The proportion of remuneration linked to performance and the fixed proportion are as follows:Fixed remunerationAt risk - STIAt risk - LTIName201720162017201620172016Non-Executive Directors:P Casey100% 100% ----Executive Directors:M Bouris100% 100% ----K Ting100% 100% ----Other Key Management Personnel:W Leong89% 88% 11% 12% --C Sowden100% -----B A Henley100% 100% ----C Holden-100%----Service agreementsRemuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows:Name:Paul CaseyTitle:Non-Executive DirectorAgreement commenced:1 June 2013Term of agreement:No fixed termDetails:Base salary of US$75,000 and notice period by negotiationName:William LeongTitle:Chief Operating Officer of Telezygology Inc.Agreement commenced:1 October 2010Term of agreement:No fixed termDetails:Base salary of US$175,000 and notice period by negotiationName:Craig SowdenTitle:Chief Financial OfficerAgreement commenced:10 October 2016Term of agreement:No fixed termDetails:Base salary of AU$215,000 and notice period 2 monthsKey management personnel have no entitlement to termination payments in the event of removal for misconduct.Share-based compensationIssue of sharesThere were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2017.OptionsThere were no options over ordinary shares issued to directors and other key management personnel as part of compensation that were outstanding as at 30 June 2017.There were no options over ordinary shares granted to or vested by directors and other key management personnel as part of compensation during the year ended 30 June 2017.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 23 TZ LimitedDirectors' report30 June 20178Additional informationThe earnings of the consolidated entity for the five years to 30 June 2017 are summarised below:20172016201520142013$'000$'000$'000$'000$'000Sales revenue21,507 20,785 15,129 8,392 20,116 Adjusted EBITDA *(2,950)(5,277)(4,469)(8,552)(16,735)Loss after income tax(6,481)(7,034)(6,436)(11,798)(23,204)*Earnings before interest, tax, depreciation, amortisation and other one-off non-operating itemsThe factors that are considered to affect TSR are summarised below:20172016201520142013Share price at financial year end ($)0.02 0.10 0.09 0.14 0.12 Basic earnings per share (cents per share)(1.29)(1.51)(1.57)(4.39)(13.57)Additional disclosures relating to key management personnelShareholdingThe number of shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below:Balance at ReceivedBalance at the start of as part ofDisposals/the end of the yearremunerationAdditionsotherthe yearOrdinary sharesMark Bouris2,968,314 -136,363-3,104,677Kenneth Ting3,527,809 -136,363-3,664,172Paul Casey236,363 ---236,363 6,732,486 -272,726-7,005,212Option holdingThe number of options over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below:Balance at Balance at the start of the end of the yearGrantedExercisedExpiredthe yearOptions over ordinary sharesMark Bouris9,500,000 --(1,000,000)8,500,000 Kenneth Ting9,000,000 --(750,000)8,250,000 18,500,000 --(1,750,000)16,750,000 Other transactions with key management personnel and their related partiesDuring the year ended 30 June 2017 the consolidated entity incurred the following expenses from transactions with key management personnel and their related parties:●Rent and serviced office expenditure of $171,960 (2016: $171,960) was paid to YBR Services Pty Limited, a directorrelated entity in which Mark Bouris is a director.●Broker fees of $12,645 (2016: $170) were paid for insurance policies arranged by Yellow Brick Road WealthManagement Pty Limited (formerly YBR General Insurance Brokers Pty Limited), a director related entity in whichMark Bouris is a director.●Administration fees and storage costs of $56,096 (2016:$56,096) were paid to YBR Services Pty Limited, a directorrelated entity in which Mark Bouris is a director.●Marketing expenses of $nil (2016: $60,000) were paid to Yellow Brick Road Group Pty Limited, a director relatedentity in which Mark Bouris is a director.24 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedDirectors' report30 June 20179As at the 30 June 2017 the consolidated entity has the following payables with key management personnel and their related parties:●$31,526 (2016: $31,526) payable to YBR Services Pty Limited, a director related entity in which Mark Bouris is adirector for rent, serviced office expenditure and rental bond.●$10,284 (2016: $10,284) payable to YBR Services Pty Limited, a director related entity in which Mark Bouris is adirector for administration fees and storage costs.This concludes the remuneration report, which has been audited.Shares under optionUnissued ordinary shares of TZ Limited under option at the date of this report are as follows:Exercise Number Grant dateExpiry datepriceunder option26 February 201030 June 2018$3.00 1,750,000 15 January 201430 June 2018$0.25 5,000,000 15 January 201430 June 2019$0.40 5,000,000 15 January 201430 June 2020$0.60 5,000,000 16,750,000 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate.Shares issued on the exercise of optionsThere were no ordinary shares of TZ Limited issued on the exercise of options during the year ended 30 June 2017 and up to the date of this report.Indemnity and insurance of officersThe company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith.During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.Indemnity and insurance of auditorThe company has not, during or since the financial year, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor.During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity.Proceedings on behalf of the companyNo person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings.Non-audit servicesDetails of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 26 to the financial statements.The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 25 TZ LimitedDirectors' report30 June 201710The directors are of the opinion that the services as disclosed in note 26 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons:●all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and●none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards.Officers of the company who are former partners of Grant ThorntonThere are no officers of the company who are former partners of Grant Thornton.Rounding of amountsThe Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.Auditor's independence declarationA copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report.AuditorGrant Thornton continues in office in accordance with section 327 of the Corporations Act 2001.This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001.On behalf of the directors___________________________Mark BourisDirector31 August 2017Sydney26 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of TZ Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of TZ Limited for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants M R Leivesley Partner - Audit & Assurance Sydney, 31 August 2017 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 27 TZ LimitedContents30 June 201712Statement of profit or loss and other comprehensive income28Statement of financial position29Statement of changes in equity30Statement of cash flows31Notes to the financial statements32Directors' declaration62Independent auditor's report to the members of TZ Limited63Shareholder information67General informationThe financial statements cover TZ Limited as a consolidated entity consisting of TZ Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is TZ Limited's functional and presentation currency.TZ Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are:Registered officePrincipal place of businessLevel 11, 1 Chifley SquareTZ Limited and TZI Australia Pty Limited, Level 11,Sydney NSW 20001 Chifley Square, Sydney NSW 2000Telezygology Inc., 3 Twin Dolphin Drive, Redwood City, CA 94065, USATZI Singapore Pte Limited, Centennial Business Suites, Suntec Tower 2, 9 Temasek Boulevard #29-01 Singapore 038989A 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 31 August 2017. The directors have the power to amend and reissue the financial statements.28 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedStatement of profit or loss and other comprehensive incomeFor the year ended 30 June 2017ConsolidatedNote20172016$'000$'000The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes13Revenue421,772 20,826 Other income5-120ExpensesRaw materials and consumables used(11,611)(14,004)Employee benefits expense(9,103)(8,119)Occupancy expense(644)(514)Depreciation and amortisation expense6(2,218)(1,894)Impairment of assets6(1,320)- Communications expense(221)(232)Professional and corporate services(728)(1,079)Travel and accommodation expense(809)(893)Other expenses(1,595)(1,354)Finance costs(101)(15)Loss before income tax benefit(6,578)(7,158)Income tax benefit797 124 Loss after income tax benefit for the year attributable to the owners of TZ Limited21(6,481)(7,034)Other comprehensive incomeItems that may be reclassified subsequently to profit or lossForeign currency translation(309)230Other comprehensive income for the year, net of tax(309)230Total comprehensive income for the year attributable to the owners of TZ Limited(6,790)(6,804)CentsCentsBasic earnings per share33(1.29)(1.51)Diluted earnings per share33(1.29)(1.51)TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 29 TZ LimitedStatement of financial positionAs at 30 June 2017ConsolidatedNote20172016$'000$'000The above statement of financial position should be read in conjunction with the accompanying notes14AssetsCurrent assetsCash and cash equivalents8669 6,102 Trade and other receivables95,860 6,067 Inventories10699 805 Other11555 344 Total current assets7,783 13,318 Non-current assetsProperty, plant and equipment12449 549 Intangibles137,774 9,503 Total non-current assets8,223 10,052 Total assets16,006 23,370 LiabilitiesCurrent liabilitiesTrade and other payables144,296 8,975 Provisions15379 336 Total current liabilities4,675 9,311 Non-current liabilitiesBorrowings164,000 - Deferred tax17-102Provisions18-56Total non-current liabilities4,000 158 Total liabilities8,675 9,469 Net assets7,331 13,901 EquityIssued capital19204,951 204,731 Reserves20(3,609)(3,300)Accumulated losses21(194,011)(187,530)Total equity7,331 13,901 30 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedStatement of changes in equityFor the year ended 30 June 2017The above statement of changes in equity should be read in conjunction with the accompanying notes15Issued AccumulatedcapitalReserveslossesConsolidated$'000$'000$'000$'000Balance at 1 July 2015200,998 (3,530)(180,636)16,832 Loss after income tax benefit for the year--(7,034)(7,034)Other comprehensive income for the year, net of tax-230-230Total comprehensive income for the year-230(7,034)(6,804)Transactions with owners in their capacity as owners:Contributions of equity, net of transaction costs (note 19)3,733 --3,733 Share-based payments--140 140 Balance at 30 June 2016204,731 (3,300)(187,530)13,901 IssuedAccumulatedcapitalReserveslossesTotalequityTotalequityConsolidated$'000$'000$'000$'000Balance at 1 July 2016204,731 (3,300)(187,530)13,901 Loss after income tax benefit for the year--(6,481)(6,481)Other comprehensive income for the year, net of tax-(309)-(309)Total comprehensive income for the year-(309)(6,481)(6,790)Transactions with owners in their capacity as owners:Contributions of equity, net of transaction costs (note 19)220 --220 Balance at 30 June 2017204,951 (3,609)(194,011)7,331 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 31 TZ LimitedStatement of cash flowsFor the year ended 30 June 2017ConsolidatedNote20172016$'000$'000The above statement of cash flows should be read in conjunction with the accompanying notes16Cash flows from operating activitiesReceipts from customers (inclusive of GST)21,183 19,901 Payments to suppliers (inclusive of GST)(29,013)(21,447)Grants received-120Interest received11 28Other revenue254 13 Interest and other finance costs paid(72)(15)Income taxes refunded/(paid)(5)116Net cash used in operating activities32(7,642)(1,284)Cash flows from investing activitiesPayments for property, plant and equipment12(90)(367)Payments for intangibles13(1,902)(1,668)Net cash used in investing activities(1,992)(2,035)Cash flows from financing activitiesProceeds from issue of shares19222 4,000 Transaction costs on shares issued(2)(267)Proceeds from borrowings4,000 - Net cash from financing activities4,220 3,733 Net increase/(decrease) in cash and cash equivalents(5,414)414 Cash and cash equivalents at the beginning of the financial year6,102 5,688 Effects of exchange rate changes on cash and cash equivalents(19)-Cash and cash equivalents at the end of the financial year8669 6,102 32 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 201717Note 1. Significant accounting policiesThe principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.New or amended Accounting Standards and Interpretations adoptedThe consolidated entity has adopted all of the Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity.Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.Going concernThese financial statements have been prepared on a going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.While the consolidated entity incurred losses for the financial year ended 30 June 2017, in assessing the appropriateness of the going concern concept the following factors have been taken into consideration by the Directors:●The Directors are of the view the consolidated entity is on track to meet revenue targets for the 30 June 2018 financial year. It is expected that, as the monthly revenue levels increase, the consolidated entity’s operating business units will be in a position to contribute positive cash to the bottom line; and●The Directors maintain a positive outlook on achieving profitability and positive cash flows in the 30 June 2018 financial year based on the strength of the sales pipeline.In making their assessment, the Directors acknowledge that the ability of the consolidated entity to continue as a going concern is dependent on meeting sales and profitability forecasts, the generation of positive cash flows, the continued support of shareholders and the raising of additional share capital as and when required in the future.The financial statements have been prepared on the going concern basis for the above reasons. Accordingly, the financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or to the amounts and classification of liabilities that might be necessary should the consolidated entity not continue as a going concern.Basis of preparationThese general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB').Historical cost conventionThe financial statements have been prepared under the historical cost convention, except for derivative financial instruments at fair value.Critical accounting estimatesThe 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.Parent entity informationIn 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 30.Principles of consolidationThe consolidated financial statements incorporate the assets and liabilities of all subsidiaries of TZ Limited ('company' or 'parent entity') as at 30 June 2017 and the results of all subsidiaries for the year then ended. TZ Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 33 TZ LimitedNotes to the financial statements30 June 2017Note 1. Significant accounting policies (continued)18Subsidiaries 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.Special purpose entities ('SPEs') are those entities where the consolidated entity, in substance, controls the SPE so as to obtain the majority of benefits without having any ownership interest.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.The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent.Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss.Operating segmentsOperating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance.Foreign currency translationThe financial statements are presented in Australian dollars, which is TZ Limited's functional and presentation currency.Foreign currency transactionsForeign currency transactions are translated into Australian 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 operationsThe assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, 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.Revenue recognitionRevenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable.Sale of goodsSale of goods revenue is recognised at the point of sale, which is where the customer has taken delivery of the goods, the risks and rewards are transferred to the customer and there is a valid sales contract. Amounts disclosed as revenue are net of sales returns and trade discounts.Project revenueProject revenues are recognised by reference to the stage of completion of the contracts.34 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 1. Significant accounting policies (continued)19Stage of completion is measured by reference to costs incurred to date as a percentage of costs for each contract. Where the contract outcome cannot be reliably estimated, revenue is only recognised to the extent of the recoverable costs incurred to date.InterestInterest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.Other revenueOther revenue is recognised when it is received or when the right to receive payment is established.Income taxThe income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable.Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for:●When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or●When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in theforeseeable future.Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset.Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously.ReclassificationComparative figures in the statement of profit or loss and other comprehensive income and in the statement of financial position have been reclassified to conform to the current year presentation.Current and non-current classificationAssets and liabilities are presented in the statement of financial position based on current and non-current classification.An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current.A liability is classified as current when: it is either expected to be settled in the entity's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 35 TZ LimitedNotes to the financial statements30 June 2017Note 1. Significant accounting policies (continued)20Cash and cash equivalentsCash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.Trade and other receivablesTrade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days.Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the consolidated entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.Other receivables are recognised at amortised cost, less any provision for impairment.InventoriesFinished goods are stated at the lower of cost and net realisable value on a 'first in first out' basis. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable.Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.Investments and other financial assetsInvestments 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. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted.Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership.Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the asset is derecognised or impaired.Impairment of financial assetsThe consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows.The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost that would have been recognised had the impairment not been made and is reversed to profit or loss.Property, plant and equipmentPlant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.36 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 1. Significant accounting policies (continued)21Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows:Leasehold improvements20 - 33%Plant and equipment20%Office equipment15 - 35%The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter.An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. LeasesLease payments under operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the period in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.Where assets are acquired by means of finance leases, the present value of minimum lease payments is established as an asset at the beginning of the lease term and amortised on a straight line basis over the expected economic life. A corresponding liability is also established and each lease payment is allocated between such liability and interest expense.Intangible assetsIntangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period.GoodwillGoodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed.PatentsExpenditure directly attributable to the registration of patents is capitalised at cost and is amortised over the useful life of 15 years.Research and development costsResearch costs are expensed as incurred. Development expenditure incurred on an individual project is capitalised if the product or service is technically feasible, adequate resources are available to complete the project, it is probable that future economic benefits will be generated and expenditure attributable to the project can be measured reliably. Expenditure capitalised comprises costs of materials, services, direct labour and an appropriate portion of overheads.Capitalised development expenditure is stated at cost less accumulated amortisation and any impairment losses, and are amortised over the period of expected future sales from the related projects which vary from 5 to 11 years.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 37 TZ LimitedNotes to the financial statements30 June 2017Note 1. Significant accounting policies (continued)22Impairment of non-financial assetsGoodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.Trade and other payablesThese amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.BorrowingsLoans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method.Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non-current.Finance costsFinance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred.Employee benefitsShort-term employee benefitsLiabilities for wages and salaries and other employee benefits expected to be settled within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled.Other long-term employee benefitsEmployee benefits not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible.Defined contribution superannuation expenseContributions to defined contribution superannuation plans are expensed in the period in which they are incurred.Share-based paymentsEquity-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. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date, expected price volatility of the underlying share, the expected dividend yield, 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.38 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 1. Significant accounting policies (continued)23The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods.Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied.If equity-settled awards are modified, as a minimum an expense is recognised as if the modification had not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification.If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited.If equity-settled awards are cancelled, they are treated as if they had 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 are treated as if they were a modification.Fair value measurementWhen an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.Issued capitalOrdinary 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.Business combinationsThe acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired.The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss.On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date.Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 39 TZ LimitedNotes to the financial statements30 June 2017Note 1. Significant accounting policies (continued)24Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity.The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer.Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value.Earnings per shareBasic earnings per shareBasic earnings per share is calculated by dividing the profit attributable to the owners of TZ Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.Diluted earnings per shareDiluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.Goods and Services Tax ('GST') and other similar taxesRevenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense.Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position.Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.Rounding of amountsThe Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.New Accounting Standards and Interpretations not yet mandatory or early adoptedAustralian 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 2017. 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.40 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 1. Significant accounting policies (continued)25AASB 9 Financial InstrumentsThis standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. AASB 9 introduces 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 solely principal and interest. All other financial instrument assets are to be 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) in other comprehensive income ('OCI'). For financial liabilities, 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 will use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment will be measured under 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. The standard introduces additional new disclosures. The consolidated entity will adopt this standard from 1 July 2018. It is not expected to significantly impact the financial statements on the basis that the main financial assets recognised represent cash and cash equivalent and trade receivables that do not carry a significant financing component and involve a single cash flow representing the repayment of principal, which in the case of trade receivables is the transaction price. Both asset classes will continue to be measured at face value. Other financial asset classes are not material to the consolidated entity. Financial liabilities of the consolidated entity are not impacted as the consolidated entity does not carry them at fair value.AASB 15 Revenue from Contracts with CustomersThis standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be 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. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgements made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The consolidated entity will adopt this standard from 1 July 2018. The consolidated entity is currently undertaking a comprehensive review of the implementation impacts of AASB 15. The consolidated entity has not yet reached a determination as to the impacts of this accounting standard.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 41 TZ LimitedNotes to the financial statements30 June 2017Note 1. Significant accounting policies (continued)26AASB 16 LeasesThis 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 as 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 will adopt this standard from 1 July 2019 but the impact of its adoption is yet to be assessed by the consolidated entity.Note 2. Critical accounting judgements, estimates and assumptionsThe preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on 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.Share-based payment transactionsThe 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 the 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.Capitalised development costsDistinguishing the research and development phases of a new project and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired.Goodwill and other indefinite life intangible assetsThe consolidated entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 1. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows.Impairment of non-financial assets other than goodwill and other indefinite life intangible assetsThe consolidated entity assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the consolidated entity and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions.42 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 2. Critical accounting judgements, estimates and assumptions (continued)27Recovery of deferred tax assetsDeferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses.Note 3. Operating segmentsIdentification of reportable operating segmentsThe consolidated entity operates in one segment being the development and commercialisation of hardware and software products primarily in the US, Australian and Asian markets. This is based on the internal reports that are reviewed and used by the Board of Directors (being the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources.The information reported to the CODM, on at least a monthly basis, is profit or loss and adjusted earnings before interest, tax, depreciation and amortisation and other one off-items ('Adjusted EBITDA').Intersegment transactionsTransactions between segments are carried out at arm’s length and are eliminated on consolidation.Major customersDuring the year ended 30 June 2017 4 customers (2016: 2 customers) each contributed more than 10% to the external revenue of the consolidated entity. These 4 customers contributed 56% (2016: 2 customers contributed 49%) of the consolidated entity's external revenue.Geographical informationSales to externalcustomersGeographical non-current assets2017201620172016$'000$'000$'000$'000Australia5,271 5,587 546 940 United States of America13,427 12,932 7,672 9,110 United Kingdom158 ---Singapore933 1,045 5 2 Malaysia1,701 619 --Italy-468--Other 17 134--21,507 20,785 8,223 10,052 The geographical non-current assets above are exclusive of, where applicable, financial instruments, deferred tax assets, post employment benefits assets and rights under insurance contracts but include the PDT Holdings business for the period held.A reconciliation of the loss after income tax expense to adjusted EBITDA is as follows:TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 43 TZ LimitedNotes to the financial statements30 June 2017Note 3. Operating segments (continued)28Consolidated20172016$'000$'000Loss after income tax expense(6,481)(7,034)Less: Interest income(11)(28)Add: Interest expense101 15 Add: Depreciation and amortisation2,218 1,894 Add: Impairment of assets1,320 - Add/(less): Income tax expense/(benefit)(97)(124)Adjusted EBITDA(2,950)(5,277)Note 4. RevenueConsolidated20172016$'000$'000Sales revenueSale and service revenue21,507 20,785 Other revenueInterest11 28 Royalty54 13 Other revenue200 - 265 41 Revenue21,772 20,826 Note 5. Other incomeConsolidated20172016$'000$'000Government grants-12044 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 201729Note 6. ExpensesConsolidated20172016$'000$'000Loss before income tax includes the following specific expenses:Depreciation (note 12)Leasehold improvements5 6 Plant and equipment95 95 Office equipment80 64 Total depreciation180 165 Amortisation (note 13)Re-acquired right (Intevia Licence)860 876 Patents179 192 Development costs949 600 Other intangible assets50 61 Total amortisation2,038 1,729 Total depreciation and amortisation2,218 1,894 ImpairmentRe-acquired right (Intevia Licence)363 - Development costs700 - Other intangible assets257 - Total impairment1,320 - Net foreign exchange loss235 35 Minimum lease payments599 430 Defined contribution superannuation expense472 467 Share-based payments expense-140TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 45 TZ LimitedNotes to the financial statements30 June 201730Note 7. Income tax benefitConsolidated20172016$'000$'000Income tax benefitCurrent tax5 (116)Deferred tax - origination and reversal of temporary differences(102)(8)Aggregate income tax benefit(97)(124)Deferred tax included in income tax benefit comprises:Decrease in deferred tax liabilities (note 17)(102)(8)Numerical reconciliation of income tax benefit and tax at the statutory rateLoss before income tax benefit(6,578)(7,158)Tax at the statutory tax rate of 30%(1,973)(2,147)Current year tax losses not recognised1,700 1,905 Difference in overseas tax rates/refunds176 118 Income tax benefit(97)(124)The consolidated entity is in the process of determining its tax loss position to carry forward.Note 8. Current assets - cash and cash equivalentsConsolidated20172016$'000$'000Cash and cash equivalents669 4,902 Cash on deposit-1,200669 6,102 Note 9. Current assets - trade and other receivablesConsolidated20172016$'000$'000Trade receivables4,021 4,366 Less: Provision for impairment of receivables(72)-3,949 4,366 Other receivables103 52 Accrued revenue1,808 367 Work in progress-1,197Goods and services tax receivable-855,860 6,067 46 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 9. Current assets - trade and other receivables (continued)31Impairment of receivablesThe ageing of the impaired receivables provided for above are as follows:Consolidated20172016$'000$'000Past due 90 days +72 - Movements in the provision for impairment of receivables are as follows:Consolidated20172016$'000$'000Additional provisions recognised72 - Customers with balances past due but without provision for impairment of receivables amount to $1,749,000 as at 30 June 2017 ($1,584,000 as at 30 June 2016).The consolidated entity did not consider a credit risk on the aggregate balances after reviewing the credit terms of customers based on recent collection practices.The ageing of the past due but not impaired receivables are as follows:Consolidated20172016$'000$'000Past due 0 - 30 days732 984 Past due 30 - 60 days661 68 Past due 60 - 90 days200 9 Past due over 90 days156 523 1,749 1,584 Note 10. Current assets - inventoriesConsolidated20172016$'000$'000Finished goods - at cost699 805 Note 11. Current assets - otherConsolidated20172016$'000$'000Prepayments407 219 Security deposits63 63 Other deposits85 62 555 344 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 47 TZ LimitedNotes to the financial statements30 June 201732Note 12. Non-current assets - property, plant and equipmentConsolidated20172016$'000$'000Leasehold improvements - at cost418 421 Less: Accumulated depreciation(411)(406)7 15 Plant and equipment - at cost1,824 1,799 Less: Accumulated depreciation(1,564)(1,469)260 330 Office equipment - at cost768 710 Less: Accumulated depreciation(586)(506)182 204 449 549 ReconciliationsReconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:LeaseholdPlant andOfficeimprovementsequipmentequipmentTotalConsolidated$'000$'000$'000$'000Balance at 1 July 201518 626 150 794 Additions3 239 125 367 Disposals--(5)(5)Exchange differences--(2)(2)Transfers in/(out)-(440)-(440)Depreciation expense(6)(95)(64)(165)Balance at 30 June 201615 330 204 549 Additions2 25 63 90 Exchange differences--(2)(2)Write off of assets(5)-(3)(8)Depreciation expense(5)(95)(80)(180)Balance at 30 June 20177 260 182 449 48 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 201733Note 13. Non-current assets - intangiblesConsolidated20172016$'000$'000Goodwill - at cost4,155 4,155 Less: Impairment(4,010)(4,010)145 145 Trade names - at cost13 13 Less: Accumulated amortisation(13)(13)- - Re-acquired right (Intevia Licence) - at cost10,157 10,240 Less: Accumulated amortisation(7,618)(6,758)Less: Impairment(363)-2,176 3,482 Patents - at cost2,518 2,478 Less: Accumulated amortisation(653)(474)1,865 2,004 Developments costs - at cost7,383 5,706 Less: Accumulated amortisation(3,095)(2,141)Less: Impairment(700)-3,588 3,565 Other intangibles - at cost483 483 Less: Accumulated amortisation(226)(176)Less: Impairment(257)-- 307 7,774 9,503 ReconciliationsReconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:GoodwillRe-acquired rightPatentsDevelopment costsOther intangiblesTotalConsolidated$'000$'000$'000$'000$'000$'000Balance at 1 July 2015145 4,236 1,844 2,717 368 9,310 Additions--299 1,369 -1,668Exchange differences-12253 79 -254Amortisation expense-(876)(192)(600)(61)(1,729)Balance at 30 June 2016145 3,482 2,004 3,565 307 9,503 Additions--103 1,799 -1,902Exchange differences-(83)(63)(127)-(273)Impairment of assets-(363)-(700)(257)(1,320)Amortisation expense-(860)(179)(949)(50)(2,038)Balance at 30 June 2017145 2,176 1,865 3,588 -7,774TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 49 TZ LimitedNotes to the financial statements30 June 2017Note 13. Non-current assets - intangibles (continued)34Impairment testing of goodwillGoodwill is allocated to the following CGU:Consolidated20172016$'000$'000Infinity Design Pty Limited145 145 The consolidated entity has assessed the goodwill balance and has determined that the there is no impairment to goodwill at 30 June 2017. The recoverable value of the CGU has now been assessed on a fair value basis (less likely costs of disposal) which exceeds the carrying value of goodwill.For the purpose of impairment testing of re-acquired rights and other intangibles the following CGU, IXP and PAD, are the units to benefit from the core patented technology and product development costs. Consolidated20172016$'000$'000Infrastructure Protection - IXP 244 1,035 Package Asset Delivery - PAD7,385 8,323 7,629 9,358 The recoverable amounts of the CGU's were determined based on value-in-use calculations covering a detailed five year forecast and followed by an extrapolation of expected cash flows using the growth rates noted below. Management consider the CGU's operate in the global markets for IXP and PAD products. The growth rates reflect conservative estimates for each CGU noting current contracts and expansion of the same and general market growth over the forecast period.The key assumptions used are as follows:IXP Revenue growth (average) 14% (2016: 26%)Margins (average) 48.1% (2016: 50%)Discount rate 12.6% (2016: 14.3%)PAD Revenue growth (average) 14.8% (2016: 23%)Margins (average) 46.5% (2016: 44%)Discount rate 12.6% (2016: 16.4%)Impairment test results - IXP CGUBased on the testing performed an impairment of $1,320,000 was recognized for internally developed hardware & software and re-acquired rights that support the IXP CGU. The recoverable amount for the IXP CGU was determined on a value-in-use basis. The directors considered the requirements of AASB 136 “Impairment of Assets” and the irregular nature of project-based IXP revenues and have assessed that the carrying value exceeded the recoverable amount. The impairment charge represents the carrying value of the IXP assets at 31 December 2016, the date at which the respective assets were fully impaired. The net carrying value of IXP CGU at 30 June 2017, represents all expenditure capitalised from 1 January 2017 to 30 June 2017.Impairment test results - PAD CGUBased on the testing performed no impairment exists on the basis that the recoverable amount of the PAD CGU exceeds its carrying value.50 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 13. Non-current assets - intangibles (continued)35Impairment test sensitivity – PAD CGUIf all other assumptions were held constant, a reduction in the projected average annual revenue growth to 10% would result in an impairment of $3,965,000 to the value of the consolidated entity’s assets.If all other assumptions were held constant, a reduction in the projected average gross margin to 42.5% would reduce the value in use by $5,245,000 but not result in any impairment.Note 14. Current liabilities - trade and other payablesConsolidated20172016$'000$'000Trade payables2,517 6,219 Employee expense payables219 78 Unearned income548 1,419 Goods and services tax payable31 - Other payables981 1,259 4,296 8,975 Refer to note 23 for further information on financial instruments.Note 15. Current liabilities - provisionsConsolidated20172016$'000$'000Employee benefits379 336 Note 16. Non-current liabilities - borrowingsConsolidated20172016$'000$'000Loan - First Samuel4,000 - Refer to note 23 for further information on financial instruments.On 18 November 2016, the consolidated entity entered into a debenture deed with First Samuel Limited which provides the consolidated entity with a secured loan facility of up to $3,000,000. On 5 May 2017, the consolidated entity entered into a second debenture deed with First Samuel Limited which provides the consolidated entity with a secured loan facility of up to $2,000,000. As at 30 June 2017, the consolidated entity has drawn down $4,000,000 of the $5,000,000 facility. The remaining facility may be drawn down at any time during the term of the loan.First debenture deedThe interest rate applicable to the facility is 90 day BBSW plus 4% per annum, payable 6 monthly in arrears. The term of the facility is 24 months with an option to extend for an additional 12 month. If this option is exercised, the interest rate will increase to 90 day BBSW plus 6% per annum for the second 12 month term.Second debenture deedThe interest rate applicable to the facility is 90 day BBSW plus 9% per annum, payable 6 monthly in arrears. The term of the facility is 36 months. The consolidated entity may repay part or all of the funds loans loaned before the end of the term without penalty.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 51 TZ LimitedNotes to the financial statements30 June 2017Note 16. Non-current liabilities - borrowings (continued)36The loan is secured over the assets of the consolidated entity.Financing arrangementsUnrestricted access was available at the reporting date to the following lines of credit:Consolidated20172016$'000$'000Total facilitiesLoan - First Samuel5,000 - Used at the reporting dateLoan - First Samuel4,000 - Unused at the reporting dateLoan - First Samuel1,000 - Note 17. Non-current liabilities - deferred taxConsolidated20172016$'000$'000Deferred tax liability-102Movements:Opening balance102 110 Credited to profit or loss (note 7)(102)(8)Closing balance-102Note 18. Non-current liabilities - provisionsConsolidated20172016$'000$'000Employee benefits-56Note 19. Equity - issued capitalConsolidated2017201620172016SharesShares$'000$'000Ordinary shares - fully paid503,983,352 501,965,203 204,951 204,731 52 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 19. Equity - issued capital (continued)37Movements in ordinary share capitalDetailsDateSharesIssue price$'000Balance1 July 2015465,601,566 200,998 Issue of shares24 June 201636,363,637 $0.11 4,000 Less: share issue costs-$0.00(267)Balance30 June 2016501,965,203 204,731 Issue of shares18 July 20162,018,149 $0.11 222 Less: share issue costs-$0.00(2)Balance30 June 2017503,983,352 204,951 Ordinary sharesOrdinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital.On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.Share buy-backThere is no current on-market share buy-back.Unquoted optionsAt 30 June 2017 there were 16,750,000 (2016: 18,500,000) options. Each option entitles the holder to subscribe for one fully paid share in the company at the exercise price per share at any time from the date of issue until expiry of the options subject to various vesting dates.Capital risk managementThe consolidated entity's objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital.In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.The consolidated entity would look to raise capital when an opportunity to invest in a business or company or invest in growth was seen as value adding.The capital risk management policy remains unchanged from the 30 June 2016 Annual Report.Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents.Note 20. Equity - reservesConsolidated20172016$'000$'000Foreign currency reserve(3,609)(3,300)TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 53 TZ LimitedNotes to the financial statements30 June 2017Note 20. Equity - reserves (continued)38Foreign currency reserveThe reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations.Movements in reservesMovements in each class of reserve during the current and previous financial year are set out below: Foreign currencyTotalConsolidated$'000$'000Balance at 1 July 2015(3,530)(3,530)Foreign currency translation230 230 Balance at 30 June 2016(3,300)(3,300)Foreign currency translation(309)(309)Balance at 30 June 2017(3,609)(3,609)Note 21. Equity - accumulated lossesConsolidated20172016$'000$'000Accumulated losses at the beginning of the financial year(187,530)(180,636)Loss after income tax benefit for the year(6,481)(7,034)Transfer from share based payments reserve-140Accumulated losses at the end of the financial year(194,011)(187,530)Note 22. Equity - dividendsThere were no dividends paid, recommended or declared during the current or previous financial year.Note 23. Financial instrumentsFinancial risk management objectivesThe consolidated entity's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The consolidated entity's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and ageing analysis for credit risk.Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the consolidated entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the consolidated entity's operating units. Finance reports to the Board on a monthly basis.Market riskForeign currency riskThe consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations.54 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 23. Financial instruments (continued)39Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and cash flow forecasting.The consolidated entity's foreign exchange risk is managed to ensure sufficient funds are available to meet US financial commitments in a timely and cost-effective manner. The consolidated entity will continually monitor this risk and consider entering into forward foreign exchange, foreign currency swap and foreign currency option contracts if appropriate.Creditors and debtors as at 30 June 2017 were reviewed to assess currency risk at year end. The value of transactions denominated in a currency other than the functional currency of the respective subsidiary was insignificant and therefore the risk was determined as immaterial.Price riskThe consolidated entity is not exposed to any significant price risk.Interest rate riskThe consolidated entity's main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the consolidated entity to interest rate risk. Borrowings issued at fixed rates expose the consolidated entity to fair value interest rate risk.The consolidated entity invests surplus cash in term deposits with fixed returns. The Board makes investment decisions after considering advice received from professional advisors.The consolidated entity monitors its interest rate exposure continuously.As at the reporting date, the consolidated entity had the following variable rate exposures:20172016Weighted average interest rateBalanceWeighted average interest rateBalanceConsolidated%$'000%$'000Cash and cash equivalents0.10% 669 2.95% 6,102 Loan - First Samuel6.90% (4,000)--Net exposure to cash flow interest rate risk(3,331)6,102 An analysis by remaining contractual maturities is shown in 'liquidity and interest rate risk management' below.The consolidated entity has a net cash deficit totalling $3,331,000 (2016: net cash surplus $6,102,000). An official increase/decrease in interest rates of one (2016: one) percentage point would have an adverse/favourable effect on profit before tax of $33,000 (2016: adverse/favourable $61,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts' forecasts.Credit riskCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The consolidated entity obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The consolidated entity does not hold any collateral.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 55 TZ LimitedNotes to the financial statements30 June 2017Note 23. Financial instruments (continued)40The consolidated entity has a concentration of credit risk exposure with 3 customers, which as at 30 June 2017 owed the consolidated entity $3,468,000 (88% of trade receivables). Of this balance, $720,000 was outside the customers' respective terms of trade, however management is confident of collection and no impairment was made as at 30 June 2017. There are no guarantees against these receivables but management closely monitors the receivable balance on a monthly basis and is in regular contact with this customer to mitigate risk.There is a concentration of credit risk for cash at bank and cash on deposit as most monies in Australia is with two financial institutions, St George Bank and YBR Funds Management Pty Limited.Liquidity riskVigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable.The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.Financing arrangementsUnused borrowing facilities at the reporting date:Consolidated20172016$'000$'000Loan - First Samuel1,000 - Remaining contractual maturitiesThe following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position.Weighted average interest rate1 year or lessBetween 1 and 2 yearsBetween 2 and 5 yearsOver 5 yearsRemaining contractual maturitiesConsolidated - 2017%$'000$'000$'000$'000$'000Non-derivativesNon-interest bearingTrade payables-2,517---2,517 Other payables-1,021---1,021 Interest-bearing - variableLoan - First Samuel6.90% 281 3,186 1,090 -4,557Total non-derivatives3,819 3,186 1,090 -8,095Weighted average interest rate1 year or lessBetween 1 and 2 yearsBetween 2 and 5 yearsOver 5 yearsRemaining contractual maturitiesConsolidated - 2016%$'000$'000$'000$'000$'000Non-derivativesNon-interest bearingTrade payables-6,219---6,219 Other payables-1,259---1,259 Total non-derivatives7,478 ---7,478 56 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 23. Financial instruments (continued)41The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.Note 24. Fair value measurementUnless otherwise stated, the carrying amounts of financial instruments reflect their fair value. The carrying amounts of trade receivables and trade payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial instruments.Note 25. Key management personnel disclosuresCompensationThe aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below:Consolidated20172016$$Short-term employee benefits1,491,492 1,529,569 Post-employment benefits43,343 28,492 Share-based payments-140,2881,534,835 1,698,349 Note 26. Remuneration of auditorsDuring the financial year the following fees were paid or payable for services provided by Grant Thornton, the auditor of the company, and its network firms:Consolidated20172016$$Audit services - Grant ThorntonAudit or review of the financial statements167,500 139,500 Other services - Grant ThorntonIndependent tax advice and tax compliance 5,000 12,500 172,500 152,000 Audit services - network firmsAudit or review of the financial statements8,000 46,628 Note 27. Contingent liabilitiesThe consolidated entity does not have any contingent liabilities at 30 June 2017 and 30 June 2016.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 57 TZ LimitedNotes to the financial statements30 June 201742Note 28. CommitmentsConsolidated20172016$'000$'000Lease commitments - operatingCommitted at the reporting date but not recognised as liabilities, payable:Within one year359 155 One to five years328 236 687 391 The consolidated entity leases various premises under non-cancellable operating leases expiring between 1 and 5 years. All leases have annual CPI escalation clauses. The above commitments do not include commitments for any renewal options on leases. Lease conditions do not impose any restrictions on the ability of TZ Limited and its subsidiaries from borrowing further funds or paying dividends.Note 29. Related party transactionsParent entityTZ Limited is the parent entity.SubsidiariesInterests in subsidiaries are set out in note 31.Key management personnelDisclosures relating to key management personnel are set out in note 25 and the remuneration report included in the directors' report.Transactions with related partiesThe following transactions occurred with related parties:Consolidated20172016$$Payment for other expenses:Rent and serviced office expenditure paid to YBR Services Pty Limited, a director related entity in which Mark Bouris is a director.171,960 171,960 Broker fees for insurance policies arranged by Yellow Brick Road Wealth Management Pty Limited (formerly YBR General Insurance Brokers Pty Limited), a director related entity in which Mark Bouris is a director.12,645 170 Administration fees and storage costs paid to YBR Services Pty Limited, a director related entity in which Mark Bouris is a director.56,096 56,096 Marketing expenses paid to Yellow Brick Road Group Pty Limited, a director related entity in which Mark Bouris is a director.-60,00058 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 2017Note 29. Related party transactions (continued)43Receivable from and payable to related partiesThe following balances are outstanding at the reporting date in relation to transactions with related parties:Consolidated20172016$$Current payables:Rent, serviced office expenditure and remaining rental bond payable to YBR Services Pty Limited, a director related entity in which Mark Bouris is a director.31,526 31,526 Administration fees and storage costs payable to YBR Services Pty Limited, a director related entity in which Mark Bouris is a director.10,284 10,284 Loans to/from related partiesThere were no loans to or from related parties at the current and previous reporting date.Terms and conditionsAll transactions were made on normal commercial terms and conditions and at market rates.Note 30. Parent entity informationSet out below is the supplementary information about the parent entity.Statement of profit or loss and other comprehensive incomeParent20172016$'000$'000Loss after income tax(7,109)(7,240)Total comprehensive income(7,109)(7,240)Statement of financial positionParent20172016$'000$'000Total current assets10,427 9,061 Total assets14,844 17,981 Total current liabilities4,068 4,316 Total liabilities8,068 4,316 EquityIssued capital204,951 204,731 Accumulated losses(198,175)(191,066)Total equity6,776 13,665 Guarantees entered into by the parent entity in relation to the debts of its subsidiariesThe parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2017 and 30 June 2016.Contingent liabilitiesThe parent entity had no contingent liabilities as at 30 June 2017 and 30 June 2016.TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 59 TZ LimitedNotes to the financial statements30 June 2017Note 30. Parent entity information (continued)44Capital commitments - Property, plant and equipmentThe parent entity had no capital commitments for property, plant and equipment at as 30 June 2017 and 30 June 2016.Significant accounting policiesThe accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following:●Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.●Investments in associates are accounted for at cost, less any impairment, in the parent entity.●Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment.Note 31. Interests in subsidiariesThe consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1:Ownership interestPrincipal place of business /20172016NameCountry of incorporation%%Telezygology, Inc.United States of America100.00% 100.00% PDT Holdings, Inc.United States of America100.00% 100.00% Product Development Technologies, Inc.United States of America100.00% 100.00% PDT Tooling, Inc.United States of America100.00% 100.00% TZI Australia Pty LimitedAustralia100.00% 100.00% Infinity Design Pty Limited Australia100.00% 100.00% TZI Singapore Pte LtdSingapore100.00% 100.00% Note 32. Reconciliation of loss after income tax to net cash used in operating activitiesConsolidated20172016$'000$'000Loss after income tax benefit for the year(6,481)(7,034)Adjustments for:Depreciation and amortisation2,218 1,894 Impairment of intangibles1,320 - Write off of property, plant and equipment8 - Net loss on disposal of property, plant and equipment-5Share-based payments-140Foreign exchange differences(15)-Interest accrued on borrowings29 -Change in operating assets and liabilities:Decrease/(increase) in trade and other receivables19 (1,079)Decrease/(increase) in inventories106 (469)Decrease/(increase) in other operating assets(23)440Increase/(decrease) in trade and other payables(4,708)4,576Decrease in deferred tax liabilities(102)(8)Increase/(decrease) in employee benefits(13)75Increase in other operating liabilities-176Net cash used in operating activities(7,642)(1,284)60 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedNotes to the financial statements30 June 201745Note 33. Earnings per shareConsolidated20172016$'000$'000Loss after income tax attributable to the owners of TZ Limited(6,481)(7,034)NumberNumberWeighted average number of ordinary shares used in calculating basic earnings per share503,883,826 466,197,691 Weighted average number of ordinary shares used in calculating diluted earnings per share503,883,826 466,197,691 CentsCentsBasic earnings per share(1.29)(1.51)Diluted earnings per share(1.29)(1.51)For the purpose calculating the diluted earnings per share the denominator has excluded 16,750,000 options as the effect would be anti-dilutive.Note 34. Share-based paymentsDirector and Executive Equity PlanThe Director and Executive Equity Plan ('DEEP') was approved by shareholders at 2009 Annual General Meeting that was held on 26 February 2010. It gives directors and senior executives the opportunity to participate in the plan. There were three tranches of options and two tranches of rights granted to the directors in 2010 and three tranches of options granted to the directors in 2014. Details of unexpired options that remain on issue are set out below.Each tranche of options had a fixed number granted with vesting periods from one to three years. Each option, when validly exercised, entitles the holder to receive one fully paid share in the company. Set out below are summaries of options granted under the plan:2017Balance at Balance at Exercise the start of the end of Grant dateExpiry datepricethe yearGrantedExercisedExpiredthe year26/02/201030/06/2017$2.00 1,750,000 --(1,750,000)- 26/02/201030/06/2018$3.00 1,750,000 ---1,750,000 15/01/201430/06/2018$0.25 5,000,000 ---5,000,000 15/01/201430/06/2019$0.45 5,000,000 ---5,000,000 15/01/201430/06/2020$0.60 5,000,000 ---5,000,000 18,500,000 --(1,750,000)16,750,000 Weighted average exercise price$0.81 $0.00$0.00$2.00 $0.70 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 61 TZ LimitedNotes to the financial statements30 June 2017Note 34. Share-based payments (continued)462016Balance at Balance at Exercise the start of the end of Grant dateExpiry datepricethe yearGrantedExercisedExpiredthe year26/02/201030/06/2016$1.00 1,750,000 --(1,750,000)- 26/02/201030/06/2017$2.00 1,750,000 ---1,750,000 26/02/201030/06/2018$3.00 1,750,000 ---1,750,000 15/01/201430/06/2018$0.25 5,000,000 ---5,000,000 15/01/201430/06/2019$0.40 5,000,000 ---5,000,000 15/01/201430/06/2020$0.60 5,000,000 ---5,000,000 20,250,000 --(1,750,000)18,500,000 Weighted average exercise price$0.83 $0.00$0.00$1.00 $0.81 Set out below are the options exercisable at the end of the financial year:20172016Grant dateExpiry dateNumberNumber26/02/201030/06/2017-1,750,00026/02/201030/06/20181,750,000 1,750,00015/01/201430/06/20185,000,000 5,000,00015/01/201430/06/20195,000,000 5,000,00015/01/201430/06/20205,000,000 5,000,00016,750,000 18,500,000 The weighted average remaining contractual life of options outstanding at the end of the financial year was 1.90 years (2016: 2.72 years).Note 35. Events after the reporting periodNo matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.62 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedDirectors' declaration30 June 201747In the directors' opinion:●the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;●the attached financial statements and notes comply with International Financial Reporting Standards as issued by theInternational Accounting Standards Board as described in note 1 to the financial statements;●the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and●there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.The directors have been given the declarations required by section 295A of the Corporations Act 2001.Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.On behalf of the directors___________________________Mark BourisDirector31 August 2017SydneyTZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 63 Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E info.nsw@au.gt.com W www.grantthornton.com.au Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report To the Members of TZ Limited Report on the audit of the financial report Opinion We have audited the financial report of TZ Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated 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: a Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the year ended on that date; and b 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 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 (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 64 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS Material Uncertainty Related to Going Concern We draw attention to Note 1 in the financial statements, which indicates that the Group incurred a net loss of $6,790,000 and net cash outflows from operating activities of $7,642,000 during the year ended 30 June 2017. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. 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. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key audit matter How our audit addressed the key audit matter Revenue recognition (Note 1 and Note 4) The Group offers products and services to customers that require varied revenue recognition accounting policies given different performance obligation profiles. In accordance with AASB 118 Revenues, revenue from services is recognised in the accounting period in which the services are rendered, by reference to the stage of completion of the specific transaction. Revenue for Packaged Asset Delivery and Postal projects is recognised under the percentage of completion method. This method requires a significant amount of management judgement. This area is a key audit matter due to the degree of estimation and management judgement required to determine the appropriate amount of revenue to recognise. Our audit procedures included, amongst others:  considering the appropriateness of the Group’s revenue recognition accounting policies, placing particular focus on those products and services for which revenue is recognised under the percentage of completion method;  holding discussions with key management personnel and project managers to understand and evaluate management’s assessment and associated assumptions in determining the percentage of completion;  evaluating the stage of completion calculation for a sample of Packaged Asset Delivery and Postal projects to assess whether the Group’s accounting policy had been correctly applied;  agreeing key terms of individually significant projects to underlying contracts and purchase orders;  recalculating and assessing management’s estimate of percentage complete by agreeing a sample of costs incurred for projects in progress at period end and comparing to the total estimated project costs;  assessing management’s ability to accurately estimate project costs by comparing actual project costs to prior estimates; and  assessing the adequacy of the related disclosures in the financial statements. Key audit matter How our audit addressed the key audit matter Intangible assets (Note 1 and Note 13) The Group capitalises costs incurred in the development and enhancement of its proprietary technology. The Group capitalised $1,668,000 of development costs during the year ended 30 June 2017. AASB 138 Intangible Assets sets out the specific requirements to be met in order to capitalise development costs. The process to measure the amount of development costs to capitalise involves significant management judgement in assessing whether costs meet the recognition criteria described in AASB 138. This area is a key audit matter due to the degree of subjectivity and management judgement applied in assessing whether costs meet the recognition criteria described in AASB 138. Our procedures included, amongst others:  obtaining a list of additions to intangible assets and agreeing to the general ledger;  agreeing a sample of additions to supporting documentation such as time records or invoices from third party suppliers and assessing whether the amounts met the recognition criteria in AASB 138;  assessing the appropriateness of the Group’s accounting policy for research and development costs; and  assessing the adequacy of the related disclosures in the financial statements. Impairment testing of assets (Note 1 and Note 13) AASB 136 Impairment of Assets requires that an entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any indication exists, the entity shall estimate the recoverable amount of the asset. Forecasting future cash flows and applying an appropriate discount rate involves a high degree of estimation and judgement by management. We have determined this is a key audit matter due to the judgement required by management in assessing if impairment indicators are present and in preparing an impairment assessment to meet the requirements of AASB 136. Our procedures included, amongst others:  assessing management’s determination of the Group’s cash generating units (CGUs) based on our understanding of the nature of the Group’s business;  assessing management’s allocation of goodwill and other assets to the identified CGUs;  obtaining the impairment assessment prepared by the management and, together with our valuation specialists, assessing the reasonableness of the key assumptions in the impairment model including: - checking mathematical accuracy, challenging forecast future cash flows and the appropriateness of discount and growth rates; and - considering the risk of management bias in the preparation of the financial information making up the forecast future cash flows;  performing sensitivity analysis over key assumptions; and  assessing the adequacy of the related disclosures in the financial statements. Information Other than the Financial Report and Auditor’s Report Thereon 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 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and 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 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 65 Key audit matter How our audit addressed the key audit matter Intangible assets (Note 1 and Note 13) The Group capitalises costs incurred in the development and enhancement of its proprietary technology. The Group capitalised $1,668,000 of development costs during the year ended 30 June 2017. AASB 138 Intangible Assets sets out the specific requirements to be met in order to capitalise development costs. The process to measure the amount of development costs to capitalise involves significant management judgement in assessing whether costs meet the recognition criteria described in AASB 138. This area is a key audit matter due to the degree of subjectivity and management judgement applied in assessing whether costs meet the recognition criteria described in AASB 138. Our procedures included, amongst others:  obtaining a list of additions to intangible assets and agreeing to the general ledger;  agreeing a sample of additions to supporting documentation such as time records or invoices from third party suppliers and assessing whether the amounts met the recognition criteria in AASB 138;  assessing the appropriateness of the Group’s accounting policy for research and development costs; and  assessing the adequacy of the related disclosures in the financial statements. Impairment testing of assets (Note 1 and Note 13) AASB 136 Impairment of Assets requires that an entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any indication exists, the entity shall estimate the recoverable amount of the asset. Forecasting future cash flows and applying an appropriate discount rate involves a high degree of estimation and judgement by management. We have determined this is a key audit matter due to the judgement required by management in assessing if impairment indicators are present and in preparing an impairment assessment to meet the requirements of AASB 136. Our procedures included, amongst others:  assessing management’s determination of the Group’s cash generating units (CGUs) based on our understanding of the nature of the Group’s business;  assessing management’s allocation of goodwill and other assets to the identified CGUs;  obtaining the impairment assessment prepared by the management and, together with our valuation specialists, assessing the reasonableness of the key assumptions in the impairment model including: - checking mathematical accuracy, challenging forecast future cash flows and the appropriateness of discount and growth rates; and - considering the risk of management bias in the preparation of the financial information making up the forecast future cash flows;  performing sensitivity analysis over key assumptions; and  assessing the adequacy of the related disclosures in the financial statements. Information Other than the Financial Report and Auditor’s Report Thereon 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 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and 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 Key audit matter How our audit addressed the key audit matter Intangible assets (Note 1 and Note 13) The Group capitalises costs incurred in the development and enhancement of its proprietary technology. The Group capitalised $1,668,000 of development costs during the year ended 30 June 2017. AASB 138 Intangible Assets sets out the specific requirements to be met in order to capitalise development costs. The process to measure the amount of development costs to capitalise involves significant management judgement in assessing whether costs meet the recognition criteria described in AASB 138. This area is a key audit matter due to the degree of subjectivity and management judgement applied in assessing whether costs meet the recognition criteria described in AASB 138. Our procedures included, amongst others:  obtaining a list of additions to intangible assets and agreeing to the general ledger;  agreeing a sample of additions to supporting documentation such as time records or invoices from third party suppliers and assessing whether the amounts met the recognition criteria in AASB 138;  assessing the appropriateness of the Group’s accounting policy for research and development costs; and  assessing the adequacy of the related disclosures in the financial statements. Impairment testing of assets (Note 1 and Note 13) AASB 136 Impairment of Assets requires that an entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any indication exists, the entity shall estimate the recoverable amount of the asset. Forecasting future cash flows and applying an appropriate discount rate involves a high degree of estimation and judgement by management. We have determined this is a key audit matter due to the judgement required by management in assessing if impairment indicators are present and in preparing an impairment assessment to meet the requirements of AASB 136. Our procedures included, amongst others:  assessing management’s determination of the Group’s cash generating units (CGUs) based on our understanding of the nature of the Group’s business;  assessing management’s allocation of goodwill and other assets to the identified CGUs;  obtaining the impairment assessment prepared by the management and, together with our valuation specialists, assessing the reasonableness of the key assumptions in the impairment model including: - checking mathematical accuracy, challenging forecast future cash flows and the appropriateness of discount and growth rates; and - considering the risk of management bias in the preparation of the financial information making up the forecast future cash flows;  performing sensitivity analysis over key assumptions; and  assessing the adequacy of the related disclosures in the financial statements. Information Other than the Financial Report and Auditor’s Report Thereon 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 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and 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 66 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 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 Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue 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 in pages 17 to 22 of the directors’ report for the year ended 30 June 2017. In our opinion, the Remuneration Report of TZ Limited, for the year ended 30 June 2017, 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. GRANT THORNTON AUDIT PTY LTD Chartered Accountants M R Leivesley Partner - Audit & Assurance Sydney, 31 August 2017 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 Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue 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 in pages 17 to 22 of the directors’ report for the year ended 30 June 2017. In our opinion, the Remuneration Report of TZ Limited, for the year ended 30 June 2017, 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. GRANT THORNTON AUDIT PTY LTD Chartered Accountants M R Leivesley Partner - Audit & Assurance Sydney, 31 August 2017 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS 67 TZ LimitedShareholder information30 June 201750The shareholder information set out below was applicable as at 31 August 2017.Distribution of equitable securitiesAnalysis of number of equitable security holders by size of holding: Number of holders Number of optionsof holders overof ordinary ordinary shares shares1 to 1,000692 -1,001 to 5,000626 -5,001 to 10,000267 -10,001 to 100,000650 -100,001 and over322 2 2,557 2 Holding less than a marketable parcel1,706 -Equity security holdersTwenty largest quoted equity security holdersThe names of the twenty largest security holders of quoted equity securities are listed below:Ordinary shares % of total shares Number heldissuedHSBC Custody Nominees (Australia) Limited201,313,839 39.94 J P Morgan Nominees Australia Limited57,455,583 11.40 One Managed Investment Funds Limited (Technical Investing Absolute R)10,422,163 2.07 National Nominees Limited9,237,392 1.83 Rod Investments (Vic) Pty Ltd (Gronow Super Fund A/C)7,000,000 1.39 Surflodge Pty Ltd (Je Lynch Staff Super Fd A/C)6,256,828 1.24 Mrs Margaret Jane Watt6,000,000 1.19 Mr David Frederick Oakley (DFO Investment A/C)5,616,363 1.11 Mr David Frederick Oakley5,446,363 1.08 Zellvest Pty Ltd (No 2 Account)4,980,058 0.99 Mr Ken Tuder + Ms Thuy Le (Tuder Le S/F A/C)4,629,159 0.92 One Managed Investment Funds Limited (TI Growth A/C)4,300,000 0.85 One Managed Investment Funds Limited (TI Family Wealth A/C)4,004,548 0.79 Mr Peter Howells4,000,000 0.79 Surflodge Pty Ltd3,509,264 0.70 Mr David Leroy Boyles3,000,000 0.60 Citicorp Nominees Pty Limited2,953,345 0.59 NGP Investments (No 2) Pty Limited2,649,087 0.53 Guthrie Cad/Gis Software Pty Ltd (Guthrie Super Fund A/C)2,625,000 0.52 Mr Mark Caple2,592,679 0.51 347,991,671 69.04 68 TZ LIMITED / 2017 ANNUAL REPORT / FINANCIAL STATEMENTS TZ LimitedShareholder information30 June 201751Unquoted equity securitiesNumberNumberon issueof holdersOptions over ordinary shares16,750,000 2 Substantial holdersSubstantial holders in the company are set out below:Ordinary shares % of total shares Number heldissuedHSBC Custody Nominees (Australia) Limited201,313,839 39.94 J P Morgan Nominees Australia Limited57,455,583 11.40 Voting rightsThe voting rights attached to ordinary shares are set out below:Ordinary sharesOn 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.There are no other classes of equity securities.> Macquarie Telecom Data Center Australia 

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