TZ Limited
Annual Report 2019

Plain-text annual report

TZ Limited Appendix 4E Preliminary final report 1. Company details Name of entity: ABN: Reporting period: Previous period: TZ Limited 26 073 979 272 For the year ended 30 June 2019 For the year ended 30 June 2018 2. Results for announcement to the market Revenues from ordinary activities Earnings loss before interest, tax, depreciation and amortisation, adjusted for impairment ('adjusted EBITDA') Loss from ordinary activities after tax attributable to the owners of TZ Limited Loss for the year attributable to the owners of TZ Limited up up down down $ 0.2% to 17,430,926 32.0% to (3,480,093) 62.7% to (4,359,688) 62.7% to (4,359,688) Dividends There were no dividends paid, recommended or declared during the current financial period. Comments The loss for the consolidated entity after providing for income tax amounted to $4,359,688 (30 June 2018: $11,687,882). The earnings before interest, tax, depreciation and amortisation ('EBITDA'), adjusted for impairment, was a loss of $3,480,093 (30 June 2018: loss of $2,636,165). EBITDA is a financial measure which is not prescribed by Australian Accounting Standards (‘AAS’) and represents the profit under AAS adjusted for non-specific non-cash and significant items. The directors consider EBITDA to reflect the core earnings of the consolidated entity. Refer to 'Review of operations' in the Directors' report for further commentary on the results for the year ended 30 June 2019. 3. Net tangible assets Net tangible assets per ordinary security 4. Control gained over entities Not applicable. 5. Loss of control over entities Not applicable. Reporting Previous period Cents period Cents (10.75) 0.50 TZ Limited Appendix 4E Preliminary final report 6. Dividends Current period There were no dividends paid, recommended or declared during the current financial period. Previous period There were no dividends paid, recommended or declared during the previous financial period. 7. Dividend reinvestment plans Not applicable. 8. Details of associates and joint venture entities Not applicable. 9. Foreign entities Details of origin of accounting standards used in compiling the report: Not applicable. 10. Audit qualification or review Details of audit/review dispute or qualification (if any): The financial statements have been audited and an unqualified opinion has been issued. The auditor’s report contains a paragraph addressing material uncertainty related to going concern. 11. Attachments Details of attachments (if any): The Annual Report of TZ Limited for the year ended 30 June 2019 is attached. 12. Signed Signed ___________________________ Date: 28 August 2019 John Wilson Managing Director Sydney x / 2 * y z°* y / 2 * * x x y / 2 y / 2 y x / 2 y / 2 y / 2 Annual Report 2019 TZ Limited Contents 30 June 2019 Corporate directory Managing Director's letter Directors' report Auditor's independence declaration Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors' declaration Independent auditor's report to the members of TZ Limited Shareholder information General information 2 4 6 17 18 19 20 21 22 55 56 60 The 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 office Level 11, 1 Chifley Square Sydney NSW 2000 Principal place of business TZ Limited and TZI Australia Pty Limited, Level 11, 1 Chifley Square, Sydney NSW 2000 Telezygology Inc., Suite 109-71, 15466 Los Gatos Blvd, Los Gatos, CA 95032 TZI Singapore Pte Limited, Suntec Tower 2, 9 Temasek Boulevard #29-01 Singapore 038989 TZI UK Limited, 207 Regent Street London WIB 3HH, England UK A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 28 August 2019. The directors have the power to amend and reissue the financial statements. 1 TZ Limited Corporate directory 30 June 2019 Directors Graham Lenzner John Wilson Thierry Denis Mario Vecchio Company secretary Craig Sowden Notice of annual general meeting The details of the annual general meeting of TZ Limited are: 10:00am, Friday, 29 November 2019 at: Radisson Blu Plaza Hotel 27 O’Connell Street Sydney NSW 2000 Registered office Level 11, 1 Chifley Square Sydney NSW 2000 Head office Tel: +61 2 9222 8890 Principal place of business TZ Limited and TZI Australia Pty Limited Level 11, 1 Chifley Square, Sydney NSW 2000 Australia Telezygology Inc., Suite 109-71, 15466 Los Gatos Blvd, Los Gatos, CA 95032 TZI Singapore Pte Limited, Suntec Tower 2, 9 Temasek Boulevard #29-01 Singapore 038989 TZI UK Limited, Third Floor, 207 Regent Street, London WIB 3HH, England UK Share register Auditor Solicitors Bankers Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford VIC 3067 Tel: 1300 787 272 Fax: +61 3 9473 2500 Grant Thornton Audit Pty Ltd Level 17, 383 Kent Street Sydney NSW 2000 Landerer & Company Level 31, 133 Castlereagh Street Sydney NSW 2000 St George Bank Limited Level 3, 1 Chifley Square Sydney NSW 2000 Stock exchange listing TZ Limited shares are listed on the Australian Securities Exchange (ASX code: TZL) Website www.tz.net TZ Limited's public website contains information regarding its products and the company, including an investor services section E-mail: info@tz.net 2 TZ Limited Corporate directory 30 June 2019 Corporate Governance Statement The directors and management are committed to conducting the business of TZ Limited in an ethical manner and in accordance with the highest standards of corporate governance. TZ Limited has adopted and substantially complied with the ASX Corporate Governance Principles and Recommendations (Third Edition) (‘Recommendations’) to the extent appropriate to the size and nature of its operations. The Corporate Governance Statement, which sets out the corporate governance practices that were in operation during the financial year and identifies and explains any Recommendations that have not been followed, was approved at the same time as the annual report can be found at http://tz.net/investors/corporate-governance/ 3 TZ Limited Managing Director's letter 30 June 2019 Dear Shareholders We’re now two years into our business transformation program, and in many ways, FY2019 has been one of our most challenging years. • We’ve been working hard to transition our business from a dependency on a handful of very large volume but low margin postal supply contracts to a business supported by a substantially broader base of retained customers, across multiple sectors, at margins that can support our path to profitability. Our low margin postal business contracts, that generated revenues in FY2017 of around $8.5M and represented 40% of our sales, have now expired or been terminated. Supply and service contracts with these established Postal customers including UPS, Singapore Post, Pos Malaysia and Poste Italiane have been renegotiated at pricing that supports sustainable margins going forward. • Behind the scenes, we have restructured our organisation and streamlined our operations to better manage overheads and to improve our business competence. The restructuring will not only improve operational effectiveness but will deliver savings of $1.2M in FY2020. The closing of office space in San Francisco and office and warehouse spaces in Singapore and Malaysia will also deliver a saving of $180,000 annually. The decision to rebuild our US management team around the appointment of experienced key senior US executives is starting to show positive results. The US management team are now fully engaged in running the US business and have implemented many initiatives to improve process and operations and to develop a sound base for sales growth. The investment in the US business is commensurate with the opportunity that the US market presents for the Company. We expect the US to deliver 60% of our business in FY2020. • At the start of the fiscal year, the Company faced significant challenges with project implementation. This was partly due to the large backlog of university orders and requirements to meet tight deployment deadlines in the educational sector, but it was also compounded by the lack of project management, planning and technical capability in our US team. To meet deployment deadlines, experienced resources were sent from Australia to support the local US team to meet contractual obligations including managing and undertaking the substantial remedial works required for UPS. Since then, we have established new implementation partner relationships, rebuilt our service team and reinforced our technical competencies in areas where there were previous gaps. With our project management, service and support structure now operating efficiently and more cost effectively through a contracted network of service partners, we are well positioned to address the growth opportunities we see in the US market. • To improve our market awareness, we have invested in marketing initiatives to help us to reposition ourselves in the marketplace. Specifically, we have embraced lead generation, direct marketing and trade show participation to help to build the sales opportunity pipeline. The launch of the new website in February 2019 and the engagement of ReachMarkets to help us uplift our investor communications are all initiatives that we hope to raise awareness of the Company with customers and investors. I am pleased to report that our web traffic has quadrupled over the last six months and open rates on our direct mail at 25% and click through rates at 10% are above industry standards. • I am convinced that with greater market presence and awareness, we will open the doors to new opportunities that can support our growth ambitions. We have developed relationships with many of the world’s largest brands and have built a solid track record of technology performance. Many of our new customers ask these existing customers for references. In fact, reference based selling accounts for a large portion of our new customer acquisitions. A customer promoting TZ to others is the best testimony of the value that TZ can bring to the marketplace. Note that most of our competitors outsource their HW and SW offering. As such, they are unable to meet the integration needs that so many of these customers are seeking. Our established SW platform with its extensive API library and open integration approach, coupled with our strong development competence in this area remains a major enabler for success and a differentiator for the Company. 4 TZ Limited Managing Director's letter 30 June 2019 • To further help us maintain our competitive advantage, we have continued to optimise our hardware products to improve cost position and margins; we’ve uplifted our software solutions to industry standards for security to better support our differentiation; and we have introduced new Platform-as-a-Service and Software-as-a-Service subscription-based offerings to build the foundations for long tail annuity revenues. We are confident that this will yield positive results for the Company in FY2020. We need to grow into new segments outside our traditional business. The successful introduction of these new products to expand our offerings and increase our flexibility in being able to offer electronics and software licensed or subscription based deals, will help us to build on our existing sales base and to better penetrate new segments. • From a market perspective, there are many areas that offer potential for growth. In previous years, we have only focused at the top end of town with our enterprise Day Locker and Package Management offerings. • New business development efforts to access the End-of-Trip and SME Day Locker opportunities have yielded good results for TZ. In the US where we launched the Day Locker offering this fiscal year, we have built a strong pipeline of new opportunities, successfully secured new business with MasterCard and are working with Gensler and other architectural firms on new Day Locker opportunities. In Australia, we’ve received greater levels of acceptance of our offerings with new business wins with Dimension Data, UTS and Federation University. • Our Educational market in the US remains a large growth area for TZ. The volume of packages coming into Universities for students has been increasing for years. Self-service and low-cost delivery technology is a major area of investment in the America’s collegiate marketplace. We have strong ambitions to dominate this sector on the back of prestigious University wins like Rutgers, Vanderbilt, Princeton, Columbia, University of Tennessee, East Tennessee State University, etc. • The retail sector or buying online and picking up at the store is a major driver of locker adoption globally. Delivery of everything from groceries, medication, pet items, e-commerce, and virtually every consumer transaction has been a major differentiation trend among retailers, restaurants, and B2B/B2C players. Convenience, cost, differentiation, and brand are driving massive last mile delivery investments. These are long lead time opportunities but offer the potential for large volume sales. We have been approached by many organisations to participate on RFIs and RFPs. We await the outcome of some of these opportunities. They will start with a pilot but like the Postal sector have the potential for a large roll-out in time. It’s been a journey for the Company and while our numbers this year don’t readily reflect the progress we’re making, there are many things that we can be pleased about. The business fundamentals are in place, the tailwinds are encouraging, and the outlook is promising. We remain singularly focused on turning the corner into profitability and to demonstrating that we have a desirable, sought after technology offering that the market values and a business that offers the potential for sustainable growth. ___________________________ John Wilson Managing Director 28 August 2019 Sydney 5 TZ Limited Directors' report 30 June 2019 The 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 2019. Directors The 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: Graham Lenzner - Chairman John Wilson Thierry Denis Mario Vecchio Mark Bouris (resigned on 20 November 2018) Principal activities During 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 Telezygology Inc. and TZI Australia Pty Limited ('TZI'). All of the operations of the consolidated entity are based in Australia, the United States of America, United Kingdom and Singapore. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations For the year ended 30 June 2019, the consolidated entity recorded operating revenue of $17.4M for the year with gross margins of 48.7%, EBITDA* of -$3.5M and Net Loss After Tax of $4.4M. Meaningful comparisons with the previous financial year need to take into account the significant revision of TZ’s revenue recognition policy in compliance with the introduction of AASB 15 in FY2019. Under TZ’s previous policy, revenue was recognised on a percentage of cost completion basis, whereas the new policy in FY2019 now recognises revenue when performance obligations have been satisfied. A consequence of the adoption of the new policy this year was that $4.2M of revenue previously accrued and recognised in FY2018 had to be recognised again in FY2019 to align with when the performance obligations under those contracts were satisfied, accompanied by an adjustment to the opening Retained Earnings balance on 1 July 2018. $4.1 million of this revenue was recognised in the second half of FY2019 although it related to contracts that were delivered in the first half of FY2019. To allow for meaningful year-on-year comparisons of Profit and Loss (P&L) performance, all FY2018 P&L comparatives quoted in this Directors’ Report have been adjusted based on how FY2018 contracts would have been accounted for under the new revenue policy, unless otherwise stated. The table below compares FY2019 results against adjusted FY2018 results. A comparison to reported FY2018 results is available in the Statement of Profit or Loss on page 18. Key Metrics Operating Revenue Gross Margin (%) Overheads EBITDA* Impairment EBIT NPAT Operating cash flow Investment in product development 30 June 2019 30 June 2018 Variance $'M $'M $'M 17.4 15.0 48.7% 50.3% 12.0 (3.5) - (3.8) (4.4) (3.7) 0.7 11.5 (3.9) (7.4) (12.7) (13.0) (3.5) 1.5 2.4 - 0.5 0.4 7.4 8.9 8.6 (0.2) (0.8) * EBITDA is a financial measure which is not prescribed by Australian Accounting Standards (“AAS”) and represents the profit under AAS adjusted for non-specific non-cash and significant items. The directors consider EBITDA to reflect the core earnings of the consolidated entity. 6 TZ Limited Directors' report 30 June 2019 TZ Limited’s full year group revenue in FY2019 was $17.4M. This represents an increase of 15.6% on the adjusted FY2018 revenues. The bulk of the revenue growth has come from the large Locker supply contract to major logistics player DSV in South Africa, who upgraded their existing 106 Locker Bank network with TZ technology and ordered an additional 200 Locker Banks to bring their total network to 306 Locker Banks. As a consequence, revenues from this customer increased from $1.0M last year to $3.9M this year. The USA market had a nominal increase in revenue from $9.1M last year to $9.4M this year. Despite the lack of business growth, the result was in line with forecast expectations. The US business experienced significant disruption last year not only from the change in the US management team but also through the implementation challenges from the large backlog of orders at the start of the fiscal year and the undertaking of the substantial United Parcel Service (UPS) remedial works. Revenues in Australia were 7% down from $3.3M last year to $3.1M this year. Day Locker sales and services to retained customers such as Westpac, KPMG and Suncorp were in line with budget. We did expect stronger performance in our data center security business given expansion of NextDC and MacTel footprints, however delays to these infrastructure projects have pushed out the timing of sales. The investment and focus on lead generation and direct marketing implemented in the latter half of FY2019 is expected to support new growth opportunities and business development in both the US and Australian geographies. The backlog of purchase orders and committed business at the end of FY2019, that will be deployed in first half of FY2020, signals a promising start for the new operating year. Gross margins this year were 48.7% which is down from 50.3% last year. This year’s margin was affected by the large rectification and remedial works undertaken and completed for UPS in the USA at a cost of approximately $440,000. Without this abnormal cost, gross margin in FY2019 would have been 51.2%, an improvement on gross margin on the prior year. The consolidated entity’s overhead costs were $12.0M, an increase of 4.0% on the $11.5M recorded last year largely due to transition costs in setting up the new management and organisational structure. At the end of FY2019, a restructure was completed to right set the organisation which will reduce labour costs by $1.2M in FY2020. Net operating cash outflows were $3.7M this year ($3.5M in FY2018) which were affected by the lower margins due to UPS and the small increase in overhead costs. The consolidated entity continued investment in product development this year but at a lower level of investment than in previous years, as several major initiatives in the next generation device and software development have been completed and commercialised. A total of $0.7M was invested compared to $1.5M in FY2018. The commercialisation of these new initiatives in FY2020 should deliver reductions in the cost of goods of key hardware components and support sales to new market segments and the migration to subscription-based annuity offerings. The operating cash outflows and investment activities were funded through an increase in long term debt of $4.0M. To allow for this, the size of the consolidated entity’s debenture facility was increased from $5M to $9M during the year, leaving an available debt facility of $1M at the end of FY2019. Subsequent to year end, the debt facility has been increased by a further $2M. Further information about the consolidated entity's activities this past year and plans for next year can be found in the Managing Director’s Report on page 4. Significant changes in the state of affairs There 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 year No matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years. Likely developments and expected results of operations Further information on the future strategies is detailed in the Managing Director's report which precedes the Directors' report and Annual Financial Statements. 7 TZ Limited Directors' report 30 June 2019 Environmental regulation The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. Information on directors Name: Title: Qualifications: Experience and expertise: Graham Lenzner Non-Executive Chairman BEc (USyd) Graham brings a wealth of Corporate experience to the Board as an Independent Director. He has had a career spanning over four decades with particular emphasis on investment management and financial markets. He was an Executive Director of the Armstrong Jones Group for twelve years, the last four years as Joint Managing Director until it's takeover by ING. Other previous roles include Finance and Deputy Managing Director Aquila Steel and General Manager Finance and Investments MMI Insurance Ltd. He has served on the Board of a number of both listed and private companies. Independent Non-Executive Director of 360 Capital Group Limited (ASX: TGP) Other current directorships: Former directorships (last 3 years): None None Special responsibilities: 600,000 ordinary shares Interests in shares: None Interests in options: Name: Title: Qualifications: Experience and expertise: John Wilson Managing Director Bachelor of Engineering, Post Graduate in International Marketing John has extensive global business experience, having spent most of his 20 year career in the development of international businesses in Asia, Europe and the US including establishment of major strategic alliances and partnerships, technology licenses and driving market entry strategies through new product innovation and commercialization. John specializes in the field of strategic business development, innovation management and product commercialization. He has a post graduate qualification in international marketing and has received skills development from graduate schools in the US and in Europe in the areas of value based management and innovation management. John successfully co-founded and built TZ from the ground up into a global publicly listed technology company before exiting the Company in early 2007. He returned to TZ in a consulting capacity to support the new Board of TZ Limited in 2011. John also has significant executive management experience having spent a decade in his earlier years working for a major multinational manufacturing corporation in a range of senior roles across marketing, business development, strategy development, technology management and business unit general management. Other current directorships: None Former directorships (last 3 years): None None Special responsibilities: 8,230 ordinary shares Interests in shares: None Interests in options: 8 TZ Limited Directors' report 30 June 2019 Name: Title: Qualifications: Experience and expertise: Thierry Denis Non-Executive Director Ingenieur (ENSEA France), GAICD Thierry is a technology executive with more than 20 years’ international experience in business management, company turnaround and transformation. He built an accomplished career with billion-dollar technology company Ingenico, leading a diverse range of mandates across dynamically different regions and markets. Thierry has led culture and process change, while leveraging his strong foundation expertise in IT solutions. Thierry was successful at Ingenico in delivering revenue and profit growth through the creation of scalable, lean and efficient business models and engaged, empowered and high performing team environments. This accomplishment earned him industry recognition through receipt of ‘President of the Year’ Award by TMT News. Non-Executive Director of Splitit Ltd (ASX: SPT) Other current directorships: Former directorships (last 3 years): None Special responsibilities: Interests in shares: Interests in options: Chairman of the Audit and Risk Committee 200,000 ordinary shares None Name: Title: Qualifications: Experience and expertise: Mario Vecchio Non-Executive Director Electronic Engineer Mario has run various businesses in the technology industry including sectors such as networking, enterprise software, telecommunications and healthcare. He has had over 35 years' experience in information technology and related markets working with companies including Cisco Systems, Siemens, Juniper Networks and Amdocs. He established a number of businesses since 1998 which have been involved in the development of many technology projects for the telecommunications, healthcare and utility industries. Mario founded Progility PLC which became public on the UK AIM Index. Mario is currently Managing Director APJC for Big Swithch Networks Inc. His technology experience includes networking/cloud, security solutions, GEO location systems, voice, telecommunications, encryption technologies and wireless systems. As a director of ASK Solutions Victoria Pty Ltd, Mario facilitated a number of significant fund raising events for the Childrens Cancer Institute of Australia (CCIA) to assist research projects into childhood cancers. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Interests in shares: Interests in options: Chairman of the Remuneration and Nomination Committee 85,000 ordinary shares 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. '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 secretary Craig Sowden is the Company Secretary and also the Chief Financial Officer of the company. Craig has over 20 years of experience of financial and commercial experience in various listed and unlisted corporations across a diverse range of industries. Craig joined TZ as Chief Financial Officer in October 2016 and was appointed Company Secretary in September 2017. 9 TZ Limited Directors' report 30 June 2019 Meetings of directors The number of meetings of the company's Board of Directors ('the Board') and of each Board committee held during the year ended 30 June 2019, and the number of meetings attended by each director were: Full Board Audit and Risk Committee Remuneration and Nomination Committee Attended Held Attended Held Attended Held Graham Lenzner John Wilson Thierry Denis Mario Vecchio Mark Bouris 11 12 12 11 3 12 12 12 12 5 2 2 2 1 1 2 2 2 2 1 2 3 2 3 2 3 3 3 3 2 Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. 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 personnel Principles used to determine the nature and amount of remuneration The 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. A Remuneration and Nomination Committee is responsible for the remuneration policies of the consolidated entity. The consolidated entity established a TZ Employee Incentive Scheme ('TZEIS') in 2009 to attract, retain, motivate and reward senior executives and directors (including non-executive directors) of the company (collectively the 'Participants') by issuing options to the Participants to allow the Participants to acquire fully paid ordinary class shares in the company upon exercising the options. The exercise of each option entitles the holder of that option to acquire one fully paid ordinary class share in the capital of the company. Under the TZEIS, the number of 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 options is to be set by the board of directors of the company. At the 2018 Annual General Meeting, the shareholders re-approved the TZEIS. Subsequent to the financial year ended 30 June 2019 in July 2019, 2,901,000 options were granted to the directors and executives as follows: ● ● ● 120,000 options were granted to each of the Non-Executive Directors 495,000 options were granted to each of the Managing Director 2,046,000 options were granted to the senior executives 10 TZ Limited Directors' report 30 June 2019 Non-executive directors remuneration Fees 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 remuneration The 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 leave The 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 can 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 remuneration Remuneration 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'). Voting and comments made at the company's 2018 Annual General Meeting ('AGM') At the last AGM 56.4% of the shareholders voted to adopt the remuneration report for the year ended 30 June 2018. The company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Amounts of remuneration The key management personnel of the consolidated entity consisted of the directors of TZ Limited and the following persons: ● ● ● Brian Leary - President of Telezygology Inc. Adam Forsyth - Chief Technical Officer of TZ Limited Craig Sowden - Chief Financial Officer of TZ Limited 11 TZ Limited Directors' report 30 June 2019 2019 Non-Executive Directors: G Lenzner T Denis M Vecchio M Bouris* Executive Directors: J Wilson Other Key Management Personnel: B Leary A Forsyth C Sowden 2018 Non-Executive Directors: M Bouris G Lenzner* T Denis* M Vecchio* P Casey * Executive Directors: J Wilson*/** K Ting* Other Key Management Personnel: W Leong* A Forsyth C Sowden Short-term benefits Cash salary and fees Other $ $ Bonus $ Post- employment benefits Long-term benefits Share- based payments Super- annuation $ Employee leave $ Options $ 68,493 68,493 68,493 70,228 - - - - - - - - 6,507 6,507 6,507 - 450,000 53,077 - 25,000 209,628 220,321 250,000 1,405,656 8,543 - 673 62,293 - - - - 2,911 21,177 23,631 92,240 - - - - - - - - - Short-term benefits Cash salary and fees Other $ $ Bonus $ Post- employment benefits Long-term benefits Share- based payments Super- annuation $ Employee leave $ Options $ 245,506 55,585 11,416 11,416 40,153 850 - - - - - - - - - - 5,281 1,084 1,084 - 365,192 78,530 - 2,067 50,000 - 20,833 - 115,680 145,313 230,000 1,298,791 9,506 - - 12,423 - - - 50,000 4,489 18,406 21,850 73,027 - - - - - - - - - - - Total $ - - - - 75,000 75,000 75,000 70,228 - 528,077 221,082 - 241,498 - - 274,304 - 1,560,189 Total $ 246,356 60,866 12,500 12,500 40,153 436,025 80,597 - - - - - - - 129,675 - 163,719 - - 251,850 - 1,434,241 * Represents remuneration from date of appointment and/or to date of resignation. * ** Represents remuneration from date of appointment and/or to date of resignation. Bonus represents a discretionary cash bonus awarded on 1 August 2018 in respect of services performed during the year ended 30 June 2017. The bonus was paid to John Wilson’s consulting company. Payment of the bonus was subject to achievement of deliverables including securing of strategic customer relationships, conversion of targeted sales opportunities and contracts in line with Board expectations and delivering on defined operational objectives set by the Board. No share of the bonus was forfeited. 12 TZ Limited Directors' report 30 June 2019 The proportion of remuneration linked to performance and the fixed proportion are as follows: Name Non-Executive Directors: G Lenzner T Denis M Vecchio P Casey M Bouris Executive Directors: J Wilson K Ting Other Key Management Personnel: B Leary Adam Forsyth C Sowden W Leong Fixed remuneration 2018 2019 At risk - STI At risk - LTI 2019 2018 2019 2018 100% 100% 100% - - 100% 100% 100% 100% 100% 100% - 100% 100% 100% 100% 100% - - 100% 100% 100% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: John Wilson Managing Director and Chief Executive Office 8 September 2017 Three years Base salary of $450,000. Notice period is 12 months in first year, 9 months in second year and 6 months in the third year. Brian Leary President of Telezygology Inc 1 October 2018 2 years Base salary of USD$200,000 and notice period of 3 months Adam Forsyth Chief Technical Officer 2 May 2016 No fixed term Base salary of AU$225,000 and notice period of 1 month Craig Sowden Chief Financial Officer 10 October 2016 No fixed term Base salary of AU$250,000 and notice period 2 months Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2019. 13 TZ Limited Directors' report 30 June 2019 Options There 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 2019. 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 2019. Additional information The earnings of the consolidated entity for the five years to 30 June 2019 are summarised below: 2019 $ 2018 $ 2017 $ 2016 $ 2015 $ Sales revenue Adjusted EBITDA * Loss after income tax 17,430,926 17,388,505 21,507,189 20,785,385 15,129,251 (4,869,814) (6,436,018) (2,636,165) (11,687,882) (2,948,311) (6,479,240) (5,278,049) (7,033,966) (3,480,093) (4,359,688) * Earnings before interest, tax, depreciation, amortisation and other non-operating items The factors that are considered to affect TSR are summarised below: 2019 2018 2017 2016 2015 Share price at financial year end ($) Basic earnings per share (cents per share) 0.09 (6.18) 0.17 (18.45) 0.02 (12.86) 0.10 (15.10) 0.09 (15.70) Additional disclosures relating to key management personnel Shareholding The 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: Ordinary shares Mark Bouris Graham Lenzner Thierry Denis Mario Vecchio John Wilson Craig Sowden Adam Forsyth Balance at the start of the year Additions Disposals other* Balance at the end of the year 310,469 600,000 200,000 85,000 8,230 3,500 13,230 1,220,429 - - - - - - 3,500 3,500 - - - - - - - - (310,469) - - - - - - (310,469) - 600,000 200,000 85,000 8,230 3,500 16,730 913,460 * Other represents no longer being designated as a KMP, not necessarily a disposal of holding. Option holding The number of options over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Options over ordinary shares Mark Bouris Balance at the start of the year Consolidation Forfeited/ Expired other* Balance at the end of the year 500,000 500,000 - - - - (500,000) (500,000) - - 14 TZ Limited Directors' report 30 June 2019 * Forfeited/other may represent no longer being designated as a KMP. It does not necessarily represent options that have been forfeited. No options were granted or exercised during the year ended 30 June 2019. Other transactions with key management personnel and their related parties During the year ended 30 June 2019 the consolidated entity incurred the following expenses from transactions with key management personnel and their related parties: ● ● Rent and serviced office expenditure, administration fees and storage costs of $67,829 (2018: $184,949) was paid to YBR Services Pty Limited, a director related entity in which Mark Bouris is a director. Mr Bouris resigned as a Director of TZ Limited on 20 November 2018. Therefore the amount for the financial year ended 30 June 2019 represents expenses for the period from 1 July 2018 to 20 November 2018. Broker fees of $nil (2018: $13,436) were paid 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. As at the 30 June 2019 the consolidated entity has the following payables with key management personnel and their related parties: ● $nil (2018: $47,289) payable to YBR Services Pty Limited, a director related entity in which Mark Bouris is a director for rent, serviced office expenditure and rental bond. Mr Bouris resigned as a Director of TZ Limited on 20 November 2018. Therefore YBR Services Pty Limited is no longer considered a related party at 30 June 2019. This concludes the remuneration report, which has been audited. Shares under option Unissued ordinary shares of TZ Limited under option at the date of this report are as follows: Grant date 15 January 2014 6 August 2019 6 August 2019 6 August 2019 Expiry date 30 June 2020 31 August 2024 31 August 2025 31 August 2026 Exercise price Number under option $6.00 $0.25 $0.40 $0.45 500,000 967,000 967,000 967,000 3,401,000 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 options There were no ordinary shares of TZ Limited issued on the exercise of options during the year ended 30 June 2019 and up to the date of this report. Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The company has not, during or since the 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. 15 TZ Limited Directors' report 30 June 2019 Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 25 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 25 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 Thornton There are no officers of the company who are former partners of Grant Thornton. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. Auditor Grant 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 ___________________________ John Wilson Managing Director 28 August 2019 Sydney 16 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 2019, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants S M Coulton Partner – Audit & Assurance Sydney, 28 August 2019 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘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. 17 TZ Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2019 Revenue Other income Interest income Expenses Raw materials and consumables used Employee benefits expense Occupancy expense Depreciation and amortisation expense Impairment of assets Communications expense Professional and corporate services Travel and accommodation expense Net foreign currency exchange gains Other expenses Finance costs Loss before income tax expense Income tax expense Note Consolidated 2019 $ 2018 $ 4 5 6 6 17,430,926 17,388,505 59,436 431 166,895 9,939 (8,939,309) (8,665,242) (569,344) (315,086) - (138,356) (759,874) (771,331) 70,503 (1,197,502) (549,725) (8,503,340) (7,873,047) (573,107) (1,338,342) (7,411,159) (154,980) (868,190) (668,445) 46,153 (1,596,609) (285,450) (4,344,473) (11,661,177) 7 (15,215) (26,705) Loss after income tax expense for the year attributable to the owners of TZ Limited (4,359,688) (11,687,882) Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of TZ Limited (665,428) (113,804) (665,428) (113,804) (5,025,116) (11,801,686) Cents Cents Basic earnings per share Diluted earnings per share 32 32 (6.18) (6.18) (18.45) (18.45) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 18 TZ Limited Statement of financial position As at 30 June 2019 Assets Current assets Cash and cash equivalents Trade and other receivables Contract assets, accrued revenue and work in progress Inventories Other Total current assets Non-current assets Property, plant and equipment Intangibles Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Provisions Total current liabilities Non-current liabilities Borrowings Total non-current liabilities Total liabilities Net assets/(liabilities) Equity Issued capital Reserves Accumulated losses Total equity/(deficiency) Note Consolidated 2019 $ 2018 $ 8 9 10 11 12 13 14 535,269 3,316,171 563,779 1,810,335 467,497 1,002,682 4,522,821 3,454,325 1,278,896 365,026 6,693,051 10,623,750 371,079 1,213,163 1,584,242 381,473 626,422 1,007,895 8,277,293 11,631,645 15 16 17 4,546,131 1,611,830 493,816 6,651,777 5,290,744 841,498 521,219 6,653,461 18 8,000,000 8,000,000 4,000,000 4,000,000 14,651,777 10,653,461 (6,374,484) 978,184 19 20 210,400,125 210,400,125 (3,723,340) (212,385,841) (205,698,601) (4,388,768) (6,374,484) 978,184 The above statement of financial position should be read in conjunction with the accompanying notes 19 TZ Limited Statement of changes in equity For the year ended 30 June 2019 Consolidated Balance at 1 July 2017 Issued capital $ Reserves $ Accumulated losses $ Total equity $ 204,951,076 (3,609,536) (194,010,719) 7,330,821 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year - - - - (113,804) (11,687,882) - (11,687,882) (113,804) (113,804) (11,687,882) (11,801,686) Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 19) 5,449,049 - - 5,449,049 Balance at 30 June 2018 210,400,125 (3,723,340) (205,698,601) 978,184 Consolidated Balance at 1 July 2018 Issued capital $ Reserves $ Accumulated losses $ Total deficiency in equity $ 210,400,125 (3,723,340) (205,698,601) 978,184 Adjustment on adoption of AASB 15 (note 1) - - (2,327,552) (2,327,552) Balance at 1 July 2018 - restated 210,400,125 (3,723,340) (208,026,153) (1,349,368) Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year - - - - (665,428) (4,359,688) - (4,359,688) (665,428) (665,428) (4,359,688) (5,025,116) Balance at 30 June 2019 210,400,125 (4,388,768) (212,385,841) (6,374,484) The above statement of changes in equity should be read in conjunction with the accompanying notes 20 TZ Limited Statement of cash flows For the year ended 30 June 2019 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers (inclusive of GST) Interest received Interest and other finance costs paid Income taxes paid Note Consolidated 2019 $ 2018 $ 20,030,338 16,218,123 (19,480,374) 9,939 (260,450) (26,705) (23,227,292) 431 (461,938) (15,215) Net cash used in operating activities 31 (3,673,676) (3,539,467) Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Proceeds from disposal of intangibles Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Transaction costs on shares issued Proceeds from borrowings Repayment of borrowings Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents 13 14 (153,221) (654,056) - (121,712) (1,528,644) 60,000 (807,277) (1,590,356) 19 - - 4,500,000 (500,000) 5,544,000 (94,875) 1,000,000 (1,000,000) 4,000,000 5,449,125 (480,953) 1,002,682 13,540 319,302 669,004 14,376 Cash and cash equivalents at the end of the financial year 8 535,269 1,002,682 The above statement of cash flows should be read in conjunction with the accompanying notes 21 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB 9 Financial Instruments The consolidated entity has adopted AASB 9 from 1 July 2018. The standard introduced new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading or contingent consideration recognised in a business combination) in other comprehensive income ('OCI'). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available. AASB 15 Revenue from Contracts with Customers The consolidated entity has adopted AASB 15 from 1 July 2018. The standard provides a single comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. This is described further in the accounting policies below. Credit risk is presented separately as an expense rather than adjusted against revenue. Contracts with customers are presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Customer acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contract period. Impact of adoption AASB 9 and AASB 15 were adopted using the modified retrospective approach and as such comparatives have not been restated. The impact of adoption on opening accumulated losses as at 1 July 2018 was as follows: Accumulated loss as reported in the Annual report for the year ended 30 June 2018 Contract assets (AASB 15) Accumulated losses as at 1 July 2018 on adoption of AASB 9 and AASB 15 1 July 2018 $ (205,698,601) (2,327,552) (208,026,153) 22 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) The adoption of these standards also resulted in the following reclassifications: ● ● ● ● interest income is now shown on the face of profit or loss; provision for impairment of receivables is now reclassified as allowance for expected credit loss; accrued revenue and work in progress now reclassified as contract asset; and customer deposits and unearned income now reclassified as contract liabilities. The tables below highlight the impact of AASB 15 on the consolidated entity's statement of profit or loss and other comprehensive income and the statement of financial position for the year ended 30 June 2019. The adoption of AASB 15 did not have a material impact on the consolidated entity’s statement of cash flows. Statement of Profit or Loss and Other Comprehensive Income (Extract) Revenue Raw materials and consumables used Employee benefits expense Other expenses Loss before income tax Income tax expenses Amounts under AASB 15 $ Amounts under AASB 118 and 111 $ Adjustments $ 17,430,926 (8,939,309) (8,665,242) (1,197,502) (3,367,681) 14,063,245 (7,557,094) (1,382,215) (8,665,242) - (1,197,502) - (4,344,473) (15,215) (1,985,465) - (6,329,938) (15,215) Loss after income tax expenses (4,359,688) (1,985,465) (6,345,153) Total comprehensive loss for the year (5,025,116) (1,985,465) (7,010,581) Basic earnings per share (cents) Diluted earnings per share (cents) Statement of Financial Position (Extract) Current assets Trade and other receivables Contract assets, accrued revenue and work in progress Current liabilities Trade and other payables Contract liabilities Net liabilities Equity Accumulated losses Total equity/(deficiency) (6.18) (6.18) (2.81) (2.81) (8.99) (8.99) Amounts under AASB 15 $ Amounts under AASB 118 and 111 $ Adjustments $ 3,316,171 563,779 - 342,086 3,316,171 905,865 4,546,131 1,611,830 - - 4,546,131 1,611,830 (6,374,484) 342,086 (6,032,398) (212,385,841) (6,374,484) 342,086 342,086 (212,043,755) (6,032,398) 23 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Going concern These 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 2019, 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 2020 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; The Directors maintain a positive outlook on achieving profitability and positive cash flows in the 30 June 2020 financial year based on the strength of the sales pipeline; and Availability to the consolidated entity of additional borrowings. The debenture facility with First Samuel Limited was increased by $2 million in July 2019. ● ● 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 lenders 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 preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention, except for derivative financial instruments at fair value. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 29. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of TZ Limited ('company' or 'parent entity') as at 30 June 2019 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'. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. 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. 24 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) 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 segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is TZ Limited's functional and presentation currency. Foreign currency transactions Foreign 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 operations The 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 recognition The consolidated entity recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Sale of software and hardware Sales of software and hardware is recognised at the point of sale, which is where the customer has taken delivery of the goods. 25 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Rendering of installation and commissioning services Rendering of installation and commissioning services revenue is recognised at the point in time when software and hardware has been installed. Rendering of maintenance services Revenue from maintenance services is typically paid in advance on an annual, quarterly or monthly basis. Revenue is recognised over the period the customer support/hosting relates to (the coverage period). Fees received in advance of the performance of services are deferred and recognised as contract liabilities. Rendering of professional services Rendering of professional services revenue is recognised when the service to the customer is completed. Revenue recognition policy prior to the adoption of AASB 15 on 1 July 2018 Revenue 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 goods Sales of non-project related software and hardware, revenue was recognised at the point of sale, which was when the customer had taken delivery of the goods, the risks and rewards are transferred to the customer and there was a valid sales contract. Amounts disclosed as revenue were net of sales returns and trade discounts. Project revenue Project revenues relating to the supply and installation of hardware and software was recognised by reference to the stage of completion of the contracts. Stage of completion was 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. Rendering of maintenance services Revenue from maintenance services is typically paid in advance on an annual, quarterly or monthly basis. Revenue was recognised over the period the customer support/hosting relates to (the coverage period). Fees received in advance of the performance of services were deferred and recognised as unearned income. Rendering of professional services Rendering of professional services revenue was recognised when the service to the customer was completed. Interest revenue Interest revenue is recognised as it 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. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. ● 26 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) 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. Reclassification Comparative 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 classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the 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. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. Contract assets Contract assets are recognised when the consolidated entity has transferred goods or services to the customer but where the consolidated entity is yet to establish an unconditional right to consideration. Contract assets are treated as financial assets for impairment purposes. Inventories Finished 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. 27 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless, an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, it's carrying value is written off. Impairment of financial assets The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation 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 improvements Plant and equipment Office equipment 20 - 33% 20% 15 - 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. Leases Lease 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. 28 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the 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. Patents Expenditure directly attributable to the registration of patents is capitalised at cost and is amortised over the useful life of 15 years. Research and development costs Research 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 3 to 5 years. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Contract liabilities Contract liabilities represent the consolidated entity's obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the consolidated entity recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the consolidated entity has transferred the goods or services to the customer. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. 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 costs Finance 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. 29 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Employee benefits Short-term employee benefits Liabilities 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 benefits Employee 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. 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 expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions is 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. The cost of equity-settled transactions is 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. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 30 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of 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 share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. 31 TZ Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) 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. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2019. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured 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 has elected to apply the modified retrospective approach as permitted by AASB 16. The cumulative effect of adopting AASB 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 July 2019 with no restatement of comparative information. The consolidated entity has chosen to measure the existing operating leases at the present value of the remaining lease payments, discounted using the consolidated entity's incremental borrowing rate at the date of initial application. Based on the elected transition method, the consolidated entity has assessed the estimated impact of AASB 16 on the consolidated statement of financial position on 1 July 2019 as follows: Recognition of right-of-use assets on adoption of AASB 16 Recognition of lease liability on adoption of AASB 16 Net impact on retained earnings at 1 July 2019 1 July 2019 $ 518,461 (518,461) - The effect on NPAT is not expected to be significant. However, EBITDA will be positively affected because the operating lease expense will be replaced by depreciation and interest charges, which are recorded below the EBITDA line. 32 TZ Limited Notes to the financial statements 30 June 2019 Note 2. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on 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. Revenue from contracts with customers Determining when to recognise revenues from maintenance services recognised over time is dependent on the extent to which the performance obligations have been satisfied. For maintenance service agreements, revenue recognition requires an understanding of the customer’s use of the related products, historical experience and knowledge of the market. With regard to the prior year, recognised amounts of contract revenues and related receivables reflect management’s best estimate of each contract’s outcome and stage of completion. This includes the assessment of the profitability of ongoing contracts and the order backlog. For more complex contracts in particular, costs to complete and contract profitability are subject to significant estimation uncertainty. Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience and historical collection rates. Capitalised development costs Distinguishing 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. Impairment of non-financial assets other than goodwill and other indefinite life intangible assets The 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. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Note 3. Operating segments Identification of reportable operating segments The consolidated entity operates in four operating segments being Australia, United States of America ('USA'), Europe Middle East and Africa ('EMEA') and Asia. The principal activities of each operating segment are identical, being the sale of hardware and software products. These segments are 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. Other segments represent the activities of the corporate headquarters. 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 transactions Transactions between segments are carried out at arm’s length and are eliminated on consolidation. 33 TZ Limited Notes to the financial statements 30 June 2019 Note 3. Operating segments (continued) Intersegment receivables, payables and loans Intersegment receivables, payables and loans are eliminated on consolidation. Major customers During the year ended 30 June 2019 1 customer (2018: 3 customers) each contributed more than 10% to the external revenue of the consolidated entity. This 1 customer contributed 20% (2018: 3 customers contributed 46%) of the consolidated entity's external revenue. Operating segment information Consolidated - 2019 Revenue Sales to external customers Interest Total revenue Adjusted EBITDA Depreciation and amortisation Interest revenue Finance costs Loss before income tax expense Income tax expense Loss after income tax expense Consolidated - 2018 Revenue Sales to external customers Interest Total revenue Adjusted EBITDA Depreciation and amortisation Impairment of assets Interest revenue Finance costs Loss before income tax expense Income tax expense Loss after income tax expense Australia $ USA $ EMEA $ Asia $ Other segments $ Total $ 3,118,924 - 3,118,924 9,357,013 - 9,357,013 4,013,430 - 4,013,430 941,559 - 941,559 - 17,430,926 431 431 431 17,431,357 919,786 (813,253) 828,451 137,509 (4,552,586) (3,480,093) (315,086) 431 (549,725) (4,344,473) (15,215) (4,359,688) Australia $ USA $ EMEA $ Asia $ Other segments $ Total $ 3,323,479 10,145,630 - 3,323,479 10,145,630 - 3,004,866 - 3,004,866 914,530 - 914,530 - 17,388,505 9,939 9,939 9,939 17,398,444 966,797 755,006 763,905 98,761 (5,220,634) (2,636,165) (1,338,342) (7,411,159) 9,939 (285,450) (11,661,177) (26,705) (11,687,882) All assets and liabilities, including taxes are not allocated to the operating segments as they are managed on an overall group basis. 34 TZ Limited Notes to the financial statements 30 June 2019 Note 3. Operating segments (continued) Geographical information Australia United States of America United Kingdom Singapore Note 4. Revenue Geographical non-current assets 2019 $ 2018 $ 1,426,290 155,945 1,129 878 353,518 651,223 1,672 1,482 1,584,242 1,007,895 Consolidated 2019 $ 2018 $ Sale and service revenue 17,430,926 17,388,505 Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Major product lines Sale of hardware and software Installation and commissioning services Maintenance and support services Professional services Timing of revenue recognition Goods and services transferred at a point in time Services transferred over time Refer to note 3 for details of revenue disaggregated by geographical regions. Note 5. Other income Government grants Royalties Other income 35 Consolidated 2019 $ 14,295,061 911,514 1,478,713 745,638 17,430,926 15,952,213 1,478,713 17,430,926 Consolidated 2019 $ 2018 $ 59,436 - 166,700 195 59,436 166,895 TZ Limited Notes to the financial statements 30 June 2019 Note 6. Expenses Loss before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Office equipment Total depreciation Amortisation Re-acquired right (Intevia Licence) Patents Development costs Total amortisation Total depreciation and amortisation Impairment Goodwill Re-acquired right (Intevia Licence) Patents Development costs Total impairment Minimum lease payments Defined contribution superannuation expense Note 7. Income tax expense Income tax expense Current tax Aggregate income tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Loss before income tax expense Tax at the statutory tax rate of 27.5% (2018: 30%) Current year tax losses not recognised Difference in overseas tax rates/refunds Income tax expense The consolidated entity is in the process of determining its tax loss position to carry forward. 36 Consolidated 2019 $ 2018 $ 1,617 108,510 55,935 4,611 90,131 73,772 166,062 168,514 - 4,378 144,646 418,324 95,403 656,101 149,024 1,169,828 315,086 1,338,342 - - - - 85,133 1,738,587 1,786,542 3,800,897 - 7,411,159 522,408 425,837 514,600 459,805 Consolidated 2019 $ 2018 $ 15,215 26,705 15,215 26,705 (4,344,473) (11,661,177) (1,194,730) (3,498,353) 1,148,904 61,041 2,939,358 585,700 15,215 26,705 TZ Limited Notes to the financial statements 30 June 2019 Note 8. Current assets - cash and cash equivalents Cash and cash equivalents Note 9. Current assets - trade and other receivables Trade receivables Less: Allowance for expected credit losses (2018: Provision for impairment of receivables) Other receivables Consolidated 2019 $ 2018 $ 535,269 1,002,682 Consolidated 2019 $ 2018 $ 3,216,063 (62,570) 3,153,493 4,395,850 (43,000) 4,352,850 162,678 169,971 3,316,171 4,522,821 Allowance for expected credit losses The ageing of the receivables and allowance for expected credit losses provided for above are as follows: Consolidated Not overdue 0 to 3 months overdue Movements in the allowance for expected credit losses are as follows: Expected credit loss rate 2019 % Carrying amount 2019 $ Allowance for expected credit losses 2019 $ - 6.97% 2,317,842 898,221 - 62,570 3,216,063 62,570 Opening balance Additional provisions recognised Receivables written off during the year as uncollectable Closing balance Note 10. Current assets - contract assets, accrued revenue and work in progress Contract assets Accrued revenue Work in progress 37 Consolidated 2019 $ 2018 $ 43,000 19,570 - 72,100 46,900 (76,000) 62,570 43,000 Consolidated 2019 $ 2018 $ 563,779 - - - 3,309,323 145,002 563,779 3,454,325 TZ Limited Notes to the financial statements 30 June 2019 Note 10. Current assets - contract assets, accrued revenue and work in progress (continued) Accrued revenue and work in progress have been reclassified to contract assets at 1 July 2018 following the adoption of AASB 15 'Revenue from Contracts with Customers'. Refer to note 1 for further details. Reconciliation Reconciliation of the written down values at the beginning and end of the current and previous financial year are set out below: Transfer accrued revenue and work-in-progress to contract assets on 1 July 2018 Adjustment to contract assets on adoption of AASB 15 Additions Transfer to trade receivables Closing balance Consolidated 2019 $ 3,454,325 (2,327,552) 563,779 (1,126,773) 563,779 Allowance for expected credit losses The allowance for expected credit losses on contract assets for the year ended 30 June 2019 is $nil (2018: $nil). Note 11. Current assets - inventories Finished goods - at cost Note 12. Current assets - other Prepayments Deferred expenses Security deposits Other deposits Consolidated 2019 $ 2018 $ 1,810,335 1,278,896 Consolidated 2019 $ 2018 $ 210,061 74,103 62,920 120,413 100,195 101,972 62,920 99,939 467,497 365,026 38 TZ Limited Notes to the financial statements 30 June 2019 Note 13. Non-current assets - property, plant and equipment Leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment - at cost Less: Accumulated depreciation Office equipment - at cost Less: Accumulated depreciation Consolidated 2019 $ 2018 $ 418,955 (417,586) 1,369 418,955 (415,969) 2,986 2,033,465 (1,762,212) 271,253 1,939,892 (1,653,702) 286,190 814,799 (716,342) 98,457 752,704 (660,407) 92,297 371,079 381,473 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2017 Additions Disposals Exchange differences Write off of assets Depreciation expense Balance at 30 June 2018 Additions Exchange differences Depreciation expense Balance at 30 June 2019 Plant and Leasehold improvements equipment Office equipment $ $ $ 7,597 - - - - (4,611) 2,986 - - (1,617) 260,752 117,312 (1,753) 10 - (90,131) 286,190 93,573 - (108,510) 181,318 4,401 (19,921) 931 (660) (73,772) 92,297 59,648 2,447 (55,935) Total $ 449,667 121,713 (21,674) 941 (660) (168,514) 381,473 153,221 2,447 (166,062) 1,369 271,253 98,457 371,079 39 TZ Limited Notes to the financial statements 30 June 2019 Note 14. Non-current assets - intangibles Re-acquired right (Intevia Licence) - at cost Less: Accumulated amortisation Less: Impairment Patents - at cost Less: Accumulated amortisation Less: Impairment Development costs - at cost Less: Accumulated amortisation Less: Impairment Other intangibles - at cost Less: Accumulated amortisation Less: Impairment Consolidated 2019 $ 2018 $ 10,138,090 10,138,090 (8,035,887) (2,102,203) - (8,035,887) (2,102,203) - 2,626,704 (753,358) (1,786,542) 86,804 2,572,866 (748,980) (1,786,542) 37,344 9,521,313 (3,893,954) (4,501,000) 1,126,359 8,839,386 (3,749,308) (4,501,000) 589,078 - - - - 483,775 (226,645) (257,130) - 1,213,163 626,422 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2017 Additions Disposals Exchange differences Impairment of assets Amortisation expense Balance at 30 June 2018 Additions Exchange differences Amortisation expense Balance at 30 June 2019 Goodwill $ Re-acquired right $ Patents $ Development costs $ Total $ 145,133 - (60,000) - (85,133) - 2,175,550 - - (18,639) (1,738,587) (418,324) 1,865,869 67,725 - (14,305) (1,786,542) (95,403) 3,587,998 1,460,919 - (2,841) (3,800,897) (656,101) 7,774,550 1,528,644 (60,000) (35,785) (7,411,159) (1,169,828) - - - - - - - - - - 37,344 50,875 2,963 (4,378) 589,078 603,181 78,746 (144,646) 626,422 654,056 81,709 (149,024) 86,804 1,126,359 1,213,163 Impairment of goodwill during the year ended 30 June 2018 As a consequence of the sale of the Infinity Design business during the financial year ended 30 June 2018, the $85,133 of goodwill remaining within the Infinity Design CGU after the disposal was written off. Impairment of other intangible assets during the years ended 30 June 2019 and 30 June 2018 For the purpose of impairment testing of re-acquired rights and other intangibles the following CGUs are determined to be those that benefit from the core patented technology and product development costs. The net carrying values of intangible assets (excluding goodwill) allocated to those CGUs is as follows: 40 TZ Limited Notes to the financial statements 30 June 2019 Note 14. Non-current assets - intangibles (continued) Package Asset Delivery - PAD Consolidated 2019 $ 2018 $ 1,213,163 626,422 Impairment test performed at 30 June 2019 During the year ended 30 June 2019, the recoverable value of the CGU has now been assessed on a fair value basis (less likely costs of disposal). The fair value was determined by management, through the assistance of a third party valuations specialists. Impairment test results Based on the testing performed, the recoverable amount of the CGU exceeded the carrying value and no impairment existed at 30 June 2019. Impairment test performed at 30 June 2018 During the year ended 30 June 2018, 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) 17% Margins (average) 48% Discount rate 14% PAD Revenue growth (average) 14% Margins (average) 53% Discount rate 14% Impairment test results - IXP CGU Based on the testing performed an impairment of $425,000 was recognised 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 excess carrying value of the IXP assets at 31 December 2017, the date at which the respective assets were fully impaired. Impairment test results - PAD CGU Based on the testing performed an impairment of $6,901,000 was recognized for internally developed hardware & software and reacquired rights that support the PAD CGU. The recoverable amount for the PAD 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 PAD revenues and assessed that the carrying value exceeded the recoverable amount. The impairment charge represents the excess carrying value of the PAD assets at 31 December 2017, the date at which the respective assets were fully impaired. The net carrying value of the PAD CGU at 30 June 2018, represents all expenditure capitalised from 1 January 2018 to 30 June 2018. Impairment test sensitivity A reasonable possible change in the key assumptions used to determine the recoverable amount of the CGU would not cause the remaining carrying value of the CGU to exceed its recoverable amount. 41 TZ Limited Notes to the financial statements 30 June 2019 Note 15. Current liabilities - trade and other payables Trade payables Employee expense payables Goods and services tax payable Other payables Refer to note 22 for further information on financial instruments. Note 16. Current liabilities - contract liabilities Contract liabilities Customer deposits Unearned income Consolidated 2019 $ 2018 $ 3,105,185 191,685 86,400 1,162,861 3,649,214 305,524 409 1,335,597 4,546,131 5,290,744 Consolidated 2019 $ 2018 $ 1,611,830 - - - 206,988 634,510 1,611,830 841,498 Reconciliation Reconciliation of the written down values at the beginning and end of the current and previous financial year are set out below: Transfer deferred revenue and customer deposits to contract liabilities on 1 July 2018 Payments received in advance Transfer to revenue - included in the opening balance Transfer to revenue - other balances Consolidated 2019 $ 841,498 1,972,659 (841,498) (360,829) 1,611,830 Unsatisfied performance obligations The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the reporting period was $1,611,830 as at 30 June 2019 ($841,498 as at 30 June 2018) and is expected to be recognised as revenue in future periods as follows: Within 6 months Greater than 6 months Consolidated 2019 $ 1,323,880 287,950 1,611,830 Customer deposits and unearned income have been reclassified to contract liabilities at 1 July 2018 following the adoption of AASB 15 'Revenue from Contracts with Customers'. Refer to note 1 for further details. 42 TZ Limited Notes to the financial statements 30 June 2019 Note 17. Current liabilities - provisions Employee benefits Note 18. Non-current liabilities - borrowings Loan - First Samuel Refer to note 22 for further information on financial instruments. Consolidated 2019 $ 2018 $ 493,816 521,219 Consolidated 2019 $ 2018 $ 8,000,000 4,000,000 The loan comprises of a facility from First Samuel Limited totalling $9,000,000 (2018: $5,000,000). The facility comprises of two revolving tranches. First tranche The first debenture deed comprises of a $3,000,000 facility. The interest rate applicable to the facility is 90 day BBSW plus 6% per annum, payable 6 monthly in arrears. The first debenture deed matures on 31 July 2021. Second tranche The second debenture deed comprises of a $6,000,000 facility. The interest rate applicable to the facility is 90 day BBSW plus 9% per annum, payable 6 monthly in arrears. The second debenture deed matures on 31 July 2021. On 30 July 2018, the consolidated entity increased the facility with First Samuel Limited by an additional $2,000,000 providing the consolidated entity with a total secured loan facility of up to $11,000,000. The increase comprises two revolving tranches of $1,000,000 which can be repaid and redrawn if repayments are made before the end of the term. In total, $7,000,000 of the total Loan Facility may be redrawn if repayments are made before the end of the term. The maturity date of the increased facility remains the same, 31 July 2021. The loan is secured over the assets of the consolidated entity. Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Loan - First Samuel Used at the reporting date Loan - First Samuel Unused at the reporting date Loan - First Samuel Consolidated 2019 $ 2018 $ 9,000,000 5,000,000 8,000,000 4,000,000 1,000,000 1,000,000 43 TZ Limited Notes to the financial statements 30 June 2019 Note 19. Equity - issued capital Consolidated 2019 Shares 2018 Shares 2019 $ 2018 $ Ordinary shares - fully paid 70,558,162 70,558,162 210,400,125 210,400,125 Movements in ordinary share capital Details Date Shares Issue price $ Balance Rights issue Share consolidation (10 for 1) Shares issued for rounding purposes Less: share issue costs 1 July 2017 8 November 2017 14 December 2017 14 December 2017 503,983,352 201,593,707 (635,019,353) 456 - 204,951,000 5,544,000 - - (94,875) $0.03 $0.00 $0.00 $0.00 Balance Balance 30 June 2018 70,558,162 210,400,125 30 June 2019 70,558,162 210,400,125 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back. Unquoted options At 30 June 2019 there were 500,000 (2018: 1,000,000) options on issue. 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. Refer to note 33 for details of options issued subsequent to the financial year ended 30 June 2019. Capital risk management The 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 2018 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. 44 TZ Limited Notes to the financial statements 30 June 2019 Note 20. Equity - reserves Foreign currency reserve Consolidated 2019 $ 2018 $ (4,388,768) (3,723,340) Foreign currency reserve The 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 reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2017 Foreign currency translation Balance at 30 June 2018 Foreign currency translation Balance at 30 June 2019 Note 21. Equity - dividends Foreign currency $ Total $ (3,609,536) (113,804) (3,609,536) (113,804) (3,723,340) (665,428) (3,723,340) (665,428) (4,388,768) (4,388,768) There were no dividends paid, recommended or declared during the current or previous financial year. Note 22. Financial instruments Financial risk management objectives The 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 risk Foreign currency risk The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. Foreign 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. 45 TZ Limited Notes to the financial statements 30 June 2019 Note 22. Financial instruments (continued) The consolidated entity's foreign exchange risk is managed to ensure sufficient funds are available to meet foreign currency 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 2019 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 risk The consolidated entity is not exposed to any significant price risk. Interest rate risk The consolidated entity's main interest rate risk arises from long-term borrowings. Borrowings 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: Consolidated Cash and cash equivalents Loan - First Samuel 2019 2018 Weighted average interest rate % Weighted average interest rate % Balance $ Balance $ 0.10% 9.72% 535,269 (8,000,000) 0.10% 7.30% 1,002,682 (4,000,000) Net exposure to cash flow interest rate risk (7,464,731) (2,997,318) 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 $7,464,731 (2018: net cash deficit $2,997,318). An official increase/decrease in interest rates of one (2018: one) percentage point would have an adverse/favourable effect on profit before tax of $74,647 (2018: adverse/favourable $29,973) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts' forecasts. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has a strict code of credit, 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. The consolidated entity has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the consolidated entity based on recent sales experience, historical collection rates and forward-looking information that is available. 46 TZ Limited Notes to the financial statements 30 June 2019 Note 22. Financial instruments (continued) The consolidated entity has a concentration of credit risk exposure with 1 customer (2018: 3 customers), which as at 30 June 2019 owed the consolidated entity $650,539 (2018: $1,718,000) representing 20.2% (2018: 39.5%) of trade receivables. Of this balance, $23,171 (2018: $187,000) was outside the customers' respective terms of trade, however management is confident of collection and no impairment was made as at 30 June 2019. 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 are held with one financial institution, St George Bank. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. Liquidity risk Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements Unused borrowing facilities at the reporting date: Loan - First Samuel Consolidated 2019 $ 2018 $ 1,000,000 1,000,000 On 30 July 2018, the consolidated entity increased the facility with First Samuel Limited by an additional $2,000,000 providing the consolidated entity with a total secured loan facility of up to $11,000,000. Refer to note 18 for further details. Remaining contractual maturities The following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Consolidated - 2019 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - variable Loan - First Samuel Total non-derivatives Weighted average interest rate % 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Remaining contractual maturities $ - - 3,105,185 1,440,946 - - - - - - 3,105,185 1,440,946 9.72% 747,850 5,293,981 747,850 747,850 8,063,516 8,063,516 - 9,559,216 - 14,105,347 47 TZ Limited Notes to the financial statements 30 June 2019 Note 22. Financial instruments (continued) Consolidated - 2018 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - variable Loan - First Samuel Total non-derivatives Weighted average interest rate % 1 year or less $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Remaining contractual maturities $ - - 3,649,214 1,641,530 - - 7.30% 292,000 5,582,744 4,175,000 4,175,000 - - - - - - - - 3,649,214 1,641,530 4,467,000 9,757,744 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Note 23. Fair value measurement Unless 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 24. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below: Short-term employee benefits Post-employment benefits Consolidated 2019 $ 2018 $ 1,467,949 92,240 1,361,214 73,027 1,560,189 1,434,241 48 TZ Limited Notes to the financial statements 30 June 2019 Note 25. Remuneration of auditors During 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: Audit services - Grant Thornton Audit or review of the financial statements Other services - Grant Thornton Transfer pricing review Corporate advisory Independent tax advice and tax compliance Audit services - network firms Audit or review of the financial statements Other services - network firms Preparation of the tax return Note 26. Contingent liabilities Consolidated 2019 $ 2018 $ 202,647 180,000 9,500 29,912 27,250 - - 76,300 66,662 76,300 269,309 256,300 31,978 11,883 500 - 32,478 11,883 The consolidated entity does not have any contingent liabilities at 30 June 2019 and 30 June 2018. Note 27. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Consolidated 2019 $ 2018 $ 356,712 261,843 326,000 191,000 618,555 517,000 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 28. Related party transactions Parent entity TZ Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 30. 49 TZ Limited Notes to the financial statements 30 June 2019 Note 28. Related party transactions (continued) Key management personnel Disclosures relating to key management personnel are set out in note 24 and the remuneration report included in the directors' report. Transactions with related parties The following transactions occurred with related parties: Payment for other expenses: Administration fees, storage and office rent paid to YBR Services Pty Limited* 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. Interest paid/(payable) to First Samuel Limited - an entity with significant influence Consolidated 2019 $ 2018 $ 67,829 184,949 - 548,110 13,436 275,054 * director related entity in which Mark Bouris is a director. Mr Bouris resigned as a Director of TZ Limited on 20 November 2018. Therefore the amount for the financial year ended 30 June 2019 represents expenses for the period from 1 July 2018 to 20 November 2018. Receivable from and payable to related parties The following balances are outstanding at the reporting date in relation to transactions with related parties: Consolidated 2019 $ 2018 $ Current payables: Rent, serviced office expenditure and remaining rental bond payable to YBR Services Pty Limited* Interest payable to First Samuel Limited - an entity with significant influence - 87,937 47,289 25,092 * A director related entity in which Mark Bouris is a director. Mr Bouris resigned as a Director of TZ Limited on 20 November 2018. Therefore, YBR Services Pty Limited is no longer considered a related party at 30 June 2019. Loans to/from related parties The following balances are outstanding at the reporting date in relation to loans with related parties: Non-current borrowings: Loan from First Samuel Limited - an entity with significant influence Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Consolidated 2019 $ 2018 $ 8,000,000 4,000,000 50 TZ Limited Notes to the financial statements 30 June 2019 Note 29. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Loss after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Accumulated losses Total equity/(deficiency) Parent 2019 $ 2018 $ (7,207,512) (11,217,433) (7,207,512) (11,217,433) Parent 2019 $ 2018 $ 6,188,788 8,955,271 6,188,788 8,955,271 4,483,069 3,950,041 12,483,069 7,950,041 210,397,415 210,397,415 (216,691,696) (209,392,185) (6,294,281) 1,005,230 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2019 and 30 June 2018. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2019 and 30 June 2018. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2019 and 30 June 2018. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following: ● ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. 51 TZ Limited Notes to the financial statements 30 June 2019 Note 30. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1: Name Telezygology, Inc. PDT Holdings, Inc. Product Development Technologies, Inc. PDT Tooling, Inc. TZI Australia Pty Limited A.C.N. 156 637 704 Pty Ltd TZI Singapore Pte Ltd TZI UK Limited Note 31. Cash flow information Principal place of business / Country of incorporation United States of America United States of America United States of America United States of America Australia Australia Singapore United Kingdom Reconciliation of loss after income tax to net cash used in operating activities Ownership interest 2018 2019 % % 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Consolidated 2019 $ 2018 $ Loss after income tax expense for the year (4,359,688) (11,687,882) Adjustments for: Depreciation and amortisation Impairment of intangibles Write off of property, plant and equipment Net loss on disposal of property, plant and equipment Foreign exchange differences Interest accrued on borrowings Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease/(increase) in contract assets, accrued revenue and work in progress Increase in inventories Increase in other operating assets Increase/(decrease) in trade and other payables Increase in contract liabilities Increase/(decrease) in employee benefits Net cash used in operating activities Changes in liabilities arising from financing activities Consolidated Balance at 1 July 2017 Balance at 30 June 2018 Net cash from financing activities Balance at 30 June 2019 52 315,086 - - - (763,124) 87,787 1,338,342 7,411,159 660 20,896 (96,382) 25,000 1,206,650 562,994 (531,439) (102,471) (832,400) 770,332 (27,403) (120,549) (1,645,916) (579,550) (158,369) 1,565,481 244,976 142,667 (3,673,676) (3,539,467) Loan - First Samuel $ 4,000,000 4,000,000 4,000,000 8,000,000 TZ Limited Notes to the financial statements 30 June 2019 Note 32. Earnings per share Consolidated 2019 $ 2018 $ Loss after income tax attributable to the owners of TZ Limited (4,359,688) (11,687,882) Weighted average number of ordinary shares used in calculating basic earnings per share 70,558,162 63,358,206 Weighted average number of ordinary shares used in calculating diluted earnings per share 70,558,162 63,358,206 Number Number Basic earnings per share Diluted earnings per share Cents Cents (6.18) (6.18) (18.45) (18.45) For the purpose calculating the diluted earnings per share the denominator has excluded 500,000 options as the effect would be anti-dilutive. Note 33. Share-based payments The TZ Employee Incentive Scheme The TZ Employee Incentive Scheme ('TZEIS') 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 at year end 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: 2019 Grant date Expiry date price Exercise Balance at the start of the year Granted Exercised Expired Balance at the end of the year 15/01/2014 15/01/2014 30/06/2019 30/06/2020 $4.00 $6.00 500,000 500,000 1,000,000 - - - - - - (500,000) - (500,000) - 500,000 500,000 Weighted average exercise price $5.00 $0.00 $0.00 $4.00 $6.00 2018 Grant date Expiry date price Exercise Balance at the start of the year Granted Consolidation of options 1 to 10* Balance at the end of the year Expired 26/02/2010 15/01/2014 15/01/2014 15/01/2014 30/06/2018 30/06/2018 30/06/2019 30/06/2020 $2.00 $3.00 $4.00 $6.00 1,750,000 5,000,000 5,000,000 5,000,000 16,750,000 - - - - - (1,575,000) (4,500,000) (4,500,000) (4,500,000) (15,075,000) (175,000) (500,000) - - (675,000) - - 500,000 500,000 1,000,000 Weighted average exercise price $4.09 $0.00 $4.09 $2.74 $5.00 53 TZ Limited Notes to the financial statements 30 June 2019 Note 33. Share-based payments (continued) * Following a capital restructure during the year ended 30 June 2018, all options at the date of the capital restructure were consolidated on a 1 for 10 ratio. Set out below are the options exercisable at the end of the financial year: Grant date Expiry date 15/01/2014 15/01/2014 30/06/2019 30/06/2020 2019 2018 Number Number - 500,000 500,000 500,000 500,000 1,000,000 The weighted average remaining contractual life of options outstanding at the end of the financial year was 1 year (2018: 1.5 years). At the 2018 Annual General Meeting, the shareholders re-approved the TZEIS. Subsequent to the financial year ended 30 June 2019 in July 2019, 2,901,000 options were granted to the directors and executives as follows: ● ● ● 120,000 options were granted to each of the Non-Executive Directors (360,000 options in total) 495,000 options were granted to each of the Managing Director 2,046,000 options were granted to the senior executives. Note 34. Events after the reporting period No matter or circumstance has arisen since 30 June 2019 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. 54 TZ Limited Directors' declaration 30 June 2019 In the directors' opinion: ● ● ● ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 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 2019 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 ___________________________ John Wilson Managing Director 28 August 2019 Sydney 55 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 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 2019, 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 2019 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 auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (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. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘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. 56 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 during the year ended 30 June 2019 and 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 lenders and the raising of additional share capital as and when required in the future. As noted 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) Revenue recorded from sales of products and services to customers amounted to $17,430,926 for the year ended 30 June 2019. Our audit procedures included the following: In determining the amount to recognise in the financial statements the Group must apply revenue recognition accounting policies that satisfy the requirements of AASB 15: Revenue from Contracts with Customers. The selection and application of appropriate accounting policies for recognising revenue in the financial statements involves significant management judgement, including identification of the performance obligations in contracts, allocation of the transaction price to these performance obligations and recognition of revenue when or as each performance obligation is satisfied. This area is a key audit matter given the management judgement involved in developing and applying appropriate accounting policies that comply with accounting standards. Intangible assets (Note 1 and Note 14) The Group capitalises costs incurred in the development and enhancement of its proprietary technology. The Group capitalised $654,056 of development costs during the year ended 30 June 2019. 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.  assessing the impact of the initial adoption of AASB 15 and the appropriateness of the Group’s revenue recognition policies, as determined by management, for compliance with AASB 15;  performing detailed testing of a sample of revenue transactions during the year and assessing whether revenue has been recognised in accordance with the AASB 15, which included: - - reviewing the relevant contracts with customers; assessing management’s determination of performance obligations within contracts and the allocation of the transaction price to those obligations; and  reviewing documentation supporting the satisfaction of performance obligations within customer contracts; and  assessing the adequacy of the related disclosures in the financial statements. Our procedures included the following:  assessing the appropriateness of the Group’s accounting policy for research and development costs;  obtaining a list of additions to intangible assets and agreeing to the general ledger;  agreeing a sample of additions to supporting documentation including time records and invoices from third party suppliers and assessing whether the amounts met the recognition criteria in AASB 138;  assessing management’s estimate of future economic benefits related to the costs capitalised; and  assessing the adequacy of the related disclosures in the financial statements. 57 Impairment testing of intangible assets (Note 1 and Note 14) At 30 June 2019 the Group had recorded intangible assets amounting to $1,213,163. 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. Management has determined that indicators of impairment were present at 30 June 2019 and has performed impairment testing in accordance with AASB 136. In doing so, management has estimated the recoverable amount of the cash–generating unit (CGU) to which the intangible assets belong based on the CGU’s fair value less costs of disposal. Determining fair value and costs of disposal relating to CGUs 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 the following:  assessing whether the impairment testing models and methodologies used by management met the requirements of AASB 136, with involvement of our valuation specialists;  evaluated the determination of the Group’s CGUs with respect to the independence of cash flows generated by each CGU;  checking mathematical accuracy of the models;  assessing whether key inputs used in the models including sales and profit margins appeared reasonable based on historical results;  assessing the key assumptions used in the models including discount rates and royalty rates, with involvement of our valuation specialists;  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 2019, 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. 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. 58 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 10 to 15 of the Directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of TZ Limited, for the year ended 30 June 2019 complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Grant Thornton Audit Pty Ltd Chartered Accountants S M Coulton Partner – Audit & Assurance Sydney, 28 August 2019 59 TZ Limited Shareholder information 30 June 2019 The shareholder information set out below was applicable as at 19 August 2019. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: Number of holders of options Number of holders of ordinary ordinary shares shares over 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: 1,458 381 116 193 65 2,213 1,807 - - - 2 12 14 - J P Morgan Nominees Australia Pty Limited Delcor Advisory Investment Group Pty Ltd HSBC Custody Nominees (Australia) Limited Mrs Margaret Jane Watt Mr David Frederick Oakley (DFO Investment A/C) Bond Street Custodians Limited (SXS - D65864 A/C) One Managed Investment Funds Limited (Technical Investing Absolute Return A/C) Mr David Frederick Oakley One Managed Investment Funds Limited (TI Growth A/C) Surflodge Pty Ltd (Je Lynch Staff Super Fd A/C) National Nominees Limited Mr Peter Howells Rod Investments (Vic) Pty Ltd (Gronow Super Fund A/C) Mr Graham Lenzner + Mrs Loretta Lenzner (Lenzner Super Fund A/C) Exelmont Pty Ltd Zellvest Pty Ltd (No 2 Account) Surflodge Pty Ltd Mr Ken Tuder + Ms Thuy Le (Tuder Le S/F A/C) One Managed Investment Funds Limited (TI Family Wealth A/C) Citicorp Nominees Pty Limited Ordinary shares % of total Number held 20,406,078 14,041,074 6,297,662 1,209,872 1,161,637 1,102,685 1,042,217 1,019,637 880,713 875,956 859,068 700,000 700,000 600,000 580,450 498,006 491,297 482,416 400,455 390,813 shares issued 28.92 19.90 8.93 1.71 1.65 1.56 1.48 1.45 1.25 1.24 1.22 0.99 0.99 0.85 0.82 0.71 0.70 0.68 0.57 0.55 53,740,036 76.17 60 TZ Limited Shareholder information 30 June 2019 Unquoted equity securities Options over ordinary shares Substantial holders Substantial holders in the company are set out below: J P Morgan Nominees Australia Pty Limited Delcor Advisory Investment Group Pty Ltd HSBC Custody Nominees (Australia) Limited Voting rights The voting rights attached to ordinary shares are set out below: Number on issue Number of holders 3,401,000 14 Ordinary shares % of total Number held 20,406,078 14,041,074 6,297,662 shares issued 28.92 19.90 8.93 Ordinary shares 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. There are no other classes of equity securities. 61 www.tz.net 

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