Vonex
Annual Report 2018

Plain-text annual report

17/18 ANNUAL REPORT Corporate Information VONEX LIMITED ABN 39 063 074 635/ACN 063 074 635/ASX CODE: VN8 Directors Mr Chen Chik (Nicholas) Ong (Non-Executive chairman) Mr Matthew Fahey (Managing director) Mr David Vilensky (Non-Executive director) Ms Winnie Lai Hadad (Non-Executive director) Registered and Business Office Suite 5, 1 Centro Avenue, Subiaco WA 6008 Tel: +61 8 6388 8888 Fax: +61 8 6388 8898 Solicitors Bowen Buchbinder Vilensky Level 14, 251 Adelaide Terrace, Perth WA 6000 Company Secretaries Mr Matthew Foy Mr Daniel Smith Share Registry Computershare Investor Services Pty Limited Level 11, 172 Street Georges Terrace, Perth WA 6000 Tel: +61 8 9323 2000 Fax: +61 8 9323 2033 Auditor RSM Australia Partners Level 32, Exchange Tower, 2 The Esplanade, Perth WA 6000 Bankers Commonwealth Bank of Australia ANZ Bank Westpac Bank www.vonex.com.au Contents Directors’ Report Financial Reports Financial Statement Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Note 1: Statement of significant accounting policies Note 2 : Revenue and Other Income Note 3: Loss for the year Note 4: Income Tax Expense Note 5: Key Management Personnel Disclosures Note 6: Auditors’ Remuneration Note 7: Earnings per share Note 8: Cash and Cash Equivalents Note 9: Trade and Other Receivables Note 10: Other Assets Note 11: Intangible Assets Note 12: Controlled Entities Note 13: Disposal of Subsidiaries Note 14: Parent Entity Disclosures Note 15: Plant and Equipment Note 16: Provisions Note 17: Trade and Other Payables Note 18: Borrowings Note 19: Issued capital Note 20: Reserves Note 21: Contingent liabilities and contingent assets Note 22: Operating segments Note 23: Cash flow information Note 24: Accumulated losses Note 25: Events after the reporting period Note 26: Related Party Transactions Note 27: Financial instruments Note 28: Commitments for Expenditure Note 29: Share Based Payments Note 30: Company Details Directors’ Declaration Additional Information 2 18 18 18 19 20 21 22 22 30 30 31 32 32 32 32 33 33 34 35 36 37 38 39 39 40 41 42 43 43 46 46 47 48 49 52 52 56 57 62 Financial Report 1 1 Financial Report Directors’ Report The Directors present their report together with the consolidated financial report for Vonex Limited (“Vonex” or “the Company”) and its controlled entities (collectively the “consolidated entity” or “Group”), for the year ended 30 June 2018. Directors The names and qualifications of persons who have held the position of Director of Vonex Limited at any time during the financial year and up to the date of this report are: > Mr Nicholas Ong—Non-Executive Chairman > Mr Matthew Fahey—Managing Director and CEO > Mr David Vilensky—Non-Executive Director > Ms Winnie Lai Hadad—Non-Executive Director (appointed 1 January 2018) > Mr Angus Parker—Managing Director (resigned 31 December 2017) Information on Directors & Company Secretary Nicholas Ong—Non-executive Chairman Mr Ong was a Principal Adviser at the Australian Securities Exchange (ASX) and brings 14 years’ experience in IPO, listing rules compliance and corporate governance. Mr Ong has developed a wide network of clients in Asia-Pacific region and provides corporate and transactional advisory services through boutique firm Minerva Corporate Pty Limited. He is a member of the Governance Institute of Australia and holds a Bachelor of Commerce and a Master of Business Administration from the University of Western Australia. Other directorships of Australian listed companies held by Mr Ong in the last three years are: Current: Helios Energy Limited, CoAssets Limited, Arrow Energy Limited and Black Star Petroleum Limited. Previous: Excelsior Gold Limited, Auroch Minerals Limited, Fraser Range Metals Group Limited, Tianmei Beverage Group Corporation Limited, Bojun Agriculture Holdings Limited and Jiajiafu Modern Agriculture Limited. 2 Matthew Fahey—Managing Director and CEO Current: Zambezi Resources Limited, Latin Resources Limited. Mr Vilensky has a Bachelor of Arts and a Bachelor of Laws from the University of Cape Town and is a member of the Law Society of Western Australia. Winnie Lai Hadad—Non-Executive Director (Appointed 1 January 2018) Ms Lai Hadad has expertise in change management, corporate governance and business process improvement and has been involved in listings on the Australian Securities Exchange. Ms Lai Hadad has been involved with both investments into China and out-bound investment from China. Her past roles include implementing Coca-Cola bottling strategies into Greater China and administering the first Chinese direct investment in an iron ore mine in the Pilbara Region of Western Australia. Ms Lai Hadad has not held any other directorships of Australian listed companies in the last three years Ms Lai Hadad is a lawyer admitted to practice in Western Australia, a qualified CPA, holds a BA, BCom and MSc, and is a graduate of both the Australian Institute of Company Directors and Governance Institute of Australia. Angus Parker – Former Managing Director (Resigned 31 December 2017) Mr Parker is co-founder and Chief Technology Officer of Vonex Limited. He is a futurist and innovator, with a track record in advancing technology. With 10+ years’ experience in the development of VoIP products and solutions, he works with world leaders in the field to establish products for Vonex Limited. His vision has led him to all corners of the globe, where, as innovator with voice, he leads the development world with cloud-based solutions to assist in connecting people. Mr Parker has not held any other directorships of Australian listed companies in the last three years. Mr Fahey is Vonex Telecom’s Chief Executive Officer and joined the Board as Managing Director. Mr Fahey joined Vonex Limited in 2013, through the Vonex Group’s acquisition of iTrinity (IP Voice & Data) where he had served as Sales Director. Mr Fahey brings with him 20 years’ of extensive experience in building and managing telecommunications companies with a well-regarded reputation in the industry for channel partner programs as well as excellence in VoIP and Telco. 2014 saw amazing growth for Vonex winning the CRN Fast50 award for fastest growing IT company in Australia. In January 2018 Mr Fahey was appointed as Chief Executive Officer and Managing Director and sees significant opportunities for the Vonex business both in Australia and internationally. Mr Fahey is focused on driving marketing, sales and the continued development of diverse products in order to accelerate business growth and expand Vonex’s market share. Mr Fahey has not held any other directorships of Australian listed companies in the last three years. David Vilensky—Non-Executive Director Mr Vilensky is a practicing corporate lawyer and the managing director of Perth law firm Bowen Buchbinder Vilensky. He has more than 30 years’ experience in the areas of corporate and business law and in commercial and corporate management. Mr Vilensky practices mainly in the areas of corporate and commercial law, mergers and acquisitions, mining and resources, trade practices and competition law and complex dispute resolution. Mr Vilensky acts for a number of listed and private companies and advises on directors’ duties, due diligence, capital raisings, compliance with ASX Listing Rules, corporate governance and corporate transactions generally. Other directorships of Australian listed companies held by Mr Vilensky in the last three years are: Vonex Financial Report 2018 Matthew Foy—Joint Company Secretary Daniel Smith—Joint Company Secretary Mr Foy was previously a Senior Adviser at the ASX and has ten years’ experience in facilitating the compliance of listed companies. Mr. Foy is a qualified Chartered Secretary and has reviewed and approved the listing of over 40 companies during his tenure at the ASX. Mr. Foy is also Company Secretary of ASX-listed Arrow Resources Limited, Protean Energy Limited, XTD Limited and Emergent Resources Limited. Mr Foy is a member of the Australian Institute of Company Directors, Governance Institute Australia, has a Graduate Diploma (Applied Finance) from FINSIA and a B. Com from the University of Western Australia. Mr Smith has primary and secondary capital markets expertise, having been involved in a number of IPOs and capital raisings. Mr Smith is a director of Minerva Corporate, a private corporate consulting firm. Mr Smith is currently a director and company secretary of ASX and AIM-listed Europa Metals Limited and ASX-listed Lachlan Star Limited and HIPO Resources Limited, and is Company Secretary for Taruga Minerals Limited and Love Group Global Limited. Mr Smith holds a BA and is a member of the Australian Institute of Company Directors and the Governance Institute of Australia. Interests in the securities of the company As at the date of this report, the interests of the directors in securities of the company were: Directors Ordinary Shares Performance Rights Options Nicholas Ong Matthew Fahey David Vilensky Winnie Lai Hadad Meetings of Directors 2,460,000 6,408,291 2,550,000 Nil 2,550,000 8,830,000 2,550,000 Nil 84,499 Nil Nil Nil The attendance of directors at meeting of the company’s Board of Directors held during the year is as follows: Directors Nicholas Ong Matthew Fahey David Vilensky Winnie Lai Hadad Angus Parker Number of Meetings Attended Eligible to Attend 4 4 4 4 Nil 4 4 4 4 Nil Financial Report 3 Directors’ Report (continued) Principal Activities The principal activity of the consolidated entity during the year has been the development of technologies in communications, including its established cloud hosted PBX system. One of our key R&D projects going forward is the Oper8tor app development. The Oper8tor app will aim to seamlessly link all voice calls across multiple platforms and devices around the world, as well as messaging, and by doing so will create an innovative piece of communication technology forcing notice. As at the end of the anticipated development, Oper8tor will look to be able to link mobile phones, landlines, Skype, Google Hangouts and WeChat simultaneously into a single voice call. Other activities include the year on year growth within our Retail and Wholesale Telco divisions. Financial Position & Operating Results The financial results of the consolidated entity for the financial year ended 30 June 2018 are: Cash and cash equivalents ($) Net assets (liabilities) ($) Revenue ($) Net loss after tax ($) Loss per share (cents) 30-Jun-18 5,223,854 5,079,307 8,486,196 (14,713,402) (21.35) 30-Jun-17 384,624 (3,170,377) 7,553,228 (9,737,819) (17.03) % Change 1,258% 260% 12% (51%) (25%) Dividends Paid or Recommended There were no dividends declared or paid by the Company during the year and no dividend is recommended. Development (R&D) tax offset rebates. The Vonex group received a non-refundable R&D tax offset of $253,127 in May 2018 relating to the 2016/2017 financial year. Review of Operations During the year, the Company continued to develop and grow its established cloud hosted PBX system and retail customer base. Total group sales revenues rose by 15% during the reporting period. The Retail division under the brand, Vonex Telecom, has continued to grow its sales revenues base achieved via the sale of IP hardware, full suite of telecommunication services including the provision of data, internet, voice (including IP voice) and billing services within Australia. The Retail division has also undertaken numerous advancements in the automation of new customer service accounts received from our dealer channel partners including the most recent announcement regarding our latest technology release Sign On Glass on 3 July 2018. The reporting period has seen the Retail division achieve a 14% increase in its total revenues along with a 18% net increase in customer accounts from June 2017 to June 2018. These solid results have been achieved solely on the back of stronger brand exposure and recognition. The Wholesale division has also continued to grow its sales revenues achieved via the offering of wholesale “white- label” hosted PBX services under license to Internet Service Providers (ISP’s), Telcos and Cloud Vendors within Australia and internationally. The reporting period has seen the Wholesale division achieve a 13% increase in its direct sales revenue along with a 27% increase in the user numbers hosted with Vonex from June 2017 to June 2018. Vonex continues to be successful with the Research and Oper8tor Development On 25 June 2018 the Company announced the commencement of the development of Oper8tor, following the successful listing on ASX. Oper8tor will allow users to communicate seamlessly across digital platforms and geographies, removing what are traditional barriers in cross-platform calls and messaging. The onboarding of developers will increase the skill base of the current development team in areas such as Software Architecture, Big Data, Functional Programming, Machine Learning and Mobile Development. Beta testing will commence from October 2018 and will involve up to 5,000 controlled users targeting data collection, bug report testing and tracking, scalability testing on elastic servers, redundancy and online marketing. Beta development will also include refinement of the user interface functionality. Corporate Board Composition During the period and effective from 1 January 2018, Mr Angus Parker transitioned from CEO& Managing Director to his previous role as Chief Technology Officer, where he is spearheading the development of Oper8tor, as well as the Company’s numerous other technology products. Mr Matthew Fahey moved from Chief Commercial Officer to the CEO&Managing Director role. On the same day Ms Winnie Lai Hadad joined the Board as a Non-Executive Director to further strengthen the Company’s corporate governance and commercial experience. Ms Lai Hadad is a highly experienced lawyer, accountant and public company advisor. 4 Vonex Financial Report 2018 ASX Listing During the period on 13 June 2018 the Company listed on the Australian Securities Exchange (ASX) under the ticker code VN8 after successfully raising $6 million (before expenses) by way of a full form prospectus (“Offer”). The listing on ASX also allowed the Company to convert $2,804,319 of convertible notes, reducing payables and strengthening the Company’s balance sheet. State One Equities Pty Limited partially underwrote the Offer for $5.5 million. Small Holding Share Sale Facility On 25 June 2018 the Company announced that it had established a sale facility for shareholders with holdings valued at less than A$500 (“Sale Facility”). The Sale Facility enables eligible shareholders to sell their Vonex shares without incurring any brokerage or handling costs. This initiative will substantially reduce administration costs incurred by Vonex. At the Record Date there were 1,433 shareholders who would be eligible to participate in the Sale Facility, representing 57.57% of total shareholders. The eligible shareholders hold 1,868,507 ordinary shares in Vonex, representing 1.26% of total issued capital. Partial Settlement of Outstanding Debt On 1 August 2017 the consolidated entity partially settled outstanding borrowings and creditors totaling $474,765 via the issue of new ordinary shares and part debt forgiveness. Variation to Secured Convertible Note Terms On 6 September 2017 the Company and the Trustee to the Secured Convertible Note Terms entered into a variation to the Convertible Note Trust Deed on the following basis: (a) The Conversion Price would reduce from $0.10 to $0.08; (b) The Maturity Date would be extended from 30 September 2017 to 14 November 2017; (c) Interest will continue to accrue at the agreed rate until 14 November 2017 and would be calculated to this date even if the NSX listing was achieved by the Company prior to this date; (d) The Noteholders would be entitled to be issued by the Company one free attaching option (Note Options) for each share issued to Noteholders respectively following the conversion; (e) The Exercise Price for the Note Options would be $0.10 with an expiry date of 30 November 2022; (f) On 30 October 2017, the Company and the Trustee of the Secured Convertible Note entered into a variation of the Convertible Note Trust Deed extending the maturity date of the convertible notes from 14 November 2017 to 30 November 2017; (g) On 11 November 2017, the Company and the Trustee of the Secured Convertible Note entered into a variation of the Convertible Note Trust Deed extending the maturity date of the convertible notes from 30 November 2017 to 20 December 2017 on the same terms; (h) On 5 December 2017, the Company and the Trustee of the Secured Convertible Note entered into a variation of the Convertible Note Trust Deed extending the maturing date of the convertible notes from 20 December 2017 to 30 April 2018 on the same terms and to allow the Company the time it needs to pursue a new listing opportunity on the ASX; and (i) On 30 April 2018, the Company convened a meeting with the Convertible Note Holders to pass a resolution to extend the maturity date of the convertible notes from 30 April 2018 to 12 June 2018 to enable the Company to list onto the ASX under the same terms. Resolution was passed and conversion of the convertible notes was undertaken on 7 June 2018. Shareholder Meetings At a shareholders’ meeting held on 28 July 2017 shareholders approved, amongst other things, a consolidation of capital whereby the issued capital of the Company was consolidated on the basis that every five ordinary shares be consolidated into one ordinary share. In addition, shareholders approved the issue of 6 million ordinary shares and 34 million performance rights (on a post-consolidation basis) to Mr Angus Parker and Mr Matthew Fahey as the inventors of the Oper8tor app in consideration for them executing a deed of confirmation of assignment of patent agreement to confirm the Company’s ownership of the Oper8tor intellectual property. The Company’s annual general meeting was held on 30 November 2017 with the resolution to re-elect Mr David Vilensky passed by a show of hands. On 29 January 2018 at a general meeting of shareholders, shareholders approved, amongst other things, the consolidation of the Company’s capital on a two for one basis, a variation to the terms of the Class B and Class C Performance Shares, variations to Performance Rights held by directors and key management personnel, and the issuing of a prospectus to raise up to $7 million by way of issuance of up to 35,000,000 shares. All resolutions were carried on a show of hands. Noteholder Meeting On 5 December 2017 the Company advised that noteholders had approved the extension of the term of the outstanding convertible notes to 30 April 2018, with 100% of votes cast by noteholders voting in favour of the resolution. On 30 April 2018 the Company had advised that noteholders had approved a further extension of the term of the outstanding convertible notes to 12 June 2018, with 100% of votes cast by noteholders voting in favour of the resolution. Significant Changes in the State of Affairs During the year the company was successfully listed in the ASX on 13 June 2018. There have been no other significant changes in the state of affairs of the consolidated entity during the financial year. 5 Financial ReportDirectors’ Report (continued) Events after the reporting period Launch of Sign On Glass On 3 July 2018 Vonex announced the first release of its latest technology, called Sign On Glass (“SOG”), to more efficiently manage the Company’s new and existing customers. SOG is available on all internet enabled devices and facilitates the sign up, activation and ongoing management of customers. This SOG technology will be rolled out to the entire channel partner network and will provide more accurate provisioning and significantly reduce connection times, saving up to a week for typical orders. Using the SOG portal, channel partners will be able to activate the entire range of products for their new and existing clients. Their existing client information will be available within the interface, so they can perform upgrades, additions and modifications. The Company will continue to develop the product and will, in time, seek to provide a complete portal for the channel partner which will check product availability and site readiness prior to sign up. The technology will also automate the dispatch of hardware and provide various reports to the channel partner. Vonex has commenced testing of these advanced features with hundreds of test applications to date used by the development team. CounterPath strategic partnership On 2 August 2018 the Company announced a strategic partnership with NASDAQ and TSX listed CounterPath, a global provider of award-winning Unified Communications solutions for enterprises and service providers. The CounterPath product suite includes Bria 5, that leverages over 10 years of softphone experience and replaces the need for a telephone to connect to a VoIP phone service, or hosted PBX extension. Its Stretto PlatformTM enables the provisioning of desktop and mobile VoIP software. CounterPath Bria software is used by millions of users across the globe. The partnership agreement will see Vonex and CounterPath collaboratively working on new customer growth in Australia. For Vonex, this could open up much larger opportunities to work with enterprise clients previously not targeted, plus enable Vonex to expand its offering to existing business, enterprise and channel customers. Results of Share Sale Facility On 14 August 2018 the Company announced the results of the Share Sale Facility. As at market close on 22 June 2018, there were 1,868,507 ordinary shares held by 1,433 shareholders that had a market value of less than A$500. The final number of shares eligible to be sold under the Facility was 1,302,079 ordinary shares from 1,025 shareholders which represented approximately 41% of the total number of shareholders holding shares in the Company. PBX registered user growth On 20 August 2018 the Company announced that Vonex had achieved 24,000 registered active PBX users by the end of July 2018. Registered PBX users are currently growing at 500 per month and is expected to grow as Vonex’s marketing goes into full swing in the NBN rollout areas. Vonex had 18,700 PBX users in July 2017, the growth represents a 28% gain in PBX user’s year on year. Placement of small shareholding shares On 24 August 2018 the Company announced that it has received firm commitments from a range of sophisticated and high net worth investors to place all the shares available under the Share Sale Facility (“Facility”) at $0.1325 per cent share pursuant to clause 3.5 of the Company’s constitution. The final number of shares sold under the Facility was 1,295,709 ordinary shares from 1,022 shareholders which represents approximately 41% of the total number of shareholders. Remuneration report (Audited) The remuneration report is set out under the following main headings: A Remuneration Governance B Remuneration Structure C Details of Remuneration D Share-based compensation E Equity instruments issued on exercise of remuneration options F Value of options to Directors G Equity instruments disclosures relating to key management personnel H Other transactions with key management personnel I Additional statutory information The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. The remuneration arrangements detailed in this report are for the Key Management Personnel (KMP) of the Group as follows: > Mr Nicholas Ong—Non-Executive Chairman > Mr Matthew Fahey—Managing Director and CEO > Mr David Vilensky—Non-Executive Director > Ms Winnie Lai Hadad—Non-Executive Director (appointed 1 January 2018) > Mr Angus Parker—Managing Director (resigned 31 December 2017) 6 Vonex Financial Report 2018 Use of remuneration consultants B. Remuneration Structure The Company did not employ services of consultants to review its existing remuneration policies. Voting and comments made at the Company’s 2017 Annual General Meeting The Company received 95.47% of “yes” proxy votes on its remuneration report for the 2017 financial year, inclusive of discretionary proxy votes. The Company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. A. Remuneration Governance Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Group. Key management personnel comprise the Directors of the Group and Executives of the Group. The performance of the Group depends upon the quality of its key management personnel. To prosper the Group must attract, motivate and retain appropriately skilled directors and executives. The Group’s broad remuneration policy is to ensure the remuneration package properly reflects the person’s duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people of the highest quality. The Group does not engage the services of any remuneration consultants. Non-Executive remuneration arrangements The remuneration of Non-Executive Directors (NED) consists of Directors’ fees, payable in arrears. They serve on a month to month basis and there are no termination benefits payable. They do not receive retirement benefits but are able to participate in share option-based incentive programmes in accordance with Group policy. Directors are paid consulting fees on time spent on Group business, including reasonable expenses incurred by them on business of the Group, details of which are contained in the Remuneration Table disclosed in Section C of this Report. Remuneration of Non-Executive Directors are based on fees approved by the Board of Directors and is set at levels to reflect market conditions and encourage the continued services of the Directors. The Group has provided variable remuneration incentive schemes to certain Non-Executive Directors as detailed in Note 29. Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which will be periodically recommended for approval by shareholders. The maximum currently stands at $500,000 per annum as per Section 13.8 of the Company’s constitution and may be varied by ordinary resolution of the shareholders in general meeting. 7 Financial ReportDirectors’ Report (continued) C. Details of Remuneration The Key Management Personnel (KMP) of the Group are the Directors and management of XTD Limited detailed in the table below. Details of the remuneration of the Directors of the Group are set out below: Short-term benefits Post-employment benefits Share-based payment Salary & fees Cash bonus Long Service Leave Superannuation Performance rights (iv) 30/06/2018 $ $ $ $ $ Percentage remuneration consisting of performance rights for the year Total $ Directors Mr Fahey Mr Ong Mr Vilensky Ms Lai Hadad (i) Other KMP 229,015 48,567 60,000 30,000 Mr Parker (ii) 206,901 Total 574,483 - - - - - - 3,542 17,424 60,000 309,981 - - - 269 269 2,850 924,000 972,836 968,000 1,028,269 - 32,850 13,127 16,669 17,253 60,000 297,281 38,065 2,012,000 2,641,217 19% 95% 94% 0% 20% 76% (i) Ms Lai Hadad (Non-Executive Director) (appointed on 1 January 2018) (ii) Mr Parker (Executive Director) (resigned 31 December 2017) Short-term benefits Post-employment benefits Share-based payment Salary & fees Cash bonus Long Service Leave Superannuation Performance rights 30/06/2017 $ $ $ $ $ Percentage remuneration consisting of performance rights for the year Total $ Directors Mr Parker Mr Fahey Mr Ong 232,210 230,800 48,000 Mr Vilensky 59,113 Other KMP Mr King (iii) Total 180,000 750,123 - - - - - - - - - - - - 17,392 17,100 - - 17,100 51,592 175,500 425,102 175,500 423,400 175,500 223,500 175,500 234,613 - 356,120 197,100 702,000 1,503,715 41% 41% 79% 75% 0% 47% (i) The Board reviewed the KMP’s of the Group during the year and determined that Mr King no longer met the definition. (ii) During the period 10,060,000 performance rights were granted to KMP’s for a total value of $2,012,000. This represents the face value of the performance rights granted subject to future vesting conditions. 8 Vonex Financial Report 2018 The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Fixed Remuneration At risk - LTI ** Director Mr Fahey Mr Ong Mr Vilensky Ms Lai Hadad Other KMP Mr Parker Mr King 2018 81% 5% 6% 100% 80% - 2017 59% 59% 21% - 25% 100% 2018 19% 95% 94% 0% 20% - 2017 41% 41% 79% - 75% 0% ** Fixed Remuneration includes short term benefits and post-employment benefits Performance rights are at risk - **Long term incentives are provided by way of the performance rights issued with long term performance milestones (Tranche 1,2 and 3). The percentages disclosed reflect the fair value of remuneration based on the value of the performance rights at grant date subject to future vesting conditions. Remuneration Policy Non-Executive Directors Total remuneration for all Non-Executive Directors, is not to exceed $500,000 per annum as approved by shareholders. This does not include Consulting Fees. Non-Executive Directors, received a fixed fee for their services of $60,000 per annum (excl. GST) plus superannuation for services performed. Executive Director, Mr Fahey, is paid a fixed fee of $36,000 (excl. GST) plus superannuation. The Group has provided variable remuneration incentive schemes to certain Non-Executive Directors as detailed in Note 29. There are no termination or retirement benefits for non-executive directors (other than statutory superannuation). Executive Director—Mr Fahey-Chief Executive Officer Outlined below is a summary of the material provisions of the Executive Services Agreement between the Company and Mr Fahey. Mr Fahey receives an annual salary of $250,000 plus statutory superannuation. Mr Fahey is also entitled to director fee of $36,000 per annum. Either party may terminate the Executive Services Agreement by giving six months written notice. A bonus based on Key Performance Indicators (KPIs) will be paid as follows. Other KMP—Mr Angus Parker-Chief Technology Officer Outlined below is a summary of the material provisions of the Executive Services Agreement between the Company and Mr Angus Parker. Mr Parker receives an annual salary of $250,000 plus statutory superannuation. Either party may terminate the Executive Services Agreement by giving six months written notice. A bonus based on Key Performance Indicators (KPIs) will be paid as follows. D. Share-based Compensation Short term and long term incentives During the financial year Mr Fahey, Mr Ong, Mr Vilensky and Mr Parker were issued performance rights incentives for their work and ongoing commitment and contribution to the Company. 9 Financial ReportDirectors’ Report (continued) The performance rights were issued in three tranches, each with different performance milestones. Details of the performance rights issued are as follows: Tranche Director and Other KMP Number Issued Grant Date Expected Date of Milestone Achievements Underlying Share Price on Grant Date Total Fair Value ($) 1 2 3 Mr Fahey Mr Ong Mr Vilensky Mr Parker Mr Fahey Mr Ong Mr Vilensky Mr Parker Mr Fahey Mr Ong Mr Vilensky Mr Parker 100,000 2,200,000 2,420,000 100,000 100,000 1,210,000 1,210,000 100,000 100,000 1,210,000 1,210,000 100,000 10,060,000 28/07/17 Vested 0.20 28/07/17 28/07/21 0.20 28/07/17 28/07/21 0.20 20,000 440,000 484,000 20,000 20,000 242,000 242,000 20,000 20,000 242,000 242,000 20,000 2,012,000 The performance milestones attached with each of the tranches are detailed below: 1. Vonex Limited successful listing on an alternative securities exchange other than the Australian Securities Exchange. On 29 January 2018, the performance rights relating to Tranche 1 were amended such that they vest upon a successful listing on the Australia Securities Exchange. Milestone was achieved on 7 June 2018 and performance rights vested. 2. Vonex achieving audited gross revenue of $15 million in a financial year. 3. Vonex achieving audited net profit after tax of $1 million in a financial year. Where applicable, amounts in the table above, have been adjusted for the 5:1 and 2:1 share consolidation completed on 28 July 2017 and 29 January 2018 respectively. Refer to Note 29 for further details in respect to the performance rights granted. E. Equity Instruments Issued on Exercise of Remuneration Options No equity instruments were issued during the year to Directors or key management as a result of exercising remuneration options (2017: Nil). F. Value of options to Directors No options were granted, exercised or lapsed during the year to Directors or key management as part of their remuneration (2017: Nil). 10 Vonex Financial Report 2018 G. Equity instruments disclosures relating to key management personnel Share holdings The numbers of shares in the Company held during the financial year by each Director and other key management personnel of the Group are set out below. 2018 Opening Balance Received as Remuneration Received During Year on Exercise of Options Net Change Other Closing Balance Directors Mr Matthew Fahey Mr Nicholas Ong Mr David Vilensky Ms Winnie Lai Hadad Other KMP Mr Angus Parker Notes: 2,838,485 130,000 130,000 - 9,687,434 12,785,919 100,0001 2,200,0003 2,420,0005 - 100,0006 4,820,000 - - - - 3,469,8062 130,0004 - - 6,408,291 2,460,000 2,550,000 - - 8,451,1587 18,238,592 12,050,964 29,656,883 1. Conversion into ordinary shares of 100,000 Performance Rights following ASX Listing. 2. Comprising: a. Conversion into ordinary shares of a total of 984,903 Class B Performance Shares. b. Conversion into ordinary shares of a total of 984,903 Class C Performance Shares. c. Issue of 1,500,000 IP Consideration shares. 3. Conversion into ordinary shares of 2,200,000 Performance Rights following ASX Listing. 4. Participation in IPO offer. 5. Conversion into ordinary shares of 2,420,000 Performance Rights following ASX Listing. 6. Conversion into ordinary shares of 100,000 Performance Rights following ASX Listing. 7. Comprising: a. Conversion into ordinary shares of a total of 3,475,429 Class B Performance Shares. b. Conversion into ordinary shares of a total of 3,475,429 Class C Performance Shares. c. Issue of 1,500,000 IP Consideration shares. d. Acquisition of 300 ordinary shares on market. Where applicable, amounts in the table above, have been adjusted for the 5:1 and 2:1 share consolidation completed on 28 July 2017 and 29 January 2018 respectively. 11 Financial ReportDirectors’ Report (continued) Deferred performance shares holdings The table shows how many deferred KMP performance shares were granted, vested and forfeited during the year. Year Granted No Granted Grant Date Value per share Vested Grant Date value Vested value in FY17 Vested value in FY18 Forfeited value in FY18 Mr Fahey Tranche 1 Tranche 2 * Tranche 3 Tranche 1 ** Tranche 2 Tranche 3 Mr Ong Tranche 1 Tranche 2* Tranche 3 Tranche 1** Tranche 2 Tranche 3 Mr Vilensky Tranche 1 Tranche 2* Tranche 3 Tranche 1** Tranche 2 Tranche 3 Mr Parker Tranche 1 Tranche 2* Tranche 3 Tranche 1** Tranche 2 Tranche 3 FY17 FY17 FY17 FY18 FY18 FY18 FY17 FY17 FY17 FY18 FY18 FY18 FY17 FY17 FY17 FY18 FY18 FY18 FY17 FY17 FY17 FY18 FY18 FY18 130,000 130,000 130,000 100,000 100,000 100,000 130,000 130,000 130,000 $0.45 $58,500 - $0.45 $58,500 $58,500 $0.45 $58,500 $0.20 $20,000 $0.20 $20,000 $0.20 $20,000 $0.45 $58,500 - - - - - $0.45 $58,500 $58,500 $0.45 $58,500 2,200,000 $0.20 $440,000 1,210,000 1,210,000 $0.20 $242,000 $0.20 $242,000 130,000 130,000 130,000 $0.45 $58,500 $0.45 $58,500 $58,500 $0.45 $58,500 2,420,000 $0.20 $484,000 1,210,000 1,210,000 $0.20 $242,000 $0.20 $242,000 130,000 130,000 130,000 100,000 100,000 100,000 $0.45 $58,500 $0.45 $58,500 $58,500 $0.45 $58,500 $0.20 $20,000 $0.20 $20,000 $0.20 $20,000 - - - - - - - - - - - - - - - - - $20,000 - - - - - $440,000 - - - - - $484,000 - - - - - $20,000 - - $58,500 - - - - - $58,500 - - - - - $58,500 - - - - - $58,500 - - - - - Maximum value yet to vest - - $58,500 - $20,000 $20,000 - - $58,500 - $242,000 $242,000 - - $58,500 - $242,000 $242,000 - - $58,500 - $20,000 $20,000 * Deferred performance rights which vested during the period as a result of the performance milestone being achieved were issued to Directors and Other KMP on 23 June 2017. ** Deferred performance rights which vested during the period as a result of the performance milestone being achieved were issued to Directors and Other KMP on 7 June 2018. Where applicable, amounts in the table above, have been adjusted for the 5:1 and 2:1 share consolidation completed on 28 July 2017 and 29 January 2018 respectively. H. Other transactions with key management personnel On 28 July 2017 Vonex Limited issued 17,000,000 performance rights to Mr Parker and Mr Fahey as the inventors of the Oper8tor app in consideration for them executing a deed of confirmation of assignment of patent agreement to confirm the Company’s ownership of the Oper8tor intellectual property. No value has been allocated to the performance rights due to significant uncertainty of the meeting the performance milestone which are based on future events. 12 Vonex Financial Report 2018 Performance Milestones: a) 2,000,000 Performance Rights which shall vest and convert into ordinary fully paid shares in the issued share capital of the Assignee upon completion of the beta version of the Oper8tor app and commencement of the official Oper8tor launch in Europe; b) 5,000,000 Performance Rights which shall vest and convert into ordinary fully paid shares in the issued share capital of the Assignee when Oper8tor reaches 10 million Active Users; and c) 10,0000,000 million Performance Rights which shall vest and convert into ordinary fully paid shares in the issued share capital of the Assignee when Oper8tor reaches 50 million Active Users. On 28 July 2017, Vonex Limited also issued 3,000,000 to Mr Angus Parker and Mr Matthew Fahey fully paid ordinary shares for assignment of the intellectual property relating to the communication platform known as Oper8tor to the Company. Transactions with related parties The following transactions occurred with related parties: Services provided: Consultancy by The Telephone People (director-related entity of Mr Matthew Fahey) Company secretarial, corporate compliance and accounting fees from Minerva Corporate (director-related entity of Mr Nicholas Ong) Payments for legal fees from Bowen Buchbinder Vilensky (director-related entity of Mr David Vilensky) 2018 $ 2017 $ - 195,904 50,000 147,500 99,714 105,000 Receivable from and payable to related parties The following balances are outstanding at the reporting date in relation to transactions with related parties: 2018 $ 2017 $ Current payables: Trade payables to Minerva Corporate (director-related entity of Mr Nicholas Ong) 8,766 Trade payables to Bowen Buchbinder Vilensky (director-related entity of Mr David Vilensky) Trade payables to JS Capital Partners (director-related entity of Mr Angus Parker) Trade payables to The Telephone people & Sliver Consulting (director-related entity of Mr Matthew Fahey) - - 56,032 215,914 81,180 3,068 44,872 Loans to/from related parties The following balances are outstanding at the reporting date in relation to loans to or from related parties at the current and previous reporting date: Current payables: Loans from related parties (i) 2018 $ 2017 $ - 30,000 *(i) There was a loan from Finance West Pty Limited as at 30 June 2017 of $30,000. Mr Angus Parker was an Executive Director of Vonex Limited and is also a director and shareholder of Finance West Pty Limited Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. 13 Financial ReportDirectors’ Report (continued) I. Additional statutory information Relationship between remuneration and the Group’s performance The following table shows key performance indicators for the Group over the last five years: 2018 2017 2016 2015 2014 Loss for the year Closing Share Price KMP Incentives Total KMP Remuneration $14,713,402 14.0 cents $ 2,012,000 $ 2,641,217 $9,737,819 $12,410,441 ($376,490) ($917,276) N/A* $ 702,000 $ 1,503,715 N/A* $nil N/A* $nil N/A* $nil $858,640 $720,172 $835,664 *No closing share price as the company was unlisted. End of Audited Remuneration Report Environmental Regulation The Group’s operations are note regulated by any significant environmental regulations under a law of the Commonwealth or of a state or territory. Officer’s indemnities and insurance The Company has paid a premium for a contract insuring all directors and executive officers of the Company and certain related bodies corporate against all liabilities and expenses arising as a result of work performed in their respective capacities, to the extent permitted by law. The directors have not included in this report details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors and executive officers insurance liability contract as disclosure is prohibited under the terms of the contract. The Company has agreed to indemnify each person who is, or has been a director, officer or agent of the Company and/or of certain of its related bodies corporate against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as director, officer or agent, except where the liability arises out of conduct involving a lack of good faith. The Company is required to meet the full amount of any such liabilities, including costs and expenses for a period of seven years. No liability has arisen since the end of the previous financial year which the Company would, by operation of the above indemnities, be required to meet. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. Options At the date of this report the Company has the following options on issue: a) 133,750 options exercisable at $0.90 on or before 3 August 2020; b) 7,500,000 options exercisable at $0.20 on or before 7 June 2020; c) 14,500,000 options exercisable at $0.30 on or before 7 June 2023; and d) 14,719,731 options exercisable at $0.20 on or before 30 November 2022. Performance Rights As at 30 June 2018 the company had 27,610,000 performance rights on issue. As at the date of this report the Company has 27,560,000 performance rights held with the following performance conditions: a) 780,000 convertible upon the Company reaching $10 million annualised revenue per annum in any quarter (i); b) 4,840,000 convertible upon the Company achieving audited gross revenue of $15 million in a financial year (ii); c) 4,840,000 convertible upon the Company achieving audited net profit after tax of $1 million in a financial year (ii); 14 Vonex Financial Report 2018 d) 2,000,000 convertible into ordinary shares upon completion of the beta version of the Oper8tor app and commencement of the official Oper8tor launch in Europe; e) 5,000,000 convertible into ordinary shares upon the Oper8tor app achieving 10 million Active Users; f) 10,000,000 convertible into ordinary shares upon the Oper8tor app achieving 20 million Active Users; g) 50,000 converted into ordinary share on 1 July 2018; h) 50,000 convertible into ordinary share on 1 July 2019; and i) 50,000 converted into ordinary share on 1 July 2020. (i) Notwithstanding the performance conditions above, all the Performance Rights will vest automatically if there is a trade sale of all or any part of the business or assets of the Company or if the Company merges with another company or is the subject of a successful takeover or if the multi-platform phone call and messaging communication app called “Oper8tor” is spun out into a separate Company. (ii) Notwithstanding the Performance Conditions above, all the Performance Rights will vest automatically if there is a trade sale of all or any part of the business or assets of the Company or if the Company merges with another company or is the subject of a takeover of 50.1% or more, or if the multi-platform phone call and messaging communication app called “Oper8tor” is spun out into a separate Company. Subject to achievement of the performance conditions one share will be issued for each Performance Right that has vested on the same terms and conditions as the Company’s issued shares and will rank equally with all other issued shares from the issue date. 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. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Non audit services The Company may decide to employ the Auditor on assignments additional to their statutory audit duties. Details of the amounts paid or payable to the Auditor for audit and non-audit services provided during the year are set out below. The Board has considered the position and, in accordance with the advice received from the Audit Compliance and Risk Management Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The directors are satisfied that the provision of non-audit services by the Auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act for the following reasons:d - all non-audit services are reviewed by the Audit Compliance and Risk Management Committee to ensure they do not impact the impartiality, and - objectivity of the Auditor none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, including reviewing or auditing the Auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms. 15 Financial ReportAssurance services Audit Services RSM Australia Partners Total remuneration for audit and assurance services Corporate Services RSM Australia Pty Limited Total remuneration for corporate services 2018 $ 2017 $ 62,500 62,500 62,500 62,500 26,410 26,410 - - Auditor RSM Australia Partners was appointed as the Group’s auditor at the 2011 Annual General Meeting and continues in office in accordance with section 327 of the Corporations Act 2001. Auditor’s Independence Declaration A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is included within this financial report. This Directors’ Report, is signed in accordance with a resolution of the Board of Directors. Nicholas Ong Chairman 31 August 2018 16 Vonex Financial Report 2018 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Vonex Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) (ii) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Perth, WA Dated: 31 August 2018 TUTU PHONG Partner Financial Reports Financial Statement Consolidated statement of profit or loss and other comprehensive income AS AT 30 JUNE 2018 Note 2018 $ 2017 $ Sales revenue Cost of sales Gross profit Other revenues Administration expenses Amortisation Account and audit fees Bad & doubtful debt expenses Contractor expenses Depreciation expenses Directors fees Finance costs Insurance expense Legal fees Loss on disposal of subsidiaries Occupancy expenses Repairs and maintenance Share based payment expense Travel expenses Employee expenses Loss before income tax Income tax expense Net loss for the year Other comprehensive income for the year 2 2 3 3 3 13 3 29 8,067,027 7,019,641 (5,035,941) (4,702,643) 3,031,086 2,316,998 419,169 533,587 (806,620) (77,510) (122,343) (26,726) (485,715) (40,071) (214,812) (607,753) (42,542) (198,856) - (269,492) (3,726) (378,792) (75,336) (144,176) (16,446) (492,451) (68,716) (202,046) (198,642) (45,869) (79,014) (204,955) (221,633) (173) (13,514,260) (8,663,344) (176,135) (1,577,096) (14,713,402) (125,930) (1,670,881) (9,737,819) - - (14,713,402) (9,737,819) - - Total comprehensive loss for the year (14,713,402) (9,737,819) Basic and diluted earnings per share of loss attributable to the owners of Vonex Limited (cents per share) 21.35 17.03 The accompanying notes form part of these financial statements. 18 Vonex Financial Report 2018 Consolidated statement of financial position AS AT 30 JUNE 2018 Note 2018 $ 2017 $ Current assets • Cash and cash equivalents • Trade and other receivables • Other current assets Total current assets Non current assets • Intangible assets • Plant and equipment • Other non-current assets Total non current assets Total assets Current liabilties • Trade and other payables • Provisions • Borrowings Total current liabilities • Non-current liabilities • Provisions • Borrowings Total non-current liabilities Total liabilities Net assets/(liabilities) Equity • Issued capital • Reserves • Accumulated losses Total Equity 8 9 10 11 15 10 17 16 18 16 18 19 20 24 5,223,854 686,142 59,637 5,969,633 1,035,103 135,020 46,566 1,216,689 7,186,322 1,613,885 338,172 29,080 1,981,137 125,878 - 125,878 2,107,015 5,079,307 45,242,507 2,353,604 (42,516,804) 5,079,307 The accompanying notes form part of these financial statements. 384,624 809,766 58,141 1,252,531 447,652 157,339 42,030 647,021 1,899,552 2,267,683 324,000 2,378,430 4,970,113 91,148 8,668 99,816 5,069,929 (3,170,377) 22,301,567 2,331,458 (27,803,402) (3,170,377) 19 Financial ReportConsolidated statement of changes in equity FOR THE YEAR ENDED 30 JUNE 2018 At 1 July 2016 Comprehensive income: • Loss for the year Total comprehensive income/(loss) for the year Transactions with owners, in their capacity as owners • Vesting of performance shares and rights • Share-based payment –performance shares and rights • Capital raising costs At 30 June 2017 Issued Capital Accumulate Losses Reserves Total $ $ $ $ 16,014,130 (18,065,583) 19,114 (2,032,339) - - (9,737,819) (9,737,819) 6,351,000 - (63,563) - - - - - - (9,737,819) (9,737,819) 6,351,000 2,312,344 2,312,344 - (63,563) 22,301,567 (27,803,402) 2,331,458 (3,170,377) At 1 July 2017 Comprehensive income: • Loss for the year Total comprehensive income / (loss) for the year Transactions with owners, in their capacity as owners • Shares issued during the year • Vesting of performance shares and rights • Conversion of convertible notes to ordinary shares • Disposal of assets • Share-based payment – options, performance shares and rights • Capital raising costs At 30 June 2018 22,301,567 (27,803,402) 2,331,458 (3,170,377) - - (14,713,402) (14,713,402) 7,025,203 13,487,600 2,804,319 - - (376,182) - - - - - - - - - - - (4,512) 26,658 (14,713,402) (14,713,402) 7,025,203 13,487,600 2,804,319 (4,512) 26,658 - (376,182) 45,242,507 (42,516,804) 2,353,604 5,079,307 The accompanying notes form part of these financial statements. 20 Vonex Financial Report 2018 Consolidated statement of cash flows FOR THE YEAR ENDED 30 June 2018 Cash flows from operating activities • Receipts from customers • Payments to suppliers and employees • Research and development tax offset • Finance costs • Interest received Note 2018 $ 2017 $ 8,057,768 7,077,377 (9,472,541) (7,595,478) 475,457 (156,523) 2,335 132,966 (43,560) 1,836 Net cash used in operating activities 23 (1,093,504) (426,859) Cash flows from investing activities • Receipt of capital grant • Proceeds from disposal of subsidiary • Payments for physical non-current assets • Payment for development of intangibles • Loan to other entities Net cash used in investing activities Cash flows from financing activities • Proceeds from issue of shares • Net proceeds from borrowings • Payments for issue of shares Net cash provided by financing activities Net increase/(decrease) in cash and cash equivalents • Cash and cash equivalents at the beginning of the financial year 13 - - (22,265) (64,961) - 145,214 100 (172,795) (2,165) - (87,226) (29,646) 6,000,000 396,143 (376,183) 6,019,960 4,839,230 384,624 Cash and cash equivalents at end of the financial year 8 5,223,854 The accompanying notes form part of these financial statements. - 279,589 (20,000) 259,589 (196,916) 581,540 384,624 21 Financial ReportNotes to the consolidated financial statements Consolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 The consolidated financial statements and notes represent those of Vonex Limited and the entities it controlled during the year (“the consolidated entity”). Vonex Limited is an unlisted public company, incorporated and domiciled in Australia. The address of the Company’s registered office and principal place of business is Suite 1, 1 Centro Avenue, Subiaco, WA, 6008. The separate financial statements of the parent entity, Vonex Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. The financial statements were authorised for issue by the Board on 31 August 2018. Note 1: Statement of 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, revised or amending Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The consolidated financial statements and notes represent those of Vonex Limited and the entities it controlled during the year (“the consolidated entity”). Vonex Limited is a public company, incorporated and domiciled in Australia. The address of the Company’s registered office and principal place of business is Suite 5, 1 Centro Avenue, Subiaco, WA, 6008. The separate financial statements of the parent entity, Vonex Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. The financial statements were authorised for issue by the Board on 31 August 2018. Note 1: Statement of 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, revised or amending Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation The financial statements are general purpose financial statements that have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards, Interpretations of the Australian Accounting Standards Board, and International Financial Reporting Standards as issued by the International Accounting Standards Board. The consolidated entity is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below. They have been consistently applied unless otherwise stated. Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. The financial report has been prepared on an accruals basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, and financial assets and financial liabilities. The amounts presented in the financial statements have been rounded to the nearest dollar. All amounts are presented in Australian dollars. (a) Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and result of entities controlled by Vonex Limited at the end of the reporting period. A controlled entity is an entity over which Vonex Limited has the ability or right to govern the financial and operating policies so as to obtain benefits from the entity’s activities. In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated entity have been eliminated in full on consolidation. Where controlled entities have entered or left the consolidated entity during the year, the financial performance of those entities is included only for the period of the year that they were controlled. (b) Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses and results in the consolidation of its assets and liabilities. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The acquisition method requires that for each business combination one of the combining entities must be identified as the acquirer (i.e. parent entity). The business combination will be accounted for as at the acquisition date, which is the 22 Vonex Financial Report 2018 expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (revenue) is charged or credited outside profit or loss when the tax related to items that are recognised outside profit or loss. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at the end of the reporting period. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. date that control over the acquiree is obtained by the parent entity. At this date, the parent shall recognise, in the consolidated financial statements, and subject to certain limited exceptions, the fair value of the identifiable assets acquired and liabilities assumed. In addition, contingent liabilities of the acquiree will be recognised where a present obligation has been incurred and its fair value can be reliably measured. The acquisition may result in the recognition of goodwill or a gain from a bargain purchase. The method adopted for the measurement of goodwill will impact on the measurement of any non-controlling interest to be recognised in the acquiree where less than 100% ownership interest is held in the acquiree. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Consideration may comprise the sum of the assets transferred by the acquirer, liabilities incurred by the acquirer to the former owners of the acquiree and the equity interests issued by the acquirer. Fair value uplifts in the value of pre-existing equity holdings are taken to the statement of profit and loss and other comprehensive income. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. Included in the measurement of consideration transferred is any asset or liability resulting from a contingent consideration arrangement. Any obligation incurred relating to contingent consideration is classified as either a financial liability or equity instrument, depending upon the nature of the arrangement. Rights to refunds of consideration previously paid are recognised as a receivable. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or a liability is remeasured each reporting period to fair value through the statement of profit and loss and other comprehensive income unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of profit or loss and other comprehensive income. (c) Income Tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at the end of the reporting period. Current tax liabilities (assets) are therefore measured at the amounts 23 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) (d) Plant and Equipment Each class of plant and equipment is carried at cost or fair value, less, where applicable, any accumulated depreciation and impairment losses. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed included the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss. Depreciation The depreciable amount of plant and equipment is depreciated on the straight line method over their useful lives commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Furniture and Fixtures Plant and Equipment Leasehold Improvements Motor Vehicles Computer Equipment i. Plant and Equipment (continued) Depreciation Rate 15% - 25% 15% - 33.3% 12% 20% 50% The asset’s residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of profit or loss and other comprehensive income. ii. Impairment of Assets At each reporting date, the consolidated entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of profit or loss and other comprehensive income. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised in the statement of profit and loss and other comprehensive income immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised in the statement of profit and loss and other comprehensive income immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase. Impairment testing is performed annually for intangible assets with indefinite useful lives. iii. Leases Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are 24 Vonex Financial Report 2018 recognised as expenses in the periods in which they are incurred. (e) Employee Entitlements Provision is made for the consolidated entity’s obligation for short-term employee benefits. Short-term employee benefits are benefits that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short-term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The consolidated entity’s obligations for short-term employee benefits such as wages and salaries are recognised as a part of current trade and other payables in the statement of financial position. The consolidated entity’s obligations for employees’ annual leave entitlements are recognised as provisions in the statement of financial position. > Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. > Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. > Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. (f) Provisions Provisions are recognised when the consolidated entity has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. (g) Financial Instruments > Recognition and initial measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as “at fair value through profit or loss”. Transaction costs related to instruments classified as “at fair value through profit or loss” are expensed to the statement of profit or loss and other comprehensive income immediately. > Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the consolidated entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in the statement of profit and loss and other comprehensive income. > Classification and Subsequent Measurement i. Financial assets at fair value through profit or loss Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short term profit taking, where they are derivatives not held for hedging purposes, or designed as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in the statement of profit or loss and other comprehensive income. ii. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest rate method. Loans and receivables are included in current assets, where they are expected to mature within 12 months after the end of the reporting period. iii. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the consolidated entity’s intention to hold these investments to maturity. 25 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) They are subsequently measured at amortised cost using the effective interest rate method. Held-to-maturity investments are included in non-current assets where they are expected to mature within 12 months after the end of the reporting period. All other investments are classified as current assets. iv. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated as such or that are not classified in any of the other categories. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. v. Financial Liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method. > Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. > Impairment of Assets At the end of each reporting date, the consolidated entity assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for- sale financial instruments, a significant or prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the statement of profit or loss and other comprehensive income. Also, any cumulative decline in fair value previously recognised in other comprehensive income is reclassified to the profit or loss at this point. (h) Cash and Cash Equivalents Cash and equivalents include cash on hand, deposits held at call with banks and other short term highly liquid investments. For the purpose of the statement of cash flows, cash includes deposits at call, which are readily convertible to cash on hand and subject to an insignificant risk of changes in value. (i) Revenue and Other Income Sale of goods Revenue from the sale of goods represents sales of customer equipment to consumer and corporate customers. Cash sales are recognised immediately and credit sales are recognised over the life of the contract. Revenue arrangements with multiple deliverables Where two or more revenue-generating activities or deliverables are sold under a single arrangement, each deliverable is considered to be a separate unit of accounting and is accounted for separately. Interest Revenue is recognised as the interest accrues using the effective interest rate method, which for floating rate financial assets is the rate inherent in the instrument. All revenue is stated net of the amount of goods and services tax. (j) Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as they assets are substantially ready for their intended use of sale. All other borrowing costs are recognised in the comprehensive income statement in the period in which they are incurred. Borrowing costs predominately consist of interest and other costs that the company incurs in connection with the borrowing of funds. (k) Goods and Services Tax (GST) The company is registered for GST. Revenues, expenses and assets and liabilities are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the item of the expense. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. Receivables and payables in the statement of financial position are shown inclusive of GST. 26 Vonex Financial Report 2018 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 ATO, are presented as operating cash flows. (l) Trade and other payables These amounts represent liabilities for goods, services and other commitments provided to the consolidated entity at the end of the reporting period that remain unpaid. Trade payables are recognised at their transaction price. Trade payables are obligations on the basis of normal credit terms. Trade payables are predominately unsecured. (m) Trade and other receivables All trade receivables are recognised initially at the transaction price (i.e. cost) less any provision for impairment and allowance for any uncollectable amounts. Receivable terms for the consolidated entity are due for settlement within 4-30 days from the date of the invoice. Collect ability of trade debtors is reviewed on an ongoing basis. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. At the end of each reporting period, the carrying amount of trade and other receivables are reviewed to determine whether there is any objective evidence that the amounts are not recoverable. If so, an impairment loss is recognised immediately in the statement of profit or loss and other comprehensive income. When identified, debts which are known to be uncollectible are written off. (n) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (o) Critical Accounting Estimates and Judgements The Directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the consolidated entity. There have been no judgements, apart from those involving estimation, in applying accounting policies that have a significant effect on the amounts recognised in these financial statements. Following is a summary of the key assumptions concerning the future and other key sources of estimation at reporting date that have not been disclosed elsewhere in these financial statements. Share based payment transactions The consolidated entity measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by management using an appropriate valuation model that use estimates and assumptions. Management exercises judgement in preparing the valuations and these may affect the value of any share-based payments recorded in the financial statements (refer to notes 29 for further details). Impairment The consolidated entity assesses impairment at the end of each reporting period by evaluation conditions and events specific to the consolidated entity that may be indicative of impairment triggers. Validity for future operations are all elements that are considered. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. (p) Segment Reporting An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expense, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments operating results are regularly reviewed by the Company’s Directors to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. The Company engages in business activities within two segments, being wholesale and retail services within the telecommunications industry. Performance results of the two operating segments are disclosed within the financial statements. 27 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) (q) Intangibles Customer List Customer List is amortised on a straight line basis over the period of 10 years from May 2013. The residual values and useful lives are reviewed annually at each balance date and adjusted, if appropriate. Trademarks Trademark is amortised on a straight line basis over the period of 10 years from April 2013. The residual values and useful lives are reviewed annually at each balance date and adjusted, if appropriate. Patents Patent is amortised on a straight line basis over the period of 10 years from April 2013. The residual values and useful lives are reviewed annually at each balance date and adjusted, if appropriate. The patent is covering the Oper8tor development as outlined in the Directors’ Report. (r) Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non- current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. (s) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (t) New, revised or amending Accounting Standards and Interpretations 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 2016. 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 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for- trading) in other comprehensive income (OCI). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity’s own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an ‘expected credit loss’ (ECL) model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. At the date of this report, the initial review by the directors is that the application of AASB 9 will not have a material impact on the financial position and/or financial performance of the consolidated entity. 28 Vonex Financial Report 2018 AASB 15 Revenue from Contracts with Customers AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgments made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. At the date of this report, the initial review by the directors is that the application of AASB 15 will not have a material impact on the financial position and/or financial performance of the consolidated entity. 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 will adopt this standard from 1 July 2019 but the impact of its adoption is yet to be assessed by the consolidated entity. 29 Financial Report2018 $ 2017 $ 8,067,027 7,019,641 2,335 253,127 - 47,534 116,173 419,169 8,486,196 1,836 355,296 35,578 30,380 110,497 533,587 7,553,228 (144,052) (164,174) (198,642) (221,633) Consolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 2 : Revenue and Other Income Operating Activities • Sales Other income • Interest received • Research & Development tax offset • Data Retention Grant • Debt forgiveness • Other income Total other income Total revenue Note 3: Loss for the year Loss before income tax includes the following specific expenses Expenses • Depreciation and amortisation • Employee benefits expense (superannuation) • Borrowing costs • Rental expense on operating leases 2018 $ 2017 $ (117,581) (148,380) (607,753) (269,492) 30 Vonex Financial Report 2018 Note 4: Income Tax Expense (a) Reconciliation The prima facie tax on the loss is reconciled to income tax expense as follows: Loss for the year Prima facie tax expense at 27.5% Non-deductible expenses Deferred tax asset not brought to account Income tax benefit relating to loss (b) Deferred Tax Asset Deferred tax asset not brought to account comprises the future benefits at applicable tax rates: Tax losses – revenue (resident) Accruals and provisions Business related costs Other 2018 $ 2017 $ (14,713,402) (4,046,185) 3,783,778 262,407 - 5,364,232 251,805 130,171 6,769 5,752,977 (9,737,819) (2,677,900) 2,387,524 290,376 - 1,125,321 - - - 1,125,321 Resident tax losses calculated at the Australian income tax rate of 27.5%. This asset has not been recognised as an asset in the statement of financial position as its realisation is not considered probable. The asset will only be obtained if: (a) the company derives future assessable income of a nature and of an amount sufficient to enable the asset from the deductions for the loss to be realised; (b) the company continues to comply with the conditions for deductibility imposed by the law; and (c) no changes in tax legislation adversely affect the consolidated entity in realising the asset from deductions for the losses. 31 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 5: Key Management Personnel Disclosures 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 Share-based payments Note 6: Auditors’ Remuneration Remuneration of the auditor: • Auditing or reviewing the financial report • Other services Note 7: Earnings per share 591,152 38,065 2,012,000 2,641,217 62,500 26,410 88,910 2018 $ 2018 $ 2018 $ 750,123 51,592 702,000 1,503,715 62,500 - 62,500 2017 $ 2017 $ 2017 $ Loss for the year (14,713,402) (9,737,819) Weighted average number of ordinary shares outstanding during the year used in the calculation of basic loss per share No. Shares 68,909,223 No. Shares 57,167,184 There is no dilution of shares due to options as the potential ordinary shares are not dilutive and are therefore not included in the calculation of diluted loss per share. Note 8: Cash and Cash Equivalents Cash on hand Cash at bank 2018 $ 2017 $ 1,353 5,222,501 5,223,854 1,352 383,272 384,624 32 Vonex Financial Report 2018 Note 9: Trade and Other Receivables Current • Trade debtors • Less: provision for doubtful debts Other debtors GST Provision for doubtful debts Reconciliation: • Balance at the beginning of the year • Additional provision • Amount used Balance at the end of the year Note 10: Other Assets Current • Loans to related parties • Bonds/deposits paid • Prepayments Non-Current • Bonds/deposits paid (i) 2018 $ 2018 $ 248,988 (36,000) 212,988 397,869 75,285 686,142 36,000 36,000 15,000 21,599 (599) 36,000 2018 $ 2017 $ - 31,332 28,305 59,637 46,566 46,566 514,343 (15,000) 499,343 280,076 30,347 809,766 15,000 15,000 13,105 10,061 (8,166) 15,000 - 2,524 55,617 58,141 42,030 42,030 (i) Bank guarantee facilities are in place securing leased premises for staff and operations based in Brisbane, QLD and Perth, WA. Funds held in a bank term deposit are securing the bank guarantee facility. The bank guarantee facilities will be in place for the term of the property lease. 33 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 11: Intangible Assets Customer list Less: Accumulated amortisation Borrowing Costs - at cost Less: Accumulated amortisation Acquisition of IP (Oper8tor) (i) Patents and trademarks - at cost Less: Accumulated amortisation Domain name acquisition 2018 $ 2017 $ 720,081 (372,151) 347,930 1762 (1080) 682 600,000 600,000 95,520 (11,100) 84,420 2,071 2,071 1,035,103 720,081 (300,069) 420,012 935 (526) 409 - - 29,933 (4,773) 25,160 2,071 2,071 447,652 (i) On 28 July 2017 and subsequent to shareholder approval, the Company issued 3,000,000 fully paid ordinary shares for assignment of the intellectual property relating to the communication platform known as Oper8tor to the Company. 34 Vonex Financial Report 2018 Note 11: Intangible Assets (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Customer list Borrowing Costs Oper8tor Patents and trademarks Domain name Total Consolidated Balance at 30 June 2016 492,055 Additions/(Disposal) - Amortisation expense (72,043) Balance at 30 June 2017 420,012 Additions/(Disposal) Amortisation expense - (72,082) 643 - (234) 409 593 (320) - - - - 600,000 - 26,236 677 (1,753) 25,160 64,368 (5,108) 3,377 - 522,311 677 (1,306) (75,336) 2,071 - - 447,652 664,961 (77,510) Balance at 30 June 2018 347,930 682 600,000 84,420 2,071 1,035,103 Note 12: Controlled Entities (a) Parent entities The parent entity within the Group is Vonex Limited. (b) Subsidiaries IP Voice and Data Pty Limited (ABN 45 147 537 871) VoNEX Holdings Pty Limited (ACN 161 709 002) Oper8tor Pty Limited (ABN 14 601 220 633) Vonex Wholesale Limited (ABN 98 138 093 482) Western Nickel Limited Golden Paradox Inc Golden Eagle Exploration LLC USA Golden Eagle Production LLC USA Subsidiaries of IP Voice and Data Pty Limited Country of incorporation Class of shares Ownership Interest 2018 2017 AUS Ordinary AUS Ordinary AUS Ordinary AUS Ordinary AUS Ordinary USA Ordinary USA Ordinary USA Ordinary 100% 100% 100% 100% 0%(a) 0%(a) 0%(a) 0%(a) 100% 100% 100% 100% 0%(a) 0%(a) 0%(a) 0%(a) Itrinity Australia Pty Limited (ACN 131 196 886) AUS Ordinary 100% 100% (a) Entities were disposed of on 3 January 2017. 35 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 13: Disposal of Subsidiaries Description On 3 January 2017 the Company executed a binding share sale agreement to sell the Golden Eagle project in Grand County, Utah, USA. As a result, the company lost control of interest in the following subsidiaries: Western Nickel Limited, Golden Paradox Inc, Golden Eagle Exploration LLC USA and Golden Eagle Production LLC USA. Consideration received Cash proceeds from disposal of subsidiaries Book values of net assets over which control was lost Carrying amount of Trade and other payables at disposal Carrying amount of tenement bonds Loss during period to date of disposal Loss on disposal of subsidiaries 2018 $ 2017 $ - - - - - 100 37,496 (215,075) (27,476) (204,955) The loss on disposal of the subsidiaries is included in the statement of profit or loss and other comprehensive income. 36 Vonex Financial Report 2018 Note 14: Parent Entity Disclosures Financial Position 2018 $ 2017 $ Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Reserve Accumulated losses Total Equity Financial Performance Profit for the year Other comprehensive income Total comprehensive income for the year Guarantees 4,763,314 753,277 5,516,591 787,784 1,676,130 2,463,914 3,052,677 110,901,403 2,339,002 (110,187,728) 3,052,677 (12,543,589) - (12,543,589) 410,795 90,519 501,314 3,858,999 680,971 4,539,970 (4,038,656) 91,321,276 2,312,344 (97,672,276) (4,038,656) (76,866,533) - (76,866,533) Vonex Limited has not entered into any guarantees in relation to the debts of its subsidiary (2017: nil). Commitments for expenditure Vonex Limited has no commitments to acquire property, plant and equipment, and has no contingent liabilities (2017: nil). 37 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 15: Plant and Equipment Leasehold improvements • At cost • Accumulated depreciation Plant and Equipment • At cost • Accumulated depreciation Office and Computer equipment • At cost • Accumulated depreciation Licences and Development (inc. software) • At cost • Accumulated depreciation Total plant and equipment Movements in Carrying Amounts 2018 $ 2017 $ 31,517 (6,769) 24,748 112,641 (57,849) 54,792 511,508 (459,533) 51,975 255,509 (252,004) 3,505 135,020 31,517 (4,027) 27,490 114,973 (44,946) 70,027 490,580 (438,468) 52,112 263,276 (255,566) 7,710 157,339 Movement in the carrying amounts for each class of plant and equipment between the beginning and the end of the current financial year: Leasehold Improvements Plant & Equipment Office & Computer Licenses & Development 20,631 9,906 - (3,047) 27,490 84,191 4,388 - (18,552) 70,027 63,820 179,157 (164,382) (26,483) 52,112 28,344 - - (20,634) 7,710 Leasehold Improvements Plant & Equipment Office & Computer Licenses & Development 27,490 70,027 - - (2,742) 24,748 - (2,332) (12,903) 54,792 52,112 23,942 (3,014) (21,065) 51,975 7,710 - (844) (3,361) 3,505 Total 196,986 193,451 (164,382) (68,716) 157,339 Total 157,339 23,942 (6,190) (40,071) 135,020 Balance at 1 July 2016 Additions Grant Funding Received Depreciation Carrying amount at 30 June 2017 Balance at 1 July 2017 Additions Disposal / Write off Depreciation Carrying amount at 30 June 2018 38 Vonex Financial Report 2018 Note 16: Provisions Current Annual leave Non-Current Long service leave 2018 $ 338,172 338,172 125,878 125,878 Provision for employee benefits represents amounts accrued for annual leave and long service leave. Movements in Carrying Amounts Carrying amount at the start of the year Additional provisions recognized Amounts used Carrying amount at the end of the year 2018 $ 415,148 219,180 (170,278) 464,050 2017 $ 2017 $ 324,000 324,000 91,148 91,148 334,958 135,354 (55,164) 415,148 The current portion for this provision includes the total amount accrued for annual leave entitlements and the amounts accrued for long service leave entitlements that have vested due to employees having completed the required period of service. Based on past experience, the consolidated entity does not expect the full amount of annual leave or long service leave balances classified as current liabilities to be settled within the next 12 months. However, these amounts must be classified as current liabilities since the consolidated entity does not have an unconditional right to defer the settlement of these amounts in the event employees wish to use their leave entitlement. The non-current portion for this provision pertains to amounts accrued for long service leave entitlements that have not yet vested in relation to those employees who have not yet completed the required period of service. Note 17: Trade and Other Payables Trade payables VISA card account PAYG withholding Superannuation guarantee Other payables and accruals Goods and services tax (GST) Trade creditors are expected to be paid within agreed terms. 2018 $ 2017 $ 1,036,836 (4,437) 28,866 246,080 306,540 - 1,613,885 1,680,646 3,537 28,449 106,243 418,461 30,347 2,267,683 39 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 18: Borrowings Current Unsecured Loans from related parties – non-interest bearing Interest bearing loan Convertible notes (i) Other financial liabilities(ii) Secured Convertible notes (i) Finance lease – interest bearing Non-Current Secured Finance lease – interest bearing 2018 $ 2017 $ - 18,256 1,035 - 19,291 - 9,789 9,789 29,080 - - 30,000 26,176 407,759 430,000 893,935 1,472,679 11,816 1,484,495 2,378,430 8,668 8,668 (i) On 7 June 2018 the unsecured and secured convertible note and accrued interest converted into ordinary shares upon the successful completion of the Company’s listing onto the Australian Stock Exchange, at a price equal to 80% of the IPO price. A total of 17,526,989 ordinary shares were issued upon conversion of the convertible note totalling $2,804,319 (note 19). (ii) On 1 Aug 2017 the financial liabilities converted into ordinary shares at conversion price of $0.10 per share (post 5:1 share consolidation). A total of 3,800,000 ordinary shares were issued upon conversion of the financial liabilities totalling $380,000. (note 19). The remaining balance was paid in cash. 40 Vonex Financial Report 2018  Note 19: Issued capital 2018 2017 $ No. $ No. Fully paid ordinary shares 45,242,507 147,596,560 22,301,567 608,398,417 Movement in ordinary shares Balance at 30 June 2016 $ No. Issue price $ 16,014,130 467,265,084 Vesting of Class A vendor shares 20/09/2016 6,000,000 133,333,333 Vesting of Tranche B performance rights 23/06/2017 Capital raising costs Balance at 30 June 2017 351,000 (63,563) 7,800,000 22,301,567 608,398,417 Issue of shares – Acquisition of Intellectual Property 28/07/2017 600,000 30,000,000 Share Capital Consolidation (5:1) 28/07/2017 (510,719,557) Shares issued in settlement of borrowings 01/08/2017 380,000 3,800,000 Shares issued in settlement of trade payables Share Capital Consolidation (2:1) Vesting of Class B vendor shares Vesting of Class C vendor shares 45,203 452,030 01/08/2017 29/01/2018 07/06/2018 6,000,000 07/06/2018 6,000,000 (65,965,941) 13,333,311 13,333,311 Vesting of Tranche 1 performance rights 07/06/2018 1,452,000 7,260,000 Vesting of Vodia performance shares 07/06/2018 35,600 178,000 Issue of Initial Public Offer shares 07/06/2018 6,000,000 30,000,000 Conversion of convertible notes to ordinary shares 07/06/2018 2,804,319 17,526,989 Capital raising costs Balance at 30 June 2018 (376,182) 45,242,507 147,596,560 0.045 0.045 0.02 0.10 0.10 0.45 0.45 0.20 0.20 0.20 0.16 Where applicable, amounts in the table above, have been adjusted for the 5:1 and 2:1 share consolidation completed on 28 July 2017 and 29 January 2018 respectively. 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. At the shareholders meetings each ordinary share is entitled to one vote. The company does not have authorised share capital and there is no par value for shares. Capital Risk Management The Company is not subject to any externally imposed capital requirements. Management’s objectives when managing capital is to ensure the company continues as a going concern, so that they may continue to provide returns for shareholders and benefits for other stakeholders. The company’s strategy is to ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required. 41 Financial Report Consolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 19: Issued Capital (continued) The working capital position of the company at 30 June 2018 and 30 June 2017 are as follows: 2018 $ 1,642,965 (5,223,854) (3,580,889) 5,079,307 1,498,418 (239%) 2018 $ 14,602 1,660,694 678,308 2,353,604 2017 $ 4,654,781 (384,624) 4,270,157 (3,170,377) 1,099,780 388% 2017 $ 19,114 - 2,312,344 2,331,458 2018 $ 2017 $ 19,114 (4,512) 14,602 19,114 - 19,114 2018 $ - 1,660,694 1,660,694 2017 $ - - - Total borrowings (including trade and other payables) Less: cash and cash equivalents Net debt Total equity Total capital Gearing ratio Note 20: Reserves Asset revaluation reserve Options premium reserve Share-based payments reserve Balance at the end of the year Asset revaluation reserve Balance at the beginning of the year Reduction in reserve – disposal of assets Balance at the end of the year The reserve records revaluations of non-current assets. Options premium reserve Balance at the beginning of the year Expense relating to options issued Balance at the end of the year The reserve records the valuation of options issued 42 Vonex Financial Report 2018 Share-based payments reserve Balance at the beginning of the year Expense related to performance shares issued 20 September 2016 Expense related to performance rights issued 20 September 2016 Expense related to Vodia performance shares issued 14 July 2017 Expense related to performance rights issued 28 July 2017 Forfeiture of performance rights issued 20 September 2016 Conversion of Vodia Performance Shares to ordinary shares (note 19) Conversion of Tranche 1 performance shares to ordinary shares (note 19) Conversion of Class B performance shares to ordinary shares (note 19) Conversion of Class C performance shares to ordinary shares (note 19) 2018 $ 2,312,344 10,050,516 117,000 53,656 1,904,537 (272,145) (35,600) (1,452,000) (6,000,000) (6,000,000) 2017 $ - 1,949,484 713,860 - - - - - (351,000) - Balance at the end of the year 678,308 2,312,344 The reserve records the valuation of performance shares and performance rights issued to vendors (shares) and key management personnel (rights). Note 21: Contingent liabilities and contingent assets Contingent liabilities There were no known contingent liabilities at reporting date (2017: nil). Contingent assets There are no contingent assets at reporting date (2017: nil). Note 22: Operating segments Identification of reportable segments The Consolidated entity has identified its operating segments based its service offerings, which represents retail and wholesale services within the telecommunications industry. The three main operating segments are: > Retail: engaged in the sale of hardware and the full suite of telecommunication services including the provision of data,internet, voice (including IP voice) and other services within Australia. > Wholesale: engaged in offering wholesale “white-label” hosted PBX services under license for Internet Service Providers (ISP’s), Telcos and Cloud Vendors within Australia and internationally. > Corporate: engaged in managing the corporate affairs of the Group, including capital-raising and listing endeavours. Basis of accounting for purposes of report by operating segments Unless stated otherwise, all amounts reported within the operating segments are by determined in accordance with accounting standards adopted within the annual financial statements. Segment assets and liabilities Segment assets and liabilities have been identified based on where the direct relationship that exists in the provision of services within the two main operating segments. Unallocated items Items of revenue, expense, assets and liabilities that are not allocated to operating segments if they are considered part of the core operations of any segment. 43 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 22: Operating segments (continued) Segment information The segment information provided to the Board of Directors for the reportable segments for the year ended 30 June 2018 and 30 June 2017 are as follows: Segment performance External customer sales Other revenues Interest received Total segment revenues Wholesale $ 1,091,561 35,000 - 30 June 2018 Retail $ Corporate TOTAL $ $ 6,975,466 - 8,067,027 - 1,030 381,834 1,305 383,139 416,834 2,335 8,486,196 1,126,561 6,976,496 EBITDA 176,110 1,146,909 (15,313,422) (13,990,403) Depreciation and amortisation Interest revenue Finance costs Segment Profit / (loss) after income tax expenses Segment assets Total Assets Segment liabilities Total Liabilities (17,234) - (40,899) 117,977 128,414 (6,968) 1,030 (6,294) (93,379) 1,305 (117,581) 2,335 (560,560) (607,753) 1,134,677 (15,966,056) (14,713,402) 1,216,061 5,841,847 7,186,322 328,292 990,547 788,176 7,186,322 2,107,015 2,107,015 44 Vonex Financial Report 2018 Note 22: Operating segments (continued) Segment performance External customer sales Other revenues Interest received Total segment revenues 30 June 2017 Wholesale $ 966,005 197,276 - Retail $ Corporate $ TOTAL $ $ 6,053,636 - 7,019,641 73,917 1,116 260,558 720 531,751 1,836 1,163,281 6,128,669 261,278 7,553,228 EBITDA 119,190 741,283 (10,257,434) (9,396,961) Depreciation and amortisation Interest revenue Finance costs Segmented Profit / (loss) after income tax expenses Segment assets Total assets Segment liabilities Total Liabilities (43,033) - (3,824) 72,333 254,341 (7,723) 1,116 (6,328) (93,296) (144,052) 720 1,836 (188,490) (198,642) 728,348 (10,538,500) (9,737,819) 723,191 922,020 378,115 832,362 3,859,452 1,899,552 1,899,552 5,069,929 5,069,929 45 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 23: Cash flow information (a) Reconciliation of Cash Flows from Operations with Loss after Income Tax Loss after income tax Non-cash items: Depreciation and amortisation expense Interest accrued on convertible notes Interest accrued on equity loans Share based payments Loss on disposal of assets/investments Bad debts Debt forgiven Changes in assets and liabilities: Trade and other receivables • Trade and other receivables (current) • Other assets • Provisions • Trade and other payables Cash flow used in operating activities Note 24: Accumulated losses 2017 $ 2018 $ (14,713,402) (9,737,819) 117,581 430,158 - 144,052 134,188 20,894 13,514,260 8,663,344 - - (47,534) 123,624 (6,032) 48,902 (561,061) (1,093,504) 204,955 16,446 (30,380) (310,669) (676) 80,190 388,616 (426,859) 2018 $ 2017 $ Accumulated losses at beginning of financial year (27,803,402) (18,065,583) Net loss attributable to members of the company at end of financial year (14,713,402) (9,737,819) Accumulated losses at end of financial year (42,516,804) (27,803,402) 46 Vonex Financial Report 2018 Note 25: Events after the reporting period Results of Share Sale Facility On 14 August 2018 the Company announced the results of the Share Sale Facility. As at market close on 22 June 2018, there were 1,868,507 ordinary shares held by 1,433 shareholders that had a market value of less than A$500. The final number of shares eligible to be sold under the Facility was 1,302,079 ordinary shares from 1,025 shareholders which represented approximately 41% of the total number of shareholders holding shares in the Company. PBX registered user growth On 20 August 2018 the Company announced that Vonex Telecom had achieved 24,000 registered active PBX users by the end of July 2018. Registered PBX users are currently growing at 500 per month and is expected to grow as Vonex’s marketing goes into full swing in the NBN rollout areas. Vonex had 18,700 PBX users in July 2017, the growth represents a 28% gain in PBX user’s year on year. Placement of small shareholding shares On 24 August 2018 the Company announced that it has received firm commitments from a range of sophisticated and high net worth investors to place all the shares available under the Share Sale Facility (Facility) at $0.1325 per share pursuant to clause 3.5 of the Company’s constitution. The final number of shares sold under the Facility was 1,295,709 ordinary shares from 1,022 shareholders which represents approximately 41% of the total number of shareholders. Launch of Sign On Glass On 3 July 2018 Vonex announced the first release of its latest technology, called Sign On Glass (SOG), to more efficiently manage the Company’s new and existing customers. SOG is available on all internet enabled devices and facilitates the sign up, activation and ongoing management of customers. This SOG technology will be rolled out to the entire channel partner network and will provide more accurate provisioning and significantly reduce connection times, saving up to a week for typical orders. Using the SOG portal, channel partners will be able to activate the entire range of products for their new and existing clients. Their existing client information will be available within the interface, so they can perform upgrades, additions and modifications. The Company will continue to develop the product and will, in time, seek to provide a complete portal for the channel partner which will check product availability and site readiness prior to sign up. The technology will also automate the dispatch of hardware and provide various reports to the channel partner. Vonex has commenced testing of these advanced features with hundreds of test applications to date used by the development team. Vonex will continue to assess the performance of the SOG platform with both live customer data and testing of advanced features, and will endeavour to keep the market informed of the ongoing upgrades to the platform. development team. Vonex will continue to assess the performance of the SOG platform with both live customer data and testing of advanced features, and will endeavour to keep the market informed of the ongoing upgrades to the platform. CounterPath strategic partnership On 2 August 2018 the Company announced a strategic partnership with NASDAQ and TSX listed CounterPath, a global provider of award-winning Unified Communications solutions for enterprises and service providers. The CounterPath product suite includes Bria 5 that leverages over 10 years of softphone experience and replaces the need for a telephone to connect to a VoIP phone service, or hosted PBX extension. Its Stretto PlatformTM enables the provisioning of desktop and mobile VoIP software. CounterPath Bria software is used by millions of users across the globe. The partnership agreement will see Vonex and CounterPath collaboratively working on new customer growth in Australia. For Vonex, this could open up much larger opportunities to work with enterprise clients previously not targeted, plus enable Vonex to expand its offering to existing business, enterprise and channel customers. 47 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 26: Related Party Transactions Parent entity: The parent entity within the Group is Vonex Limited. Subsidiaries: Interests in subsidiaries are set out in note 12. Key management personnel: Disclosures relating to Key Management Personnel are set out in note 5. Transactions with related parties The following transactions occurred with related parties: Services provided: Consultancy by The Telephone People (director-related entity of Mr Matthew Fahey) Company secretarial, corporate compliance and accounting fees from Minerva Corporate (director-related entity of Mr Nicholas Ong) Payments for legal fees from Bowen Buchbinder Vilensky (director-related entity of Mr David Vilensky) Payments for legal fees from Bowen Buchbinder Vilensky (director-related entity of Mr David Vilensky) 2018 $ 2017 $ - 195,904 99,714 99,714 50,000 147,500 105,000 105,000 Receivable from and payable to related parties The following balances are outstanding at the reporting date in relation to transactions with related parties: 2018 $ 2017 $ Current payables: Trade payables to Minerva Corporate (director-related entity of Mr Nicholas Ong) 8,766 Trade payables to Bowen Buchbinder Vilensky (director-related entity of Mr David Vilensky) Trade payables to JS Capital Partners (director-related entity of Mr Angus Parker) Trade payables to The Telephone people & Sliver Consulting (director-related entity of Mr Matthew Fahey) - - 56,032 215,914 81,180 3,068 44,872 Loans to/from related parties The following balances are outstanding at the reporting date in relation to loans to or from related parties at the current and previous reporting date: Current payables: Loans from related parties (i) 2018 $ 2017 $ - 30,000 (j) There was a loan from Finance West Pty Limited as at 30 June 2017 of $30,000. Angus Parker was an Executive Director of Vonex Limited and is also a director and shareholder of Finance West Pty Limited. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. 48 Vonex Financial Report 2018 Note 27: Financial instruments The consolidated entity’s financial instruments consist mainly of deposits with banks, short term investments and accounts receivable and payable, loans to and from related parties and commercial loans. The main risks the consolidated entity is exposed to through its financial instruments are interest rate risk, credit risk, liquidity risk, price risk and foreign exchange risk. (a) Interest rate risk The consolidated entity’s exposure to interest rate risk, which is the risk that a financial instrument will fluctuate as a result of changes in market interest rates and effective average interest rates on those financial assets and liabilities. The majority of cash at bank held by the consolidated entity is in deposit accounts with one of the four large Australian Banks. Considering the amount of surplus working capital cash held by the consolidated entity during the last 12 months in these deposit accounts, the Board believes this was the most appropriate to ensure an adequate return being received on funds held. There are inter-company loans in place within the consolidated entity and these facilities currently attract no exposure to interest rate risk. The consolidated entity continues to manage its interest rate risk through a constant monitoring of interest rates, budgets and cash flows. Weighted Average Interest Rate Floating Interest Rate Fixed Interest Rate Within 1 Year Fixed Interest Rate Within 1-5 Years Non-Interest Bearing Total % $ $ $ $ $ 2018 Financial Assets: Cash Receivables Total financial assets Financial Liabilities: Payables Borrowings Total financial liabilities Net financial assets 1.0 - - 5.0 5,222,501 - 5,222,501 - 18,256 18,256 - - - - 10,824 10,824 5,204,245 (10,824) - - - - - - - 1,353 5,223,854 686,142 686,142 687,495 5,909,996 1,613,885 1,613,885 - 29,080 1,613,885 1,642,965 (926,390) 4,267,031 49 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 27: Financial instruments (continued) Weighted Average Interest Rate Floating Interest Rate Fixed Interest Rate Within 1 Year Fixed Interest Rate Within 1-5 Years Non-Interest Bearing Total % $ $ $ $ $ 2017 Financial Assets: Cash Receivables Total financial assets Financial Liabilities: Payables Borrowings Total financial liabilities Net financial assets Sensitivity analysis 1.0 - - 6.5 383,272 - 383,272 - 26,176 26,176 - - - - - - - - 1,892,254 1,892,254 8,668 8,668 1,352 384,624 809,766 809,766 811,118 1,194,390 2,267,683 2,267,683 460,000 2,387,098 2,727,683 4,654,781 357,096 (1,892,254) (8,668) (1,916,565) (3,460,391) The effect on profit and equity as a result of changes in interest rates on net financial assets is immaterial. (b) Credit Risk Credit risk related to balances with banks and other financial institutions is managed by the board of directors in accordance with approved Board policy. Such policy requires that surplus funds are only invested with counterparties with a Standard & Poor’s rating of at least AA-. The following table provides information regarding the credit risk relating to cash and money market securities based on Standard & Poor’s counterparty credit ratings. Cash and cash equivalents — AA Rated Note 8 2018 $ 2017 $ 5,223,854 384,624 The maximum exposure to credit risk is the carrying amount as disclosed in the consolidated statement of financial position and notes to the financial statements. The consolidated entity’s assets have been pledged to secure borrowings and guarantees are in place for certain borrowings and supplier agreements. All repayment obligations are up to date and within terms of the individual agreements in place at balance date. Trade and other receivables are within normal terms and appropriate provisions for doubtful debts have been made. Carrying value approximates fair value at 30 June 2018. (c) Net Fair Values The net fair value of financial assets and liabilities of the consolidated entity approximated their carrying amount. The consolidated entity has no financial assets and liabilities where the carrying amount exceeds the net fair value at reporting date. The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the statement of financial position and notes to the financial statements. 50 Vonex Financial Report 2018 Note 27: Financial instruments (continued) (d) Liquidity Risk Liquidity risk arises from the possibility that the consolidated entity might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The consolidated entity manages this risk through the following mechanisms: - preparing forward looking cash flow analysis in relation to its operational, investing and financing activities - obtaining funding from a variety of sources - maintaining a reputable credit profile - managing credit risk related to financial assets - investing only in surplus cash with major financial institutions - comparing the maturity profile of financial liabilities with the realisation profile of financial assets The consolidated entity does not have a significant exposure in terms of financial liabilities or illiquid financial assets and is able to settle its debts or otherwise meet its obligations related to financial liabilities. The financial asset and financial liability maturity analysis are as follows: Within 1 Year 1 to 5 Years Over 5 Years Total 2018 $ 2017 $ 2018 $ 2017 $ 2018 2017 $ $ 2018 $ 2017 $ Financial liabilities Payables Borrowings 1,613,885 2,267,683 29,080 2,378,430 Total Expected outflows 1,642,965 4,646,113 Financial assets Cash and cash equivalents Receivables 5,223,854 384,624 686,142 809,766 Total Anticipated Inflows 5,909,996 1,194,390 Net inflow / (outflow) on financial instruments 4,267,031 (3,451,723) (e) Foreign Exchange Risk - - - - - - - - 8,668 8,668 - - - (8,668) - - - - - - - - - - - - - - 1,613,885 2,267,683 29,080 2,387,098 1,642,965 4,654,781 5,223,854 384,624 686,142 809,766 5,909,996 1,194,390 4,267,031 3,460,391 The consolidated entity does have a minor exposure to fluctuations in foreign currencies between the US and Australian dollar. Some wholesale customers are based in the United States of America and monthly invoices are rendered in US dollars. When invoices are paid the proceeds are converted into Australian dollars. Depending on exchange rate fluctuations from the time the invoice is rendered and subsequently paid, the consolidated entity may have an associated exchange rate gain or loss. Management will continue to conduct monitoring reviews on an ongoing basis of its US based customers. 51 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 28: Commitments for Expenditure (a) Operating Lease Commitments Payable: No later than twelve months One to five years Greater than five years Amounts shown are GST inclusive, where applicable. Note 29: Share Based Payments 2018 $ 2017 $ 266,767 180,924 - 447,691 276,016 329,965 - 605,981 The total expense arising from share based payment transactions recognised during the year in relation to the performance rights, performance shares and options issued was $13,514,260 (2017: $8,663,344). Share Based Payment Expense Performance Rights – Key Management Personnel –20 September 2016 Performance Rights – Vodia Networks Inc - 14 July 2017 Performance Rights – Key Management Personnel – 28 July 2017 Performance Rights – IP Consideration Securities – 28 July 2017 Performance Shares Options Total Share Based Payment Expense Movement in share rights and performance shares during the period 2018 $ 2017 $ (155,145) 53,657 1,904,537 - 10,050,517 1,660,694 13,514,260 713,860 - - - 7,949,484 - 8,663,344 Number of performance rights Weighted average exercise price ($) Balance at beginning of period Subtotal prior to share consolidation 5:1 share consolidation Forfeited during the period Granted during the period (i) Subtotal prior to share consolidation 2:1 share consolidation Vested during the period Balance at end of period 282,266,667 282,266,667 56,453,333 (1,560,000) 68,536,000 123,429,333 61,714,622 (34,104,622) 27,610,000 - - - - - - - - - Performance rights granted during the period: Amounts below have been adjusted for the 2:1 share consolidation completed on 29 January 2018. Total performance rights granted during the period was 34,268,000. 52 Vonex Financial Report 2018 Note 29: Share Based Payments (continued) Performance Rights—Vodia Networks Inc—14 July 2017 Vonex Limited issued 328,000 performance rights to Vodia Networks Inc in four tranches. Each performance right will convert into 1 ordinary share of Vonex Limited upon achievement of the performance milestone. The company has assessed each class as being probable of being achieved and have therefore recognized an expense over the expected vesting period. The details of each tranche are tabled below: Tranche Number Start Date Exercise Price Expiry Date of Milestone Achievements Underlying Share Price Total Fair Value 1 2 3 4 178,000 14/07/17 50,000 14/07/17 50,000 14/07/17 Vested 01/07/2018 01/07/2019 50,000 14/07/17 01/07/2020 $0.20 $0.20 $0.20 $0.20 $35,600 $10,000 $10,000 $10,000 $35,600 $10,000 $10,000 $10,000 These performance rights were valued at their issue dates at $65,600. Performance Milestones: Tranche 1 has vested – 30 April 2018. Tranche 2 performance rights convert on 1 July 2018. Tranche 3 performance rights convert on 1 July 2019. Tranche 4 performance rights convert on 1 July 2020. Performance Rights—Key Management Personnel—28 July 2017 On 28 July 2017 Vonex Limited issued 16,940,000 performance rights to management. These performance rights were issued in three tranches, each with different performance milestones. Each performance right will convert into 1 ordinary share of Vonex Limited upon achievement of the performance milestone. The company has assessed tranche 1,2 and 3 as being probable of being achieved and have therefore recognised an expense over the expected vesting period. The details of each class are tabled below: Tranche Number Start Date 1 2 3 7,260,000 4,840,000 4,840,000 28/07/17 28/07/17 28/07/17 Expiry Date of Milestone Achievements Vested 28/07/2021 28/07/2021 Underlying Share Price Total Fair Value $0.20 $0.20 $0.20 $1,452,000 $968,000 $968,000 These performance rights were valued at their issue dates at $3,388,000. Performance Milestones: • On 29 January 2018, the performance rights relating to Tranche 1 were amended such that the 7,260,000 vest upon a successful listing on the Australia Securities Exchange. • Tranche 2 performance rights are outstanding – Convertible upon company achieving audited gross revenue of $15 million in a financial year. • Tranche 3 performance rights are outstanding – Convertible upon company achieving audited net profit after tax of $1 million in a financial year. 53 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 29: Share Based Payments (continued) Performance Rights—Intellectual Property Consideration Securities—28 July 2017 On 28 July 2017 Vonex Limited issued 17,000,000 performance rights to Mr Angus Parker and Mr Matthew Fahey as the inventors of the Oper8tor app in consideration for them executing a deed of confirmation of assignment of patent agreement to confirm the Company’s ownership of the Oper8tor intellectual property. No value has been allocated to the performance rights due to significant uncertainty of the meeting the performance milestone which are based on future events. Performance Milestones: a) 2,000,000 Performance Rights which shall vest and convert into ordinary fully paid shares in the issued share capital of the Assignee upon completion of the beta version of the Oper8tor app and commencement of the official Oper8tor launch in Europe; b) 5,000,000 Performance Rights which shall vest and convert into ordinary fully paid shares in the issued share capital of the Assignee when Oper8tor reaches 10 million Active Users; and c) 10,0000,000 million Performance Rights which shall vest and convert into ordinary fully paid shares in the issued share capital of the Assignee when Oper8tor reaches 50 million Active Users. On 28 July 2017 Vonex Limited also issued 3,000,000 to Mr Angus Parker and Mr Matthew Fahey fully paid ordinary shares for assignment of the intellectual property relating to the communication platform known as Oper8tor to the Company. Where applicable, amounts reported above, have been adjusted for the 2:1 share consolidation completed on 29 January 2018. Performance Shares and Rights granted in previous financial year: Amounts below have been adjusted for the 5:1 and 2:1 share consolidation completed on 28 July 2017 and 29 January 2018 respectively. Performance Shares On 20 September 2016, Vonex Limited varied the milestones for 40,000,000 performance shares which were originally issued to vendors on acquisition of Vonex Wholesale Limited by Vonex Limited on 28 January 2016. These performance shares were originally issued in three tranches, each with different performance milestones. Each performance share will convert into 1 ordinary share of Vonex Limited upon achievement of the performance milestone. Class Number Start Date A B C 13,333,378 13,333,311 13,333,311 20/09/16 20/09/16 20/09/16 Expected Date of Milestone Achievements Vested Vested Vested Underlying Share Price Total Fair Value $0.45 $0.45 $0.45 $6,000,000 $6,000,000 $6,000,000 These performance rights were valued at their issue dates at $18,000,000. On 29 January 2018, variation to the terms of Class B and Class C performance shares by adding an additional performance milestone, such that each Class B and Class C performance may also convert into one ordinary fully paid share in the Company on the occurrence of the Company listing on the Australian Securities Exchange. Class A performance shares were vested in previous financial year. Performance Right—Key Management Personnel—20 September 2016 Vonex Limited issued 2,340,000 performance rights to Executive Directors, management personnel, the Chairman and a non-executive director. These performance rights were issued in three tranches, each with different performance milestones. Each performance right will convert into 1 ordinary share of Vonex Limited upon achievement of the performance milestone. 54 Vonex Financial Report 2018 Note 29: Share Based Payments (continued) The Company has assessed each class as being probable of being achieved and have therefore recognised an expense over the expected vesting period. The details of each class are tabled below: Tranche Number Start Date 1 2 3 780,000 780,000 780,000 20/09/16 20/09/16 20/09/16 Expected Date of Milestone Achievements Forfeited Vested 20/09/19 Underlying Share Price Total Fair Value $0.45 $0.45 $0.45 $351,000 $351,000 $351,000 These performance rights were valued at their issue dates at $1,053,000. Performance Milestones: • Tranche 1 performance rights were forfeited and amounts previously recorded was reversed during the period as the vesting conditions were not satisfied. • Tranche 2 performance rights vested 23/06/2017. • Tranche 3 performance rights are outstanding – Convertible upon company reaching $10 million annualised revenue per annum in any quarter. Options granted during the period Amounts below have been adjusted for the 2:1 share consolidation completed on 29 January 2018. Total options granted during the period was 36,853,481. Grant date Expiry date Exercise Price 03/08/17 03/08/20 07/06/18 (i) 07/06/20 07/06/18 07/06/23 30/11/17 (i) 30/11/22 $0.90 $0.20 $0.30 $0.20 Balance at the start of the year Granted Expired Exercised/ forfeited - - - - - 133,750 7,500,000 14,500,000 14,719,731 36,853,481 - - - - - - - - - - Balance at the end of year 133,750 7,500,000 14,500,000 14,719,731 36,853,481 Weighted average exercise price: $0.2419 The weighted average remaining contractual life of options outstanding was 4.72 years. For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date 03/08/17 03/08/20 07/06/18 07/06/23 $0.20 $0.20 $0.90 $0.30 80% 80% 0% 0% 2% 2% 5,084 1,655,610 1,660,694 55 Financial ReportConsolidated notes to the financial statements FOR THE YEAR ENDED 30 JUNE 2018 (continued) Note 29: Share Based Payments (continued) In addition, the weighted average exercise price for the options issued as SBP’s is $0.3055 and the weighted average years to expiry is 4.91 years. i. Options granted on 3 August 2017 and 7 June 2018 were free attaching options, the value of these options are not required to be valued separately, as they are part of the share issue, and all the shares issued have been valued in the issued capital account. ii. Where applicable, amounts in the tables above, have been adjusted for the 5:1 and 2:1 share consolidation completed on 28 July 2017 and 29 January 2018 respectively. Note 30: Company Details The registered office & principal place of business is: Suite 5, Ground Floor 1 Centro Avenue, Subiaco, WA 6008 56 Vonex Financial Report 2018 Directors’ Declaration FOR THE YEAR ENDED 30 JUNE 2018 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 2018 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. This declaration is made in accordance with a resolution of the Board of Directors. Nicholas Ong Chairman 31 August 2018 57 Financial Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF VONEX LIMITED Opinion We have audited the financial report of Vonex Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year then ended; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (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 confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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. Key audit matter Impairment of intangible assets Refer to Note 11 in the financial statements The Group has intangible assets of $1,035,103 at the reporting date. to Intangible assets of $600,000 relating the Oper8tor communication platform which at the reporting date was not yet available for use is required to be tested annually for impairment by comparing its carrying amount with its recoverable amount. Management’s assessment determined that the recoverable amount of this asset exceeded its carrying value at the reporting date. For the remaining intangible assets of $435,103 relating to intangible assets amortised over their useful life, management is required to assess at the reporting date whether there is any indication that these assets may be impaired. Management did not identify any indicators of impairment, and therefore no impairment test was required to be performed. We determined this area to be a key audit matter due to the size of the balance and due to the significant management judgement involved in assessing the recoverable amount of the Oper8tor communication platform and whether indicators of impairment are present in relation to the Group’s other intangible assets. How our audit addressed this matter Our audit procedures in relation to the Oper8tor communication platform included: • Reviewing management’s assessment that the Oper8tor communication platform was not yet available for use at the reporting date; and • Evaluating the basis used by management in determining the recoverable amount of the Oper8tor communication platform. Our audit procedures in relation to the intangible assets amortised over their useful life included: • Reviewing management’s assessment that no impairment indicators were present; and • Enquiring with management and reviewing budgets to assess the future cash flows associated with the intangible asset; and • Checking the mathematical accuracy of the intangible the amortisation expense of assets. Share based payments – Refer to Note 29 in the financial statements During the year, the Company issued 36,853,481 options as detailed in Note 29. Management used a valuation model to value these options issued. During the year, the Group also issued 34,268,000 in Note 29. rights as detailed performance Management was required to assess the probability of achieving the performance conditions attached to the performance rights and estimate the length of the expected vesting period. We determined this to be a key audit matter due to the significant judgement involved in assessing the fair value of these share-based payments issued during the year. Our audit procedures in relation to the options issued included: • Obtaining the valuation model and assessed whether the model was appropriate for valuing the options issued during the year; • Checking the mathematical accuracy of the calculations in the model; • Assessing the reasonableness of the assumptions used in the valuation model such as the price volatility of the underlying share, dividend yield and risk-free interest rate; and • Ensuring the disclosures in the financial report were in accordance with Accounting Standards. Our audit procedures performance rights issued included: relation in to the • Reviewing management’s assessment of the probability of achieving the performance conditions and the estimated length of the expected vesting period; • Ensuring the disclosures in the financial report were in accordance with Accounting Standards. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2018, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the remuneration report We have audited the Remuneration Report included within the directors' report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Vonex Limited, for the year ended 30 June 2018, 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. RSM AUSTRALIA PARTNERS Perth, WA Dated: 31 August 2018 TUTU PHONG Partner Additional Information FOR THE YEAR ENDED 30 JUNE 2018 SHAREHOLDER INFORMATION (as at 27 August 2018) (i) Number of shareholders: 1,413 (ii) Ordinary shares issued: 147,596,560 (iii) The twenty largest shareholders hold 90,746,296 ordinary shares representing 61.48% of the issued capital (iv) Distribution schedule of holdings ORDINARY SHARES QUOTED OPTIONS EX 20¢ EXP 7/6/2020 NO. OF SHARES NO. OF HOLDERS NO. OF OPTIONS NO. OF HOLDERS 1 – 1,000 1,001 - 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 187 357 300 424 145 1,413 1 – 1,000 1,001 - 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over 0 47 16 36 4 103 VOTING RIGHTS OF ORDINARY SHARES Each member presents in person, or by proxy, representative or attorney, has one vote on a show of hands and one vote per share on a poll for each share held. Each member is entitled to notice of, and to attend and vote at, general meeting. TOP 20 HOLDERS OF ORDINARY FULLY PAID SHARES AT 27 August 2018 Rank Name 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. CODE NOMINEES PTY Limited <28351 A/C> FINANCE WEST PTY Limited MR MATTHEW FAHEY CARMINE LION GROUP PTY Limited CARMINE LION GROUP PTY Limited HSBC CUSTODY NOMINEES (AUSTRALIA) Limited CONFADENT Limited GUAVA CAPITAL PTY Limited MR RYAN JAMES ROWE OCTAVUS DEVELOPMENT Limited STATE ONE STOCKBROKING Limited COLIENS CORPORATION PTY Limited MS TOW LOY SUN LATERAL CONSULTING (WA) PTY Limited MR GREGORY ROSS KING + MS SUZANNE DAWN KING GUAVA CAPITAL PTY Limited HEELMO HOLDINGS PTY Limited LATERAL CONSULTING (WA) PTY Limited MR SHANE ROBINSON + MRS HELEN ROBINSON 20. MR BRUCE HUMMERSTON + MRS JANET HUMMERSTON Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL) Total Remaining Holders Balance 62 Units 19,643,296 16,203,739 5,533,698 5,238,320 5,231,527 4,377,417 3,500,000 3,078,620 3,074,653 2,807,258 2,648,489 2,420,000 2,330,000 2,239,381 2,220,000 2,158,188 2,120,666 2,096,061 1,931,810 1,893,173 90,746,296 56,850,264 % Units 13.31 10.98 3.75 3.55 3.54 2.97 2.37 2.09 2.08 1.90 1.79 1.64 1.58 1.52 1.50 1.46 1.44 1.42 1.31 1.28 61.48 38.52 Vonex Financial Report 2018 UNQUOTED SECURITIES Set out below are the classes of unquoted securities currently on issue: Number 113,750 14,500,000 14,719,731 27,788,000 Class Options exercisable at 90¢ expiring 3/8/2020 Options exercisable at 30¢ expiring 7/6/2023 Options exercisable at 20¢ expiring 30/11/2022 Performance rights with various vesting milestones SECURITIES SUBJECT TO ESCROW Set out below are securities currently subject to escrow. Number 190,058 189,594 94,582 165,264 247,239 99,046 102,505 5,587 9,234 178,000 133,750 14,500,000 996,701 13,723,030 23,020,000 Class Ordinary shares in held in escrow until 6/12/2018 Ordinary shares in held in escrow until 7/12/2018 Ordinary shares in held in escrow until 8/12/2018 Ordinary shares in held in escrow until 11/12/2018 Ordinary shares in held in escrow until 12/12/2018 Ordinary shares in held in escrow until 13/12/2018 Ordinary shares in held in escrow until 14/12/2018 Ordinary shares in held in escrow until 15/12/2018 Ordinary shares in held in escrow until 18/12/2018 Ordinary shares in held in escrow until 7/6/2019 Options exercisable at 90¢ expiring 3/8/2020 held in escrow for two years from 13/6/2018 Options exercisable at 30¢ expiring 7/6/2023 held in escrow for two years from 13/6/2018 Options exercisable at 20¢ expiring 30/11/2022 held in escrow for two years from 13/6/2018 Options exercisable at 20¢ expiring 30/11/2022 held in escrow until 7/6/2019 Performance Rights held in escrow for two years from 13/6/2018 ASX LISTING RULE 4.10.19 CONFIRMATION Pursuant to ASX Listing Rule 4.10.19 the Company confirms that from the period of admission on 8 June 2018 to 30 June 2018 the Company used its cash and assets in a form readily convertible into cash, in line with its stated business objectives. CORPORATE GOVERNANCE Pursuant to the ASX Listing Rules, the Company’s Corporate Governance Statement will be released in conjunction with this report. The Company’s Corporate Governance Statement is available on the Company’s website at: https://investors.vonex.com.au/corporate-governance/ 63 Financial Report Additional Information FOR THE YEAR ENDED 30 JUNE 2018 (continued) MINING ROYALTY SCHEDULE Project Tenements VNX’s Interest Other Parties Johnston Range Iron Ore Gold and Base Metals M77/1258 Royalty Cliff Asia Pacific(1) Notes: 1. Vonex Limited retains a 2% royalty. 64 Vonex Financial Report 2018 65 Financial ReportVONEX LIMITED ABN 39 063 074 635/ACN 063 074 635 

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