BUTN LIMITED — Annual Report 2019

Jul 1, 2021

Action Funding Group Pty Ltd

ABN 84 626 253 263

Pro Forma Annual Report - 30 June 2019

Pro Forma Special Purpose Financial Statements

Action Funding Group Pty Ltd Contents 30 June 2019

Pro Forma Statement of profit or loss and other comprehensive income	3
Pro Forma Statement of financial position	4
Pro Forma Statement of changes in equity	5
Pro Forma Statement of cash flows	6
Notes to the financial statements	7
Directors' declaration	23
Independent auditor's report to the members of Action Funding Group Pty Ltd	24

General information

The Pro Forma Special Purpose Financial Statements cover Action Funding Group Pty Ltd as a consolidated entity consisting of Action Funding Group Pty Ltd and the entities consolidated as detailed within the basis of preparation in note 1 of the financial statements. The financial statements are presented in Australian dollars, which is Action Funding Group Pty Ltd's functional and presentation currency.

2

Action Funding Group Pty Ltd Pro Forma Statement of profit or loss and other comprehensive income For the year ended 30 June 2019

Note Revenue 3 Operating expenses Employee benefits expense Advertising costs Other expenses 4 Occupancy Travel Interest revenue Depreciation and amortisation expense 4 Finance costs 4 Loss before income tax expense Income tax expense 5 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Loss for the year is attributable to: Non-controlling interest Owners of Action Funding Group Pty Ltd 23	Consolidated 2019 2018 $ $ 3,230,545 2,275,268 (750,426) (679,233) (27,940) (666) (839,885) (449,431) (9,258) (56,134) (54,229) (22,328)	Consolidated 2019 2018 $ $ 3,230,545 2,275,268 (750,426) (679,233) (27,940) (666) (839,885) (449,431) (9,258) (56,134) (54,229) (22,328)
	1,548,807 12,425 (372,365) (1,322,489)	1,067,476 200 (241,425) (949,842)
	(133,622)	(123,591)
	(52,547)	(23,624)
	(186,169) -	(147,215) -
	(186,169)	(147,215)
	- (186,169)	(12,377) (134,838)
	(186,169)	(147,215)

The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes

3

Action Funding Group Pty Ltd Pro Forma Statement of financial position As at 30 June 2019

Note Assets Current assets Cash and cash equivalents 6 Trade and other receivables 7 Prepayments 8 Total current assets Non-current assets Right-of-use assets 9 Intangibles 10 Deferred tax 11 Total non-current assets Total assets Liabilities Current liabilities Trade and other payables 12 Borrowings 13 Lease liabilities 14 Tax payable 15 Provisions 16 Other 17 Total current liabilities Non-current liabilities Borrowings 18 Lease liabilities 19 Deferred tax 20 Provisions 21 Total non-current liabilities Total liabilities Net liabilities Equity Issued capital 22 Accumulated losses 23 Deficiency in equity attributable to the owners of Action Funding Group Pty Ltd Non-controlling interest 24 Total deficiency in equity	Consolidated 2019 2018 $ $ 2,137,559 2,603,095 15,046,082 10,091,167 48,451 - 17,232,092 12,694,262 46,993 - 2,400,183 2,225,926 210,672 74,087 2,657,848 2,300,013 19,889,940 14,994,275 229,888 104,008 1,161,016 3,564,097 41,178 - 88,424 - 109,716 73,399 312,141 160,152 1,942,363 3,901,656 18,464,903 11,451,063 7,234 - 12,923 - 11,322 4,194 18,496,382 11,455,257 20,438,745 15,356,913 (548,805) (362,638) 12 12 (511,033) (324,864) (511,021) (324,852) (37,784) (37,786) (548,805) (362,638)
	17,232,092
	46,993 2,400,183 210,672
	2,657,848
	19,889,940
	229,888 1,161,016 41,178 88,424 109,716 312,141
	1,942,363
	18,464,903 7,234 12,923 11,322
	18,496,382
	20,438,745
	(548,805)
	12 (511,033)
	(511,021) (37,784)
	(548,805)

The above statement of financial position should be read in conjunction with the accompanying notes

4

Action Funding Group Pty Ltd Pro Forma Statement of changes in equity For the year ended 30 June 2019

Action Funding Group Pty Ltd Pro Forma Statement of changes in equity For the year ended 30 June 2019
Consolidated Balance at 1 July 2017 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Balance at 30 June 2018 Consolidated Balance at 1 July 2018 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Net equity acquired under common control transactions Balance at 30 June 2019	Issued capital $ 12 - -	Reserves $ - - -	Accumulated losses $ (190,026) (134,838) -	Non- controlling interest $ (25,409) (12,377) -	Total deficiency in equity $ (215,423) (147,215) -
	-	-	(134,838)	(12,377)	(147,215)
	12	-	(324,864)	(37,786)	(362,638)
	Issued capital $ 12 - -	Reserves $ - - -	Accumulated losses $ (324,864) (186,169) -	Non- controlling interest $ (37,786) - -	Total deficiency in equity $ (362,638) (186,169) -
	-	- -	(186,169) -	- 2	(186,169) 2
	12	-	(511,033)	(37,784)	(548,805)

The above statement of changes in equity should be read in conjunction with the accompanying notes

5

Action Funding Group Pty Ltd Pro Forma Statement of cash flows For the year ended 30 June 2019

Action Funding Group Pty Ltd Pro Forma Statement of cash flows For the year ended 30 June 2019
Note Cash flows from operating activities Receipts from client receivables Payments to clients Payments to suppliers and employees Interest paid Interest received Taxes paid Net cash (used in) / from operating activities Cash flows from investing activities Payments for other investing activities Net cash (used in) investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash at the beginning of the financial year Cash at the end of the financial year 6	Consolidated 2019 2018 $ $ 98,714,957 94,499,428 (100,714,653) (91,397,847) (1,634,549) (1,694,379) (909,317) (247,449) 12,425 200 (52,486) (90,480) (4,583,622) 1,069,473 (1,800) (15,000) (1,800) (15,000) 14,250,000 7,557,816 (10,130,114) (6,020,473) 4,119,886 1,537,343 (465,536) 2,591,816 2,603,095 11,279 2,137,559 2,603,095
	(4,583,622)
	(1,800)
	(1,800)
	14,250,000 (10,130,114)
	4,119,886
	(465,536) 2,603,095
	2,137,559

The above statement of cash flows should be read in conjunction with the accompanying notes

6

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 1. Significant accounting policies

The principal accounting policies adopted in the preparation of the special purpose financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

The legal entities comprising the Action Funding Group Pty Ltd in these pro-forma financial statements are not currently consolidated for financial reporting purposes for the year ended 30 June 2019.

A set of combined pro-forma financial information have been prepared which combines or aggregates all the individual legal entities’ assets, liabilities and results into a single set of combined pro-forma financial information as if all the entities were controlled by Action Funding Group. This aggregation does not meet the definition of a ‘group’ as defined by AASB 10 Consolidated financial Statements. In all other respects the combined pro-forma financial statements have been prepared in accordance with the recognition, measurement, classification and disclosure aspects of the Australian Accounting Standards as detailed in the accounting policies below.

Basis of preparation

In the directors' opinion, the consolidated entity is not a reporting entity because there are no users dependent on general purpose financial statements.

These special purpose financial statements are pro-forma historical financial statements that have been prepared in accordance with the measurement and recognition requirements of Australian Accounting Standards and the pro-forma presentation requirements relating to the request of the directors. The Group is a for-profit entity. Not all of the disclosure requirements of Australian Accounting Standards have been complied with in the preparation of these financial statements.

These financial statements consolidate the following entities:

• Action Funding Group Pty Ltd

• Australian Factoring Company Pty Ltd

• Action Funding Pty Ltd

• Faultless Recovery Services Pty Ltd

• AFC 2018-1 Trust

• AFC 2019-1 Trust

• Butn IP Pty Ltd

• NZ Factoring company

Australian Accounting Standards set out accounting policies that the AASB have concluded would result in pro-forma financial statements containing relevant and reliable information about transactions, events and conditions. Material accounting policies adopted in the preparation of these pro-forma financial statements are presented below and have been consistently applied unless stated otherwise.

The financial statements have been prepared on a going concern basis, under an accruals and historical cost convention.

These financial statements have been prepared in accordance with the recognition and measurement requirements specified by the Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the disclosure requirements of AASB 101 'Presentation of Financial Statements', AASB 107 'Statement of Cash Flows', AASB 108 'Accounting Policies, Changes in Accounting Estimates and Errors', AASB 1048 'Interpretation of Standards' and AASB 1054 'Australian Additional Disclosures', as appropriate for for-profit oriented entities.

7

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 1. Significant accounting policies (continued)

Going concern

As at 30 June 2019 the consolidated entity had a net asset deficiency of $548,805 (30 June 2018: $362,638). The following matters have been considered by the directors in determining the appropriateness of the going concern basis in the preparation of the financial statements:

• The financial year saw substantial growth in transactional funding to small and medium enterprises with year on year revenue increasing over 40% assuming an equivalent corporate structure in the previous financial year;

• The Group substantially developed its butn fintech solution, targeting a fourth quarter calendar 2020 launch, which will significantly increase the Group’s addressable market. This development, which is now principally complete, has absorbed funding which did not generate revenue or cash inflows in the current financial year;

• During the 2019 financial year, the consolidated entity increased its available borrowings through the issue of corporate bonds. Whilst this has resulted in increased financing costs, particularly through a negative carry of unutilised debt, it does evidence the ability of the consolidated entity to attract debt investment and provides the platform to grow its loan book in the next financial year;

• The Group has significant available cash on hand and the ongoing support of the founders;

• On the back of continued traditional business growth, combined with the emerging fintech solution, the Group commenced and post year end advanced potential debt and equity opportunities. While preliminary, to date interest has been strong; and

• The Group has significant available cash, long dated borrowing maturities, positive forecast future results, combined with the ability to modify growth plans should it be required.

Accordingly, no adjustments have been made and the financial statements have been prepared on a going concern basis.

Principles of consolidation

The consolidated pro-forma financial statements are a pro-forma consolidation, which incorporated the assets and liabilities of the parent and all proposed subsidiaries of Action Funding Group (as defined by the basis of preparation) for the current and comparative periods.

The assets, liabilities and results of all proposed subsidiaries are fully consolidated into the financial statements of the Group. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of proposed subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group.

Non-controlling interest in the results and equity of proposed subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed in revenue are net of returns, allowances, rebates and amount collected on behalf of third parties. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group and specific criteria have been met for each of the Group’s activities.

Revenue is recognised for the major business activities as follows:

Revenue from rendering services

Revenue from customers is recognised using the application of the credit adjusted effective interest rate (“EIR”) to the amortised cost of the purchased debt ledgers or transactions under AASB 9 Financial Instruments. Revenue is shown net of any adjustments to the carrying amount of purchased debt ledgers or transactions as result of changes in estimated cash flows. The EIR is the rate that discounts estimated future cash receipts of the purchased debt ledgers or transactions to the net carrying amounts (i.e. the price paid to acquire the asset). Revenue from rendering services is recognised to the extent that the performance obligation has been met, revenue benefits are expected to flow to the Group and the revenue can be reliably measured. Money received in advance is deferred and recognised as a deferred revenue liability.

8

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 1. Significant accounting policies (continued)

Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability.

Interest

Interest revenue is recognised as interest accrues using the effective interest method.

Other revenue

Other revenue is recognised under AASB 15 Revenue. The standard requires entities to exercise judgement, taking into consideration relevant facts and circumstances when applying each step of the model to contracts with customers. The standard also specifies the accounting for incremental costs of obtaining a contract and costs directly related to fulfilling a contract. The Group has concluded that other revenue streams have one performance obligation and should be recognised at the point in time when the service to the customer is complete .

Income tax

The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for:

• When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or

• When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset.

Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously.

Current and non-current classification

Assets and liabilities are presented in the statement of financial position based on current and non-current classification.

An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current.

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.

9

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 1. Significant accounting policies (continued)

Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position.

Trade and other receivables

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement between 30 to 90 days.

The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue.

Other receivables are recognised at amortised cost, less any allowance for expected credit losses.

Property, plant and equipment

Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows:

Plant and equipment

1-7 years

The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.

An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss.

Right-of-use assets

A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.

Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities.

The consolidated entity has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred.

Intangible assets

Intangible assets acquired are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period.

10

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 1. Significant accounting policies (continued)

Borrowing costs

Costs in relation to borrowings are capitalised as an asset and amortised on a straight-line basis over the period of the finance arrangement.

Formation costs

Costs in relation to the formation of the consolidated entity are capitalised as an asset. These costs are not subsequently amortised.

Customer list

Significant costs associated with customer list acquisitions are deferred and amortised on a straight-line basis over the period of their expected benefit, being their estimated finite life of 15 years.

Impairment of non-financial assets

Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other nonfinancial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.

Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.

Trade and other payables

These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.

Borrowings

Loans and borrowings are initially recognised at the fair value of the consideration received. They are subsequently measured at amortised cost using the effective interest method.

Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non-current.

Lease liabilities

A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the consolidated entity's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred.

Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down.

Finance costs

Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred.

11

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 1. Significant accounting policies (continued)

Provisions

Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result of a past event, it is probable the consolidated entity will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost.

Employee benefits

Short-term employee benefits

Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled.

Other long-term employee benefits

The liability for employee benefits not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Issued capital

Ordinary shares are classified as equity.

Goods and Services Tax ('GST') and other similar taxes

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.

New Accounting Standards and Interpretations

The Group applied AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers for the first time, with no material impact except for deferred revenue recognised and disclosed in note 17. The Group applied AASB 16 Leases for the first time in 2019, recognising Right of use assets (note 9) and Lease liabilities (note 14 and note 19) respectively. 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 2018 and 2019. The consolidated entity has not yet assessed the impact of these new or amended Accounting Standards and Interpretations.

Note 2. Critical accounting judgements, estimates and assumptions

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The significant judgements, estimates and assumptions by management include:

12

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 2. Critical accounting judgements, estimates and assumptions (continued)

Allowance for expected credit losses

The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience and historical collection rates.

Estimation of useful lives of assets

The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.

Note 3. Revenue

Note 3. Revenue
	Consolidated
	2019	2018
	$	$
Revenue from customers	3,230,545	2,275,268

Note 4. Expenses

Note 4. Expenses
Loss before income tax includes the following specific expenses: Depreciation Fixtures and fittings Total depreciation Amortisation Customer list Borrowing costs Right of use assets Total amortisation Total depreciation and amortisation	Consolidated 2019 2018 $ $ - 9,012
	- 9,012 165,689 165,485 156,854 66,928 49,822 -
	372,365 232,413
	372,365 241,425

13

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 4. Expenses (continued)

Note 4. Expenses (continued)
Finance costs Interest charges paid/payable Interest charges paid/payable to shareholders Total finance costs expensed Superannuation expense Defined contribution superannuation expense Other expenses Bad debts Consulting fees Insurance Legal fees Sundry expenses Total other expense	1,231,710 815,532 90,779 134,310
	1,322,489 949,842
	61,203 56,046
	- 9,527 285,604 164,487 88,825 13,669 197,048 59,655 268,408 202,093
	839,885 449,431

Note 5. Income tax benefit

Income tax benefit Current tax Deferred tax – origination and reversal of temporary differences Aggregate income tax expense Deferred tax included in income tax benefit comprises: Increase in deferred tax assets (note 11) Increase in deferred tax liabilities (note 20) Deferred tax – origination and reversal of temporary differences Numerical reconciliation of income tax benefit and tax at the statutory rate Loss before income tax benefit Tax at the statutory tax rate of 27.5% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Amortisation of intangibles Research & development expenses not deductible Penalties Other non deductible expenses Difference in tax rate Income tax expense	Consolidated 2019 2018 $ $ 176,209 51,835 (123,662) (28,211)	Consolidated 2019 2018 $ $ 176,209 51,835 (123,662) (28,211)
	52,547	23,624
	(136,585) 12,923	(28,211) -
	(123,662)	(28,211)
	(133,622)	(123,591)
	(36,746) 45,564 43,275 347 133 (26)	(33,988) 45,508 - - 12,104 -
	52,547	23,624

14

Action Funding Group Notes to the financial statements 30 June 2019

Note 6. Current assets - cash and cash equivalents

Note 6. Current assets - cash and cash equivalents
Cash on hand Cash at bank Cash on deposit	Consolidated 2019 2018 $ $ 1,198 916 2,135,078 2,510,896 1,283 91,283
	2,137,559	2,603,095

Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earns interest at the respective short-term deposit rates.

Note 7. Current assets - trade and other receivables

Note 7. Current assets - trade and other receivables
Trade receivables Income tax refund due	Consolidated 2019 2018 $ $ 15,046,082 10,024,472 - 66,695
	15,046,082	10,091,167

Trade receivables are generally settled on terms of between 30 and 90 days. Customer credit risk is influenced by individual customers. The majority of debtors are major retailers and insurance companies with established credit worthiness. The Group also has recourse and / or security to its underlying clients in certain circumstances. New clients are assessed in advance of trading and monitored on an ongoing basis to minimise bad debts. For trade and other receivables, the Group applies a simplified approach in calculating expected credit losses (ECLs). The Group recognises a loss allowance based on lifetime ECLs at each reporting date incorporating its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. A financial asset is considered by the Group to be in default and is written off when internal or external information indicates that there is no reasonable expectation of recovering the contractual cash flows.

Note 8. Current assets - other

Prepayments

Consolidated	Consolidated
2019	2018
$	$
48,451		-

15

Action Funding Group Notes to the financial statements 30 June 2019

Note 9. Non-current assets - right-of-use assets

Note 9. Non-current assets - right-of-use assets
Rental leases - right-of-use Less: Accumulated depreciation	Consolidated 2019 2018 $ $ 96,815 - (49,822) -
	46,993	-

Note 10. Non-current assets - intangibles

Customer list - at cost Less: Accumulated amortisation Trademarks - at cost Borrowing costs Less: Accumulated amortisation Formation costs	Consolidated 2019 2018 $ $ 2,485,328 2,485,328 (500,231) (334,542)	Consolidated 2019 2018 $ $ 2,485,328 2,485,328 (500,231) (334,542)
	1,985,097	2,150,786
	1,800	-
	630,500 (217,604)	143,000 (68,639)
	412,896	74,361
	390	779
	2,400,183	2,225,926

Reconciliations

Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:

Consolidated Balance at 1 July 2017 Additions Amortisation expense Balance at 30 June 2018 Additions Amortisation expense Balance at 30 June 2019	Trademark $'000 - - -	Borrowing costs $'000 1,400 139,500 (66,539) 74,361 494,999 (156,464) 412,896	Customer list $'000 2,276,270 40,000 (165,484)	Formation costs $'000 1,168 - (389)	Total $'000 2,278,838 179,500 (232,412)
	- - -		2,150,786 (165,689)	779 - (389)	2,225,926 494,999 (322,543)
	1,800		1,985,097	390	2,400,183

16

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 11. Non-current assets - deferred tax

Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Allowance for expected credit losses Employee benefits Leases Accrued expenses Deferred tax asset Movements: Opening balance Credited to profit or loss (note 5) Closing balance Note 12. Current liabilities - trade and other payables Trade payables Tax payable Other payables	Consolidated 2019 2018 $ $ 145,923 43,834 33,286 30,252 13,313 - 18,150 -	Consolidated 2019 2018 $ $ 145,923 43,834 33,286 30,252 13,313 - 18,150 -
	210,672	74,087
	210,672	74,087
	74,087 136,585	45,876 28,211
	210,672	74,087
	Consolidated 2019 2018 $ $ 170,372 60,311 24,072 31,295 35,444 12,402
	229,888	104,008

Note 12. Current liabilities - trade and other payables

Note 13. Current liabilities - borrowings

Note 13. Current liabilities - borrowings
Loan - Action Funding (Aust) Pty Ltd Loan - Investors Loan - BOQ Finance	Consolidated 2019 2018 $ $ 811,927 1,562,097 300,000 2,002,000 49,089 -
	1,161,016	3,564,097

17

Action Funding Group Notes to the financial statements 30 June 2019

Note 14. Current liabilities - lease liabilities

Lease liability Note 15. Current liabilities - income tax Provision for income tax Note 16. Current liabilities - provisions

Note 15. Current liabilities - income tax

Consolidated 2019 2018 $ $ 41,178 - Consolidated 2019 2018 $ $ 88,424 -

Employee benefits Superannuation	Consolidated 2019 2018 $ $ 95,511 68,915 14,205 4,484	Consolidated 2019 2018 $ $ 95,511 68,915 14,205 4,484
	109,716	73,399

Note 17. Current liabilities - other

Accrued expenses Deferred revenue

Consolidated 2019 2018 $ $ 66,000 33,000 246,141 127,152	Consolidated 2019 2018 $ $ 66,000 33,000 246,141 127,152
312,141	160,152

Note 18. Non-current liabilities - borrowings

Loan - Market Lend Loan - Shareholders Loan - Investors Loan - AMAL Trustees Pty Ltd

Consolidated 2019 2018 $ $ - 6,869,800 4,214,903 4,281,263 - 300,000 14,250,000 -	Consolidated 2019 2018 $ $ - 6,869,800 4,214,903 4,281,263 - 300,000 14,250,000 -
18,464,903	11,451,063

18

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 18. Non-current liabilities - borrowings (continued)

Loan – AMAL Trustees Pty Ltd

AFC 2018-1 Trust

In November 2018 the Group entered a corporate bond agreement with AMAL Trustees Pty Ltd to provide Australian dollar, fix rate debt funding to grow its loan book as follows:

	Amount	Interest Rate per annum,
		payable monthly
Class A	$12,750,000	8%
Class B	$1,500,000	12%
	$14,250,000

After 3 years there is a call option at which time the Group can pay back the bonds. Alternatively, if the option is not taken, there is an interest increase with AFC 2018-1 Trust Class A bonds stepping up to 12% per annum and AFC 2018-1 Trust Class B bonds to 16% per annum. The AFC 2018-1 Trust bonds mature in November 2022.

The AFC 2018-1 Trust bonds are secured against the funded trade receivables.

Loan - Shareholders

The Group has previously entered into loan agreements with Why R Pty Ltd (an entity associated with Rael Ross) and Walter Rapoport being directors and shareholders of the Group. The loans are unsecured and have no specific maturity. A portion of the loans incurred interest rate of 10% p.a. totaling $90,779 in the current financial year (30 June 2018: $134,310).

The loan amount includes $750,000 of AFC 2018-1 Trust Class C bonds which earn no interest and incur losses in priority to the AFC 2018-1 Trust Class A and B bonds.

Loan – Market Lend

In the prior financial year the Group entered into a number of receivables book borrowings, whereby a portion of eligible trade receivables were funded at varying interest rates between 8% and 12.25% per annum. The Market Lend facility was fully repaid in November 2018.

19

Action Funding Group Pty Ltd Notes to the financial statements 30 June 2019

Note 19. Non-current liabilities - lease liabilities

Note 19. Non-current liabilities - lease liabilities
Lease liability Note 20. Non-current liabilities - deferred tax Deferred tax liability comprises temporary differences attributable to: Amounts recognised in profit or loss: Right of use assets Deferred tax liability Movements: Opening balance Credited to profit or loss (note 5) Closing balance Note 21. Non-current liabilities - provisions Long service leave	Consolidated 2019 2018 $ $ 7,234 -
	Consolidated 2019 2018 $ $ 12,923 - 12,923 - - - 12,923 - 12,923 - Consolidated 2019 2018 $ $ 11,322 4,194

20

Action Funding Group Notes to the financial statements 30 June 2019

Note 22. Equity - issued capital

Note 22. Equity - issued capital
Ordinary shares - fully paid	2019 Shares 12	Consolidated 2018 2019 Shares $ 12 12		2018 $ 12
	12	12	12	12

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.

Capital risk management

The consolidated entity's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital.

Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents.

In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Note 23. Equity - accumulated losses

Note 23. Equity - accumulated losses
Accumulated losses at the beginning of the financial year Loss after income tax expense for the year Accumulated losses at the end of the financial year	Consolidated 2019 2018 $ $ (324,864) (190,026) (186,169) (134,838)
	(511,033)	(324,864)

Note 24. Equity - non-controlling interest

Note 24. Equity - non-controlling interest
Non-controlling equity interest in a subsidiary Accumulated losses	Consolidated 2019 2018 $ $ 2 - (37,786) (37,786)
	(37,784)	(37,786)

Non-controlling equity interest in a subsidiary

The non-controlling equity interest reflects a minority interest held by an external party in AFC 2018-1 Trust and AFC 2019-1. These are majority owned subsidiaries of the group which were set up and operate as part of the debt funding structure. These subsidiaries have nil net assets and nil net profit or loss. The non-controlling equity interest has no rights to the consolidated entity.

21

Action Funding Group Notes to the financial statements 30 June 2019

Note 25. Fair value of financial instruments

Unless otherwise stated, the carrying amounts of financial assets and liabilities reflect their fair value. The carrying amounts of trade receivables and trade payables are assumed to approximate their fair value due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial instruments.

Note 26. Events after the reporting period

On 1 July 2019, the Group undertook an internal restructure whereby Action Funding Group Pty Ltd became the legal parent entity of the Group.

The Group has seen substantial growth in transactional funding to small and medium enterprises post the reporting period. This was facilitated by an increased level of available borrowings through a further issue of $23,750,000 corporate bonds in July 2019 on similar terms to AFC 2018-1 Trust as disclosed in note 18.

The Group has continued to develop its butn fintech solution, targeting a fourth quarter calendar 2020 launch, which would significantly increase the Group’s addressable market. On the back of continued traditional business growth, combined with the emerging fintech solution, the Group commenced evaluation of potential debt and equity opportunities.

In August 2020, the Victorian Government declared a State of Disaster in response to an increased level of COVID-19 cases. This resulted in increased restrictions around Victorian work places. Whilst impacting workers in the Melbourne office, there has been no material impact on the operations of the Group to date. The impact of the Coronavirus (COVID19) pandemic is ongoing and it is not practical to estimate the potential impact after the reporting date. The situation remains uncertain and is dependent on measures imposed by the Victorian and Australian Governments amongst others, and the ultimate success of those measures.

No matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.

22

Action Funding Group Pty Ltd Directors' declaration 30 June 2019

In the directors' opinion:

• the attached special purpose financial statements and notes comply with the Accounting Standards as described in note 1 to the financial statements and other mandatory professional reporting requirements;

• the attached special purpose financial statements and notes give a true and fair view of the consolidated entity's financial position as at 30 June 2019 and 30 June 2018 and of its performance for the financial year ended on those dates; 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.

On behalf of the directors

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Walter Rapoport Director

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Rael Ross Director

Dated: 29[th] September 2020

23

Collins Square, Tower Four Level 18, 727 Collins Street Melbourne VIC 3008 GPO Box 5099 Melbourne VIC 3001 Australia

Tel: +61 3 9603 1700 Fax: +61 3 9602 3870 www.bdo.com.au

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INDEPENDENT AUDITOR'S REPORT

To the members of Action Funding Group Pty Ltd

Report on the Audit of the Financial Report

Qualified opinion

We have audited the financial report of Action Funding Group Pty Ltd (the Entity) and its subsidiaries (the Group), which comprises the pro-forma consolidated statement of financial position as at 30 June 2019 and 30 June 2018, the pro-forma consolidated statement of profit or loss and other comprehensive income, the pro-forma consolidated statement of changes in equity and the pro-forma consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies.

In our opinion, except for the effects of the matter described in the Basis for qualified opinion section of our report, the accompanying financial report presents fairly, in all material respects, the financial position of the Group as at 30 June 2019 and 30 June 2018 and of its financial performance and its cash flows for the year then ended in accordance with the basis of accounting described in note 1.

Basis for qualified opinion

The corresponding figures for the year ended 30 June 2017 are unaudited.

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 ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

Emphasis of matter – Basis of accounting

We draw attention to Note 1 to the financial report, which describes the basis of accounting. The financial report has been prepared to assist the Group to meet the requirements of the Directors of Action Funding Group. As a result, the financial report may not be suitable for another purpose. Our opinion is not modified in respect of this matter.

BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation.

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Responsibilities of management and those charged with governance for the Financial Report

Management is responsible for the preparation and fair presentation of the financial report, and have determined that the basis of preparation described in Note 1 is appropriate to meet the requirements of the Directors of Action Funding Group and for such internal control as management determines is necessary to enable the preparation and fair presentation of a financial report that is free from material misstatement, whether due to fraud or error.

In preparing the financial report, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

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 (http://www.auasb.gov.au/Home.aspx) at:

http://www.auasb.gov.au/auditors_responsibilities/ar3.pdf

This description forms part of our auditor’s report.

BDO Audit Pty Ltd

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James Dixon Director

Melbourne, 29 September 2020