CODEIFAI LIMITED — Annual Report 2016

Feb 28, 2017

ASX/MEDIA ANNOUNCEMENT ASX: YPB | 28th February 2017

2016 4E Commentary

• 2016 loss increased due to investment in accelerated commercial roll out of technologies

• Costs to fall by 40% by mid-2017

• Revenues to exceed costs (breakeven) by end June 2017

• Pre-tax profit of $5m for 2017 confirmed

Key 2016 developments

2016 was a year of increased investment in business building for YPB. Operating expenses increased as the multi-national, commercial roll-out of our technologies accelerated over the year. As planned, costs grew ahead of revenues and the operating loss increased. As previously foreshadowed, this investment in operations is expected to bear fruit in 2017 as revenue growth is anticipated to accelerate through the year and revenue is expected to exceed costs for the first time by end June 2017. A $5m pre-tax profit remains our expectation for 2017.

There were three primary accomplishments in 2016:

1. Assembly of a top-rate management team. YPB was successful in attracting management of a calibre well beyond that of most young companies with key executive and sales rolls filled.

2. Confirmation of product interest. The expanded sales capability saw much increased client interaction over multiple geographies which pleasingly confirmed that brand owners recognise the urgent need to protect against fakes and eagerly want to directly engage with their customers. Interest in our technologies is high and there are few, if any, competitive offers presently being considered by our potential clients.

3. Development of substantial new business pipeline. The combination of expanded sales effort and strong customer interest resulted in a substantial pipeline of potential new business with a total value of $110m (of possible annual revenue) as at end 2016. The pipeline grew more than five-fold over 2016. High quality distribution partners and prominent clients were engaged and signed. A portion of this pipeline converting to revenue will be the key driver of financial success in 2017.

In May 2016, YPB issued two key financial milestones: achieving run-rate break-even by end March 2017 and a pre-tax profit of $5m for 2017. On 2 February 2017, a 3 month slippage in the breakeven expectation from end March to end June 2017 was announced due to slower contract closures but the profit expectation of $5m pre-tax for 2017 was confirmed.

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On the same date, a 40% reduction in non-COGS costs by May 2017 was announced due to a refined geographic focus and the opportunity to move from direct sales to partnering. The key new partnership, which was expected by end February 2017 but which now should conclude in coming weeks, will allow a significant reduction in costs and likely see more rapid market penetration due to the credibility and distribution network of the partner.

The cost reductions being presently implemented will not benefit all of 2017 and total non-COGS costs for 2017 are likely to be 30% below 2016 costs. On an annual run-rate basis costs will reduce by 40% by mid-2017.

A key advantage of our multiplier partnership distribution model is that revenue can grow rapidly while risk is minimised with fixed costs and capital commitments being kept low. Profit leverage to revenue should be high as cost growth is likely to lag revenue growth.

While many young technology companies are prepared to lose money indefinitely in “land grab” strategies, the Board and Management of YPB are intent on building a sustainable, highly profitable business while still growing as rapidly as possible. We aim to minimise risk while maximising shareholder wealth.

Brief financial review

As noted above, costs increased in 2016 due primarily to increased staff numbers and several senior management hires. Expenses related to a greater sales effort, such as travel, also increased. Production costs grew as more product was shipped, particularly in the new retail anti-theft product lines.

The reported pre-tax operating loss, excluding impairments, increased from $6.762m to $12.113m.

Revenue grew 74% to $2.982m. Costs, excluding impairments and share-based payments, rose 78% from $8.194m to $14.551m. There were a number of costs associated with setting up international partnerships in 2016 that will not recur in 2017, which meant the full year 2016 cost base is exaggerated relative to the true operating cost base.

The true operating cost base as at end 2016 was approximately $11.1m. For the full year 2017, operating costs are expected to be $7.7m. By mid-2017, costs are expected to fall by 40% to $6.5m on an annual run-rate basis. COGS will be additional to this figure but will incur a sound positive margin and so although COGS will add to cost on a gross basis they will directly add profit on a net basis.

The cash operating picture was better than the profit report. Cash operating loss was up 65% from $5.767m to $9.493m. Cash receipts from customers of $3.262m was up 294% from $0.828m. Cash receipts exceeded reported revenue by $0.280m. Cash expenses increased from $6.595m to $12.755m.

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Two non-cash impairment charges were taken through the profit and loss account. As a conservative measure, all goodwill of $3.089m was written off. A further impairment charge of $0.178m on intangible customer relationships was taken as a result of moving from a direct to a partnership distribution model in one specific geography.

A mark-to-market charge on the cash receivable from Lanstead of $1.060m arose due to the YPB share price being below the reference price specified in the Lanstead Equity Sharing Agreement.

The company was successful in raising capital in 2016. In May $4.5m was raised at $0.24 per share and in October 2016 $4.0m was raised at $0.25 per share.

A more expansive review of operations and results will be included in the forthcoming annual report.

For further information, please contact;

Mr. John Houston Mr. Gerard Eakin Executive Chairman Director YPB Group Limited YPB Group Limited T: +61 458 701 088 T: +61 427 011 596 E: john.houston@ypbsystems.com E: eakin@manifestcapital.com

MEDIA AND INVESTOR ENQUIRIES

Matthew Wright NWR Communications +61 451 896 420 matt@nwrcommunications.com.au

ABOUT YPB

YPB Group (ASX: YPB) is a pioneer in advanced brand protection solutions. Listed on the Australian Securities Exchange, YPB is expanding its global footprint with an established presence in Australia, China, Thailand, USA, Mexico and India.

YPB’s patented Anti-Counterfeit technology combined with its Security Packaging and Anti-Theft solutions, Consulting Services and YPB’s proprietary CONNECT platform enables clients to PROTECT their high value brands from the risks of counterfeit, product diversion and theft while providing the tools to CONNECT directly with their customers.

PROTECT

Smart Security Packaging and labeling for Brands

YPB offers a wide range of Smart Security Packaging and Labeling solutions that can be incorporated into almost any material and offer cost effective strategies to PROTECT the integrity and value of products and brands in high-risk markets.

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Government Vital Documents

YPB offers solutions to Governments to PROTECT their Vital Documents that include ID cards, Visas, Passports, Vehicle Labels and many other applications.

Retail Anti-theft

YPB offers clients the latest technology in Retail Anti-Theft and Labeling solutions effective for mainstream retailers, boutiques and exporters to PROTECT against theft.

IP solutions & forensic services

YPB’s IP solution specialists work with quality brands and Governments, to develop bespoke brand protection strategies and solutions that will deliver real protection and safety for brands, products and consumers.

Secure Supply Chain

YPB offers secure supply chain solutions to Governments, banks and companies wanting to ensure the integrity of their supply chain using a combination of YPB’s authentication technology and secure track and trace solutions, delivering real protection for high value documents, brands, products and consumers.

DETECT

Scanner and Tracer protection solutions

YPB’s patent protected state-of-the art Tracer technology is invisible, cannot be copied or destroyed. Brand owners who include YPB’s tracers in their packaging can use YPB’s scanners to verify their product’s authenticity. If a counterfeit is detected YPB’s forensic services can consult with a brand owner to develop strategic, tailored solutions to protect the brand against counterfeiting and product diversion.

CONNECT

Smartphone applications to Detect and Connect

YPB’s sophisticated, user friendly and powerful smartphone applications allow brand owners and consumers to identify and report suspected counterfeit or diverted products. They also allow brands to connect and engage directly with their customers via QR codes, Near Field Communication, secure track and trace and product scanning. The YPB CONNECT platform delivers brand owners valuable and actionable intelligence about their products and customers to measure, tailor and individualise direct marketing campaigns through a ‘big data’ analytics capability.

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YPB Group Ltd Appendix 4E Preliminary final report

1. Results for announcement to the market

			$'000
Revenues from ordinary activities	up	74.0% to	2,982
Loss from ordinary activities after tax attributable to the owners of YPB
Group Ltd	up	143.1% to	(16,441)
Loss for the year attributable to the owners of YPB Group Ltd	up	143.1% to	(16,441)

Dividends

There were no dividends paid, recommended or declared during the current financial period.

Comments

The loss for the Group after providing for income tax amounted to $16,441,000 (31 December 2015: $6,762,000).

2. Net tangible assets

Total assets per ordinary security Net tangible assets per ordinary security	Reporting period Previous period Cents Cents 8.83 15.12 0.67 2.97

3. Control gained over entities

Not applicable.

4. Loss of control over entities

Not applicable.

5. Dividends

Current period

There were no dividends paid, recommended or declared during the current financial period.

Previous period

There were no dividends paid, recommended or declared during the previous financial period.

6. Dividend reinvestment plans

Not applicable.

YPB Group Ltd Appendix 4E Preliminary final report

7. Details of associates and joint venture entities

Not applicable.

8. Foreign entities

Details of origin of accounting standards used in compiling the report:

Not applicable.

9. Audit qualification or review

The financial statements are in the process of being audited.

10. Signed

Signed _________

Date: 28 February 2017

YPB Group Ltd Statement of profit or loss and other comprehensive income For the year ended 31 December 2016

Note Revenue 2 Expenses Production costs Consulting fees Depreciation and amortisation expense Directors' fees Employee benefits expense Finance costs Rental expenses Research and development Marketing Traveling expense Options expense Share-based payments Commissions expense Regulatory expenses Professional fees Other expenses Impairment expense Diminution in fair value of financial assets Loss before income tax benefit 3 Income tax benefit Loss after income tax benefit for the year attributable to the owners of YPB Group Ltd Other comprehensive income Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations Other comprehensive income for the year, net of tax Total comprehensive loss for the year attributable to the owners of YPB Group Ltd Basic earnings per share 17	Consolidated 31 December 2016 31 December 2015 $'000 $'000 2,982 1,714 (1,823) (221) (1,068) (1,377) (970) (902) (171) (197) (5,126) (1,039) (198) (197) (409) (304) (1,570) (1,380) (561) (183) (1,253) (645) (202) - (515) (282) - (797) (234) (250) (316) (142) (851) (560) (3,267) - (1,060) - (16,612) (6,762) 171 - (16,441) (6,762) (225) 731 (225) 731 (16,666) (6,031) Cents Cents (8.76) (5.44)
	(16,612) 171
	(16,441) (225)
	(225)
	(16,666)
	Cents (8.76)

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

3

YPB Group Ltd Statement of financial position As at 31 December 2016

Note Assets Current assets Cash and cash equivalents 4 Trade and other receivables 5 Inventories 6 Financial assets 7 Total current assets Non-current assets Plant and equipment 8 Intangibles 9 Financial assets 7 Total non-current assets Total assets Liabilities Current liabilities Trade and other payables 10 Total current liabilities Non-current liabilities Borrowings 11 Other liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital 12 Reserves 13 Accumulated losses Total equity	Consolidated 31 December 2016 31 December 2015 $'000 $'000 2,715 2,877 729 1,221 348 179 2,250 3,347 6,042 7,624 588 313 12,081 16,176 - 1,653 12,669 18,142 18,711 25,766 2,177 1,418 2,177 1,418 3,024 3,104 1 - 3,025 3,104 5,202 4,522 13,509 21,244 40,437 33,606 4,931 3,056 (31,859) (15,418) 13,509 21,244
	6,042
	588 12,081 -
	12,669
	18,711
	2,177
	2,177
	3,024 1
	3,025
	5,202
	13,509
	40,437 4,931 (31,859)
	13,509

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

4

YPB Group Ltd Statement of changes in equity For the year ended 31 December 2016

Consolidated Balance at 1 January 2015 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive profit/(loss) for the year Transactions with owners in their capacity as owners: Shares issued, net of transaction costs Options exercised during the year Options issued during the year Balance at 31 December 2015 Consolidated Balance at 1 January 2016 Loss after income tax benefit for the year Other comprehensive loss for the year, net of tax Total comprehensive loss for the year Transactions with owners in their capacity as owners: Shares issued, net of transaction costs Options exercised during the year Shares granted from consulting agreement Options granted during the year Share based payments Balance at 31 December 2016	Issued capital $'000 17,449 - -	Issued options $'000 - - -	Foreign currency translation Reserve $'000 1,835 - 731	Accumulated losses $'000 (8,656) (6,762) -	Share based payment reserve $'000 97 - -	Total equity $'000 10,725 (6,762) 731 (6,031) 16,144 13 393 21,244 Total equity $'000 21,244 (16,441) (225) (16,666) 6,569 2 260 1,182 918 13,509
	- 16,144 13 -	- - - 393	731 - - -	(6,762) - - -	- - - -
	33,606	393	2,566	(15,418)	97
	Issued capital $'000 33,606 - -	Issued options $'000 393 - -	Foreign currency translation reserve $'000 2,566 - (225)	Accumulated losses $'000 (15,418) (16,441) -	Share based payment reserve $'000 97 - -
	- 6,569 2 260 - -	- - - - 1,182 -	(225) - - - - -	(16,441) - - - - -	- - - - - 918
	40,437	1,575	2,341	(31,859)	1,015

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

5

YPB Group Ltd Statement of cash flows For the year ended 31 December 2016

Note Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Finance costs Net cash used in operating activities 16 Cash flows from investing activities Payments for property, plant and equipment Payments for acquisitions of subsidiaries (net of cash acquired) 14 Proceeds from disposal of intangibles Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares (net of costs) Proceeds from issue of options Repayment of loan from related party Proceeds from loans provided by related parties Settlement of deferred share consideration Repayment of borrowings Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 4	Consolidated 31 December 2016 31 December 2015 $'000 $'000 3,262 828 (12,755) (6,595) 37 77 (198) (1) (9,654) (5,691) (353) (299) - (423) - (39) (353) (761) 7,334 6,752 880 393 (8) (197) - (24) 1,690 - (51) - 9,845 6,924 (162) 472 2,877 2,405 2,715 2,877
	(9,654)
	(353) - -
	(353)
	7,334 880 (8) - 1,690 (51)
	9,845
	(162) 2,877
	2,715

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

6

YPB Group Ltd Notes to the financial statements 31 December 2016

Note 1. Operating segments

Identification of reportable operating segments

The Consolidated Entity is organised into operating segments as outlined below:

Management determines operating segments based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources.

The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the consolidated financial statements.

Types of products and services

For the year ended 31 December 2016, management considers the company to offer its client base a complete end-to-end service and product offering, hence considering its main operations to be represent by one business segment apart from a specialised counterfeit printing operation.

The bundled “complete solution offering” encompasses a range of products and services which are available to customers, including:

• Covert forensic products which are invisible particles (‘tracers’) fused into a product or packaging during or after the manufacturing process, and are detectable using YPB’s proprietary scanner.

• Forensic laboratory services for the examination of counterfeit products.

• Security consulting services provided to governments, corporations and intellectual property owners for the deterrence of counterfeiting, grey markets, product diversions and fraud.

The specialised printing operation provides its customers with a dedicated product range, including:

• Anti-counterfeiting solutions to brands and resellers in the areas of packaging and labelling.

Consolidated - 31 December 2016 Revenue Sales to external customers Interest revenue Total revenue EBITDA Depreciation and amortisation Impairment of assets Finance costs Loss before income tax benefit Income tax benefit Loss after income tax benefit Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities	Print Solutions $'000 662 -	Other segments $'000 2,283 37	Total $'000 2,945 37
	662	2,320	2,982
	(564) (13) (117) -	(11,613) (957) (3,150) (198)	(12,177) (970) (3,267) (198)
	(694)	(15,918)	(16,612)
	140	18,571	171
			(16,441)
			18,711
	177	5,025	18,711
			5,202
			5,202

7

YPB Group Ltd Notes to the financial statements 31 December 2016

Consolidated - 31 December 2015 Revenue Sales to external customers Interest revenue Total revenue EBITDA Depreciation and amortisation Profit/(loss) before income tax expense Income tax expense Loss after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities	Print Solutions $'000 744 3	Other segments $'000 893 74	Total $'000 1,637 77
	747	967	1,714
	310 -	(6,170) (902)	(5,860) (902)
	310	(7,072)	(6,762)
	491	25,275	-
			(6,762)
			25,766
	370	4,152	25,766
			4,522
			4,522

Geographical information

Australia Peoples Republic of China and HK Thailand United States of America	Sales to external customers Geographical assets 31 December 2016 31 December 2015 31 December 2016 31 December 2015 $'000 $'000 $'000 $'000 1,271 74 6,220 10,883 299 379 11,162 13,658 331 489 773 700 1,083 772 557 525 2,984 1,714 18,711 25,766	Sales to external customers Geographical assets 31 December 2016 31 December 2015 31 December 2016 31 December 2015 $'000 $'000 $'000 $'000 1,271 74 6,220 10,883 299 379 11,162 13,658 331 489 773 700 1,083 772 557 525 2,984 1,714 18,711 25,766	Sales to external customers Geographical assets 31 December 2016 31 December 2015 31 December 2016 31 December 2015 $'000 $'000 $'000 $'000 1,271 74 6,220 10,883 299 379 11,162 13,658 331 489 773 700 1,083 772 557 525 2,984 1,714 18,711 25,766
	2,984	1,714	18,711

8

YPB Group Ltd Notes to the financial statements 31 December 2016

Note 2. Revenue

Note 2. Revenue
Revenue Sale of goods Other revenue Interest Revenue	Consolidated 31 December 2016 31 December 2015 $'000 $'000 2,945 1,637 37 77 2,982 1,714
	37
	2,982

Note 3. Loss for the period

The loss for the period includes the following expenses:

Finance costs Research and development costs Depreciation and amortisation Impairment of goodwill & customer relationships Rental expense on operating leases - minimum lease payments Diminution in fair value of financial assets	Consolidated 31 December 2016 31 December 2015 $'000 $'000 198 197 1,570 1,380 970 902 3,267 - 409 304 1,060 - 7,474 2,783
	7,474

Note 4. Current assets - cash and cash equivalents

Cash on hand Cash at bank	Consolidated 31 December 2016 31 December 2015 $'000 $'000 4 10 2,711 2,867 2,715 2,877
	2,715

9

YPB Group Ltd Notes to the financial statements 31 December 2016

Note 5. Current assets - trade and other receivables

		Consolidated	Consolidated
		31 December	31 December
		2016	2015
		$'000	$'000
Trade receivables		348	891
Sundry receivables		381	330
		729	1,221
Note 6. Current assets - inventories
		Consolidated
		31 December	31 December
		2016	2015
		$'000	$'000
Finished goods - at cost		348	179
Note 7. Financial assets
		Consolidated
		31 December	31 December
		2016	2015
		$'000	$'000
Current
Receivable from Lanstead		2,250	3,347
Non-current
Receivable from Lanstead		-	1,653
		2,250	5,000
The fair value of the Lanstead receivable as at 31 December 2016 has been estimated as follows:
	Share	Number of	Fair
	price	shares	value
		Outstanding
	$	$’000	$
Value recognised on inception	0.26	19,231	5,000
Consideration received up to 31 December 2016		(10,150)	(1,690)
Gain/(loss) on diminution in fair value of the Lanstead receivable		-	(1,060)
Value of the Lanstead receivable at 31 December 2016		9,081	2,250

10

YPB Group Ltd Notes to the financial statements 31 December 2016

Note 7. Current assets - financial assets (continued)

As announced to the market on 22 December 2015, the Company issued 20,192,307 shares to Lanstead Capital L.P. (‘Lanstead’). Lanstead, subscribed for 19,230,769 shares (the ‘Subscription Shares’), for an aggregate nominal consideration of $5,000,000. Lanstead also received 961,538 shares in lieu of payment of a $250,000 fee for entering an Equity Sharing Agreement.

The Company entered into an Equity Sharing Agreement with Lanstead to allow the Company to retain much of the economic interest in the Lanstead Subscription Shares. The Equity Sharing Agreement enables the Company to secure much of the potential upside arising from the anticipated near term news flow. The aggregate consideration of $5,000,000 is to be repaid by way of an initial $750,000 (received 7 January 2016) followed by 18 monthly instalments.

The diminution in fair value is a result of the actual share price of the company trading below the anticipated reference share price agreed on at the time of the underlying contract.

Note 8. Non-current assets - plant and equipment

Plant and equipment - at cost Less: Accumulated depreciation Plant and equipment - at cost	Consolidated 31 December 2016 31 December 2015 $'000 $'000 750 388 (162) (75) 588 313
	588

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 January 2015 Additions Additions through business combinations (note 14) Exchange differences Depreciation expense Balance at 31 December 2015 Additions Exchange differences Depreciation expense Balance at 31 December 2016	Plant and equipment $'000 26 299 13 30 (55)	Total $'000 26 299 13 30 (55) 313 353 2 (80) 588
	313 353 2 (80)
	588

11

YPB Group Ltd Notes to the financial statements 31 December 2016

Note 9. Non-current assets - intangibles

Goodwill - at cost Less: Accumulated impairment losses Intellectual property - at cost Less: Accumulated amortisation Customer relationships - at cost Less: Accumulated impairment losses Less: Accumulated amortisation	Consolidated 31 December 2016 31 December 2015 $'000 $'000 3,089 3,084 (3,089) - - 3,084 13,804 13,734 (1,723) (833) 12,081 12,901 206 205 (178) - (28) (14) - 191 12,081 16,176
	-
	13,804 (1,723)
	12,081
	206 (178) (28)
	-
	12,081

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 January 2015 Additions through business combinations (note 14) Exchange differences Amortisation expense Balance at 31 December 2015 Exchange differences Impairment losses Amortisation expense Balance at 31 December 2016	Goodwill $'000 - 2,830 254 -	Intellectual property $'000 11,096 1,579 1,059 (833)	Customer relationships $'000 - 189 16 (14)	Total $'000 11,096 4,598 1,329 (847) 16,176 76 (3,267) (904) 12,081
	3,084 5 (3,089) -	12,901 70 - (890)	191 1 (178) (14)
	-	12,081	-

12

YPB Group Ltd Notes to the financial statements 31 December 2016

Note 9. Non-current assets - intangibles (continued)

Intangible assets, other than goodwill, have finite useful lives. The current period amortisation charge for intangible assets is included under the depreciation and amortisation expense in the Statement of profit or loss and other comprehensive income.

• a) The intangible asset additions arising from the three acquisitions concluded during the financial year ended 31 December 2015 amounted to $4,598 million, as outlined in detail in note 14.

During the subsequent measurement period, which ended during the 2016 financial year, all three acquisitions were subjected to a detailed purchase price valuation process, conducted by an independent valuation expert.

The fair value of identifiable intangibles, in the form of customer relationships and intellectual property, was consequently firmed up and adjustments were retrospectively applied.

• b) In determining the recoverable amounts as at 31 December 2016, the directors have changed from utilising a ‘relief from royalty’ methodology and adopted a ‘value in use’ methodology instead.

The ‘value in use’ modelling has been determined for each cash-generating unit, as defined, and as at 31 December 2016, the carrying value of customer relationships and goodwill was identified to be greater than the fair value, as determined, giving rise to the recognition of impairment charges for the respective intangible asset classes.

Note 10. Current liabilities - trade and other payables

Trade payables Sundry payables and accruals Note 11. Non-current liabilities - borrowings Loans to related parties	Consolidated 31 December 2016 31 December 2015 $'000 $'000 1,202 1,057 975 361 2,177 1,418 Consolidated 31 December 2016 31 December 2015 $'000 $'000 3,024 3,104

The loans include facilities provided by related entities of John Houston. The loans attract at a rate of 8%, are unsecured and repayable in full on or after 1 January 2018.

Note 12. Equity - issued capital

Ordinary shares - fully paid	31 December 2016 Shares 211,887,886	Consolidated 31 December 2015 31 December 2016 Shares $'000 170,400,287 40,437	31 December 2015 $'000 33,606

13

YPB Group Ltd Notes to the financial statements 31 December 2016

Note 12. Equity - issued capital (continued)

Movements in ordinary share capital

Details Date Balance 1 January 2015 Issued under share-based payments 4 February 2015 Exercise of share options 6 February 2015 Issued under share placement 24 February 2015 Exercise of share options 2 March 2015 Exercise of share options 15 April 2015 Issued under Share Purchase Plan 28 April 2015 Shares issued on acquisition of IPP 7 May 2015 Exercise of share options 15 June 2015 Exercise of share options 30 June 2015 Shares issued on acquisition of CFC 1 September 2015 Share based payment to executives 1 September 2015 Share based payment to executives 12 October 2015 Shares issued on acquisition of Ntouch 30 October 2015 Exercise of share options 16 November 2015 Issued under share placement 29 December 2015 Shares issued to Lanstead 29 December 2015 Issued under share-based payments 29 December 2015 Less: Transaction costs on shares issued, net of tax Balance 31 December 2015 Exercise of share options 17 February 2016 Issuance in accordance with consulting arrangement 17 February 2016 Issued in lieu of directors' fees 13 May 2016 Share placement 30 May 2016 Issued under share-based payments 6 June 2016 Issued under share-based payments 8 August 2016 Issued under share-based payments 8 August 2016 Share placement 26 October 2016 Issued under share-based payments 27 October 2016 Less: Transaction costs on shares issued, net of tax Balance 31 December 2016	Shares 108,921,678 73,333 10,357 10,000,000 29,618 1,607 4,522,182 1,170,913 7,500 5,000 1,094,830 401,283 400,000 12,857,143 3,000 10,709,536 19,230,769 961,538 -	$'000 17,449 22 2 3,000 6 1 1,357 390 2 1 383 140 142 3,350 1 2,784 5,000 250 (674)
	170,400,287 10,000 1,000,000 648,486 18,916,667 944,446 200,000 3,488,000 16,000,000 280,000 -	33,606 2 260 - 4,540 227 - - 3,120 - (1,318)
	211,887,886	40,437

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.

14

YPB Group Ltd Notes to the financial statements 31 December 2016

Note 12. Equity - issued capital (continued)

Movements in options on issue

Details Date Balance 1 January 2015 Options issued 28 April 2015 Options issued 24 February 2015 Options issued 4 February 2015 Options issued 23 January 2015 Less options exercised Balance 31 December 2015 Exercise of share options 17 February 2016 Options issued in lieu of retainer 6 June 2016 Options issued as management incentive 6 June 2016 Options issued as sign on fee 8 August 2016 Options issued upon purchase of shares by employees 27 October 2016 Options issued as part of capital raising 12 December 2016 Balance 31 December 2016	Options 750,000 2,130,546 10,000,000 4,453,301 22,777,119 (57,082)	$'000 - 21 100 45 227 - 393 - 99 160 9 34 880 1,575
	40,053,884 (10,000) 3,000,000 4,000,000 400,000 788,000 64,000,000
	112,231,884

Options

Options issued during the year were valued based on the following assumptions:

Volatility Between 54.55% and 63.22% Risk-free rate Between 4.37% and 4.46% Weighted average term (years) 2.73 Weighted average remaining life at 31 December 2016 2.22

Issue Date Description

• 6 June 2016 4,000,000 options have an exercise price of $0.50 per share and the remaining 3,000,000 options have an exercise price of $0.75 per share. 6,000,000 of the options expire on 28 February 2019 and 1,000,000 of the options expire on 6 March 2020.

• 8 August 2016 200,000 options have an exercise price of $0.50 per share and the remaining 200,000 options have an exercise price of $0.35 per share. The options expire on 1 August 2018.

• 27 October 2016 394,000 options have an exercise price of $0.50 per share, 280,000 options have an exercise price of $0.35 per share, and the remaining 114,000 options have an exercise price of $0.75 per share. 560,000 of the options expire on 27 October 2018 and 228,000 of the options expire on 27 April 2018.

• 12 December 2016

Options were issued with the following exercise prices:

• 16,000,000 options at $0.35

• 16,000,000 options at $0.45

• 16,000,000 options at $0.55

• 16,000,000 options at $0.65

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YPB Group Ltd Notes to the financial statements 31 December 2016

Note 12. Equity - issued capital (continued)

Capital risk management

Management controls the capital of the group in order to maintain a sustainable debt to equity ratio, generate long-term shareholder value and ensure that the Group can fund its operations and continue as a going concern.

The Group's debt and capital includes ordinary share capital, redeemable preference shares, convertible preference shares and financial liabilities, supported by financial assets.

The group is not subject to any externally imposed capital requirements.

Management effectively manages the Group's capital by assessing the Group's financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues.

The gearing ratios as at 31 December 2016 and 31 December 2015 are as follows:

Note Total borrowings 11 Less cash and cash equivalents 4 Net debt Total equity Total capital Gearing ratio	Consolidated 31 December 2015 31 December 2015 $ $ 3,024 3,104 (2,715) (2,877)	Consolidated 31 December 2015 31 December 2015 $ $ 3,024 3,104 (2,715) (2,877)
	309 13,509	227 21,244
	13,818	21,471
	2%	1%

Note 13. Equity - reserves

Foreign currency reserve Options reserve Share-based payments reserve	Consolidated 31 December 2016 31 December 2015 $'000 $'000 2,341 2,566 1,575 393 1,015 97 4,931 3,056
	4,931

Foreign currency translation reserve

The foreign currency translation reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign controlled subsidiaries to Australian dollars.

Issued Options reserve

The option reserve records items recognised as expenses on valuation of share options issued.

Share-based payments reserve

The share based payment reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services.

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YPB Group Ltd Notes to the financial statements 31 December 2016

Note 13. Equity - reserves (continued)

Movements in share based payments

Details Date Balance 1 January 2015 Balance 31 December 2015 Issued under share-based payments 13 May 2016 Issued under share-based payments 8 August 2016 Conversion of performance rights 8 August 2016 Issued under share-based payments 27 October 2017 Balance 31 December 2016	$'000 97 97 203 36 627 52 1,015

Note 14. Business combinations

Acquisition of Intellectual Property Protection Co Ltd and Intellectual Product Protection Inc (IPP)

On 7 May 2015, the Company acquired a security consulting business specialising in providing high security programs to governments, major brands and fortune 500 companies which operates under the name "Intellectual Product Protection" or "IPP" for a provisional consideration of $641,000 (US$500,000) of which $252,000 (US$200,000) was paid/payable in cash and the balance by the issue shares in YPB Group Limited as shown in Note 12, and as disclosed in the financial report for the year ended 31 December 2015.

The measurement period relating to the acquisition of IPP ended during the current financial year. The independent valuation of the purchase price allocation has been finalised whereby the intellectual property allocation was confirmed at $400,000 with a corresponding adjustment to goodwill arising from that acquisition.

In line with reporting requirements, any measurement period adjustments identified during the year ended 31 December 2016 have been taken up retrospectively and the comparative position adjusted accordingly.

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YPB Group Ltd Notes to the financial statements 31 December 2016

Note 14. Business combinations (continued)

Details of the acquisition are as follows:

Cash and cash equivalents Trade and other receivables Intellectual property Plant and equipment Trade and other payables Borrowings Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: - Cash paid / payable - Issuance of shares Purchase consideration - cash outflow Cash consideration less: Unpaid cash Less: Cash and cash equivalents Net cash used during the 2015 financial year

Fair value $'000 21 118 400 13 (5) (23) 524 117 641 252 389 641 252 (126) (21) 105

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YPB Group Ltd Notes to the financial statements 31 December 2016

Note 14. Business combinations (continued)

Acquisition of Continuous Forms Control Inc (CFC)

Effective 31 August 2015, the Company acquired all the issued shares of the US based printing company Continuous Forms Control Inc., since renamed YPB Print Solutions Inc. ('Print Solutions') for a provisional consideration of $1,007,000 (US$600,000) of which $285,000 (US$300,000) was paid/payable in cash, $339,000 (US$243,000) was settled of preexisting relationships and the balance by the issue of shares in YPB Group Limited as shown in Note 12, and as disclosed in the financial report for the year ended 31 December 2015.

The measurement period relating to the acquisition of YPB Print Solutions Inc. ended during the current financial year. The independent valuation of the purchase price allocation has been finalised whereby the customer relationships allocation was confirmed at $198,000 with a corresponding adjustment to goodwill arising from that acquisition.

In line with reporting requirements, any measurement period adjustments identified during the year ended 31 December 2016 have been taken up retrospectively and the comparative position adjusted accordingly.

Details of the acquisition are as follows:

Bank overdraft Trade receivables Inventories Other current assets Customer relationships Trade payables Other payables Other liabilities Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid / payable Issuance of shares Pre-existing relationships Purchase consideration - cash outflow Cash consideration Add: cash and cash equivalents Net cash used during the 2015 financial year

Fair value $'000 (33) 453 32 7 198 (418) (58) (42) 139 868 1,007 285 383 339 1,007 285 33 318

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YPB Group Ltd Notes to the financial statements 31 December 2016

Note 14. Business combinations (continued)

Acquisition of nTouch Holdings Pty Ltd

Effective 31 October 2015, the company acquired all the issued shares of proximity marketing technology company nTouch Holdings Pty Ltd ('nTouch'). The transaction was based on an all script offering of 12,857,143 YPB shares at a price of 35c per share. Management had however determined that the fair value of the YPB shares is $0.26 per share, on the basis that shares placed at and around this time were at $0.26.

nTouch is a unique marketing platform that leverages proximity technologies to allow business clients to engage with customers (B2C) based on time, location and specific user characteristics. The nTouch group of companies has launched a fully tested communications platform which integrates with YPB’s customer engagement strategy around product authenticity.

The measurement period relating to the acquisition of nTouch ended during the current financial year. The independent valuation of the purchase price allocation has been finalised whereby the intellectual property allocation was confirmed at $944,000 with a corresponding adjustment to goodwill arising from that acquisition.

In line with reporting requirements, any measurement period adjustments identified during the year ended 31 December 2016 have been taken up retrospectively and the comparative position adjusted accordingly.

Details of the acquisition are as follows:

Intellectual property Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: YPB Group Ltd shares issued to vendor	Fair value $'000 944 944 2,406 3,350 3,350

Note 15. Interests in subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries:

	Principal place of business /
Name	Country of incorporation
YPB Limited (HK)	Hong Kong
YPB Technology (Beijing) Limited	PRC China
Product ID & Quality Systems (Beijing) Ltd	PRC China
Brand Reporter Pty Ltd	Australia
YPB Group (USA) Inc	USA
Intellectual Product Protection Inc	USA
YPB Print Solutions Inc	USA
YPB Group Co., Ltd	Thailand
nTouch Holdings Pty Ltd	Australia
nTouch Agency Pty Ltd	Australia
nTouch Pty Ltd	Australia
nTouch IP Pty Ltd	Australia

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YPB Group Ltd Notes to the financial statements 31 December 2016

Note 16. Reconciliation of loss after income tax to net cash used in operating activities

Loss after income tax Adjustments for: Depreciation and amortisation expense Options expense Share-based payments Impairment of goodwill & customer relationships Unrealised foreign exchange Diminution in fair value of derivative assets Change in operating assets and liabilities; net of the effects of purchase and disposal of subsidiaries (Increase)/decrease in trade and other receivables (Increase) in inventories Increase/(decrease) in trade and other payables Net cash used in operating activities

Consolidated 31 December 2016 31 December 2015 $'000 $'000 (16,441) (6,762) 970 902 202 - 515 282 3,267 - (308) - 1,060 - 213 (470) (169) (10) 1,037 367 (9,654) (5,691)

(9,654)

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Note 17. Earnings per share

Loss after income tax attributable to the owners of YPB Group Ltd Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating diluted earnings per share Basic earnings per share Due to losses of the YPB Group, diluted earnings per share have not been presented.	Consolidated 31 December 2016 31 December 2015 $'000 $'000 (16,441) (6,762) Number Number 187,755,202 124,326,070 187,755,202 124,326,070 Cents Cents (8.76) (5.44)
	Number 187,755,202
	187,755,202
	Cents (8.76)

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