CODEIFAI LIMITED — Annual Report 2017

Feb 28, 2018

1

ASX/MEDIA ANNOUNCEMENT ASX: YPB | 28[th] February 2018

Appendix 4E and commentary

• Disappointing year despite reduced loss

• 40% overhead reduction achieved in H2

• Benefits of H2 CEO and management change to become increasingly apparent

• Pre-tax profit expectation of at least $5m in 2018 reiterated

Brand Protection and Consumer Connection solutions company YPB Group Ltd (ASX: YPB) presents its Appendix 4E and commentary for the year to December 2017.

YPB had an unacceptable and disappointing 2017 despite a reduced loss compared with 2016. Revenues fell when they were budgeted to grow. The CEO departed in early July as a consequence. The resumption of operational control by the Executive Chairman has seen the pruning of costs and ineffectual staff, the refocus and revitalisation of key management, and significant progress with key clients and strategic partners that should soon be visible in increased opportunity, contract closure and revenue growth.

The reported loss decreased from $16.4m to $11.2m. More relevantly, net cash consumed by operations of $7.7m was 21% less than the $9.7m of 2016. Further, the net operating loss in H2 2017 of $3.2m was 58% below the $7.7m net operating loss of H1 2017. Whilst a loss is unacceptable, the H2 improvement is indicative of the trajectory of the business. Cost reduction was the primary driver of improvement.

Revenues were extremely disappointing in 2017 falling by 33% from $3.0m to $2.0m. This was primarily driven by much weaker US Print Solutions which resulted in that business being closed mid-year. Sales in China were also very weak due to strategic errors by the departed CEO.

The biggest revenue disappointment, however, was the failure to convert a very large new business pipeline into sales and inordinate lags between contract closure and first sales. Nevertheless, the first hint of improvement was seen in H2 2017 with revenue of $1.2m, up 44% on H1 and this trend is expected to accelerate in the current and subsequent halves. Existing customers are increasing volumes and new customers are close to contract closure and revenue start up.

The strategic partnership which is the cause of the present voluntary trading suspension should also commence in coming weeks and contribute revenue via both expanded opportunities and shortened sales cycles.

The cost reduction programme initiated by the Board commencing February 2017 was achieved on time and on budget. The targeted annualised 40% cost out of $4.5m was largely reached by August 2017. That resulted in H2 2017 operating costs (ex COGS) being $2.3m lower than H1. The two biggest contributors were lower headcount and fewer high-cost personnel together with a reduced R&D expense following the conclusion of the YPB CONNECT software rebuild and upgrade.

100 Harris Street, Pyrmont

YPB Group Ltd.

2

Substantially higher revenues remain the primary key to the company’s fortunes. As noted above, that will be driven by the large opportunity pipeline, natural conclusion of discussions with well-progressed potential clients, YPB CONNECT having been proven in-market, management execution improving significantly since the leadership change and greater exposure of ANZ exporters to high counterfeit risk markets in Asia. This will be supplemented by the new strategic partnership which is expected to hit the ground running in coming weeks.

Prominent new customers during H2 2017 included Lucas’ Papaw, Cellmid (ASX: CDY) and Unilever Pakistan. They all are presently contributing to revenue. The company also announced in H2 2017 that it had been awarded the print contract for the Mexican National Lottery winning ticket register but this award has been subject to appeal and has not commenced. The Board is reviewing its strategy in Mexico but due to poor performance and high cost has resolved not to renew the JV and consulting agreement with Affrymx which came up for its first review in February 2018. The clear management focus for 2018 is closing the existing revenue pipeline, the Australia – China corridor, monetising Motif Micro and YPB’s CONNECT platform.

Costs, and particularly cost productivity, remain an intense focus with discipline and control enhanced under new CFO Adrian Tan who commenced in early January 2018. Costs may rise as the business expands but will greatly lag revenue growth.

The acquisition of Motif Micro, the mass-market, smartphone-readable, unfakeable, anticounterfeit technology, was completed in H2 2017 with final settlement in January 2018. Developed at a world-renowned US education institute, Motif Micro is a true generational leap in anti-counterfeit technology. A more detailed announcement re Motif Micro will be made in the near future to explain the technology, its potential and the commercialisation strategy.

YPB Executive Chairman John Houston said: “2017 was a poor year financially but the remedial action taken in the second half sets the company up for a greatly improved 2018. Customer conversion and consequent revenue growth together with prudent cost management will be the primary drivers of achieving our expectation of a pre-tax profit of at least $5m in 2018.”

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 W: www.ypbsystems.com

100 Harris Street, Pyrmont

YPB Group Ltd.

3

ABOUT YPB (ASX: YPB)

In a rapidly changing world, brands need to do more than make great products, they need to PROTECT their consumer by allowing them to verify that their purchase is real and as a result buy with confidence. This is a proven initiative to trigger the consumer to CONNECT with brands.

YPB provides real protection for quality brands with a focus on product authenticity. Simultaneously, we provide a gateway for brands to connect with their consumers and engender trust in authenticity by utilising the power of the smartphone.

In an evolving marketplace and with the rapid growth of cross border commerce, YPB leverages serialisation and patented authentication solutions so that insightful data can flow between brands and their consumers.

YPB is the obvious choice to PROTECT , DETECT and CONNECT .

www.ypbsystems.com

100 Harris Street, Pyrmont

YPB Group Ltd.

YPB Group Ltd Appendix 4E Preliminary final report

1. Results for announcement to the market

			$'000
Revenues from ordinary activities	down	32.2% to	2,021
Loss from ordinary activities after tax attributable to the owners of YPB
Group Ltd	down	32.2% to	(11,154)
Loss for the year attributable to the owners of YPB Group Ltd	down	32.2% to	(11,154)

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 $11,154,000 (31 December 2016: $16,441,000).

2. Net tangible assets

Net tangible assets per ordinary security	Reporting period Cents (1.74)	Previous period Cents 0.67

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.

7. Details of associates and joint venture entities

Not applicable.

YPB Group Ltd Appendix 4E Preliminary final report

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 2018

YPB Group Ltd Consolidated statement of profit or loss and other comprehensive income For the year ended 31 December 2017

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 Regulatory expenses Professional fees Other expenses Impairment of goodwill and other intangible assets 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 loss Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations Other comprehensive loss 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 2017 2016 $'000 $'000 2,021 2,982 (1,007) (1,823) (1,580) (1,068) (967) (970) (142) (171) (3,255) (5,126) (439) (198) (314) (409) (1,023) (1,570) (79) (561) (601) (1,253) (1) (202) (179) (515) (121) (234) (416) (316) (1,292) (851) - (3,267) (1,775) (1,060) (11,170) (16,612) 16 171	Consolidated 2017 2016 $'000 $'000 2,021 2,982 (1,007) (1,823) (1,580) (1,068) (967) (970) (142) (171) (3,255) (5,126) (439) (198) (314) (409) (1,023) (1,570) (79) (561) (601) (1,253) (1) (202) (179) (515) (121) (234) (416) (316) (1,292) (851) - (3,267) (1,775) (1,060) (11,170) (16,612) 16 171	Consolidated 2017 2016 $'000 $'000 2,021 2,982 (1,007) (1,823) (1,580) (1,068) (967) (970) (142) (171) (3,255) (5,126) (439) (198) (314) (409) (1,023) (1,570) (79) (561) (601) (1,253) (1) (202) (179) (515) (121) (234) (416) (316) (1,292) (851) - (3,267) (1,775) (1,060) (11,170) (16,612) 16 171
	(11,170) 16		(16,612) 171
	(11,154) (245)		(16,441) (225)
	(245)		(225)
	(11,399)		(16,666)
	Cents (4.49)		Cents (8.76)

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

1

YPB Group Ltd Consolidated statement of financial position As at 31 December 2017

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 Total non-current assets Total assets Liabilities Current liabilities Trade and other payables 10 Deferred revenue Financial liabilities 11 Borrowings 12 Total current liabilities Non-current liabilities Borrowings 12 Other liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital 13 Reserves 14 Accumulated losses Total equity	Consolidated 2017 2016 $'000 $'000 845 2,715 631 729 333 348 - 2,250 1,809 6,042 1,027 588 17,219 12,081 18,246 12,669 20,055 18,711 6,779 2,177 240 - 1,798 - 988 - 9,805 2,177 - 3,024 - 1 - 3,025 9,805 5,202 10,250 13,509 49,124 41,317 4,139 4,051 (43,013) (31,859) 10,250 13,509
	1,809
	1,027 17,219
	18,246
	20,055
	6,779 240 1,798 988
	9,805
	- -
	-
	9,805
	10,250
	49,124 4,139 (43,013)
	10,250

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

2

YPB Group Ltd Consolidated statement of changes in equity For the year ended 31 December 2017

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 Consolidated Balance at 1 January 2017 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 granted during the year Share based payments Warrant options issued Balance at 31 December 2017	Issued capital $'000 33,606 - -	Issued options $'000 393 - -	Foreign currency translation Reserve $'000 2,566 - (225)	Warrant Options Reserve $'000 - - -	Accumulat ed losses $'000 (15,418) (16,441) -	Share based payment reserve $'000 97 - -	Total equity $'000 21,244 (16,441) (225)
	- 7,449 2 260 - -	- - - - 302 -	(225) - - - - -	- - - - - -	(16,441) - - - - -	- - - - - 918	(16,666) 7,449 2 260 302 918
	41,317	695	2,341	-	(31,859)	1,015	13,509
	Issued capital $'000 41,317 - -	Issued options $'000 695 - -	Foreign currency translation reserve $'000 2,341 - (245)	Warrant Options Reserve $'000 - - -	Accumulat ed losses $'000 (31,859) (11,154) -	Share based payment reserve $'000 1,015 - -	Total equity $'000 13,509 (11,154) (245)
	- 7,807 - - -	- - 1 - -	(245) - - - -	- - - - 256	(11,154) - - - -	- - - 76 -	(11,399) 7,807 1 76 256
	49,124	696	2,096	256	(43,013)	1,091	10,250

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

3

YPB Group Ltd Statement of cash flows For the year ended 31 December 2017

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 intangibles Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares (net of costs) Proceeds from related party loans Proceeds from issue of options Repayment of loan from related party Settlement of deferred share consideration Proceeds from issue of convertible notes Repayment of borrowings Net cash from financing activities Net decrease 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 2017 2016 $'000 $'000 2,159 3,262 (9,465) (12,755) 7 37 (439) (198) (7,738) (9,654) (26) (353) (1,038) - (1,064) (353) 3,237 8,214 1,002 - 1 - - (8) 475 1,690 2,217 - - (51) 6,732 9,845 (1,870) (162) 2,715 2,877 845 2,715
	(7,738)
	(26) (1,038)
	(1,064)
	3,237 1,002 1 - 475 2,217 -
	6,732
	(1,870) 2,715
	845

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

4

YPB Group Ltd Notes to the financial statements 31 December 2017

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 2017, 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 - 2017 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 $'000 223 -	Other segments $'000 1,791 7	Total $'000 2,014 7
	223	1,798	2,021
	(256) - - -	(7,733) (967) (1,775) (439)	(7,989) (967) (1,775) (439)
	(256)	(10,914)	(11,170)
	2	20,053	16
			(11,154)
			20,055
	67	9,738	20,055
			9,805
			9,805

5

YPB Group Ltd Notes to the financial statements 31 December 2017

Note 1. Operating segments (continued)

Consolidated - 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 Geographical information Australia Peoples Republic of China and HK Thailand United States of America	Print Other Solutions segments Total $'000 $'000 $'000 662 2,283 2,945 - 37 37 662 2,320 2,982 (564) (11,613) (12,177) (13) (957) (970) (117) (3,150) (3,267) - (198) (198) (694) (15,918) (16,612) 171 (16,441) 140 18,571 18,711 18,711 177 5,025 5,202 5,202 Sales to external customers Geographical assets 2017 2016 2017 2016 $'000 $'000 $'000 $'000 1,013 1,271 949 6,220 39 299 10,856 11,162 486 331 498 772 483 1,081 7,752 557	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
	2,021	2,982	20,055	18,711

Note 2. Revenue

Revenue Sale of goods Other revenue Interest Revenue	Consolidated 2017 2016 $'000 $'000 2,014 2,945	Consolidated 2017 2016 $'000 $'000 2,014 2,945
	7	37
	2,021	2,982

6

YPB Group Ltd Notes to the financial statements 31 December 2017

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 & other intangible assets Rental expense on operating leases - minimum lease payments Diminution in fair value of financial assets	Consolidated 2017 2016 $'000 $'000 439 198 1,023 1,570 967 970 - 3,267 314 409 1,775 1,060	Consolidated 2017 2016 $'000 $'000 439 198 1,023 1,570 967 970 - 3,267 314 409 1,775 1,060
	4,518	7,474

Note 4. Current assets - cash and cash equivalents

Cash on hand Cash at bank	Consolidated 2017 2016 $'000 $'000 2 4 843 2,711	Consolidated 2017 2016 $'000 $'000 2 4 843 2,711
	845	2,715

Note 5. Current assets - trade and other receivables

Trade receivables Sundry receivables	Consolidated 2017 2016 $'000 $'000 361 348 270 381	Consolidated 2017 2016 $'000 $'000 361 348 270 381
	631	729

Note 6. Current assets - inventories

Finished goods - at cost

Consolidated	Consolidated
2017	2016
$'000	$'000
	333	348

7

YPB Group Ltd Notes to the financial statements 31 December 2017

Note 7. Current assets - financial assets

Receivable from Lanstead	Consolidated 2017 2016 $'000 $'000 - 2,250

The fair value of the Lanstead receivable as at 31 December 2017 has been estimated as follows:

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The diminution in fair value, as recognised during the period, is a result of the actual share price of the company trading below the reference share price agreed on at the time of the underlying contract. Management does not anticipate further funding to be forthcoming from this facility and has subsequently recognised a diminution for the remaining receivable

Note 8. Non-current assets - plant and equipment

Plant and equipment - at cost Less: Accumulated depreciation	Consolidated 2017 2016 $'000 $'000 1,264 750 (237) (162)	Consolidated 2017 2016 $'000 $'000 1,264 750 (237) (162)
	1,027	588

Plant and equipment includes capital expenditure of $830,143 relating to various printing assets acquired by the Group and held in YPB Group (USA) Inc. under an agreement with a joint venture party.

The printing assets are currently secured in storage and are not put into use and are therefore not subject to depreciation.

8

YPB Group Ltd Notes to the financial statements 31 December 2017

Note 8. Non-current assets – plant and equipment (continued)

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 2016 Additions Exchange differences Depreciation expense Balance at 31 December 2016 Additions Exchange differences Depreciation expense Balance at 31 December 2017	Plant and equipment $'000 313 353 2 (80)	Total $'000 313 353 2 (80)
	588 515 (5) (71)	588 515 (5) (71)
	1,027	1,027

Note 9. Non-current assets - intangibles

Goodwill - at cost Less: Accumulated impairment losses Intellectual property - at cost Less: Accumulated amortisation Customer relationships Less: Accumulated amortisation Less: Accumulated impairment losses Patent licence rights	Consolidated 2017 2016 $'000 $'000 3,089 3,089 (3,089) (3,089)	Consolidated 2017 2016 $'000 $'000 3,089 3,089 (3,089) (3,089)
	-	-
	13,052 (2,614)	13,804 (1,723)
	10,438	12,081
	206 (28) (178)	206 (28) (178)
	-	-
	6,781	-
	17,219	12,081

9

YPB Group Ltd Notes to the financial statements 31 December 2017

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

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 2016 Exchange differences Impairment of assets Amortisation & impairment expense Balance at 31 December 2016 Additions Exchange differences Amortisation & impairment expense Balance at 31 December 2017	Goodwill $'000 3,084 5 (3,089) -	Intellectual property $'000 12,901 70 - (890)	Customer relationships $'000 191 1 (178) (14)	Patent licence rights $'000 - - - -	Total $'000 16,176 76 (3,267) (904)
	- - - -	12,081 - (752) (891)	- - - -	- 6,781 - -	12,081 6,781 (752) (891)
	-	10,438	-	6,781	17,219

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.

Patent Licence Rights

On 13 September 2017, the Company entered into an agreement with Motif Micro Inc. (‘Motif Micro’), in order to acquire Motif Micro’s patented licence rights (‘the transaction‘) to develop and commercialise its secure smartphone readable authentication technology. The non-replicable invisible micro-barcode technology works whereby the smartphone becomes the authentication device for uncopiable, invisible and indestructible physical marking technology.

Effective 19 December 2017, the Company ratified its commitment to the transaction for a total consideration of $6,780,660 (US $5,288,915), to be settled by a mix of cash and shares.

As at year-end, $5,320,513 (US $4,150,000) remains payable under the agreement and has been recognised in current liabilities.

• Subsequent to year-end, and following a successful capital raise, the total payable has been settled as follows: - $1,474,359 (US $1,150,000) in cash

• $3,846,154 (US $3,000,000) via the issue of 82,636,685 shares.

10

YPB Group Ltd Notes to the financial statements 31 December 2017

Note 10. Current liabilities - trade and other payables

Trade payables Sundry payables and accruals	Consolidated 2017 2016 $'000 $'000 1,081 1,202 5,698 975	Consolidated 2017 2016 $'000 $'000 1,081 1,202 5,698 975
	6,779	2,177

Included in sundry payables is an amount of $5,320,513 relating to the patent licence rights acquired in December 2017, as outlined in Note 9 above. The debt has been fully settled subsequent to year end.

Note 11. Current liabilities - financial liabilities

Convertible notes (Bracknor facility)	Consolidated 2017 2016 $'000 $'000 1,798 -

During October 2017, the Group commenced discussions with Bracknor Investment Group to alter the terms of the existing facility.

The variations are centered around the Group wanting to exit the facility by settlement, mainly in cash or shares issued at a discount, within the next 6 months.

The final terms are yet to be formally approved, however the Group subsequent to year-end, on 22 January 2018, settled the first of two repayment tranches with Bracknor Investment Group amounting to $891,236. The final repayment tranche is yet to be agreed on, with the outstanding balance attracting interest at 20%pa.

Note 12. Borrowings

Current Loans to related parties Non-current Loans to related parties	Consolidated 2017 2016 $'000 $'000 988 -	Consolidated 2017 2016 $'000 $'000 988 -
	-	3,024
	988	3,024

During the year $2,784,000 relating to the prior year loans were converted into ordinary shares. The balance as at year end includes new funding provided by Ronald Langley and related entities of John Houston. The loans attract an interest rate of 8% and are unsecured.

Ronald Langley’s loan amounting to $500,000 represents a short-term bridging loan which settled during January 2018 by the issue of ordinary shares.

11

YPB Group Ltd Notes to the financial statements 31 December 2017

Note 13. Equity - issued capital

Ordinary shares - fully paid Movements in ordinary share capital Details Balance Exercise of share options Issuance in accordance with consulting arrangement Issued in lieu of directors' fees Share placement Issued under share-based payments Issued under share-based payments Conversion of performance rights Share placement Issued under share-based payments Less: Transaction costs on shares issued, net of tax Balance Issuance in accordance with convertible notes arrangement Issuance in accordance with convertible notes arrangement Issuance as payment to service provider Issued under share-based payments Issued as part of asset purchase Share placement Share placement Issuance in accordance with convertible notes arrangement Share placement Conversion of debt to equity & settlement of debts Share placement Issued under share-based payments Conversion of options Conversion of debt to equity & settlement of debts Issued as part of asset purchase Less: Transaction costs on shares issued, net of tax Balance	2017 Shares 399,463,400	Consolidated 2016 2017 Shares $'000 211,887,886 49,124	Consolidated 2016 2017 Shares $'000 211,887,886 49,124	Consolidated 2016 2017 Shares $'000 211,887,886 49,124	2016 $'000 41,317
	Date 1 January 2016 17 February 2016 17 February 2016 13 May 2016 30 May 2016 6 June 2016 8 August 2016 8 August 2016 26 October 2016 27 October 2016 31 December 2016 15 May 2017 21 July 2017 21 July 2017 21 July 2017 7 September 2017 7 September 2017 7 September 2017 7 September 2017 11 September 2017 13 September 2017 3 October 2017 3 October 2017 1 December 2017 1 December 2017 1 December 2017 31 December 2017		Shares 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 -		$'000 33,606 2 260 - 4,540 227 - - 4,000 - (1,318) 41,317 103 38 51 - 410 1,800 375 125 1,100 567 150 - 1 2,884 492 (289) 49,124
			211,887,886 1,210,074 782,580 795,102 173,000 10,244,025 45,000,000 9,375,000 4,194,555 27,500,000 10,250,000 3,750,000 144,928 6,250 72,100,000 2,050,000 -
			399,463,400

12

YPB Group Ltd Notes to the financial statements 31 December 2017

Note 13. Equity - issued capital (continued)

Movements in options on issue

Details

Balance

Exercise of share options Options issued in lieu of retainer Options issued as management incentive Options issued as sign on fee

Options issued upon purchase of shares by employees Options issued as part of capital raising

Balance

Options issued under existing employment agreement Exercise of share options Options lapsed

Balance

Date 1 January 2016 17 February 2016 6 June 2016 6 June 2016 8 August 2016 27 October 2016 12 December 2016 31 December 2016 21 July 2017 31 October 2017 31 October 2017 31 December 2017	Options 40,053,884 (10,000) 3,000,000 4,000,000 400,000 788,000 64,000,000	$'000 393 - 99 160 9 34 -
	112,231,884 346,000 (6,250) (40,037,634)	695 1 - -
	72,534,000	696

Movements in share based payments

Details

Balance

Performance rights granted Issued under share-based payments Performance rights granted Issued under share-based payments

Balance

Issued under share based payments Issued under share based payments

Balance

Date 1 January 2016 13 May 2016 8 August 2016 8 August 2016 27 October 2016 31 December 2016 21 July 2017 3 October 2017 31 December 2017	$'000 97 203 627 36 52
	1,015 26 50
	1,091

Note 14. Equity - reserves

Foreign currency reserve Options reserve Share-based payments reserve Warrant options reserve	Consolidated 2017 2016 $'000 $'000 2,096 2,341 696 695 1,091 1,015 256 -	Consolidated 2017 2016 $'000 $'000 2,096 2,341 696 695 1,091 1,015 256 -
	4,139	4,051

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.

13

YPB Group Ltd Notes to the financial statements 31 December 2017

Note 14. Equity - reserves (continued)

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.

Warrant options reserve

The warrant options reserve has been used to recognise the warrants issued as part of the Bracknor facility – refer to note 11.

Note 15. Interests in subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note :

		Ownership	interest
	Principal place of business /	2017	2016
Name	Country of incorporation	%	%
YPB Limited (HK)	Hong Kong	100.00%	100.00%
YPB Technology (Beijing) Limited	PRC China	100.00%	100.00%
Product ID & Quality Systems (Beijing) Ltd	PRC China	100.00%	100.00%
Brand Reporter Pty Ltd	Australia	100.00%	100.00%
YPB Group (USA) Inc	USA	100.00%	100.00%
YPB Intellectual Product Protection Inc	USA	100.00%	100.00%
YPB Print Solutions Inc	USA	100.00%	100.00%
YPB Group Co., Ltd	Thailand	100.00%	100.00%
nTouch Holdings Pty Ltd	Australia	100.00%	100.00%
nTouch Agency Pty Ltd	Australia	100.00%	100.00%
nTouch Pty Ltd	Australia	100.00%	100.00%
nTouch IP Pty Ltd	Australia	100.00%	100.00%
Wall Mall Pty Ltd	Australia	100.00%	100.00%
YPB Product Development Pty Ltd	Australia	100.00%	100.00%

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

Loss after income tax benefit for the year Adjustments for: Unrealised foreign exchange Depreciation and amortisation expense Impairment of goodwill & customer relationships Options expense Share-based payments Diminution in fair value of financial assets Change in operating assets and liabilities; net of the effects of purchase and disposal of subsidiaries Decrease in trade and other receivables Decrease/(increase) in inventories Increase in trade and other payables Net cash used in operating activities	Consolidated 2017 2016 $'000 $'000 (11,154) (16,441) 269 (308) 967 970 - 3,267 1 202 179 515 1,775 1,060 98 491 15 (169) 112 759	Consolidated 2017 2016 $'000 $'000 (11,154) (16,441) 269 (308) 967 970 - 3,267 1 202 179 515 1,775 1,060 98 491 15 (169) 112 759
	(7,738)	(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 2017 2016 $'000 $'000 (11,154) (16,441)	Consolidated 2017 2016 $'000 $'000 (11,154) (16,441)
	Number 248,202,931	Number 187,755,202
	248,202,931	187,755,202
	Cents (4.49)	Cents (8.76)

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