CODEIFAI LIMITED — Annual Report 2018

Feb 27, 2019

YPB Group Ltd Appendix 4E Preliminary final report

1. Results for announcement to the market

				$'000
Revenues from ordinary activities	down	0.6%	to	1,987
Loss from ordinary activities after tax attributable to the owners of YPB
Group Ltd	down	64.1%	to	(7,278)
Loss for the year attributable to the owners of YPB Group Ltd	down	64.1%	to	(7,278)

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 $7,278,000 (31 December 2017: $20,261,000).

2. Net tangible assets

Net tangible assets per ordinary security	Reporting period Cents (0.22)	Previous period Cents (2.00)

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 2019

YPB Group Ltd Consolidated statement of profit or loss and other comprehensive income For the year ended 31 December 2018

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 Travelling expense Options expense Share-based payments Regulatory expenses Professional fees Other expenses Exchange gain/(loss) Inventories written-off Impairment of plant and equipment Impairment of 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 16	Consolidated 2018 2017 $'000 $'000 1,987 1,998 (635) (1,007) (1,481) (1,583) (165) (967) (80) (142) (2,986) (3,219) (65) (387) (359) (314) (393) (1,023) (162) (79) (364) (607) (845) (1) (55) (179) (245) (188) (414) (418) (853) (1,205) 1,913 (247) (52) - - (830) (2,356) (8,104) - (1,775) (7,610) (20,277) 332 16	Consolidated 2018 2017 $'000 $'000 1,987 1,998 (635) (1,007) (1,481) (1,583) (165) (967) (80) (142) (2,986) (3,219) (65) (387) (359) (314) (393) (1,023) (162) (79) (364) (607) (845) (1) (55) (179) (245) (188) (414) (418) (853) (1,205) 1,913 (247) (52) - - (830) (2,356) (8,104) - (1,775) (7,610) (20,277) 332 16
	(7,278) (958)	(20,261) (250)
	(958)	(250)
	(8,236)	(20,511)
	Cents (1.09)	Cents (8.16)

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 2018

Note Assets Current assets Cash and cash equivalents 4 Trade and other receivables 5 Inventories 6 Total current assets Non-current assets Plant and equipment 7 Intangibles 8 Total non-current assets Total assets Liabilities Current liabilities Trade and other payables 9 Deferred revenue Financial liabilities 10 Borrowings 11 Total current liabilities Total liabilities Net assets Equity Issued capital 12 Reserves 13 Accumulated losses Total equity	Consolidated 2018 2017 $'000 $'000 487 845 701 508 282 333 1,470 1,686 184 197 8,443 9,115 8,627 9,312 10,097 10,998 1,572 6,782 144 240 1,723 1,836 - 1,002 3,439 9,860 3,439 9,860 6,658 1,138 61,980 49,124 3,385 3,740 (58,707) (51,726) 6,658 1,138
	1,470
	184 8,443
	8,627
	10,097
	1,572 144 1,723 -
	3,439
	3,439
	6,658
	61,980 3,385 (58,707)
	6,658

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 2018

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 lapsed during the year Options granted during the year Share based payments Warrant options issued Balance at 31 December 2017 Consolidated Balance at 1 January 2018 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 lapsed during the year Options granted during the year Share based payments Warrant options lapsed Balance at 31 December 2018	Issued capital $'000 41,317 - -	Issued options $'000 695 - -	Foreign currency translation reserve $'000 2,341 - (250)	Warrant Options Reserve $'000 - - -	Accumulat ed losses $'000 (31,859) (20,261) -	Share based payment reserve $'000 1,015 - -	Total equity $'000 13,509 (20,261) (250)
	- 7,807 - - - -	- - (394) 1 - -	(250) - - - - -	- - - - - 256	(20, 261) - 394 - - -	- - - - 76 -	(20,511) 7,807 - 1 76 256
	49,124	302	2,091	256	(51,726)	1,091	1,138
	Issued capital $'000 49,124 - -	Issued options $'000 302 - -	Foreign currency translation reserve $'000 2,091 - (958)	Warrant Options Reserve $'000 256 - -	Accumulat ed losses $'000 (51,726) (7,278) -	Share based payment reserve $'000 1,091 - -	$'000 1,138 (7,278) (958)
	- 12,856 - - - -	- - (41) 845 - -	(958) - - - - -	- - - - - (256)	(7,278) - 41 - - 256	- - - - 55 -	(8,236) 12,856 - 845 55 -
	61,980	1,106	1,133	-	(58,707)	1,146	6,658

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 2018

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 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 received 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 2018 2017 $'000 $'000 2,116 2,259 (7,901) (9,656) 17 7 (48) (387) (5,816) (7,777) (50) (25) (1,444) (1,038) (1,494) (1,063) 7,202 3,237 - 1,002 - 1 (102) - - 475 1,500 2,255 (1,648) - 6,952 6,970 (358) (1,870) 845 2,715 487 845
	(5,816)
	(50) (1,444)
	(1,494)
	7,202 - - (102) - 1,500 (1,648)
	6,952
	(358) 845
	487

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 2018

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 2018, 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 represented 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:

• Digital engagement platform that provides brand engagement with end consumers to promote product authenticity.

• 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.

• Retail anti-theft and labelling solutions effective for mainstream retailers, boutiques and exporters to protect against theft.

The specialised printing operation provided its customers with a dedicated product range, however this segment ceased in late 2017 with no further activities in 2018.

Consolidated - 2018 Revenue Sales to external customers Interest revenue Total revenue EBITDA Depreciation and amortisation Impairment of assets Inventories written-off 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 - -	Other segments $'000 1,970 17	Total $'000 1,970 17 1,987 (4,972) (165) (2,356) (52) (65) (7,610) 332 (7,278) 10,097 10,097 3,439 3,439
	-	1,987
	(4) - - -	(4,968) (165) (2,356) (52) (65)
	(4)	(7,606)
	-	10,097
	3	3,436

5

YPB Group Ltd Notes to the financial statements 31 December 2018

Note 1. Operating segments (continued)

Consolidated - 2017 Revenue Sales to external customers Interest revenue Total revenue EBITDA Depreciation and amortisation Diminution in fair value of financial assets Impairment of assets Impairment of plant and equipment 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 $'000 223 1,768 1,991 - 7 7 223 1,775 1,998 (256) (7,958) (8,214) - (967) (967) - (1,775) (1,775) - (8,104) (8,104) - (830) (830) - (387) (387) (256) (20,021) (20,277) 16 (20,261) 2 10,996 10,998 10,998 31 9,829 9,860 9,860 Sales to external customers Geographical assets 2018 2017 2018 2017 $'000 $'000 $'000 $'000 883 1,013 445 716 164 39 596 2,959 494 486 486 400 446 483 8,569 6,923	Print Solutions $'000 223 -	Other segments $'000 1,768 7	Total $'000 1,991 7
		223	1,775	1,998
		(256) - - - - -	(7,958) (967) (1,775) (8,104) (830) (387)	(8,214) (967) (1,775) (8,104) (830) (387)
		(256)	(20,021)	(20,277)
		2	10,996	16
				(20,261)
				10,998
				10,998
	1,987	1,998	10,096	10,998

Geographical information

Note 2. Revenue

Revenue Sale of goods Other revenue Interest Revenue	Consolidated 2018 2017 $'000 $'000 1,970 1,991	Consolidated 2018 2017 $'000 $'000 1,970 1,991
	17	7
	1,987	1,998

6

YPB Group Ltd Notes to the financial statements 31 December 2018

Note 3. Loss for the period

The loss for the period includes the following expenses:

Finance costs Research and development costs Depreciation and amortisation Inventories written-off Impairment of plant & equipment Impairment of intangible assets Rental expense on operating leases - minimum lease payments Diminution in fair value of financial assets	Consolidated 2018 2017 $'000 $'000 65 387 393 1,023 165 967 52 - - 830 2,356 8,104 359 314 - 1,775	Consolidated 2018 2017 $'000 $'000 65 387 393 1,023 165 967 52 - - 830 2,356 8,104 359 314 - 1,775
	3,390	13,400

Note 4. Current assets - cash and cash equivalents

Cash on hand Cash at bank	Consolidated 2018 2017 $'000 $'000 3 2 484 843	Consolidated 2018 2017 $'000 $'000 3 2 484 843
	487	845

Note 5. Current assets - trade and other receivables

Trade receivables Less: allowance for doubtful debts Sundry receivables	Consolidated 2018 2017 $'000 $'000 468 339 (54) (25)	Consolidated 2018 2017 $'000 $'000 468 339 (54) (25)
	414 287	314 194
	701	508

Note 6. Current assets - inventories

Finished goods - at cost

Consolidated	Consolidated
2018	2017
$'000	$'000
	282	333

7

YPB Group Ltd Notes to the financial statements 31 December 2018

Note 7. Non-current assets - plant and equipment

Plant and equipment - at cost Less: Accumulated depreciation Less: Impairment of plant and equipment	Consolidated 2018 2017 $'000 $'000 521 1,264 (337) (237) - (830) 184 197
	184

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 2017 Additions Exchange differences Impairment of plant and equipment Depreciation expense Balance at 1 January 2018 Additions Disposals Depreciation expense Exchange differences Balance at 31 December 2018 Note 8. Non-current assets - intangibles Goodwill - at cost Less: Accumulated impairment losses Intellectual property - at cost Less: Accumulated amortisation Less: Accumulated impairment losses Customer relationships Less: Accumulated amortisation Less: Accumulated impairment losses Patent licence rights	Plant and equipment $'000 588 515 (5) (830) (71)
	197 50 (1) (79) 17
	184
	-
	16,250 (4,942) (11,308)
	-
	206 (28) (178)
	-
	8,443
	8,443

8

YPB Group Ltd Notes to the financial statements 31 December 2018

Note 8. 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 31 December 2017 Balance at 1 January 2018 Additions Exchange differences Impairment charge Amortisation expense Balance at 31 December 2018	Goodwill Intellectual property Customer relationships Patent licence rights Total $'000 $'000 $'000 $'000 $'000 - 2,334 - 6,781 9,115
	- 2,334 - 6,781 9,115 - - - 851 851 - 107 - 811 918 - (2,356) - - (2,356) - (85) - - (85)
	- - - 8,443 8,443

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

Effective in December 2017, the Group acquired Motif Micro’s patented licence rights 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.

In February 2018, a specific milestone under the agreement was successfully achieved with Motif Micro. The patent licence right was increased and a corresponding payable was settled via the issue of ordinary shares in 2018.

As the technology is still in the development phase and not available for use, the patent licence rights have not been amortised.

Note 9. Current liabilities - trade and other payables

Trade payables Sundry payables and accruals	Consolidated 2018 2017 $'000 $'000 979 1,081 593 5,701	Consolidated 2018 2017 $'000 $'000 979 1,081 593 5,701
	1,572	6,782

9

YPB Group Ltd Notes to the financial statements 31 December 2018

Note 10. Current liabilities - financial liabilities

Convertible notes (Bracknor facility) - (i) Convertible notes (Sophisticated investors) - (ii)	Consolidated 2018 2017 $'000 $'000 205 1,836 1,518 - 1,723 1,836

• (i) During the year, the Group made repayments totalling $1,696,000 (US$ 1,311,000) with a remaining final repayment tranche of $205,000 (US$ 145,000) that was settled on 2 January 2019 along with a signed deed that released and discharged the Group from any further obligations including the warrants outstanding.

• (ii) In November 2018, the Group issued convertible loan notes with an aggregate face value of $1,500,000 to sophisticated investors. These convertible notes will accrue interest on its face value daily at an interest rate of 10% per annum, and the noteholders may elect by issuing a conversion notice to the Group to convert the note on or prior to, the maturity date of 22 October 2021.

Note 11. Borrowings

Loans to related parties	Consolidated 2018 2017 $'000 $'000 - 1,002

During the year, $900,000 relating to the prior year loans were converted into ordinary shares. The remaining balance of $102,000 has been fully repaid.

Note 12. Equity - issued capital

Ordinary shares - fully paid	2018 Shares 799,277,924	Consolidated 2017 2018 Shares $'000 399,463,400 61,980	2017 $'000 49,124

10

YPB Group Ltd Notes to the financial statements 31 December 2018

Note 12. Equity - issued capital (continued)

Movements in ordinary share capital

Details Date Balance 1 January 2017 Issuance in accordance with convertible notes arrangement 15 May 2017 Issuance in accordance with convertible notes arrangement 21 July 2017 Issuance as payment to service provider 21 July 2017 Issued under share-based payments 21 July 2017 Issued as part of asset purchase 7 September 2017 Share placement 7 September 2017 Share placement 7 September 2017 Issuance in accordance with convertible notes arrangement 7 September 2017 Share placement 11 September 2017 Conversion of debt to equity & settlement of debts 13 September 2017 Share placement 3 October 2017 Issued under share-based payments 3 October 2017 Conversion of options 1 December 2017 Conversion of debt to equity & settlement of debts 1 December 2017 Issued as part of asset purchase 1 December 2017 Less: Transaction costs on shares issued, net of tax Balance 31 December 2017 Issued as part of asset purchase 10 January 2018 Share placement 22 January 2018 Conversion of debt to equity 22 January 2018 Share placement 31 January 2018 Issuance as payment to service provider 15 February 2018 Share placement 5 March 2018 Issuance as payment to service provider 5 March 2018 Share placement 27 March 2018 Issuance as payment to service provider 12 April 2018 Issued under share-based payments 30 June 2018 Share placement 18 July 2018 Issued under share-based payments 29 August 2018 Share placement 5 September 2018 Conversion of debt to equity 30 October 2018 Issued as part of asset purchase 30 October 2018 Less: Transaction costs on share issued, net of tax Balance 31 December 2018	Shares	$'000
	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 -	41,317 103 38 51 - 410 1,800 375 125 1,100 567 150 - 1 2,884 492 (289)
	399,463,400 72,392,660 73,005,259 10,972,131 2,689,851 500,066 64,356,622 1,428,571 31,342,857 357,077 1,955,142 3,800,000 321,371 90,910,251 22,222,222 23,560,444 -	49,124 3,402 3,325 500 122 18 1,221 50 1,097 12 - 135 - 1,636 400 1,272 (334)
	799,277,924	61,980

11

YPB Group Ltd Notes to the financial statements 31 December 2018

Note 12. Equity - issued capital (continued)

Movements in options on issue

Details Date Balance 1 January 2017 Options issued under existing employment agreement 21 July 2017 Exercise of share options 31 October 2017 Options lapsed 31 October 2017 Balance 31 December 2017 Options lapsed 27 April 2018 Options issued under share placement 18 July 2018 Options lapsed 1 August 2018 Options lapsed 27 October 2018 Options issued 30 October 2018 Options issued 04 December 2018 Balance 31 December 2018 Movements in share-based payments Details Date Balance 1 January 2017 Issued under share-based payments 21 July 2017 Issued under share-based payments 3 October 2017 Balance 31 December 2017 Issued under share-based payments 30 June 2018 Issued under share-based payments 29 August 2018 Balance 31 December 2018	Options 112,231,884 346,000 (6,250) (40,037,634)	$'000 695 1 - (394)
	72,534,000 (228,000) 3,800,000 (560,000) (400,000) 120,769,473 6,363,000	302 (5) 13 (8) (28) 805 27
	202,278,473	1,106
		$'000 1,015 26 50
		1,091 48 7
		1,146

Movements in share-based payments

Note 13. Equity - reserves

Foreign currency translation reserve Options reserve Share-based payments reserve Warrant options reserve	Consolidated 2018 2017 $'000 $'000 1,133 2,091 1,106 302 1,146 1,091 - 256	Consolidated 2018 2017 $'000 $'000 1,133 2,091 1,106 302 1,146 1,091 - 256
	3,385	3,740

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.

12

YPB Group Ltd Notes to the financial statements 31 December 2018

Note 13. 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. The warrant options lapsed with the final repayment of the facility on 2 January 2019 – refer to note 10.

Note 14. Interests in subsidiaries

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

		Ownership	interest
	Principal place of business /	2018	2017
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 15. Reconciliation of loss after income tax to net cash used in operating activities

Loss after income tax benefit for the year Adjustments for: Foreign exchange differences Impairment of plant and equipment Depreciation and amortisation expense Inventories written-off Impairment of intangible assets Options expense Share-based payments Finance costs Diminution in fair value of financial assets Change in operating assets and liabilities; net of the effects of purchase and disposal of subsidiaries Decrease/(increase) in trade and other receivables Decrease/(increase) in inventories Increase/(decrease) in trade and other payables Net cash used in operating activities

Consolidated 2018 2017 $'000 $'000 (7,278) (20,261) (1,456) 277 - 830 165 967 52 - 2,356 8,104 845 1 55 179 17 - - 1,775 (193) 222 1 15 (380) 114 (5,816) (7,777)

(5,816)

13

YPB Group Ltd Notes to the financial statements 31 December 2018

Note 16. 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 Group, diluted earnings per share have not been presented.	Consolidated 2018 2017 $'000 $'000 (7,278) (20,261)	Consolidated 2018 2017 $'000 $'000 (7,278) (20,261)
	Number 664,942,198	Number 248,202,931
	664,942,188	248,202,931
	Cents (1.09)	Cents (8.16)

14