HUBIFY LIMITED — Annual Report 2017

Aug 30, 2017

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United Networks Limited ABN 60 607 921 246

Appendix 4E - Preliminary Final Report - 30 June 2017

United Networks Limited Appendix 4E Preliminary final report

1. Company details

Name of entity: United Networks Limited ABN: 60 607 921 246 Reporting period: For the year ended 30 June 2017 Previous period: For the year ended 30 June 2016

2. Results for announcement to the market

Commentary below is a summary of a more detailed investor presentation progress update lodged with the ASX on 31 July 2017. United encourages investors to read through the detailed information already released in line with this commentary.

ommentary.
				$
Revenues from ordinary activities	down	17.5%	to	6,236,046
Loss from ordinary activities after tax attributable to the owners of	down	407.8%	to	(1,037,177)
United Networks Limited
Loss for the year attributable to the owners of United Networks	down	407.8%	to	(1,037,177)
Limited

Dividends

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

Comments

The loss for the consolidated entity after providing for income tax amounted to $1,037,177 (30 June 2016: profit of $337,001).

• FY17 was a year in which management spent considerable time on IPO related activities, building new product and onboarding key partners. In the period the following key initiatives were achieved:

• Completion of the ASX Listing on 12 January 2017.

• Launching of the new Unlimited Wi-Fi App in February 2017.

• Launching of Chubb Wi-Fi App in May 2017 and subsequent to year end Chubb- American Express solution in July 2017 and extending this offering across multiple countries.

• Employment of a Chief Operating Officer (COO) in March 2017 and subsequent business development resources in the following months.

• Migration of the key partner from a cost sharing model to a commission only model as of 1 December 2016.

• • Ongoing investment and development of the GAP platform and product optimisation.

The significant proportion of the loss incurred was a result of the following items:

• Non-recurring costs relating to the IPO expensed in the year of $445K.

• Increased cost of management and business development resources which were employed to execute the growth strategy.

• Increased investment in the deployment of 2 new global partner opportunities with the Wi-Fi App which as at July 2017 are now available across 3 countries.

• Increased costs of ensuring the security of the GAP platform including penetration and vulnerability testing conducted across all sites and locations.

• On going audit, compliance and listing costs of $202K.

Revenue for the period is down 17.5% on the previous period as a result of the following items:

• A change in revenue model with our key partner that took effect on the 1st of December 2016 resulting in delayed revenue recognition and a new commission only model for the partner. With unearned/unbooked revenue as at the year end growing to $332K.

• Decreased order volume as a result of a technical issue in the change of offer process that is in the process of being rectified.

• Delays in onboarding and rollout of the 2 new key global partners for the Wi-Fi App resulted in targets not being achieved for the period.

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United Networks Limited Appendix 4E Preliminary final report

3. Net tangible assets

Net tangible assets per ordinary security	Reporting period Cents 3.42	Previous period Cents (0.87)

4. Control gained over entities

Not applicable.

5. Loss of control over entities

Not applicable.

6. 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.

7. Dividend reinvestment plans

Not applicable.

8. Details of associates and joint venture entities

Not applicable.

9. Audit statement

This report is based on accounts that are in the process of being audited.

10. Attachments

The condensed financial statements of United Networks Limited for the year ended 30 June 2017 is attached.

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United Networks Limited Appendix 4E Preliminary final report

11. Signed

Signed _________

31/08 Date: _______ 2017

Anthony Ghattas Chairman Sydney

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United Networks Limited Condensed consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2017

Note Revenue 4 Other income Expenses Cost of sales Marketing Occupancy Administration Other expenses Finance costs Profit/(loss) before income tax benefit Income tax benefit Profit/(loss) after income tax benefit for the year attributable to the owners of United Networks Limited Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of United Networks Limited Basic earnings per share 14 Diluted earnings per share 14	2017 $ 6,236,046 12,733 (3,537,527) (71,451) (55,764) (2,199,018) (1,376,068) (106,050)	2016 $ 7,558,452 - (4,318,006) (120,703) (11,556) (1,882,968) (877,743) (72,731) 274,745 62,256 337,001 - 337,001 Cents 0.40 0.40
	(1,097,099) 59,922
	(1,037,177) -
	(1,037,177)
	Cents (0.97) (0.97)

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

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United Networks Limited Condensed consolidated statement of financial position As at 30 June 2017

Note Assets Current assets Cash and cash equivalents 6 Trade and other receivables Inventories Other Total current assets Non-current assets Other financial assets Property, plant and equipment 7 Intangibles 8 Deferred tax Other Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings 9 Income tax Provisions Total current liabilities Non-current liabilities Borrowings 10 Deferred tax Total non-current liabilities Total liabilities Net assets Equity Issued capital 11 Accumulated losses Total equity	2017 $ 4,214,949 1,896,706 131,975 59,322	2016 $ 509,297 1,489,994 57,450 46,922 2,103,663 18,150 726,027 17,499,725 549,152 262,094 19,055,148 21,158,811 1,695,121 1,177,590 22,924 116,845 3,012,480 1,243,883 188,897 1,432,780 4,445,260 16,713,551 17,777,025 (1,063,474) 16,713,551
	6,302,952
	- 506,047 17,876,073 762,620 -
	19,144,740
	25,447,692
	1,573,503 992,223 - 129,051
	2,694,777
	231,088 343,678
	574,766
	3,269,543
	22,178,149
	24,278,800 (2,100,651)
	22,178,149

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

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United Networks Limited Condensed consolidated statement of changes in equity For the year ended 30 June 2017

Balance at 1 July 2015 Profit after income tax benefit for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 11) Balance at 30 June 2016 Balance at 1 July 2016 Loss after income tax benefit for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 11) Balance at 30 June 2017	Issued capital $ 120 - -	Accumulated losses $ (1,400,475) 337,001 -	Total equity $ (1,400,355) 337,001 - 337,001 17,776,905 16,713,551 Total equity $ 16,713,551 (1,037,177) - (1,037,177) 6,501,775 22,178,149
	- 17,776,905	337,001 -
	17,777,025	(1,063,474)
	Issued capital $ 17,777,025 - -	Accumulated losses $ (1,063,474) (1,037,177) -
	- 6,501,775	(1,037,177) -
	24,278,800	(2,100,651)

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

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United Networks Limited Condensed consolidated statement of cash flows For the year ended 30 June 2017

Note Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers (inclusive of GST) Interest received Interest and other finance costs paid Net cash used in operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Loans advanced to other entities Proceeds from disposal of investments Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares 11 Proceeds from borrowings Share issue transaction costs and other transaction costs attributable to the listing Repayment of borrowings Net cash from financing activities Net 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 6	2017 $ 6,481,632 (6,710,418)	2016 $ 7,459,615 (7,926,315) (466,700) (4,481) 1,397 (469,784) (191,697) (559,539) - - - (751,236) 2,030,250 211,995 - (628,889) 1,613,356 392,336 116,961 509,297
	(228,786) 59,473 (136,209)
	(305,522)
	(5,466) (961,393) (40,084) 21,029 13,519
	(972,395)
	7,133,500 145,137 (1,079,778) (1,215,290)
	4,983,569
	3,705,652 509,297
	4,214,949

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

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United Networks Limited Notes to the condensed consolidated financial statements 30 June 2017

Note 1. Statement of significant accounting policies

Statement of compliance

This preliminary final report (the Report) is to be read in conjunction with any public announcements made by United Networks Limited during the reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001 and Australian Securities Exchange Listing Rules.

The preliminary final report has been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board and the Corporations Act 2001.

The Report is presented in Australian dollars, which is the functional currency of United Networks Limited and its controlled entities and has been prepared on the basis of historical cost except in accordance with relevant accounting policies where assets and liabilities are stated at their fair values.

Significant accounting policies

The principal accounting policies adopted in the preparation of the financial statements are consistent with those of the previous financial year.

Comparatives

Where necessary, comparative figures have been adjusted to comply with the changes in presentation in the current period.

Note 2. Critical accounting judgements, estimates and assumptions

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.

Estimation of useful lives of assets

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

Goodwill impairment

The consolidated entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill has suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. For information relating to the value-in-use calculations refer to note 8.

Impairment of non-financial assets other than goodwill and other indefinite life intangible assets

The consolidated entity assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the consolidated entity and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions.

Recovery of deferred tax assets

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

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United Networks Limited Notes to the condensed consolidated financial statements 30 June 2017

Note 3. Operating segments

Identification of reportable operating segments

Operating segments are identified based on separate financial information which is regularly reviewed by the Board of Directors, representing the consolidated entity's Chief Operating Decision Makers (CODM), in assessing performance and determining the allocation of resources.

The consolidated entity operates in primarily one geographical segment, namely Australia. The primary business segment is telecommunications namely voice, data and value added services. As the consolidated entity operates in only one segment, the consolidated results are also its segment results.

Note 4. Revenue

Sales revenue Sale of goods Services Other revenue Dividends Interest R&D incentive grant Other revenue Revenue	2017 $ 336,022 4,806,478	2016 $ 510,754 6,415,904 6,926,658 315 2,848 567,820 60,811 631,794 7,558,452
	5,142,500
	- 59,473 1,019,502 14,571
	1,093,546
	6,236,046

● An amount of $419K in excess of the FY16 R&D grant accrual was received in the year. An accrual of $600K has been made for FY17 which is inline with the previous year.

Note 5. Expenses

A review of expenses shows that the following expenses increased over the period from the previous year. These items can be split into 3 key areas:

ASX listing recurring and non-recurring expenses

● Fees relating to the ongoing recurring compliance including Audit, Insurance and ASX listing increased by $164K from $38K to $202K in the period.

● Non-recurring IPO related costs expensed in the period of $445K.

Management and Business Development

● Salaries and wages increased by $165K as a result of the new management and business development employed post the IPO to expedite new opportunities for the business.

● Expenses relating to business development and marketing increased as result of the 2 new global partnerships announced in the period.

Increased IT and Security

● Increased by $60K to $340K in the period as a result of increased security and vulnerability and penetration testing completed in the year and deployment of additional websites and resources for new partners.

All other expenses remained comparable or inline with the previous year.

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United Networks Limited Notes to the condensed consolidated financial statements 30 June 2017

Note 6. Current assets - cash and cash equivalents

Cash on hand Cash at bank Cash on deposit	2017 $ 99 158,236 4,056,614	2016 $ 232 454,045 55,020 509,297
	4,214,949

Note 7. Non-current assets - property, plant and equipment

Plant and equipment - at cost Less: Accumulated depreciation Furniture, fixtures and fittings - at cost Less: Accumulated depreciation Computer equipment - at cost Less: Accumulated depreciation Office equipment - at cost Right-of-use assets - property leases Less: Accumulated depreciation	2017 $ 54,630 (18,238)	2016 $ 49,653 (14,783) 34,870 45,746 (4,374) 41,372 72,601 (40,739) 31,862 1,317 793,309 (176,703) 616,606 726,027
	36,392
	45,746 (6,254)
	39,492
	69,091 (50,560)
	18,531
	-
	689,410 (277,778)
	411,632
	506,047

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United Networks Limited Notes to the condensed consolidated financial statements 30 June 2017

Note 7. Non-current assets - property, 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:

Balance at 1 July 2015 Additions Depreciation expense Balance at 30 June 2016 Additions Disposals Right-of-use asset derecognised Transfers in/(out) Depreciation expense Balance at 30 June 2017	Plant and equipment $ 9,253 39,806 (14,189)	Furniture, fixtures and fittings $ 43,697 - (2,325)	Computer equipment $ 22,251 19,376 (9,765)	Office equipment $ - 1,317 -	Right-of-use assets - property leases $ - 793,309 (176,703)	Total $ 75,201 853,808 (202,982) 726,027 145,853 (4,387) (189,873) - (171,573) 506,047
	34,870 4,221 (516) - 1,317 (3,500)	41,372 - - - - (1,880)	31,862 1,245 (3,871) - - (10,705)	1,317 - - - (1,317) -	616,606 140,387 - (189,873) - (155,488)
	36,392	39,492	18,531	-	411,632

Note 8. Non-current assets - intangibles

Goodwill - at cost Patents, trademarks and other rights - at cost Web development - at cost Less: Accumulated amortisation Software - at cost Less: Accumulated amortisation	2017 $ 16,016,577	2016 $ 16,016,577 6,413 790,062 (98,220) 691,842 1,278,317 (493,424) 784,893 17,499,725
	6,413
	1,074,445 (298,210)
	776,235
	1,940,165 (863,317)
	1,076,848
	17,876,073

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United Networks Limited Notes to the condensed consolidated financial statements 30 June 2017

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:

Balance at 1 July 2015 Additions Additions through business combinations Amortisation expense Balance at 30 June 2016 Additions Amortisation expense Balance at 30 June 2017	Goodwill $ - - 16,016,577 -	Patents, trademarks and other rights $ 6,413 - - -	Web development costs $ 613,558 290,225 - (211,941)	Software $ 471,784 - 570,352 (257,243)	Total $ 1,091,755 290,225 16,586,929 (469,184) 17,499,725 946,230 (569,882) 17,876,073
	16,016,577 - -	6,413 - -	691,842 284,382 (199,989)	784,893 661,848 (369,893)
	16,016,577	6,413	776,235	1,076,848

Impairment testing

For the purpose of impairment testing, goodwill is allocated to a cash-generating unit or to a group of cash-generating units that are expected to benefit, among others, from the synergies of the business combination. The Group’s cash-generating units are defined on the basis of the geographical market, normally country-related. The consolidated entity operates in primarily one geographical segment - Australia, and the carrying amount of goodwill has been allocated to Australia.

The recoverable amount of the consolidated entity's goodwill has been determined by a value-in-use calculation using a discounted cash flow model, based on a 1 year projection period approved by management and extrapolated for a further 4 years using a steady rate, together with a terminal value.

The following key assumptions were used in the discounted cash flow model:

(a) Pre-tax discount rate of 13.3% per annum;

• (b) Revenue growth is based on management projections for 2018, and 5% increases for 2019 - 2022;

• (c) Budgeted gross margin of 51%;

• (d) Operating expenses are based on management projections for 2018, and 2.5% increases for 2019 - 2022;

(e) Long-term growth rate of 2.5%.

The discount rate of 13.3% pre-tax reflects management’s estimate of the time value of money and the consolidated entity’s weighted average cost of capital, the risk-free rate and the volatility of the share price relative to market movements.

Management believes the 2018 revenue projection and 5% increases through to 2022 is achievable and justified, based on the projected growth of new products and partners, two of which have been signed on since year-end and the roll-out is actively in place through out Asia-Pacific.

The budgeted gross margin is based on past performance and management's expectations for the future.

Operating expenses do not vary significantly with revenue. Management forecasts these costs based on the current structure of the business, adjusting for inflationary increases but not reflecting any future restructurings or cost saving measures.

The long-term growth rate is used to extrapolate cash flows beyond the 5-year forecast and is based on external forecasts.

Based on the above, the recoverable amount of the goodwill exceeded the carrying amount by $2,258,045.

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United Networks Limited Notes to the condensed consolidated financial statements 30 June 2017

Note 8. Non-current assets - intangibles (continued)

Sensitivity

As disclosed in note 2, the directors have made judgements and estimates in respect of impairment testing of goodwill. Should these judgements and estimates not occur the resulting goodwill carrying amount may decrease. The sensitivities are as follows:

(a) A reduction in the revenue growth rate of 6% below management expectations for 2018 financial year would result in impairment, with all other assumptions remaining constant.

(b) A reduction in the revenue growth rate to 4% for the 2019 - 2022 financial years would result in impairment, with all other assumptions remaining constant.

(c) A reduction in the gross margin to 48% for the 2019 - 2022 financial years would result in impairment, with all other assumptions remaining constant.

(d) The discount rate would be required to increase to 13.9% before goodwill would need to be impaired, with all other assumptions remaining constant.

Management believes that other reasonable changes in the key assumptions on which the recoverable amount of goodwill is based would not cause the cash-generating unit’s carrying amount to exceed its recoverable amount.

Note 9. Current liabilities - borrowings

Bank overdraft Promissory note - related party Loan - related party Lease liability Note 10. Non-current liabilities - borrowings Promissory note - related party Lease liability Note 11. Equity - issued capital Ordinary shares - fully paid	2017 Shares 125,824,949	2016 Shares 90,157,449	2017 $ - 811,679 - 180,544	2016 $ 887 212,669 787,331 176,703 1,177,590 2016 $ 803,981 439,902 1,243,883 2016 $ 17,777,025
			992,223
			2017 $ - 231,088
			231,088
			2017 $ 24,278,800

Initial Public Offering

On 12 January 2017, the company was admitted to the official list of the Australian Securities Exchange (ASX). The settlement of the issue or transfer of shares as part of the company’s initial public offering on 12 January 2017 resulted in the issue of 35,667,500 ordinary shares at the offer price of 20 cents per ordinary share. Transaction costs of $631,725 were recognised directly in equity which represents the portion of transaction costs attributable to the issuance of new shares. Transaction costs of $444,703 attributable to the listing were recognised in the consolidated statement of profit or loss and other comprehensive income in the current reporting period.

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United Networks Limited Notes to the condensed consolidated financial statements 30 June 2017

Note 12. Equity - dividends

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

Note 13. Events after the reporting period

No matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.

Note 14. Earnings per share

Profit/(loss) after income tax attributable to the owners of United Networks Limited 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 Diluted earnings per share	2017 $ (1,037,177)	2016 $ 337,001 Number 84,187,858 84,187,858 Cents 0.40 0.40
	Number 106,769,709
	106,769,709
	Cents (0.97) (0.97)

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