MYECO GROUP LTD — Annual Report 2016

Aug 30, 2016

ACN 064 755 237

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SECOS GROUP LIMITED AND ITS CONTROLLED ENTITIES

(ASX: SES)

PRELIMINARY FINAL REPORT AND APPENDIX 4E

30 JUNE 2016

Lodged with the ASX under Listing Rule 4.3A.

SECOS GROUP LIMITED AND ITS CONTROLLED ENTITIES

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CONTENTS

	PAGE
Appendix 4E	3
Preliminary Consolidated Statement of Profit or Loss and Other comprehensive Income	7
Preliminary Consolidated Statement of Financial Position	9
Preliminary Consolidated Statement of Changes in Equity	10
Preliminary Consolidated Statement of Cash Flows	11
Notes to the Preliminary Consolidated Financial Statements	12

SECOS GROUP LIMITED AND ITS CONTROLLED ENTITIES

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APPENDIX 4E

1. Reporting Period

1. Reporting Period	1. Reporting Period
Year ended (“current reporting period”)		Year ended (“previous corresponding period”)
30 June2016		30 June2015
2. Results for announcement to the market
2.1	Revenue from ordinary activities		Up	19.90%	to	21,532,187
2.2	Loss from ordinary activities after tax attributable to members		Up	15.85%	to	(4,958,162)
2.3	Net loss for the year attributable to members		Up	15.85%	to	(4,958,162)

2.4 Dividends

It is not proposed to pay dividends.

2.5 Commentary on Results

Background

On 21 April 2015, the Company completed its legal acquisition of 100% of shares in Stellar Group Companies (“Stellar Films Group Pty Ltd and Stellar Films (Malaysia) Sdn Bhd”). The acquisition was treated as a “reverse acquisition” in accordance with AASB 3 “Business Combinations” whereby Stellar was deemed to be the accounting acquirer of the consolidated Group.

Accordingly, within the financial statements and for analysis of the above results, it should be noted that the comparatives information in the preliminary consolidated statement of Profit or Loss and other comprehensive income for the year ended 30 June 2015 represent results of Stellar Group Companies for the period from 1 July 2014 to 30 June 2015 (representing 12 months trading) and the results of Cardia Bioplastics Limited (“Cardia) for the period 22 April 2015 to 30 June 2015 (representing 2 months and 8 days trading).

For the year ended 30 June 2016, the financial statements and above results present the activities of the merged group for full 12 months period to June 2016.

Results on a “Like for Like” basis comparing the full twelve months of both entities are shown below in the pro-forma Income Statement.

Revenue

Revenue for the current reporting period has increased by 19.90% to $21,532,187 as compared to revenue of previous corresponding period. The main reason for the increase in revenue was due to inclusion of Cardia Bioplastics revenues $5,474,445 for full 12 months period to 30 June 2016 as compared to 2.5 months of Cardia’s revenues included in the corresponding previous period.

Loss Position

The Company’s loss from its operating activities for the current reporting year was ( $4,958,162), an increase of 15.85% or $678,359 compared to previous corresponding period ($4,279,803).

• Inclusion of Cardia’s operating losses for full 12 months period in the current reporting period ($1.8 million) as compared to 2.5 months of Cardia’s operating losses included in the previous corresponding period ($0.25 million).

• Inclusion of SECOS corporate costs of for full 12 months period in the current reporting period ($1.25 million) as compared to 2.5 months of SECOS corporate costs included in the previous corresponding period ($0.30 million).

• Improved loss position of Stellar Films Group Australia after restructuring of its manufacturing operations. Losses were down by approximately $1.8 million compared to the previous corresponding period.

• Improved loss position of Stellar Films Group Malaysia. Losses were down by approximately $0.30 million compared to the previous corresponding period.

Loss from continuing operations on a like for like basis (including Cardia’s full year results for the previous corresponding period) as shown in the pro-forma Income Statement below has improved by 15.12% or $821,439.

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APPENDIX 4E

Results on a “Like for Like” basis

The trading position on a “like for like” basis (with the previous corresponding period including Cardia’s full year trading results) has been prepared to facilitate a more meaningful analysis of the Group’s trading results

Revenue from ordinary activities	Down	13.12%	to	$21,532,187
Loss from continuing operations after tax attributable to members	Down	15.12%	to	($4,610,488)

Proforma Income Statement (12 months of Cardia and Stellar)

roforma Income Statement (12 months of Cardia and Stellar)
Sales from main operations Wholesale Material Trading Sales Cost of sales (main operations) Cost of Purchase (Wholesale Material) Other Trading income Gross profit Other income Administrative expenses Employment benefits Marketing & Distribution expenses Research & Development expenses & Patent costs Depreciation & amortisation Borrowing costs Net foreign exchange (losses)/gains Other expenses Impairments Merger transaction costs Loss on sale of financial assets Gain on Acquisition Total Expenditure Loss before income tax Income tax expense Loss for the period from continuing operations Discontinued Operations (Equity Interest in Akronn Joint Venture) Discontinued Operations ( Brazilian Operations) Loss for the period	2016 2015
	$ $
	19,679,126 23,755,466 1,275,542 284,383
	20,954,668 24,039,849 18,558,262 23,363,497 1,263,817 279,285
	19,822,079 23,642,782 296,393 445,345
	1,428,982 842,412 281,126 299,801 (1,041,969) (1,216,068) (2,509,267) (2,203,877) (317,825) (551,860) (649,327) (786,606) (352,364) (394,274) (393,943) (321,186) (191,041) (27,078) (462,448) (47,707) (32,515) (1,066,350) (15,073) (459,134) (75,120) - - 500,000
	(6,040,892) (6,574,140)
	(4,330,784) (5,431,927) (279,704) -
	(4,610,488) (5,431,927) (341,316) (877,925) - (1,048,138)
	(4,951,804) (7,357,990)

*Comparative numbers for the merged business included in the above Proforma Income Statement are unaudited.

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APPENDIX 4E

Revenue

Revenues from ordinary activities on a “like for like” basis (including Cardia‘s revenues for the previous corresponding period) has decreased by 13.12% or $3,252,808.

Sales generated by the Group during the current reporting period were lower than that of the previous corresponding period. Detailed analysis indicates that, in part, the lower sales resulted from a strategic re-positioning of Cardia and Stellar’s business operations which included:

• Closure of Cardia’s Brazilian operation. Cardia Brazil’s sales were $387,611 in the previous corresponding period reducing to NIL in the current reporting period.

• Reduction in government sales by Cardia Nanjing, again, as part of Cardia’s strategy to replace low margin business with Cardia’s strategically focused sustainable waste diversion products.

Other contributing factors to lower sales generated in the current reporting period include:

• Reduction of other low contribution customer sales to improve the Group’s gross margin performance.

• Supply of below specification polymer to Stellar Malaysia’s plant resulted in a slowing of production which, in turn, impacted on sales performance.

Loss from continuing operations

Loss position on a like for like basis (including Cardia Bioplastics’ results for the previous corresponding period) has improved by 15.12% or $821,439

The reduced level of trading losses is attributable to the following:

• Improved gross profit margin (from 3.44% to 6.72%) resulting from the Group’s focus on achieving greater production efficiency, and favourable foreign exchange management and lower polymer prices.

• The result for the current reporting period has also improved due to cost reductions resulting from the restructure of Stellar Australia’s operations.

• Reduction in abnormal costs such as merger transactions and impairment costs.

3. NTA Backing

3. NTA Backing
	2016	2015
	$	$
Net tangible assets perordinary share	0.009	0.04

4. Details of aggregate share of profits(losses) of associates and joint venture entities

Name ofassociate/jointventure	Akronn Industries	Akronn Industries
	2016	2015
Percentage Holding	-	50.8%
Group’s aggregate share of associates’ andjoint venture entities
Profit/ (loss)fromordinary activities before tax	(443,030)	(877,925)
Income taxonordinary activities	-	-
Profit/(loss) from ordinary activities after tax	(443,030)	(877,925)

On 21 June 2016, the Group has disposed its equity interest in Akronn Joint venture. For further details, please refer to Note 5 - Discontinued Operations.

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APPENDIX 4E

5. Details of entities over which control has been gained or lost during the period

N/A

6. Details of individual and total dividends or distributions and dividend or distribution payments.

It is not proposed to pay dividends

7. Details of any dividend or distribution reinvestment plans in operation.

N/A

8. Foreign entities

Which set of accounting standards are used in compiling the report. N/A

9. Audit

There were no changes in accounting policies during the year and this report is based on accounts which are in the process of being audited.

10. Material Factors Affecting the Preliminary Consolidated Financial Statements

No material factor noted that might affect the preliminary consolidated financial statements .

11. Other Factors that Affected Results for the Year or which are likely to affect Results in the Future

Factors that affected the Company’s results for the year included general economic conditions and customers’ demand are likely to affect results in the future.

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PRELIMINARY CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016

	ECONOMIC ENTITY
Notes	2016 2015
	$ $
Sales from main operations Wholesale Material Trading Sales 3 Cost of sales (main operations) Cost of Purchase (Wholesale Material) Other Trading income 3 Gross profit Other income 3 Administrative expenses Employment benefits Marketing & Distribution expenses Research & Development expenses & Patent costs Depreciation & Amortisation Borrowing costs Net foreign exchange losses Other expenses Impairment-Trade & other receivables Impairment- Inventories Merger transaction costs Loss on sale of financial assets 6 Loss before income tax Income tax expense Loss for the period from continuing operations Loss for the year from discontinued operations after tax 5 Loss for the period Other comprehensive income, net of income tax Items that may be reclassified subsequently to profit or loss Foreign currency translation differences for foreign operations Share of other comprehensive income of joint venture Income tax on other comprehensive income Total comprehensive income for the year (Loss)/Profit attributable to : Members of the Company Non controlling Interest Loss for the year after tax Total comprehensive income attributable to : Members of the company Non-controlling interest Total comprehensive income for the year	19,679,126 17,284,394 1,275,542 -
	20,954,668 17,284,394 18,558,262 17,410,969 1,263,817 -
	19,822,079 17,410,969 296,393 445,345
	1,428,982 318,770 281,126 228,062 (1,041,969) (875,386) (2,509,267) (978,745) (317,825) (87,355) (649,327) (201,347) (352,364) (327,766) (393,943) (321,186) (191,041) (233,571) (462,448) (47,558) (32,515) (989,786) - (76,564) (15,073) (309,446) (75,120) -
	(4,330,784) (3,401,878) (279,704) -
	(4,610,488) (3,401,878) (341,316) (877,925)
	(4,951,804) (4,279,803) (88,094) 395,540 - 23,021 - -
	(5,039,898) (3,861,720)
	(4,958,162) (4,279,803) 6,358 -
	(4,951,804) (4,279,803)
	(5,046,256) (3,861,720) 6,358 -
	(5,039,898) (3,861,720)

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PRELIMINARY CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016

			ECONOMIC ENTITY
	Notes	2016		2015
		$		$
Earnings per share
From continuing and discontinued operations
-Basic loss per share	9		(0.038)		(0.070)
From continuing operations
-Basic loss per share	9		(0.035)		(0.056)
From discontinuing operations
-Basic loss per share	9		(0.003)		(0.014)

As set out in Note 2, basis of preparation, to these financial statements, as a result of the reverse acquisition of Cardia Bioplastics Limited and its controlled entities (“Cardia”) by Stellar Films Group (“Stellar”), the comparative information for 30 June 2015 represent the results of Stellar Group Companies for the period from 1 July 2014 to 30 June 2015 and the results of Cardia for the period 22 April 2015 to 30 June 2015.For the year ended 30 June 2016, the financial statements and above results present the activities of the merged group for full 12 months period to June 2016.

The accompanying notes form part of these financial Statements.

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PRELIMINARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016

	ECONOMIC ENTITY
Notes	2016 2015
	$ $
Current Assets
Cash and cash equivalents 4	1,343,293 2,627,392
Trade and other receivables	2,898,616 3,508,535
Research & Development Tax Refund Receivable	198,329 -
Inventories	2,606,413 2,940,902
Assets Held for Sale 5	- -
Total Current Assets	7,046,651 9,076,829
Non-Current Assets
Trade and other receivables	116,729 -
Financial Assets 6	- 563,400
Deferred Tax Assets	- 251,861
Advances for Plant and Equipment	76,536 -
Property, Plant and Equipment	2,798,736 3,632,208
Intangible Assets	3,532,345 3,532,345
Total Non-Current Assets	6,524,346 7,979,814
Total Assets	13,570,997 17,056,643
Current Liabilities
Trade and other payables	4,151,854 4,942,205
Borrowings 7	3,006,931 2,934,430
Short termprovisions	925,777 717,861
Total Current Liabilities	8,084,562 8,594,496
Non-Current Liabilities
Borrowings 7	594,737 483,898
Longtermprovisions	67,957 44,330
Total Non-Current Liabilities	662,694 528,228
Total Liabilities	8,747,256 9,122,724
Net Assets	4,823,741 7,933,919
Equity
Issued Capital 8	12,479,444 10,549,724
Reserves	(48,892) 39,202
Accumulated Losses	(7,651,228) (2,693,066)
Parent Entity Interest	4,779,324 7,895,860
Non ControllingInterest	44,417 38,059
Total Equity	4,823,741 7,933,919

The accompanying notes form part of these financial Statements.

SECOS GROUP LIMITED AND ITS CONTROLLED ENTITIES

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PRELIMINARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016

Economic Entity

	Issued Share Capital	Accumulated Profits/ (Losses)	Foreign Currency Translation Reserve	Parent Entity Interest	Non Controlling Interests	Total Equity
	$	$	$	$	$	$
Balance at1.7.2014	400,004	1,586,737	(378,881)	1,607,860	-	1,607,860
(Loss)/Profit for theyear	-	(1,893,063)	-	(1,893,063)	-	(1,893,063)
Other Comprehensive income/(deficit)for theyear	-	-	176,256	176,256	-	176,256
Total comprehensive income/(deficit) for theyear	-	(1,893,063)	176,256	(1,716,807)	-	(1,716,807)
Recognition of non-controlling interest of Natural Pharmacyon merger	-	-	-	-	38,059	38,059
Transactions with owners in their capacity as owners
Share issued aspursuant to merger	6,378,456	-	-	6,378,456	-	6,378,456
Shares/Options issued since completion of merger	4,145,767	-	-	4,145,767	-	4,145,767
Cost of Capital	(374,503)	-	-	(374,503)	-	(374,503)
Balance at30.6.2015	10,549,724	(2,693,066)	39,202	7,895,860	38,059	7,933,919
Balance at1.7.2015	10,549,724	(2,693,066)	39,202	7,895,860	38,059	7,933,919
(Loss)/Profit for theyear	-	(4,958,162)	-	(4,958,162)	6,358	(4,951,804)
Other Comprehensive income/(deficit)for theyear	-	-	(88,094)	(88,094)	-	(88,094)
Total comprehensive income/(deficit) for theyear	-	(4,958,162)	(88,094)	(5,046,256)	6,358	(5,039,898)
Transactions with owners in their capacity as owners
Shares/Options issued duringtheyear	2,000,917	-	-	2,000,917	-	2,000,917
Cost of Capital	(71,197)	-	-	(71,197)	-	(71,197)
Balanceat 30.6.2016	12,479,444	(7,651,228)	(48,892)	4,779,324	44,417	4,823,741

The accompanying notes form part of these financial Statements.

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PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016

For the year ended 30 June 2016	ECONOMIC ENTITY
Notes	2016 2015
	$ $
Cash Flows from Operating Activities
Receipts from customers	21,440,688 18,426,015
Payments to suppliers and employees	(24,516,694) (19,715,542)
Interest received	13,649 1,563
Borrowing Costs	(373,083) (321,186)
Research&Development tax credits received	- 218,458
Net Cash Outflow from Operating Activities 11	(3,435,440) (1,340,953)
Cash Flows from Investing Activities
Purchase of fixed assets	(100,493) (11,230)
Advance payment for purchase of fixed assets	(76,537) -
Proceeds from sale of fixed assets	- 6,962
Proceeds on disposal of equity interest in joint venture	101,714 -
Proceeds from sale of financial assets 6	488,280 -
Loans to Akronn joint venture	(443,030) (274,633)
Cash Balance on business acquisition	- 834,807
Net Cash Outflow from Investing Activities	(30,066) 555,906
Cash Flows from Financing Activities
Proceeds from Borrowings	620,682 262,771
Repayment of Borrowings	(987,779) (660,197)
Repayment of Finance lease liability	(10,570) (11,644)
Proceeds from/(Repayments) to Trade and Debtor finance facilities	949,891 -
Proceeds from issues of ordinary shares	1,975,347 4,145,767
Payment of share issue costs	(71,197) (374,503)
Net Cash Inflow from Financing Activities	2,476,374 3,362,194
Net Decrease in Cash and Cash Equivalents Held	(989,146) 2,577,147
Cash and Cash Equivalents at the Beginning of the Financial Year	2,177,043 (418,960)
Effect of exchange rates on cash holding in foreign currencies	22,777 18,856
Cash and Cash Equivalents at the End of the Financial Year 4	1,210,674 2,177,043

As set out in Note 2, basis of preparation, to these financial statements, as a result of the reverse acquisition of Cardia Bioplastics Limited and its controlled entities (“Cardia”) by Stellar Films Group (“Stellar”), the comparative information for 30 June 2015 represent the results of Stellar Group Companies for the period from 1 July 2014 to 30 June 2015 and the results of Cardia for the period 22 April 2015 to 30 June 2015.For the year ended 30 June 2016, the financial statements and above results present the activities of the merged group for full 12 months period to June 2016.

The accompanying notes form part of these financial Statements.

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1- REPORTING ENTITY

The consolidated financial statements of the Company for the financial year ended 30 June 2016 cover the SECOS Group Limited and its controlled entities (together referred to as the ‘Group’) and the Company’s interest in associates and joint venture entities.

SECOS Group Limited is a listed public company, incorporated and domiciled in Australia. The Company is for-profit entity for accounting purposes.

NOTE 2- BASIS OF PREPARATION

Reporting Basis and Conventions

The preliminary final report has been prepared on an accruals basis and are based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

On 21 April 2015, the Company completed its legal acquisition of 100% of shares in Stellar Group Companies. The acquisition was treated as a “reverse acquisition” in accordance with AASB 3 ”Business Combinations” whereby Stellar was deemed to be the accounting acquirer of the consolidated Group.

Accordingly, within the financial statements and for analysis of the above results, it should be noted that the comparative information in the preliminary consolidated statement of Profit or Loss and other comprehensive income and preliminary consolidated statement of cash flows for the year ended 30 June 2015 represent results of Stellar for the period from 1 July 2014 to 30 June 2015 and the results of Cardia for the period 22 April 2015 to 30 June 2015. For the year ended 30 June 2016, the financial statements and above results present the activities of the merged group for full 12 months period to June 2016.

Functional and presentation currency

The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

NOTE 3 REVENUE FROM ORDINARY ACTIVITIES

	2016 2015
	$ $
Revenue from continuing operations
Sales from main operations	19,679,126 17,284,394
Wholesale material trading sales	1,275,542 -
TradingIncome	296,393 445,345
Total	21,251,061 17,729,739
Other Income
Interest	13,923 1,563
Research & Development Tax Credits received	198,329 219,677
Other Income	68,874 6,822
Total	281,126 228,062
Revenue from continuing operations	21,532,187 17,957,801

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 CASH AND CASH EQUIVALENTS

	2016 2015
	$ $
Cash at bank and on hand	1,343,293 2,627,392
	1,343,293 2,627,392

Reconciliation of cash

Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows:

Note Cash and cash equivalents Bank Overdrafts 7	2016 2015
	$ $
	1,343,293 2,627,392 (132,619) (450,349)
	1,210,674 2,177,043

NOTE 5 DISCONTINUED OPERATIONS

A controlled entity, Stellar Films (Malaysia) Sdn Bhd had a 50.8% equity interest Joint venture entity- Akronn Industries. Akronn Industries is incorporated in Malaysia and its principal activity is manufacture and distribution of silicone coated paper and film products.

Effective 6 October 2015, the consolidated group announced its decision to dispose of its equity interest in Akronn Joint Venture, thereby discontinuing its operations in this business segment.

Investment in Joint Venture Entity had been classified as an “Asset Held for Sale” since 6 October 2015.

This announcement was made subsequent to approval by the Group’s management.

The disposal of equity interest in Akronn Joint Venture was completed on 21 June 2016.

The interest in joint venture entity has been accounted for in the consolidated statements using the equity method of accounting.

Financial information relating to the discontinued operation to the date of disposal is set out below:

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 DISCONTINUED OPERATIONS (CONTINUED)

	Economic Entity	Economic Entity
	2016		2015
The financial performance of the discontinued operation to the date of sale, which is
included in loss from discontinued operations per the statement of comprehensive
income, is as follows:
Share in Loss of Joint Venture	(443,030)		(877,925)
Loss before income tax	(443,030)		(877,925)
Income tax expense	-		-
Loss attributable to members of the parent entity	(443,030)		(877,925)
Gain on disposal of Joint Venture before income tax	203,428		-
Provision for Warranties	(101,714)		-
Income tax expense		-	-
Gain (loss) on sale after income tax	101,714		-
Total loss after tax attributable to the discontinued operation	(341,316)		(877,925)

Gain on disposal of the division included in gain from discontinued operations per the statement of comprehensive income.

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 DISCONTINUED OPERATIONS (CONTINUED)

The interest in joint venture entity had been accounted for in the consolidated statements using the equity method of accounting. Details of movements in Equity Accounted Investment in Joint Venture up to date of disposal is set below:

	2016 2015
	$ $
a. Movements during the year in Equity Accounted Investment in Joint Venture Entity Balance at beginning of the financial year Add Increase in Investments during the year Share of joint venture entity’s loss after income tax Share of joint venture entity’s other comprehensive income/ (deficit) Balance at end of the financial year b. Equity accounted losses of joint venture entity are broken down as follows: Share of joint venture’s loss before income tax expense Less Share of joint venture’s income tax expense Share of joint venture’s loss after income tax c. Summarised presentation of aggregate assets, liabilities and performance of joint venture entity Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Revenues Loss after income tax of joint venture entity	- 488,011 443,030 366,893 (443,030) (877,925) - 23,021
	- -
	(443,030) (877,925) - -
	(443,030) (877,925)
	852,570 863,004 2,500,291 2,917,822
	3,352,861 3,780,826
	3,491,515 3,378,663 2,152,321 1,705,211
	5,643,836 5,083,874
	(2,290,975) (1,303,048)
	1,290,527 1,671,880
	(1,089,889) (1,728,200)

Loan advanced to Akronn Industries have been accounted for as net investment in Joint Venture Entity.

NOTE 6 FINANCIAL ASSETS

	2016		2015
	$		$
Non-Current
Available –for-sale financial assets
Unlisted Investments, at fair value		-		563,400

Non-current- Available for sale financial assets consisted of 18,780,000 ordinary shares in Bioglobal Limited (“Bioglobal”). On 6 October 2015, SECOS sold its investment in Bioglobal for consideration of $488,280. The sale of the investment resulted in a loss of $75,120 on the carrying book value of this investment, and a profit of $244,140 on the investment’s cost base.

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 BORROWINGS

	2016	2015
	$	$
Current
Secured Liabilities
Bank Overdrafts 4	132,619	450,349
Bank Loans	1,132,268	2,196,652
Foreign Currency Trade Loan	650,443	174,645
Debtor Finance Facility	474,093	-
SoftwareLicenseFinance	16,250	12,784
	2,405,673	2,834,430
Unsecured Liabilities
Unsecured Loan (Shareholder)	100,000	100,000
Unsecured Loan (Third Party)	139,087	-
Unsecured Loans(Related Parties)	362,171	-
	601,258	155,000
	3,006,931	2,993,230
Non Current
Secured Liabilities
Software License Finance	19,491	33,526
Loan (Shareholder)	-	55,000
Bank Loans	575,246	-
Unsecured Liabilities
Unsecured Loans(Related Parties)	-	395,372
	594,737	483,898
	3,601,668	3,418,328

Bank Overdrafts

The overdraft facilities comprise separate facilities for both Stellar Films Group Pty Ltd and Stellar Films (Malaysia) Sdn Bhd of NIL (2015: $ 324,494) and $132,619 (2015: $125,855) respectively, both facilities being utilised for working capital purposes.

Bank Loans

Bank loans comprise:

Term loans totaling $940,514 (2015: $1,750,154) for Stellar Films (Malaysia) Sdn Bhd which have utilised in funding the acquisition of plant and equipment as well as funding ongoing working capital requirements. Year on year changes in the structure of the facilities comprised the refinancing of Stellar Films (Malaysia) Sdn Bhd’s foreign currency trade loans as a term loan and is included in the above disclosed amount

Stellar Films Group Pty Ltd’s outstanding overdraft facility and market rate facilities as at 30 June 2015 (totalling $770,992) have been combined into a new market rate facility of $767,000 with term of 4 years effective 23 September 2015.

Collateral Provided

Security provided in support of banking facilities in respect of the consolidated entities are as follows:

Stellar Films (Malaysia) Sdn Bhd:

• General debenture creating fixed and floating charges over the assets and undertakings of the company to the combined value of MYR 9,200,000 (AUD$3,176,300).

• Negative pledges dated 2 June 2005 and 31 May 2012.

• Letters of comfort/awareness to the combined value of MYR 7,300,000 (AUD$2,520,325) provided by Stellar Films Group Pty Ltd.

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 BORROWINGS (CONTINUED)

Stellar Films Group Pty Ltd:

• General security agreements over the assets and undertakings of Stellar Films Group Pty Ltd.

• Guarantees and indemnities provided by the directors of Stellar Films Group Pty Ltd.

• Guarantee and indemnity provided by Stellar Developments Pty Ltd as trustee for the Stellar Unit Trust supported by a general security agreement over the assets and undertakings of that entity.

• Guarantee and Indemnity for $1,342,000 given by SECOS Group Limited.

NOTE 8 ISSUED CAPITAL

(A) Share Capital

		2016 $ 2015 $	2016 $ 2015 $	2016 $ 2015 $	2016 $ 2015 $
Ordinary - fully paid shares (B) Movements inOrdinary Share Capital		12,479,444 10,549,724
Date			Number of Shares	Issue Price	Amount
1 July2014	Balance *		51,972,604		400,004
21 April 2015	Shares on Issue in SECOS(Cardia) prior to merger		42,523,299		6,378,456
23 April 2015	Issue of shares to Directors in lieu of accrued remuneration of the March’15Quarter		115,000		-
15 May2015	Placement of Shares		7,827,144	0.14	1,095,800
26 June 2015	Rights Issue		17,072,355	0.14	2,390,145
30 June 2015	Placement of Shares		4,713,016	0.14	659,822
	Cost of Capital				(374,503)
30 June 2015	Balance		124,223,418		10,549,724
31 March 2016	Placement of Shares		10,724,721	0.082	879,427
4 April 2016	Shares issuedpursuant to Share Purchase Plan		13,364,953	0.082	1,095,922
	Cost of Capital				(71,197)
4 April 2016	Issue of shares to Directors in lieu of remuneration for the March’16Quarter		255,680	0.100	25,568
30 June 2016	Balance		148,568,772		12,479,444

• As a result of the reverse acquisition, the number of shares are based on Stellar Films Group (Australia) Pty Ltd on issue, converted at the exchange ratio of 129.93 Shares to 1.

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 EARNINGS PER SHARE

	2016 $ 2015 $
a) Reconciliation of losses used to calculate earnings per share Loss for the year from continuing & discontinuing operations (Loss)/Profit attributable to non-controlling interest Loss used to calculate basic EPS b) Reconciliation of losses used to calculate earnings per share Loss for the year from continuing operations (Loss)/Profit attributable to non-controlling interest Loss used to calculate basic EPS c) Reconciliation of losses used to calculate earnings per share Loss for the year from discontinuing operations (Loss)/Profit attributable to non-controlling interest Loss used to calculate basic EPS d) Weighted average number of ordinary shares used in the calculation of basic loss per share	(4,958,162) (4,279,803) 6,358 -
	(4,951,804) (4,279,803)
	(4,616,846) (3,401,878) (6,358) -
	(4,610,488) (3,401,878)
	(341,316) (877,925) - -
	(341,316) (877,925)
	Number Number
	130,143,555 61,336,204

The weighted average number of ordinary shares are calculated based on the ordinary shares that would have been in existence had the reverse acquisition occurred as at 1 July 2013.

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 OPERATING SEGMENTS

Segment Information

Operating segments are premised on the internal reports that are reviewed and used by the Board of Directors in assessing performance and determining the allocation of resources.

The Group is managed primarily on the basis of product category and service offerings as the diversification of the Group’s operations inherently have different risk profiles and performance assessment criteria. Operating segments are therefore determined on the same basis. Reportable segments disclosed are based on aggregating operating segments where the segments are considered to have similar economic characteristics and are also similar with respect to the following :

-the products sold and/or services provided by the segment; -the manufacturing process;

-the distribution method; and

-any external regulatory requirements.

The following operating segments have been identified

• (i) Manufacturing Division (ii) Distribution Division

Types of products and services by segment

(i) Manufacturing Division

The manufacturing segment develops and manufactures sustainable resins derived from renewable resources for the global packaging and plastic products industries and also manufactures high quality cast films for the personal care, hygiene, pet care and medical product industries.

The Manufacturing segment, which includes the manufacturing units in China, Malaysia and Australia is responsible for distribution and sales of products locally and overseas.

The manufacturing segment also sells products to the distribution segment.

(ii) Distribution Division

Distribution segment includes the Group’s cash generating unit that is designated to develop and distribute the Group’s strategic products both locally and overseas.

Basis of accounting for purposes of reporting by operating segments

Accounting policies adopted

Unless stated otherwise, all amounts reported to the Board of Directors, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group.

Inter-segment transactions

An internally determined transfer price is set for all inter-segment sales. This price is based on what would be realised in the event the sale was made to an external party at arm’s length. All such transactions are eliminated on consolidation of the group’s financial statements.

Inter-segment loans payable and receivable are initially recognised at the consideration received/to be received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market interest rates.

Corporate charges are allocated to reporting segments based on the segments’ overall performance of revenue generation within the Group. The Board of Directors believes this is representative of likely consumption of head office expenditure that should be used in assessing segment performance and cost recoveries.

Segment assets

Where an asset is used across multiple segments, the asset is allocated to that segment that receives majority economic value from that asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location.

Segment liabilities

Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Segment liabilities include trade and other payables.

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 OPERATING SEGMENTS (CONTINUED)

	Manufacturing Division Distribution Division Intersegment eliminations/ unallocated	Total
2016	$ $ $	$
Segment Performance Revenue External Sales Inter-segment sales Trading Income Research & Development Tax Refund Interest Revenue Other Income Total Segment Revenue EBITDA Depreciation and amortisations Depreciation and amortisations (included in cost of goods sold) Borrowing costs Impairments- Trade & Other Receivables Merger Transaction Costs Discontinued Operations (Equity Interest in Joint Venture) Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense	18,621,294 2,333,374 - 2,059,305 - (2,059,305) 296,393 - - - 198,329 - - - 13,923 - - 68,874	20,954,668 - 296,393 198,329 13,923 68,874
	20,976,992 2,531,703 (1,976,508) (2,722,162) (695,565) - - - (352,364) - - (405,224) - - (393,943) (32,515) - - - - (15,073) - - (341,316)	21,532,187 (3,417,727) (352,364) (405,224) (393,943) (32,515) (15,073) (341,316)
		(4,958,162) -
		(4,958,162)

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 OPERATING SEGMENTS (CONTINUED)

	Manufacturing Division Distribution Division Intersegment eliminations/ unallocated	Total
2016	$ $ $	$
Segment Assets Segment assets Inter segment assets Total Segment assets Unallocated assets: Cash & cash equivalents Trade & other receivables Fixed Assets Total Assets Included in segment assets are Goodwill Investment in joint venture Acquisition of non-current assets Segment Liabilities Segment Liabilities Inter segment liabilities Total Segment liabilities Unallocated liabilities: External Loans Trade & Other Payables Short & Long Term Provisions Total Liabilities	8,162,142 4,630,003 - - 12,150,473 (12,150,473)	12,792,145 -
	- 3,532,345 - - - - 24,787 - 75,706 6,276,509 1,597,165 - 2,541,502 - (2,541,502)	12,792,145 670,379 36,423 72,048
		13,570,995 3,532,345 - 100,493 7,873,674 -
		7,873,674 239,087 183,605 450,890
		8,747,256

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 OPERATING SEGMENTS (CONTINUED)

	Manufacturing Division Distribution Division Intersegment eliminations/ unallocated	Total
2015	$ $ $	$
Segment Performance Revenue External Sales Inter-segment sales Trading Income Research & Development Tax Refund Interest revenue Other Income Total Segment Revenue EBITDA Depreciation and amortisations Depreciation and amortisations (included in cost of goods sold) Borrowing costs Impairments- Trade & Other Receivables Impairment- Inventories Merger Transaction costs Discontinued Operations (Equity Interest in Joint Venture) Gain on Acquisition Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense	16,717,648 566,746 - 575,059 - (575,059) 445,345 - - - 219,677 - 76 1,487 - 6,822 - -	17,284,394 - 445,345 219,677 1,563 6,822
	17,744,950 787,910 (575,059) (1,375,556) (134,246) - - - (327,766) - - (367,328) - - (321,186) (989,786) - - (76,564) - - - - (309,446) - - (877,925)	17,957,801 (1,509,802) (327,766) (367,328) (321,186) (989,786) (76,564) (309,446) (877,925) 500,000
		(4,279,803) -
		(4,279,803)

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 OPERATING SEGMENTS (CONTINUED)

Manufacturing Division Distribution Division Intersegment eliminations/ unallocated	Total
2015 $ $ $	$
Segment Assets Segment assets 11,882,332 2,139,533 - Intersegment assets - 8,888,847 (8,888,847)	14,021,865 -
Total Segment assets 11,882,332 11,028,380 (8,888,847) Unallocated assets: Cash & cash equivalents Trade & other receivables Financial Assets Total Assets Included in segment assets are Goodwill - 3,532,345 - Investment in joint venture - - - Acquisition of non-current assets 11,230 - - Segment Liabilities Segment Liabilities 8,183,649 812,523 - Inter segment liabilities 6,487,231 - (6,487,231) Total Segment liabilities 14,670,880 812,523 (6,487,231) Unallocated liabilities: Trade & Other Payables - - - Total Liabilities	14,021,865 2,340,132 131,246 563,400
	17,056,643 3,532,345 - 11,230 8,996,172 - 8,996,172 126,552
	9,122,724

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 OPERATING SEGMENTS (CONTINUED)

Sales Revenue by geographical region	2016 2015
	$ $
Sales Revenue attributable to external customers is disclosed below, based on the location of the external customer Australia Asia Americas Others () Total Revenue Others include countries falling within Europe and Africa Continents.	2,287,776 1,855,776 15,776,427 14,275,827 1,787,021 393,624 1,103,444 759,167
	20,954,668 17,284,394
Assets by geographical region	2016 2015
	$ $
The location of segment assets (non current) by geographical location of assets is disclosed below: Australia Asia Total Assets	3,746,620 3,970,448 2,629,140 3,445,966
	6,375,760 7,416,414

Major customers

The Group has a number of customers to whom it provides products. The Group has supplied a single external customer in the manufacturing segment who accounted for 22.25% (2015: 24.83%) of external revenue. The next two significant customers accounted for 19.20% (2015: 13.98%) and 3.77% (2015: 2.97%) of external revenue respectively.

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 CASH FLOW INFORMATION

	Economic Entity
	2016 2015
	$ $
Reconciliation of Cash Flow from Operations with Profit after Income Tax Operating Loss after income tax Depreciation & Amortisation Depreciation included in Costs of goods sold Foreign Currency translation differences Loss on Sale of Financial Assets Gain on disposal of equity interest in joint venture Profit (net of loss) on Sale of Fixed Assets Write off of Fixed Assets Issue of shares to Directors in lieu of remuneration Impairments Share in loss of joint venture entity Gain on Acquisition Changes in operating assets and liabilities: Decrease in receivables Decrease in other operating assets Decrease in creditors Decrease in provisions and payables Net cash outflow from operating activities	(4,951,804) (4,279,803) 352,364 327,766 405,224 367,328 40,895 (73,079) 75,120 - (203,428) - - (6,962) 22,671 - 25,568 - 32,515 1,066,350 443,030 877,925 - (500,000) 368,075 688,325 513,137 1,040,853 (907,128) (913,434) 348,321 63,868
	(3,435,440) (1,340,953)

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NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 EVENTS AFTER THE REPORTING DATE

Other than the matters discussed below, there has not arisen in the interval between the end of the financial year and the date of this report, any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company to affect the operations of the consolidated entity, the results of these operations or the state of affairs of the consolidated entity in subsequent years.

• Effective 29 July 2016, Dr.Frank Glatz has resigned as a Director of SECOS Group and CEO of Cardia Bioplastics. Frank’s role as CEO of Cardia Bioplastics will be absorbed by Stephen Walters, SECOS Group’s Managing Director.

• Effective 1 August 2016, Mr Edmond Tern has been appointed as Chief Financial Officer of the Company. Edmond will replace current CFO Trevor Haines. Trevor has transitioned to a Corporate Development role charged with expanding sales of the Company’s sustainable bioplastic technology to key customers and will continue to serve on the Board.

• On 5 July 2016, the Company issued 241,208 fully paid ordinary shares under the Loan Share Plan to two of its directors- M/s Tegoni and Haines, in lieu of the part payment of their respective remuneration for the quarter ending 30 June 2016. The issue of these shares to Directors was approved by shareholders at the Annual General Meeting held on 17 November 2015 (Resolutions 6 & 9). The shares were issued at an issue price of $0.106/share, which was determined based on the volume weighted average sale price of SECOS shares for June’16 Quarter.

• Effective 1 September 2016, Mr Donald F. Haller Jr has been appointed as a Non-executive Director of the Company. Don Haller is a major shareholder in EarthVision Bio Solutions, Inc (“EarthVision”). EarthVision is a key distributor of SECOS products in the USA, and the appointment is intended to strengthen the strategic relationship between SECOS and EarthVision as well as support continued growth in the US market.

• On 31 August 2016, SECOS completed placement of 12,720,562 ordinary shares and raised $1,043,086. The majority of the investment in the Placement was made by Don Haller and parties introduced by Mr Haller. The shares under the Placement were issued pursuant to the Company’s 15% and 10% placement capacities.

Rekha Bhambhani Company Secretary Dated: 31[th] August 2016

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