ORCODA LIMITED — Interim / Quarterly Report 2017

Oct 31, 2016

SmartTrans Holdings Limited ASX: SMA An Australian based Technology Solutions Company

Corporate Structure:

Shares on issue: 2215 M Unlisted Options: 166 M Market Cap: $AUD 62M 52 week high: 7.1 cents 52 week low: 2.2 cents

Directors:

Mr Mark Vaile AO Non-Executive Chairman

Mr Bryan Carr CEO & Managing Director

Quarterly Report for the period ended 30[th] September 2016

Mr Andrew Forsyth Non-Executive Director

Mr Yui (Ian) Tang Non-Executive Director

Mr Greg Simpson Non-Executive Director

Mr Ian Hawkins Executive Director

Melbourne Office: Level 1, 10 Queens Road Melbourne VIC 3004 Australia

Beijing Office: Room 101 Building 22 Courtyard 4 Gong Ti Bei Lu Chaoyang District Beijing 100027 PR China

Phone (Aus): +61 (03) 9866 7333

Phone (China): +86 (10) 6500 0910 Website: www.smarttransholdings.com.au Twitter: www.twitter.com/SmartTrans_SMA Youtube: https://youtu.be/-1t_yJe1DBA

Integrity / Innovation / Inspiration / Information

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Highlights

• Revenue of $1.1 million (down from previous Quarter) as strategy of transitioning from highvolume, low margin to lower volume but higher margin revenue streams successfully implemented

• Gross Profit on 3[rd] Party Apps increases from 2% -3% to over 20%

• Continued investment in Subscription revenue base to grow future revenue and profitability

• The change in revenue composition has significantly lowered the company’s revenue threshold for profitability

• Company building up its e-Commerce services and capabilities

• e-Commerce services and partnerships launched in China

• SmartTrans’ logistics software showcased at the ITS World Congress and hosted visitors from ITS China and the China Automotive Technology and Research Center (CATARC)

FINANCIAL PERFORMANCE FOR THE QUARTER ENDED 30 June 2016

ASX-listed smartphone payments provider and logistics software company SmartTrans Holdings Limited (ASX: SMA) provides the following update for the quarter ended 30 September 2016.

Carrier Billing

The company operates two forms of carrier billing business – 3[rd] - Party App sales and Subscription billing for products delivered each month to consumer’s phones.

Over the course of the last six months, the company has transitioned from low margin to higher margin 3[rd] Party Apps, commenced building up its e-Commerce services, established relationships with key partners and sought to capitalize on its customer database.

A pre-requisite for the company being able to do this, however, was to build up a significant database of mobile phone subscribers to which to market its growing range of products and services.

The company’s previous strategy of maximizing revenue has achieved its objective of building up this substantial database of customers and the company is now well placed to exploit that database by switching its focus to higher margin products.

The company has also continued investment in its Subscription billing products to deliver future revenue streams and higher return on investment and has also adjusted its mix of products in response to changing customer acquisition costs.

The company has passed 6 million customers which have contributed to its revenue base and in generating this critical mass of subscribers and processed payments, the company was able to gather analytical data from SmartPay on consumer spending habits and trends.

This proprietary data unlocks significant revenue potential and having spent 2 years developing this database, the company is now in a position to exploit it more effectively.

In the 2[nd] half of FY16 the company sought to increase margins and will continue to pursue this objective in FY17. The company has chosen a path to achieve profitability built on much lower levels of revenue but at significantly higher margins.

Although somewhat lumpy, the split of expenditure and revenue for 3[rd] Party App and Subscription billing and associated profitability can be seen in the charts below.

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3rd Party App Revenue & Gross Profit by Quarter

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----- Start of picture text -----

$3,000,000 $160,000
$140,000
$2,500,000
$120,000
$2,000,000
$100,000
$1,500,000 $80,000
$60,000
$1,000,000
$40,000
$500,000
$20,000
$0 $0
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
3rd Party App Revenue Gross Profit
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Figure 1: 3[rd] - Party App Revenue and Gross Profit by Quarter FY2016 and Q1 2017

The company proposes to continue its investment in subscription billing balanced with higher margin 3[rd] Party Apps. With 3[rd] Party App Gross Profit margin increasing from 2-3% in FY16 to over 20% in Q1 2017, the company remains committed to growing this business and continuing to invest where appropriate.

It should be noted that expenditure on Subscription products in a quarter generates ongoing revenue in the quarters that follow for no additional marketing cost.

The following graph shows the marketing expenditure, the revenue and the cumulative gross profit for subscription billing from Q1 2016 until Q1 2017

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Subscription Revenue, Expense & Cumulative
Profit by Quarter FY2016 - Q1 2017
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
-$200,000
Subscription Revenue Subscription Expense Cumulative P/L
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Figure 2: Subscription Revenue, Expense and Gross Profit by Quarter FY2016 and Q1 2017

The company tailors its marketing expenditure in a particular Quarter to the market conditions prevailing at the time with the consequence that marketing expenditure can be somewhat lumpy.

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Working Capital

The company has made changes to its product mix designed to improve its working capital over the course of FY17. e-Commerce billing and receipts occur as sales are processed. Lotteries services revenue and receipts are processed and paid monthly.

As these businesses grow in size, it is anticipated that the company’s level of working capital will improve and importantly, allow for a better and more timely allocation of capital to opportunities as they arise.

In the Carrier Billing business in China, there is up to 6-month or greater delay in collection of receivables and this delay has placed pressure on the company’s working capital.

Furthermore, as the company looks to continue investing in Subscription billing, greater upfront spend is required (vis-a-vis 3[rd] Party Apps) but this should lead to greater annuity-style income streams, more predictable cash flows and superior Return on Investment.

We believe the company’s mix of e-Commerce and services to the Lotteries sector, with better cashpayment terms, will, over the 2[nd] half of FY2017, be able to complement the subscription billing business and add significantly to the opportunities in that space.

Balance Sheet

The company has invested a significant amount of money into the business over the past 12 months and the returns on those investments have only just started to occur. For example, a substantial part of the company’s forecast Subscription Billing Revenues in FY17 will occur with little to no additional outlay.

In addition, the e-Commerce business only began generating first revenue in the latter part of September. The company’s services to the Lotteries sector remain in its infancy but we are optimistic it will become a valuable contributor over time.

As these business mature and with the spend already made, we believe the company’s financial position will improve as the year progresses.

e-Commerce

BPS / SMA Master Merchant Agreement

The company is greatly encouraged by the significant levels of interest in this partnership. As previously announced, BPS has more than 24,000 merchants and has identified key SMEs across 4 verticals (Health & Wellness, Travel & Tourism, Property, and Education) that it believes have the capacity to export their product into the Chinese market.

In FY2017 the company is targeting at least 20 high-quality merchants which each produce at least $1million in annual sales on the SmartTrans e-Commerce platform.

SmartTrans anticipates that it will generate a double-digit percentage fee on sales through the platform, but the magnitude of the fee will depend on the level of service being provided to specific merchants. The company also anticipates receipt of fees on processing payments and cross-border settlements.

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Significantly, SmartTrans is greatly encouraged by the number of SMEs from outside of the BPS network that have reportedly approached BPS looking to gain access to our platform.

We anticipate continued strong penetration within the BPS network and believe that as the platform implementation process is refined, it will enable merchants to access the market more quickly and will meet the needs of the growing number of merchants eager to sell in the largest e-Commerce market in the world.

SmartTrans Broader Platform (i.e. ex-BPS Master Merchant Agreement)

In addition to the merchants operating under the Master Merchants Agreement above, the company is in the process of adding a number of merchants that the company sees as having significant selling potential into China and we anticipate being able to generate meaningful revenues over time. As above, SmartTrans will collect a double-digit percentage fee on sales generated, but the magnitude of the fee will depend on the level of service being provided.

The company has previously explained its arrangements with Blooms, Tim Adams, Olive Oil Skincare Company, Soapnut Republic and has now added Burlee. These companies represent samples of the industries being targeted and we are experiencing a high level of incoming interest from a range of companies.

We believe that this offering is transformational for the company and has the potential to be a meaningful contributor to revenue and earnings from this quarter onwards and in particular, from the 2[nd] half of FY2017.

Broadly speaking, there is no limit to the number of merchants we are able to have on the platform. The company continues to work closely with its platform partners, including Alibaba, to ensure that high quality, authentic and successful companies are the mainstay.

Extensive due diligence is conducted to ensure that companies meet certain hurdles and that the integrity of the platform as a premier access point is maintained and fostered. In due course, we expect the sign on, implementation and due diligence process to be largely automated, ensuring merchants have a smoother and faster route to market .

The company has been developing relationships with companies within China with reach to online communities and appropriate customer databases to match with the products.

By the end of this financial year, the company is targeting to have at least 20 high-quality merchants which each produce at least $1million in annual sales on the SmartTrans e-Commerce platform. With SmartTrans generating a double-digit percentage fee on sales, this is a very meaningful development but one that we feel is only in its infancy. Importantly, this business is expected to produce significantly higher margins which should allow the company to enter FY18 in a very strong position.

Lotteries

The return of online lotteries in China is slowly gathering pace with government sanctioned pilot programmes underway, although no official word has yet been given on an expected relaunch.

Nonetheless, pilot programmes, for which SmartTrans has contributed its services, are occurring and we believe the company is positioning itself well to service this sector.

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The company’s appointment to the Lotteries Research Think Tank in Guangdong for a 3-year term was a pleasing endorsement of the company’s position and potential participation in supporting the industry.

Additionally, being a key participant in the “International Forum on the Social Responsibility of Lottery” further cemented the view that international participants have a role to play and that the company is well placed.

Whilst far too early to offer any guidance, the company notes that Lottery Sales in China have grown at a compounded 33% per annum from 1987 – 2013.[1] Despite the significant size of today’s China lottery market, the penetration rate of regulated lottery in China remains comparatively low by international standards.

Given that the illegal gambling market in China is estimated to be approximately 10-20 times that of the legal lottery market, there is enormous potential for future growth in China’s legal lottery market.[1 ]

According to data from CaiTong Consulting[2] , online Sports Lottery Sales doubled in 2014, before the ban, to Rmb85bn ($A$17bn). With Smartphone penetration increasing and a move to transform illegal sports betting into the mainstream, the potential growth opportunities are significant.

SmartTrans is positioning itself as a service provider to those operating in the lotteries sector and although premature to offer forecasts, even a fractional penetration of this market will provide a meaningful contribution.

SmartTrans is presently negotiating the expansion of its services contract with its partner Zongguan to broaden SmartTrans involvement in servicing and supporting this significant market sector.

Logistics Software

The company’s Australian logistics software division, which provides mobile and online software and services in the transport and logistics area was involved in a number of promotional activities in the Quarter as part of the company’s increased sales and marketing focus.

The company has been exploring international opportunities for its products as it looks to drive growth in this business segment.

The company attended and exhibited at the ITS World Congress (www.itsworldcongress2016.com) and hosted visitors from ITS China and the China Automotive Technology and Research Center (CATARC) with which SmartTrans has developed relationships in China.

During the congress, SmartTrans showcased its new SmartTrans Express product which is focused on servicing the needs of smaller fleets of vehicles and which is designed for rapid deployment and fast implementation.

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Logistics Revenue & Gross Profit by Quarter
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
Logistics Revenue Gross Profit
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Figure 3: Mobile & Internet Logistics Software Revenue and Gross Profit by Quarter FY2016 and Q1 2017

(Note: Q2 2017 was boosted by a significant sale made during that Quarter.)

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SmartTrans at the ITS World Congress and SmartTrans’ National Operations Manager, Linus D’Crus, hosting visitors from CATARC (China Automotive Technology and Research Center).

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FY17 Outlook

1. Subscription Billing - As alluded to in earlier releases, the company invested significantly in its Subscription billing business over the course of FY16. Importantly, this investment is expected to deliver the company revenue in FY17 that comes without any additional direct costs (i.e. ~100% Gross Profit Margin) .

Significantly, we believe that recent deals involving the in-vehicle app and PressPlay’s Steph Curry App are an example of the company targeting high quality partners focused on generating high return on investment.

1. 3[rd] Party App Billing – The company has deliberately scaled down this business and is now in a position to target only those businesses and products that generate meaningful returns. As Q1 2017 showed, although revenue was materially lower, Gross Profit was substantially higher and we are targeting for the business to generate revenue at mid double-digit margins going forward . Importantly, the recurring nature of our subscription billing business means the re-investment opportunities available to the company are greater now and will allow the company to be more proactive in selecting partners.

2. e-Commerce : - In FY2017 the company is targeting at least 40 high-quality merchants which each produce at least $1million in annual sales on the SmartTrans e-Commerce platform. It is impossible for the company to predict the success of each individual merchant and some will prove more successful than others. SmartTrans expects to generate a double-digit percentage fee on all sales through the platform, the magnitude of which will differ from company to company. The China e-commerce market is seasonal, with the upcoming Singles Day a major selling season. Given the early stage of this business, we would expect revenue and earnings contribution to be 2[nd] half weighted and for the company to achieve greater clarity as the year progresses. As the company enters FY18, we are very optimistic about what this business will mean.

3. Lotteries: Whilst largely subject to Government-related decisions on the launch of online lotteries, we expect contributions to increase as the year progresses and believe that even a small penetration of this very large market will represent a valuable contribution to the company’s business

The transition to higher margin products is expected to substantially reduce the volume of revenue required for the company to derive a profit.

The company’s mix of products in FY2016 was 10% Logistics mobile and internet software, 74% 3[rd] Party App billing and 16% Subscription billing whilst in FY2017 the company is targeting for contribution of revenue to be more balanced between 3[rd] Party App billing and Subscription billing with a growing contribution from e-Commerce and other products and services.

The company has in parallel been working to increase the sales revenue for its logistics business which delivers good gross profit.

The company now provides a broad exposure to Chinese consumption and is not dependent on the success of any one particular product.

The Board believes that the company is well positioned to realise the value of its investment in China and we look forward to updating shareholders on all of these developments as the year progresses.

1 Source: http://www.agtech.com/html/industry_lottery_overview_char.php

2 Source: http://www.scmp.com/business/markets/article/1977977/chinas-sports-lottery-business-see-continued-high-growth2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

+Rule 4.7B

Appendix 4C

Quarterly report for entities subject to Listing Rule 4.7B

Introduced 31/03/00 Amended 30/09/01, 24/10/05, 17/12/10, 01/09/16

Name of entity

SmartTrans Holdings Limited

ABN Quarter ended (“current quarter”) 86 009 065 650 30 September 2016

Consolidated statement of cash flows	Consolidated statement of cash flows	Current quarter	Year to date
		$A’000	(.......months)
			$A’000
1.	Cash flows from operating activities
1.1	Receipts from customers	1,328	1,328
1.2	Payments for
	(a) research and development
	(b) product manufacturing and operating	(1,173)	(1,173)
	costs
	(c) advertising and marketing
	(d) leased assets
	(e) staff costs	(499)	(499)
	(f) administration and corporate costs	(929)	(929)
1.3	Dividends received (see note 3)
1.4	Interest received	(2)	(2)
1.5	Interest and other costs of finance paid
1.6	Income taxes paid
1.7	Government grants and tax incentives
1.8	Other (provide details if material)
1.9	Net cash from / (used in) operating	(1,275)	(1,275)
	activities
2.	Cash flows from investing activities
2.1	Payments to acquire:
	(a) property, plant and equipment	(7)	(7)
	(b) businesses (see item 10)
	(c) investments

• See chapter 19 for defined terms

1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Consolidated statement of cash flows	Consolidated statement of cash flows	Current quarter	Year to date
		$A’000	(.......months)
			$A’000
	(d) intellectual property
	(e) other non-current assets
2.2	Proceeds from disposal of:
	(a) property, plant and equipment
	(b) businesses (see item 10)
	(c) investments
	(d) intellectual property
	(e) other non-current assets
2.3	Cash flows from loans to other entities
2.4	Dividends received (see note 3)
2.5	Other (provide details if material)
2.6	Net cash from / (used in) investing	(7)	(7)
	activities
3.	Cash flows from financing activities
3.1	Proceeds from issues of shares
3.2	Proceeds from issue of convertible notes
3.3	Proceeds from exercise of share options	32	32
3.4	Transaction costs related to issues of
	shares, convertible notes or options
3.5	Proceeds from borrowings
3.6	Repayment of borrowings
3.7	Transaction costs related to loans and
	borrowings
3.8	Dividends paid
3.9	Other (provide details if material)
3.10	Net cash from / (used in) financing	32	32
	activities
4.	Net increase / (decrease) in cash and
	cash equivalents for the period
4.1	Cash and cash equivalents at beginning of
	quarter/year to date	2,130	2,130
4.2	Net cash from / (used in) operating	(1,275)	(1,275)
	activities (item 1.9 above)
4.3	Net cash from / (used in) investing activities	(7)	(7)
	(item 2.6 above)
4.4	Net cash from / (used in) financing activities	32	32
	(item 3.10 above)

• See chapter 19 for defined terms

1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Consolidated statement of cash flows	Consolidated statement of cash flows	Current quarter	Year to date
		$A’000	(.......months)
			$A’000
4.5	Effect of movement in exchange rates on
	cash held
4.6	Cash and cash equivalents at end of	880		880
	quarter

5.	Reconciliation of cash and cash	Current quarter	Previous quarter
	equivalents	$A’000	$A’000
	at the end of the quarter (as shown in the
	consolidated statement of cash flows) to the
	related items in the accounts
5.1	Bank balances	403	835
5.2	Call deposits	477	1,295
5.3	Bank overdrafts
5.4	Other (provide details)
5.5	Cash and cash equivalents at end of	880	2,130
	quarter (should equal item 4.6 above)

6.	Payments to directors of the entity and their associates	Current quarter
		$A'000
6.1	Aggregate amount of payments to these parties included in item 1.2		99
6.2	Aggregate amount of cash flow from loans to these parties included
	in item 2.3
6.3	Include below any explanation necessary to understand the transactions included in
	items 6.1 and 6.2

7. Payments to related entities of the entity and their associates

Current quarter $A'000

	Current quarter $A'000
7.1 Aggregate amount of payments to these parties included in item 1.2 7.2 Aggregate amount of cash flow from loans to these parties included in item 2.3 7.3 Include below any explanation necessary to understand the transactions included in items 7.1 and 7.2

• See chapter 19 for defined terms 1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

8.	Financing facilities available	Total facility amount	Amount drawn at
	Add notes as necessary for an	at quarter end	quarter end
	understanding of the position	$A’000	$A’000
8.1	Loan facilities
8.2	Credit standby arrangements
8.3	Other (please specify)
8.4	Include below a description of each facility above, including the lender, interest rate and
	whether it is secured or unsecured. If any additional facilities have been entered into or are
	proposed to be entered into after quarter end, include details of those		facilities as well.

9.	Estimated cash outflows for next quarter	$A’000
9.1	Research and development
9.2	Product manufacturing and operating costs		(500)
9.3	Advertising and marketing
9.4	Leased assets
9.5	Staff costs		(485)
9.6	Administration and corporate costs		(689)
9.7	Other (provide details if material)
9.8	Total estimated cash outflows		*(1,674)

*** NOTE** SmartTrans is an operating business that generates cash inflows each quarter, including receipts from customers. The above summary of anticipated cash outflows does not fully reflect the anticipated net cash flows for the following quarter, as it excludes cash inflows (such as receipts from customers). The net receivables balance due to the company (after deduction of payables) at 30 September was $1.3 million.

10.	Acquisitions and disposals of	Acquisitions	Disposals
	business entities
	(items 2.1(b) and 2.2(b) above)
10.1	Name of entity
10.2	Place of incorporation or
	registration
10.3	Consideration for acquisition or
	disposal
10.4	Total net assets
10.5	Nature of business

• See chapter 19 for defined terms 1 September 2016

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Appendix 4C Quarterly report for entities subject to Listing Rule 4.7B

Compliance statement

• 1 This statement has been prepared in accordance with accounting standards and policies which comply with Listing Rule 19.11A.

• 2 This statement gives a true and fair view of the matters disclosed.

Sign here: ............................................................ Date: 31/10/16. (Director/Company secretary)

Print name: Bryan Carr

Notes

1. The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. An entity that wishes to disclose additional information is encouraged to do so, in a note or notes included in or attached to this report.

2. If this quarterly report has been prepared in accordance with Australian Accounting Standards, the definitions in, and provisions of, AASB 107: Statement of Cash Flows apply to this report. If this quarterly report has been prepared in accordance with other accounting standards agreed by ASX pursuant to Listing Rule 19.11A, the corresponding equivalent standard applies to this report.

3. Dividends received may be classified either as cash flows from operating activities or cash flows from investing activities, depending on the accounting policy of the entity.

4. See chapter 19 for defined terms 1 September 2016

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