VECTION TECHNOLOGIES LTD — Interim / Quarterly Report 2018

Apr 26, 2018

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ASX Announcement

27 April 2018

ServTech Global Quarterly Review – Q3 FY2018

ACTIVITY HIGHLIGHTS

• Completion of transaction with The Agency Group for the sale of real estate operations for total consideration of $950k payable to ServTech

• Strong endorsement of ServTech from sophisticated investors during the quarter with: o a placement of a $387k; and

• a $500k increase to a convertible note facility

• Lean cost structure successfully implemented with all overhead costs materially reduced from next quarter onward

• Significant opportunities across IT development and contact centre support have been identified with contracts to follow imminently

ServTech Global Limited (ASX: SVT) (‘ ServTech ’ or ‘ the Company ’), provides the following report of its activities for the quarter ended on 31 March 2018.

Completion of Agency Transaction

On 21 February 2018, the Company announced the successful completion of its transaction with The Agency Group Australia Limited (ASX:AU1) (“The Agency”) for The Agency to acquire the assets of each of the Company’s real estate subsidiaries in exchange for consideration of $950,000 payable to ServTech. To date, $300,000 has been received of the consideration with the balance of $650,000 to be received in 13 monthly instalments of $50,000.

Monetising these operations and moving their substantial payroll, real estate licensing and other compliance obligations to The Agency, allows the Company to concentrate on its core offerings of back office support, custom software development and Software as a Service (SaaS) applications.

This transaction with The Agency also provides for a further agreement for ServTech to deliver back-office services, technology licencing and support to The Agency for a fee of no less than $25,000 per month. ServTech is in the final stages of formalising this agreement with a view to ultimately managing back-office support for the entire Agency Settlements, Finance and Real Estate divisions nationally which will potentially result in a substantial recurring revenue stream for ServTech.

ServTech Strategy

Along with the divestment of the real estate businesses, the Company conducted a detailed review of its operations as a whole. As part of this review and adoption of a reduced cost structure, Mr Brett Quinn resigned as CEO and Managing Director. To manage the back-office support and IT development resources of the Company, experienced technology executive Mr Simon Ingleson was appointed as General Manager.

Efficient Services Effective Technology

www.servtechglobal.com.au

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Mr Ingleson's appointment ensures the Company will extract as much value as possible, from these significant resources – profitably, with a view to building a cash positive business in the short term.

The Company has two significant divisions – an onshore/offshore IT development division and an outsourced back office support and contact centre. The offshore IT development division, led by an Australian based team, designs and develops technology solutions for a multitude of businesses across a number of industries. The experienced outsourced back office services and contact centre facilitate cost effective and efficient business work flow operations. Based in the Philippines and managed from Australia, this division has the capacity to upscale to more than 200 employees for back office support, customer care and virtual assistant services.

Corporate

On 19 March 2018, the Company announced that it had successfully completed a placement to sophisticated and professional investors of 25,800,000 fully paid ordinary shares at a price of $0.015 per share, raising $387,000 before costs.

On 27 March 2018, the Company announced that it had received notices from Servnote Holding Pty Ltd (Servnote) to both increase their investment and convert the convertible notes issued by the Company as per the terms announced on 22 November 2017. As a result, Servnote increased its investment in the Company by $500,000, which the Company banked in early April 2018.

Support for the Company by sophisticated and professional investors is a strong endorsement of the steps taken to date to refocus the Company and control costs.

Financial

During the March 2018 Quarter, cash receipts were $2.95 million (Q2 FY2018: $3.4 million) and net cash used in operating activities was ~$1.02 million (Q1: $608,000). With the sale of the real estate businesses on 21 February 2018, revenue will fall but staff, advertising and administrative costs will fall proportionately further. These savings will flow through in the June 2018 Quarter. Substantial one-off costs were incurred during the period, in particular redundancies and settlements with creditors, along with continuing to trade the real estate entities for the bulk of the quarter. Without the real estate businesses, the Company forecasts a cash burn of $80,000 per month – the majority of which would be offset by agreements with The Agency.

As at 31 March 2018, the Company’s cash balance on hand was ~$528,000.

During the quarter, the Company banked $300,000 as initial proceeds of The Agency Agreement. In addition, the Company banked ~$330,000 from the sale of its rent roll. The Company anticipates that it will receive a further ~$100,000 as the retention component of its rent roll sale transaction within the September quarter.

Outlook

The directors and management have sought conventional service type agreements for utilise ServTech’s substantial outsourced contact centre and IT development teams. Some of these negotiations are well advanced and should prove lucrative for the Company if executed well.

With the Company’s substantially reduced overhead and a pipeline of agreements pending, the Company is well positioned to become cash flow positive in the short term.

Efficient Services Effective Technology

www.servtechglobal.com.au

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The Company will focus on monetising its substantial back office support and IT development resources without the compliance and monetary obligations of maintaining a 200+ representative real estate agency.

Further information:

Bert Mondello Chairman ServTech Global Holdings Limited Tel: +618 6380 2555

About ServTech Global Holdings Limited

ServTech Global is an ASX listed public company (ASX: SVT) specialising in outsourced office, custom software development and Software as a Service (‘SaaS’) solutions that aim to reduce the cost and administrative burdens of running a business.

These solutions allow business owners, franchisees and small to medium sized business operators to spend more time growing their business, servicing the needs of their customers and increasing their profitability by removing the time and cost burden of recording and reporting transactions, administrative tasks and back office functions.

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Efficient Services Effective Technology

www.servtechglobal.com.au

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

SERVTECH GLOBAL HOLDINGS LIMITED

ABN 93 614 814 041

Quarter ended (“current quarter”)

31 MARCH 2018

Consolidated statement of cash flows	Current quarter $A’000	Year to date (9 months) $A’000
1. Cash flows from operating activities 1.1 Receipts from customers 1.2 Payments for (a) research and development (b) product manufacturing and operating costs (c) advertising and marketing (d) leased assets (e) staff costs (f) administration and corporate costs 1.3 Dividends received (see note 3) 1.4 Interest received 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 activities	2,957 - - (239) (50) (2,954) (729) 1 (19) - 14	9,465 - - (1,019) (121) (9,952) (2,109) 5 (34) (22) 14
	(1,019)	(3,773)

• The majority of staff costs relate to real estate representatives who have transferred to The Agency or are otherwise no longer employed by the Company. Within the staff costs and administration lines are one off costs of ~$350k in relation to redundancies, legal fees and historical creditor settlements.

2. Cash flows from investing activities 2.1 Payments to acquire: (a) property, plant and equipment (b) businesses (see item 10) (c) investments	(9) - -	(207) - -

• See chapter 19 for defined terms

1 September 2016

Page 1

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

Consolidated statement of cash flows	Current quarter $A’000	Year to date (9 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 activities	- - 2 - - - 658 - - -	- - 4 - - - 814 - - 37
	651	648
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 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 activities	387 - (53) - (282) - - -	387 500 (74) - (438) - - 14
	52	389
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 4.2 Net cash from / (used in) operating activities (item 1.9 above) 4.3 Net cash from / (used in) investing activities (item 2.6 above) 4.4 Net cash from / (used in) financing activities (item 3.10 above)	847 (1,019) 651 52	3,300 (3,773) 648 389

• 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	Current quarter $A’000	Year to date (9 months) $A’000
4.5 Effect of movement in exchange rates on cash held 4.6 Cash and cash equivalents at end of quarter	(3)	(36)
	528	528

5. Reconciliation of cash and cash equivalents at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts	Current quarter $A’000	Previous quarter $A’000
5.1 Bank balances 5.2 Call deposits 5.3 Bank overdrafts 5.4 Other (provide details) 5.5 Cash and cash equivalents at end of quarter (should equal item 4.6 above)	528* - - -	847 - - -
	528*	847

• Cash balance does not reflect $500,000 of funds received from convertible note holders shortly after the end of the quarter.

* Cash	balance does not reflect $500,000 of funds received from convertible note holders shortly	after the end of the quarter.
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	376
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

Director fees and superannuation of ~$88,000, a severance fee to a director related entity of ~$61,000, advisory and consulting fees to a director related entity of ~$133,000, a capital raising fee to a director related entity of $26,000 and interest and drawdown fees paid to a director related entity of ~$68,000 for a convertible note facility.

7. Payments to related entities of the entity and their associates 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	Current quarter $A'000
	-
	-

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 Add notes as necessary for an understanding of the position 8.1 Loan facilities 8.2 Credit standby arrangements 8.3 Other (please specify)*	Total facility amount at quarter end $A’000	Amount drawn at quarter end $A’000
	-	-
	-	-
	1,000	500

• 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.

*On 22 November 2017, the Company announced that it had secured a convertible note facility of up $1M from a sophisticated investor consortium of which $500,000 was advanced last quarter. On 27 March 2018, the Company received notice from the convertible note holders that they would increase their investment to the full $1M. The additional $500,000 has since been received by the Company.

9. Estimated cash outflows for next quarter	$A’000
9.1 Research and development 9.2 Product manufacturing and operating costs 9.3 Advertising and marketing 9.4 Leased assets 9.5 Staff costs 9.6 Administration and corporate costs 9.7 Other (provide details if material) 9.8 Total estimated cash outflows	- - - - 200 100 -
	300

10. Acquisitions and disposals of business entities (items 2.1(b) and 2.2(b) above)	Acquisitions	Disposals
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	-	-

On 21 February 2018, the Company announced that it had entered into a binding sale agreement with The Agency Group Limited (The Agency) for The Agency to acquire the assets of the Company’s real estate businesses for consideration of $950,000. As the agreement was an asset sale, the Company retain its real estate business entities. To date $300,000 has been received of the consideration with the balance of $650,000 to be received in 13 monthly instalments of $50,000.

The agreement with The Agency also provides for a further back-office support agreement whereby ServTech will continue to maintain the administration services of the previous ServTech real estate representatives for a fee of no less than $25,000 per month.

• 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: 27 April 2018 (Company Secretary)

Print name: Derek Hall

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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