Announcement PDF Spacetalk Limited Appendix 4E Preliminary final report 1. Company details Name of entity: ABN: Reporting period: Previous period: Spacetalk Limited 93 091 351 530 For the year ended 30 June 2023 For the year ended 30 June 2022 2. Results for announcement to the market Year ended Year ended 30 June 2023 30 June 2022 $ $ Change on previous period $ Change on previous period % Revenues from ordinary activities 15,534,194 20,158,664 (4,624,470) (23%) Loss from ordinary activities after tax attributable to the owners of Spacetalk Limited (14,684,760) (8,180,110) (6,504,650) 80% Loss for the year attributable to the owners of Spacetalk Limited (14,684,760) (8,180,110) (6,504,650) 80% Dividends There were no dividends paid, recommended or declared during the current financial period. Brief Explanation on Results Please refer to the Preliminary Financial Statements, Review of Operations on pages 2 to 10. 3. Net tangible assets Reporting period Cents Net tangible assets per ordinary security 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. (0.86) Previous period Cents 3.05 Spacetalk Limited Appendix 4E Preliminary final report 7. Dividend reinvestment plans Not applicable. 8. Details of associates and joint venture entities Not applicable. 9. Foreign entities Details of origin of accounting standards used in compiling the report: Not applicable. 10. Audit qualification or review Details of audit/review dispute or qualification (if any): The accounts are in the process of being audited. 11. Attachments Details of attachments (if any): The Preliminary financial statements of Spacetalk Limited for the year ended 30 June 2023 is attached. 12. Signed Georg Chmiel Chairman Date: 28 August 2023 Spacetalk Limited ABN 93 091 351 530 Preliminary financial statements - 30 June 2023 Spacetalk Limited Contents 30 June 2023 Review of Operations & Financial Results Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Corporate directory 1 2 11 13 14 15 16 34 Spacetalk Limited Review of Operations & Financial Results 30 June 2023 Review of operations Results and key performance indicators of the current and prior year are set out below on a normalised basis, adjusting Statutory NPAT for material infrequent items including the impairment of assets, restructuring costs, including redundancy costs and other material one off adjustments. The FY23 results review is performed based on continuing operations following the wind down of overseas operations during the year. Results from discontinued operations are outlined in note 6 to the financial statements. 1. GROUP PERFORMANCE For the year ended 30 June 2023 the Group reported annual recurring revenue (ARR) of $8.3m, 33% up compared with the prior year. The increase in ARR is consistent with the strategic shift towards a subscription-based business model. The Group also recorded strong 2H23 performance with normalised EBITDA of -$0.6m (1H23: -$2.4m), underpinned by the restructure that was completed in Q4/FY23. This provides a solid foundation for future profitability and positive cash generation. The overall 9% decline in revenue from continuing operations is due to device revenue decline. Despite phasing out the Kids watch in Q1/FY23, the Company managed to minimise the revenue reduction impact during FY23 by introducing the MNVO subscriptions revenue and improved agreements with retail partners and controlled discounting that resulted in improved margins. These improvements were offset by the impact of strategic discounting and promotional activity to sell down large retailer Adventurer 1 inventory as the Company sought to launch new products in Q4 of FY23 and Q2 of FY24. FY23 was a transformational year for the Company, where the focus was restructuring and rebuilding which impacted the profit and loss with a net $4.1m one off non-recurring costs as described below on page 5. KEY PERFORMANCE METRICS 2 Spacetalk Limited Review of Operations & Financial Results 30 June 2023 Revenue Revenue from continuing operations declined by 9% to $13.4m primarily driven by a 33% ($3.0m) decline in device revenue partially offset by a $1.8m upside in Mobile Virtual Network Operator (MVNO) and Application revenue. During FY23, the MVNO alone generated $1.4m in revenue (2022: NIL). This trend is consistent with the strategic shift towards recurring revenue, which rose to 54% of total revenue during the year (FY22: 39%). MVNO subscriber growth has been robust and consistent since November 2022’s launch, totalling 14,720 subscribers added at the end of the year. As Spacetalk continues to transition to the higher Average Revenue Per User (ARPU) MVNO product, Application subscriber numbers declined 7% to 55,258. App revenue however increased by 13% to $3.8m due to higher average paying users during the year. Schools’ revenue decline of $0.3m (12%) was due to a decline in SMS volume vs prior corresponding period (“pcp”). Detailed analysis is included in the segment performance section on pages 6 to 9. Annual Recurring Revenue (ARR) • • • ARR increased by 33% compared to pcp and 7% on Q3, driven by strong MVNO revenue growth. MVNO revenue now represents 31% of ARR. The increase in ARR reflects the strategic shift in focus to a higher yielding subscription model. 3 Spacetalk Limited Review of Operations & Financial Results 30 June 2023 Revenue Mix • • Improved revenue mix with MVNO now 10% of revenue (FY22: NIL) Recurring revenue comprised 54% of revenue (FY22: 39%) and was 60% in Q4FY23 (Q4FY22:55%) Gross Profit The 23% decline in gross profit to $6.7m (excluding other income) is reflective of the decline in device revenue during the year, partially offset by the new MVNO revenue. GP margin declined by 9ppts to 50% primarily due to a decline in device margins because of discounting and promotional activities undertaken during the year to sell off excess Adventurer 1 inventory. The Company is focused on future margin improvement through controlled discounting and promotions, resetting retailer margins, and managing retailer inventory levels. Operating Expenses Normalised Group operating expenses (including discontinued operations) declined by 17% to $12.6m due to: • • • $2.7m (33%) reduction in employment expenses to $5.5m. This was mainly due to $0.9m savings in overseas operations and a $0.6m reduction in share-based payments expense. $0.4m (24%) decline in advertising and marketing expenses mainly due to ~$0.3m spent on retailer support in overseas operations in prior year an increase in administration expenses of $0.3m partially offset the above decreases. Savings generated by winding down overseas operations present the Company with an opportunity to redeploy costs to value accretive strategic initiatives in the ANZ region. The ANZ cost base has been resized and a significant capability uplift has been achieved through engaging specialists in key roles to aid strategy execution. 4 Spacetalk Limited Review of Operations & Financial Results 30 June 2023 Reconciliation of normalised EBITDA to net profit from continuing operations. 2H23 normalised EBITDA was -$0.6m (1H23: - $2.4m), underpinned by the business restructure completed during Q4. This sets a solid foundation for future profitability and cash generation, with the cost base resized to drive strategy and revenue growth. Notes • • • • • • Redundancy and restructuring costs relate to one off business transformation costs incurred in FY23. Warranty provision reversal is a large one off non-recurring reversal of warranty provisions in FY23. Debt restructuring costs are non-cash and relate to the accelerated write off of capitalised transaction costs, recognition of an expenses due to issue of warrants to Pure Asset Management (Pure) as part of debt restructuring. Fair value gains on derivatives are with respect to the fair valuation of the derivative financial liability related to warrants issued to Pure Asset Management. Depreciation and amortisation relate predominantly to amortisation of capitalised development costs. Impairment expense is primarily due to the write down of capitalised development costs ($2.3m) and Life watch inventory ($0.8m). CASH FLOW • • • Improvement in operating cash flows driven by: o 17% ($2.7m) lower operating expenses, partially offset by one off restructuring costs of $1.7m and lower revenue. o $2.7m inflow from reduction in net working capital vs $4.2m outflow due to working capital increase in prior year. Lower capex spend in FY23 due to optimisation of use of external resources. Lower capital raised in FY23 ($2.7m) vs $11.5m equity and debt capital raised in FY22. 5 Spacetalk Limited Review of Operations & Financial Results 30 June 2023 FUNDING AND CAPITAL Debt facilities amounting to $5m from Pure Asset Management (Pure) were fully drawn by 30 June 2023. The tenure of the facilities is: • • Loan 2 facility of $2m which is due on 1 July 2024: Loan 1 facility which is due on 20 March 2025. Post year end, an agreement was signed with Pure to restructure the debt facilities. The key changes include: • Aligning the Repayment Date for Tranche 1 and Trance 2 to 20 March 2025 from 1 July 2024. • Providing short-term covenant flexibility to facilitate the rollout of Spacetalk’s new Budget Watch in the coming quarter. • Reduction in cash covenants from $1.25m to $1.0m from 1 January 2024. • Agreement on the operating cash flow covenant effective Q2 FY24. As part of this renegotiation, Spacetalk issued to Pure a warrant over 20 million Spacetalk shares, exercisable at any time prior to 31 December 2026. The warrant exercise price will be $0.05 per share with provision for a price adjustment under certain circumstances including but not limited to a change of control or future equity issuances exceeding 15% of shares on issue. The warrant is subject to shareholder approval. SUBSEQUENT EVENTS The following material events occurred after year end. • • • Restructure of the debt facility as described in the Funding and Capital section above. The Company successfully secured commitments for a Placement to raise a gross amount of $761,700 at $0.022 per share. The Placement is expected to settle on 5 September 2023. A partially underwritten pro-rata non-renounceable entitlement issue of one (1) Share for every 2.5 Shares to raise a gross amount of $2,738,938 at $0.022 per share was announced on 28 August 2023. In addition, subscribers into the placement and non-renounceable rights will receive one Option for every 2 new shares that they have subscribed for, with Placement Options subject to the approval of Spacetalk’s shareholders. The rights issue is expected to conclude on 29 September 2023. For more details on subsequent events refer to note 24 to the financial statements. 2. SEGMENT PERFORMANCE The Directors consider the business from a customer perspective, supported by four core products that have been identified as reportable segments: • • • • Device sales Schools’ subscriptions App subscriptions MVNO subscriptions Spacetalk’s profit performance from continuing operations for its four operating segments is summarised in the table below. 6 Spacetalk Limited Review of Operations & Financial Results 30 June 2023 Summary Segment Result SEGMENT ANALYSIS Device Revenue Device revenue declined by 33% to $6.1m primarily driven by: • • • A 21% decrease in sales volume from 51,036 units in FY22 to 40,572 units in FY23. FY22 high sales volume resulted in significant stock in channel that impacted FY23 retailer demand. Change in sales mix also affected revenue, with the graph below showing sales mix in FY23 compared with FY22. o o Kids watch, a lower priced product, was 36% of sales volume in FY22 (FY23: 7%) and 28% of sales value (FY23: 5%). Adventurer 1 volume was 87% of total in FY23 vs 63% in FY22, albeit at 24% lower average price in FY23 vs FY22. 7 Spacetalk Limited Review of Operations & Financial Results 30 June 2023 • o Adventurer 2, which was launched in May 23, was 6% of sales total in FY23. The change in sales mix towards higher priced Adventurer 1 vs the cheaper Kids watch impacted demand and sales volume. Device sales gross profit and margin • • Gross profit reduced by 72% to $1.1m in FY23 due to a reduction in sales volume (as outlined above) and reduced average price, primarily for Adventurer 1. The reduced price impacted gross margin which reduced to 18% in FY23 vs 42% in FY22 due to strategic discounting and promotional activity in FY23. o Adventurer 1 average price reduced by 24% in FY23 vs FY22 as legacy large inventory held in retailers was sold to facilitate the launch of Adventurer 2 in May 23. o This resulted in Adventurer 1 gross margin reducing from 44% in FY22 to 14% in FY23. MVNO MVNO subscribers recorded robust growth since launch in November 2022. The graph below shows the monthly active subscribers since launch to the end of FY23. The net addition of MVNO 14,720 subscribers generated $1.4m in revenue (2022: NIL). Sustaining this growth momentum is key to MVNO revenue continued growth, with the 1,200 new subscribers signed in June 23 month. With higher monthly average revenue per user compared to App users, the strategic shift towards recurring MVNO revenue will result in sustained future revenue growth. MVNO gross margin was 53% in FY23. App subscriptions App revenue increase of 13% was driven by an 11% increase in the number of average paying subscribers to 59,819. As Spacetalk continues to transition to higher ARPU MVNO products, App subscriber numbers on 30 June 2023 declined 7% to 55,258 vs FY22. App gross margin of 77% was relatively consistent with FY22 (76%). 8 Spacetalk Limited Review of Operations & Financial Results 30 June 2023 Schools’ revenue Schools’ revenue decline of $0.3m (12%) was due to a decline in SMS volume vs pcp. Total SMS volume declined by 13% to 23,255,198 SMSs, coming off high COVID communications. Subscription licence fee revenue was relatively consistent at $1.0m year on year. Schools gross profit of $2.0m is 11% lower than prior year, consistent with SMS revenue decline. Gross margin remained flat at 95% vs prior year (94%). 3. GROWTH STRATEGY Spacetalk’s strategic turnaround plan is well underway with the realisation of significant results during Q4 of FY23. The strategy is underpinned by transforming Spacetalk from a consumer electronics business to a wearable enabled software subscription and MVNO business. A significant part of the strategy involved the wind down of unprofitable overseas operations in the United States, United Kingdom, and Europe, to focus on transforming the business in the Australia and New Zealand (ANZ region). FY24 PRIORITIES Spacetalk is focused on executing the following priorities in FY24. • Product Development. o New family-focused mobile virtual network operator (MVNO) products that provide an opportunity to obtain whole families as Spacetalk customers. o Device agnostic (open) mobile application product (Family App) that provides an opportunity to retain older children and parents as customers of Spacetalk as they outgrow watch usage. o Schools messaging platform refresh, starting with the release of a new Schools <> Parents messaging app that provides the opportunity for parents to opt into marketing communication from Spacetalk. o Launch the ‘Budget Watch’ (Loop) in Q2 FY24, filling a gap in hardware product line-up left by the retirement of the 3G Kids Watch. o Life Watch renewal, to become a Mobile Personal Emergency Response (mPERS) device. This provides an entirely new segment opportunity. Development of back-end systems to connect existing Life watch to 24/7 emergency monitoring provider call centre triage systems. Further updates to firmware to enable advanced mPERS features are ongoing. Launch of new mPERS Life watch capability and 24/7 monitoring provider relationships is planned for Q1FY24. • Brand Alignment o MGM Wireless to become Spacetalk Schools in Q1FY24 o Jumpy SIM to become Spacetalk Mobile in Q1FY24 Capability Uplift to drive strategy execution. • 9 Spacetalk Limited Review of Operations & Financial Results 30 June 2023 4. KEY RISKS The Company operates in a highly competitive and rapidly changing sector, which provides both opportunities and Challenges. While some of these challenges and risks may be out of the Group’s control, the Company has made, and continues to make investments in its risk management and control frameworks to ensure we can respond to and mitigate the impact of these risks as they arise, whether they result from regulatory changes, shifts in the competitive environment, or other circumstances over which the Group has no control. The material business risks for the Group are summarised below. RISK AREAS Capital and funding Limited access to both debt and equity funding to support strategy execution. WHAT WE ARE DOING TO MANAGE THE RISK • • Strategic Poor understanding or response to the changes in our competitive environment • • • Regular communications and close relationship with debt funder Close management of cash flow Regular discussions of strategy and strategic initiatives with the Board Periodic measurement of results against targets Strengthen capability with experts who possess a good command of the environment Technology Underinvesting in developing and maintaining systems which support innovation and growth. • • Clear definition of technology roadmap Understanding of changing customer needs and responding with the necessary technology improvements People Failing to attract and retain culturally aligned staff who can deliver innovative, sustainable and customer focussed products and solutions. • Remuneration and benefits structure to retain and attract top talent. Clear and consistent on our culture and values Macroeconomic Failure to identify larger shifts in the economy or retail environment which threatens our strategy or growth. • Analyse and monitor economic and retail conditions, at a minimum, to identify shifts and take steps to manage potential impacts • Review processes and practices to reduce impact on the environment. Develop reporting on our environmental footprint Environment and climate: Not understanding or responding to future environmental risks and impacts • • 10 Spacetalk Limited Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2023 Note 2023 $ 2022 Restated $ Revenue from continuing operations Revenue 3 13,455,483 14,878,735 Cost of sales 4 (6,621,702) (6,167,961) Gross profit 6,833,781 8,710,774 Expenses from continuing operations Interest expense Allowance for expected credit loss Depreciation and amortisation expense Corporate and administration Advertising and marketing Employee benefits expense Impairment of assets Costs relating to debt restructure Fair value gain on fair value of derivatives Loss on foreign exchange 614,965 1,782,751 3,902,201 703,969 5,706,284 3,230,415 3,376,275 (1,714,052) 45,163 1,092,011 69,171 3,686,445 2,539,840 1,156,673 6,402,484 (544,231) 11,849 (10,814,190) (5,703,468) (249,976) (620,410) (11,064,166) (6,323,878) (3,620,594) (1,856,232) (14,684,760) (8,180,110) Items that may be reclassified subsequently to profit or loss Foreign currency translation 59,967 136,948 Other comprehensive income for the year, net of tax 59,967 136,948 Total comprehensive loss for the year attributable to the owners of Spacetalk Limited (14,624,793) (8,043,162) Total comprehensive loss for the year is attributable to: Continuing operations Discontinued operations (11,004,199) (3,620,594) (6,186,930) (1,856,232) (14,624,793) (8,043,162) 4 4 20 20 Loss before income tax expense from continuing operations Income tax expense 5 Loss after income tax expense from continuing operations Loss after income tax (expense)/benefit from discontinued operations Loss after income tax (expense)/benefit for the year attributable to the owners of Spacetalk Limited 6 Other comprehensive income The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 11 Spacetalk Limited Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2023 Cents 2023 Cents 2022 Earnings per share for loss from continuing operations attributable to the owners of Spacetalk Limited Basic earnings per share Diluted earnings per share 7 7 (4.29) (4.29) (3.64) (3.48) Earnings per share for loss from discontinued operations attributable to the owners of Spacetalk Limited Basic earnings per share Diluted earnings per share 7 7 (1.40) (1.40) (1.07) (1.02) Earnings per share for loss attributable to the owners of Spacetalk Limited Basic earnings per share Diluted earnings per share 7 7 (5.69) (5.69) (4.71) (4.50) Refer to note 2 for detailed information on restatement of comparatives. The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 12 Spacetalk Limited Consolidated statement of financial position As at 30 June 2023 Note 2023 $ 2022 Restated $ 1 July 2021 Restated $ 8 9 10 11 3,026,165 2,828,750 2,592,650 517,363 8,964,928 5,577,088 3,793,997 7,240,781 761,411 17,373,277 4,185,033 2,218,826 1,736,994 2,774,845 10,915,698 13 14 15 102,148 322,884 1,584,903 2,009,935 221,971 104,052 3,768,797 4,094,820 205,911 289,016 3,941,220 655,661 5,091,808 10,974,863 21,468,097 16,007,506 16 17 20 19 5 18 21 2,280,496 1,409,440 98,949 7,832 2,110,642 946,605 6,853,964 3,717,028 709,209 3,077,683 109,304 90,347 1,541,032 9,244,603 1,944,348 660,973 183,539 51,379 418,494 3,258,733 20 19 5,000,000 228,372 5,228,372 1,063 1,865,495 1,866,558 1,538,125 109,304 1,046 2,409,726 4,058,201 Total liabilities 12,082,336 11,111,161 7,316,934 Net assets/(liabilities) (1,107,473) 10,356,936 8,690,572 37,892,503 303,166 (39,303,142) 28,064,477 6,910,841 (24,618,382) 18,686,099 6,442,745 (16,438,272) (1,107,473) 10,356,936 8,690,572 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Property, plant and equipment Right-of-use assets Intangibles Deferred tax Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Borrowings Lease liabilities Income tax Provisions Derivative liabilities Total current liabilities Non-current liabilities Borrowings Lease liabilities Deferred tax liabilities Derivative liabilities Total non-current liabilities 21 Equity Issued capital Reserves Accumulated losses 22 23 Total equity/(deficiency) Refer to note 2 for detailed information on restatement of comparatives. The above consolidated statement of financial position should be read in conjunction with the accompanying notes 13 Spacetalk Limited Consolidated statement of changes in equity For the year ended 30 June 2023 Issued capital $ Reserves $ Accumulated losses Total equity $ $ 18,686,099 6,442,745 (15,777,299) 9,351,545 - - (660,973) (660,973) 18,686,099 6,442,745 (16,438,272) 8,690,572 Loss after income tax expense for the year Other comprehensive income for the year, net of tax - 136,948 (8,180,110) - (8,180,110) 136,948 Total comprehensive income/(loss) for the year - 136,948 (8,180,110) (8,043,162) Transactions with owners in their capacity as owners: Share issued Cost of share issued Options/rights issued 9,497,018 (328,280) 209,640 331,148 - 9,497,018 (328,280) 540,788 Balance at 30 June 2022 28,064,477 6,910,841 (24,618,382) 10,356,936 Issued capital $ Reserves $ Total Accumulated deficiency in losses equity $ $ 28,064,477 6,910,841 (24,618,382) 10,356,936 Loss after income tax expense for the year Other comprehensive income for the year, net of tax - 59,967 (14,684,760) - (14,684,760) 59,967 Total comprehensive income/(loss) for the year - 59,967 (14,684,760) (14,624,793) Transactions with owners in their capacity as owners: Shares issued Conversion of rights to shares Cost of share issued Transfer of vested expired options to share capital Options issued Exercise warrants to equity Employee rights expense 2,777,308 319,632 (139,159) 6,290,131 580,114 - (319,632) (6,290,131) 21,357 (79,236) - 2,777,308 (139,159) 21,357 580,114 (79,236) Balance at 30 June 2023 37,892,503 303,166 (39,303,142) (1,107,473) Balance at 1 July 2021 Adjustment for correction of error (note 2) Balance at 1 July 2021 - restated Refer to note 2 for detailed information on restatement of comparatives. Balance at 1 July 2022 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 14 Spacetalk Limited Consolidated statement of cash flows For the year ended 30 June 2023 Note 2023 $ 2022 $ Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest and other costs of finance Tax receipts 17,848,747 (20,610,113) (693,647) - 21,188,990 (27,480,011) (114,641) 837,145 Net cash used in operating activities (3,455,013) (5,568,517) (7,081) (1,660,899) (56,206) (3,288,913) (1,667,980) (3,345,119) 2,777,309 (117,802) (164,375) 9,497,018 (328,280) (404,493) 2,000,000 (183,539) Net cash from financing activities 2,495,132 10,580,706 Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents (2,627,861) 5,577,088 76,938 1,667,070 4,185,033 (275,015) 3,026,165 5,577,088 Cash flows from investing activities Payments for property, plant and equipment Payment for research and development 13 Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Costs associated with issue of shares Repayment of convertible notes Proceeds from borrowings Repayment of lease liabilities 22 Cash and cash equivalents at the end of the financial year 8 * The Group has elected to present a statement of cash flows that analyses all cash flows in total – i.e., including both continuing and discontinued operations. Refer to note 6 for details on cash flows from discontinued operations. The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 15 Spacetalk Limited Notes to the consolidated financial statements 30 June 2023 Note 1. Significant accounting policies STATEMENT OF COMPLIANCE The Appendix 4E preliminary final report has been prepared in accordance with ASX listing rules and the recognition and measurement criteria of Accounting Standards and interpretations. Accounting Standards include Australian equivalents to International Financial Reporting Standards. BASIS OF PREPARATION The Appendix 4E has been prepared on the basis of historical cost. The accounting policies and methods of computation adopted in the preparation of the Appendix 4E are consistent with those adopted and disclosed in the Group's 30 June 2022 annual financial report. GOING CONCERN The Company’s financial statements are prepared on a going concern basis, which contemplates the realisation of assets and the satisfaction of obligations in the normal course of business. The Directors believe that sufficient funds will be raised in the ongoing capital raise to ensure that the Company has adequate resources to meet its obligations in the foreseeable future. Note 2. Restatement of comparatives CORRECTION OF A MATERIAL ERROR IN INCOME TAX EXPENSE During the review of tax balances for the half year ended 31 December 2022, it was discovered that in 2021-22 a journal to income tax expense was incorrectly posted. This had resulted in an overstatement of the income tax benefit, and an understatement of foreign currency translation reserve of $411,963. Management have restated the comparatives and the following adjustment has been recorded: · a decrease to income tax benefit and an increase to foreign currency translation reserve at 30 June 2022, representing the incorrectly recognised income tax benefit of $411,963; CORRECTION OF A MATERIAL ERROR IN DEFERRED TAX ASSET During the review of the deferred tax asset for the half year ended 31 December 2022, it was discovered that an error occurred in recognising the deferred tax asset balance of $1,100,272 at 30 June 2022. Having reviewed the probability of future taxable profits the Directors believe that the deferred tax asset should not have been recognised as at 30 June 2022 because it was not probable that there would be sufficient taxable profits to utilise the benefit based on forecasts available at that time. Management have restated the comparatives and the following adjustments have been recorded: · a decrease to the deferred tax asset and an increase to the accumulated loss at 30 June 2022, representing the derecognised deferred tax asset of $1,100,272. CORRECTION OF A MATERIAL ERROR IN THE ACCOUNTING TREATMENT OF SCHOOL LICENCE FEES During the year ended 30 June 2023, management discovered that the revenue recognition of school licence fees was not in accordance with AASB 15 Revenue from Contracts with Customers. Revenue was recognised when the invoice was issued and not as the performance obligations were satisfied over time. This