Full Year Financial Accounts

eServGlobal Limited

ABN 59 052 947 743

Financial report for the financial year ended 31 October 2013

Annual financial report

For the financial year ended

31 October 2013

Contents

Chairman's Review

I am delighted to report a successful year for eServGlobal. We have made significant progress against our strategic objectives during the period, with the return to full year EBITDA profitability marking an important milestone in our journey. Our restructuring initiatives over the last few years are now in place and we are confident that they will provide the right platform from which to grow the business. I am excited about the opportunities ahead as we enter a new age of mobile money.

The achievements in our core business have been complemented by the continuing success of the HomeSend international remittance hub. Building on our substantial customer base under contract coverage, we exceeded our objectives for live deployments in 2013. This success was instrumental in the creation of a joint venture with MasterCard and BICS, announced in December 2013. It is our belief that the JV will accelerate HomeSend's move into a new phase in which the hub will become open to new markets, while being supported by the full bandwidth of MasterCard's marketing and distribution networks.

Board Composition

During the year, we were pleased to announce the appointment of Paolo Montessori as CEO and Managing Director as well as the appointment of Steve Blundell to the Board as Chief Financial Officer. John Conoley joined the Board as a Non-Executive-Director, replacing Jamie Brooke who stepped down following three years with the Company. David Smart also retired as a director in 2013 after thirteen years on the eServGlobal Board. It has been a pleasure working with Paolo, Steve and John over the course of the year and I have no doubt we will continue to benefit from their experience and knowledge. I would also like to thank David and Jamie for their meaningful contributions to the Company and wish them well in their future endeavours.

Finally, following the establishment of the HomeSend joint venture, Director Craig Halliday stepped down from the Board in December 2013. During his tenure as COO, CEO and Director, Craig played a major part in the restructuring of the business and the formation of the leadership team we have in place today that has brought the Company back to EBITDA profitability. Craig's final task as Executive Director was to bring HomeSend to a new and exciting level and the formation of the joint venture with MasterCard and BICS marked the completion of his commitments to the Company.

Securities

I would like to thank our shareholders for their support for our recent share placements. The placement of 29,507,815 shares in December 2012 raised $9.557 million (approximately £6.197 million) and was used to invest in our technology and to position our company to be able to bid for substantial projects, such as the Zain Group win. As eServGlobal competes for larger contracts with larger telecommunications and financial services companies, the demand for up-front performance bonds and the acceleration of specific projects and deliverables is required.

In January 2013, shareholders approved a second placement of $7.245 million (approximately £4.765 million), the proceeds of which were used to fully repay existing shareholder loans. Subsequent to the year-end, another smaller placement of 4,500,000 shares was carried out in December 2013, raising AUD$3.375 million (approximately £1.843 million). There are now a total of 253,545,997 shares on issue.

The number of share options currently on issue is 9,100,000. All of the options granted to date under the ESOP have been issued at 36 cents and are "in the money" by a significant amount due to the recent rapid appreciation in the Company's share price. The efforts of the option holders have been a significant reason for the rapid appreciation in the Company's share price. The deferred vesting dates (and requirement that an option holder be an employee at those vesting dates) provide a retention benefit for the company, while providing a tangible incentive to the option holder,

We are pleased to report that during the 2013 financial year we achieved a 226% increase in our market capitalisation and a 158% increase in our share price. As at 31 October 2012, eServGlobal's share price was AU$0.20 with 196,847,706 shares on issue, creating a market capitalisation of AU$39.4M. At the close of the following financial year on 31 October 2013, the share price was AU$0.515 with 249,045,997 shares on issue, producing a market capitalisation of AU$128.3M. We are proud of the value we have created over this period for our shareholders and we are confident that our strategy has positioned eServGlobal to continue to lead in the dynamic mobile money industry.

I would like to thank all employees whose hard work and efforts have helped us to build our established position today and our shareholders who have supported us on the journey so far. We are proud to be a market leader and instrumental part of the innovation and global growth that characterises this segment of the financial services industry.

Looking ahead, we remain focussed on expanding our relationships with our customers and the ongoing innovation of our solutions to ensure that we remain the leading technology partner for end-to-end mobile money solutions. I am confident in the continued growth of the business and that the Company will have another successful year in 2014.

CEO's Report

At the close of 2013, eServGlobal is in the strongest position it has been in for many years. Following the efforts that have gone into reshaping our business over recent years, I am pleased to be able to report on the considerable successes we have achieved this year.

Our customer roster continues to grow and we have a diverse base of over 65 customers for the core domestic services business. This combined with a healthy backlog of work leaves us well positioned to capitalise on this expanding market.

This year, our core business has further expanded its footprint in this target market through the signing of 10 new customers in 10 new geographies and also through expansion within our existing customers. We have also expanded our product offering into areas such as Near Field Communications, companion cards and mobile financial services, which allow mobile money solutions to be deployed in more developed financial markets where users are already expecting their phones to play a key role in their financial affairs.

The marketplace for mobile money solutions is rapidly evolving. The opportunity for eServGlobal to extend financial services to the "unbanked" population in emerging markets is vast, particularly given that these markets are characterised by high rates of mobile penetration and coupled with limited access to traditional financial services. Mobile network operators and financial service providers continue to move quickly to position themselves to be able to extend these new services to their users.

As the market matures, a key trend is the desire for mobile operators to seek a more holistic and considered approach to their mobile money offering so as to ensure a seamless service across all deployments and customers, in addition to realising cost efficiency benefits. eServGlobal is ideally placed to benefit from this trend towards a single vendor strategy. Our technology is built on 30 years' experience in delivering operators with ways to store and transfer value. Our end-to-end solution allows operators to choose one technology platform to meet all their needs from recharge through to basic mobile money and more advanced mobile financial services. Our modular approach is also well-suited to operators or financial service providers who need a solution which can grow as their market matures. These factors were key to securing a Group-wide framework agreement with the Zain Group, resulting in estimated revenue of US$12m over three years.

Our objective for the HomeSend service during the year was to move from subscriber coverage land grab to the next phase of live deployments, with a target of reaching 50 live corridors by year end. We are pleased to have achieved that goal and the HomeSend service is now connecting 51 countries for remittance. Post the period-end, we announced a transformational joint venture agreement with MasterCard and BICS that will propel the HomeSend service to a new operating level. We are excited to be part of this truly unique partnership on the cutting edge of mobile financial services.

I am confident that the success of 2013 will form the platform for further market-leading achievements in the coming years.

Directors' report

Directors' report

Directors' report

Directorships of other listed companies

Directorships of other listed companies held by Directors in the 3 years immediately before the end of the financial year are as follows:

Tom Rowe has served as Company Secretary of eServGlobal since 6 April 2011. He is a Corporate and Commercial Lawyer practising with Simpsons Solicitors with a specialty in corporate transactions, corporate governance and listed company secretarial practice. Mr Rowe holds a BA LLB (Hons) from the University of Adelaide and is an Associate of the Governance Institute of Australia.

Directors' report

Details of unissued shares under option as at the date of this report are:

During the financial year and up to the date of this report, there were no options exercised.

Directors' report

Directors' attendance at Board and Committee meetings held during the financial year

*Held during term of director's appointment to Board, Audit or Remuneration and Nomination Committees.

#Special purpose committees established during the financial year with the delegated authority of the Board to consider specific matters to which the Director was appointed. The special purpose committees dissolved once the delegated authority was exercised.

Non-audit services

The directors are satisfied that the provision of non-audit services, during the financial year, by the auditor (or by another person or firm on the auditor's behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

The audit committee, in conjunction with the Chief Financial Officer, assesses the provision of non-audit services by the auditors to ensure that the auditor independence requirements of the Corporations Act 2001 in relation to the audit are met.

Details of amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in Note 7 to the financial statements.

Auditor's independence declaration

The auditor's independence declaration is included on page 18 of the financial report.

Directors' report

Director and other key management personnel details

The following persons acted as key management personnel of the Company and the Group during or since the end of the financial year:

· Richard Mathews (Non-executive Chairman)

· Paolo Montessori (Managing director and Chief Executive Officer appointed on 30 April 2013; Chief Operating Officer until 30 April 2013)

· Stephen Blundell (Chief Financial Officer; appointed Finance director on 30 April 2013)

· David Smart (Non-executive director until resignation on 22 March 2013)

· François Barrault (Non-executive director)

· James Brooke (Non-executive director until resignation on 1 May 2013)

· Craig Halliday (Executive Director until resignation on 30 December 2013; Chief Executive Officer until 30 April 2013)

· Stephen Baldwin (Non-executive director)

· John Conoley (Non-executive director appointed on 1 May 2013)

· Remi Arame (Chief Sales Officer)

· James Hume (Chief Technology Officer appointed on 1 October 2012)

Except as noted, the named persons held their current positions for the financial year and since the end of the financial year.

Directors' report

Elements of key management personnel remuneration

Non-executive directors are paid directors' fees and, in the case of those who are Australian based, compulsory superannuation fund contributions are made on their behalf. The Board reviews the level of fees from time to time, and sets individual non-executive directors fees based on the levels of fees for comparable listed companies in the appropriate parts of the world. During the year, the Board commissioned an independent benchmarking report for its non-executive director fees and, following the receipt and consideration of the report, reduced the fees paid to the non-executive directors. No remuneration recommendation was provided in the report.

The non-executive directors are appointed by either the Board or shareholder vote and any appointment is subject to re-election on retirement required at Annual General Meetings.

Executive directors and other key management personnel remuneration comprise both Short Term Incentives (STI) and Long Term Incentives (LTI) components. The STI takes the form of a cash bonus and the LTI comprises the issue of share options under the eServGlobal Employee Share Option Plan.

a) The STI component for the executive directors and other key management personnel is as follows.

The Chief Executive Officer (CEO) is remunerated on a salary package basis that includes a base salary, pension contributions, a portion that is a variable component which is dependent on agreed performance objectives and various allowances such as housing and education. The variable component comprises elements relating to achievement of financial plan and specific business objectives. The CEO is a permanent employee with no fixed employment term and a notice period of five months required by either party.

The Chief Financial Officer (CFO) is remunerated on a salary package basis that includes a base salary, pension contributions and a portion that is a variable component which is dependent on agreed performance objectives. The variable component comprises elements relating to achievement of financial plan and specific business objectives. The CFO is a permanent employee with no fixed employment term and a notice period of six months required by either party.

The Chief Sales Officer (CSO) is remunerated on a salary package that includes a base salary, a portion that is a variable component (which is dependent on agreed performance objectives relating to sales), pension contributions and various allowances such as housing and education. The CSO is a permanent employee with no fixed employment term and a notice period of thirty days required by either party.

The Chief Technology Officer (CTO) is remunerated on a salary package basis that includes a base salary and a portion that is a variable component which is dependent on agreed performance objectives. The variable component comprises elements relating to achievement of financial plan and specific business objectives. The CTO is a permanent employee with no fixed employment term and a notice period of two months required by either party.

b) The LTI (share option) component contains an element of reward to incentivise loyalty and continuity of service to the company through the vesting of options over a defined period with eligibility being dependent on continued employment.

Directors' report

The tables below set out summary information about the Group's earnings and movements in shareholder wealth for the two years to June 2011, the four month period to 31 October 2011 and the two years to 31 October 2012 and 2013.

Directors' report

The group's key management personnel received, or will receive, the following amounts as compensation for their services as directors and key management personnel of the Group during the financial year:

(i) J Brooke agreed to receive no benefit for his services until his resignation on 1 May 2013.

(ii) Key management personnel are remunerated on a salary package basis that includes an appropriate portion that is a variable component which is dependent on company performance. Key management personnel had their variable pay components confirmed in conjunction with the completion of the financial statements. The variable components for key management personnel were confirmed on the achievement of customer orders or earnings before interest, tax, depreciation and amortisation targets established during the financial year.

(iii) Paid in Euros and subject to foreign exchange fluctuations at Group level.

(iv) Paid in GBP and subject to foreign exchange fluctuations at Group level.

(v) Paid in USD and subject to foreign exchange fluctuations at Group level.

(vi) Appointed on 1 May 2013.

(vii) Retired as a Director on 22 March 2013.

(viii) Resigned on 1 May 2013.

(ix) Appointed Managing Director and Chief Executive Officer on 30 April 2013.

(x) Resigned as Managing Director and Chief Executive Officer on 30 April 2013. Resigned as executive director on 30 December 2013. The total value of C Halliday's share options which lapsed is $190,845.

Directors' report

The group's key management personnel received the following amounts as compensation for their services as directors and key management personnel of the Group during the previous financial period:

(i) J Brooke has agreed that he receive no benefit for his services.

(ii) Key management personnel are remunerated on a salary package basis that includes an appropriate portion that is a variable component which is dependent on company performance. Key management personnel had their variable pay components confirmed in conjunction with the completion of the financial statements. The variable components for key management personnel were confirmed on the achievement of customer orders or earnings before interest, tax, depreciation and amortisation targets established during the financial year.

(iii) Paid in Euros and subject to foreign exchange fluctuations at Group level.

(iv) Paid in GBP and subject to foreign exchange fluctuations at Group level.

(v) Paid in USD and subject to foreign exchange fluctuations at Group level.

(vi) Appointed on 25 November 2011.

(vii) Appointed on 6 February 2012.

During the financial year, the following share-based payment arrangements were in existence.

(i) The options in these series vest 2 years from the date of issue and expire on the 5 year anniversary of the date of issue.

(ii) Options issued in these series vest fully on 21 December 2014 and expire on 21 December 2017.

(iii) Options issued in this series vest as to one half on 10 June 2014 and the balance on 10 June 2015 and expire on 10 June 2018.

Value of options issued to directors and key management personnel

Key management personnel receiving options are entitled to the beneficial interest under the option only if they continue to be employed with the Group at the time the option vests. Any exposure in relation to the risk associated with the movement in the underlying share price rests with the key management personnel.

1,500,000 options held by Craig Halliday lapsed during the yearfollowing his resignation as the Group's Chief Executive Officer and Managing Director.

During the financial year no options were forfeited as a result of a condition required for vesting (other than continuing employment with the company) not being satisfied. No options vested during the year.

The following table discloses the options granted, exercised or lapsed during the financial year:

Directors' report

(i) The value of options granted during the period is recognised in compensation over the vesting period of the grant, in accordance with the Australian Accounting Standards.

(ii) The value of options lapsing during the period due to the failure to satisfy a vesting condition is determined assuming the vesting condition has been satisfied.

Richard Mathews

Chairman

31 January 2014

The Board of Directors

eServGlobal Limited

c/- Simpsons Solicitors

Level 2, Pier 8/9

23 Hickson Road,

Millers Point NSW 2000

31 January 2014

Dear Board Members

eServGlobal Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of eServGlobal Limited.

As lead audit partner for the audit of the financial statements of eServGlobal Limited for the financial year ended 31 October 2013, I declare that to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

(ii) any applicable code of professional conduct in relation to the audit.

Yours faithfully

DELOITTE TOUCHE TOHMATSU

Michael Kaplan

Partner

Chartered Accountants

Liability limited by a scheme approved under Professional Standards Legislation.

Member of Deloitte Touche Tohmatsu Limited

Corporate governance statement

The eServGlobal Limited board is responsible for establishing the corporate governance framework of the group having regard to the ASX Corporate Governance Council (CGC) published guidelines as well as its corporate governance principles and recommendations. eServGlobal is also required to comply with, inter alia, the Corporations Act 2001 (Cwth), the ASX Listing Rules and the London Stock Exchange AIM Rules for Companies. The table below and accompanying statement outlines the main corporate governance practices of eServGlobal during the financial year and the extent of eServGlobal's compliance with the CGC's recommendations as at the date of this report.

Corporate governance statement

Corporate governance statement

5.2 Companies should provide the information indicated in the Guide to reporting on Principle 5.

Independent Auditor's Report to the Members of eServGlobal Limited

Report on the Financial Report

We have audited the accompanying financial report of eServGlobal Limited, which comprises the statement of financial position as at 31 October 2013, the statement of profit or loss and other comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year as set out on pages 29 to 76.

Directors' Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor's Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance that the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the entity's preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Auditor's Independence Declaration

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of eServGlobal Limited, would be in the same terms if given to the directors as at the time of this auditor's report. 

Opinion

In our opinion:

(a) the financial report of eServGlobal Limited is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity's financial position as at 31 October 2013 and of its performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001;

(b) the consolidated financial statements also comply with International Financial Reporting Standards as disclosed in Note 1.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 11 to 17 of the directors' report for the year ended 31 October 2013. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Opinion

In our opinion the Remuneration Report of eServGlobal Limited for the year ended 31 October 2013, complies with section 300A of the Corporations Act 2001.

DELOITTE TOUCHE TOHMATSU

Michael Kaplan

Partner

Chartered Accountants

Sydney, 31 January 2014

Directors' declaration

The directors declare that:

(a) in the directors' opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable;

(b) the attached financial statements are in compliance with International Financial Reporting Standards, as stated in Note 1 to the financial statements;

(c) in the director's opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and

(d) the directors have been given the declarations required by section 295A of the Corporations Act 2001.

Signed in accordance with a resolution of the directors made pursuant to section 295(5) of the Corporations Act 2001.

On behalf of the directors

Richard Mathews

Chairman

Brisbane, 31 January 2014

Consolidated statement of profit or loss and other comprehensive income for the financial year ended 31 October 2013

Notes to the financial statements are included on pages 34 to 76

Consolidated statement of financial position as at 31 October 2013

Notes to the financial statements are included on pages 34 to 76

Consolidated statement of changes in equity for the year ended 31 October 2013

Notes to the financial statements are included on pages 34 to 76

Consolidated statement of cash flows for the year ended 31 October 2013

Notes to the financial statements are included on pages 34 to 76

Notes to the Financial Statements for the financial year ended 31 October 2013

Basis of preparation

The following significant accounting policies have been adopted in the preparation and presentation of the financial statements:

(a) Cash and cash equivalents

Cash and cash equivalents include cash on hand and in banks, deposits held at call with banks and financial institutions, investments in money market instruments with maturities of three months or less from the date of acquisition, and bank overdrafts. Bank overdrafts are shown within short‑term borrowings in current liabilities on the statement of financial position.

(b) Employee benefits

Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably.

Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date.

Defined contribution plans

Contributions to defined contribution superannuation plans are expensed when employees have rendered service entitling them to the contributions.

Notes to the Financial Statements for the financial year ended 31 October 2013

(c) Financial assets

Financial assets are classified into the following specified category: 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Loans and receivables

Trade and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest income is recognised by applying the effective interest rate.

Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed on initial recognition. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying value of the allowance account are recognised in profit or loss.

(d) Financial instruments issued by the Group

Debt and equity instruments

Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Transaction costs on the issue of equity instruments

Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method, with the interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost.

Notes to the Financial Statements for the financial year ended 31 October 2013

(e) Foreign currency

Foreign currency transactions

All foreign currency transactions arising during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at reporting date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured at historical cost in a foreign currency are not re-translated.

Exchange differences are recognised in profit or loss in the year in which they arise.

Foreign operations

All overseas subsidiaries, other than those that are part of the eServGlobal Holdings SAS group, report in their functional currency of AUD, in accordance with the requirements of AASB 121 "The Effects of Changes in Foreign Currency Exchange Rates" and as a consequence all exchange rate translation differences are taken to profit or loss. The eServGlobal Holdings SAS group reports in its functional currency of EUR and on consolidation, the assets and liabilities of the eServGlobal Holdings SAS group are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the year unless exchange rates fluctuate significantly. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (foreign currency translation reserve). Accumulated exchange differences are recognised in profit or loss on disposal of the foreign operation.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity on or after the date of transition to A-IFRS are treated as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the reporting date.

(f) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or

ii. for receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.

Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.

(g) Goodwill

Goodwill, representing the excess of the cost of acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities acquired, is recognised as an asset and not amortised, but tested for impairment annually and whenever there is an indication that the goodwill may be impaired.

Any impairment is recognised immediately in profit or loss and is not subsequently reversed. Refer also to Note 1(h).

Notes to the Financial Statements for the financial year ended 31 October 2013

(h) Impairment of assets

At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

For the purpose of impairment testing, goodwill is allocated to the cash-generating units expected to benefit from the synergies of the business combination.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately.

With the exception of goodwill, where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately.

(i) Income tax

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the year. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior year is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred tax

Deferred tax is accounted for in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Notes to the Financial Statements for the financial year ended 31 October 2013

(i) Income tax (continued)

Current and deferred tax for the year

Current and deferred tax is recognised as an expense or income in profit or loss, except when it relates to items credited or debited to other comprehensive income or directly to equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity. Where it arises from the initial accounting for a business combination it is taken into account in the determination of goodwill.

(j) Intangible assets

All intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably.

Software and Documentation

Software and Documentation are recorded initially at fair value and have an estimated useful life. Amortisation is charged on a straight line basis over their useful lives.

Customer Relationships

Customer Relationships are recorded initially at fair value and have an estimated useful life. Amortisation is charged on a straight line basis over their useful lives.

Internally-generated intangible assets - research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred.

An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:

· the technical feasibility of completing the intangible asset so that it will be available for use or sale;

· the intention to complete the intangible asset and use or sell it;

· the ability to use or sell the intangible asset;

· how the intangible asset will generate probable future economic benefits;

· the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

· the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above.

The expenditure capitalised includes cost of materials, direct labour and a proportion of overheads. Other development expenditure is recognised in profit or loss as an expense as and when incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.

(k) Inventories

Inventories are valued at the lower of cost and net realisable value. Costs are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a first in first out basis. Net realisable value represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distribution.

Notes to the Financial Statements for the financial year ended 31 October 2013

(l) Leases

Operating lease payments, where substantially all of the risks and benefits remain with the lessor, are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals are recognised as an expense in the year in which they are incurred.

Lease incentives

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a straight-line basis.

(m) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) (referred to as 'the Group' in these financial statements). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in consolidated profit or loss from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interest in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interest's share of changes in equity since the date of the combination. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of the assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB 3 "Business Combinations" are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 "Non-current Assets Held for Sale and Discontinued Operations", which are recognised and measured at fair value less costs to sell. Acquisition related costs are recognised in profit or loss as incurred.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If after reassessment, the group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Notes to the Financial Statements for the financial year ended 31 October 2013

(n) Property, plant and equipment

Plant and equipment, office furniture and fittings and leasehold improvements are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition.

Depreciation is provided on property, plant and equipment. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period.

The following estimated useful lives are used in the calculation of depreciation:

Office furniture and fittings 5 years

Plant and equipment 3 years

Leasehold improvements over the period of the lease

(o) Provisions

Provisions are recognised when the Group has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably.

Onerous Contracts

An onerous contract is considered to exist where the Group has a contract under which the unavoidable cost of meeting the contractual obligations exceeds the economic benefits expected to be received. Present obligations arising under onerous contracts are recognised as a provision to the extent that the present obligation exceeds the economic benefits expected to be received.

(p) Assets held for sale

Assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group) and its sale is highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

Notes to the Financial Statements for the financial year ended 31 October 2013

(q) Revenue recognition

Sale of Goods and Licences

Revenue from the sale of goods and licences is recognised when the Group has passed control of the goods or other assets to the buyer, except in the case of projects involving significant customisation where revenue is recognised by reference to the stage of completion of the project.

Rendering of Services

Revenue from services to supply custom designed and developed software or solutions is recognised by reference to the stage of completion of the project. The stage of completion is determined by assessing, at the reporting date, the level of actual services performed as a percentage of total services to be performed in relation to the project.

Revenue recognised in advance of the corresponding bill being raised is recorded as 'work in progress', whilst bills raised in advance of the services being performed is recorded as 'deferred income'.

Where a loss is expected to occur it is recognised immediately and a provision is made in relation to any future work on the contract.

Revenue from Support, Maintenance and Facilities Management Agreements

Revenue from support and maintenance contracts is recognised on a straight line basis over the contract period.

Work in Progress

Work in progress is stated at the aggregate of contract costs incurred to date plus recognised profits less recognised losses and progress billings. If there are contracts where progress billings exceed the aggregate costs incurred plus profits less losses, the net amounts are presented in other liabilities.

Contracts costs include all costs directly related to specific contracts and costs that are specifically chargeable to the customers under the terms of the contract.

(r) Share-based payments

Equity-settled share-based payments are measured at fair value at the date of grant. Fair value is measured by use of either a Black Scholes or binomial model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest.

(s) Derivative financial instruments and hedge accounting

The Group may use derivative financial instruments (primarily foreign currency forward contracts) to hedge its risks associated with foreign currency fluctuations relating to transactions arising from specific customer orders. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event, the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Notes to the Financial Statements for the financial year ended 31 October 2013

The fair value of all derivative financial instruments outstanding at the reporting date are recognised in the statement of financial position as either financial assets or financial liabilities. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity, with any ineffective portion being recognised in profit or loss. Amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is recognised in profit or loss in the same line of the income statement as the recognised hedged item.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in profit or loss as they arise.

Derivatives embedded in other financial instruments, or other non financial host contracts, are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract, and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss.

The directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and based on current trends and economic data, obtained both externally and within the Group.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Impairment of goodwill

The Group assesses impairment at each reporting date by evaluating conditions specific to the Group that may lead to impairment of goodwill. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value‑in‑use calculations performed in assessing recoverable amounts incorporate a number of key estimates described in Note 13.

Revenue recognition

Revenue in relation to the supply of custom designed and developed software or solutions is recognised on each project by reference to the stage of completion of the project. The method of calculating the percentage completion of the project involves an element of judgement based on future project costs and profitability of each project. The information used to forecast these costs is based on historical events and current economic data on a customer by customer basis.

Unused tax losses

The recognition of unused tax losses as a deferred tax asset requires estimation and judgement of the availability of future taxable profits and is subject to compliance with the relevant tax legislations. At the date of this report, the directors have assessed the degree of probability of recovering the remaining unused tax losses. Accordingly, a deferred tax asset has been recognised to the extent that the probability criteria has been met.

Notes to the Financial Statements for the financial year ended 31 October 2013

(u) Adoption of new and revised Accounting Standards

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current annual reporting period. The adoption of these new and revised Standards and Interpretations has resulted in no changes to the Group's accounting policies, but has resulted in disclosure changes. Refer below.

(u.1) Standards and Interpretations affecting amounts reported in the current year (and/or prior years)

The following new and revised Standard and Interpretation has been adopted in the current year and has affected the presentation of amounts reported in these financial statements.

Standards affecting presentation and disclosure

Standards and Interpretations affecting the reported results or financial position

There are no new and revised Standards and Interpretations adopted in these financial statements affecting the reporting results or financial position.

(u.2) Standards and Interpretations in issue not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective. The potential impact of the new or revised Standards and Interpretations has not yet been determined.

Notes to the Financial Statements for the financial year ended 31 October 2013

(u.2) Standards and Interpretations in issue not yet adopted (continued)

Notes to the Financial Statements for the financial year ended 31 October 2013