ZhongHuanYun Holdings Group Limited

Transcription

1 ABN Annual Report -

2 Contents Contents Corporate directory 2 Directors' report 3 Auditor's independence declaration 11 Statement of profit or loss and other comprehensive income 12 Statement of financial position 13 Statement of changes in equity 14 Statement of cash flows Directors' declaration 43 Independent auditor's report to the members of ZhongHuanYun Holdings Group Limited 44 Shareholder information 48 1

3 Corporate directory Directors Company secretary Registered office Principal place of business Share register Auditor Solicitors Bankers You Cao (Executive Director) Huaji Li ((Executive Director) Shengrong Zhang (Executive Director) Jinfeng Li (Non-Executive Director) Zhenhua Huang (Non-Executive Director) Jiajun Li C/- Baker & Mackenzie AMP Centre, Level Bridge Street Sydney, NSW 2000, AUSTRALIA C/- Baker & Mackenzie AMP Centre, Level Bridge Street Sydney, NSW 200, AUSTRALIA ShareBPO Pty Ltd Level 1, Pitt Street Sydney NSW 2000 BDO East Coast Partnership Level 18, 727 Collins Street Melbourne, VIC 3008 Baker & Mackenzie AMP Centre, Level Bridge Street Sydney, NSW 2000, AUSTRALIA Bank of China (Hong Kong) Sheung Shui Branch Shop 3, 3/F, Choi Yuen Shopping Centre Choi Yuen Estate Sheung Shui Hong Kong Stock exchange listing Website ZhongHuanYun Holdings Group Limited shares are listed on the Sydney Stock Exchange (SSX code: 8ZH) 2

4 Directors' report The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity') consisting of ZhongHuanYun Holdings Group Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended. Directors The following persons were directors of ZhongHuanYun Holdings Group Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: You Cao Huaji Li Shengrong Zhang Jinfeng Li Zhenhua Huang Principal activities During the financial year the principal continuing activities of the consolidated entity consisted of: Logistics support agency services; and Direct route services Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations Below is a summary of the operating results and financial position for the year: Net loss after tax from continuing operations: $1,299,040 (2016: $1,485,620) Revenues decreased by $3,155,248 to $12,876,901 from $16,032,149 in the prior year. The consolidated entity s total asset less total liability decreased by $1,556,265 to net liability of $472,419 from net asset of $1,083,846. The financial results of the consolidated entity decreased due to the decrease in revenue. The financial position of the consolidated entity contracted due to the further losses made during the year. Significant changes in the state of affairs There were no significant changes in the state of affairs of the consolidated entity during the year ended. Matters subsequent to the end of the financial year No matter or circumstance has arisen since that has significantly affected, or may significantly affect the consolidated entity s operations, the results of those operations, or the consolidated entity s state of affairs in future financial years Likely developments and expected results of operations The consolidated entity s current strategy is focused on growing its existing business and continuing to improve its execution and financial performance. Management continue to explore business opportunities in the Logistics support agency services and the direct route services to create shareholder value. Environmental regulation The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law, and relevant laws and regulations in the People s Republic of China. 3

5 Directors' report Information on directors Name: You Cao Title: Chairman, Executive Director and Founder of the Group Experience and expertise: As the founder of ZhongHuanYun, Mr Cao has more than 10 years of experience in the Logistics services industry and is a well-known entrepreneur in Shenzhen city, China. Mr Cao is responsible for making strategic decisions for the Group and has experience in finance and banking, resource and operational management and has excellent public relations skills. Mr Cao is currently the Vice President of the Guangdong High-Tech Industry Chamber of Commerce, Vice President of the Shenzhen Express Courier Association and Vice President of the Shenzhen Electronic Commerce Association. Mr Cao also gives presentations at Shenzhen vocational colleges. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Nomination and Remuneration Committee, Member of the Internal Audit and Risk Committee, responsible for ensuring compliance with the continuous disclosure obligations of the consolidated entity Interests in shares: 11,970,547 fully paid ordinary shares Name: Huaji Li Title: Managing Director and Chief Executive Officer Qualifications: BSc, BA Experience and expertise: Huaji Li has over 10 years experience in the e-commerce industry, and is an entrepreneur who has led his team to found China s first agricultural information platform, and China s first e-commerce and search engine Shang Bao. In 2007, he joined Alibaba as one of the founders of Aliexpress, a platform of Alibaba Group. Today, Aliexpress has become the world s third largest trading site in English, second only to Amazon and Ebay. Mr. Li has a broad influence in the Chinese foreign trade e- commerce circles because of his insights, skills and business operations experience. He was a winner of the Top One Hundred People Impacting Chinese Websites Award in 2007 and iresearch E-Commerce Columnist of the year. Other current directorships: Broad Horizon Enterprises SES Former directorships (last 3 years): None Special responsibilities: None Interests in shares: 309,870 fully paid ordinary shares Name: Shengrong Zhang Title: Executive Director Qualifications: B.Com, MBA (England) Experience and expertise: Shenrong Zhang graduated from Beijing Normal University with a Fine Arts Degree. In 2006 he obtained the Guangdong Power Engineering Engineer certificate. In 2012, he obtained a Master of Business Administration from Oxford University. Mr. Zhang is currently the General Manager of Shenzhen Zhongengxin Technology Development Co., Ltd. Mr. Zhang served as a general project manager in a Netherlands international engineering company during 1994 to Mr. Zhang established Shenzhen Fountain Green Environmental Ltd. in In 2006, he established Supreme Century Mechanical and Electrical Maintenance Limited. He has joined the group in 2013 as a Executive Director. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: None Interests in shares: 1,420,264 fully paid ordinary shares 4

6 Directors' report Name: Jinfeng Li Title: Non-Executive Director / Independent Director Qualifications: BA Experience and expertise: Jinfeng Li graduated from the South China University of Technology in 1987 with Bachelor of Computer Science Degree, and has published papers in After, he moved to Australia as a skilled migrant, and founded Australia s biggest computer company, Pioneer Computers. He has been named in the global computer industry s CRN Magazine as the Huaji Li Champion. Since 2007, Jinfeng Li has been chairman of Guangdong Provincial Overseas Exchange Association, and has accompanied the then Australian Trade Minister Dr. Emerson s visit to China in He became a Non- Executive Director of the consolidated group in Currently, Jinfeng Li is a director of Pioneer Computers Australia. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Nomination and Remuneration Committee Member of the Audit and Risk Committee Interests in shares: None Name: Zhenhua Huang Title: Non-Executive Director / Independent Director Qualifications: BSc Experience and expertise: Zhenhua Huang graduated from Sydney Technology University with Bachelor of Marketing. He has worked in banking for a number of years and has extensive experience in project management. He joined the Group as a Non-Executive Director in Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chairman of the Nomination and Remuneration Committee, Chairman of the Audit and Risk Committee Interests in shares: None 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Jiajun Li holds a double Bachelor from Hebei University and Sydney University. Her majors are International Business and Finance & Accounting. She also holds a Masters from NSW University in Risk Management. Meetings of directors The number of meetings of the consolidated entity's Board of Directors ('the Board') and of each Board committee held during the year ended, and the number of meetings attended by each director were: Full Board Nomination and Remuneration Committee Audit and Risk Committee Attended Held Attended Held Attended Held You Cao Huaji Li Shengrong Zhang Jinfeng Li Zhenhua Huang Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. 5

7 Directors' report Remuneration report (audited) The remuneration report, which has been audited, outlines the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. The remuneration report is set out under the following main headings: A Principles used to determine the nature and amount of remuneration B Details of remuneration C Service agreements D Share-based compensation E Additional information F Additional disclosures relating to key management personnel A Principles used to determine the nature and amount of remuneration The objective of the consolidated entity's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to the market best practice for delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: competitiveness and reasonableness acceptability to shareholders performance linkage / alignment of executive compensation transparency The Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for the consolidated entity s directors and executives. The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The remuneration framework for directors and executives is designed to ensure that the consolidated entity can offer competitive rewards that are complementary and responsive to the financial and performance goals of the consolidated entity. In accordance with best practice corporate governance, the structure of non-executive directors and executive remuneration are separate. Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors' fees and payments are reviewed annually by the Nomination and Remuneration Committee. The Nomination and Remuneration Committee may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. Non-executive directors do not receive performance-based pay, share options or other incentives. Executive remuneration The consolidated entity aims to reward executives with a level and mix of remuneration based on their position and responsibility, which has both fixed and variable components. The executive remuneration and reward framework has two components: base pay and non-monetary benefits other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee, based on individual and business unit performance, the overall performance of the consolidated entity and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the consolidated entity and provides additional value to the executive. 6

8 Directors' report B Details of remuneration Amounts of remuneration Details of the remuneration of the key management personnel of the consolidated entity are set out in the following tables. The key management personnel of the consolidated entity consisted of the following directors of ZhongHuanYun Holdings Group Limited: You Cao Huaji Li Shengrong Zhang Jinfeng Li Zhenhua Huang Short-term benefits Postemployment benefits Long-term benefits Share-based payments Cash salary Non- Super- Long service Equityand fees Bonus monetary annuation leave settled Total 2017 $ Executive Directors You Cao 45, , ,547 Huaji Li , , ,547 Non-Executive Directors ZhenHua Huang 3, ,892 Total 49, , ,439 No payments were made to Jinfeng Li and Shangrong Zhang during the year ended. Short-term benefits Postemployment benefits Long-term benefits Sharebased payments Cash salary Non- Super- Long service Equityand fees Bonus monetary annuation leave settled Total 2016 $ Executive Directors You Cao 34, , ,813 Huaji Li , , ,813 Non-Executive Directors Jinfeng Li 10, ,000 Total 44, , ,813 No payments were made to Zhenhua Huang and Shangrong Zhang during the year ended 30 June

9 Directors' report C Service agreements Remuneration and other terms of employment for Executive directors are formalised in service agreements. Details of these agreements are as follows: Name: You Cao Title: Executive Director Agreement commenced: 25 January 2013 Term of agreement: Not fixed Details: Base salary of RMB 216,000 per annum, plus superannuation. Bonus of 5 50% upon achievement of KPI s as approved by the Nomination and Remuneration Committee. The salary and KPI s will be reviewed annually by the Nomination and Remuneration Committee [3 month termination notice is required by either party, nonsolicitation and non-compete clauses]. Name: Huaji Li Title: Managing Director and Chief Executive Officer Agreement commenced: 6 June 2013 Term of agreement: 5 years Details: Base salary of RMB 20,000 per month, to be reviewed annually by the Nomination and Remuneration Committee. [6 month termination notice is required by either party, bonus is subject to Nomination and Remuneration Committee approval and KPI achievement, non-solicitation and non-compete clauses]. On 12 December 2016, the board decided that Huaji Li was not entitled to receive remuneration in respect of the financial year ended. Huaji Li continues to work for ZhongHuanYun Holdings Group Limited but receives no remuneration for his services. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Non-executives remunerations are approved by the board and put forward for shareholder resolution at each annual general meeting. D Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the years ended and 30 June Options There were no options over ordinary shares issued to directors and other key management personnel as part of compensation that were outstanding as at or 30 June There were no options over ordinary shares granted to or that vested with directors and other key management personnel as part of compensation during the year ended or during the year ended 30 June E Additional information The earnings of the consolidated entity for the five years to are summarised below: $ Revenue 12,876,901 16,032,149 22,472,289 28,095,804 15,027,264 Earnings before interest and tax (744,835) (818,656) (3,491,207) 1,847,063 1,287,714 Net (loss)/profit after tax (1,329,039) (1,485,620) (3,770,772) 1,274, ,271 8

10 Directors' report F Additional disclosures relating to key management personnel Shareholding The number of shares in the consolidated entity held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at Received Balance at the start of as part of Disposals/ the end of the year remuneration Additions other the year Ordinary shares You Cao 11,970, ,970,547 Huaji Li 1,009, (700,000) 309,870 Shengrong Zhang 640, ,000-1,420,264 13,620, ,000 (700,000) 13,700,681 Other transactions with key management personnel and their related parties Amounts payable to key management personnel Details of aggregate of loan transactions with KMP in the reporting period: Name Balance at beginning of the year Amount advanced to the consolidate d entity Amount repaid to KMP Foreign exchange translation Interest charged Write-off or allowance for doubtful debt Balance at end of the year You Cao $1,764,095 $962,770 ($619,851) ($178,800) $508,798 - $1,928,214 Terms and conditions of loans payable to KMP and their related parties: Loans payable to directors are at call and unsecured. The Group is charged interest at the same rate Mr Cao borrows from unrelated third parties at average commercial rate applicable to entities under similar circumstances. Refer to note 16 Borrowings for detail of the loans/advances. This concludes the remuneration report, which has been audited. Shares under option There were no unissued ordinary shares of ZhongHuanYun Holdings Group Limited under option outstanding at the date of this report. Shares issued on the exercise of options There were no ordinary shares of ZhongHuanYun Holdings Group Limited issued on the exercise of options during the year ended and up to the date of this report. Indemnity and insurance of officers The consolidated entity has indemnified the directors and executives of the consolidated entity for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the consolidated entity paid a premium in respect of a contract to insure the directors and executives of the consolidated entity against a liability to the extent permitted by the Corporations Act The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. Indemnity and insurance of auditor The consolidated entity has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the consolidated entity or any related entity against a liability incurred by the auditor. 9

11 Directors' report During the financial year, the consolidated entity has not paid a premium in respect of a contract to insure the auditor of the consolidated entity or any related entity. Proceedings on behalf of the consolidated entity No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the consolidated entity, or to intervene in any proceedings to which the consolidated entity is a party for the purpose of taking responsibility on behalf of the consolidated entity for all or part of those proceedings. Non-audit services There were no non-audit services provided during the year by the auditor. Officers of the consolidated entity who are former audit partners of BDO East Coast Partnership There are no officers of the consolidated entity who are former audit partners of BDO East Coast Partnership. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 11. Auditor BDO East Coast Partnership continues in office in accordance with section 327 of the Corporations Act This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act On behalf of the directors You Cao Chairman and Executive Director 29 September 2017 Shenzhen, China 10

12 Tel: Fax: Collins Square, Tower Four Level 18, 727 Collins Street Melbourne VIC 3008 GPO Box 5099 Melbourne VIC 3001 Australia DECLARATION OF INDEPENDENCE BY WAI AW TO THE DIRECTORS OF ZHONGHUANYUN HOLDINGS GROUP LIMITED As lead auditor of ZhongHuanYun Holdings Group Limited for the year ended, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of ZhongHuanYun Holdings Group Limited and the entities it controlled during the period. Wai Aw Partner BDO East Coast Partnership Melbourne, 29 September 2017 BDO East Coast Partnership ABN is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN , an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.

13 Statement of profit or loss and other comprehensive income For the year ended Note Revenue 5 12,876,901 16,032,149 Expenses Cost of sales (12,287,883) (14,791,443) Sales expense (690,756) (1,230,583) Administration (424,078) (560,649) Corporate (126,491) (245,704) Bad debt expense (53,685) (22,426) Impairment - goodwill (38,843) - Finance costs (508,798) (721,661) Loss before income tax 6 (1,253,633) (1,540,317) Income tax (expense)/benefit 7 (75,406) 54,697 Net Loss after tax for the year attributable to the owners of ZhongHuanYun Holdings Group Limited (1,329,039) (1,485,620) Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation (227,226) (138,224) Other comprehensive income for the year, net of tax (227,226) (138,224) Total comprehensive income for the year attributable to the owners of ZhongHuanYun Holdings Group Limited (1,556,265) (1,623,844) Cents Cents Basic loss per share (cents per share) 32 (4.35) (4.86) Diluted loss per share (cents per share) 32 (4.35) (4.86) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 12

14 Statement of financial position As at Note Assets Current assets Cash and cash equivalents 8 308, ,301 Trade and other receivables 9 610, ,418 Other assets 10 3,302,530 4,839,219 Total current assets 4,222,109 6,180,938 Non-current assets Property, plant and equipment , ,784 Intangibles 12 4,408 52,749 Deferred tax 13-82,614 Total non-current assets 171, ,147 Total assets 4,393,548 6,556,085 Liabilities Current liabilities Trade and other payables 14 1,837,586 2,430,200 Borrowings 15 1,928,214 1,764,095 Income tax ,978 1,030,291 Employee benefits , ,226 Other 18 53,680 62,427 Total current liabilities 4,865,967 5,472,239 Total liabilities 4,865,967 5,472,239 Net (liabilities)/assets (472,419) 1,083,846 Equity Issued capital 19 2,583,429 2,583,429 Reserves 20 1,481,231 1,708,457 Accumulated losses (4,537,079) (3,208,040) Total (deficiency)/equity (472,419) 1,083,846 The above statement of financial position should be read in conjunction with the accompanying notes 13

15 Statement of changes in equity For the year ended Issued Accumulated Total capital Reserves losses equity Balance at 1 July ,583,429 1,846,681 (1,722,420) 2,707,690 Loss after income tax for the year - - (1,485,620) (1,485,620) Other comprehensive income for the year, net of tax - (138,224) - (138,224) Total comprehensive income for the year - (138,224) (1,485,620) (1,623,844) Balance at 30 June ,583,429 1,708,457 (3,208,040) 1,083,846 Issued Accumulated Total capital Reserves losses equity Balance at 1 July ,583,429 1,708,457 (3,208,040) 1,083,846 Loss after income tax for the year - - (1,329,039) (1,329,039) Other comprehensive income for the year, net of tax - (227,226) - (227,226) Total comprehensive income for the year - (227,226) (1,329,039) (1,556,265) Balance at 2,583,429 1,481,231 (4,537,079) (472,419) The above statement of changes in equity should be read in conjunction with the accompanying notes 14

16 Statement of cash flows For the year ended Note Cash flows from operating activities Receipts from customers (inclusive of GST) 12,936,674 17,967,646 Payments to suppliers and employees (inclusive of GST) (12,831,563) (15,195,558) Government grant - 90,708 Other 1,121 - Interest and other finance costs paid (508,798) (721,661) Income taxes refunded/(paid) 1,139 (3,707) Net cash (used in)/provided by operating activities 31 (401,427) 2,137,428 Cash flows from investing activities Proceeds from disposal of property, plant and equipment 19,462 - Net cash provided by investing activities 19,462 - Cash flows from financing activities Proceeds from related party loans 962, ,348 Repayment of related party loans (619,851) (1,210,717) Repayment of bank loans - (1,014,199) Net cash provided by/(used in) financing activities 342,919 (1,702,568) Net (decrease)/increase in cash and cash equivalents (39,046) 434,860 Cash and cash equivalents at the beginning of the financial year 495, ,951 Effects of exchange rate changes on cash and cash equivalents (147,532) (107,510) Cash and cash equivalents at the end of the financial year 8 308, ,301 The above statement of cash flows should be read in conjunction with the accompanying notes 15

17 Note 1. General information The financial statements cover ZhongHuanYun Holdings Group Limited as a consolidated entity consisting of ZhongHuanYun Holdings Group Limited and its subsidiaries. The financial statements are presented in Australian dollars, which is ZhongHuanYun Holdings Group Limited's presentation currency and the functional currency of the parent entity. The functional currency of the operating companies is the Chinese Yuan Renminbi ("RMB"). All amounts are translated to the presentation currency of the parent entity. ZhongHuanYun Holdings Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: C/- Baker & Mackenzie AMP Centre, Level Bridge Street Sydney, NSW 2000 A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 29 September The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3. 16

18 Note 2. Significant accounting policies (continued) Going concern The consolidated entity made a loss for the year ended of $1,329,039 (2016: $1,485,620). As at 30 June 2017 the consolidated entity had cash and cash equivalents of $308,723 (2016: 495,301), had borrowings (current) of $1,928,214 (2016: $1,764,095) and had a net liability of $472,419. The ability of the consolidated entity to continue as a going concern is dependent on the consolidated entity successfully generating sufficient operating cash flow from the continuing operations and the continued financial support from the Chairman. These conditions indicate a material uncertainty that may cast a significant doubt about the consolidated entity s ability to continue as a going concern. The financial statements have been prepared on the basis that the consolidated entity is a going concern, which contemplates the continuity of normal business activity, realisation of assets and settlement of liabilities in the normal course of business for the following reasons: The Chairman of the consolidated entity, Mr Cao, has confirmed that he will continue to provide the loans, including provision of his personal assets as a pledge to secure external financing. The Chairman of the consolidated entity, Mr Cao, will not demand repayment of the loans owing to him of $1,928,214 as at for a period of at least 12 months from the date of this report and is prepared to provide continuous financial support, if required, as in prior years. The balance includes two advances of $ 192,060 and $17,921, representing an advance provided by Mr Cao in his personal capacity; the remaining $1,718,232 represents loans obtained by Mr Cao using his personal assets as securities from unrelated third parties for the purpose of providing working capital to the consolidated entity. The directors have prepared budgets which demonstrate that, based on the above factors; the consolidated entity has sufficient funds available to meet its commitments for at least twelve months from the date of signing this report. Should the consolidated entity not be able to continue as a going concern, it may be required to realise its assets and discharge its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial statements. The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or liabilities that might be necessary should the consolidated entity not continue as a going concern. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in Note 26. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of ZhongHuanYun Holdings Group Limited ('company' or 'parent entity') as at and the results of all subsidiaries for the year then ended. ZhongHuanYun Holdings Group Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. 17

19 Note 2. Significant accounting policies (continued) Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is ZhongHuanYun Holdings Group Limited's presentation currency. The functional currency of the group is the Chinese Yuan Renminbi, as the group's operations are based in China, forming its primary economic environment. Financial Instruments Classification The Group classifies its financial instruments in the following categories: loans and receivables. Management determines the classification of its financial instruments at the time of initial recognition. Loans and Receivables Loan and receivables are measured at fair value at inception and subsequently at amortised cost using the effective interest rate method. Financial Liabilities Financial liabilities include trade payables, other payables and loans from third parties including inter-company balances and loans from or other amounts due to Director-related entities. Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. Foreign Currency Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rate at the date of the transaction, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Rendering of services Revenue from rendering of services is recognised when the consolidated entity has completed delivery of items to their destination. Delivery occurs when delivery is accepted by the recipient and all the risks of obsolescence and loss related to the object being delivered transfers to the recipient, and either the recipient has accepted the objects in accordance with the sales contract, the acceptance provisions have lapsed, or the consolidated entity has objective evidence that all criteria for completion of delivery have been satisfied. 18

20 Note 2. Significant accounting policies (continued) Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is current when: it is expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is current when: it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 19

21 Note 2. Significant accounting policies (continued) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently at amortised cost less any impairment losses recognised. Collectability of trade receivables is reviewed on an ongoing basis. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the group will not be able to collect all amounts due. Other receivables are recognised at amortised cost, less any provision for impairment. Investments and other financial assets Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the asset is derecognised or impaired. Impairment of financial assets The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows. Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows: Leasehold improvements 50% - 100% Equipment 9.50% - 19% The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. 20

22 Note 2. Significant accounting policies (continued) Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the de-recognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Software Significant costs associated with software are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 5 years. Impairment of non-financial assets Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. 21

23 Note 2. Significant accounting policies (continued) Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. 22