HONGFA GROUP (AUSTRALIA) LIMITED ACN

Transcription

1 HONGFA GROUP (AUSTRALIA) LIMITED ACN ANNUAL REPORT for the year ended 30 June 2017

2 Contents Directors Report 2 Remuneration Report 5 Corporate Governance Statement 12 Auditor s Independence Declaration 17 Consolidated Statement of Profit or Loss and Other Comprehensive Income 18 Consolidated Statement of Financial Position 19 Consolidated Statement of Changes in Equity 20 Consolidated Statement of Cash Flows 21 Notes to the Financial Statements 22 Directors Declaration 45 Independent Auditor s Report 46 Additional Information for Listed Public Companies 50 1

3 Directors Report HONGFA GROUP (AUSTRALIA) LIMITED AND CONTROLLED ENTITIES Your directors present their report on the consolidated entity (referred to herein as the Group ) consisting of Hongfa (Group) Australia Limited (referred to here after as the company or parent entity and its controlled entities for the financial year ended 30 June General Information Directors The following persons were directors of Hongfa (Group) Australia Limited during or since the end of the financial year up to the date of this report: Shenghan Zhou Richard Sicong Cen Haipeng Xu Principal Activities Executive Director, Chairman Non-Executive Director Non-Executive Director The principal activities of the Group during the financial year were providing the services of the property management and related services. Most of the properties managed by the Group are owned by the Group s related party Hongfa Real Estate Development Co., Ltd. Review of Operations Comparison to previous period Increase/Decrease Change % to $ Revenue from continuing operations Increase 8% 4,638,542 Profit from ordinary and extraordinary Decrease 28% 947,309 activities after income tax attributable to members Net profit attributable to members Decrease 28% 947,309 Explanation of Revenue The Group recorded revenue of $4,638,542 for the year ended 30 June 2017, an increase of 8% compared to revenue of $4,285,294 for the year ended 30 June Excluding the effects of tax reformation from business tax to Value- Added tax (VAT), the actual operating income decreased by 13%. In addition, the revenue decreased by 21% compared to prior year due to the appreciation of Australian Dollar against Chinese Yuan. The major reason for this reduction is due to a major client who surrendered their commercial property lease for three quarters, which led to a decrease of approximately $467,000 correspondingly. Explanation of Net Profit after Tax The net profit for the year ended 30 June 2017 declined by $374,505, a decrease of 28% compared to the prior year. After deducting the impact of the appreciation of Australian Dollar against Chinese Yuan, the profit decreased by 21% compared to the prior year which was mainly due to the lease termination from one of our major clients. Company has implemented good control over the operation expenses and this is mainly reflected in the electricity and heating fees, which have decreased by $162,000 compared to the previous year. Other expenses remain stable compared to last year. Company has already signed an agreement with a new tenant, which will generate revenue from November Likely developments and expected results of operations In the future, the consolidated entity intends to focus on establishing an efficient and elite marketing team and having well developed marketing strategy and good support for related operation. The consolidated entity will also focus on developing a practical service strategy. It aims for developing the future strategy to render the property management operation as the main target, highlighting the management experiences in terms of large-scale commercial property and expanding acquisition of other commercial property projects to further increase our operation results. Environmental regulation The group is not subject to any significant environmental regulation under Australian Commonwealth or State law and The People s Republic of China Environmental Impact Assessment Law. 2

4 DIRECTORS REPORT CONTINUED Dividends Paid or Recommended No dividends have been paid or declared by Hongfa (Group) Australia Limited since the beginning of the financial year and none are recommended. Information relating to Directors and Company Secretary Shenghan Zhou Executive Chairman Experience and Qualifications Mr Shenhan Zhou is the Executive Chairman. Mr Zhou graduated from Royal Melbourne Institute of Technology and holds Bachelor of Business. He is currently studying MBA program at Cheung Kong Graduate School of Business. Mr Zhou is a major shareholder of Tianjin Hongfa Investment Group. Since March 2013, he acted as the legal representative of Tianjin Port Shenghan Petrochemical Logistic Company Limited. The total assets of the company amount to 2 billion RMB (equivalent to $400 million). Interest in Shares and Options Hongfa New Horizon Management and Consulting Co., Ltd (incorporated in Hong Kong) is the registered holder of 22,5000,000 ordinary shares in the Listee (70.99% of the issued shares in the Listee) which is ultimately owned and controlled by the Director s family members. Special Responsibilities Member of the Audit and Risk Committee and Member of Remuneration and Nomination Committee Directorships held in other listed None entities during the three years prior to the current year Richard Sicong Cen Non-Executive Director Experience and Qualifications Mr Richard Cen has over 15 years of experience in both Big 4 and second tier accounting firms where he has gained specialised knowledge in auditing, financial reporting, risk assessment and review of design of internal controls. Richard holds Bachelor of Business (Accounting) and Master of Commerce (Accounting and Finance). Interest in Shares and Options Nil Special Responsibilities Chairman of the Audit and Risk Committee (Chair) and Member of Remuneration and Nomination Committee Directorships held in other listed None entities during the three years prior to the current year 3

5 DIRECTORS REPORT CONTINUED Haipeng Xu Non-Executive Director Experience and Qualifications Mr Haipeng Xu (Jason) is a member of the Institute of Chartered Accountant Australia and New Zealand and a registered tax agent. Jason holds Bachelor of Engineering and Master of Commerce. Interest in Shares and Options Nil He is the founder and partner of Blue Ocean Advisory. Jason possesses board experience in his career across legal and accounting, public practice and management consulting. He worked for one of the global Fortune 500 Companies and worked as a member of senior management team, where he gained extensive knowledge in financial reporting and disclosure in compliance with AASB/IFRS and International tax. Special Responsibilities Chairman of the Remuneration and Nomination Committee (Chair)and Member of Audit and Risk Committee Directorships held in other listed entities during the three years prior to the current year None Company Secretary Mr Richard Cen held the position of company secretary at the end of the financial year: Meetings of Directors The number of meetings of the Company s Board of Directors and each Board Committee held during the year ended 30 June 2017 and the numbers of meeting attended by each director were as follows: DIRECTORS MEETINGS NUMBER ELIGIBLE TO ATTEND NUMBER ATTENDED AUDIT& RISK COMMITTEE NUMBER ELIGIBLE TO ATTEND NUMBER ATTENDE D REMUNERATION & NOMINATION COMMITTEE NUMBER NUMBER ELIGIBLE TO ATTENDE ATTEND D Shenhan Zhou RichardSicong Cen Haipeng Xu

6 Remuneration Report (audited) HONGFA GROUP (AUSTRALIA) LIMITED AND CONTROLLED ENTITIES The remuneration report is set out under the following main headings: A B C D E Principles used to determine the nature and amount of remuneration Details of remuneration Service agreements Share-based compensation Additional information The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act A Principles used to determine the nature and amount of remuneration The objective of the Group s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms to market practice for delivery of reward. 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 Board is responsible for determining and reviewing remuneration arrangements for its 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. Alignment to program participants interests: rewards capability and experience reflects competitive reward for contribution to growth in shareholder wealth provides a clear structure for earning rewards provides recognition for contribution The framework provides a mix of fixed and variable pay, and a blend of short and long-term incentives. As executives gain seniority with the Group, the balance of this mix shifts to a higher proportion of ''at risk'' rewards. Non-executive directors 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 Board. The Chairman s fees are determined independently to the fees of non-executive directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. 5

7 REMUNERATION REPORT CONTINUED Executive pay The executive pay and reward framework has 3 components: Base pay and benefits Short-term performance incentives Other remuneration such as superannuation, and The combination of these comprises the executive s total remuneration. Base pay Structured as a total employment cost package, which may be delivered as a combination of cash and prescribed nonfinancial benefits at the executives discretion. Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. Base pay for executives is reviewed annually to ensure the executive s pay is competitive with the market. An executive s pay is also reviewed on promotion. There is no guaranteed base pay increases included in any executives contracts. Benefits Executives may receive benefits including health insurance, car allowances, other expense reimbursements and tax advisory services. Superannuation Retirement benefits are currently limited to the statutory rate of superannuation, but are not capped based on salary. Executives may elect to make further salary sacrifice additions to superannuation funds of their choice, up to the allowable limits prescribed. B Details of remuneration Amounts of remuneration Details of the remuneration of the directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of Hongfa Group (Australia) Limited are set out in the following tables. The key management personnel of the Group are the directors of Hongfa Group (Australia) Limited being: Shenghan Zhou, Chairman, Executive Director Richard Cen, Non-executive Director and Company Secretary Haipeng Xu, Non-executive Director Meihua Kou, CEO 6

8 REMUNERATION REPORT CONTINUED Remuneration of key management personnel and other executives of the Group 2017 Short-term benefits Post-employment benefits Long term benefits Share based payments Cash salary and fees Cash bonus Nonmonetary benefits Superannuation Retirement benefits Long service leave Options Total Name $ $ $ $ $ $ $ $ Non-executive directors Richard Cen* 20, ,000 Haipeng Xu 9, ,000 Sub-total nonexecutive directors 29, ,000 Executive Chairman CEO Shenghan Zhou 18, , ,643 Meihua Kou 18, , ,179 Total key management personnel compensation 66, , ,822 Note: Following key management personnel have been resigned before FY2017: Key management personnel Date of resignation Jing Hong Liu 24 May 2016 Bill Weiping Lee 6 April 2016 Weizhen Zhao 6 April 2016 Hang Wu 17 February

9 2016 Short-term benefits Post-employment benefits Long term benefits Share based payments Cash salary and fees Cash bonus Nonmonetary benefits Superannuation Retirement benefits Long service leave Options Total Name $ $ $ $ $ $ $ $ Non-executive directors Jing Hong Liu 10, ,373 Bill Weiping Lee 13, , ,000 Weizhen Zhao 2, ,500 Richard Cen* 5, ,000 Haipeng Xu 2, ,500 Sub-total nonexecutive directors 33, , ,373 Executive Chairman CEO Shenghan Zhou 3, ,540 Hang Wu 7, ,567 Meihua Kou 10, ,625 Total key management personnel compensation 55, , ,105 8

10 REMUNERATION REPORT CONTINUED * Note: Payments exclude amounts paid for company secretarial services provided which amounted to $10,000 for the year. The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Fixed Remuneration At risk STI 2017 % 2016 % 2017 % 2016 % Directors of Hongfa Group (Australia) Limited: Richard Cen Haipeng Xu Shenghan Zhou Management: Meihua, Kou

11 REMUNERATION REPORT CONTINUED C Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Shenghan Zhou, Chairman/Executive Director Fee for services provided for the year ended 30 June 2017 of AUD 20,643, to be reviewed annually by the remuneration committee. Performance bonus: no performance bonus was paid during the financial year. (2016: Nil). Richard Cen, Non-executive Director, Company Secretary Directors fees of $20,000 per annum Company secretarial fees of $10,000 per annum. Performance bonus: No performance bonus was granted or paid during the financial year. Haipeng Xu, Non-executive Director Base salary inclusive of superannuation of $10,000 per annum Performance bonus: No performance bonus was granted or paid during the financial year. Meihua Kou, CEO Fee for services provided for the year ended 30 June 2017 of $20,179, to be reviewed annually by the remuneration committee. Performance bonus: no performance bonus was paid during the financial year. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. 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 year ended 30 June Options There were no options over ordinary shares issued to directors and other key management personnel as part of compensation that was outstanding as at 30 June There were no options over ordinary shares granted to or vested by directors and other key management personnel as part of compensation during the year ended 30 June REMUNERATION REPORT CONTINUED E Additional information Shareholding The directors and other members of key management personnel of the consolidated entity, including their personally related parties, hold no shares of the Group. Hongfa New Horizon Management and Consulting Co., Ltd (incorporated in Hong Kong) is the registered holder of 22,5000,000 ordinary shares in the Listee (70.99% of the issued shares in the Listee) which is ultimately owned and controlled by Shenghan Zhou s (Executive director) family members. Loans to directors and executives There are no current loans to directors and executives. 10

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13 Corporate Governance Statement HONGFA GROUP (AUSTRALIA) LIMITED AND CONTROLLED ENTITIES The Board of the Company is committed to administering its corporate governance policies and procedures with openness and integrity, pursuing the true spirit of corporate governance commensurate with the Company s needs. The Company's corporate governance framework was constructed in recognition of, and with regard to the Corporations Act 2001 and an extensive range of varying legal, regulatory and governance requirements applicable to publicly listed companies in Australia. The Board supports the principles of effective corporate governance and is committed to adopting high standards of performance and accountability, commensurate with the size of the Company and its available resources. This statement sets out the Company's current compliance with SSX Listing Rule 15.3 and the matters set out in SSX Procedure 15.3 (Procedures). The Procedures are not prescriptive regarding the conduct of SSX listed companies. Rather, the matters are an indicative and non-exclusive list of corporate governance matters that the Company has taken into consideration when preparing this corporate governance statement. 1. Management and the Board 1.1 Board Charter The Board has adopted a charter to provide a framework for the effective operation of the Board. The charter sets out the Board s responsibilities in greater detail such as driving the strategic direction of the Company, ensuring appropriate resources are available to meet objectives and monitoring management's performance, reviewing and ratifying systems of risk management and internal compliance and control. It outlines the codes of conduct and legal compliance to ensure a high standard of corporate governance practice, regulatory compliance and to promote ethical and responsible decision making. The responsibility of the day-to-day operations and administration of the Company is delegated by the Board to the CEO and other senior management of the Company. 1.2 Board renewal and succession planning The appointment of directors is governed by the Company's Constitution and the Nomination and Remuneration Committee Charter. In accordance with the Constitution of the Group, no director except a Managing Director shall hold office for a continuous period in excess of three years or past the third annual general meeting following the director's appointment, whichever is the longer, without submitting for reelection. On appointment, non-executive directors receive formal letters of appointment setting out the terms and conditions of appointment. Executive directors are employed pursuant to employment agreements. The procedures for the retirement and performance review of executive and non-executive directors and management personnel are conducted by the Nomination and Remuneration Committee. A performance evaluation for senior executives will take place subsequent to the end of the reporting period and will be carried out in accordance with appropriate processes. The Company has not adopted a policy in relation to the retirement or tenure of directors. The appointment of the Company Secretary is a matter for the Board. The current Company Secretary is Richard Cen. Mr Cen's skills, experience and qualifications are set out in the Directors' Report. 12

14 CORPORATE GOVERNANCE STATEMENT CONTINUED 1.3 Induction and education When appointed to the Board, a new director will receive an induction appropriate to their experience. Directors may participate in continuing education to update and enhance their skills and knowledge from time to time. 1.4 Access to information and advice Directors are entitled to request and receive such additional information as they consider necessary to support informed decision-making. The Board also has policies under which individual directors and Board committees may obtain independent professional advice at the Company's expense in relation to the execution of their duties. This is also set out in each director's letter of appointment. 2. Board independence 2.1 Composition of the Board The Board consists of the Executive Chairman, and two independent non-executive directors. Details of the Board members' skills, experience and expertise and the period of office held by each director have been included in the Directors' Report. The number of Board meetings and the attendance of the directors are also set out in the Directors' Report. The roles of Chairman and the Executive Director are exercised by the same individual. The Board Charter summarises the roles and responsibilities of Shenghan Zhou. The Board recognises the SSX's recommendation in SSX Listing Rules Procedure (b)(ii) that the Chairman should be an independent non-executive Director. However, the Board believes that Shenghan Zhou is the most appropriate person to act as Chairman and lead the Board given the roles he holds within the Tianjin Hongfa Investment Group. Having considered the above factors, the Board has decided that it is appropriate to not follow the recommendations or guidelines set out in SSX Listing Rules Procedure (b)(ii). 2.2 Independence of non-executive directors The Board considers an independent Director to be a non-executive Director who is not a member of the Company s management and who is free of any business or other relationship that could materially interfere with, or reasonably be perceived to interfere with, the independent exercise of their judgment. The Board will consider the materiality of any given relationship on a case-by-case basis. The Board reviews the independence of Directors in light of interests disclosed to the Board from time to time. The Board has assessed the independence of the non-executive directors. Mr Richard Cen and Mr Haipeng Xu are regarded as independent directors as they are free from any business or any other relationship that could materially interfere with, or reasonably be perceived to be interfered with, the independent exercise of their judgment and are able to fulfil the role of an independent Director for the purposes of the SSX s recommendations set out in SSX Listing Rules Procedure Integrity in financial reporting 3.1 Financial Reporting The Company has in place a sound structure and arrangements to independently verify and safeguard the integrity of their financial reporting. In particular, Mr Meihua Kou (as the Chief Executive Officer) declares to the Board that the Company's financial reports represent a "true and fair view" of the Company's financial condition. 13

15 CORPORATE GOVERNANCE STATEMENT CONTINUED 3.2 Audit and Risk Management Committee The Audit and Risk Management Committee consists of three members, two of which are independent directors (Mr Cen and Mr Xu). Mr Cen acts as chair of the Audit and Risk Management Committee. Both Mr Cen and Mr Xu have relevant qualifications or experience in accounting and finance. The Audit and Risk Management Committee Charter sets out its role, responsibilities and membership requirements. The information on the skills, experience and expertise of the Audit and Risk Management Committee members are set out in the Directors' Report. Details of the members and their attendance at meetings of the Audit and Risk Management Committee are included in the Directors' Report. 3.3 External auditor Consistent with its Charter, the Audit and Risk Management Committee reviews the external auditor's terms of engagement and audit plan, assesses the independence of the external auditor and reviews the adequacy of current external audit arrangements. The current practice, subject to amendment in the event of legislative change, is for the rotation of the engagement partner to occur every five years. The Group's independent external auditor is ShineWing Australia. 4. Disclosure to the market The Company has a Continuous Disclosure and External Communication Policy that sets out policies and mechanisms designed to ensure compliance with the Listing Rules and the Corporations Act 2001disclosure requirements. The Policy has been adopted to establish procedures and protocols to ensure that Directors and management are aware of and fulfil their obligation in relation to the timely disclosure of information. The Policy also promotes effective communication with shareholders by setting out the information to be disclosed to shareholders and the manner in which it is to be released. The Company also has in place procedures whereby the Board or individual management personnel may seek independent professional advice at the expense of the Company in performing and discharging their duties in compliance with the Listing Rule disclosure requirements. 5. Remuneration 5.1 Nomination and Remuneration Committee The Company has a Nomination and Remuneration Committee that is governed by the Remuneration and Nomination Committee Charter. The Nomination and Remuneration Committee is responsible for establishing remuneration policies and mechanisms in order to motivate executive officers to pursue the long term growth and success of the Company. The Nomination and Remuneration Committee consists of three members, two of which are independent directors (Mr Cen and Mr Xu). Mr Xu acts as chair of the Nomination and Remuneration Committee. The Nomination and Remuneration Committee Charter sets out the responsibilities in relation to the Group's remuneration policies. Each year the Nomination and Remuneration Committee will prepare and provide to the Board: (a) (b) a self-evaluation of its performance against its Charter, goals and objectives; recommended goals and objectives for the coming year; and 14

16 CORPORATE GOVERNANCE STATEMENT CONTINUED (c) recommended changes or improvements to its Charter if necessary. 5.2 Non-executive directors' remuneration policy The structure of non-executive directors' remuneration is clearly distinguished from that of executives. Non-executive directors do not receive performance related compensation. Neither the non-executive directors nor the executives of the Group receive any retirement benefits. 5.3 Executive directors' remuneration policy The Executive Director whom is also the Executive Chairman is employed pursuant to employment agreements. Summaries of these employment agreements are set out in the Directors report. The Nomination and Remuneration Committee is responsible for ensuring that there is a relationship between the Company's performance and the remuneration of the executives. The Nomination and Remuneration Committee is also responsible for ensuring no executive director is directly involved in deciding their own remuneration. 6. Risk management 6.1 Audit and Risk Management Committee As set out in paragraph 3.2, the Company has an Audit and Risk Management Committee. The Company recognises that risk is inherent to any business activity and that managing risk effectively is critical to the immediate and future success of the Group. This Committee is responsible for the risk oversight and internal control arrangements in place for identifying and managing risks. Such arrangements also take into consideration of the Company's legal obligations and the reasonable expectations of its stakeholders. The Group's risk management framework is supported by the Board, management and the Audit and Risk Management Committee. The Board is responsible for approving and reviewing the Group's risk management strategy and policy. Management are responsible for monitoring that appropriate processes and controls are in place to effectively and efficiently manage risk. The Audit and Risk Management Committee also has delegated responsibilities in relation to risk management and the financial reporting process as set out in the Audit and Risk Management Committee Charter. 6.2 Reporting and assurance When considering the Audit and Risk Management Committee's review of financial reports, the Board receives a written declaration in accordance with section 295A of the Corporations Act 2001, signed by the Chief Financial Officer and the Chief Financial Officer (or equivalent). The declaration states that the Group's financial reports give a true and fair view, in all material respects of the Group s financial position and comply in all material respects with relevant accounting standards. This declaration also confirms that the Group s financial reports are founded on a sound system of risk management and internal control and that the system is operating effectively in relation to financial reporting risks. Similarly, in a separate written statement, the Executive Chairman and the Chairman of the Audit and Risk Management Committee also confirm to the Board that the Group's risk management and internal control systems are operating effectively in relation to material business risks for the period, and that nothing has occurred since year end that would materially change the position. 15

17 CORPORATE GOVERNANCE STATEMENT CONTINUED 7. Ethical conduct 7.1 Code of Conduct The Company has a Code of Conduct that sets out the Company's philosophy and corporate values and acts as a framework for conducting business. The objectives of the Code are to ensure that: (a) high standards of corporate and individual behaviour are observed by all employees in the context of their employment or engagement with the Group; (b) (c) employees are aware of their responsibilities to the Group under their contract of employment and always act in an ethical and professional manner; and all persons dealing with the Group, whether it be employees, shareholders, suppliers, customers or competitors, can be guided by the stated values and practices of the Group. 7.2 Diversity Policy The Company is committed to establishing and maintaining employee and Board diversity, which recognises the strategic and personal advantages that arise from a workplace where decisions are based on merit and all employees are treated equally. The Company has adopted the Diversity Policy to acknowledge and appreciate the diverse range of abilities and perspectives that employees bring to the Group through their diversity. 8. Rights of stakeholders The Company does not have a communication policy directed to promote shareholders' participation at general meetings. The Company will consider adopting such a policy during the 2018 financial year. The Company has a website ( that enables it to communicate to its shareholders. The website contains, amongst other things, information about the Company and the Company's corporate governance policies. 16

18 Auditor s Independence Declaration under Section 307C of the Corporations Act 2001 to the directors of Hongfa Group (Australia) Limited and Controlled Entities I declare that, to the best of my knowledge and belief, during the year ended 30 June 2017 there have been: (i) (ii) No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit, and No contraventions of any applicable code of professional conduct in relation to the audit. ShineWing Australia Chartered Accountants Matthew Schofield Partner Melbourne, 29 September

19 Consolidated Statement of Profit or Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2017 HONGFA GROUP (AUSTRALIA) LIMITED AND CONTROLLED ENTITIES Note CONSOLIDATED GROUP $ $ Revenue 3 4,638,542 4,285,294 Cost of Sales (2,942,501) (1,990,574) Gross Profit 1,696,041 2,294,720 Other Revenue 3 122,170 95,714 General Administration (559,126) (397,268) Taxes and Levies (7,798) (213,796) Profit Before Income Tax 1,251,287 1,779,370 Income Tax Expense 5 (303,978) (457,556) Profit for the Year 4 947,309 1,321,814 Other Comprehensive Income Items that may be reclassified subsequently to profit or loss: Exchange Differences on Translating Foreign Operations (406,430) (285,338) Other Comprehensive Loss (406,430) (285,338) Total Comprehensive Income for the Year 540,879 1,036,476 Profit for the Period attributable to: Owners of the Company 540,879 1,036,476 Total Comprehensive Income attributable to: Owners of the Company 540,879 1,036,476 Earnings per Share basic and dilutive The accompanying notes form part of these financial statements. 18

20 Consolidated Statement of Financial Position AS AT 30 JUNE 2017 HONGFA GROUP (AUSTRALIA) LIMITED AND CONTROLLED ENTITIES ASSETS CONSOLIDATED GROUP Note $ $ CURRENT ASSETS Cash and Cash Equivalents 7 754, ,214 Trade and Other Receivables 8 9,725,642 9,638,203 Other Current Assets 9 52,459 - TOTAL CURRENTS ASSETS 10,532,334 10,392,417 NON-CURRENT ASSETS Property, Plant & Equipment , ,634 Deferred Tax Assets TOTAL NON-CURRENTS ASSETS 408, ,999 TOTAL ASSETS 10,940,417 10,962,416 LIABILITIES CURRENT LIABILITIES Trade and Other Payables 12 2,660,779 2,537,515 Current tax liabilities , ,574 Deferred Revenue 13 41, ,018 TOTAL CURRENT LIABILITIES 3,088,626 3,514,107 NON-CURRENT LIABILITIES Trade and Other Payables 12 8, ,355 TOTAL NON-CURRENT LIABILITIES 8, ,355 TOTAL LIABILITIES 3,097,584 3,660,462 NET ASSET 7,842,833 7,301,954 EQUITY Issued Capital 14 4,201,324 4,201,324 Retained Earnings 4,153,380 3,206,071 Reserves 15 (511,871) (105,441) TOTAL EQUITY 7,842,833 7,301,954 The accompanying notes form part of these financial statements. 19

21 Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2017 HONGFA GROUP (AUSTRALIA) LIMITED AND CONTROLLED ENTITIES Issued Capital Foreign Currency Translation Reserve Retained Earnings Total $ $ $ $ Balance at 1 July , ,897 1,884,257 2,413,275 Comprehensive income Profit for the year - - 1,321,814 1,321,814 Other comprehensive loss for the year - (285,338) - (285,338) Total comprehensive income for the year - (285,338) 1,321,814 1,036,476 Capital issued net of transaction costs during the year 3,852, ,852,203 Balance at 30 June ,201,324 (105,441) 3,206,071 7,301,954 Balance at 1 July ,201,324 (105,441) 3,206,071 7,301,954 Comprehensive income Profit for the Year , ,309 Other comprehensive loss for the year - (406,430) - (406,430) Total comprehensive income for the year - (406,430) 947, ,879 Balance at 30 June ,201,324 (511,871) 4,153,380 7,842,833 The accompanying notes form part of these financial statements. 20

22 Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2017 HONGFA GROUP (AUSTRALIA) LIMITED AND CONTROLLED ENTITIES Note CONSOLIDATED GROUP Cash Flows from Operating Activities $ $ Receipts from customers 5,049,134 4,665,719 Payment to suppliers and employees (4,546,023) (2,274,776) Income tax paid (454,623) (763,641) Net cash provided by operating activities 16 48,488 1,627,302 Cash Flows from Investing Activities Purchase of property, plant and equipment (516) (313,354) Net cash used in investing activities (516) (313,354) Cash Flows from Financing Activities Proceeds from issuing of shares - 5,057,986 Related party loans proceeds / (repayments) (36,000) (5,178,675) Payment of transaction cost of share issuing - (1,205,783) Net cash used in financing activities (36,000) (1,326,472) Net increase/ (decrease) in cash held 11,972 (12,525) Cash and cash equivalents at beginning of year 754, ,591 Effect of exchange rate changes on the balance of cash held in foreign currencies (11,953) 453,148 Cash and cash equivalents at end of year 7 754, ,214 The accompanying notes form part of these financial statements. 21

23 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE2017 HONGFA GROUP (AUSTRALIA) LIMITED AND CONTROLLED ENTITIES These consolidated financial statements and notes represent those of HONGFA GROUP (AUSTRALIA) LIMITED AND CONTROLLED ENTITIES (the consolidated Group or Group ). The financial statements were authorised for issue on 29 September 2017 by the directors of the Company. Note 1 Summary of Significant Accounting Policies (a) Basis of Preparation These general purpose financial statements have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board. The Group is a forprofit entity for financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. The consolidated financial statements have been prepared on the basis of historical cost, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars, unless otherwise noted. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis. (b) Principles of Consolidation The consolidated financial statements incorporate all of the assets, liabilities and results of Hongfa Group (Australia) Limited and its subsidiaries. Subsidiaries are entities the Parent controls. The Parent controls an entity when it 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 over the entity. A list of the subsidiaries is provided in Note 22. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Inter-company transactions, balances and unrealised gains or losses on transactions between Group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as Non-controlling Interests. The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary s net assets on liquidation at either fair value or at the noncontrolling interests proportionate share of the subsidiary s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income. 22

24 NOTES TO THE FINANCIAL STATEMENTS CONTINUED (c) Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument, are recognised as expenses in profit or loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. (d) Income Tax The income tax expense/(benefit) for the year comprises current income tax expense/(benefit) and deferred tax expense/(benefit). Current income tax expense/(benefit) charged to profit or loss is the tax payable on taxable income. Current tax liabilities/(assets) are measured at the amounts expected to be paid to/(recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense/(income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference cannot be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. 23

25 NOTES TO THE FINANCIAL STATEMENTS CONTINUED (e) Property, Plant and Equipment Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of the recoverable amount is made when impairment indicators are present (refer to Note 1(h) for details of impairment of assets). Depreciation The depreciable amount of all fixed assets including buildings and capitalised leased assets, but excluding freehold land, is depreciated on a straight-line basis over the asset s useful life to the Company commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Vehicles 19% Office electronic equipment 10% - 19% Others 19% The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are recognised in profit or loss in the period in which they arise. (f) Leases Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the lease term. (g) Financial Instruments Recognition and Initial Measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the Company commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transactions costs. 24

26 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Classification and Subsequent Measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method, or cost. Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss. The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. i. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. ii. Financial Liabilities Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset has been impaired. A financial asset or a Group of financial assets is deemed to be impaired if, and only if, there is objective evidence that impairment as a result of one or more events (a loss event ) has occurred, which has an impact on the estimated future cash flows of the financial asset(s). In the case of financial assets carried at amortised cost, loss events may include: indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments; indications that they will enter bankruptcy or other financial reorganisation; and changes in arrears or economic conditions that correlate with defaults. For financial assets carried at amortised cost (including loans and receivables), a separate allowance account is used to reduce the carrying amount of financial assets impaired by credit losses. After having taken all possible measures of recovery, if management establishes that the carrying amount recovered by any means, at that point the written-off amounts are charged to the allowance account or the carrying amount of impaired financial assets is reduced directly if no impairment amount was previously recognised in the allowance account. When the terms of financial assets that would otherwise have been past due or impaired have been renegotiated, the Group recognises the impairment for such financial assets by taking into account the original terms as if the terms have not been renegotiated so that the loss events that have occurred are duly considered. Impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. De-recognition Financial assets are derecognised when the contractual rights to receipt of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised when the related obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. 25

27 NOTES TO THE FINANCIAL STATEMENTS CONTINUED (h) Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset s fair value less costs to sell and value in use, to the asset s carrying amount. Any excess of the asset s carrying amount over its recoverable amount is recognised immediately in profit or loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for goodwill, intangible assets with indefinite lives and intangible assets not yet available for use. (i) Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the Group s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity s functional currency. The functional currency for Hongfa Group (Australia) Limited s subsidiaries is Chinese RMB. Transaction and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Nonmonetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognized in profit or loss, except where deferred in equity when the exchange difference arises on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation). Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income, otherwise the exchange difference is recognised in the profit or loss. Group companies The financial results and position of foreign operations whose functional currency is different from the Group s presentation currency are translated as follows: Assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; Income and expenses are translated at average exchange rates for the period; and Retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations with functional currencies other than the Australian dollar are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the operation is disposed of. (j) Employee Benefits Short-term employee benefits Provision is made for the Group s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short-term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The Group s obligations for short-term employee benefits such as wages, salaries, employees annual leave and sick leave are recognised as a part of current trade and other payables in the statement of financial position. The Group s obligations for long service leave entitlements are recognised as provisions in the statement of financial position. 26

28 NOTES TO THE FINANCIAL STATEMENTS CONTINUED (j) Employee Benefits- continued Other long-term employee benefits Provision is made for employees long service leave and annual leave entitlements not expected to be settled wholly within 12 months after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on corporate bonds that have maturity dates that approximate the terms of the obligations. Any remeasurements for changes in assumptions of obligations for other long-term employee benefits are recognised in profit or loss in the periods in which the changes occur. The Group s obligations for long-term employee benefits are presented as non-current provisions in its statement of financial position, except where the Group does not have an unconditional right to defer settlement for at least 12 months after the end of the reporting period, in which case the obligations are presented as current provisions. (k) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. (l) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are reported within short-term borrowings in current liabilities in the statement of financial position. (m) Sales Revenue and Other Income Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. (i) Property management service Property management revenue is recognized on a monthly basis when services are provided in accordance with Contract or Service Agreements. (ii) Interest revenue Interest revenue is recognized using the effective interest rate method which, for floating rate financial assets is the rate inherent in the instrument. (n) Trade and Other Receivables Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Refer to Note 1(h) for further discussion on the determination of impairment losses. (o) Trade and Other Payables Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. 27

29 NOTES TO THE FINANCIAL STATEMENTS CONTINUED (p) Goods and Services Tax (GST) / Value Added Tax (VAT) Revenues, expenses and assets are recognised net of the amount of GST/VAT, except where the amount of GST/VAT incurred is not recoverable from the tax bureau. Receivables and payables are stated inclusive of the amount of GST/VAT receivable or payable. The net amount of GST/VAT recoverable from, or payable to, the tax bureau is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST/VAT components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the tax bureau are presented as operating cash flows included in receipts from customers or payments to suppliers. (q) Critical Accounting Estimates and Judgments 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 are based on current trends and economic data, obtained both externally and within the Group. Key estimate-useful lives The Company determines the estimated useful lives and related depreciation charges for its plant and equipments. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or nonstrategic assets that have been abandoned or sold will be written off or written down. Key estimate-income tax The Company is -subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Company recognises liabilities for anticipated tax audit issues based on the Company's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Key Judgement - Provision for impairment of receivables The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtors financial position. (r) New Accounting Standards for Application in Future Periods Accounting Standards and Interpretations issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below: AASB 9: Financial Instruments and associated Amending Standards (applicable to annual reporting periods beginning on or after 1 January 2018). The Standard will be applicable retrospectively (subject to the provisions on hedge accounting outlined below) and includes revised requirements for the classification and measurement of financial instruments, revised recognition and derecognition requirements for financial instruments and simplified requirements for hedge accounting. The key changes that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, upfront accounting for expected credit loss, and the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. AASB 9 also introduces a new model for hedge accounting that will allow greater flexibility in the ability to hedge risk, particularly with respect to hedges of non-financial items. Should the entity elect to change its hedge policies in line with the new hedge accounting requirements of the Standard, the application of such accounting would be largely prospective. Although the directors anticipate that the adoption of AASB 9 may have an impact on the Group s financial instruments, including hedging activity, it is impracticable at this stage to provide a reasonable estimate of such impact. 28

30 NOTES TO THE FINANCIAL STATEMENTS CONTINUED AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods beginning on or after 1 January 2018 as further amended by AASB ). When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: identify the contract(s) with a customer; identify the performance obligations in the contract(s); determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognise revenue when (or as) the performance obligation is satisfied. The transitional provisions of this Standard permit an entity to either: restate the contracts that existed in each prior period presented as per AASB 108: Accounting Policies, Changes in Accounting Estimates and Errors (subject to certain practical expedients in AASB 15); or recognise the cumulative effect of retrospective application to incomplete contracts on the date of initial application. There are also enhanced disclosure requirements regarding revenue. Although the directors anticipate that the adoption of AASB 15 may have an impact on the Group's financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. AASB 16: Leases (applicable to annual reporting periods beginning on or after 1st January 2019) When effective, this standard will replace the current accounting requirements applicable to leases in AASB 117 and related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. The main changes introduced by the new standard include: a. Recognition of a right-to-use asset and liability for all leases (excluding short term leases with less than 12 months of tenure a lease relating to low value assets); b. Deprecation of right-to-use assets in-line with AASB 116 Property, plant and equipment in profit or loss and unwinding of the liability in principal and interest components; c. Variable lease payments that depend on an index or a rate are included in the initial measurement of the lease liability using the index or rate at the commencement date; d. By applying a practical expedient, a lessee is permitted to elect not to separate non-lease components and instead account all components as a lease; and e. Additional disclosure requirements. The transitional provisions of this standard allows a lessee to either retrospectively apply the standard to comparatives in line with AASB 108: Accounting Policies, Changes in Accounting Estimates and Error; or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application. Although the directors anticipate that the adoption of AASB 16 will impact the Group's financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. 29

31 NOTES TO THE FINANCIAL STATEMENTS CONTINUED AASB : Amendments to Australian Accounting Standards Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (applicable to annual reporting periods beginning on or after 1 July 2018, as deferred by AASB : Amendments to Australian Accounting Standards Effective Date of Amendments to AASB 10 and AASB 128). This Standard amends AASB 10: Consolidated Financial Statements with regards to a parent losing control over a subsidiary that is not a business as defined in AASB 3: Business Combinations to an associate or joint venture, and requires that: - a gain or loss (including any amounts in other comprehensive income (OCI)) be recognised only to the extent of the unrelated investor s interest in that associate or joint venture; - the remaining gain or loss be eliminated against the carrying amount of the investment in that associate or joint venture; and - any gain or loss from remeasuring the remaining investment in the former subsidiary at fair value also be recognised only to the extent of the unrelated investor s interest in the associate or joint venture. The remaining gain or loss should be eliminated against the carrying amount of the remaining investment. The application of AASB will result in a change in accounting policies for transactions of loss of control over subsidiaries (involving an associate or joint venture) that are businesses per AASB 3 for which gains or losses were previously recognised only to the extent of the unrelated investor s interest. The transitional provisions require that the Standard should be applied prospectively to sales or contributions of subsidiaries to associates or joint ventures occurring on or after 1 July Although the directors anticipate that the adoption of AASB may have an impact on the Group s financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. (s) Comparative Figures Comparative figures have been adjusted to conform to changes in presentation for the current financial year. Note 2 Operating Segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the Managing Director (chief operating decision maker) in assessing performance and determining the allocation of resources. The Managing Director manages the Group s activities as one business segment focus on providing property management services. Revenue of the Group were all derived from Tianjin of the People s Republic of China. Information about major customers Name (Translated from original Chinese registered names) Project % of total operational revenue CNOOC Energy Technology& Services Human Resources Co. Tianwei 19.1% Tianjin Renrenle Commercial Co., Ltd Hongtai-Qianbaihui 18.4% 30

32 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Note 3 Revenue and Other Revenue (a) Revenue from continuing operations CONSOLIDATED GROUP $ $ Sales revenue - Render of property management services 4,638,542 4,285,294 4,638,542 4,285,294 (b) Other revenue - Render of special-purpose value-added services 122,170 95, ,170 95,714 Note 4 Profit for the Year Profit before income tax from continuing operations includes the following specific expenses: Expenses CONSOLIDATED GROUP $ $ Costs of sales -property management services 2,942,501 1,990,574 Employee benefits expense - Staff welfare expense 153, ,784 Depreciation of property, plant and equipment and amortisation of intangible assets 134, ,285 Note 5 Tax Expense (a) The components of tax expense comprise: CONSOLIDATED GROUP Note $ $ Current tax 335, ,926 Deferred tax ,630 Tax refund of prior period (31,758) - 303, ,556 (b) The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax payable on profit from ordinary activities before income tax at 30% (2016: 30%) 375, ,811 Add tax effect of: - Non-deductible expenses Deferred tax assets not recognised 27,542 14,465 - Differences in overseas tax rate (67,191) (90,985) - Tax refund of prior period (31,758) - Income tax attributable to entity 303, ,556 The applicable weighted average effective tax rates are as follows: 24% 26% 31

33 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Note 6 Earnings per Share CONSOLIDATED GROUP $ $ Basic and Diluted EPS Net profit attributable to ordinary equity holders of the parent: Earnings used to calculate basic and dilutive EPS 947,309 1,321,814 Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS 2017 No. of Shares 2016 No. of Shares 31,696,297 22,958,600 31,696,297 22,958,600 Note 7 Cash and Cash Equivalents CONSOLIDATED GROUP $ $ Cash at bank and on hand 21,071 8,176 Short - term bank deposits 733, , , ,214 Note 8 Trade and Other Receivables CONSOLIDATED GROUP Note $ $ CURRENT Trade receivables 8(b) 22, ,178 Provision for impairment 8(a) (985) (1,459) Other Receivables 7,002 56,708 Receivable due from related parties 9,696,841 9,352,776 8(a) 8(c) 9,725,642 9,638,203 32

34 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 8(a) Provision for Impairment of Receivables Movement in provision for impairment of receivables is as follows: OPENING BALANCE 1 JUL 2015 IMPAIRMENT FOR THE YEAR AMOUNTS WRITTEN OFF 30 JUN 2016 CLOSING BALANCE 30 JUN 2016 CONSOLIDATED GROUP $ $ $ $ (i)current trade receivables 2,599 (1,140) - 1,459 OPENING BALANCE 1 JUL 2016 IMPAIRMENT FOR THE YEAR AMOUNTS WRITTEN OFF 30 JUN 2017 CLOSING BALANCE 30 JUN 2017 $ $ $ $ CONSOLIDATED GROUP (ii)current trade receivables 1,459 (474) (b) There is no balance past due. 8(c) Hongfa Property Development Co., Ltd and Hongfa Real Estate Development Co., Ltd are both subsidiaries of Tianjin Hongfa Investment Group Limited, and loans incurred between these related parties in order to realize the capital turnover. The receivable due from related parties are interest-free, unsecured and repayable on demand. As on 28 September 2017, the balance has been fully repaid. Tianjin Ruizhi Automobile Sales and Services Co., Ltd is the subsidiary of Tianjin Hongfa Investment Group Limited. The short-term loan incurred in order to realize the capital turnover. As on 28 September 2017, the balance has been fully repaid. Note 9 Other Assets CONSOLIDATED GROUP $ $ CURRENT Prepayments 52,459-52,459-33

35 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Note 10 Property, Plant and Equipment Plant and Equipment: CONSOLIDATED GROUP GroupGROUP $ $ At cost 750, ,207 Accumulated depreciation (342,500) (221,573) 407, ,634 Movements in Carrying Amounts Movements in carrying amounts between the beginning and the end of the current financial year. Office electronic equipment $ Property management operation equipment $ Consolidated Group: Vehicles $ Total $ Balance at 30 June ,627 81, , ,680 Additions 67, , ,917 Depreciation expense (26,238) (23,722) (85,325) (135,285) Exchange differences 5,344 3,551 22,427 31,322 Balance at 30 June ,227 61, , ,634 Additions Depreciation expense (27,249) (22,505) (84,526) (134,280) Exchange differences (5,765) 155 (22,423) (27,517) Balance at 30 June ,213 39, , ,837 Note 11 Tax CURRENT CONSOLIDATED GROUP $ $ Current tax liabilities 386, , , ,574 NON-CURRENT OPENING BALANCE RECOGNISED TO PROFIT AND LOSS EXCHANGE DIFFERENCES CLOSING BALANCE Consolidated Group $ $ $ $ Deferred tax assets Provisions - doubtful debts 650 (276) (9) 365 Accrued COS 2,316 (2,354) 38 - Balance at 30 June ,966 (2,630) Provisions - doubtful debts 365 (101) (18) 246 Balance at 30 June (101) (18)

36 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Note 12 Trade and Other Payables CONSOLIDATED GROUP $ $ CURRENT Unsecured liabilities Trade payables 536, ,526 Deposits and guarantees 407, ,563 Due to related parties 1,046, ,924 Sundry payables and accrued expenses 498, ,852 VAT payable and other levies 59,854 88,001 Accrued wages and welfare 112, ,649 2,660,779 2,537,515 NON-CURRENT Unsecured liabilities Other payables 8, ,355 8, ,355 Note 13 Deferred Revenue CONSOLIDATED GROUP $ $ CURRENT Deferred revenue 41, ,018 Deferred revenue is for offerings for which we have been paid in advance and the revenue is recognised when the service is provided or otherwise meets the revenue recognition criteria. Note 14 Issued Capital Hongfa Group (Australia) Limited $ $ 31,696,297 (2016: 31,696,297) fully paid ordinary shares 4,201,324 4,201,324 35

37 NOTES TO THE FINANCIAL STATEMENTS CONTINUED (a)movement in ordinary shares on issue Hongfa Group (Australia) Limited VALUE No. $ Shares at beginning and end of the year 31,696,297 4,201,324 Ordinary shares participate in dividends and the proceeds on winding-up of the parent entity in proportion to the number of shares held. At the shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. (b) Capital Management ManagementcontrolsthecapitaloftheGroupinordertomaintainasustainabledebttoequityratio, generate long-term shareholder value and ensure that the Group can fund its operations and continue as a going concern. The Group s debt and capital include ordinary share capital and financial liabilities, supported by financial assets. The Group is not subject to any externally imposed capital requirements. Management effectively manages the Group s capital by assessing the Group s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. Note 15 Reserves (a) Foreign Currency Translation Reserve Exchange differences relating to the translation of the results and net assets of the Group s foreign operation from the currencies to the Group s presentation currency (i.e. Australian dollars) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Gains and losses on hedging instruments that are designated as hedging instruments for hedges of net investments in foreign operations are included in the foreign currency translation reserve. Exchange differences previously accumulated in the forting currency translation reserve (in respect of translating both the net assets of foreign operations and hedges of foreign operations) are reclassified to profit or loss on the disposal of foreign operation. (b)retained Earnings and Surplus reserve Under Chinese tax regulations local companies are required to set aside 10% of profits. In accordance with the PRC Company Law, companies are required to transfer 10% of their profit after tax, as determined in accordance with PRC accounting standards and regulations, to the surplus reserve until such reserves reach 50% of the registered capital or paid-in capital of the companies. As of 30 June 2017 and 30 June 2017, the balance of total surplus reserve was $421,749 and $317,685, respectively, which was accounted for retained earnings in the balance sheet. 36

38 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Note 16 Cash Flow Information CONSOLIDATED GROUP $ $ (a) Reconciliation of Cash Flow from Operating Activities with Profit after Income Tax Profit after income tax 947,309 1,321,814 Cash flows excluded from profit attributable to operating activities Non-cash flows in profit: Amortisation & Depreciation 134, ,294 Allowance for doubtful debts 749 (1,105) Net foreign exchange gain or loss (1,479) (2,192) Changes in operating assets and liabilities: Increase in trade and other receivables (248,666) - (214,366) (Increase)/ decrease in other current assets (32,439) 109,532 Increase/ (decrease) in trade payables and other payables (240,710) (138,655) Decrease in deferred revenue (520,973) 407,349 Increase in employee benefits 10,417 2,630 Cash flow from operating activities 48,488 1,627,301 Note 17 Related Party Transactions Related Parties (a)the Group s main related parties are as follows: i. Entities exercising control over the Group The ultimate parent entity, which exercise control over the Group, is Tianjin Hongfa Investment Group that incorporated in China. ii. Key Management Personnel: Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity are considered key management personnel. Refer to the Remuneration Report contained in the Directors Report for details of the remuneration paid or payable to each member of the Group s key management personnel (KMP) for the year ended 30 June The totals of remuneration paid to KMP of the Company and the Group during the year are as follows: CONSOLIDATED GROUP $ $ Short-term employee benefits 66,386 55,169 Post-employment benefits 4,436 2,936 Total KMP compensation 70,822 58,105 Further information in relation to KMP remuneration can be found in the Remuneration Report. 37

39 NOTES TO THE FINANCIAL STATEMENTS CONTINUED iii. Other Related Parties Other related parties include entities controlled by the ultimate parent entity, entities over which key management personnel have joint control, and entities that directors are common directors of: Name of other related parties Shenzhen Yongshengcan Financial Holdings Co., Ltd. Shenzhen Yongshengling Financing Lease Co., Ltd. Shenzhen Yongshenghan Energy and Chemical Industrial Co., Ltd. Tianjin Binhai New Area Tanggu Yuehong Coal Sales Co., Ltd. Tianjin Liyuan Investment and Development Co., Ltd. Tianjin Binhai New Area Tanggu Yuehong Coal Sales Co., Ltd. Tianjin TEDA Hongfa Real Estate Development Co., Ltd. Tianjin Freedom Biker Club Tianjin Binhai New Area Baofahang Commercial and Trading Co., Ltd. Tianjin Meihong Automobile Sales and Services Co., Ltd. Tianjian Ruizhi Automobile Sales and Services Co., Ltd. Tianjin TEDA Xianzu International Trade Co., Ltd. Tianjin TEDA Hongtai-Kingbuyer Commerce Co., Ltd. Tianjin Tianwei Pharmaceutocal Co., Ltd. Tianjin Hongfa International Trade Co., Ltd. Tianjin Port Shenghan Petrochemical Logistics Co., Ltd. Shenghan Zhou Richard Cen Haipeng Xu Meihua Kou Zhangfa Zhou Relationship The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group The entity and the reporting entity are members of the same group Key management personnel Key management personnel Key management personnel Key management personnel Close family member of key management personnel 38

40 NOTES TO THE FINANCIAL STATEMENTS CONTINUED (b)transactions between related parties: Transactions between related parties are interest free, unsecured and payable on demand. There is no sales or purchases of goods or services between related parties. There is no management fee between related parties. (c) Outstanding balances arising from transactions with related parties: Amount due from related parties CONSOLIDATED GROUP $ $ Hongfa Real Estate Development Co., Ltd 579,426 8,874,172 Tianjin Hongfa Investment Group Limited 8,457, ,954 Tianjin development zone Qianbaihui Commercial Co., Ltd 621,162 - Tianjin Ruizhi Automobile Sales and Service Co., Ltd 38,273 36,650 Total amount due from related parties 9,696,841 9,352,776 Amount due to related parties Tianjin Tianwei Pharmaceutical Co., Ltd 167,859 19,486 Tianjin Shengfa Automobile Sales and Service Co., Ltd Hong Kong Sing Kwan Mineral - 66,431 Thomas Trading Investment Limited 384, ,318 Sing Kwan (HK) International Investment Co., Ltd 493, ,689 Total amount due to related parties 1,046, ,924 (d)related party transactions: $ $ Advances/ Loans to and repayment of advances Repayment of advance from Hongfa Real Estate Development Co., Ltd. 7,784,201 - Advance to Hongfa Real Estate Development Co., Ltd. - (6,032,186) Repayment of property management fee collected on behalf of the Group, from a related 657, ,977 party Hongfa Real Estate Development Co., Ltd Settlement of electricity and water costs on behalf of Hongfa Real Estate Development (611,527) (646,524) Co., Ltd Advance to Tianjin Hongfa Investment Group Limited (8,340,338) - Repayment of advance from Tianjin Hongfa Investment Group Limited 301, ,455 Settlement of electricity and water costs on behalf of Tianjin development zone (574,911) - Qianbaihui Commercial Co., Ltd Settlement of electricity and water costs on behalf of Tianjin Ruizhi Automobile Sales and (682,009) (36,624) Service Co., Ltd Repayment of advance to Tianjin Ruizhi Automobile Sales and Service Co., Ltd 532,618 - Settlement of electricity and water costs on behalf of Tianjin Shengfa Automobile Sales (679) - and Service Co., Ltd Settlement of electricity and water costs by Tianjin Tianwei Pharmaceutical Co., Ltd 682,010 - Repayment of electricity and water costs to Tianjin Tianwei Pharmaceutical Co., Ltd (532,618) - Settlement of IPO costs and overseas transfer by Sing Kwan (HK) International Investment Co., Ltd - 497,680 Settlement of IPO costs by Thomas Trading Investment Limited - 405,318 Settlement of IPO costs and overseas transfer by Hong Kong Sing Kwan Mineral - 66,431 Repayment of settlement of IPO costs to Hong Kong Sing Kwan Mineral (66,431) - 39

41 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Note 18 Auditors Remuneration CONSOLIDATED GROUP $ $ Remuneration of the auditor for: auditing or reviewing the financial report 57, ,844 Note 19 Capital and Leasing Commitments The Group has no leases during the year ended 30 June Note 20 Contingent Liabilities and Contingent Assets The Group has no contingent assets or liabilities as at 30 June

42 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Note 21 Financial Risk Management The totals for each category of financial instruments, measured in accordancewithaasb139 as detailed in the accounting policies to these financial statements, are as follows: CONSOLIDATED GROUP Financial Assets Note $ $ Cash and cash equivalents 7 754, ,214 Receivables 8 9,725,642 9,638,203 Total Financial Assets 10,479,875 10,392,417 Financial Liabilities Financial liabilities at amortised cost Trade and other payables 12 2,669,737 2,683,870 Total Financial Liabilities 2,669,737 2,683,870 Financial Risk Management Policies Specific Financial Risk Exposures and Management The main risks the Group is exposed to through its financial instruments are credit risk, liquidity risk and market risk consisting of interest rate risk and foreign currency risk. There have been no substantive changes in the types of risks the Group is exposed to, how these risks arise, or the Board s objectives, policies and processes for managing or measuring the risks from the previous period. a. Credit risk Although the Group s clients are creditworthy, exposure to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations that could lead to a financial loss to the Group. Credit risk is managed through the maintenance of procedures (such procedures include the review of customer business activities, regular monitoring of exposures and monitoring of the financial stability of significant customers and counterparties), ensuring to the extent possible, that customers and counterparties to transactions are of sound credit worthiness. Such monitoring is used in assessing receivables for impairment. Depending on the division within the Group, credit terms are generally 14 to 30 days from the invoice date. Risk is minimized through investing surplus funds in financial institutions that maintain a high credit rating. The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period, excluding the value of any collateral or other security held is equivalent to the carrying amount and classification of those financial assets (net of any provisions) as presented in the statement of financial position. Credit risk also arises through the provision of financial guarantees, as approved at Board level. The Group has no significant concentration of credit risk with any single counterparty or group of counterparties. Details with respect to credit risk of Trade and Other Receivables is provided in Note 8. Trade and other receivables that are neither past due or impaired are considered to be of high credit quality. Aggregates of such amounts are as detailed at Note 8. The Group has no significant concentration of credit risk with any single counterparty or group of counterparties. Details with respect to credit risk of Trade and Other Receivables is provided in Note 8. Trade and other receivables that are neither past due or impaired are considered to be of high credit quality. Aggregates of such amounts are as detailed at Note 8. 41

43 NOTES TO THE FINANCIAL STATEMENTS CONTINUED b. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: preparing forward-looking cash flow analyses in relation to its operating, investing and financing activities; obtaining funding from a variety of sources; maintaining a reputable credit profile; managing credit risk related to financial assets; only investing surplus cash with major financial institutions; and comparing the maturity profile of financial liabilities with the realisation profile of financial assets The table below reflects an undiscounted contractual maturity analysis for financial liabilities. Cash flows realised from financial assets reflect management s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflect the earliest contractual settlement dates and do not reflect management s expectations that banking facilities will be rolled forward. Financial liability and financial asset maturity analysis WITHIN 1 YEAR OVER 1 YEAR NO MATURITY TOTAL Consolidated Group $ $ $ $ $ $ $ $ Financial liabilities due for payment Trade and other payables 2,660,779 2,494,556 8, ,314 2,669,737 2,683,870 Total expected outflows 2,660,779 2,494,556 8, ,314 2,669,737 2,683,870 WITHIN 1 YEAR OVER 1 YEAR NO MATURITY TOTAL Consolidated Group $ $ $ $ $ $ $ $ Financial Assets -cash flows realisable Cash and cash equivalents 754, , , ,214 Trade and other receivables 9,725,642 9,638,203 9,725,642 9,638,203 Total anticipated inflows 10,479,875 10,392,417 10,479,875 10,392,417 c. Market Risk Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The financial instrument that primarily expose the Group to interest rate risk is cash and cash equivalents, refer to Note 7 for detail. Foreign currency risk The consolidated entity conducts all of its business operations in the People's Republic of China. The functional currency of the operating companies is the Chinese Yuan Renminbi. The presentation currency of the consolidated entity is the Australian Dollar. Consequently, the results and balances of the consolidated entity's operations are translated from the functional currency to the presentation currency for reporting purposes. However, foreign currency risk can only arise on financial instruments that are denominated in a currency other than the functional currency in which they are measured. Translation related risks are therefore not included in the assessment of the entity s exposure to currency risks. d. Fair Value The directors consider that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values. 42

44 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Note 22 Interests in Subsidiaries (a) Information about Principal Subsidiaries The subsidiaries listed below have share capital consisting solely of ordinary shares or ordinary units which are held directly by the Group. The proportion of ownership interests held equals the voting rights held by Group. Each subsidiary s principal place of business is also its country of incorporation. OWNERSHIP INTEREST HELD BY GROUP NAME OF PRINCIPALPLACE SUBSIDIARY OF BUSINESS (%) (%) Hung Fat New City (HK) Group Limited Hong Kong 100% 100% Hongfa New Horizon Management and Consulting Co., Ltd. China 100% 100% Tianjin Development Zone Hong Fa Property Management Co., Ltd China 100% 100% Subsidiary financial statements used in the preparation of these consolidated financial statements have also been prepared as at the same reporting date as the Group s financial statements. (b)significant Restrictions There are no significant restrictions over the Group s ability to access or use assets, and settle liabilities, of the Group. 43

45 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Note 23 Parent Information The following information has been extracted from the books and records of Hongfa group (Australia) Limited and has been prepared in accordance with Australian Accounting Standards. Current asset is due from related parties. STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME $ $ Total loss (104,323) (43,411) Total comprehensive income (104,323) (43,411) STATEMENT OF FINANCIAL POSITION ASSETS Current Assets 3,987,636 4,036,811 Non-current Assets - - 3,987,636 4,036,811 LIABILITIES Current Liabilities 283, ,019 Non-current Liabilities - - TOTAL LIABILITIES 283, ,019 EQUITY Issued Capital 3,852,203 3,852,203 Retained Earnings (147,734) (43,411) TOTAL EQUITY 3,704,469 3,808,792 Contingent liabilities At 30 June 2017, Hongfa group (Australia) Limited had no contingent liabilities (2017: $Nil). Contractual commitments At 30 June 2017, Hongfa group (Australia) Limited had not entered into any contractual commitments for the acquisition of property, plant and equipment (2017: $Nil). Amount due from related parties amounted to $3,978,351 were included as current assets. The related company balance amount to $3,978,351 has been eliminated in the consolidated financial statements of Hongfa Group (Australia) limited. Note 24 Events After the Reporting Period There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. Note 25 Company Details The registered office and principal place of business of the Company is: HONGFA GROUP (AUSTRALIA) LIMITED Level12, 31 Queen Street, MelbourneVIC

46

47 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF HONGFA GROUP (AUSTRALIA) LIMITED AND CONTROLLED ENTITIES Report on the Audit of the Financial Report Opinion We have audited the financial report of Hongfa Group (Australia) Limited ( the Company ) and its controlled entities ( the Group ), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the Group s financial position as at 30 June 2017 and of its financial performance for the year then ended; and b) complying with Australian Accounting Standards and the Corporations Regulations Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board s APES 110 Code of Ethics for Professional Accountants ( the Code ) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter Note 17 Related Party Transactions The Group manages three shopping malls with the majority of the properties they ve managed being owned by their related party - Hongfa Real Estate Development Co., Ltd. The Group's related party: Hongfa Real Estate Development Co., Ltd. often receives property management fees on behalf of the Group, therefore it owes the Group a significant amount from time to time during the financial year. Besides, there are frequent related party loans between the Group and How the matter was addressed during the audit Our procedures included, among others: Obtained group structure of ultimate company of the Group to identify all related parties; Inquired of the Director s internal process of recognising related party transactions; Compared the related parties in current year and prior year, and confirmed that all the related parties have been included in current year; Tested subsequent receipts for related party receivables and confirmed that all of the 46

48 Key Audit Matter Tianjin Hongfa Investment Group Ltd. As at 30 June 2017, Tianjin Hongfa Investment Group Ltd owed the Group $8,457,980 AUD. The Group's assets have been substantially used by related parties. Receivables from related parties as at 30 June 2017 are $9,696,841, accounting for 89% of total assets. At the same time, payables to related parties are $1,046,518, accounting for 34% of total liabilities. Overall, related party transactions are significant and of high volume. The majority of the transactions relate to collecting property management fees on behalf of the Group. How the matter was addressed during the audit outstanding balance had been received by the Group post year end; and Reviewed disclosure note 17 and agreed to the related party detailed transaction listing. Information Other than the Financial Report and Auditor s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Group s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors 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 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. 47

49 We identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. We obtain an understanding of internal control relevant to the audit 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 Group s internal control. We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. We conclude on the appropriateness of the directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Group to cease to continue as a going concern. We evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them, all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 5 to 11 of the directors report for the year ended 30 June In our opinion, the Remuneration Report of Hongfa Group (Australia) Limited and controlled entities for the year ended 30 June 2017 complies with section 300A of the Corporations Act

50 Responsibilities 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 Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. ShineWing Australia Chartered Accountants Matthew Schofield Partner Melbourne, 29 September