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1 Special Purpose Interim Financial Report For the half year ended 31 December 2015

2 Contents Page Trustees' report 1 Consolidated Interim Statement of profit or loss and other comprehensive income 3 Consolidated Interim Statement of financial position 4 Consolidated Interim Statement of changes in equity 5 Notes to the financial statements 6 Trustees' declaration 12 Independent auditor s review report 13

3 Trustee s report For the half year ended 31 December 2015 The Trustee presents its report together with the special purpose interim financial report of the ("the Group") for the half year ended 31 December 2015 and the auditor's report thereon. The (the Group ) is a non-statutory group consisting of the following entities: - Kogan Australia Pty Ltd - Kogan Mobile Pty Ltd - Kogan Technologies UK Pty Ltd - Kogan International Holdings Pty Ltd - Kogan HK Limited - Kogan Travel Pty Ltd; - Kogan Mobile Australia Pty Ltd; and - Kogan HR Pty Ltd Kogan.com Pty Ltd is the Trustee of the Kogan Technologies Unit Trust, being the parent entity of the Kogan Group. 1. Principal activities The principal activities of the Group during the course of the half year were the online sale of products and services in Australia, New Zealand and various other geographies. There were no significant changes in the nature of the activities of the Group during the half year. 2. Review of operations and results of those operations During the period, the Group achieved revenue of $104.7 million and EBITDA (1) of $3.2 million. The Group launched three new business units in the 12 months to December 2015: Kogan Pantry, Kogan Travel and Kogan Mobile. These new business units represent an expansion in the group s operations into new areas, being groceries, travel deals and prepaid phone plans. The Company believes that these new business units will drive revenue growth in future years. (1) EBITDA is calculated using profit before tax and adding back depreciation, amortisation and net interest income/expense. 3. Significant changes in the state of affairs In the opinion of the Trustee there were no significant changes in the state of affairs of the Group that occurred during the half year other than as noted above. 4. Distributions During the half year, the Group distributions paid or payable totalled $625, Indemnification and insurance of officers and auditors Indemnification Since the end of the previous financial year, the Group has not indemnified or made a relevant agreement for indemnifying against a liability any person who is or has been an officer or auditor of the Group. 1

4 Trustee s report For the half year ended 31 December 2015 Insurance premiums The does not hold insurance contracts in respect of Trustees and officers liability and legal expenses. 6. Proceedings on behalf of the Group There is ongoing litigation between Kogan Mobile Pty Ltd and ispone. There has been a stay of proceedings following the liquidation of ispone, and Kogan Mobile Pty Ltd is currently in discussion with the liquidators in relation to its claim. Kogan Mobile Pty Ltd expects to receive a small fraction of the total claim. 7. Events subsequent to reporting date On 11 March 2016 the Group agreed to acquire the on-line business of Dick Smith Electronics (receivers and managers appointed) through the purchase of goodwill, brand and intellectual property. The total purchase price was $2.61 million. On 11 March 2016 the Group executed a variation to its BankWest banking facility, which has the effect of extending the facility expiry date to 31 March 2019 and amending certain other terms including facility review events. Other than the above, there has not arisen in the interval between the end of the financial period and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Trustees of the Group, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial periods. This report is made out in accordance with a resolution of the Trustee: David Shafer Director Place: Melbourne Date: 15 April

5 Consolidated Interim Statement of profit or loss and other comprehensive income For the half year ended 31 December 2015 Note Revenue Sale of goods 102,675, ,099,094 Revenue Rendering of services 2,073,233 Cost of services (1,662,866) Changes in inventory (271,122) (10,997,591) Raw materials and consumables used (87,051,745) (79,366,298) Employee benefit expense (3,530,771) (3,530,278) Depreciation and amortisation expense (940,314) (863,697) Warehouse and dispatch expense (2,563,948) (1,641,262) Advertising expense (2,317,375) (3,332,888) Rent expense (358,114) (227,252) IT expense (567,792) (442,453) Occupancy expense (excluding rent) (92,281) (171,414) Other expenses (3,132,523) (3,478,560) Operating profit 2,260,024 4,047,401 Finance income 91,281 8,146 Finance costs (181,548) (89,816) Net finance costs (90,267) (81,670) Profit before tax 2,167,757 3,965,731 Income tax expense (495,287) (1,478,139) Profit/(Loss) 1,674,470 2,487,592 Other comprehensive income Items that will never be reclassified to profit or loss: - - Items that are or may be reclassified subsequently to profit or loss: - - Foreign currency translation differences - - Other comprehensive income, net of tax - - Total comprehensive income 1,674,470 2,487,592 The notes on pages 6 to 11 are an integral part of these financial statements. 3

6 Consolidated Interim Statement of financial position As at 31 December 2015 Assets Note 31 December June 2015 Cash and cash equivalents 1,675, ,781 Trade and other receivables 4 1,300,694 2,201,109 Inventories 5 25,343,631 25,072,509 Other current assets 315, ,753 Current tax receivable - 758,073 Total current assets 28,635,876 28,568,225 Property, plant and equipment 6 647, ,682 Intangible assets 7 2,254,710 2,497,809 Deferred tax asset 479, ,969 Total non-current assets 3,381,792 3,505,461 Total assets 32,017,668 32,073,686 Liabilities Trade and other payables 8 18,765,753 7,944,651 Loans and borrowings 9-8,100,000 Current tax liabilities 612,406 - Employee benefits , ,054 Provisions , ,732 Deferred income/revenue 2,294,194 5,854,873 Total current liabilities 22,210,988 22,523,310 Deferred tax liability - 434,804 Employee benefits 10 35,515 15,692 Deferred income/revenue - 378,185 Total non-current liabilities 35, ,681 Total liabilities 22,246,503 23,351,991 Net assets 9,771,165 8,721,695 Equity Issued capital Reserves (290,645) (290,645) Retained earnings 10,061,467 9,011,997 Total equity 9,771,165 8,721,695 The notes on pages 6 to 11 are an integral part of these financial statements. 4

7 Consolidated Interim Statement of changes in equity For the half year ended 31 December 2015 Share capital Retained earnings Translation reserve Total equity Balance at 1 July ,568,687 (290,645) 9,278,379 Total comprehensive income Profit - 2,487,592-2,487,592 Total comprehensive income - 2,487,592-2,487,592 Issue of ordinary shares Distributions to unitholders Return of capital Total transactions with owners of the Group - Balance at 31 December ,056,279 (290,645) 11,765,971 Balance at 1 July ,011,997 (290,645) 8,721,695 Total comprehensive income Profit - 1,674,470-1,674,470 Total comprehensive income - 1,674,470-1,674,470 Issue of ordinary shares Distributions to unitholders - (625,000) - (625,000) Total transactions with owners of the Group - (625,000) - (625,000) Balance at 31 December ,061,467 (290,645) 9,771,165 The amounts recognised directly in equity are disclosed net of tax. The notes on pages 6 to 11 are an integral part of these financial statements. 5

8 Notes to the financial statements 1 Reporting entity The (the Group ) is a non-statutory group consisting of the following entities: - Kogan Australia Pty Ltd - Kogan Mobile Pty Ltd - Kogan Technologies UK Pty Ltd - Kogan International Holdings Pty Ltd - Kogan HK Limited - Kogan Travel Pty Ltd; - Kogan Mobile Australia Pty Ltd; and - Kogan HR Pty Ltd The Group is a profit orientated group primarily involved in online retail trading of goods and services. In the opinion of the Trustee, the Group is not a reporting entity. The interim financial statements of the Group have been drawn up as special purpose financial statements to assist the Group to meet the information requirements of the Trustee and the Unitholder. 2 Basis of preparation (a) Basis of accounting The special purpose financial statements have been prepared to meet the requirements of the Trustee and the Unitholders, and the recognition, measurement and classification aspects of all applicable Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) have been used in preparing these financial statements. The special purpose financial statements include only the disclosure requirements of the following AASBs and those disclosures considered necessary by the Trustee and Unitholders: AASB 101 Presentation of Financial Statements AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors AASB 1048 Interpretation and Application of Standards AASB 1054 Australian Additional Disclosures The financial statements do not comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). The interim financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the Group as the full financial report. It is recommended that the interim financial report be read in conjunction with the annual report for the year ended 30 June

9 Notes to the financial statements The accounting policies adopted are consistent with those of the previous financial year and corresponding reporting period. The Group s trading cycle is subject to seasonal fluctuations as a result of increased retail sales prior to Christmas, during December. The Group will have typically lower revenue and results in the second half of the year. For the 12 months ended 30 June 2015, Group reported revenue of $ 199,985,318, of which $108,099,094 was recorded from 1st July 2014 to 31 December (b) Consolidation The Group s consolidated interim financial statements are prepared by combining the financial statements of all the entities that comprise the Group, being the Company (the parent entity) and its subsidiaries as defined in AASB 10 Consolidated Financial Statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. The consolidated interim financial statements include the information and results of each subsidiary from the date on which the Company obtains control until such time as the Company ceases to control such entity. In preparing the financial statements, all intercompany balances, transactions and unrealised profits arising within the Group are eliminated in full. 3. New standards and interpretations adopted or not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2018, and have not been applied in preparing these interim financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early and has not yet assessed the financial impact if adopting these standards: - AASB 9 Financial Instruments; - AASB 15 Revenue from Contracts with Customers; 4. Trade and other receivables Current 31 December June 2015 Trade receivables 216,063 1,353,153 Other receivables 1,084, ,956 1,300,694 2,201, Inventories 31 December June 2015 Stock in transit 4,870,720 4,030,519 Stock on hand 20,472,911 21,041,990 Carrying amount of inventories 25,343,631 25,072,509 7

10 Notes to the financial statements 6. Property, plant and equipment Carrying amounts Computer equipment Office Equipment & furniture Leasehold improvements Other Total at 30 June , ,014 11, ,682 at 31 December , ,683 19,800 5, , Intangible assets Cost Patents and trademarks Website Development costs Software Customer lists Total Balance at 1 July ,343 1,333,845 76,692-1,559,880 Additions 41, , ,285 1,813,022 2,767,236 Balance at 30 June ,934 1,680, ,977 1,813,022 4,327,116 Balance at 1 July ,934 1,680, ,977 1,813,022 4,327,116 Additions 5, , , , ,409 Balance at 31 December ,338 1,898, ,426 2,095,720 4,939,525 Accumulated amortisation and impairment losses Balance at 1 July , , ,184 Amortisation for the year 49, , , ,852 1,211,123 Balance at 30 June ,146 1,070, , ,852 1,829,307 Balance at 1 July ,146 1,070, , ,852 1,829,307 Amortisation for the period 46, , , , ,508 Balance at 31 December ,989 1,286, ,919 1,021,454 2,684,815 Carrying amounts at 30 June , , ,038 1,242,170 2,497,809 at 31 December , , ,507 1,074,266 2,254,710 8

11 Notes to the financial statements 8. Trade and other payables 31 December 30 June Current Trade payables 13,680,652 5,395,208 Other payables 3,823,289 2,378,443 Accrued expenses 1,261, ,000 18,765,753 7,944, Loans and borrowings This note provides information about the contractual terms of the Group s interest-bearing loans and borrowings, which are measured at amortised cost. Current 31 December June 2015 Working capital facility - secured - 8,100,000-8,100,000 At 31 December 2015, the Group had an undrawn working capital facility of $5,500,000 (30 June 2015: $11,650,000), available to fund inventory purchases. The Group was in compliance with its debt covenant restrictions as at 31 December 2015 and throughout the period. Subsequent to period end, the Group executed a variation to its working capital facility, refer to Note 14 for further details. 10. Employee benefits Current 31 December June 2015 Annual leave 295, ,204 Long service leave 12,648 11, , ,054 Non-Current Long service leave 35,515 15,692 35,515 15,692 9

12 Notes to the financial statements 11. Provisions Warranties Sales Refund Gift Vouchers Balance at 30 June ,966 50,393 60, ,732 Balance at 31 December ,266 66,939 (50,685) 230,520 Total Current 214,266 66,939 (50,685) 230,520 Non-current ,266 66,939 (50,685) 230,520 Warranties The provision for warranties relates mainly to the contractual obligations to fulfil warranty claims in accordance with terms of sale. The provision is based on estimates made from historical warranty data associated with similar products and services. The Group expects to settle the liability over the next year. Sales returns The provision for sales returns is recognised for the expected value of returns, based on historical sales return data and a specific review of the profile of sales for the year. The Group expects to settle the liability over the next year. 12. Capital and reserves (a) Issued capital (i) Share capital The Group does not have authorised capital or par value in respect of its issued trust units. Holders of these units are entitled to distributions as declared from time to time and their rights are determined by the Kogan Technologies Unit Trust Deed. (b) Distributions During the year, the Group made distributions to Unitholders totalling $625,

13 Notes to the financial statements 13. Contingencies In a prior year Kogan Mobile Pty Ltd s service provider, ispone, went into liquidation. Kogan Mobile Pty Ltd has commenced proceedings against the liquidator and is pursuing a statement of claim. There is also a counter-claim against Kogan Mobile Pty Ltd, which was launched prior to ispone entering voluntary administration in August 2013, then stayed as a result of the administration. Whilst the outcome of this matter is uncertain, a commercial negotiation has commenced, and management expects to recover some funds from the liquidator. The only amount brought to account in the financial statements is an amount of $293,320 for counter-enforced recovery of costs owing from the liquidator and supported by a Court Order, which the Trustee is satisfied will be recovered through the settlement process based on information available as at the date of this report. 14. Subsequent Events On 11 March 2016 the Group agreed to acquire the on-line business of Dick Smith Electronics (receivers and managers appointed) through the purchase of goodwill, brand and intellectual property. The total purchase price was $2.61 million. On 11 March 2016 the Group executed a variation to its BankWest banking facility, which has the effect of extending the facility expiry date to 31 March 2019 and amending certain other terms including facility review events. Other than the above, there has not arisen in the interval between the end of the financial period and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Trustees of the Group, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial periods. 11

14 Trustees declaration 1. In the opinion of the Trustee of the ( the Group): (a) the Group is not a reporting entity; (b) the financial statements and notes, set out on pages 3 to 11: (c) (i) (ii) present fairly the financial position of the Group as at 31 December 2015 and its performance, as represented by the results of its operations, for the financial period ended on that date in accordance with the statement of compliance and basis of preparation described in Note 2; and comply with Australian Accounting Standards (including the Australian Accounting Interpretations) to the extent described in Notes 1-14; and there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. 2. In respect of the period ended 31 December 2015 the Group has: (a) (b) (c) kept such accounting records as correctly record and explain its transactions and financial position; kept its accounting records that financial statements of the Group that are presented fairly can be prepared from time to time; and kept its accounting records so that the financial statements of the Group can be conveniently and properly audited in accordance with the Trust deed. Signed in accordance with a resolution of the Trustee: David Shafer Director Dated at Melbourne this 15 th day of April

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