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XREALITY GROUP LTD Interim / Quarterly Report 2020

Mar 1, 2020

66105_rns_2020-03-01_9c9ddf85-57a5-492d-bbc5-e343a5901bec.pdf

Interim / Quarterly Report

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Appendix 4D
Indoor Skydive Australia Group Limited
Half Year Report Period ended 31 December 2019
Results for Announcement to the Market
Details of Reporting Periods
Current: 1 July 2019 to 31 December 2019
Comparative: 1 July 2018 to 31 December 2018
Half year to Half year to
31/12/19 31/12/18
Financial Results Change % Change $
$ $
Total revenue 3,957,502 6,227,179 (36%) (2,269,677)
(“revenue from ordinary activities”)
Net operating loss (3,375,943) (1,170,569) (188%) (2,205,374)
(“loss from ordinary activities after tax attributable to members”)
Total comprehensive loss for the period
(3,375,943) (1,170,569) (188%) (2,205,374)
(“net loss for the period attributable to members”)
Commentary on results
Please refer to the attached Interim Financial Report and Financial Statements for further explanation of the results.
Dividends Half year to Half year to
31/12/19 31/12/18
Interim Dividend n/a n/a
Record date for determining entitlement to dividend n/a n/a
No dividends have been paid or declared during the period. There are no dividend reinvestment plans.
Half year to Half year to
31/12/19 31/12/18
$0.04 $0.16
Net tangible assets per share
Financial Report
The Company's independent auditor, Accru Flesers, has completed a review of the Group's 31 December 2019
Interim Financial Report on which this report is based and has provided an unqualified Review Report. A copy of the
Indoor Skydive Australia Group Limited Interim Financial Report and Financial Statements, inclusive of the Review
Report is attached.
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Appendix 4D
Indoor Skydive Australia Group Limited
Half Year Report Period ended 31 December 2019
Results for Announcement to the Market
Details of Reporting Periods
Current: 1 July 2019 to 31 December 2019
Comparative: 1 July 2018 to 31 December 2018
Half year to Half year to
31/12/19 31/12/18
Financial Results Change % Change $
$ $
Total revenue 3,957,502 6,227,179 (36%) (2,269,677)
(“revenue from ordinary activities”)
Net operating loss (3,375,943) (1,170,569) (188%) (2,205,374)
(“loss from ordinary activities after tax attributable to members”)
Total comprehensive loss for the period
(3,375,943) (1,170,569) (188%) (2,205,374)
(“net loss for the period attributable to members”)
Commentary on results
Please refer to the attached Interim Financial Report and Financial Statements for further explanation of the results.
Dividends Half year to Half year to
31/12/19 31/12/18
Interim Dividend n/a n/a
Record date for determining entitlement to dividend n/a n/a
No dividends have been paid or declared during the period. There are no dividend reinvestment plans.
Half year to Half year to
31/12/19 31/12/18
$0.04 $0.16
Net tangible assets per share
Financial Report
The Company's independent auditor, Accru Flesers, has completed a review of the Group's 31 December 2019
Interim Financial Report on which this report is based and has provided an unqualified Review Report. A copy of the
Indoor Skydive Australia Group Limited Interim Financial Report and Financial Statements, inclusive of the Review
Report is attached.
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Indoor Skydive Australia Group Limited and Controlled Entities

ABN 39 154 103 607

Interim Financial Report For the half year ended 31 December 2019

2019 Interim Financial Report ________

Contents

DIRECTORS’ REPORT ............................................................................................................................. 2 AUDITOR’S INDEPENDENCE DECLARATION ....................................................................................... 4 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ... 5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ................................................................... 6 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ................................................................... 7 CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................................ 8 NOTES TO THE FINANCIAL STATEMENTS ........................................................................................... 9 DIRECTORS’ DECLARATION ................................................................................................................ 17 INDEPENDENT AUDITOR’S REVIEW REPORT TO THE MEMBERS OF INDOOR SKYDIVE AUSTRALIA GROUP LIMITED ............................................................................................................... 18

www.indoorskydiveaustralia.com.au Indoor Skydive Australia Group Limited – ABN: 39 154 103 607

1

2019 Interim Financial Report ________

DIRECTORS’ REPORT

Your directors submit the interim financial report of the consolidated group consisting of Indoor Skydive Australia Group Limited ( the Company or ISA Group ) and its controlled entities ( the Group ) during the half-year ended 31 December 2019.

Directors

The following persons were directors who held office during the half-year and up to the date of this report, unless otherwise stated:

Stephen BAXTER

Danny HOGAN, MG

Wayne JONES Jon BRETT (Resigned 15 July 2019)

James SPENCELEY (Resigned 15 July 2019)

Company Secretary

Stephen TOFLER

Review of Operations

The principal activities of ISA Group are to own and/or operate Indoor Skydiving Facilities across Australia and South East Asia. It operates two Skydiving Facilities in Australia; iFLY Downunder (Penrith NSW) and iFLY Gold Coast. The assets of iFLY Perth were sold with effect 30[th] August 2019, though settlement was delayed. Final settlement occurred 21[st] February 2020. ISA Group also has a joint venture with 1 Utama in Kuala Lumpur, Malaysia.

ISA Group has recently launched its wholly owned virtual reality business FREAK Entertainment with the first site in Sydney opening to the public on the 13[th] December 2019.

For the half-year ended 31 December 2019, ISA Group reported Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) loss of $1,651,445 (2018: profit of $351,506). This includes losses from discontinuing operations of $920,819 and other non-operating expenses of $423,832, to show an underlying negative EBITDA of $306,794. The underlying EBITDA includes $323,813 of royalty expense which is non-cash. The net loss after tax is $3,375,943 (2018: loss of $1,170,569).

EBITDA is not an accepted classification under the accounting standards, however the Directors consider it a useful measure when considering the performance of Vertical Wind Tunnel (VWT) operations.

The following table summarises key reconciling items between statutory profit after tax attributable to the shareholders of the consolidated entity and EBITDA.

www.indoorskydiveaustralia.com.au Indoor Skydive Australia Group Limited – ABN: 39 154 103 607

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2019 Interim Financial Report ________

EBITDA
Less: Depreciation and amortisation
Less: Finance cost
Loss before income tax benefit
Income tax (expense) benefit
Loss after income tax
December
2019
$
(1,651,455)
(742,344)
(513,646)
(2,907,445)
(468,498)
(3,375,943)
December
2018
$
351,506
(735,461)
(496,706)
(880,661)
(289,908)
(1,170,569)

Auditor’s Independence Declaration

The lead auditor’s independence declaration under s 307C of the Corporations Act 2001 is set out on page 4 of the interim financial report.

This directors’ report is signed in accordance with a resolution of the Board of Directors.

On behalf of the Directors

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Steve Baxter Chairman

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Wayne Peter Jones

Director & Chief Executive Officer

Dated: 28 February 2020

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Level 6, 1 Chifley Square Telephone + 61 2 8226 1655 Sydney, New South Wales 2000 Facsimile + 61 2 8226 1616 Australia Web www.accru.com

Chartered Accountants + Business Advisors Sydney + Melbourne + Brisbane Perth + Adelaide + Hobart + Auckland

Accru Felsers is an autonomous and separately accountable member of Accru and CPA Associates International Inc. Liability limited by a scheme approved under Professional Standards Legislation.

2019 Interim Financial Report ________

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the Half Year Ended 31 December 2019

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www.indoorskydiveaustralia.com.au

5

Indoor Skydive Australia Group Limited – ABN: 39 154 103 607

2019 Interim Financial Report________

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2019

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www.indoorskydiveaustralia.com.au

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Indoor Skydive Australia Group Limited – ABN: 39 154 103 607

2019 Interim Financial Report ________

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the Half Year Ended 31 December 2019

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7

2019 Interim Financial Report ________

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Half Year Ended 31 December 2019

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The Consolidated Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements.

www.indoorskydiveaustralia.com.au

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Indoor Skydive Australia Group Limited – ABN: 39 154 103 607

2019 Interim Financial Report ________

NOTES TO THE FINANCIAL STATEMENTS

For the Half Year Ended 31 December 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. General information and basis of preparation

The condensed interim consolidated financial statements (‘the interim financial statements’) of ISA Group are for the six (6) months ended 31 December 2019 and are presented in Australian Dollar ($AUD), which is the functional currency of the Parent Company. These general purpose interim financial statements have been prepared in accordance with the requirements of the Corporations Act 2001 and AASB 134 Interim Financial Reporting. They do not include all of the information required in annual financial statements in accordance with Australian Accounting Standards, and should be read in conjunction with the consolidated financial statements of ISA Group for the year ended 30 June 2019 and any public announcements made by ISA Group during the half-year in accordance with continuous disclosure requirements arising under the Australian Securities Exchange Listing Rules and the Corporations Act 2001.

The interim financial statements have been approved and authorised for issue by the Board of Directors on 28 February 2020.

b. Significant accounting policies

The interim financial statements have been prepared in accordance with the same accounting policies adopted in ISA Group’s last annual financial statements for the year ended 30 June 2019, with the exception of the new AASB 16 as shown in Note 10.

The accounting policies have been applied consistently throughout ISA Group for the purposes of preparation of these interim financial statements.

c. Estimates

When preparing the interim financial statements, management undertakes a number of judgements, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results.

The judgements, estimates and assumptions applied in the interim financial statements, including the key sources of estimation uncertainty were the same as those applied in ISA Group’s last annual financial statements for the year ended 30 June 2018.

d. Going Concern

The Group incurred a loss for the half year after tax of $3,375,943 (2018: loss of $1,170,569) and as at 31 December 2019, had a net current deficiency in assets of $2,816,381 (2018: deficiency $5,808,594). The Group generated positive cash flows from normal operations during the half year of $450,184 ($734,843 less $1,185,027), together with a further negative $1,185,027 satisfying outstanding creditors as outlined in the prospectus (2018: negative $744,876). Future expected cash flows have not been taken into account in determining the current assets position. Included within current liabilities is deferred revenue of $787,086 that will be realised as revenue once the service has been delivered to the customer.

The following matters have been considered by the directors in determining the appropriateness of the going concern basis of preparation in the financial statements:

  • i. Management has prepared detailed cash flow forecasts that are monitored on an ongoing basis.

  • ii. The company is in positive discussions with WBC in order to realign its covenants post the sale of the Perth Assets.

  • iii. The company has continued to deliver on its short-term strategy of repair, growth and diversification.

Given the current strategic plan underway by the ISA Group Board, along with forecasted cash flows from operations the Directors are of the view that the company will continue as a going concern.

www.indoorskydiveaustralia.com.au Indoor Skydive Australia Group Limited – ABN: 39 154 103 607

9

2019 Interim Financial Report ________

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Deferred revenue primarily represents prepaid sales in respect of flight time purchased in advance. The sales are released to revenue at the time the services are rendered except the gift card revenue which is released in relation to expected redemption rates.

10

2019 Interim Financial Report ________

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The Company has in place a secured debt facility with Westpac Banking Corporation with current loan amount of $7.9M at reporting date. Interest payable on each component is based on current market rates, over a maximum 5 year term. Security provided is:

Fully Interlocking Guarantee and Indemnity by:

Indoor Skydive Australia Group Limited Indoor Skydiving Penrith Holdings Pty Ltd Indoor Skydiving Penrith Pty Ltd Indoor Skydiving Gold Coast Pty Ltd Indoor Skydiving Adelaide Pty Ltd Indoor Skydiving Perth Pty Ltd ISAG Holdings D Pty Ltd ISAG Café Pty Ltd

Supported by General Security Agreement over all existing and future assets and undertaking by:

Indoor Skydive Australia Group Limited Indoor Skydiving Penrith Holdings Pty Ltd Indoor Skydiving Penrith Pty Ltd Indoor Skydiving Gold Coast Pty Ltd Indoor Skydiving Adelaide Pty Ltd Indoor Skydiving Perth Pty Ltd ISAG Holdings D Pty Ltd ISAG Café Pty Ltd

Mortgage over lease by Indoor Skydiving Penrith Holdings Pty Ltd.

NOTE 6: DIVIDENDS

No dividends have been paid or declared during the period.

11

2019 Interim Financial Report ________

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NOTE 9: OPERATING LEASES

From 1[st] July 2019, the operating leases of the business are accounted for using AASB 16. The leases are outlined below:

Right of Use Lease Liability
over Asset
Property 9,459,987 9,580,446
Equipment 84,309 84,600
Total: 9,544,296 9,665,046

NOTE 10: SIGNIFICANT EVENTS DURING THE PERIOD

Sale of Perth Indoor Skydiving Facility

On 21 August 2019, ISA Group entered into an Asset Sale Agreement with SkyVenture International for the sale of its Perth Indoor Skydiving Facility. Completion of the sale occurred on 21[st] Feb 2020. The sale of iFLY Perth was in exchange for;

  • Full satisfaction of amounts payable by the ISA Group of companies to SkyVenture under the Promissory Notes which were issued on settlement of the legal dispute in 2018;

  • Full satisfaction of all outstanding amounts payable by the ISA Group of companies under the Purchase and Licence Agreements for its three current operations;

  • A royalty suspension period of 4 years for Indoor Skydiving Penrith and Indoor Skydiving Gold Coast

  • A cash payment to ISA Group of A$500,000

  • Termination of the Purchase and Licence Agreement in relation to iFly Perth; and

  • SkyVenture assuming certain liabilities for presold and unused flights.

The sale marks the completion of all disputes with SkyVenture International.

12

2019 Interim Financial Report ________

Repayment in full of the Loan Facility from SkyVenture

The loan facility from SkyVenture International Limited of US$3,789,933 has been fully repaid following settlement on 21 February 2020.

Capital Raise

On 21 August 2019, ISA Group completed an entitlement offer raising a total of $2m. Funds from the raise were used to fund enhanced marketing activities and systems, further reduce interest bearing debt and launch the company’s new growth business, FREAK Entertainment.

New IT Systems launched

Multiple new IT systems were adopted during the 1H20. On 12[th] November ISA Group launched its new Website and Booking system. The website was implemented in partnership with iFLY Australia, incorporating all 5 Australian facilities. The new Point of Sale and Booking system is powered by the FuseMetrix Group who operate across 40 countries. The new system has vastly improved the customer experience through the booking process and includes the ability to upsell at checkout with a mobile friendly design.

The company also migrated over to a new accounting system in December, allowing for a more streamline accounting process, further assisting in the cost reduction activities still underway.

Launch of FREAK Entertainment – Virtual Reality business

FREAK Entertainment, a wholly owned subsidiary of ISA Group, opened to the public on Friday the 13th December in Penrith, NSW. The product is a free roam, multiplayer virtual reality experience that offers the user the most cutting edge, real life 4D encounter available in Australia.

The product has received extremely positive feedback from gaming and tech critics. The school holiday period was a success and the business continues to perform well. The second location is being prepared at the Gold Coast and further sites throughout Sydney have been identified and are under consideration.

NOTE 11: INTEREST IN SUBSIDIARIES

Set out below are the Group’s subsidiaries at 31 December 2019. The subsidiaries listed below have share capital consisting solely of ordinary shares, which are held directly by the Group and the proportion of ownership interests held equals the voting rights held by the Group. Each subsidiary’s country of incorporation or registration is also its principal country of business.

countryof business.
As at As at
31
December
30 June
Country of incorporation 2019 2019
Subsidiaries
% %
Indoor SkydivingPenrith Holdings PtyLtd Australia 100 100
Indoor SkydivingPenrith PtyLtd Australia 100 100
Indoor SkydivingGold Coast PtyLtd Australia 100 100
ISA Flight Club PtyLtd Australia 100 100
Indoor SkydivingPerth PtyLtd Australia 100 100
ISAG Holdings D PtyLtd Australia 100 100

13

2019 Interim Financial Report ________

ISAG Café PtyLtd Australia 100 100
ISA Asia Operations PtyLtd Australia 100 100
ISA Asia Holdings Pty Ltd Australia 100 100
Freak Entertainment Pty Ltd Australia 100 N/A

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14

2019 Interim Financial Report ________

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NOTE 14: EVENTS AFTER THE END OF THE INTERIM PERIOD

On 21[st] February, settlement was completed of the sale of the assets of the iFLY Perth operation to iFLY Australia Pty Ltd. This sale was effective 30[th] August 2019.

NOTE 15: INTEREST IN A JOINT VENTURE

The Group has a 40% interest in LeisureWorld Assets Sdn. Bhd., a joint venture involved in owning an indoor skydive facility in Kuala Lumpur, Malaysia. The Group’s interest in LeisureWorld Assets Sdn. Bhd. is accounted for using the equity method and the following table illustrates the summarised financial information of the Group’s investment.

The Group has a 60% interest in LeisureWorld Escapades Sdn. Bhd., a joint venture involved in operating an indoor skydiving facility in Kuala Lumpur, Malaysia. The Group’s interest in LeisureWorld Escapades Sdn. Bhd. Is accounted for using the equity method.

15

2019 Interim Financial Report ________

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Note that LeisureWorld Escapades Sdn. Bhd has a negative Net Assets. Accordingly, equity accounting is discontinued and the investment is carried as nil.

16

2019 Interim Financial Report ________

DIRECTORS’ DECLARATION

In accordance with a resolution of the directors of Indoor Skydive Australia Group Limited, the directors of the Company declare that:

  1. The financial statements and notes, as set out on pages 5 to 16 are in accordance with the Corporations Act 2001 , including:

  2. A. complying with Accounting Standard AASB 134: Interim Financial Reporting; and

  3. B. giving a true and fair view of the consolidated entity’s financial position as at 31 December 2019 and of its performance for the half-year ended on that date.

  4. In the directors’ opinion, by continuing to pursue the courses of action outlined in Note 1(d)(iii), there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

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Steve Baxter Chairman Dated: 28 February 2020

Wayne Peter Jones Director & Chief Executive Officer

17

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Chartered Accountants + Business Advisors Sydney + Melbourne + Brisbane Perth + Adelaide + Hobart + Auckland

Accru Felsers is an autonomous and separately accountable member of Accru and CPA Associates International Inc. Liability limited by a scheme approved under Professional Standards Legislation.

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