for personal use only - asx · 2014. 9. 10. · overview of individual inabox brands ... ivox has...

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INABOX GROUP LIMITED ANNUAL REPORT 2014

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Inabox Group Limited

ABN 32 161 873 187

Annual Report - 30 June 2014

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Inabox Group Limited Contents 30 June 2014

1

Contents Corporate directory 2

Directors' report 3

Auditor's independence declaration 15

Corporate governance statement 16

Statement of profit or loss and other comprehensive income 21

Statement of financial position 22

Statement of changes in equity 23

Statement of cash flows 24

Notes to the financial statements 25

Directors' declaration 58

Independent auditor's report to the members of Inabox Group Limited 59

Shareholder information 61

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Inabox Group Limited Corporate directory 30 June 2014

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Directors Siimon Reynolds - Independent Chairman and Non-Executive Director Damian Kay - Chief Executive Officer and Managing Director Paul Line - Executive Director Garry Dinnie - Independent Non-Executive Director David Rampa - Independent Non-Executive Director Company secretary Angus Fotheringham Registered office Level 10, 9 Hunter Street Sydney NSW 2000 Telephone: 1300 783 526 Facsimile: 1300 883 526 Principal place of business Level 10, 9 Hunter Street Sydney NSW 2000 Share register Boardroom Pty Limited Level 7, 207 Kent Street Sydney NSW 2000 Telephone:1300 737 760 Facsimile: 1300 653 459 [email protected] Auditor Ernst & Young 680 George Street Sydney NSW 2000 Solicitors Hall & Wilcox Level 30, Bourke Place 600 Bourke Street Melbourne VIC 3000 Stock exchange listing Inabox Group Limited shares are listed on the Australian Securities Exchange (ASX

code: IAB) Website www.inaboxgroup.com.au

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Inabox Group Limited Directors' report 30 June 2014

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The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'group') consisting of Inabox Group Limited (referred to hereafter as the 'company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2014. Directors The following persons were directors of Inabox Group Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Siimon Reynolds - Independent Chairman Damian Kay Paul Line Garry Dinnie David Rampa (appointed on 24 January 2014) Principal activities The group operates as a non-carrier telecommunications aggregator, providing its customers with telecommunications products including fixed line, hosted voice, mobile, cloud and data services. As part of this service, the group provides back office services including billing, provisioning, product development, training and support, and customer service using the brand selected by its service providers. The group has expanded its activities to provide enablement services to large corporates. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations The profit for the group after providing for income tax amounted to $1,068,061 (30 June 2013: $1,201,978). Overview of individual Inabox brands Given the increasing role of next-generation IP-based products in the telecommunications market, the group has determined to focus its internal customer support capability on products with a higher technical complexity. The group has therefore outsourced some lower-complexity customer support roles to an Australian-based third party telephone support provider. The one-off costs of a number of redundancies made in the course of this process are reflected in employee benefits expense, in profit or loss, this year. The group's principal business activity has been to supply wholesale telecommunications services to Retail Service Providers ('RSPs') who in turn resupply their primarily business end-customers. This business is referred to as "indirect" for segment reporting purposes given its wholesale nature, and operates under the "Telcoinabox" and "iVox" brands discussed below. The group launched an additional business capability "enablement" which operates as a separate segment under the Telcoinabox brand, leveraging the group's existing skills and relationships for larger consumer businesses. The group has increased the number of its active resellers and continues to actively pursue new RSP relationships, both with new entrants into the telecommunications resale market and with existing resellers which obtain their supply from third parties. Indirect Telcoinabox: The Telcoinabox brand's wholesale telecommunications resupply business remains a stable contributor to overall earnings. Despite the departure of one substantial customer during the year, Telcoinabox entered into supply agreements with a number of substantial new customers, including those formerly supplied by the now-defunct ISPOne and Connec2 businesses. The overall performance of the Telcoinabox wholesale telecommunications resupply business (excluding its enablement business) has been affected by the variations in revenue associated with these customer movements, but despite them it continues to show steady overall organic growth. The group's base of traditional Public Switched Telephone Network ('PSTN') telephony has remained relatively stable, which is positive when compared to the declining proportion of fixed wire telephony in the greater Australian telecommunications market. The group expects to continue to defend its share of the PSTN market in the period leading up to the full deployment of the National Broadband Network (‘NBN’).

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iVox: iVox’s primary focus has traditionally been on operating 100% in-house owned Voice over Internet Protocol ('VoIP') and next generation hosted voice solutions, and this continued throughout the financial year ended 30 June 2014. Supplementary services such as broadband have been migrated onto the Telcoinabox network to take advantage of synergies in network infrastructure and wholesale broadband supply. The iVox staff have been integrated into the group and all staff are now located at the Hunter Street, Sydney head office. iVox will continue to focus on automation, and has invested in a new provisioning and ordering portal for use by wholesale customers with back end integration to the existing iVox billing system. By automating previously manual technical processes, iVox intends to be able to increase customer volumes without a resulting increase in staff. iVox has entered into an agreement to license a significant capability upgrade to the ‘softswitch’ which forms the primary component of iVox's voice switching platform. The new carrier softswitch will provide a significant capacity increase, additional functionality, improved automation and will also extend the iVox platform to a dual site solution for improved redundancy and high availability. Enablement capability The enablement capacity involves making the value-added operations support services Telcoinabox provides to its resellers available to larger non-telecommunications companies which have a large customer base in their core business but not necessarily the expertise to offer telecommunications products to their customers. Together with these services, Telcoinabox provides software and systems to enable interconnect of billing and provisioning systems with those of carriers. This enables non-telecommunications companies to enter the telecommunications market by providing expertise and services which removes much of the complexity and significantly lowers the start-up costs associated with being a carriage service provider. The Telcoinabox brand provides two defined fee for service capabilities: 1. Platform as a Service ('PaaS') which enables the mass market customer to add/create customers, provision and manage services, bill production, payment processing and other items. 2. Network as a Service ('NaaS') which includes accepting handoff/interconnectivity from major Australian networks for data services (DSL/NBN/SHDSL). Specific functions include authentication (Radius and LDAP), traffic routing and management and DDoS protection. The group has already successfully enabled a major nationwide consumer brand to launch an expanded telecommunications offering. It is now in negotiations with a number of additional potential enablement customers and has commenced ongoing operational trials with another. The group believes that there is a substantial market opportunity to deploy its enablement capability within Australia. Each enablement customer is likely to have a number of unique requirements, and the process of negotiating and deploying an enablement solution in each case involves a long sales and development cycle. The emerging nature of the enablement market also means that there are limited numbers of demonstrated case studies. Despite this, data available shows the available market is significant. Most prominently, among a number of mobile virtual network operators, the launch of a major retailer's prepaid mobile product has seen annual market share growth from 0.4 to 1.6%* of the Australian retail mobile telecommunications market. * source: Kantar Worldpanel Research Under Telcoinabox's enablement strategy, not only pre-paid mobile but post-paid mobile and as well as PSTN and Digital Subscriber Line ('DSL') can be made available to enablement customers. For this reason the group is strongly optimistic about the future earnings potential of its enablement capability but is unable to forecast reliably when individual customers will be launched. Alongside pre-paid and post-paid mobile services, Telcoinabox's enablement strategy, includes PSTN, Digital Subscriber Line ('DSL') and NBN technology available to enablement customers. The group is strongly optimistic about the future earnings potential of its enablement capability but is unable to forecast reliably when individual customers will be launched. Business objectives and cash use The company has used cash and cash equivalents, held at the time of listing, in a way consistent with its stated business objectives.

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Significant changes in the state of affairs On 12 July 2013, the company listed on the Australian Securities Exchange (ASX code: IAB) and completed the acquisition of 100% of the shares of iVox Pty Limited, ('iVox') a specialist VoIP provider. Michael Clarke, the former General Manager of iVox, has subsequently been appointed the Chief Technology Officer of the group and the products and services supplied by the iVox business have been fully integrated into the operations of the group. There were no other significant changes in the state of affairs of the group during the financial year. Matters subsequent to the end of the financial year On 8 July 2014, the group acquired the business and agreed assets of Neural Networks Data Services Pty Limited ('Neural Networks'), a Brisbane-based provider of wholesale cloud and VoIP products for cash consideration of $350,000 less adjustments. The vendor may receive an earn-out depending on the financial performance of the Neural Networks business in FY2015. Subject to approval by shareholders, the earn-out may be composed partially of new equity. The group is in the process of determining the initial accounting and purchase price allocation of Neural Networks and will provide such information in the interim financial report ending 31 December 2014. No other matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly affect the group's operations, the results of those operations, or the group's state of affairs in future financial years. Likely developments and expected results of operati ons The group is expected to grow its operations by way of increased sales to existing clients and the acquisition of new clients. The group will continue to market to increase the number of RSPs, and to increase the total spend of RSPs on next generation telecommunications products. The group expects that these products can be delivered over the top of data products (such as DSL/SHDSL) already supplied to end customers, providing an upsell opportunity. Building on the strong customer links and local market brand identities of many of its RSPs, the group intends to use the well-established retail channels of the Telcoinabox brand to deploy next-generation products. In this way, the group expects to assist its RSPs to manage the gradual Australian market transition from traditional fixed wire telephony to wireless and IP-based telephony in advance of the planned rollout and switchover of legacy products to wireless and NBN-based services. The group will continue to pursue the launch of additional enablement customers. In order to increase its capacity to bring larger numbers of enablement customers online in a given period, and leveraging the expertise acquired with the Neural Networks business, the group will pursue the development of readily scalable cloud-based instances of its value-added operations support services, and in particular its billing and provisioning system, as well as systems which link to carriers. The acquisition of iVox and more recently Neural Networks have contributed and will contribute substantially to the capabilities of the group. The integration of Neural Networks should be completed seamlessly in the first half of FY2015. The group continues to explore acquisition opportunities where it makes sense and adds value to the shareholders. The two key areas include acquiring smaller wholesale only operators competing against the group and opportunities that are complementary to the group's business that broaden the revenue base. The group will continue to support existing customers to acquire other RSP’s that are using other wholesale providers. Environmental regulation The group is not subject to any significant environmental regulation under Australian Commonwealth or State law.

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Information on directors Name: Siimon Reynolds Title: Independent Non-Executive Chairman Experience and expertise: Siimon has over 25 years' experience in media and marketing, building and leading

multi-national businesses. He co-founded Photon Group Limited, which in 8 years grew from 2 people to over 6000, listing on the ASX in 2004. Siimon has been featured on 60 minutes, Today, Bloomberg and CBS Moneywatch. He also writes a column on Entrepreneurship on Forbes.com. Siimon's recent book, 'Why People Fail' was awarded the Silver Medal at the 2012 Axciom Business Book Awards and reached number one on the Business book bestseller list. He has won over 50 industry and business awards.

Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Audit and Risk Committee and the Nomination and Remuneration

Committee Interests in shares: 17,000 ordinary shares Interests in options: 83,333 options Name: Damian Kay Title: Managing Director and Chief Executive Officer Qualifications: Commerce degree from Latrobe University, Melbourne and is a Graduate and

Member of the Australian Institute of Company Directors. Experience and expertise: Damian has more than 12 years' experience in the telecommunications industry.

Previously he owned telecommunications reseller Universal Telecom, which he sold to Commander in 2006. He also held roles at Optus and has extensive sales experience in the FMCG (fast moving consumer goods) and IT industries. In 2002, Damian co-founded Telco In a Box ('Telcoinabox').

Other current directorships: None Former directorships (last 3 years): None Special responsibilities: None Interests in shares: 2,707,938 ordinary shares Interests in options: 83,333 options Name: Paul Line Title: Executive Director and Chief Operating Officer Qualifications: Bachelor of Science (Hons.) specialising in Production and Operations Management

from Nottingham University, UK and is a Graduate and Member of the Australian Institute of Company Directors.

Experience and expertise: Paul joined Telcoinabox in 2005. He has over 10 years' experience in product development and operations in the telecommunications industry. At Telcoinabox, he has held account and product management positions and became General Manager in 2009. He accepted his position as COO in 2012. Prior to Telcoinabox, Paul held managerial roles for major FMCG and retail companies in the UK.

Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Audit and Risk Committee and the Nomination and Remuneration

Committee Interests in shares: 127,014 ordinary shares Interests in options: 83,333 options

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Name: Garry Dinnie Title: Independent Non-Executive Director Qualifications: Bachelor of Commerce Degree from the University of NSW. Fellow of the Institute of

Chartered Accountants, Australian Institute of Company Directors and of the Australian Institute of Management.

Experience and expertise: Garry has more than 35 years' experience in audit and accounting information technology, finance, risk and corporate governance in the IT and communication, financial services, manufacturing and retail industries. He retired from Ernst & Young in 2008 after 25 years as a senior partner. He is a non-executive director of a number of public and private organisations.

Other current directorships: Integrated Research Limited. Former directorships (last 3 years): None Special responsibilities: Chairman of the Audit and Risk Committee and the Nomination and Remuneration

Committee Interests in shares: 1,667 ordinary shares Interests in options: 83,333 options Name: David Rampa (appointed on 24 January 2014) Title: Independent Non-Executive Director Qualifications: Bachelor of Business Studies, Fellow of the Australian Institute of Company Directors. Experience and expertise: David held senior executive positions in both Telstra and Singtel Optus, where he

was Director of the Wholesale Division, prior to working in Investment Banking in New York. In addition to his directorship with the M2 Group Limited, David is chairman of the advisory board at Aviation Logistics Pty Ltd, a ground and air patient transfer operation. He is also a partner at Hall Capital Strategies Pty Ltd, a Sydney based investment bank. Previously David was Deputy Chairman of the Service Provider Association, and in the United States of America, the President of ANZACC (Australian, New Zealand, and American Chamber of Commerce) Midwest.

Other current directorships: M2 Group Limited Former directorships (last 3 years): None Special responsibilities: Member of the Audit and Risk Committee and the Nomination and Remuneration

Committee Interests in shares: 10,000 ordinary shares Interests in options: None 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Angus Fotheringham joined the group in 2010 as General Counsel and Company Secretary. Prior to joining the group, Angus was Legal and Business Affairs Executive for Beyond International Limited and was a solicitor at Gadens Lawyers and at Deacons, (now Norton Rose Fulbright). He holds a Bachelor of Laws (LL.B) with Honours and Bachelor of Arts from the University of Technology Sydney and is a certificated member of the Governance Institute of Australia.

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Meetings of directors The number of meetings of the company's Board of Directors ('the Board') and of each Board committee held during the year ended 30 June 2014, and the number of meetings attended by each director were:

Full Board Audit and Risk Committee Nomination and

Remuneration Committee Attended Held Attended Held Attended Held Siimon Reynolds 16 17 10 10 3 3 Damian Kay 17 17 N/A N/A N/A N/A Paul Line 17 17 10 10 3 3 Garry Dinnie 17 17 10 10 3 3 David Rampa 7 7 3 3 2 2 Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. Remuneration report (audited) The remuneration report, which has been audited, outlines the key management personnel ('KMP') remuneration arrangements for the group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. KMP are defined as those who have the authority and responsibility for planning, directing and controlling the major activities of the group. The remuneration report is set out under the following main headings: ● Principles used to determine the nature and amount of remuneration ● Details of remuneration ● Service agreements ● Share-based compensation ● Additional disclosures relating to KMP Principles used to determine the nature and amount of remuneration The objective of the group's KMP reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns KMP reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to the market best practice for delivery of reward. The Board of Directors ('the Board') ensures that KMP reward satisfies the following key criteria for good reward governance practices: ● competitiveness and reasonableness; ● acceptability to shareholders; ● performance linkage / alignment of executive compensation; and ● transparency. The Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for its KMPs. The performance of the group depends on the quality of its directors and other KMP. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. In consultation with external remuneration consultants, where necessary, (refer to the section 'Use of remuneration consultants' below), the Nomination and Remuneration Committee has structured a KMP framework that is market competitive and complementary to the reward strategy of the group. Alignment to shareholders' interests: ● has economic profit as a core component of plan design; ● focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering

constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value; and ● attracts and retains high calibre KMP. Alignment to program participants' interests: ● rewards capability and experience; ● reflects competitive reward for contribution to growth in shareholder wealth; and ● provides a clear structure for earning rewards.

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In accordance with best practice corporate governance, the structure of non-executive directors and executive remunerations are separate. Non-executive directors remuneration Non-executive director remuneration includes a mix of short and long-term components. Fees and payments to non-executive directors reflect the demands that are made on, and the responsibilities of, the directors. The nature and the amount of compensation is reviewed and approved by the Nomination and Remuneration Committee. Because non-executive directors assess individual and group performance, their remuneration does not have a variable performance related component. The non-executive directors may hold shares and options over shares in the company. As prescribed by the Listing Rules of the ASX, the aggregate remuneration of non-executive directors is determined from time to time by shareholders at general meeting. Non-executive directors’ fees (including statutory superannuation) are determined within an aggregate directors’ fee pool limit. The pool currently stands at a maximum of $600,000 in total, which was approved by shareholders on 10 May 2013. Non-executive remuneration currently comprises of: ● a base fee for serving as a director, currently $100,000 per annum for the chairman and $60,000 per annum for other

non-executive directors; ● an additional fee of $10,000 per annum for serving as chairman of the Audit and Risk Committee; ● an additional fee of $5,000 per annum for serving as chairman of the Nomination and Remuneration Committee; and ● statutory superannuation, equivalent to the Government Superannuation Guarantee Amount. Termination and cash bonus payments do not apply to non-executive directors. Executive remuneration The group aims to reward executives with a level and mix of remuneration based on their position and responsibility, which has both fixed and variable components. The executive remuneration and reward framework has the following components: ● base pay and non-monetary benefits; ● short-term performance incentives; ● share-based payments; and ● other remuneration such as superannuation and long service leave. The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee, based on individual and business unit performance, the overall performance of the group and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits where it does not create any additional costs to the group and provides additional value to the executive. During the financial year ended 30 June 2014 the group’s Short Term Incentive ('STI') plan underwent a review. At the date of approval of the Annual Report, the structure of the STI plan remains in development. A separate revised STI plan for executive directors is also being considered. As a result, no STI payments were awarded to executive directors or other KMP for the year ended 30 June 2014. The group did however award its employees, including senior management and executive directors with an increase to base salary in line the Consumer Price Index or an increase to ensure remuneration remains competitive by market standards. The long-term incentives ('LTI') include long service leave and share-based payments. No share options were granted during the financial year ended 30 June 2014. Group's performance and link to remuneration Remuneration was not linked to group performance. Any bonuses granted are at the discretion of the Board.

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Use of remuneration consultants During the financial year ended 30 June 2014, the group did not engage any remuneration consultants, to review its existing remuneration policies and provide recommendations on how to improve both incentive programs. Voting and comments made at the company's 2013 Annual General Meeting ('AGM') At the 20 November 2013 AGM, 97% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2013. The company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration The KMP of the group consisted of the following directors of Inabox Group Limited: ● Siimon Reynolds - Non-Executive Chairman ● Damian Kay - Managing Director/Chief Executive Officer ● Paul Line - Executive Director/Chief Operating Officer ● Garry Dinnie - Non-Executive Director ● David Rampa - Non-Executive Director (appointed 24 January 2014) And the following persons: ● Michael Clarke - General Manager - iVox (from 12 July 2013 to 30 June 2013) and Chief Technology Officer (from 1

July 2014) ● Anthony Crossley - Chief Financial Officer ● Angus Fotheringham - Company Secretary/General Counsel ● Laura Jacob - Chief Information Officer Amounts of remuneration Details of the remuneration of the KMP of the group are set out in the following tables. Cash salary and fees include annual leave entitlements.

Short-term benefits

Post-employment

benefits

Long-term benefits

Share-based

payments

Cash salary Non- Super- Long service Equity- and fees Bonus monetary annuation leave settled Total 2014 $ $ $ $ $ $ $ Non-Executive Directors:

Siimon Reynolds 116,667 - - 10,750 - 9,292 136,709 Garry Dinnie 75,000 - - 6,938 - 9,292 91,230 David Rampa* 29,582 - - - - - 29,582 Executive Directors:

Damian Kay 330,000 - 9,808 27,750 63,447 9,292 440,297 Paul Line 257,250 - 2,309 29,251 22,656 9,292 320,758 Other Key Management Personnel:

Michael Clarke** 167,708 - - 16,188 28,721 - 212,617 Anthony Crossley

205,800

-

720

21,812

3,186

-

231,518

Angus Fotheringham

175,000

-

118

17,667

4,793

-

197,578

Laura Jacob 160,000 - 2,789 16,187 11,252 - 190,228 1,517,007 - 15,744 146,543 134,055 37,168 1,850,517 * Remuneration from date of appointment as KMP on 24 January 2014. ** Remuneration from date of appointment as KMP on 12 July 2013.

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Short-term benefits

Post-employment

benefits

Long-term benefits

Share-based

payments

Cash salary Non- Super- Long service Equity- and fees Bonus monetary annuation leave settled Total 2013 $ $ $ $ $ $ $ Non-Executive Directors:

Siimon Reynolds*

41,667

-

-

1,500

-

942

44,109

Garry Dinnie ** 27,500 - - 1,125 - 942 29,567 Executive Directors:

Damian Kay 234,167 - 3,433 20,100 57,708 942 316,350 Paul Line** 266,865 45,625 1,800 28,436 15,737 15,942 374,405 Other Key Management Personnel:

Anthony Crossley

215,992

30,000

1,200

19,439

1,316

-

267,947

Angus Fotheringham

179,808

18,500

1,800

16,408

2,537

-

219,053

Laura Jacob 150,747 22,500 1,800 13,792 6,304 - 195,143 1,116,746 116,625 10,033 100,800 83,602 18,768 1,446,574 * Remuneration from date of appointment as KMP on 10 May 2013. ** Remuneration from date of appointment as KMP on 9 January 2013. The proportion of remuneration linked to performance and the fixed proportion are as follows: Fixed remuneration At risk - STI At risk - LTI Name 2014 2013 2014 2013 2014 2013 Non-Executive Directors: Siimon Reynolds 100% 100% -% -% -% -% Garry Dinnie 100% 100% -% -% -% -% David Rampa 100% -% -% -% -% -% Executive Directors: Damian Kay 98% 100% 2% -% -% -% Paul Line 100% 88% -% 12% -% -% Other Key Management Personnel:

Michael Clarke 100% -% -% -% -% -% Anthony Crossley 100% 89% -% 11% -% -% Angus Fotheringham 99% 92% 1% 8% -% -% Laura Jacob 99% 88% 1% 12% -% -% Service agreements The group enters into employment agreements with each KMP. The agreements are continuous i.e. not of a fixed duration, and includes notice period ranging four to eight weeks on the part of the employee and the group. The employment agreements contain substantially the same terms which include usual statutory entitlements, typical confidentiality and intellectual property provisions intended to protect the group’s intellectual property rights and other proprietary information and non-compete clauses.

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Share-based compensation Issue of shares There were no shares issued to directors and other KMP as part of compensation during the year ended 30 June 2014. Options There were no options over ordinary shares issued to directors and other KMP as part of compensation that were outstanding as at 30 June 2014. There were no options over ordinary shares granted to or vested by directors and other KMP as part of compensation during the year ended 30 June 2014. Additional disclosures relating to KMP In accordance with Class Order 14/632, issued by the Australian Securities and Investments Commission, relating to 'Key management personnel equity instrument disclosures', the following disclosures relate only to equity instruments in the company or its subsidiaries. Shareholding The number of shares in the company held during the financial year by each director and other members of key management personnel of the group, including their personally related parties, is set out below: Balance at Received Balance at the start of as part of the end of the year remuneration Additions Other the year Ordinary shares Siimon Reynolds - - 17,000 - 17,000 Damian Kay 2,707,938 - - - 2,707,938 Paul Line** 124,930 - - 2,084 127,014 Garry Dinnie 1,667 - - - 1,667 David Rampa - - 10,000 - 10,000 Michael Clarke* - - - 807,132 807,132 Laura Jacob** - - - 2,084 2,084 2,834,535 - 27,000 811,300 3,672,835 * Other - represents shares issued on acquisition of iVox Pty Ltd ** Other - represents shares acquired at IPO on 12 July 2013 Option holding The number of options over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the group, including their personally related parties, is set out below: Balance at Expired/ Balance at the start of forfeited/ the end of the year Granted Exercised other the year Options over ordinary shares Siimon Reynolds 83,333 - - - 83,333 Damian Kay 83,333 - - - 83,333 Paul Line 83,333 - - - 83,333 Garry Dinnie 83,333 - - - 83,333 333,332 - - - 333,332 This concludes the remuneration report, which has been audited. F

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Shares under option Unissued ordinary shares of Inabox Group Limited under option at the date of this report are as follows: Exercise Number Grant date Expiry date price under option 10 January 2013 30 November 2018 $0.96 1,041,666 24 May 2013 23 May 2018 $1.20 333,332 1,374,998

No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate. Shares issued on the exercise of options There were no ordinary shares of Inabox Group Limited issued on the exercise of options during the year ended 30 June 2014 and up to the date of this report. Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. The company has entered into Deeds of Access and Indemnity with all board members, under which the company provides indemnity, to the extent permitted by the Corporations Act 2001, for liability incurred by a director in their capacity as a director of the company. The company has entered into a contract of insurance under which, relevantly, directors and officers of Inabox are indemnified to an aggregate amount of $10 million in respect of breaches of corporations and securities regulation. Indemnity and insurance of auditor To the extent permitted by law, the company has agreed to indemnify its auditors, Ernst & Young, as part of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount), other than a loss arising from Ernst & Young's negligent, wrongful or wilful acts or omissions. No payment has been made to indemnify Ernst & Young during the financial year ended 30 June 2014 and up to the date of this report. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 29 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 29 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity

of the auditor; and ● none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of

Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards.

Officers of the company who are former audit partne rs of Ernst & Young There are no officers of the company who have been audit partners of Ernst & Young for the past three years.

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Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page and forms part of this Directors' report.

Auditor Ernst & Young continues in office in accordance with section 327 of the Corporations Act 2001.

This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001.

On behalf of the directors

________________________________ ________________________________ Siimon Reynolds Damian Kay Chairman Managing Director and Chief Executive Officer

10 September 2014 Sydney

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A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation

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Ernst & Young680 George StreetSydney NSW 2000 AustraliaGPO Box 2646 Sydney NSW 2001

Tel: +61 2 9248 5555Fax: +61 2 9248 5959ey.com/au

Auditor’s Independence Declaration to the Directors of Inabox GroupLimited

In relation to our audit of the financial report of Inabox Group Limited for the financial year ended 30June 2014, to the best of my knowledge and belief, there have been no contraventions of the auditorindependence requirements of the Corporations Act 2001 or any applicable code of professionalconduct.

Ernst & Young

Lisa Nijssen-SmithPartner10 September 2014

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Inabox Group Limited Corporate governance statement 30 June 2014

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Introduction Inabox Group Limited (the ‘company’ or ‘Inabox’) is committed to best Corporate Governance practices.

In accordance with Listing Rule 4.10, this statement discloses the extent to which Inabox has followed the Recommendations, in accordance with the ASX Corporate Governance Council’s Principles and Recommendations with 2010 Amendments (2nd Edition). Where a Recommendation has not been followed, Inabox is obligated to disclose the reasons why the Recommendation has not been followed. This is referred to as “if not, why not” reporting. Unless otherwise stated, Inabox has adhered to the Recommendation for the full period of this report.

It should be noted that Corporate Governance Principles and Recommendations are largely recommendations. It is recognised that not all of the Recommendations will be suitable for all companies at all times in their corporate development. In this regard, the Board recognises that Inabox’s Corporate Governance practices must continue to evolve and develop as it grows.

Principle 1 – Lay solid foundations for management a nd oversight The company has established the functions reserved for the Board of Directors (the ‘Board’) and those delegated to senior executives. The Board, which has a formal charter in accordance with the Recommendations, operates under a framework designed to provide strategic guidance for the company and oversight of management.

Active Board involvement designed to clarify and guide management includes: • in relation to the Managing Director the appointment, removal, determination of remuneration (including any financial

incentives) and conditions of service, entitlements on termination, and performance review, including the development and maintenance of a succession plan;

• in relation to the Chief Financial Officer the appointment, removal, determination of remuneration (including any financialincentives) and conditions of service, entitlements on termination, and performance review;

• ratifying the appointment, removal, remuneration and conditions of service including financial incentives of direct reportsto the Managing Director, including the Company Secretary;

• the authorisation, within the constraints of the Corporations Act 2001, the ASX Listing Rules and the company’s Tradingin Securities Policy, of the issue of any shares, options, equity instruments or other securities in the company;

• authorisation of expenditure and other matters in excess of the discretion limits delegated to the Managing Director andsenior management in relation to business transactions, credit transactions, risk limits and other exposures;

• the establishment of an incentive plan for the company’s officers and employees;• the remuneration of non-executive directors with the assistance of the Nomination and Remuneration Committee;• input into and final approval of management’s development of corporate strategy and performance objectives including

the strategic plan and business plan;• ensuring that management has in place appropriate processes for:

• risk management, internal compliance and controls, codes of conduct, and legal compliance; and• that such processes are regularly reviewed by management;

• ensuring that the company maintains appropriate insurance;• monitoring senior management’s performance and implementation of strategy, and ensuring appropriate resources are

available;• evaluating, approving and monitoring the progress of major capital expenditure and other major company transactions;• approving and monitoring financial and other reporting;• appointment and removal of the external auditor;• appointments and removal of members to all Board Committees;• approval and review of the Board Charter and the Charters of all Board Committees;• approval and review of delegations to management; and• approval of all relevant policies for the good governance of the company, in addition to those already approved by the

Board.

The Managing Director is responsible to the Board for the overall management and performance of the company. The Managing Director should manage the company in accordance with the strategy, plans and policies approved by the Board to achieve the agreed goals.

The Managing Director is expected to provide: • leadership;• strategic vision;• high-level business judgment and wisdom; and• the ability to meet immediate performance targets without neglecting longer-term opportunities.

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The Recommendations provide that the company should disclose the process of evaluating the performance of senior executives.

The full Board Charter and Nomination and Remuneration Policy can be found on the company’s website.

Principle 2 – Structure the Board to add value The skills and experience of each of the directors is detailed in the ‘Information of directors’ section of the directors’ report.

The Recommendations provide that the majority of the directors should be independent and that the Chairman should also be independent. Recommendation 2.1 was met during the year ended 30 June 2014 as more than 50% of the directors were assessed to be independent.

The Board has adopted specific principles with respect to assessing the independence of directors. Under the Australian Investment Managers’ Association (‘AIMA’) guidelines, in order to be independent, the director must be independent of management, must not be a substantial shareholder of the company and must be free from any business or other relationship that could materially interfere with, or could reasonably be perceived to interfere with, the exercise of their unfettered or independent judgment.

In the context of the independence of directors, immateriality is considered from the perspective of both the company and the director. The determination of independence requires a consideration of both quantitative and qualitative elements. An item is presumed to be immaterial from a quantitative perspective if it is equal to less than 5% of the relevant base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount. Qualitative factors include whether a relationship is strategically important, the competitive landscape and the nature of the relationship (including the contractual or other arrangements governing the relationship).

On the basis of these measures, the following directors are considered to be independent:

Name Position Appointment date

Siimon Reynolds Independent Chairman, Non-Executive Director 6 May 2013 Garry Dinnie Independent Non-Executive Director 9 January 2013 David Rampa Independent Non-Executive Director 24 January 2014

The following directors are not considered to be independent:

Name Position Appointment date

Damian Kay Executive Director 9 January 2013 Paul Line Executive Director 9 January 2013

Recommendation 2.3 is met as the roles of the Chairman and Managing Director are not exercised by the same person.

The Recommendations provide that the Board should establish a Nomination Committee to consider and make recommendations to the Board with respect to a range of matters relating to the selection and performance of directors. The Board assigned these functions to the Nominations Committee, which is known as the Nomination and Remuneration Committee.

The Recommendations suggest that the Nomination and Remuneration Committees should consist of a majority of independent directors, including a Chairman from their number. The Nomination and Remuneration Committee meets these best practice suggestions.

Directors are entitled to seek independent advice at the company’s expense, subject to prior approval of the Chairman, which shall not be unreasonably withheld. A copy of the advice received by the director will be made available to all members of the Board.

Details of directors, their qualifications, experience and expertise can be found in the directors’ report under the section ‘Information on directors’.

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Principle 3 – Promote ethical and responsible decision-making The company’s business affairs are conducted legally and ethically with strict observance of the highest standards of integrity and propriety. The Board has adopted a formal Code of Conduct. The Board’s decision making process assesses the circumstances surrounding matters at all times considering responsible legal and ethical obligations, thereby demonstrating commitment to appropriate corporate practices.

The Code of Conduct can be found on the company’s website. Any person who becomes aware of a suspected breach of compliance with this code is to report it directly to the Managing Director or Chairman, as appropriate.

Inabox seeks to improve gender diversity at all levels. As an organisation, Inabox has set an underlying objective of increasing the representation of women in its business at all levels in the course of selecting the best people for roles which become available.

In order to do so, Inabox has maintained a number of key objectives throughout the reporting period. These are to: • enable and encourage flexible working arrangements;• ensure that training and promotion opportunities are available to all employees, including those on flexible or part-time

work arrangements; and• to ensure that its selection criteria for roles within the organisation reflect the desirability of gender diversity, while

maintaining the core principle of selecting the most appropriate person to fulfil the operating and strategic needs of thebusiness.

Inabox considers that it has achieved these objectives. To that end, Inabox notes that a significant proportion of its staff have taken advantage of work from home or similar arrangements throughout the reporting period and expects that this will continue and increase in subsequent periods.

Inabox acknowledges that at present there are no female members of its Board. Inabox will consider, in any further appointments to the Board, the desirability of increasing gender equality as a part of its nominations and approvals process.

The proportion of women employees within Inabox as at 30 June 2014 are as follows: Women on the Board 0% Women in senior executive positions 29% Women in the organisation 24%

In accordance with the Recommendations, the company has a policy relating to the trading of securities by Directors and employees. Directors and employees of the company are precluded from dealing in Inabox’s shares in the period commencing on the day immediately after the end of the company’s financial year (or financial half year, as applicable) and ending 24 hours after the release of the annual results announcement (or half yearly results announcement, as applicable) to the ASX by the company (for the avoidance of doubt, the 24 hour period excludes weekends, public holidays and non-trading days), and are then permitted to trade only within a window of approximately four weeks.

Share trading is also precluded if a director or employee is in possession of material price sensitive information which is not available to the market and could reasonably be expected to influence the market if it was in possession of the information.

Any transaction conducted by the directors in shares in Inabox is notified to the ASX immediately. Non-executive directors are required to receive prior approval from the Chairman, and the Chairman is required to receive approval from the Chairman of the Audit and Compliance Committee.

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Principle 4 – Safeguard integrity in financial reporting In accordance with the Recommendations and Listing Rule 12.7, the company has an Audit and Risk Committee.

The Audit, Risk and Compliance Committee currently comprise of the following independent directors: Garry Dinnie (Chair) Siimon Reynolds David Rampa

The primary objective of the Audit and Risk Committee is to assist the Board in fulfilling its Corporate Governance and overseeing responsibilities relating to accounting and reporting practices.

Where conflicts of interest arise, measures are in place to ensure that they are properly managed and that the interests of all shareholders are protected.

The Board has established a formal charter for the Audit and Risk Committee which is available on the company’s website. The meetings of the Audit and Risk Committee are held before reporting the half-year and annual financial results, or as required upon request from any member of the Committee.

Details of the number of committee meetings held and attended by each director during the year ended 30 June 2014 is disclosed in the directors’ report under the heading ‘Meetings of directors’.

Principle 5 – Make timely and balanced disclosure The company complies with its continuous disclosure obligations in accordance with the requirements of the ASX Listing Rules and the Corporations Act. The Managing Director has primary responsibility for ensuring the market is properly informed.

In settling the wording of announcements, drafts are circulated as appropriate to managers, directors and the Chairman who can provide relevant input and raise any issues with respect to the particular wording of announcements. This provides intensive quality control of both the content and expression of announcements.

The company has developed a culture of complying with its continuous disclosure obligations under the leadership of the Managing Director and Chairman. In accordance with Recommendation 5.1, a detailed disclosure policy is available for review on the company’s website.

Principle 6 – Respect the rights of shareholders The Board aims to ensure that shareholders are informed of all information necessary to assess the performance of the company and the Board. This reflects the core value of the company to strive for excellence in communications with all stakeholders.

Information on all major developments affecting the company is communicated to the shareholders through the Annual Report, Half-yearly Report and the Annual General Meeting. The company’s website is a key communication tool. Transcripts of material such as the Chairman’s address and media briefings will often be made available on the website. Shareholders may provide feedback to the company and ask questions through the website.

Whilst it is a legal requirement to provide shareholders with an opportunity to ask questions at the Annual General Meeting, the company and the Board encourages a culture where shareholders ask questions and provide feedback at any time.

Principle 7 – Recognise and manage risk The Recommendations provide that companies should establish policies for the oversight and management of material business risks. In addition, the Recommendations provide that the Board should require management to design and implement the risk management and internal control systems to manage the company’s material business risks. The directors have adopted a Risk Management Policy, a summary of which will be available for viewing on the company’s website. F

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In summary, management has identified, considers and reports to Board Meetings on areas of material risk as they arise.

The following have been identified as material areas of risk: • Financial risk;• Workplace health and safety (‘OH&S’) risk;• Human resources risk;• Market and customer risk;• Supplier risk;• Litigation risk;• Technology risk; and• Disaster recovery and IT security.

This list is indicative of material areas of risk but is not comprehensive.

This report reviews the systems for identifying, monitoring and managing risks and internal reporting procedures. In so doing the Board considers the interest of all relevant stakeholders, and its obligations as required by Recommendation 7.2 of the ASX Corporate Governance Principles.

The Board receives assurance from the Managing Director and Chief Financial Officer prior to release to the market of the financial statements, that the declaration as to the financial records and statements made under section 295A of the Corporations Act 2001 has been founded on a system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

Principle 8 – Remunerate fairly and responsibly The relevant function of the Nomination and Remuneration Committee under Recommendation 8.2 is held by the Board to focus the company on matters relating to compensation of the company’s directors, executive management and senior personnel.

The Nomination and Remuneration Committee is structured so that it: • consists of a majority of independent directors• is chaired by an independent chair; and• has at least three members

The Nomination and Remuneration Committee currently comprise of the following independent directors: Garry Dinnie (Chair) Siimon Reynolds David Rampa

In performing its duties, the Committee will maintain effective working relationships with the Board and management. To perform his or her role effectively, each Committee member will obtain an understanding of the detailed responsibilities of Committee membership as well as the company’s business, operations, and risks.

The company’s remuneration policy, which sets the terms and conditions for the Managing Director and other senior executives is developed and approved by the Board. All executives receive a base salary, superannuation and in some cases performance incentives. The Board reviews executive packages annually by reference to executive performance, comparable information from industry sectors and independent advice. The performance of executives is measured against annual criteria, which is based on growth in profit and shareholder’s value. The policy is designed to attract the highest calibre executives and reward them for performance which results in long-term growth in shareholder value.

Further information on the remuneration policy and compensation paid during the financial year to the directors and other key management personnel are detailed in the remuneration report contained within the directors’ report.

Details of the number of committee meetings held and attended by each director during the year ended 30 June 2014 is disclosed in the directors’ report under the heading ‘Meetings of directors’.

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Inabox Group Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2014

Consolidated Note 2014 2013

$ $

The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes

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Revenue 5 46,910,351 41,508,868

Other income 4,325 94,193

Expenses Network expenses (32,180,853) (28,832,967) Employee benefits expense (9,601,512) (8,636,564) Depreciation and amortisation expense 6 (756,222) (371,199) Bad and doubtful debt expense (1,468) (33,100) Other expenses 6 (2,716,956) (1,880,227) Finance costs 6 (48,135) (104,133)

Profit before income tax expense 1,609,530 1,744,871

Income tax expense 7 (541,469) (542,893)

Profit after income tax expense for the year attributable to the owners of Inabox Group Limited 25 1,068,061 1,201,978

Other comprehensive income for the year, net of tax - -

Total comprehensive income for the year attributable to the owners of Inabox Group Limited 1,068,061 1,201,978

Cents Cents

Basic earnings per share 37 7.76 15.37 Diluted earnings per share 37 7.64 14.55

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Inabox Group Limited Statement of financial position As at 30 June 2014

Consolidated Note 2014 2013

$ $

The above statement of financial position should be read in conjunction with the accompanying notes 22

Assets

Current assets Cash and cash equivalents 8 3,656,908 409,247 Trade and other receivables 9 4,054,016 2,911,029 Inventories 10 9,369 35,573 Other 11 2,249,736 2,941,900 Total current assets 9,970,029 6,297,749

Non-current assets Property, plant and equipment 12 572,750 359,983 Intangibles 13 4,336,533 846,523 Deferred tax 14 171,746 322,829 Other 15 500,322 650,496 Total non-current assets 5,581,351 2,179,831

Total assets 15,551,380 8,477,580

Liabilities

Current liabilities Trade and other payables 16 5,570,575 4,883,817 Borrowings 17 866,223 875,542 Income tax 18 1,090,592 255,033 Employee benefits 19 740,057 926,734 Other current liabilities 20 1,645,001 2,118,052 Total current liabilities 9,912,448 9,059,178

Non-current liabilities Employee benefits 21 282,466 181,749 Other non-current liabilities 22 657,866 800,913 Total non-current liabilities 940,332 982,662

Total liabilities 10,852,780 10,041,840

Net assets/(liabilities) 4,698,600 (1,564,260)

Equity Issued capital 23 5,694,356 537,343 Reserves 24 (2,324,269) (2,362,055) Retained profits 25 1,328,513 260,452

Total equity/(deficiency) 4,698,600 (1,564,260)

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Inabox Group Limited Statement of changes in equity For the year ended 30 June 2014

The above statement of changes in equity should be read in conjunction with the accompanying notes 23

Issued Capital Share-based payments Retained Total

capital reserve reserve profits deficiency Consolidated $ $ $ $ $

Balance at 1 July 2012 2 - - (941,526) (941,524)

Profit after income tax expense for the year - - - 1,201,978 1,201,978 Other comprehensive income for the year, net of tax - - - - -

Total comprehensive income for the year - - - 1,201,978 1,201,978

Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 23) 507,341 - - - 507,341 Share-based payments 30,000 - 3,768 - 33,768 Reserve arising on acquisition of net liabilities of Telcoinabox Pty Ltd - (2,365,823) - - (2,365,823)

Balance at 30 June 2013 537,343 (2,365,823) 3,768 260,452 (1,564,260)

Issued Capital Share-based payments Retained Total

capital reserve reserve profits equity Consolidated $ $ $ $ $

Balance at 1 July 2013 537,343 (2,365,823) 3,768 260,452 (1,564,260)

Profit after income tax expense for the year - - - 1,068,061 1,068,061 Other comprehensive income for the year, net of tax - - - - -

Total comprehensive income for the year - - - 1,068,061 1,068,061

Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 23) 5,157,013 - - - 5,157,013 Share-based payments - - 37,786 - 37,786

Balance at 30 June 2014 5,694,356 (2,365,823) 41,554 1,328,513 4,698,600

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Inabox Group Limited Statement of cash flows For the year ended 30 June 2014

Consolidated Note 2014 2013 $ $

The above statement of cash flows should be read in conjunction with the accompanying notes 24

Cash flows from operating activities Receipts from customers (inclusive of GST) 50,236,811 41,746,000 Payments to suppliers and employees (inclusive of GST) (48,542,238) (39,074,387) 1,694,573 2,671,613 Interest received 44,503 25,998 Interest and other finance costs paid (48,135) (104,133) Income taxes paid (15,685) - Net cash from operating activities 36 1,675,256 2,593,478 Cash flows from investing activities Payment for purchase of business, net of cash acquired -iVox acquisition 33 (483,459) - Payments for property, plant and equipment 12 (333,915) (177,981) Payments for intangibles 13 (43,151) (394,084) Payments for security deposits (79,650) - Proceeds from sale of property, plant and equipment 9,305 57,103 Net cash used in investing activities (930,870) (514,962) Cash flows from financing activities Proceeds from issue of shares 23 3,500,000 496,809 Proceeds from share application received in advance - 390,621 Payments to former parent company - (1,353,950) Proceeds from borrowings 223,770 - Share issue transaction costs (987,406) (629,960) Repayment of borrowings (41,606) (206,963) Net cash from/(used in) financing activities 2,694,758 (1,303,443) Net increase in cash and cash equivalents 3,439,144 775,073 Cash and cash equivalents at the beginning of the financial year 217,764 (557,309) Cash and cash equivalents at the end of the financial year 8 3,656,908 217,764

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Inabox Group Limited Notes to the financial statements 30 June 2014

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Note 1. General information The financial statements cover Inabox Group Limited as a group consisting of Inabox Group Limited (the 'company' or 'parent entity') and its subsidiaries (referred to in these financial statements as the 'group'). The financial statements are presented in Australian dollars, which is Inabox Group Limited's functional and presentation currency. Inabox Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 10, 9 Hunter Street Sydney NSW 2000 A description of the nature of the group's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 10 September 2014. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New, revised or amending Accounting Standards and I nterpretations adopted The group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Except for the early adoption of AASB 2013-3 'Amendments to AASB 136 - Recoverable Amount Disclosures for Non-Financial Assets', no other new, revised or amending Accounting Standards or Interpretations that are not yet mandatory has been early adopted. The adoption of these Accounting Standards and Interpretations, as detailed below, did not have any significant impact on the financial performance or position of the group. AASB 10 Consolidated Financial Statements The group has applied AASB 10 from 1 July 2013, which has a new definition of 'control'. Control exists when the reporting entity is exposed, or has the rights, to variable returns from its involvement with another entity and has the ability to affect those returns through its 'power' over that other entity. A reporting entity has power when it has rights that give it the current ability to direct the activities that significantly affect the investee's returns. The group not only has to consider its holdings and rights but also the holdings and rights of other shareholders in order to determine whether it has the necessary power for consolidation purposes. AASB 12 Disclosure of Interests in Other Entities The group has applied AASB 12 from 1 July 2013. The standard contains the entire disclosure requirement associated with other entities, being subsidiaries, associates, joint arrangements (joint operations and joint ventures) and unconsolidated structured entities. The disclosure requirements have been significantly enhanced when compared to the disclosures previously located in AASB 127 'Consolidated and Separate Financial Statements', AASB 128 'Investments in Associates', AASB 131 'Interests in Joint Ventures' and Interpretation 112 'Consolidation - Special Purpose Entities'. AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 The group has applied AASB 13 and its consequential amendments from 1 July 2013. The standard provides a single robust measurement framework, with clear measurement objectives, for measuring fair value using the 'exit price' and provides guidance on measuring fair value when a market becomes less active. The 'highest and best use' approach is used to measure non-financial assets whereas liabilities are based on transfer value. The standard requires increased disclosures where fair value is used.

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Note 2. Significant accounting policies (continued)

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AASB 119 Employee Benefits (September 2011) and AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) The group has applied AASB 119 and its consequential amendments from 1 July 2013. The standard has changed the definition of short-term employee benefits, from 'due to' to 'expected to' be settled within 12 months. Annual leave that is not expected to be wholly settled within 12 months is now discounted allowing for expected salary levels in the future period when the leave is expected to be taken. AASB 127 Separate Financial Statements (Revised), AASB 128 Investments in Associates and Joint Ventures (Reissued) and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards The group has applied AASB 127, AASB 128 and AASB 2011-7 from 1 July 2013. AASB 127 and AASB 128 have been modified to remove specific guidance that is now contained in AASB 10, AASB 11 and AASB 12 and AASB 2011-7 makes numerous consequential changes to a range of Australian Accounting Standards and Interpretations. AASB 128 has also been amended to include the application of the equity method to investments in joint ventures. AASB 2012-2 Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and Financial Liabilities The group has applied AASB 2012-2 from 1 July 2013. The amendments enhance AASB 7 'Financial Instruments: Disclosures' and requires disclosure of information about rights of set-off and related arrangements, such as collateral agreements. The amendments apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement. AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle The group has applied AASB 2012-5 from 1 July 2013. The amendments affect five Australian Accounting Standards as follows: Confirmation that repeat application of AASB 1 'First-time Adoption of Australian Accounting Standards' is permitted; Clarification of borrowing cost exemption in AASB 1; Clarification of the comparative information requirements when an entity provides an optional third column or is required to present a third statement of financial position in accordance with AASB 101 'Presentation of Financial Statements'; Clarification that servicing of equipment is covered by AASB 116 'Property, Plant and Equipment', if such equipment is used for more than one period; clarification that the tax effect of distributions to holders of equity instruments and equity transaction costs in AASB 132 'Financial Instruments: Presentation' should be accounted for in accordance with AASB 112 'Income Taxes'; and clarification of the financial reporting requirements in AASB 134 'Interim Financial Reporting' and the disclosure requirements of segment assets and liabilities. AASB 2012-10 Amendments to Australian Accounting Standards - Transition Guidance and Other Amendments The group has applied AASB 2012-10 amendments from 1 July 2013, which amends AASB 10 and related standards for the transition guidance relevant to the initial application of those standards. The amendments clarify the circumstances in which adjustments to an entity's previous accounting for its involvement with other entities are required and the timing of such adjustments. AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirement The group has applied AASB 2011-4 from 1 July 2013, which amends AASB 124 'Related Party Disclosures' by removing the disclosure requirements for individual key management personnel ('KMP'). Corporations and Related Legislation Amendment Regulations 2013 and Corporations and Australian Securities and Investments Commission Amendment Regulation 2013 (No.1) now specify the KMP disclosure requirements to be included within the Remuneration report, that is part of the directors' report. AASB 2013-3 Amendments to AASB 136 - Recoverable Amount Disclosures for Non-Financial Assets The group has early adopted AASB 2013-3 from 1 July 2013 which amends the disclosure requirements of AASB 136 'Impairment of Assets' requiring additional information about the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of disposals. Additionally, if measured using a present value technique, the discount rate is required to be disclosed.

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Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the group only. Supplementary information about the parent entity is disclosed in note 32. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Inabox Group Limited as at 30 June 2014 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. The acquisition of other subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is Inabox Group Limited's functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

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Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Operating revenue The group principally obtains revenue from providing the following telecommunication services: fixed wire, mobile, data services and equipment sales. Products and services may be sold separately or in bundled packages. Revenue for fixed wire, mobile and data services are recognised as revenue, as services are performed. Revenue from services provided, but unbilled, are accrued at end of each period and unearned revenue (revenue billed in advance) for services to be provided in future periods is deferred. Enablement revenue: build Customers that require significant system and process development and customisation in order to meet their business requirements are charged interim enablement fees during the build/customisation process. These fees are calculated by reference to agreed recovery rates for staff costs and other direct expenses actually spent in the period. Revenue from the provision of these services is recognised by reference to stage of completion. Stage of completion is measured by reference to labour hours incurred to date as percentage of total estimated labour hours for each contract. When the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered. Enablement revenue: network-based Network-based enablement activities include the installation of dedicated hardware interconnect and routing, specific-purpose servers, links for hosted applications and related infrastructure. Commission income Mobile carriers may elect to pay a commission on signing a new retail customer for a defined period, generally 24 months. It is usual that this commission is used to fund a new handset for the customer. Commission received by the group is brought to account on a monthly basis over the life of the contract. Commission received but yet to be earned in this way is shown as deferred commission income. Such carriers require the group to refund a proportion of the commission should the service be actually or constructively terminated before the end of the contract period. This refund is typically calculated pro rata on the number of months remaining on the contract. The group also pays commission to its Retail Service Providers ('RSPs') on essentially the same contract period and refund terms. Commission is thus expensed over the same period. Commission paid and yet to be expensed in this way is shown as deferred commission expense. As is the case with the corresponding income stream, commissions paid are refundable by RSPs in the event that the service is actually or constructively terminated before the end of the contract period. The amount of any refund is generally calculated pro rata on the number of months remaining on the contract. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable.

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Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a

transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or

● When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Current and non -current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is current when: it is expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is current when: it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment.

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Inventories Finished goods are stated at the lower of cost and net realisable value on a 'first in first out' basis. Cost comprises purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a diminishing value basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows: Leasehold improvements five years Computer and office equipment three to four years Financed handsets one to two years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the group will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period.

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Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed.

Patents and trademarks Patents and trademarks have an indefinite useful life and are carried at cost less any impairment loss.

Customer lists Customer lists acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite useful lives of between five and eight years.

Computer software Purchased software is amortised over a period of between two and five years, being the estimated useful finite life of the asset.

Brands Brands acquired in a business combination are not amortised, on the basis of indefinite life, which is reassessed every year. Instead, brands are tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses.

Impairment of non -financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.

Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.

Trade and other payables These amounts represent liabilities for goods and services provided to the group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 to 60 days of recognition.

Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method.

Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred, including: ● interest on the bank overdraft● interest on short-term and long-term borrowings

Employee benefits

Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.

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Other long-term employee benefits The liability for annual leave and long service leave is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using the Binomial pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on 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; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Issued capital Ordinary shares are classified as equity.

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Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the group's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Inabox Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar ta xes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense.

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Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.

Comparatives Comparatives have been reclassified, where necessary, to align with current year presentation. The reclassifications had no effect on profit or loss, net assets and equity.

New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the group for the annual reporting period ended 30 June 2014. The group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the group, are set out below.

AASB 9 Financial Instruments and its consequential amendments This standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2018 and completes phases I and III of the IASB's project to replace IAS 39 (AASB 139) 'Financial Instruments: Recognition and Measurement'. This standard introduces new classification and measurement models for financial assets, using a single approach to determine whether a financial asset is measured at amortised cost or fair value. The accounting for financial liabilities continues to be classified and measured in accordance with AASB 139, with one exception, being that the portion of a change of fair value relating to the entity's own credit risk is to be presented in other comprehensive income unless it would create an accounting mismatch. Chapter 6 'Hedge Accounting' supersedes the general hedge accounting requirements in AASB 139 and provides a new simpler approach to hedge accounting that is intended to more closely align with risk management activities undertaken by entities when hedging financial and non-financial risks. The group will adopt this standard and the amendments from 1 July 2018 but the impact of its adoption is yet to be assessed by the group.

AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities The amendments are applicable to annual reporting periods beginning on or after 1 January 2014. The amendments add application guidance to address inconsistencies in the application of the offsetting criteria in AASB 132 'Financial Instruments: Presentation', by clarifying the meaning of 'currently has a legally enforceable right of set-off'; and clarifies that some gross settlement systems may be considered to be equivalent to net settlement. The adoption of the amendments from 1 July 2014 will not have a material impact on the group.

AASB 2013-4 Amendments to Australian Accounting Standards - Novation of Derivatives and Continuation of Hedge Accounting These amendments are applicable to annual reporting periods beginning on or after 1 January 2014 and amends AASB 139 'Financial Instruments: Recognition and Measurement' to permit continuation of hedge accounting in circumstances where a derivative (designated as hedging instrument) is novated from one counter party to a central counterparty as a consequence of laws or regulations. The adoption of these amendments from 1 July 2014 will not have a material impact on the group.

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AASB 2014-1 Amendments to Australian Accounting Standards These amendments are in several parts. Part A makes various amendments to Australian Accounting Standards arising from the issuance of IASB’s ‘Annual Improvements to IFRSs 2010-2012 Cycle’ and ‘Annual Improvements to IFRSs 2011-2013 Cycle’ (both described below). Part B makes amendments to AASB 119 ‘Employee in relation to the requirements for contributions from employees or third parties that are linked to service which arise from the issuance of IASB’s ‘Defined Benefit Plans – Employee Contributions (Amendments to IAS 19)’. Part C makes amendments to particular Australian Accounting Standards to delete their references to AASB 1031 ‘Materiality’. Part D makes consequential amendments arising from the issuance of AASB 14 ‘Regulatory Deferral Accounts’. Part E makes consequential amendments to numerous other Standards as a consequence of the introduction of hedge accounting requirements into AASB 9 ‘Financial Instruments’ in December 2013. Amendments Part A to D are applicable to annual reporting periods beginning on or after 1 July 2014 or as specified in each Part. Amendments Part E are applicable to annual reporting periods beginning on or after 1 January 2015 or as specified in Part E. The adoption of these amendments will not have a material impact on the group. Annual Improvements to IFRSs 2010-2012 Cycle These amendments affect several Accounting Standards as follows: Amends the definition of 'vesting conditions' and 'market condition' and adds definitions for 'performance condition' and 'service condition' in AASB 2 'Share-based Payment'; Amends AASB 3 'Business Combinations' to clarify that contingent consideration that is classified as an asset or liability shall be measured at fair value at each reporting date; Amends AASB 8 'Operating Segments' to require entities to disclose the judgements made by management in applying the aggregation criteria; Clarifies that AASB 8 only requires a reconciliation of the total reportable segments assets to the entity's assets, if the segment assets are reported regularly; Clarifies that the issuance of AASB 13 'Fair Value Measurement' and the amending of AASB 139 'Financial Instruments: Recognition and Measurement' and AASB 9 'Financial Instruments' did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amount, if the effect of discounting is immaterial; Clarifies that in AASB 116 'Property, Plant and Equipment' and AASB 138 'Intangible Assets', when an asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount (i.e. proportional restatement of accumulated amortisation); and Amends AASB 124 'Related Party Disclosures' to clarify that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a 'related party' of the reporting entity. The adoption of these amendments will not have a material impact on the group. Annual Improvements to IFRSs 2011-2013 Cycle These amendments affect four Accounting Standards as follows: Clarifies the 'meaning of effective IFRSs' in AASB 1 'First-time Adoption of Australian Accounting Standards'; Clarifies that AASB 3 'Business Combination' excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself; Clarifies that the scope of the portfolio exemption in AASB 13 'Fair Value Measurement' includes all contracts accounted for within the scope of AASB 139 'Financial Instruments: Recognition and Measurement' or AASB 9 'Financial Instruments', regardless of whether they meet the definitions of financial assets or financial liabilities as defined in AASB 132 'Financial Instruments: Presentation'; and Clarifies that determining whether a specific transaction meets the definition of both a business combination as defined in AASB 3 'Business Combinations' and investment property as defined in AASB 140 'Investment Property' requires the separate application of both standards independently of each other. The adoption of these amendments will not have a material impact on the group. Interpretation 21 Levies This interpretation is applicable to annual reporting periods beginning on or after 1 January 2014. The Interpretation clarifies the circumstances under which a liability to pay a levy imposed by a government should be recognised, and whether that liability should be recognised in full at a specific date or progressively over a period of time. The adoption of the interpretation from 1 July 2014 will not have a material impact on the group. IFRS 15 Revenue from Contracts with Customers This standard is expected to be applicable to annual reporting periods beginning on or after 1 January 2017. The standard provides a single standard for revenue recognition. 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 those goods or services. The adoption of these amendments from 1 July 2017 may have a material effect on the group but the impact has yet to be quantified.

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Note 3. Critical accounting judgements, estimates and assumptions

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.

Share-based payment transactions The group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Binomial model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity.

Estimation of useful lives of assets The group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.

Goodwill and other indefinite life intangible assets The group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows.

Impairment of non-financial assets other than goodwill and other indefinite life intangible assets The group assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions.

Income tax The group 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 group recognises liabilities for anticipated tax audit issues based on the group'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.

Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Note 4. Operating segments

Identification of reportable operating segments The group's operating segment is based on the internal reports that are reviewed and used by the Chief Executive Officer and the Board of Directors (being the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources.

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Note 4. Operating segments (continued)

37

Following the launch of the additional business model 'enablement', the group is organised into two operating segments as follows: Indirect Providing end to end solutions to white labelled wholesale solutions to Retail Service

Providers who predominantly service the small to medium sized business segment Enablement Providing mass market retail customers the ability to offer telecommunications products to

their consumer customer base The CODM is provided with information on a net contribution level (revenue less direct costs). The CODM does not review segment assets and liabilities. Major customers During the year ended 30 June 2014 there was one customer (2013: two customers) that accounted for 10% or more of the group's external revenue. Operating segment information Intersegment eliminations/ Indirect Enablement unallocated Total Consolidated - 2014 $ $ $ $ Revenue Sales to external customers 45,661,130 1,204,718 - 46,865,848 Other revenue - - 44,503 44,503 Total revenue 45,661,130 1,204,718 44,503 46,910,351 Net contribution 11,770,405 729,796 - 12,500,201 Interest revenue 44,503 Other income 4,325 Other employee benefits expense (7,416,718)Depreciation and amortisation expense (756,222)Bad and doubtful debt expense (1,468)Other expenses (2,716,956)Finance costs (48,135)Profit before income tax expense 1,609,530 Income tax expense (541,469)Profit after income tax expense 1,068,061

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Note 4. Operating segments (continued)

38

Intersegment eliminations/ Indirect Enablement unallocated Total Consolidated - 2013 $ $ $ $ Revenue Sales to external customers 41,482,870 - - 41,482,870 Other revenue - - 25,998 25,998 Total revenue 41,482,870 - 25,998 41,508,868 Net contribution 10,854,044 - - 10,854,044 Interest revenue 25,998 Other income 94,193 Other employee benefits expense (6,840,705)Depreciation and amortisation expense (371,199)Bad and doubtful debt expense (33,100)Other expenses (1,880,227)Finance costs (104,133)Profit before income tax expense 1,744,871 Income tax expense (542,893)Profit after income tax expense 1,201,978 Note 5. Revenue Consolidated 2014 2013 $ $ Sales revenue Operating revenue 45,316,267 40,810,754 Enablement revenue 1,204,718 - Commissions 143,045 191,178 Other 201,818 480,938 46,865,848 41,482,870 Other revenue Interest 44,503 25,998 Revenue 46,910,351 41,508,868

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Note 6. Expenses Consolidated 2014 2013 $ $ Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements 5,890 9,722 Computer and office equipment 156,991 113,856 Financial handsets 4,280 13,169 Motor vehicles - 13,406 Total depreciation 167,161 150,153 Amortisation Customer lists 265,375 - Computer software 323,686 221,046 Total amortisation 589,061 221,046 Total depreciation and amortisation 756,222 371,199 Finance costs Interest and finance charges paid/payable 48,135 104,133 Net foreign exchange loss Net foreign exchange loss 77 - Net loss on disposal Net loss on disposal of property, plant and equipment 509 - Rental expense relating to operating leases Minimum lease payments 515,131 453,630 Superannuation expense Defined contribution superannuation expense 700,514 599,600 Share-based payments expense Share-based payments expense 37,786 3,768 Included in other expenses is $347,818 relating to restructuring costs.

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Note 7. Income tax expense

Consolidated 2014 2013

$ $

Income tax expense Current tax 664,547 898,517 Deferred tax - origination and reversal of temporary differences (123,078) (355,624)

Aggregate income tax expense 541,469 542,893

Deferred tax included in income tax expense comprises: Increase in deferred tax assets (note 14) (123,078) (355,624)

Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense 1,609,530 1,744,871

Tax at the statutory tax rate of 30% 482,859 523,461

Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Entertainment expenses 6,315 6,107 Legal and other costs 23,931 10,120 Share-based payments 11,336 1,130 Other non-deductable costs 17,028 2,075

Income tax expense 541,469 542,893


$ $

Amounts credited directly to equity Deferred tax assets (note 14) (368,024) (10,532)

Note 8. Current assets - cash and cash equivalents


$ $

Cash at bank 3,656,908 409,247

Reconciliation to cash and cash equivalents at the end of the financial year The above figures are reconciled to cash and cash equivalents at the end of the financial year as shown in the statement of cash flows as follows:

Balances as above 3,656,908 409,247 Bank overdraft (note 17) - (191,483)

Balance as per statement of cash flows 3,656,908 217,764 For

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Note 9. Current assets - trade and other receivables Consolidated 2014 2013 $ $ Trade receivables 4,045,076 3,063,500 Less: Provision for impairment of receivables - (152,471) 4,045,076 2,911,029 Other receivables 8,940 - 4,054,016 2,911,029

Impairment of receivables Movements in the provision for impairment of receivables are as follows: Consolidated 2014 2013 $ $ Opening balance 152,471 136,302 Additional provisions recognised - 142,471 Receivables written off during the year as uncollectable (122,449) (126,302) Unused amounts reversed (30,022) - Closing balance - 152,471

Past due but not impaired Customers with balances past due but without provision for impairment of receivables amount to $97,042 as at 30 June 2014 ($48,464 as at 30 June 2013). The group did not consider a credit risk on the aggregate balances after reviewing credit terms of customers based on recent collection practices. The ageing of the past due but not impaired receivables are as follows: Consolidated 2014 2013 $ $ 0 to 6 months overdue 97,042 48,464

Note 10. Current assets - inventories Consolidated 2014 2013 $ $ Finished goods - at cost 9,369 35,573

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Note 11. Current assets - other


$ $

Prepayments 117,406 69,796 Deferred commission expenses 1,647,010 1,758,750 Security deposits 469,821 390,171 Loan to service providers 15,499 93,223 Costs of capital raising July 2013 - 629,960

2,249,736 2,941,900

Note 12. Non -current assets - property, plant and equipment


$ $

Leasehold improvements - at cost 68,740 68,740 Less: Accumulated depreciation (59,971) (54,081)

8,769 14,659

Computer and office equipment - at cost 1,310,624 806,570 Less: Accumulated depreciation (747,163) (466,046)

563,461 340,524

Financed handsets - at cost 323,985 323,985 Less: Accumulated depreciation (323,465) (319,185)

520 4,800

572,750 359,983

Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below:

Leasehold Computer and

office

Financed Motor improvements equipment handsets vehicles Total

Consolidated $ $ $ $ $

Balance at 1 July 2012 24,381 253,904 13,642 53,627 345,554 Additions - 200,476 4,327 - 204,803 Disposals - - - (40,221) (40,221)Depreciation expense (9,722) (113,856) (13,169) (13,406) (150,153)

Balance at 30 June 2013 14,659 340,524 4,800 - 359,983 Additions - 333,915 - - 333,915 Additions through business combinations (note 33) - 54,940 - - 54,940 Disposals - (8,927) - - (8,927)Depreciation expense (5,890) (156,991) (4,280) - (167,161)

Balance at 30 June 2014 8,769 563,461 520 - 572,750

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Note 13. Non -current assets - intangibles Consolidated 2014 2013 $ $ Goodwill - at cost 1,686,330 - Patents and trademarks - at cost 21,457 21,457 Customer lists - at cost 1,862,000 - Less: Accumulated amortisation (265,375) - 1,596,625 - Computer software - at cost 1,661,206 1,251,465 Less: Accumulated amortisation (750,085) (426,399) 911,121 825,066 Brand - at cost 121,000 - 4,336,533 846,523

Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Patents and Customer Computer Goodwill trademarks lists software Brand Total Consolidated $ $ $ $ $ $ Balance at 1 July 2012 - - - 1,006,869 - 1,006,869 Additions - 21,457 - 39,243 - 60,700 Amortisation expense - - - (221,046) - (221,046) Balance at 30 June 2013 - 21,457 - 825,066 - 846,523 Additions - - - 43,151 - 43,151 Additions through business combinations (note 33)

1,686,330

-

1,862,000

366,590

121,000

4,035,920

Amortisation expense - - (265,375) (323,686) - (589,061) Balance at 30 June 2014 1,686,330 21,457 1,596,625 911,121 121,000 4,336,533

Impairment testing for indefinite life intangibles For the purpose of impairment testing, indefinite life intangibles are allocated to the group’s cash generating units ('CGUs'), which represents the lowest level within the group at which the goodwill and indefinite life intangibles are monitored for internal management purposes. The impairment test was based on a value-in-use approach. Value-in-use was determined by discounting the future cash flows generated from the continuing use of the business and was based on the following key assumptions: • Cash flows were projected based on actual operating results and the 5 year business plan. Cash flow beyond year 2 was projected at a growth rate of 3%; • Overheads were forecast based on current levels adjusted for inflationary increases; and • A pre-tax discount rate of 18% was applied in determining the recoverable amount. The discount rate was estimated using the Capital Asset Pricing model.

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Note 13. Non-current assets - intangibles (continue d)

44

Sensitivity analysis Management estimates that any reasonable changes in the key assumptions would not result to an impairment of the indefinite life intangible assets Note 14. Non -current assets - deferred tax Consolidated 2014 2013 $ $ Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss:

Impairment of receivables - 45,741 Accrued expenses and provisions 433,257 313,312 Prepayments - (6,853) Property, plant and equipment - (37,797) Intangible assets (562,249) -

(128,992) 314,403 Amounts recognised in equity:

Cost of capital raising 300,738 8,426 Deferred tax asset 171,746 322,829

Movements: Opening balance 322,829 (43,327) Credited to profit or loss (note 7) 123,078 355,624 Credited to equity (note 7) 368,024 10,532 Additions through business combinations (note 33) (642,185) - Closing balance 171,746 322,829

Note 15. Non -current assets - other Consolidated 2014 2013 $ $ Deferred commission expenses 500,322 650,496

Note 16. Current liabilities - trade and other payables Consolidated 2014 2013 $ $ Trade payables 3,573,297 4,037,448 Due to service providers 235,404 201,381 Related party payable 766,238 - Accrued expenses 938,665 644,988 Other payables 56,971 - 5,570,575 4,883,817

Refer to note 27 for further information on financial instruments.

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Note 17. Current liabilities - borrowings Consolidated 2014 2013 $ $ Bank overdraft - 191,483 Bank loans 155,136 - Amex facility 700,538 500,985 Credit card facility 10,549 183,074 866,223 875,542

Refer to note 27 for further information on financial instruments. Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Consolidated 2014 2013 $ $ Total facilities

Bank overdraft 500,000 500,000 Bank loans 155,136 - Amex facility 750,000 519,000 Credit card facility 200,000 200,000

1,605,136 1,219,000 Used at the reporting date

Bank overdraft - 191,483 Bank loans 155,136 - Amex facility 700,538 500,985 Credit card facility 10,549 183,074

866,223 875,542 Unused at the reporting date

Bank overdraft 500,000 308,517 Bank loans - - Amex facility 49,462 18,015 Credit card facility 189,451 16,926

738,913 343,458 Note 18. Current liabilities - income tax Consolidated 2014 2013 $ $ Provision for income tax 1,090,592 255,033

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Note 19. Current liabilities - employee benefits


$ $

Annual leave 641,910 869,026 Long service leave 98,147 57,708

740,057 926,734

Note 20. Current liabilities - other current liabilities


$ $

Deferred revenue 1,645,001 1,727,431 IPO application monies received in advance - 390,621

1,645,001 2,118,052

Note 21. Non -current liabilities - employee benefits


$ $

Long service leave 282,466 181,749

Note 22. Non -current liabilities - other non -current liabilities


$ $

Trade payables - 120,000 Service provider security deposit 160,655 42,000 Deferred revenue 497,211 638,913

657,866 800,913

Note 23. Equity - issued capital

Consolidated 2014 2013 2014 2013

Shares Shares $ $

Ordinary shares - fully paid 13,916,684 8,882,738 5,694,356 537,343 For

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Note 23. Equity - issued capital (continued)

47

Movements in ordinary share capital

Details Date Shares $

Balance 1 July 2012 3 2 Share split 7,953,777 - Issue of shares 125,020 - Issue of shares - share based payments 249,860 30,000 Issue of shares 554,078 531,915 Share issue transaction costs - (35,106)Tax recoveries on cost of issue of shares - 10,532

Balance 30 June 2013 8,882,738 537,343 Issue of shares 2,937,500 3,500,000 Issue of shares - equity consideration acquisition of iVox Pty Ltd 2,096,446 2,515,735 Cost of issue of shares - (1,226,746)Tax recoveries on cost of issue of shares - 368,024

Balance 30 June 2014 13,916,684 5,694,356

Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital.

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

Share buy-back There were no on-market buy-back of Inabox Group Limited shares.

Capital risk management The group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current company's share price at the time of the investment.

The group is subject to certain financing arrangements covenants and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year.

Note 24. Equity - reserves


$ $

Capital reserve (2,365,823) (2,365,823) Share-based payment reserve 41,554 3,768

(2,324,269) (2,362,055)

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Note 24. Equity - reserves (continued)

48

Capital reserve The reserve is used to recognise contributions from or to Telco in a box Pty Limited and its controlled subsidiaries by shareholders.

Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services.

Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below:

Capital Share-based

payment reserve reserve Total

Consolidated $ $ $

Balance at 1 July 2012 - - - Group reorganisation - Telcoinabox Pty Ltd (2,365,823) - (2,365,823) Share-based payments - 3,768 3,768

Balance at 30 June 2013 (2,365,823) 3,768 (2,362,055) Share-based payments - 37,786 37,786

Balance at 30 June 2014 (2,365,823) 41,554 (2,324,269)

Note 25. Equity - retained profits


$ $

Retained profits/(accumulated losses) at the beginning of the financial year 260,452 (941,526) Profit after income tax expense for the year 1,068,061 1,201,978

Retained profits at the end of the financial year 1,328,513 260,452

Note 26. Equity - dividends

There were no dividends paid, recommended or declared during the current or previous financial year.

Note 27. Financial instruments

Financial risk management objectives The group's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the group. The group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and ageing analysis for credit risk.

The Board have overall responsibility for the establishment and oversight of the risk management framework. The Board has established an Audit and Risk Committee, which is responsible for managing risk. The Audit and Risk Committee oversees how management monitors compliance with the group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the group. The Audit and Risk Committee reports directly to the Board on its activities.

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Note 27. Financial instruments (continued)

49

Market risk

Foreign currency risk The group is not exposed to any significant foreign currency risk.

Price risk The group is not exposed to any significant price risk.

Interest rate risk The group's main interest rate risk arises from its borrowings and cash at bank balances.

As at the reporting date, the group had the following variable rate borrowings and cash balances:

2014 2013 Weighted average

interest rate Balance

Weighted average

interest rate Balance Consolidated % $ % $

Bank overdraft -% - 9.58% (191,483)Bank loans 9.20% (155,136) -% - Credit card facility 14.99% (10,549) 14.99% (183,074)Cash at bank 0.15% 3,656,908 0.10% 409,733

Net exposure to cash flow interest rate risk 3,491,223 35,176

An analysis by remaining contractual maturities in shown in 'liquidity and interest rate risk management' below.

An official increase/decrease in interest rates of 50 (2013:50) basis points would have a favourable/adverse effect on profit before tax of $17,456 (2013: $176) per annum based on the net balance.

Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The group does not hold any collateral.

The group minimises the risk of bad debts through the use of a system whereby end users (customers of RSPs) pay their monthly invoice directly into a bank account controlled by the group. Amounts owed by the RSP are then deducted before the group pays the RSP the resulting balance. Depending on the business model of each RSP, the group will also take further actions to mitigate credit risk: • discontinuation, or restriction, of supply of products which the group believes are associated with a higher risk of default;• rigorous screening of potential new RSPs;• regular monitoring of key indicators of RSP performance and creditworthiness;• where considered necessary, the use of security deposits which effectively prepay a proportion of the next invoice; and• these deposits are held in a bank account controlled by the group, do not pay interest and are only returnable on thetermination of a supply agreement if all other amounts due to the group have been settled.

Liquidity risk Vigilant liquidity risk management requires the group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable.

The group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.

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Financing arrangements Unused borrowing facilities at the reporting date: Consolidated 2014 2013 $ $ Bank overdraft 500,000 308,517 Amex facility 49,462 18,015 Credit card facility 189,451 16,926 738,913 343,458 The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time and have an average maturity of three years. Remaining contractual maturities The following tables detail the group's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position.

Weighted average

interest rate

1 year or less

Between 1 and 2 years


Over 5 years

Remaining contractual maturities

Consolidated - 2014 % $ $ $ $ $ Non-derivatives Non-interest bearing Trade payables -% 3,573,297 - - - 3,573,297 Due to service providers -% 235,404 160,665 - - 396,069 Related party payable -% 766,238 - - - 766,238 Other payables -% 56,971 - - - 56,971 Amex facility -% 700,538 - - - 700,538 Interest-bearing - variable Bank loans 9.20% 162,272 - - - 162,272 Credit card facility 14.99% 11,340 - - - 11,340 Total non-derivatives 5,506,060 160,665 - - 5,666,725

Weighted average

interest rate

1 year or less



Over 5 years

Remaining contractual maturities

Consolidated - 2013 % $ $ $ $ $ Non-derivatives Non-interest bearing Trade payables -% 4,037,448 120,000 - - 4,157,448 Due to service providers -% 201,381 42,000 - - 243,381 IPO moneys received in advance

-%

390,621

-

-

-

390,621

Amex facility -% 500,985 - - - 500,985 Interest-bearing - variable Bank overdraft 9.58% 200,655 - - - 200,655 Credit card facility 14.99% 196,795 - - - 196,795 Total non-derivatives 5,527,885 162,000 - - 5,689,885

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The amounts disclosed in the above tables are the maximum amounts allocated to the earliest period in which the guarantee could be called upon. The group does not expect these payments to eventuate.

The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.

Fair value of financial instruments The carrying amount of the group’s non-current borrowings approximates their fair value at the reporting date. The fair value of the interest bearing borrowings was estimated using a valuation technique in which the lowest level of input that is significant to the fair value measurement is directly or indirectly observable (level 2). This has been calculated by discounting the expected future cash flows at prevailing market interest rates.

Note 28. Key management personnel disclosures

Compensation The aggregate compensation made to directors and other members of key management personnel of the group is set out below:


$ $

Short-term employee benefits 1,532,751 1,243,404 Post-employment benefits 146,543 100,800 Long-term benefits 134,055 83,602 Share-based payments 37,168 18,768

1,850,517 1,446,574

Note 29. Remuneration of auditors

During the financial year the following fees were paid or payable for services provided by Ernst & Young, the auditor of the company:


$ $

Audit services - Ernst & Young Audit or review of the financial statements 168,160 106,000

Other services - Ernst & Young Investigating accountant's report included in prospectus - 50,000

168,160 156,000

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Note 30. Commitments Consolidated 2014 2013 $ $ Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year 604,498 636,203 One to five years - 604,498 604,498 1,240,701

Operating lease commitments includes contracted amounts for commercial leases under non-cancellable operating leases expiring within one year. On renewal, the terms of the leases are renegotiated. Note 31. Related party transactions Parent entity Inabox Group Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 34. Key management personnel Disclosures relating to key management personnel are set out in note 28 and the remuneration report in the directors' report. Transactions with related parties The following transactions occurred with related parties: Consolidated 2014 2013 $ $ Payment for goods and services: Purchase of products from Engin - a director-related entity * 867,926 - * The group entered into an agreement for the purchase and supply of products to and from MI Broadband Pty Limited trading as Engin, in early 2011. Since that time, Engin was acquired by an entity itself subsequently acquired by M2 Group Limited, a director-related entity of David Rampa. Receivable from and payable to related parties The following balances are outstanding at the reporting date in relation to transactions with related parties: Consolidated 2014 2013 $ $ Current payables: Due to Damordam 766,238 - F

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Note 31. Related party transactions (continued)

53

In the prior year the group acquired the operating assets of the Telcoinabox business from a subsidiary of Damordam Pty Ltd ('Damordam'). Damordam is an entity controlled by the founding shareholders of the Telcoinabox business who retain significant shareholdings in the company.

Damordam retained all historical obligations of the corporate entity which owned the Telcoinabox business, and retained beneficial ownership of sufficient current assets to discharge those obligations. The group has subsequently realised, on behalf of the owners, the net proceeds of both current assets retained by Damordam and the sale of the Telcoinabox (NZ) business. On finalisation of the tax returns of Damordam, the group will discharge those obligations out of the cash thus realised and remit any surplus to Damordam.

Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date.

Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates.

Note 32. Parent entity information

Set out below is the supplementary information about the parent entity.

Statement of profit or loss and other comprehensive income

Parent 2014 2013

$ $

Loss after income tax (103,852) -

Total comprehensive income (103,852) -

Statement of financial position

Parent 2014 2013

$ $

Total current assets 1,384,230 1,020,581

Total assets 5,648,306 891,828

Total current liabilities 16,248 350,717

Total liabilities 16,248 350,717

Equity Issued capital 5,694,356 537,343 Share-based payment reserve 41,554 3,768 Accumulated losses (103,852) -

Total equity 5,632,058 541,111

Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2014 and 30 June 2013.

Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2014 and 30 June 2013.

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Note 32. Parent entity information (continued)

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Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment at as 30 June 2014 and 30 June 2013.

Significant accounting policies The accounting policies of the parent entity are consistent with those of the group, as disclosed in note 2, except for the following: ● investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity; and● Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an

indicator of an impairment of the investment.

Note 33. Business combinations

iVox Pty Ltd On 12 July 2013 the group acquired 100% of the ordinary shares of specialist VOIP provider iVox Pty Ltd ('iVox') for the total consideration transferred of $3,458,338.

iVox specialises in providing fully hosted VOIP services through its service providers to business end-customers. An intrinsic part of this service is the provision of call termination services which it sells as an unbundled service on request. The goodwill of $1,686,330 represents the value of expected synergies and growth arising from the acquisition.

iVox contributed revenues of $3,885,679 for the period 12 July 2013 to 30 June 2014. Had the acquisition occurred at 1 July 2014, the total contributed revenue would have been approximately $3,990,000. Due to the significant integration of iVox into the group no meaningful profit figure can be derived.

The values identified in relation to the acquisition of iVox Pty Ltd are final as at 30 June 2014.

Details of the acquisition are as follows:

Fair value $

Cash and cash equivalents 459,144 Trade and other receivables 49,018 Inventories 2,229 Other financial assets 79,500 Plant and equipment 54,940 Customer lists 1,862,000 Computer software 366,590 Brand 121,000 Trade and other payables (205,229)Provision for income tax (195,851)Deferred tax liability (642,185)Other provisions (82,796)Other liabilities (96,352)

Net assets acquired 1,772,008 Goodwill 1,686,330

Acquisition-date fair value of the total consideration transferred 3,458,338

Representing: Cash paid or payable to vendor 942,603 Inabox Group Limited shares issued to vendor 2,515,735

3,458,338

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Note 33. Business combinations (continued)

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$ $

Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred 3,458,338 - Less: cash and cash equivalents (459,144) - Less: shares issued by Company as part of consideration (2,515,735) -

Net cash used 483,459 -

Note 34. Interests in subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2:

Ownership interest Principal place of business / 2014 2013

Name Country of incorporation % %

Telcoinabox Operations Pty Limited Australia 100.00% 100.00% Inabox Investments Pty Limited Australia 100.00% 100.00% iVox Pty Ltd Australia 100.00% -%

Note 35. Events after the reporting period

On 8 July 2014, the group acquired the business and agreed assets of Neural Networks Data Services Pty Limited ('Neural Networks'), a Brisbane-based provider of wholesale cloud and VoIP products for cash consideration of $350,000 less adjustments. The vendor may receive an earn-out depending on the financial performance of the Neural Networks business in FY2015. Subject to approval by shareholders, the earn-out may be composed partially of new equity.

The group is in the process of determining the initial accounting and purchase price allocation of Neural Networks and will provide such information in the interim financial report ending 31 December 2014.

No other matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly affect the group's operations, the results of those operations, or the group's state of affairs in future financial years.

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Note 36. Reconciliation of profit after income tax to net cash from operating activities


$ $

Profit after income tax expense for the year 1,068,061 1,201,978

Adjustments for: Depreciation and amortisation 756,222 371,199 Net gain on disposal of property, plant and equipment (378) - Share-based payments 37,786 3,768

Change in operating assets and liabilities: Increase in trade and other receivables (1,093,969) (305,831) Decrease in inventories 28,433 18,826 Decrease in deferred tax assets 151,083 366,156 Decrease/(increase) in prepayments (47,610) 4,047 Decrease in other operating assets 1,177,782 521,369 Increase in trade and other payables 25,852 543,885 Increase in provision for income tax 639,708 9,404 Decrease in deferred tax liabilities (642,185) - Increase/(decrease) in employee benefits (85,960) 380,708 Decrease in other provisions (82,796) - Decrease in other operating liabilities (256,773) (522,031)

Net cash from operating activities 1,675,256 2,593,478

Note 37. Earnings per share


$ $

Profit after income tax attributable to the owners of Inabox Group Limited 1,068,061 1,201,978

Number Number

Weighted average number of ordinary shares used in calculating basic earnings per share 13,764,976 7,820,227 Adjustments for calculation of diluted earnings per share:

Options over ordinary shares 217,975 441,666

Weighted average number of ordinary shares used in calculating diluted earnings per share 13,982,951 8,261,893

Cents Cents

Basic earnings per share 7.76 15.37 Diluted earnings per share 7.64 14.55

Note 38. Share -based payments

A share option plan has been established by the group and approved by shareholders at a general meeting, whereby the group may, at the discretion of the Nomination and Remuneration Committee, grant options over ordinary shares in the company to certain key management personnel of the group and advisers to the IPO. The options are issued for nil consideration and are granted in accordance with performance guidelines established by the Nomination and Remuneration Committee.

During the financial year no (2013: 1,374,998) options were granted.

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Note 38. Share-based payments (continued)

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Set out below are summaries of options granted under the plan:

2014 Balance at Expired/ Balance at

Exercise the start of forfeited/ the end of Grant date Expiry date price the year Granted Exercised other the year

10/01/2013 30/11/2018 $0.96 1,041,666 - - - 1,041,666 24/05/2013 23/05/2018 $1.20 333,332 - - - 333,332

1,374,998 - - - 1,374,998

Weighted average exercise price $1.02 $0.00 $0.00 $0.00 $1.02

2013 Balance at Expired/ Balance at

Exercise the start of forfeited/ the end of Grant date Expiry date price the year Granted Exercised other the year

10/01/2013 30/11/2018 $0.96 - 1,041,666 - - 1,041,666 24/05/2013 23/05/2018 $1.20 - 333,332 - - 333,332

- 1,374,998 - - 1,374,998

Weighted average exercise price $0.00 $1.02 $0.00 $0.00 $1.02

The weighted average share price during the financial year was $1.21 (2013: N/A).

The weighted average remaining contractual life of options outstanding at the end of the financial year was 4.3 years (2013: 5.3 years).

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Inabox Group Limited Directors' declaration 30 June 2014

58

In the directors' opinion:

● the attached financial statements and notes thereto comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;

● the attached financial statements and notes thereto comply with International Financial Reporting Standards as issuedby the International Accounting Standards Board as described in note 2 to the financial statements;

● the attached financial statements and notes thereto give a true and fair view of the group's financial position as at 30June 2014 and of its performance for the financial year ended on that date; and

● there are reasonable grounds to believe that the company will be able to pay its debts as and when they become dueand payable.

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

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

On behalf of the directors

________________________________ ________________________________ Siimon Reynolds Damian Kay Chairman Managing Director and Chief Executive Officer

10 September 2014 Sydney

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Tel: +61 2 9248 5555Fax: +61 2 9248 5959ey.com/au


Tel: +61 2 9248 5555Fax: +61 2 9248 5959ey.com/au

Independent auditor's report to the members of Inabox Group Limited

Report on the financial report

We have audited the accompanying financial report of Inabox Group Limited, which comprises theconsolidated statement of financial position as at 30 June 2014, the consolidated statement of profitor loss and other comprehensive income, the consolidated statement of changes in equity and theconsolidated statement of cash flows for the year then ended, notes comprising a summary ofsignificant accounting policies and other explanatory information, and the directors' declaration of theconsolidated entity comprising the company and the entities it controlled at the year's end or fromtime to time during the financial year.

Directors' responsibility for the financial report

The directors of the company are responsible for the preparation of the financial report that gives atrue and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001and for such internal controls as the directors determine are necessary to enable the preparation ofthe financial report that is free from material misstatement, whether due to fraud or error. In Note 2,the directors also state, in accordance with Accounting Standard AASB 101 Presentation of FinancialStatements, that the financial statements comply with International Financial Reporting Standards.

Auditor's responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial report. The procedures selected depend on the auditor's judgment, including theassessment of the risks of material misstatement of the financial report, whether due to fraud or error.In making those risk assessments, the auditor considers internal controls relevant to the entity'spreparation and fair presentation of the financial report in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the entity's internal controls. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by the directors, as well asevaluating the overall presentation of the financial report.

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

Independence

In conducting our audit we have complied with the independence requirements of the Corporations Act2001. We have given to the directors of the company a written Auditor’s Independence Declaration, acopy of which is included in the directors’ report.

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Opinion

In our opinion:

a. the financial report of Inabox Group Limited is in accordance with the Corporations Act 2001,including:

i giving a true and fair view of the consolidated entity's financial position as at 30 June2014 and of its performance for the year ended on that date; and

ii complying with Australian Accounting Standards and the Corporations Regulations2001; and

b. the financial report also complies with International Financial Reporting Standards asdisclosed in Note 2.

Report on the remuneration report

We have audited the Remuneration Report included in pages 8 to 12 of the directors' report for theyear ended 30 June 2014. The directors of the company are responsible for the preparation andpresentation of the Remuneration Report in accordance with section 300A of the Corporations Act2001. Our responsibility is to express an opinion on the Remuneration Report, based on our auditconducted in accordance with Australian Auditing Standards.

Opinion

In our opinion, the Remuneration Report of Inabox Group Limited for the year ended 30 June 2014,complies with section 300A of the Corporations Act 2001.

Ernst & Young

Lisa Nijssen-SmithPartnerSydney10 September 2014

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Inabox Group Limited Shareholder information 30 June 2014

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The shareholder information set out below was applicable as at 18 August 2014. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: Number of holders Number of options of holders over of ordinary ordinary shares shares 1 to 1,000 22 - 1,001 to 5,000 139 - 5,001 to 10,000 21 - 10,001 to 100,000 29 4 100,001 and over 11 1 222 5

Holding less than a marketable parcel 6 -

Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: Ordinary shares % of total shares Number held issued DIUT NOMINEES PTY LTD (DUNCAN INVESTMENTS UNIT A/C) 2,651,260 19.05 KIUT NOMINEES PTY LTD (KAY INVESTMENTS UNIT A/C) 2,651,260 19.05 GIUT NOMINEES PTY LTD (GOULD INVESTMENTS UNIT A/C) 2,651,260 19.05 M2 GROUP LTD 1,666,667 11.98 KNARF INVESTMENTS PTY LTD (TERRIGAL A/C) 1,257,867 9.04 MR MICHAEL JOHN CLARKE 807,132 5.80 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 258,189 1.86 COLESROW PTY LIMITED (THE COLESROW A/C) 172,862 1.24 MR PAUL LINE 127,014 0.91 WA ANDREWS (MEDICAL) PTY LTD (WSA SUPERANNUATION FUND A/C) 117,200 0.84 MAST FINANCIAL PTY LTD (A TO Z INVESTMENT A/C) 113,250 0.81 ADC (INVESTING) PTY LTD (AL COOK ASSET A/C) 90,000 0.65 CITICORP NOMINEES PTY LIMITED 86,578 0.62 MOAT INVESTMENTS PTY LTD (MOAT INVESTMENT A/C) 79,166 0.57 FORTY FIFTH DECBARB PTY LTD (ME RYAN SUPER FUND A/C) 72,535 0.52 MR DAMIAN KAY & MRS NATASHA MYRA KAY (MANCART SUPER FUND A/C) 56,678 0.41 ZANDEN VENTURES PTY LTD (THE ZANDEN VENTURES A/C) 52,083 0.37 MR DAVID JOHN FAHEY & MRS NICOLA PAULY FAHEY (YUNA HOLDINGS SUPER A/C)

40,000

0.29

MR TREVOR IRVIN CLARKE & MRS ROSLYN ANN CLARKE 31,447 0.23 BEAUVAIS PTY LTD (JOHN BISHOP FAMILY A/C) 30,000 0.22 13,012,448 93.51

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Inabox Group Limited Shareholder information 30 June 2014

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Unquoted equity securities Number Number on issue of holders Options over ordinary shares issued 1,374,998 5 Substantial holders Substantial holders in the company are set out below: Ordinary shares % of total shares Number held issued DIUT NOMINEES PTY LTD (DUNCAN INVESTMENTS UNIT A/C) 2,651,260 19.05 KIUT NOMINEES PTY LTD (KAY INVESTMENTS UNIT A/C) 2,651,260 19.05 GIUT NOMINEES PTY LTD (GOULD INVESTMENTS UNIT A/C) 2,651,260 19.05 M2 GROUP LTD 1,666,667 11.98 KNARF INVESTMENTS PTY LTD (TERRIGAL A/C) 1,257,867 9.04 MR MICHAEL JOHN CLARKE 807,132 5.80 Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. Securities subject to voluntary escrow Number Class Expiry date of shares

Ordinary shares

Entities associated with the founders D Kay, M Duncan and D Gould have agreed to abide by a voluntary escrow for a period of at least 18 months from the date of the listing (12 July 2013) of the company’s shares on the ASX.

7,953,780

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