Exhibit 99.2

MOKO SOCIAL MEDIA LIMITED

ABN 35 111 082 485

Annual Financial Report

For the year ended 30 June 2016

Contents

CORPORATE DIRECTORY

Stock exchange listings	Australian Securities Exchange (ASX code: MKB)
	NASDAQ Global Market (NASDAQ code: MOKO) American Depositary Shares (ADSs) were delisted from Nasdaq on 15 July 2016 but still trade on the OTC market under the code MOKOY

CHAIRMAN’S REPORT

Introduction

In September 2015, a strategic decision was made to focus on our core high school and college student products, preserve cash flow and exit other business categories, with the college and high school markets offering a major opportunity for the Company.

The following key milestones were achieved:

MOKO’s decision to re-align its product portfolio and focus on the REC*IT suite of products targeting the US student market is well underway.

REC*IT

REC*IT is the award-winning mobile app that enables college recreation directors and students to engage in all aspects of intramural sports programming - team registration, building, scheduling and communication.

REC*IT now has exclusive access to over 10million² students at 1,250³ colleges - more than 50% of the US college student population - through an agreement with IMLeagues LLC, the largest college sports data providers in the US.

We believe the continued strong growth in the take-up of REC*IT in the current US academic year shows that the app is not just a tool for US college students but a necessity for engaging in intramural sports. REC*IT has also been in the US iTunes top 25 free sports app category regularly in the past month. Increasing user acquisition of REC*IT is a key value driver for this asset and we are pleased with this rapid improvement.

In the last quarter we have updated REC*IT to include features not only for students but also for administrative staff at each of the colleges/universities. Students can now make mobile payments through REC*IT to pay their registration fees while signing up for intramural sports through the mobile app.

Administrators can now use REC*IT for:

¹ Adobe Analytics/Omniture

² Aggregate number of enrolled students per college/university from the MOKO Social Media CRM Database. Enrolment numbers per college/university entered from college/university or Wikipedia page. Total market size taken from Statistic Brain Research Institute.

³ IMLeagues (total number of colleges/universities) in their database as of February 24, 2016. Some schools are still in the “onboarding” process and will be live between now and Sept 2016.

The incorporation of these administration features is part of our strategy to develop a deeper relationship with the rec departments at the universities and to ultimately achieve university administrators “mandating,” or requiring, students to download our products.

BigTeams powered by REC*IT

The BigTeams powered by REC*IT app is a platform extension that enables high school athletic directors/coaches to coordinate athletic team members, rosters, and stats, while letting students/parents check schedules, scores, and standings.

An exclusive agreement with Big Teams provides access to more than 3,400⁴ high schools - 13% of the US high school population

REC*IT Fitness

The REC*IT Fitness app leverages the REC*IT platform to help college recreation directors and students organize, browse and share on-campus personal fitness classes and activities. After a successful soft launch in spring 2016, REC*IT Fitness was expanded to 150 colleges and has grown to over 31,000 first launches through 28th September 2016.⁵

REC*Plus

During the year the Company announced the development of REC*IT Plus, a “white label” subscription product targeted at recreation centre administrators, to help them manage recreational facilities and programs. As part of a shift towards a mix of free and paid products for the colleges, REC*IT Plus will be a paid product. Select colleges will be releasing a “beta version” of their branded REC*IT Plus apps this fall with a number of other colleges currently considering signing-on to our beta program. Colleges/Universities who participate in the paid “beta” release cycle will receive a discounted subscription fee in return for early access to the product and for serving as a focus group to assist in the product roadmap.

The features of REC*IT Plus include:

The development of REC*IT Plus is the next step following MOKO’s decision to re-align its product portfolio and focus on the REC*IT suite.

⁴ BigTeams LLC

⁵ Adobe Analytics/Omniture

Market Opportunity

The US college and high school student markets present a significant opportunity for MOKO. The US college market has an annual discretionary spend of US$163 billion⁶ and the US high school market US$91.1 billion⁷.

MOKO’s exclusive agreement with IMLeagues gives it access to more than 10 million students at 1,250 colleges, reaching more than 50% of the US college student population. Typically, more than 70% of a college’s student population visits the recreation centre building every week and 75% of all college students participate in recreation centre sponsored and organized activities. MOKO’s exclusive agreement with Big Teams gives it access to more than 3,400 of the 26,957 public and private high schools in the US or 13% of the high school population.

MOKO expects that REC*IT Plus and other REC*IT enhancements planned for the next 12 months will lead to many university administrators “mandating,” or requiring, students to download its products. Achieving a campus mandate delivers a critical mass of users without the need for large paid customer acquisition campaigns.

Brands and organisations will pay a premium to build a relationship during the crucial period at the start of the consumer lifecycle. MOKO believes that its critical mass of users, combined with the strong user engagement metrics, provides a compelling proposition for national brands and organizations to partner with MOKO to reach college-age consumers.

With our footprint of 1,250 colleges and over 3,400 high schools, no one else has anywhere near the potential coverage and access to this market.

Outlook for 2017

MOKO is at the next stage of its development involving extending its product range, entrenching its position and moving to monetization. MOKO will require additional capital to execute its business plan and leverage the significant foothold established in the lucrative college and high school student markets.

In August 2016, MOKO announced that it is undertaking a review of strategic options for the future of the company and has appointed an advisor, District Capital Partners (DCP) to advise on alternatives and assist with the process. DCP is a financial advisory firm that specializes in M&A transaction execution and corporate finance services. They will be reviewing all possibilities including strategic investments and the potential sale of the Consolidated Entity. MOKO will assess any proposals received and assess whether they might deliver superior shareholder value compared with continuing to execute the Consolidated Entity’s business plan on a standalone basis. There is no defined timeline and no certainty that the evaluation will result in transaction. We will keep shareholders and the market informed.

Yours sincerely,

Greg McCann

Chairman

⁶ https://www.entrepreneur.com/article/241182

⁷ https://www.fona.com/resource-center/blog/purchasing-power-teens

DIRECTORS’ REPORT

The Directors present their report together with the financial statements, on MOKO Social Media Limited, and its controlled entities (Consolidated Entity or MOKO), for the year ended 30 June 2016 and the auditor’s report thereon.

Directors

The following persons were Directors of MOKO Social Media Limited during the whole of the financial year and up to the date of this report, unless otherwise noted:

Principal activities

During the year the principal activity of the Consolidated Entity was the development and branding of mobile social networks for tailored audiences to enable mobile communities of large, like-minded groups of people to socialize and communicate around their common interests.

Dividends

No dividends were paid or declared during the year (2015: $nil).

Review of operations

MOKO Social Media Limited is organized into three operating segments: Mobile Social, Mobile Advertising and Mobile Commerce. Mobile Commerce was sold in March 2016. (2015: three operating segments including Mobile Social, Mobile Advertising and Mobile Commerce). These operating segments are based on the internal reports that are reviewed and used by the Board of Directors in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments.

Further Details in relation to the review of operations are contained within the Chairman’s Report on pages 4 to 6 and a financial overview commentary follows.

DIRECTORS’ REPORT

Financial overview

MOKO earned revenue of $84,830 for the year (2015: $1,592,934), a decrease of 95%. The decrease was largely due to a re-positioning of the Mobile Advertising operations to focus on building users and market share rather than short-term revenues in order to better position the business to maximise its future monetization potential. Ongoing revenues in Mobile Advertising are expected to be earned from the monetization of MOKO's student products, including REC*IT, Big Teams powered by REC*IT and REC*IT Fitness. As these products are not yet commercialized, there remains uncertainty over this expectation. During the year, MOKO continued to invest in R&D and platform development. For 2016, MOKO’s received a Research & Development tax refund $905,747 from the Australian Taxation Office (2015: $947,845).

The loss for the 2016 year was $21,541,811 compared with the loss of $20,294,007 in 2015. This include the results of Discontinued operations for Mobile Performance Network, Moko Door Foundation, Tagroom Pty Ltd and Deals I Love (Australia) Pty Ltd, which contributed Revenue and a Net loss of $1,099,346 and $738,675 for the year, respectively. The loss also includes the impairment of intangible assets of $3,513,823 in Mobile Advertising Cash Generating Unit, $179,828 of Mobile Commerce Cash Generating Unit (2015: Nil) and the impairment of Available-for-sale financial assets (Big Teams LLC) of $737,811.

For 2016, MOKO’s expenses excluding impairment expenses decreased by 19% to $17,708,532 (2015: $21,890,522) resulting from a reduction in marketing expenses (decreased by $1,753,018 or 53%), employee benefit expenses (decreased by $1,133,280 or 15%), share based payments (decreased by $612,146 or 33%) and other operating overhead such as depreciation and amortization (decreased by $570,647 or 56%).

Liquidity and Financial Position

MOKO’s 30 June 2016 reporting date cash and cash equivalents (‘cash’) was $2,546,772 (2015: $7,219,908) and the net assets were $2,481,941 (2015: $11,080,576). Working capital, (defined as current assets less current liabilities) decreased to $1,696,193 (2015: $5,758,246) and pertained largely to the decrease in cash as of the Balance Sheet date.

The operating cash outflow for the year improved from $18,231,444 in 2015 to $14,309,124 in 2016, reflecting the decreased losses before impairment expenses. Investing cash outflows increased by 42% to $1,103,017 (2015: $775,134) due to payments related to the acquisition of a 10% interest in BigTeams LLC (2016: $ 1,042,142 vs 2015: $256,813). The financing cash inflows decreased by 34% to $10,722,121 (2015: $16,219,370) due to lower net proceeds received from equity capital raisings during the period.

Outlook

MOKO has made a strategic decision to focus the Company's resources on the student market. The results from the monetization of MOKO's student focused products, REC*IT and REC*IT FITNESS, are not yet reflected in MOKO's operating results or cashflows. MOKO’s decision to focus on the student market has been made on the basis that the U.S. student audience is among the most valuable to brands and advertisers and provides huge potential for future monetization.  As these products are not yet commercialized there remains uncertainty over this expectation.

Significant changes in the state of affairs

On 31 October 2015, the operations of Tagroom Pty Ltd and MOKO Performance Network (formerly OfferMobi) were discontinued. These entities were operated as part of the mobile advertising segment.

On 30 March 2016, MOKO sold Deals I Love (Australia) Pty Ltd (“DIL”) to Hedgeabelli Pty Ltd. As a condition to the occurrence of Completion, MOKO advanced $37,500 to DIL as part of the Completion Loan. On the completion date, MOKO released DIL from any outstanding loan balances amounting to $1,092,084.

On 29 April 2016, MOKO Door Foundation was discontinued operation and filed for dissolution in the State of Delaware in the US. The dissolution was duly authorised on 6 June 2016.

During the year the Company issued 904.31m new ordinary shares including net proceeds from the pro-rata entitlement issue completed in April 2016 (2015: 202.63m). The unlisted options increased to 921.71m (2015: 66.22m).

DIRECTORS’ REPORT

Matters subsequent to the end of the financial year

Sales agreement:

On 16 August 2016, MOKO entered into an asset sales agreement with Competitor Group, Inc. (“CGI”), under which CGI will acquire RunHaven, MOKO’s running website and social media assets for an undisclosed amount. The contract prohibits disclosure of the amount.

MOKO and CGI have also entered a marketing alliance in which they will facilitate introductions to each other’s partners to explore potential sponsorship and media opportunities.

No other matter or circumstance has arisen since 30 June 2016 that has or may significantly affect:

(a)  MOKO Social Media Limited operations in future financial years, or

(b)  The results of those operations in future financial years, or

(c)  MOKO Social Media Limited’s state of affairs in future financial years.

Likely developments and expected results of operations

Comments on expected results of certain operations of the Consolidated Entity are included in this annual report under the Chairman’s report.

During the year the principal continuing activity of the Consolidated Entity was the development and branding of mobile social media platforms for tailored audiences to enable communities of large, like-minded groups of people to socialize and communicate around their common interests. In September 2015, the Company made the strategic decision to focus its resources on its core high school and college student products, preserve cash flow and exit other business categories, with the college and high school market offering a major opportunity for the Company. MOKO’s decision to re-align its product portfolio and focus on the REC*IT suite of products targeting the US student market is well under way.

In August 2016, MOKO announced that it is undertaking a review of strategic options for the future of the company and has appointed an advisor, District Capital Partners (DCP) to advise on alternatives and assist with the process. DCP is a financial advisory firm that specializes in M&A transaction execution and corporate finance services. They will be reviewing all possibilities including strategic investments and the potential sale of the Consolidated Entity. MOKO will assess any proposals received and assess whether they might deliver superior shareholder value compared with continuing to execute the Consolidated Entity’s business plan on a standalone basis. There is no defined timeline and no certainty that the evaluation will result in transaction.

Environmental regulation

The Consolidated Entity is not subject to any significant environmental regulation under Australian or international laws

Greenhouse, gas and energy data

The Consolidated Entity is not subject to the reporting requirements of either the Energy Efficiency Opportunities Act 2006 or the National Greenhouse and Energy Reporting Act 2007 due to size and scale of its operations.

DIRECTORS’ REPORT

Information on Directors

Gregory Ronald McCann (Non-Executive Chairman)

63 years. Director since 24 April 2007.

Qualification

Bachelor of Business from the University of Tasmania, Fellow of the Institute of Chartered Accountants in Australia and Fellow of the Australian Institute of Company Directors

Experience and expertise

Mr McCann is currently the Managing Director and principal of the Excentor Group of companies, an independent software and consulting services supplier to the Asia Pacific region. Greg was previously a partner with Deloitte for 24 years and has held a number of senior leadership roles, including Managing Director for Deloitte Consulting/ICS in Australia, a systems integrator specialising in the implementation of enterprise applications.

Mr McCann is also Chairman of Tel.Pacific Limited, former Chairman of NBN Tasmania Limited, and on the Board of the law firm, Lander and Rogers.

Other current directorship

Tel.Pacific Limited

Former directorships in the last 3 years

NBN Tasmania Limited

Special responsibilities

Non-Executive Chairman of the Board of Directors and Member of the Compensation Committee and Audit Committee

Interest in shares and options at date of this report

Shripal Shah (Managing Director and Chief Executive Officer)

39 years. Director since 16 May 2016.

Qualification

Bachelor of Science from University of Massachusetts, Amherst

Experience and expertise

Shripal was named Managing Director and CEO of MOKO Social Media in May 2016 after serving as Chief Operating Officer of MOKO Social Media the previous year. Prior to joining MOKO, Shripal was with the Washington Redskins of the NFL as their SVP & Chief Strategy Officer, where he was tasked with maximizing the team’s strategic and business prospects and overseeing the organization’s marketing strategy and digital and social media platforms. Shripal has more than 16 years of experience in digital strategy, development and execution. Prior to the Redskins, he was with Catalyst Public Relations where he was the social media architect of multiple award-winning digital marketing programs. He has also held stints at several web development agencies, developing strategies for Kenneth Cole, Seagram’s, Bank of New York, and Morgan Stanley, among others.

Other current directorships

None

Former directorships in the last 3 years

Nil

Special responsibilities

Chief Executive Officer and Member of the Compensation Committee and Audit Committee

Interest in shares and options at date of this report

Shares:  193,040 fully paid ordinary shares – Directly held

Options: 6,700,000

(700,000 options expiring 31 December 2016, exercisable at $0.17 each) – Directly held

(1,000,000 options expiring 28 April 2018, exercisable at $0.02 each) – Directly held

(1,000,000 options expiring 28 April 2018, exercisable at $0.03 each) – Directly held

DIRECTORS’ REPORT

(100,000 ADS options equivalent 4,000,000 options expiring 31 December 2018, exercisable at U$0.02 each ADS) – Directly held

Edward Bralower (Non-Executive Director)

56 years. Director appointed 30 June 2016.

Qualification

Bachelor of Arts from Franklin and Marshall College.

.

Experience and expertise

Edward Bralower spent nearly twenty-five years at Jefferies & Co. in New York City, where he held various senior level equity sales and trading roles. Additionally, Mr. Bralower was the co-head of Jefferies' Stamford, CT office, and sat on numerous committees. He was the Global Head of hedge fund relationship management.

Following his career at Jefferies, Mr. Bralower spent two years at Pali Capital and was a founding partner of Riverbank Advisors, LLC. Most recently he was a managing director at Sword, Rowe & Company. 

Mr Bralower is currently associated with Wonderama Holdings, LLC., the producer of a family television show that encompasses all media distribution platforms to reach its target audience. He is presently a member of the advisory group at Formation Group, a leading Silicon Valley Venture Capital firm.

Other current directorships

Nil

Former directorships in the last 3 years

Nil

Special responsibilities

Nil

Interest in shares and options at date of this report

Shares:  200,000 fully paid ordinary shares – Indirectly held

Options: Nil

Emma Waldon

40 years. Director appointed 1 October 2015.

Qualification

Bachelor of Commerce degree at the University of Western Australia, a Member of the Australian Institute of Chartered Accountants and a Fellow of the Financial Services Institute of Australasia and a Certificated Member of the Governance Institute of Australia.

Experience and expertise

Emma Waldon has diverse global corporate advisory, capital markets and corporate governance experience having held roles in accounting and debt and equity capital markets in Australia and the United Kingdom. Emma qualified as a Chartered Accountant with Ernst & Young in Perth, worked as an Equities Analyst with Euroz Securities and spent 9 years in London with Bank of Scotland and Lloyds Bank originating and re-structuring debt finance for private equity leveraged buy-outs of businesses across Europe. Emma was most recently a Director within Deloitte’s financial advisory services division in Perth and also holds the role of Company Secretary of Hazer Group Limited.

Other current directorship

Nil

Former directorships in the last 3 years

Nil

Special responsibilities

Company Secretary and Member of Compensation Committee and Audit Committee

Interest in shares and options at date of this report

Shares: 2,300,000 fully paid ordinary shares – Indirectly held

Options: 2,000,000 (2,000,000 options expiring 27 November 2018, exercisable at $0.15 each) – Directly held

DIRECTORS’ REPORT

Company Secretary

Emma Waldon has been Company Secretary at MOKO since January 1, 2015. She was appointed as non-executive director in October 2015. Please refer her details to “Information on directors” as above.

Meetings of Directors

The number of meetings of the Company’s Board of Directors (including meetings of Committees of directors) held during the year ended 30 June 2016, and the numbers of meetings attended by each director were as follows:

DIRECTORS’ REPORT

Remuneration report (Audited)

The Remuneration Report, which has been audited, outlines the director and executive remuneration arrangements for the Consolidated Entity and the Company, (MOKO), in accordance with the requirements of the Corporations Act 2001 and its Regulations.

The Remuneration Report is set out under the following headings:

The objective of the Consolidated Entity’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms with market best practice for delivery of reward. The Board ensures that executive reward satisfies the following criteria for good reward governance practices:

Remuneration structure

In accordance with best practice corporate governance, the structure of non-executive directors’ remuneration is clearly distinguished from that of executives. Remuneration is determined by the Compensation Committee.

The remuneration structure for directors, company secretary and senior managers is based on the following factors:

Non-executive director remuneration

The ASX Listing Rules requires that the aggregate non-executive directors’ remuneration shall be determined periodically by a general meeting. Aggregate fixed remuneration for all non-executive directors as determined by the Board is not to exceed $650,000 per annum, approved by 2015 Annual General Meeting in November 2015. Directors’ fees cover all main Board and Committee activities.

The level of non-executive directors’ fixed fees as at the reporting date is as follow:

Non-executive directors receive performance related compensation, via options and Performance Shares following receipt of shareholder approval. The issue of share based payments as part of director remuneration ensures that director remuneration is competitive with market standards as well as providing an incentive to pursue longer term success for the Company. It also reduces the demand on the cash resources of the Company, and assists in ensuring the continuity of service of directors who have extensive knowledge of the Company, its business activities and assets and the industry in which it operates. Details of share-based compensation is contained in section D - Share-based compensation of this report.

Non-executive directors do not receive any retirement benefits, other than statutory superannuation.

DIRECTORS’ REPORT

Executive remuneration

Remuneration for executives is set out in employment agreements. Details of employment agreements with executives are provided below, in section C of this Remuneration Report.

Executive directors may receive performance related compensation but do not receive any retirement benefits, other than statutory superannuation.

Fixed remuneration

Fixed remuneration consists of base compensation (which is calculated on a total cost basis and includes any FBT charges related to employee benefits including motor vehicles) as well as employer contributions to superannuation and healthcare funds.

Fixed remuneration will be reviewed at least annually by the Compensation Committee through a process that considers individual and overall performance of the Company. This review took place during the 2016 fiscal year.

Short-term incentive

Performance based short-term incentives (STI) may be provided to key management personnel and certain other employees in the form of cash bonuses. The performance based conditions are chosen to incentivise and reward staff in delivering challenging yet critical, short term outcomes that contribute to the delivery of the Company’s business plan and longer term objectives. The Compensation Committee periodically determines the STI for the Chief Executive Officer (CEO) and for other staff, in conjunction with the CEO. During the 2016 fiscal year, the CEO and other senior manager’s STI was determined by the Board of Directors as a whole and no STI payments were made to the CEO.

Long-term incentives

Long-term incentives (LTI) may be provided to key management personnel and certain other employees in the form of options over ordinary shares or American Depositary Shares of the Company or Performance Shares. LTIs are considered to promote continuity of employment and provide additional incentive to recipients to increase shareholder wealth. Options and Performance Shares may only be issued to directors subject to approval by shareholders in a general meeting. Options and Performance Shares issued as LTI are set out under section D of this Remuneration Report.

Consequences of performance on shareholder wealth

In considering the Consolidated Entity’s performance and benefits for shareholder wealth, the directors have regard to the following indices in respect of the current financial year and the previous four financial years:

* The restatement of revenue in comparative year 2015 & 2014 are related to discontinued operations.

Use of remuneration consultants

The Board Committee engaged the services of BDO USA, LLP during the 2015 financial year to conduct an independent review of its compensation programs and to benchmark compensation levels of its key management personnel.

Voting and comments made at the Company’s 2015 Annual General Meeting

The Company received more than 97% of “for” votes on its Remuneration Report for the year ended 30 June 2015 The Company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices.

DIRECTORS’ REPORT

Amounts of remuneration

Details of the remuneration of the directors and any other key management personnel (defined as those who have the authority and responsibility for planning, directing and controlling the major activities of the Consolidated Entity) and specified executives of MOKO Social Media Limited and the Group are set out in the following tables.

Key management personnel of the Consolidated Entity consisted of the directors and Managing Director of MOKO Social Media Limited:

DIRECTORS’ REPORT

The performance linked and fixed proportions of remuneration are as follows:

Remuneration and other terms of employment for key management personnel are formalised in service agreements, Details of the agreement is as follows:

DIRECTORS’ REPORT

The share based LTI compensation issued to Directors and other key management personnel is as follows:

Options over Ordinary Shares

The terms and conditions of each grant of options during this financial year affecting remuneration of directors and any other key management personnel in this financial year or future reporting years are as follows:

(1) The options shall vest upon the earlier of the nine (9) month anniversary of the Interim CEO Commencement Date or a change of control and shall expire on the twenty-four (24) month anniversary of the Interim CEO Commencement Date.

Options granted carry no dividend or voting rights.

DIRECTORS’ REPORT

American Depositary Shares under options (where one ADS = 40 Ordinary shares)

(2) Vesting share price hurdle of Share price performance hurdle: options will only vest if the volume weight average price (VWAP) of the Company’s ADSs over a 30 Trading Day period exceeds US$8.00.

Options granted carry no dividend or voting rights.

Details of options over ordinary shares issued to directors and any other key management personnel as part of compensation during the year ended 30 June 2016 are set out below:

Performance Shares

No Performance Shares were granted to directors and other key management personnel as part of compensation during the year ended 30 June 2016 (2015: Nil).

The value of options over ordinary shares granted, exercised and lapsed and of Performance Shares for directors and any other key management personnel during the year ended 30 June 2016 are set out below:

DIRECTORS’ REPORT

The number of shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below:

DIRECTORS’ REPORT

The numbers of options over ordinary shares in the Company held during the financial year by each director of the Company and other key management personnel of the Company, including their personally related parties, are set out below.

This concludes the Remuneration Report, which has been audited.

DIRECTORS’ REPORT

Shares under option

At the date of this report, unissued ordinary shares of the Company under option are:

Table A – Shares under options

Table B – American Depositary Shares under options (where one ADS = 40 Ordinary shares)

DIRECTORS’ REPORT

These options do not entitle the holder to participate in any share issue of the Company or any other entity.

Shares issued on the exercise of options

During or since the end of the financial year, the Consolidated Entity didn’t issue ordinary shares of the Company as a result of the exercise of options. (2015: 154,173,445)

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.

During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium.

Indemnity and insurance of auditor

The Company has not, during or since the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against liability incurred by the auditor.

During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity.

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 purposes of taking responsibility on behalf of the Company for all or part of those proceedings.

Audit services

During the year the following fees were paid or payable for services provided by the auditor:

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 these services do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons:

There are no officers of the Company who are former BDO audit partners.

DIRECTORS’ REPORT

Auditors’ independence declaration

A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 24.

Auditor

BDO 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 directors:

Greg McCann Chairman   Date: 30 September 2016 Sydney, Australia		Shripal Shah Managing Director   Date: 30 September 2016 Virginia, USA

Tel: +61 2 9251 4100 Fax: +61 2 9240 9821  www.bdo.com.au

Level 11, 1 Margaret St Sydney NSW 2000 Australia

DECLARATION OF INDEPENDENCE BY GRANT SAXON TO THE DIRECTORS OF MOKO SOCIAL MEDIA LIMITED

As lead auditor of Moko Social Media Limited for the year ended 30 June 2016, I declare that, to the best of my knowledge and belief, there have been:

This declaration is in respect of Moko Social Media Limited and the entities it controlled during the financial year.

Grant Saxon

Partner

BDO East Coast Partnership

Sydney, 30 September 2016

BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.

CORPORATE GOVERNANCE STATEMENT

Please see following URL of the company website page where the statement is located.

http://MOKOsocialmedia.com/#corporate-info

Tel: +61 2 9251 4100 Fax: +61 2 9240 9821  www.bdo.com.au

Level 11, 1 Margaret St Sydney NSW 2000 Australia

INDEPENDENT AUDITOR’S REPORT

To the members of MOKO Social Media Limited

Report on the Financial Report

We have audited the accompanying financial report of MOKO Social Media Limited, which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time 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 a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, 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 conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain 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 disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment 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 control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

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

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of MOKO Social Media Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.

Opinion

In our opinion:

Emphasis of matter

Without modifying our opinion, we draw attention to Note 1 in the financial report, which indicates that the ability of the consolidated entity to continue as a going concern is dependent upon the future successful raising of necessary funding through equity. These conditions, along with other matters as set out in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business.

Report on the Remuneration Report

We have audited the Remuneration Report included under the heading ‘Remuneration Report’ in the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Opinion

In our opinion, the Remuneration Report of MOKO Social Media Limited for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001.

BDO East Coast Partnership

Grant Saxon

Partner

Sydney, 30 September 2016

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 30 June 2016

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 30 June 2016

*The restatement of comparatives is related to discontinued operations. Please refer to Note 8 Discontinued operations for further details

THESE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2016

THESE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2016

THESE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2016

THESE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 June 2016

THESE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING NOTES

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 1: 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.

Reporting entity

MOKO Social Media Limited (the Company) is a company domiciled in Australia. The consolidated financial statements of the Company as at and for the year ended 30 June 2016 comprises the Company and its subsidiaries (together referred to as the Consolidated Entity). The Consolidated Entity is involved in tailored digital publishing of mobile applications for common interest groups, within the youth and young adult demographic, in the United States of America.

The consolidated financial statements were authorised for issue by the Board of Directors on 30 September 2016.

Basis of preparation

Statement of compliance

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-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, except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial instruments.

Going concern

The 30 June 2016 financial report has been prepared on a going concern basis which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.  This is not withstanding that the Consolidated Entity generated a loss from continuing activities of $20,803,136 (2015: loss of $18,995,935) and continues to experience constraints around cash flow, with a net cash outflow from operations for the full year of $14,309,124 (2015: $18,231,444). 

In order to continue as a going concern, the Consolidated Entity needs to raise additional funds. The directors acknowledge that the requirement to raise additional funding represents a material uncertainty which may cast significant doubt over the ability of the Consolidated Entity to continue as a going concern.

On 26 August 2016, the Consolidated Entity announced it is undertaking a review of strategic options for the future of the Consolidated Entity and has appointed District Capital Partners (DCP) to advise on alternatives and assist with the process. DCP is a financial advisory firm that specialises in M&A transaction execution and corporate finance services. DCP are reviewing all possibilities including straight equity investments and the potential sale of the Consolidated Entity and are currently seeking proposals from a number of interested parties.

The Consolidated Entity has received written confirmation from a substantial shareholder of their current intention to provide additional working capital to the Consolidated Entity to enable a potential transaction from the DCP process to be completed.

The Consolidated Entity also expects to receive a Research & Development tax refund from the Australian Taxation Office. The Consolidated Entity has submitted a Research & Development Tax Incentive Application for the financial year ended 30 June 2016 which results in a refund of $829,674. This is subject to review by the Australian Tax Office and AusIndustry.

The Directors are confident that additional funds can be raised and the Consolidated Entity can continue to meet its debts as and when they become due and payable. The financial report has therefore been prepared on a going concern basis.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 1: Significant accounting policies (continued)

Should the Consolidated Entity be unable to continue as a going concern it may be required to realise its assets and discharge its liabilities other than in the normal course of business and at amounts different to those stated in the financial statements. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of liabilities that might result should the Consolidated Entity be unable to continue as a going concern and meet its debts as and when they fall due.

Critical accounting estimates

The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Consolidated Entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

New, revised or amending Accounting Standards and Interpretations adopted

The Consolidated Entity 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.

Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have generally not been early adopted, unless stated otherwise.

The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Consolidated Entity.

Parent entity information

In accordance with the Corporations Act 2001, these financial statements present the results of the Consolidated Entity only. Supplementary information about the parent entity is disclosed in Note 24.

Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of MOKO Social Media Limited as at 30 June 2016 and the results of all subsidiaries for the year then ended. MOKO Social Media Limited and its subsidiaries together are referred to in these financial statements as the 'Consolidated Entity' or ‘MOKO’.

Subsidiaries are all those entities over which the Consolidated Entity has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The effects of potential exercisable voting rights are considered when assessing whether control exists. Subsidiaries are fully consolidated from the date on which control is transferred to the Consolidated Entity. They are de-consolidated from the date that control ceases.

Intercompany transactions, balances and unrealised gains on transactions between entities in the Consolidated Entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Consolidated Entity.

The acquisition of subsidiaries is accounted for using the acquisition method of accounting. Refer to the 'business combinations' accounting policy for further details. 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.

Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income and statement of financial position of the Consolidated Entity. Losses incurred by the Consolidated Entity are attributed to the non-controlling interest in full, even if that results in a deficit balance.

Where the Consolidated Entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Consolidated Entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 1: Significant accounting policies (continued)

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision makers, who are responsible for allocating resources and assessing performance of the operating segments, is the Board of Directors.

Foreign currency translation

Functional and presentation currency

These consolidated financial statements are presented in Australian dollars, which is MOKO Social Media Limited’s functional and presentation currency.

The functional currencies of the overseas subsidiaries are as follows:

The functional currencies of the overseas subsidiaries are translated to the presentation currency.

Foreign currency transactions

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in the statement of profit or loss and other comprehensive income, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the statement of profit or loss and other comprehensive income.

Foreign operations

The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity.

The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of.

Revenue and other income

Revenue is recognised when it is probable that the economic benefit will flow to the Consolidated Entity and the

revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable.

All revenue is stated net of the amount of goods and services tax (GST).

Rendering of services

Revenue from the rendering of a service is recognised upon the delivery of the service to the customers.

The Mobile Social segment generates revenue from its customers who are the individually contracted mobile users engaging in MOKO’s mobile social networks or using its community and chat products, typically via pre-paid, monthly, subscriptions which are billed directly to user’s mobile phone accounts, enabling them to access and

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 1: Significant accounting policies (continued)

participate in our mobile chat and share communities. Given the short subscription period and the inability to cancel mid-month, revenue is recognised when paid by the carriers to MOKO each month.

‘Carriers’ are individual telecommunication service providers, who typically have their own network and are consumer facing in the marketplace, and provide the MOKO social chat platform. Revenue is recognised gross with amounts payable to carriers and aggregators as a cost of sale. This accurately represents the Consolidated Entity’s relationship with its carriers as being the “principal” rather than “agent” as noted in AASB 118 —“Revenue”.

The Mobile Advertising segment is MOKO’s proprietary U.S. mobile performance advertising network, historically has primarily consisted of working with performance based advertisers seeking specific audiences for offers and with publishers to identify optimal advertisements or offers for their audiences. Where applicable, the Company records its revenue from this line of business on a gross basis. All other revenue in the Mobile Advertising unit is recorded net.

Sale of goods

Sale of goods revenue is recognised at the point of sale, which is where the customer has taken delivery of the

goods, the risks and rewards are transferred to the customer and there is a valid sales contract. Amounts disclosed as revenue are net of sales returns and trade discounts.

Interest

Interest received is recognised on a proportional basis to the interest rates applicable to the financial assets.

Other income

Other income is recognised when it is received or when the right to receive payment is established.

Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Consolidated Entity will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the statement of profit or loss and other comprehensive

Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

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 which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

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. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 1: Significant accounting policies (continued)

Discontinued operations

A discontinued operation is a component of an entity, being a cash-generating unit (or a group of cash generating units), that either has been disposed of, or is classified as held for sale, and: represents a separate major line of business or geographical area of operations; is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or is a subsidiary acquired exclusively with the view to resale. The results of discontinued operations are presented separately on the face of the statement of profit or loss and other comprehensive income.

Cash and cash equivalents

For cash flow statement presentation purposes, 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, and bank overdrafts.

Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. 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 uncollectible are written off. A provision for impairment of trade receivables is raised when there is objective evidence that the Consolidated Entity will not be able to collect all amounts due according to the original terms of receivables. 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. The amount of the impairment is recognised in the statement of profit or loss and other comprehensive income.

Other receivables are recognised at amortised cost, less any provision for impairment.

Property, plant and equipment

Each class of property, plant and equipment is carried at cost value less, where applicable, any accumulated depreciation and impairment losses.

The carrying amount of plant and equipment is reviewed annually by the Directors to ensure it is not in excess of the recoverable amount of the assets.

Depreciation

The depreciable amount of all fixed assets is depreciated on a straight-line basis over their useful lives commencing from the time the asset is held ready for use.

The depreciation rates used for each class of depreciable assets are:

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are included in the statement of profit or loss and other comprehensive income.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 1: Significant accounting policies (continued)

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 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 Consolidated Entity 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 acquisition. Intangible assets acquired separately are initially recognised at cost. Intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from de-recognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The useful lives of finite life intangibles are reviewed annually by the Directors. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period.

Goodwill

Goodwill arises on business combinations and 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.

The amortisation rates used for each class of amortisable assets are:

Computer software

Computer software costs associated with software are deferred and amortised on a straight line basis over the period of their expected benefit.

Customer contracts

Customer contracts acquired in a business combination are amortised on a straight line basis over the period of their expected benefit.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 1: Significant accounting policies (continued)

Capitalised product development cost

Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it is probable that the project will be a success considering its commercial and technical feasibility; the Consolidated Entity is able to use or sell the asset; the Consolidated Entity has sufficient resources; and intent to complete the development and its costs can be measured reliably. Capitalised development costs are amortised on a straight line basis over the period of their expected benefit.

Intellectual Property

Intellectual property acquired in a business combination are amortised on a straight line basis over the period of their expected benefit.

Customer database

Customer databases acquired in a business combination are amortised on a straight line basis over the period of their expected benefit.

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 to sell 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.

Investments and other financial assets

Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted.

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets, principally equity securities, that are either designated as available-for-sale or not classified as any other category. After initial recognition, fair value movements are recognised in other comprehensive income through the available-for-sale reserve in equity. Cumulative gain or loss previously reported in the available-for-sale reserve is recognised in profit or loss when the asset is derecognised or impaired.

Impairment of financial assets

The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; or observable data indicating that there is a measurable decrease in estimated future cash flows.

The amount of the impairment allowance for financial assets carried at cost is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for similar financial assets.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 1: Significant accounting policies (continued)

Trade and other payables

These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

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 measured at the amounts expected to be paid when the liabilities are settled.

Other long-term employee benefits

The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are 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

When goods or services received are acquired in a share-based payment transaction, they are recognised as expenses or assets, as determined by the nature of the goods or services received, over the vesting period attached to the equity instrument acquired in the transaction. A corresponding increase is recognised in equity.

The goods or services are measured by reference to the fair value of goods or services received, or where this is not possible, indirectly, by reference to the fair value of the equity instrument acquired at grant date.

The fair value of securities provided to Directors and employees is determined by reference to the fair value of the equity instrument granted.

Business combinations

The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired.

The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss.

On the acquisition of a business, the Consolidated Entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Consolidated Entity’s operating or accounting policies and other pertinent conditions in existence at the acquisition date. 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.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 1: Significant accounting policies (continued)

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 and at which time the business combination accounting is final.

Issued capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, 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 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)

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

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 taxation authority is included with other receivables or 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 taxation authority, are presented as operating cash flow.

Comparative Figures

Certain comparative figures have been adjusted to conform to changes in presentation for the current financial year.

New accounting standards and interpretations that are not yet mandatory

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Consolidated Entity for the annual reporting period ended 30 June 2016, unless noted below. The Consolidated Entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Consolidated Entity, are set out below.

AASB 15: Revenue from Contracts with Customers

This standard is applicable to annual reporting periods beginning on or after 1 January 2018, as deferred by AASB 2015-8: Amendments to Australian Accounting Standards – Effective Date of AASB 15.

When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers.

The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process:

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 1: Significant accounting policies (continued)

The transitional provisions of this Standard permit an entity to either: restate the contracts that existed in each prior period presented per AASB 108: Accounting Policies, Changes in Accounting Estimates and Errors (subject to certain practical expedients in AASB 15); or recognise the cumulative effect of retrospective application to incomplete contracts on the date of initial application. There are also enhanced disclosure requirements regarding revenue.

Although the Directors anticipate that the adoption of AASB 15 may have an impact on the Group’s financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact.

AASB 16: Leases

This standard is applicable to annual reporting periods beginning on or after 1 January 2019.

When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases.

The main changes introduced by the new Standard include:

The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application.

Although the Directors anticipate that the adoption of AASB 16 will impact the Group's financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 June 2016

Note 2: Financial risk management

Financial risk management objectives

The Consolidated Entity's activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The overall risk management strategy focuses on the unpredictability of the finance markets and seeks to minimise the potential adverse effects on the financial performance. The Consolidated Entity's 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, foreign exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market risk. Risk management is carried out under the direction of the Board.

Market risk

Foreign currency risk

The Consolidated Entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations.

Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and cash flow forecasting.

In order to protect against Foreign exchange movement, the Consolidated Entity has set up foreign currency bank accounts, by depositing surplus foreign currency in a foreign currency account for later use.

The carrying amounts of the Consolidated Entity's foreign currency denominated financial assets and financial liabilities at the reporting date, expressed in Australian dollars, were as follows: