Collaborate Corporation Limited (ASX:CL8) (Collaborate or the Company) is pleased to present its Appendix 4E and Annual Report for the year ended 30 June 2020 (FY20).

During FY20 Collaborate continued to focus its strategy on the mobility and automotive industries, leveraging its capital light business model and innovation ability to align with opportunities arising as a result of declining car sales and an increasing preference for access to vehicles instead of ownership and long-term financial commitment. The Carly vehicle subscription service continued to expand during FY20, achieving its strongest growth in subscribers in the June 2020 Quarter, despite the turmoil arising from the COVID19 pandemic.

Additional funding was secured through a partially underwritten non-renounceable entitlement issue and strategic investment from respected and leading fleet management and leasing firm SG Fleet (ASX:SGF), following the strategic investment by Turners Automotive Group (ASX:TRA; NZX:TRA) in June 2019. During H1 FY20, the Board welcomed Todd Hunter, CEO of Turners, and Robbie Blau, CEO of SG Fleet as non-executive directors. Positioning the Company for growth, the management team was also strengthened by the appointment of Ben Hershman, formerly of Deloitte, Hyundai and Volkswagen, as Chief Operating Officer, and the recruitment of a Head of Marketing, Operations Manager and Head of Product.

Revenue in FY20 increased by $161,991 or 16% to $1,196,203, gross profit increased $103,640 or 22%and loss from continuing operations increased by 2% on a like-for-like basis (excluding the goodwill adjustment) as the group invested in marketing and personnel to support the growth of Carly (refer to Financial Overview in the Annual Report for full details). FY20 revenues were significantly impacted by COVID-19 in both rideshare rentals and in traditional car rentals.

While many businesses will be severely impacted by COVID-19, Collaborate’s efforts to reposition itself over the past 12 months have prepared it well to deal with the current challenges, benefit from economic uncertainty and leverage opportunities brought about by longer-term structural change in the automotive market. Carly car subscription is an alternative to a loan or outright purchase of a vehicle and provides consumers and businesses with the ability to access vehicles they require without long-term financial commitment or risks associated with changes in circumstances. It is likely that the COVID19-related concerns about the economy will accelerate the shift to more flexible vehicle access options. Collaborate believes that Carly is likely to benefit from this shift, even in an environment of slow or negative economic growth. As a result, Collaborate continues to direct its resources and strategic focus towards its mobility strategy. Car subscription, which Frost & Sullivan has forecast to account for 10% of new car sales in the USA and Europe in 2025, is an area of significant opportunity for Collaborate. Carly was launched to capitalise on the opportunity in the current $60 Billion p.a. car sales market in Australia. DriveMyCar continues to pursue opportunities in the car rental market including private and rideshare rentals. Both Carly and DriveMyCar leverage the operations expertise, technical platform and industry relationships established by DriveMyCar. To support this focus, the legacy Mobilise and MyCaravan businesses ceased operations in January 2020 and July 2020 respectively. There was no material impact on revenue or the carrying value of assets on the group financial position as a result of these changes.

As part of the 2020 financial year end audit, the Board assessed the carrying value of the DriveMyCar group intangible assets value. Although the Directors are of the opinion that the intangible assets associated with the DriveMyCar business continue to have value and provide the online marketplace for the DriveMyCar and Carly businesses the ongoing uncertain economic environment makes it difficult to reasonably forecast revenues associated with the platform (as required by accounting standards), particularly in the long term. As a result, an impairment loss of $2,079,699 was recognised in relation to the carrying value of goodwill acquired on the acquisition of the DriveMyCar business in the 2020 financial year.

This non-cash adjustment is reflected in the Annual Report. The impairment loss in respect of goodwill acquired on acquisition of the DriveMyCar business has no impact on the cash flow or funding of the Company or the group. But as a result of the recognition of the impairment loss, the group’s total assets are less than total liabilities, giving rise to a deficiency in net assets as at 30 June 2020. The liabilities associated with the Willoughby Capital Financing Facility will not be required to be repaid in cash and will be offset against commitments under the Entitlement Issue (see below).

Collaborate advises that the Board of Directors has also resolved to reduce the share capital of the Company by $20,612,672 in accordance with section 258F of the Corporations Act 2001 (Cth) (Corporations Act).

Under section 258F of the Corporations Act, a company may reduce its share capital by cancelling any paid-up share capital that is not represented by available assets. The Company was incorporated on 20 September 1994 as a mineral resources exploration company. Since that time, the Company has existed under six different company names and acquired and divested a number of exploration assets and technology businesses. As a result of those activities and discontinued operations, as of 30 June 2020 the Company has accumulated losses in excess of $20 million which are not represented by the current assets or operations of the group and may be considered to be lost capital under section 258F of the Corporations Act.

The capital reduction will have the effect of reducing issued capital and accumulated losses balances in the group’s financial statements by $20,612,672, being the balance of accumulated losses as at 31 December 2013, prior to completion of the acquisition of a 100% interest in DriveMyCar Pty Ltd on 19 February 2014 (which was approved by shareholders on 10 January 2014). DriveMyCar is a current asset of the Company alongside the Carly car subscription service. The directors feel it is appropriate and prudent to adjust the capital and accumulated losses for past historical write-offs and legacy costs associated with discontinued operations and present a balance sheet that is more representative of the current operations and assets of the Company and the group, being DriveMyCar and the Carly car subscription service. The adjustment has no impact on the operations or financial performance of the group.

These non-cash adjustments are reflected in the Annual Report. The capital reduction has no impact on the net assets, financial results, cash flow or funding of the Company or the group and is not inconsistent with the accounting standards. Additionally, there is no impact on shareholders from the capital reduction as no shares will be cancelled or rights varied. The number of securities on issue will not change as a result of this adjustment. Similarly, creditors are not affected as there will be no change in available assets. There is also no impact on the availability of the Company’s tax losses from this capital reduction.

In accordance with ASX Listing Rule 7.20, the Company confirms the following:

• The number of securities on issue in Collaborate will not be affected and no amount was previously or will be unpaid on any of its securities pursuant to the capital reduction.
• There are no fractional entitlements arising from the capital reduction.
• The capital reduction has no impact on the options on issue.

Subsequent to balance date, on 31 August 2020, the Company announced the intention to undertake a non-renounceable entitlement issue to raise up to $3.455 million, which is partially underwritten up to $2.080 million by existing shareholders and officers of the Company (including offset of the $850,000 Financing Facility by Willoughby Capital against commitments under the offer) (Entitlement Issue). The Entitlement Issue will be offered on a 1-for-3 basis to shareholders of the Company at an offer price of $0.009 per Share. Subscribers for Shares issued under the Entitlement Issue will also receive free attaching options on a one-for-five basis. The options will have an exercise price of $0.015 per option and will expire on 31 October 2022.

This announcement was authorised to be given to ASX by the Board of Directors of Collaborate Corporation Limited.