dragontail systems successfully rolling · pdf filepilots with kfc in malaysia and singapore....

1 Dragontail Systems Limited ACN 614 800 136

673 Bourke Street, Melbourne VIC 3000 T +61 3 9021 6862 W www.dragontailsystems.com

ASX ANNOUNCEMENT

DRAGONTAIL SYSTEMS SUCCESSFULLY ROLLING OUT ITS GROWTH STRATEGY

31 August 2017 (Melbourne): Dragontail Systems Limited (ASX: DTS) is pleased to announce its inaugural results as a publicly listed company for the six months ended 30 June 2017 (H1 2017). Over the period, Dragontail Systems grew its international footprint, developed new products, and progressed several client relationships.

A key growth metric validating Dragontail System’s world leading proprietary ‘Algo’ platform is the growth in number of paying customers. After commencing sales of the ‘Algo’ in Q3 2016, stores installed and quantum of annualised revenue has begun to grow exponentially. Over H1 2017, the number of stores installed was up 125% to 155, and annualised revenue grew 130% to $285k.

Business growing exponentially (at 30 June 2017)

• Stores installed, up 86 to 155; 125% growth over 6 months (31 Dec 2016: 69)

• Operating countries, up 4 to 7 (31 Dec 2016: 3)

• Operating cities, up 32 to 84 (31 Dec 2016: 52)

• Point of Sale [POS] joint ventures, up 4 to 6 (31 Dec 2016: 2).

Doing what we said we would do

• Completed rollout of ‘Algo’ platform to all corporate owned Pizza Hut stores in Canada;

installation into franchisee stores commenced

• Agreed pilot with KFC Asia (division of Yum! Brands) in Malaysia and Singapore

• Chosen by Google Next as the use case example of business disruptive technology

• First customer referred by Google; in the fleet and fuel management segment

• Opened offices in Australia and Singapore, to complement existing offices in Israel, US and

Canada

• Domino’s Israel chooses to install ‘Algo’ across all its stores; making the ‘Algo’ the de facto

standard platform in Israel for food delivery optimistion with the two largest pizza delivery

companies now using the ‘Algo’

• Completed development of the unique proprietary, patent pending, QT – a computer-vision

artificial intelligence [AI] machine learning quality system for QSR chains.

Commenting on the Company’s rapid progress over H1 2017, Dragontail Systems’ CEO Ido Levanon

said:

“The past six months have been extremely busy as we rolled out the Company’s ‘Algo’ optimisation

and delivery platform. We completed the installation of the ‘Algo’ across Yum! Canada’s corporate

owned Pizza Hut stores, and have expanded our relationship with Yum! into Asia, putting in place

pilots with KFC in Malaysia and Singapore. In addition, Domino’s Israel agreed to install the ‘Algo’

across all its pizza restaurants.

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http://www.dragontailsystems.com/



“At the end of June, Dragontail Systems was being used by three of the largest QSR businesses globally

– Pizza Hut, KFC and Domino’s. These expanding relationships led to the number of stores installed

growing by 125% over the first half, with a substantial pipeline of stores yet to be installed,

underpinning our continued exponential growth.”

“At the heart of our technology is innovative, focused R&D, undertaken by a team that has substantial

food industry and software experience. In addition to commencing the rollout of the ‘Algo’ platform,

we continued to invest substantial time and resources in R&D, leading to the development of our QT

computer-vision machine learning camera system.

“The QT is a world first technology. Utilising artificial intelligence [AI], the QT monitors key elements

in the kitchen during the preparation and cooking process to improve the quality and consistency of

pizzas and other meals that a restaurant is producing.

“The QT’s artificial intelligence [AI] is revolutionary. This, together with our ‘Algo’ platform, will

completely disrupt the QSR industry as well as several other industries with use cases for our

technologies that assist businesses to manage costs and grow revenues. We are in advanced

discussions with several new strategic customers globally, and are well placed to continue growing

exponentially.”

Financial overview

Dragontail Systems finished H1 2017 with a cash balance of USD 2.5 million, following its Initial Public

Offering (IPO) in December 2016.

Unlike many other technology companies that compete in the “last mile” delivery segments of the

market that Dragontail Systems operates in, the Company’s new business strategy is to develop

relationships with large franchise chains, and sign on paying users to its platform, as opposed to “free”

trials.

While this strategy may take a little longer to generate new business, it ensures that the business is

sustainably revenue generating and the number of users can scale quickly given the size of client

franchise networks. Over H1 2017, the Company generated USD 86k revenue, compared with USD

54k in H1 2016.

Operating overview

Dragontail Systems is at a pivotal point in time as it commercialises its technologies. The Company is

growing into new countries and cities, signing agreements with new strategic customers like Domino’s

Israel and KFC Asia, entering new market segments like fuel and fleet management, and expanding its

range of world-leading products.

The results of Dragontail Systems’ activities can be clearly seen in the rapidly scaling, exponentially

growing, operations over the past two quarters (six months), as outlined in the table below.

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Offices opened in Singapore and Melbourne (Australia)

While growing the number of installed stores, Dragontail Systems is also focused on exciting pilots

with large multi-country QSR operators, like KFC Asia, to continue building rapid momentum. As part

of these pilots, the Company opened offices in Singapore and Melbourne (Australia) to provide R&D

and operational support to these pilots.

Growing local and global customer base

Having been trialled by Pizza Hut Canada for over 12 months, over H1 2017 the ‘Algo’ was installed in

all Pizza Hut Canada corporate owned stores. The Company has commenced installations in franchisee

stores, and expects to undertake a significant rollout to a large number of Pizza Hut Canada franchisee

stores over H2 2017. Pizza Hut Canada has around 400 total stores across its corporate owned and

franchisee network.

Another strategic partnership has formed with KFC Asia, expanding on Dragontail Systems’

relationship with Yum! Brands. The ‘Algo’ is being piloted in Malaysia and Singapore as a pre-cursor

to a potential rollout through Asia. KFC Asia is the only KFC network globally that currently home-

delivers, and has 3,400 total stores. Importantly, this was a relationship that was formed as a result

of the significant operational benefits that Yum! Brands experienced using the ‘Algo’ in their Pizza Hut

Canada corporate owned stores.

While the Company has been forming growing relationships with global QSR companies, it has also

been building relationships with more local operations, as well as non-QSR companies. Early this year,

Jun 2017

Mar 2017

Dec 2016

Sept 2016

Quarterly Operating

Metrics

7 3 3 3 Operating countries

84 68 52 47 Operating cities

155 88 69 63 Number Stores installed

6 3 2 0 Number of POS joint

ventures.

$285k $165k $124k $113k Annualised Revenue

73% 33% 10% n/a Quarterly Growth

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the New York city based franchisee of US frozen yogurt brand 16 Handles concluded its trial of the

‘Algo’ early and immediately rolled out the platform across all its stores due to stronger than expected

trial results.

Dragontail Systems also put in place an agreement with Monscierge, Inc to support Dragontail

Systems’ entry into the hotel and resort market, where the platform can streamline the preparation

and serving of room service and bar drinks. In addition, the Company expanded into fuel and fleet

management services, signing its first customer from that industry – Roseman Engineering – that was

the first client referred to the Company by Google.

Google Next use case of disruptive technology

In May, Dragontail Systems was selected by Google as a use case globally of key disruptive

technologies. Dragontail System’s selection was announced at the Cloud Next event in Tel Aviv,

featuring the Google Cloud platform utilisation. As outlined above, the Company has already received

its first referral from Google for a company in the fuel and fleet management industry.

Leading edge technology incorporating artificial intelligence [AI]

Dragontail Systems continues to progress the R&D of its unique patent pending QT – a computer-

vision artificial intelligence [AI] machine learning quality system for pizza and other QSR chains. This

is a revolutionary technology that will provide significant benefits to QSR and other food operators,

and clearly differentiates the Company from its competitors that largely operate in just ‘last mile’

delivery systems.

The QT is the world’s first food preparation system that utilises machine learning to constantly

improve its diagnostics. It monitors key elements in the kitchen during the preparation and cooking

process to improve the quality and consistency of pizzas and other meals being produced.

The QT not only revolutionises food preparation, it is an exciting marketing and operational tool, which

upgrades the customer experience (eg allowing customers to see their actual pizzas when cooked)

and reduces costs (through less wastage and efficient use of ingredients) without interfering with a

kitchen's workflow.

Events subsequent to 30 June 2017 – Dragontail Systems has not slowed down

Post the reporting period end, Dragontail Systems continues to make significant progress developing

and commercialising the ‘Algo’ System and QT platform. The Company has signed several new

agreements as outlined below.

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Domino's Pizza Israel

Domino's Pizza Israel selected the ‘Algo’ dispatching system to manage the drivers and deliveries

across all its more than 60 restaurants. The ‘Algo’ provides Domino’s Pizza Israel with complete

visibility of, and control over, its delivery processes, improving management of its drivers and

deliveries, and generating efficiencies that reduce delivery times and overall operating costs within

their restaurants.

As a result of this agreement, the ‘Algo’ platform became the de-facto standard for food delivery

optimisation in Israel, having been selected by the two largest pizza delivery companies in the country.

Melbourne R&D facility opened and Chief Technology Officer appointed

In July, Dragontail Systems opened a Research & Development facility in Melbourne to deepen

technical and professional support for current and future clients. This builds on the Company’s

Singapore office, to accelerate its growth ambitions in the region.

The Melbourne facility is led by Chief Technology Officer Simon Wilkson. His professional background

and experience will support the Company's growth, providing the ability to manage direct contact with

customers in the region, as well as lead regional strategic projects in terms of R&D and operations.

Dragontail Systems views the Asia-Pacific region as a key global growth market.

Positive outlook for continued exponential growth

Over H1 2017, Dragontail Systems put in place the infrastructure necessary to drive continued

exponential growth. With existing relationships with tier 1 global QSR operators like Pizza Hut, KFC

and Domino’s, several exciting new clients in the pipeline, and truly disruptive technology that solves

key problems for QSR operators, restaurant operators, and other industries, the Company is well

placed to continue its growth trajectory.

Commenting on the outlook for Dragontail Systems, Mr Levanon said: “Dragontail System’s two

flagship proprietary products, the ‘Algo’ and AI driven QT, are truly unique and disruptive

technologies. The global potential of these products is vast and we have only begun delivering on this

potential. The exponential growth delivered over the first half of this year, is set to continue at an

even faster pace as we roll out further agreements and install our systems in additional stores.”

- ENDS -

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For further information please contact:

Corporate: Investors:

Ido Levanon, CEO Ronn Bechler / Adrian Mulcahy, Market Eye

P: +61-3 9088 0374 P: +61-3 9591 8900

Media:

Georgie Morell, Market Eye

P: + 61 438 008 383

About Dragontail Systems

Dragontail is revolutionising the Quick Service Restaurant (QSR) industry with its Algo System and

computer-vision QT quality system that uses artificial intelligence (AI) machine learning.

The Algo System uses a sophisticated patented algorithm to optimise and manage the entire food

preparation process from order to delivery. It is the first system in the world to fully automate and

streamline the kitchen flow to deliver an immediate and significant return on investment to fast food

and quick service restaurants.

The QT system’s sensor and camera automatically monitor the preparation and cooking process in the

kitchen to improve the quality and consistency of meals. Using proprietary advanced AI machine-

learning technology, the system keeps improving its diagnostics, becoming even more efficient.

For more information, visit www.dragontailsystems.com.

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Dragontail Systems Limited and its Controlled Entities

Consolidated Interim Financial Report for period ending 30 June 2017

RULE 4.2A

APPENDIX 4D Half-year Report for the period ending 30 June 2017

1. Name of entity

DRAGONTAIL SYSTEMS LIMITED AND ITS CONTROLLED ENTITIES

ABN Reporting Period Previous

Corresponding Period

63 614 800 136 Half year ended

30 June 2017 Half year ended

30 June 2016

2. Results for Announcement to the Market Financial Results 30 June 2017

Revenues from ordinary activities (item 2.1)

Up 61% to 86,236

Profit from ordinary activities after tax attributable to members (item 2.2)

Down (297%) to (1,833,452)

Net profit for the period attributable to members (item 2.3)

Down (297%) to (1,833,452)

Final and interim dividends (item 2.4) It is not proposed that either a final or interim dividend be paid .

Record date for determining entitlements to the dividend (item 2.5)

N/A

Brief explanation of any of the figures reported above (item 2.6):

On 12 December 2016, DTS Australia acquired 100% of the issued capital of Dragontail Systems Limited (Company no. 514981232) (“DTS Israel”) in exchange for 130,000,000 ordinary shares. For accounting purposes, DTS Israel was identified as the controlling entity of the consolidated group. The accompanying consolidated financial statements represent a continuation of DTS Israel’s financial statements. The 31 December 2016 comparatives are the consolidated entity on that date. The 30 June 2016 comparative period results reflect DTS Israel only. The prior year loss was incurred in the ordinary course of business. Following the public listing of the Group in December 2016, Dragontail Systems has extensively accelerated operations and therefore has incurred significant additional expenditure as part of operating activities.

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Dragontail Systems Limited and its Controlled Entities

Consolidated Interim Financial Report for period ending 30 June 2017

3. NTA Backing

Current Period

Previous Corresponding Period

Net tangible assets per ordinary share (Item 3) 1.31 cents 2.26 cents

4. Control gained over entities Details of entities over which control has been gained or lost (item 4)

N/A

5. Dividends paid and payable Details of dividends or distribution payments (item 5) No dividends or distributions are payable.

6. Dividend reinvestment plans Details of dividend or distribution reinvestment plans (item 6)

There is no dividend reinvestment program in operation for Dragontail Systems Limited.

7. Details of associates Details of associates and joint venture entities (item 7) N/A

8. Foreign entities Foreign entities to disclose which accounting standards are used in compiling the report (item 8)

N/A

9. Review Opinion Details of any audit dispute or qualification (item 9)

There are no audit disputes or qualifications to the review opinion.

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Dragontail Systems Limited & Controlled Entities

ACN 614 800 136

CONSOLIDATED INTERIM FINANCIAL REPORT for the half-year ended 30 June 2017

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Dragontail Systems Limited – Consolidated Interim Financial Report

ACN 614 800 136

CONTENTS TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

Corporate information ................................................................................................................................ 1

Directors’ report .......................................................................................................................................... 2

Auditor’s independence declaration ......................................................................................................... 4

Consolidated statement of profit or loss and other comprehensive income for the

half-year ended 30 June 2017 .................................................................................................................... 5

Consolidated statement of financial position as at 30 June 2017 .......................................................... 6

Consolidated statement of changes in equity for the half-year ended 30 June 2017 ........................... 7

Consolidated statement of cash flows for the half-year ended 30 June 2017 ....................................... 8

Notes to the consolidated interim financial statements .......................................................................... 9

Directors’ declaration ............................................................................................................................... 16

Independent auditor’s review report ....................................................................................................... 17

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ACN 614 800 136

1

Corporate information

This consolidated interim financial report is for Dragontail Systems Limited and its controlled entities

(“the Group”). Unless otherwise stated, all amounts are presented in US Dollars.

A description of the Group’s operations and of its principal activities is included in the review of

operations and activities in the directors’ report on pages 2 to 3. The directors’ report is not part of the

financial statements.

Directors

Dragontail Systems Australia

Mr Paul Steele

Mr Ido Levanon

Mr Yehuda Shamai

Mr Ron Zuckerman

Mr Adam Sierakowski

Company Secretary

Ms Deborah Ho

Registered and Principal Office Auditors

673 Bourke Street BDO Audit (WA) Pty Ltd

Melbourne VIC 3000 38 Station St

Subiaco WA 6008

Telephone: +61 3 9021 6862

Israel Office Share Registry & Register

2 David Ben Gerion St Advanced Share Registry Limited

BSR 1, Floor 8 110 Stirling Highway

Ramat Gan, Tel Aviv Nedlands WA 6009

5257334 Israel

Stock Exchange Listing

Telephone: +972 3 794 3362 Dragontail Systems Limited is listed on the

Australian Securities Exchange

Web Site ASX Code: DTS

www.dragontailsystems.com

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ACN 614 800 136

2

Directors’ report

The directors of Dragontail Systems Limited (“the Company” or “DTS Australia”) and its controlled entities (“the

Group”) submit herewith the financial statements of the Group for the half-year ended 30 June 2017.

On 12 December 2016, DTS Australia acquired 100% of the issued capital of Dragontail Systems Limited

(Company no. 514981232) (“DTS Israel”) in exchange for 130,000,000 ordinary shares.

For accounting purposes, DTS Israel was identified as the controlling entity of the consolidated group. The

accompanying consolidated financial statements represent a continuation of DTS Israel’s financial statements. The

31 December 2016 comparatives are the consolidated entity on that date. The 30 June 2016 comparative period

results reflect DTS Israel only. In accordance with the provisions of the Corporations Act 2001, the directors’ report

is as follows:

The names and particulars of the directors of the Company during or since the end of the half-year are:

DTS Australia

Paul Steele Non-Executive Chairman (Appointed 14 September 2016)

Ido Levanon Managing Director (Appointed 14 September 2016) – DTS Australia

Yehuda Shamai Non-Executive Director (Appointed 14 September 2016)

Ron Zuckerman Non-Executive Director (Appointed 14 September 2016) Adam Sierakowski Non-Executive Director (Appointed 14 September 2016)

Principal activities

The Group’s principal activity is providing software solution in the QSR (quick service restaurant) field of activity for

Management & Delivery Operations solutions.

Operating results and financial position

The net loss for the half-year ended 30 June 2017 was $1,833,452 (2016: $462,310). Following the public listing

of the Group, Dragontail Systems has extensively accelerated operations and therefore has incurred significant

additional expenditure as part of operating activities.

Review of operations

During the six months' ended 30 June 2017, DTS Israel continued its efforts to deepen the relationships and

installations in existing markets (such as strategic clients as YUM! Canada), and has also channeled resources to

recruit significant new customers and market leaders in various markets worldwide. This has led to a multi countries

pilot conducted with KFC Asia (part of YUM Brands) in Malaysia and Singapore. During the period, the other

significant milestones are as following:

• the successful completion of the Algo System rollouts to Pizza Hut Corporate Stores in Canada;

• the Company’s first customer for fuel management services which was introduced by Google Partner GoGIS; and

• the strategic agreement signed with Domino’s Israel to implement the Algo system across more than 60 Domino’s restaurants in Israel.

Also during this period, the Company completed the development of its unique patent (pending) for its product QT.

QT is a computer-vision quality system for pizza and other QSR chains. The QT is the first in the world to monitor

key elements in the kitchen during the preparation and cooking process to improve the quality and consistency of

pizzas and other meals that the restaurant is producing.

Significant changes in state of affairs

Other than matters described above, there were no other significant changes in the state of affairs of the Group.

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ACN 614 800 136

Directors’ report

3

Events occurring after the reporting period

In July 2017, Dragontail Systems Limited appointed a Chief Technology Officer to be based in its new Research &

Development facility in Melbourne.

Other than matters described above, there has not been any other matter or circumstance that has arisen after the

reporting date that has significantly affected, or may significantly affect, the operations of the Group, the results of

those operations, or the state of affairs of the Group in future financial periods.

Auditor’s independence declaration

The auditor’s independence declaration is included on page 4 of the interim financial report.

Signed in accordance with a resolution of the directors

Ido Levanon

Director

Israel

31st day of August 2017

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38 Station Street

Subiaco, WA 6008

PO Box 700 West Perth WA 6872 Australia

Tel: +61 8 6382 4600

Fax: +61 8 6382 4601 www.bdo.com.au

BDO Audit (WA) Pty Ltd ABN 79 112 284 787 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 Audit (WA) Pty Ltd 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.

DECLARATION OF INDEPENDENCE BY NEIL SMITH TO THE DIRECTORS OF DRAGONTAIL SYSTEMS

LIMITED

As lead auditor for the review of Dragontail Systems Limited for the half-year ended 30 June 2017, I

declare that, to the best of my knowledge and belief, there have been:

1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in

relation to the review; and

2. No contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Dragontail Systems Limited and the entities it controlled during the

period.

Neil Smith

Director

BDO Audit (WA) Pty Ltd

Perth, 31 August 2017

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ACN 614 800 136

5

Consolidated statement of profit or loss and other comprehensive income for the half-year ended 30 June 2017

Note

Consolidated

Half-Year ended

30 June 2017

USD

Company

Half-Year ended

30 June 2016

USD

Revenue

86,236 53,719

Research and development expenses 5 (296,406) (421,849)

Selling and marketing expenses 5 (236,577) (55,001)

General and administrative expenses 5 (854,416) (39,951)

Operating expenses 5 (589,798) -

Total operating expenses (1,977,197) (516,801)

Operating loss (1,890,961) (463,082)

Net finance income 57,509 772

Loss before income tax (1,833,452) (462,310)

Income tax benefit - -

Loss for the half-year (1,833,452) (462,310)

Other comprehensive income for the half-year - -

Amount that will not be reclassified subsequently

to profit or loss

Adjustments arising from translating financial

statements from functional currency to

presentation

142,056 -

Total comprehensive loss for the half-year (1,691,396) (462,310)

Loss per share for the half-year attributable to

members of Dragontail Systems Limited

Loss per share (basic and diluted) (cents) 8 (1.05) (0.35)

The accompanying notes form an integral part of this consolidated statement of profit or loss and other

comprehensive income.

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ACN 614 800 136

6

Consolidated statement of financial position as at 30 June 2017

Note

Consolidated

30 June 2017

USD

Consolidated

31 December 2016

USD

Current Assets

Cash and cash equivalents 2,549,368 4,175,428

Trade receivables 24,418 20,367

Other receivables 130,550 97,428

Inventory 22,811 -

Total Current Assets 2,727,147 4,293,223

Non-Current Assets

Other receivables - 6,172

Plant and equipment 47,102 35,735

Total Non-Current Assets 47,102 41,907

Total Assets 2,774,249 4,335,130

Current Liabilities

Short term credit from banks - 24,739

Trade and other payables 501,447 381,610

Total Current Liabilities 501,447 406,349

Total Liabilities 501,447 406,349

Net Assets 2,272,802 3,928,781

Equity

Issued capital 6 7,910,540 7,875,123

Reserves 7 343,403 201,347

Accumulated losses (5,981,141) (4,147,689)

Total Equity 2,272,802 3,928,781

The accompanying notes form an integral part of this consolidated statement of financial position.

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ACN 614 800 136

7

Consolidated statement of changes in equity for the half-year ended 30 June 2017

Share Capital

USD

Foreign currency

translation reserve

USD

Shares based

payments reserve

USD

Accumulated

losses

USD

Total

USD

2017 Consolidated

Balance at 1 January 2017 7,875,123 83,107 118,240 (4,147,689) 3,928,781

Loss for the half-year - - - (1,833,452) (1,833,452)

Total comprehensive (loss) - - - (1,833,452) (1,833,452)

Transactions with owners, in their capacity as

owners

Costs directly attributable to issue of share

capital 35,417 - - - 35,417

Foreign exchange movements - 142,056 - - 142,056

35,417 142,056 - - 177,473

Balance at 30 June 2017 7,910,540 225,163 118,240 (5,981,141) 2,592,802

2016 Company

Balance at 1 January 2016 843,362 - - (1,398,607) (555,245)

Loss for the half-year - - - (462,310) (462,310)

Total comprehensive (loss) - - - (462,310) (462,310)

Transactions with owners, in their capacity as

owners

Issue of shares 1,717,987 - - - 1,717,987

Share based payment transactions - - 120,887 - 120,887

Foreign exchange movements - - - - -

1,717,987 - 120,887 - 1,838,874

Balance at 30 June 2016 2,561,349 - 120,887 (1,860,917) 821,319

The accompanying notes form an integral part of this consolidated statement of changes in equity. For

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ACN 614 800 136

8

Consolidated statement of cash flows for the half-year ended 30 June 2017

Consolidated

Half-Year ended

30 June 2017

USD

Company

Half-Year ended

30 June 2016

USD

Cash flows from operating activities

Receipts from customers 82,185 43,898

Cash payments to suppliers and employees (1,857,170) (473,042)

Interest paid - (3,111)

Net cash flows (used in) operating activities (1,774,985) (432,255)

Cash flows from investing activities

Payments for property, plant and equipment (11,557) (4,147)

Net cash flows (used in) investing activities (11,557) (4,147)

Cash flows from financing activities

Proceeds from issue of share capital - 355,682

Costs of capital raising 35,417 -

Proceeds on account of shares - 939,846

Receipt/(Repayment) of short term credit from banks (24,739) (37,216)

Net cash flows from financing activities 10,678 1,258,312

Exchange differences on cash balances and cash

equivalents

149,804 (303)

Net (decrease) in cash and cash equivalents (1,626,060) (821,607)

Cash and cash equivalents at the beginning of the

financial period 4,175,428 451

Cash and cash equivalents at the end of the

financial period 2,549,368 822,058

The accompanying notes form an integral part of this consolidated statement of cash flows.

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ACN 614 800 136

9

Notes to the consolidated interim financial statements

1. REPORTING ENTITY

This interim financial report includes the financial statements and notes of Dragontail Systems Limited (“the

Company”) and its legal subsidiaries (“the Group”). The Company is a for-profit entity and is domiciled in Australia.

2. NEW ACCOUNTING STANDARDS FOR APPLICATION IN FUTURE PERIODS

Other than the new policy below, the same accounting policies and methods of computation have been followed in this interim financial report as were applied in the most recent annual financial statements. Inventory Inventories are stated at the lower of cost and net realisable value on a 'first in first out' basis. 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.

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements include the financial statements of Dragontail Systems Limited (the “Company”), and

its legal subsidiaries (the “Group”). These general purpose financial statements have been prepared in accordance

with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements

of the Australian Accounting Standards Board and the Corporations Act 2001. Australian Accounting Standards

are equivalent to International Financial Reporting Standards (“IFRS”). Compliance with Australian Accounting

Standards ensures that these financial statements comply with International Financial Reporting Standards.

Material accounting policies adopted in the preparation of these financial statements are presented below and have

been consistently applied unless otherwise stated.

Except for the cash flow information, the financial statements have been prepared on an accruals basis and are

based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current

assets, financial assets and financial liabilities.

Basis of measurement and reporting convention

On 12 December 2016 Dragontail Systems Limited ("DTS Australia") completed a capital reorganisation

transaction with the shareholders of various entities under common control (Common Controlled Entities);

being; Dragontail Systems Limited (Company no. 514981232) (“DTS Israel”), Dragontail Systems USA, Inc (“DTS

USA”) and Dragontail Systems Canada, Inc (“DTS Canada”) to acquire 100% of the share capital of the various

Common Controlled Entities in exchange for 130,000,000 shares in the Company. In accordance with the

Australian Accounting Standards, the transaction does not meet the definition of a business combination as DTS

Australia was established for the sole purpose of acquiring the Common Controlled Entities by way of issue of

equity. The shareholders of the Common Controlled Entities received the same proportion of equity instruments

in DTS Australia.

The comparative financial information included in the Company's financial information is that of DTS Israel, not the

Company. The accounting policies adopted are consistent with the accounting policies of DTS Israel's last annual

financial report for the year ended 31 December 2016.

These financial statements are presented in United States dollars and the controlling entity, DTS Australia, has a

functional currency of the Australian Dollar (AUD).

The functional currency of DTS USA is the United States Dollar. The functional currency of DTS Canada is the

Canadian Dollar (CAD).

The following significant accounting policies have been adopted in the preparation and presentation of the financial

report:

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Notes to the consolidated interim financial report

10

a) Reporting basis and conventions

The half-year statements have been prepared on an accruals basis and is based on historical costs modified by

the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis

of accounting has been applied.

Going concern

This consolidated interim financial report has been prepared on the basis that the consolidated entity will continue normal business activities and realise assets and settle liabilities in the ordinary course of business.

During the period ended 30 June 2017, the consolidated entity incurred losses of $1,833,452 (30 June 2016: $462,310), net cash outflows from operating activities of $1,774,985 (30 June 2016: $432,255), and at that date had cash on hand of $2,549,368 (31 December 2016: $4,175,428).

The consolidated entity’s ability to continue as a going concern and to continue to fund its planned expanded activities is dependent on raising further capital and / or generating additional revenues from its operations and / or reducing operational costs.

These conditions indicate a material uncertainty that may cast a significant doubt about the consolidated entity’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The Directors believe the consolidated entity will continue as a going concern, after consideration of the following factors:

• The consolidated entity has recent successful experience in raising capital having listed on the ASX in December 2016 raising $5.8 million before costs; and

• The consolidated entity has successfully completed the planned first phase of its commercial strategy and now requires additional capital for its next phase. Initial discussions have commenced with a number of Australian stock brokers and the directors are confident of a successful outcome within the next 12 months; and

• The consolidated entity is continuing efforts to secure key customers in key markets and are similarly confident of generating additional sales revenue within the next 12 months.

The financial report does not include any adjustments relating to the recoverability and classification of recorded

asset amounts or liabilities that might be necessary should the consolidated entity not continue as a going concern

4. INVESTMENT

The consolidated interim financial report of Dragontail Systems Limited and the following subsidiaries:

Country of % Equity Interest

Name Incorporation 30 June 2017 30 June 2016

Dragontail Systems Limited (“DTS Israel”) Israel 100% 100%

DragonTail Systems USA Inc. (“DTS USA”) USA 100% 100%

DragonTail Systems Canada Inc. (“DTS Canada”) Canada 100% 100%

Dragontail Systems Limited is the ultimate Australian parent entity and legal parent of the Group.

On 24 June 2016 DTS Israel established a fully owned subsidiary registered in USA, DragonTail Systems USA

Inc., and on 30 June 2016 a fully owned subsidiary registered in Canada, DragonTail Systems Canada Inc. The

consolidated results for the current period include all group companies. The comparative period results reflect DTS

Israel and DTS USA from its date of incorporation.

On 12 December 2016, Dragontail Systems Limited ("DTS Australia") issued 130,000,000 fully paid ordinary shares

to the Vendors of Dragontail Systems Limited (Company no. 514981232) (“DTS Israel”) as consideration for the

acquisition of 100% of all the rights and title to DTS Israel. As a result, the shareholders of DTS Israel held at the

date of acquisition 75% of the issued share capital of DTS Australia, prior to the issue of shares under the

prospectus.

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5. EXPENSES

Following the public listing of the Group in December 2016, Dragontail Systems has extensively accelerated

operations and therefore has incurred significant additional expenditure as part of operating activities.

Consolidated

30 June 2017

USD

Consolidated

31 December

2016

USD

Operating expenses:

Salaries and related expenses 309,343 -

Travel expenses 280,454 -

589,798 -

General and Administrative expenses:

Salaries, related expenses and other expenses 397,399 20,457

Travel expenses 457,017 19,494

854,416 39,951

6. ISSUED CAPITAL

As at 30 June 2017 As at 31 December 2016

No. USD No. USD

Ordinary Shares 173,500,000 7,910,540 173,500,000 7,875,123

Fully paid ordinary shares carry one vote per share and carry the right to dividends. Ordinary shares participate in

dividends and the proceeds on winding up of the Company in proportion to the number of shares held. At the

shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder

has one vote on a show of hands.

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6. ISSUED CAPITAL (CONTINUED)

A reconciliation of the movement in capital and reserves for the Group can be found in the Statement of Changes

in Equity.

Consolidated

No USD

Opening balances as at 1 January 2016 497,118 908,213

Conversion of convertible loans1 38,424 402,336

April Issue2 43,387 383,569

Additional April Issue 3 6,379 -

July Issue4 68,884 1,104,841

August Issue5 1,187 19,965

Less: share issued cost - (75,565)

Total at time of acquisition of DTS Israel by DTS Australia 655,379 2,743,359

Completion of acquisition of DTS Israel by DTS Australia (655,379) -

Issue of shares – acquisition of DTS Israel6 130,000,000 -

Issue of shares – Public Offer6 30,000,000 4,318,260

Issue of shares – Facilitation Offer6 6,000,000 863,652

Issue of shares – Conversion of Convertible Notes7 7,500,000 620,750

Less: share issued cost - (670,898)

Closing balance 31 December 2016 173,500,000 7,875,123

Add: movement in share issued cost8 - 35,417

Closing balance 30 June 2017 173,500,000 7,910,540

Notes:

1 In April 2016, convertible loans from shareholders were converted into 38,424 ordinary shares.

2 In April 2016, 43,387 ordinary shares were issued for a total amount of approximately USD 383,000.

3 In April 2016, the Company issued 6,379 ordinary shares to 3 Shareholders at no cost, due to exercise of

pre-emptive rights.

4 During 2016, the Company signed Share Purchase Agreements with Shareholders and other investors

(Hereinafter- "the Investors"). As at year end 2016, the Company received from the investors a total amount

of USD1,104,841and 68,884 ordinary shares value were issued.

5 In August 2016, 1,187 ordinary shares issued for a total amount of approximately USD 20,000.

6 Pursuant to the Company’s Prospectuses and on 12 December 2016, 130,000,000 Vendor shares were

issued, 30,000,000 Public Officer shares were issued and 6,000,000 Facilitation shares were issued.

7 On 12 December 2016, 7,500,000 shares were issued on conversion of convertible notes at AUD$0.115

per share.

8 During the half year ended 30 June 2017, the Company was successfully registered for GST. As such,

capital raising costs has been reduced by the amount of GST claimable by the Company.

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7. RESERVES

Consolidated

30 June 2017

USD

Consolidated

31 December

2016

USD

Share based payments reserve 118,240 118,240

Foreign currency translation reserve 225,163 83,107

Closing balance 343,403 201,347

8. LOSS PER SHARE

The loss and weighted number of ordinary shares used in the calculation of basic loss per share are as follows:

Consolidated

2017

USD

Company

2016

USD

Loss attributable to ordinary equity holders (1,833,452) (462,310)

Balance before transaction - -

Total number of shares 173,500,000 130,000,000

173,500,000 130,000,000

Basic loss per share calculation (cents) (loss/weighted average

shares)

(1.05) (0.35)

(i) Includes the effect of the transaction (under continuation accounting) for the purposes of the comparative loss

per share

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

Due to their short-term nature, the carrying amounts of the current receivables and current payables are assumed

to approximate their fair value.

10. RELATED PARTY TRANSACTIONS

Transactions with related parties during the half-year were on the same basis as stated in the 31 December 2016

Annual Report.

11. CONTINGENT LIABILITIES & COMMITMENTS

As at the date of the report, the Directors of the Group are not aware of any material contingent liabilities or

commitments that would require disclosure.

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12. EVENTS OCCURRING AFTER THE REPORTING PERIOD

In July 2017, Dragontail Systems Limited appointed a Chief Technology Officer to be based in its new Research &

Development facility in Melbourne.

Other than matters described above, there has not been any other matter or circumstance that has arisen after the

reporting date that has significantly affected, or may significantly affect, the operations of the Group, the results of

those operations, or the state of affairs of the Group in future financial periods.

13. SEGMENT NOTE

The operating segments are identified on the basis of information that is reviewed by the chief operating decision

maker ("CODM") to make decisions about resources to be allocated and assess its performance. Accordingly, for

management purposes, the Company is organised into operating segments based on the services of the business

units. The company recognises activities of software for customers in the field of QSR (quick service restaurant)

as the only reporting segment.

Segment revenue Segment expenses

Consolidated

Half-Year

ended 30

June 2017

USD

Company

Half-Year

ended 30

June 2016

USD

Consolidated

Half-Year

ended 30

June 2017

USD

Company

Half-Year

ended 30

June 2016

USD

Sale of software in development 86,236 53,719 (296,406) (421,849)

Total for continuing operations 86,236 53,719 (296,406) (421,849)

Finance expenses (net of finance

income) 57,509 772 - -

Selling and marketing expenses - - (236,577) (55,001)

General and administrative expenses - - (854,416) (39,951)

Operating expenses (589,298)

Total revenue/(expenses) before

tax (continuing operations) 143,745 54,491 (1,977,197) (516,801)

Consolidated

30 June 2017

USD

Consolidated

31 December

2016

USD

Segment Assets 2,689,516 4,335,130

Unallocated assets 84,732 -

Total assets 2,774,248 4,335,130

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13. SEGMENT NOTE (CONTINUED)

Consolidated

30 June 2017

USD

Consolidated

31 December

2016

USD

Segment Liabilities 307,590 406,350

Unallocated liabilities 193,857 -

Total Liabilities 501,447 406,350

Geographic information

Revenues reported in the financial statements derive from the Company's country of domicile (Israel) and foreign

countries based on the location of the customers, are as follows:

Consolidated

Half-Year

ended 30 June

2017

USD

Company

Half-Year

ended 30 June

2016

USD

Israel 14,278 28,075

Europe - -

Canada 69,738 25,644

USA 2,220 -

Total revenues 86,236 53,719

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Directors’ declaration

The Directors of the Group declare that:

1. The financial statements and notes, as set out on pages 5 to 15:

(a) comply with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 and other mandatory professional reporting requirements; and

(b) give a true and fair view of the economic entity’s financial position as at 30 June 2017 and of its performance for the half-year ended on that date.

2. In the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

Ido Levanon

Director

Israel

31 August 2017

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38 Station Street

Subiaco, WA 6008

PO Box 700 West Perth WA 6872 Australia

Tel: +61 8 6382 4600

Fax: +61 8 6382 4601 www.bdo.com.au

BDO Audit (WA) Pty Ltd ABN 79 112 284 787 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 Audit (WA) Pty Ltd 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.

INDEPENDENT AUDITOR’S REVIEW REPORT

To the members of Dragontail Systems Limited

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report of Dragontail Systems Limited, which

comprises the consolidated statement of financial position as at 30 June 2017, 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 half-year ended on that date, notes

comprising a statement of accounting policies and other explanatory information, and the directors’

declaration of the consolidated entity comprising the company and the entities it controlled at the

half-year’s end or from time to time during the half-year.

Directors’ Responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation of the half-year 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 half-year financial report that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We

conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review

of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether,

on the basis of the procedures described, we have become aware of any matter that makes us believe

that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving

a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and its

performance for the half-year ended on that date; and complying with Accounting Standard AASB 134

Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Dragontail

Systems Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the

audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible

for financial and accounting matters, and applying analytical and other review procedures. A review is

substantially less in scope than an audit conducted in accordance with Australian Auditing Standards

and consequently does not enable us to obtain assurance that we would become aware of all significant

matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, 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 Dragontail Systems Limited, would be in the same terms if given to

the directors as at the time of this auditor’s review report.

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Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us

believe that the half-year financial report of Dragontail Systems Limited is not 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 June 2017 and of

its performance for the half-year ended on that date; and

(ii) Complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations

Regulations 2001.

Emphasis of matter – Material uncertainty relating to going concern

We draw attention to Note 3(a) in the financial report which describes the events and/or conditions

which give rise to 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. Our

conclusion is not modified in respect of this matter.

BDO Audit (WA) Pty Ltd

Neil Smith

Director

Perth, 31 August 2017

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