EX-21.1C 4 ex21-1c.htm

 

Exhibit 21.1(c)

 

Prime Source Group

Combined financial statements

for the years ended 31 December 2022, 2021 and 2020
prepared in accordance with IFRSs

 
Almaty 2024

 

 
 

 

CONTENTS  
   
Independent auditors’ report  
   
Combined financial statements  
   
Combined statements of profit or loss and other comprehensive income 1
   
Combined statements of financial position 2
   
Combined statements of cash flows 3
   
Combined statements of changes in equity 4
   
Notes to the combined financial statements  
   
1. General information 5
   
2. Basis of preparation 5
   
3. Revenues 8
   
4. Cost of sales 8
   
5. Administrative expenses 9
   
6. Other operating income and expenses 10
   
7. Finance income and costs 10
   
8. Income tax 11
   
9. Intangible assets 12
   
10. Property, plant and equipment 13
   
11. Loans receivable 13
   
12. Advances paid and other current assets 14
   
13. Trade and other receivables 15
   
14. Cash 15
   
15. Equity 15
   
16. Leases 16
   
17. Borrowings 17
   
18. Other taxes payable 18
   
19. Trade and other payables 18
   
20. Contract liabilities 18
   
21. Reconciliation of profit before taxation to cash flows from operating activities 19
   
22. Financial instruments and financial risk management objectives and policies 19
   
23. Commitments and contingencies 24
   
24. Related party disclosures 25
   
25. Significant accounting policies 27
   
26. Events after the reporting period 33

 

 
 

 

Moore Kazakhstan
3rd floor, Business Centre Centro D,
Kayym Mukhamedkhanova str. 5, Astana
T +7 7172 799904
E info@moore.kz
kazakhstan.moore-global.com

 

INDEPENDENT AUDITOR’S REPORT

 

To: Owners of Prime Source Group

 

Report on the Audit of the Combined Financial Statements

 

Opinion

 

We have audited the accompanying combined financial statements of Prime Source LLP, Prime Source Innovation LLP, Prime Source Analytic Systems LLP, InFin IT Solution LLP and Digitalism LLP, companies registered under the laws of the Republic of Kazakhstan (hereinafter – the “Prime Source Group”, or the “Group”), which comprise the combined statements of financial position as at 31 December 2022, 2021 and 2020, the combined statements of profit or loss and other comprehensive income, the combined statements of cash flows and the combined statements of changes in equity for the years then ended, and notes to the combined financial statements.

 

In our opinion, the accompanying combined financial statements present fairly, in all material respects, the combined financial position of the Group as at 31 December 2022, 2021 and 2020 and the combined results of its operations and its combined cash flows for the years then ended in accordance with International Financial Reporting Standards (hereinafter – “IFRSs”) as issued by International Accounting Standards Board (“IASB”).

 

Basis for Opinion

 

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (hereinafter – “US GAAS”). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Combined Financial Statements section of our report. We are required to be independent of the Group and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Responsibilities of Management for the Combined Financial Statements

 

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with IFRSs, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the combined financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the combined financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Group’s ability to continue as a going concern for one year after the date that the combined financial statements are available to be issued.

 

Auditors’ Responsibilities for the Audit of the Combined Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined financial statements.

 

Page 1 of 2

 

An independent member firm of Moore Global Network

Limited – members in principal cities throughout the world

 

 

 

Auditors’ Responsibilities for the Audit of the Combined Financial Statements, continued

 

In performing an audit in accordance with US GAAS, we:

 

Exercise professional judgment and maintain professional skepticism throughout the audit.

 

Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements.

 

Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. Accordingly, no such opinion is expressed.

 

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined financial statements.

 

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Group’s ability to continue as a going concern for a reasonable period of time.

 

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

 

Approve

 

     

Serik Kozhikenov

Chief Executive

Engagement partner

Certified Auditor

Republic of Kazakhstan

No. 0000557 dated 24 December 2003

22 July 2024

Moore Kazakhstan LLP

  

Nikolay Slavyaninov

Concurrent engagement partner

Certified Public Accountant

USA Oregon

No. 10018 dated 20 August 2001

 

General licence No. 23023540 for audit activity issued 27 October 2023 by the Ministry of Finance of the Republic of Kazakhstan

 

Page 2 of 2

 

An independent member firm of Moore Global Network

Limited – members in principal cities throughout the world

 

 

Prime Source Group

Combined statements of profit or loss and other comprehensive income

for the years ended 31 December 2022, 2021 and 2020

 

KZT’000  Note  2022   2021   2020 
Revenues   3   9,204,444    11,125,645    6,393,020 
Cost of sales   4   (7,191,034)   (9,660,545)   (5,446,114)
Gross profit       2,013,410    1,465,100    946,906 
Administrative expenses   5   (817,811)   (675,940)   (477,258)
Other operating income   6(a)  56,872    43,307    4,282 
Other operating expenses   6(b)  (33,266)   (10,869)   (5,351)
Impairment losses   13   (59,392)   (63,608)   (26,427)
Operating profit       1,159,813    757,990    442,152 
Finance income   7(a)  21,146    52,831    39,332 
Finance costs   7(b)  (142,396)   (56,643)   (54,235)
Foreign exchange (loss) gain       (50,153)   3,030    (36,081)
Profit before taxation       988,410    757,208    391,168 
Income tax (expense) recovery   8(a)  (169,099)   339,744    (28,086)
Profit for the year       819,311    1,096,952    363,082 
Other comprehensive income       –    –    – 
Total comprehensive income for the year       819,311    1,096,952    363,082 

 

These combined financial statements have been approved for issue on 22 July 2024 and signed on behalf of the Group’s management by:

 

     

Evgeniy Shcherbinin

Director

Prime Source Group

  

Natalia Tahtova

Chief accountant

Prime Source Group

 

The notes on pages 5 to 33 are an integral part of these combined financial statements

 

1
 

 

Prime Source Group

Combined statements of financial position

as at 31 December 2022, 2021 and 2020

 

KZT’000  Note  2022   2021   2020 
ASSETS               
Non-current assets                   
Intangible assets   9   2,850,872    2,177,010    1,473,473 
Property, plant and equipment   10   38,742    52,234    81,360 
Right-of-use assets   16(a)  82,399    71,263    85,582 
Loans receivable   11   –    –    427,693 
Deferred tax asset   8(b)  111,603    290,290    5,255 
        3,083,616    2,590,797    2,073,363 
Current assets                   
Loans receivable   11   –    503,564    – 
Advances paid and other current assets   12   1,005,817    312,738    147,083 
Trade and other receivables   13   1,689,948    1,221,392    595,769 
Cash   14   343,376    1,034,345    913,595 
        3,039,141    3,072,039    1,656,447 
TOTAL ASSETS       6,122,757    5,662,836    3,729,810 
EQUITY AND LIABILITIES                   
Equity                   
Invested capital   15(a)  353,640    665    665 
Additional paid in capital   15(b)  54,206    15,854    13,827 
Retained earnings       2,225,248    1,405,937    308,985 
        2,633,094    1,422,456    323,477 
Non-current liabilities                   
Lease liabilities   16(b)  69,138    67,439    78,305 
Deferred tax liability   8(b)  –    –    73,030 
        69,138    67,439    151,335 
Current liabilities                   
Lease liabilities   16(b)  39,149    23,155    13,883 
Borrowings   17   1,207,316    659,840    243,333 
Income tax payable       –    19,085    3,490 
Other taxes payable   18   276,876    258,464    363,793 
Trade and other payables   19   799,311    2,120,084    2,042,823 
Contract liabilities   20   1,097,873    1,092,313    587,676 
        3,420,525    4,172,941    3,254,998 
TOTAL LIABILITIES       3,489,663    4,240,380    3,406,333 
TOTAL EQUITY AND LIABILITIES       6,122,757    5,662,836    3,729,810 

 

The notes on pages 5 to 33 are an integral part of these combined financial statements

 

2
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

KZT’000  Note  2022   2021   2022 
OPERATING ACTIVITIES                   
Cash receipts from customers       15,057,031    16,030,895    9,860,879 
Cash paid to employees       (2,718,638)   (2,356,815)   (2,439,314)
Other taxes paid       (1,247,422)   (1,212,683)   (962,548)
Cash paid to suppliers       (11,686,108)   (11,825,484)   (5,300,120)
Cash flows from operations before interest and income tax paid   21   (595,137)   635,913    1,158,897 
Interest paid   16(b),17  (111,378)   (49,208)   (31,462)
Income tax paid       (19,085)   (3,233)   (17,988)
Net cash (used in) from operating activities       (725,600)   583,472    1,109,447 
                    
INVESTING ACTIVITIES                   
Investments into intangible assets   9   (866,882)   (838,260)   (777,001)
Purchases of property, plant and equipment   10   (26,192)   (14,113)   (39,881)
Loans issued   11   –    (79,977)   (127,989)
Loans repaid   11   28,225    57,276    35,014 
Interest received       6,428    6,331    12,880 
Net cash used in investing activities       (858,421)   (868,743)   (896,977)
                    
FINANCING ACTIVITIES                   
Contributions to charter capital   15(a)  352,975    –    144 
Proceeds from borrowings   17   2,561,900    2,638,640    1,067,654 
Repayment of borrowings   17   (1,997,250)   (2,222,133)   (824,321)
Lease payments   16(b)  (16,642)   (6,681)   (15,608)
Net cash from financing activities       900,983    409,826    227,869 
                    
Net (decrease) increase in cash       (683,038)   124,555    440,339 
Effect of exchange rate changes on cash       (7,931)   (3,805)   (11,230)
Cash at the beginning of the year       1,034,345    913,595    484,486 
Cash at the end of the year   14   343,376    1,034,345    913,595 

 

Non-cash transactions

 

KZT’000  Note  2022   2021   2021 
Offset of loans issued against trade payables   11   453,405    –    – 
Recognition of discount on loans issued   11   252    4,901    12,937 
Recognition of lease assets and liabilities   16   34,335    5,087    95,566 
Recognition of discount on borrowings   17   47,940    2,534    9,836 

 

The notes on pages 5 to 33 are an integral part of these combined financial statements

 

3
 

 

Prime Source Group

Combined statements of changes in equity

for the years ended 31 December 2022, 2021 and 2020

 

KZT’000  Note  Invested capital  Additional paid in capital  Retained earnings   Total 
At 1 January 2020       521   5,958   (54,097)   (47,618)
Profit for the year       –   –   363,082    363,082 
Discounting loans received from former owner, less income tax   17,8(b)  –   7,869   –    7,869 
Contributions into charter capital   15(a)  144   –   –    144 
At 31 December 2020       665   13,827   308,985    323,477 
Profit for the year       –   –   1,096,952    1,096,952 
Discounting loans received from former owner, less income tax   17,8(b)  –   2,027   –    2,027 
At 31 December 2021       665   15,854   1,405,937    1,422,456 
Profit for the year       –   –   819,311    819,311 
Discounting loans received from former owner,  less income tax   17,8(b)  –   38,352   –    38,352 
Contributions into charter capital   15(a)  352,975   –   –    352,975 
At 31 December 2022       353,640   54,206   2,225,248    2,633,094 

 

The notes on pages 5 to 33 are an integral part of these combined financial statements

 

4
 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

1. General information

 

(a) Organisation and operation

 

Prime Source LLP, Prime Source Innovation LLP, Prime Source Analytic Systems LLP, InFin IT Solution LLP and Digitalism LLP (hereinafter – the “Group” or “Prime Source Group”) is a group of entities incorporated in Kazakhstan.

 

In May 2022, the Group’s entities were purchased by FB Prime Source Acquisition LLC (hereinafter – the “Parent company”), a company incorporated in Delaware, USA. In accordance with the purchase share agreement, until the consideration is fully paid, the Parent company shall work with the prior owners to make the key decisions. The ultimate parent undertaking is LZG International, Inc., a public company incorporated in Florida, USA, which is traded on the OTCQB market.

 

The administrative office of the Group’s entities is located at 22/5 Kazhymukan str., Almaty, 050059, Kazakhstan.

 

The Group deals in software development, implementation of technological solutions, management and IT consulting. The Group provides businesses with the latest innovations in robotisation and business process management, system integration, data management, risk management, analysis and forecasting. Based on its own R&D department, it implements unique projects for the Kazakhstan market in the following areas: big data, machine learning, artificial intelligence, blockchain.

 

As at 31 December 2022, the Group had 473 employees (2021: 433 employees; 2020: 414 employees).

 

(b) Kazakhstan business environment

 

The Group’s operations are primarily located in Kazakhstan. Consequently, the Group is exposed to country risk being the economic, political and social risks inherent in doing business in Kazakhstan. These risks include matters arising from the policies of the government, economic conditions, imposition or changes to taxes and regulations, foreign exchange fluctuations and the enforceability of contract rights.

 

The financial statements include management’s estimates of Kazakhstan economic conditions and their impact on the results and financial position of the Group. Actual economic conditions can differ from those estimates.

 

2. Basis of preparation

 

(a) Statement of compliance

 

These combined financial statements have been prepared in accordance with International Financial Reporting Standards (hereinafter – “IFRSs”) as issued by the International Accounting Standards Board (hereinafter – “IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (hereinafter – “IFRIC”) of the IASB.

 

(b) Going concern

 

These combined financial statements have been prepared on a going concern basis.

 

Management believes that the Group’s stable profitability and access to debt funding are sufficient to meet the Group’s anticipated cash flow requirements. After making appropriate enquiries, and having considered the outlook of product pricing, production levels, debt repayments and capital expenditure commitments and assessing reasonably possible adverse operational impacts such as lower prices, increased operational and capital expenditure costs, management has reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis of accounting in preparing the combined financial statements.

 

(c) Basis of accounting

 

The combined financial statements have been prepared on a historical cost basis.

 

5
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

2. Basis of preparation, continued

 

(d) Basis of combination

 

The combined financial statements set out the Group’s financial position as at 31 December 2022, 2021 and 2020 and the Group’s financial performance for the year ended 31 December 2022, 2021 and 2020. The Group does not form a separate legal group of legal entities in all years presented. The Group’s entities are the enterprises under common control of FB Prime Source Acquisition LLC. Control exists when the Group has the power, directly or indirectly, to direct those activities of an enterprise that most significantly affect the returns the Group earns from its involvement with the enterprise.

 

The financial statements of the Group’s entities are prepared for the same reporting year, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intragroup transactions, have been eliminated in full. Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.

 

(e) Functional and presentation currency

 

The national currency of the Republic of Kazakhstan is the Kazakhstan tenge (hereinafter – “tenge” or “KZT”), which is the functional currency of the Group’s entities and the currency in which these combined financial statements are presented. All financial information presented in tenge has been rounded to the nearest thousand (hereinafter – “KZT’000” or “KZT thousand”).

 

(f) Adoption of standards and interpretations

 

In preparing the financial statements, the Group has applied the following standards and amendments effective from 1 January 2022:

 

Reference to the Conceptual Framework (Amendments to IFRS 3);

 

COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16);

 

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);

 

Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);

 

Annual Improvements (2018-2020 Cycle).

 

The standards and amendments listed above did not have a material impact on the Group’s financial statements.

 

(g) New standards and interpretations not yet adopted

 

The Group has not early adopted new standards, interpretations or amendments that were issued but are not yet entered into force, and their requirements have not been considered when preparing the financial statements. These standards and interpretations are not expected to have a material impact on these financial statements.

 

(h) Use of estimates and judgments

 

The Group’s management has made a number of judgments, estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with IFRSs. Judgements are based on management’s best knowledge of the relevant facts and circumstances having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Actual results may differ from those estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

 

6
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

2. Basis of preparation, continued

 

In particular, information about significant areas of estimation uncertainty and critical judgments made by management for preparation of these financial statements is described in the following notes below. However, management does not expect a significant risk of a material change to the Company’s carrying value of the assets and liabilities affected by these factors in the next 12 months, within a reasonably possible range, unless described otherwise.

 

Note 3 – Revenues. Management made estimates in relation to revenue recognised over time by measuring the progress towards complete satisfaction of that performance obligation;

 

Note 8 – Income tax. Management made estimates in relation to the level of taxes payable which may then be audited by the tax authorities and timing of realisation of temporary differences;

 

Note 9 – Intangible assets. Estimates were made in relation to the useful lives of assets;

 

Note 10 – Property, plant and equipment. Estimates were made in relation to the useful lives of assets;

 

Note 11 – Loans receivable. Management made estimates in relation to fair value of borrowings based on market interest rates for loans and the allowance for expected credit losses;

 

Note 12 – Advances paid and other current assets. Management made estimates in relation to recoverability of assets;

 

Note 13 – Trade and other receivables. Management made estimates in relation to the allowance for expected credit losses;

 

Note 16 – Lease. Estimates were made in determining the lease term of contracts with renewal option and incremental borrowing rates;

 

Note 17 – Borrowings. Management made estimates in relation to fair value of borrowings based on market interest rates for loans;

 

Note 22 – Financial risk management objectives and policies. Fair value analysis is based on estimated future cash flows and discount rates;

 

Note 23 – Commitments and contingencies. These require management to make estimates as to amounts payable and to determine the likelihood of cash outflows in the future.

 

7
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

3. Revenues

 

KZT’000  2022   2021   2020 
Revenues by products               
Development, implementation and maintenance of software   7,724,702    5,381,013    4,842,202 
Sale of licences purchased from third parties   1,479,742    5,744,632    1,550,818 
    9,204,444    11,125,645    6,393,020 
Timing of revenue recognition               
Over time   7,724,702    8,174,757    4,842,202 
At a point in time   1,479,742    2,950,888    1,550,818 
    9,204,444    11,125,645    6,393,020 
Contract assets and liabilities               
Contract assets   1,062,858    617,890    34,705 
Contract liabilities   (1,373,109)   (845,257)   (359,620)
    (310,251)   (227,367)   (324,915)

 

4. Cost of sales

 

KZT’000  2022   2021   2020 
Development, implementation and maintenance of software   5,962,589    4,625,112    4,301,327 
Cost of licences purchased from third parties   1,228,445    5,035,433    1,144,787 
    7,191,034    9,660,545    5,446,114 

 

Cost of sales comprises:

 

Salaries and payroll taxes in the amount of KZT 2,953,261 thousand (2021: KZT 2,120,570 thousand; 2020: KZT 1,727,486 thousand);

 

Depreciation and amortisation in the amount of KZT 222,481 thousand (2021: KZT 176,498 thousand; 2020: 157,205 thousand).

 

8
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

5. Administrative expenses

 

KZT’000  2022   2021   2020 
Salaries and payroll taxes   323,346    355,630    288,399 
Professional services   120,214    65,497    50,482 
Taxes and payments to the budget   102,056    70,777    22,203 
Representation expenses   56,326    74,428    – 
Business travel   32,957    17,461    15,394 
Stationery   21,155    13,575    21,678 
Write-off of VAT not accepted for offset   19,414    5,234    5,073 
Depreciation and amortisation   14,986    10,005    13,240 
Levies and charges   6,755    11,910    – 
Rent   6,376    7,832    (1,014)
Postage and courier costs   1,264    1,070    1,129 
Subscriptions and software license   462    1,102    2,598 
Technical support and maintenance services   221    321    5,007 
Membership fee   –    2,427    4,823 
Other   112,279    38,671    48,246 
    817,811    675,940    477,258 

 

9
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

6. Other operating income and expenses

 

(a) Other operating income

 

KZT’000  2022   2021   2020 
Payables written off   41,756    32,363    1,226 
Assets received free of charge   15,116    10,944    3,056 
    56,872    43,307    4,282 

 

(b) Other operating expenses

 

KZT’000  2022   2021   2020 
Receivables written off   14,830    4    – 
Loss on disposal of property plant and equipment   18,436    10,865    5,351 
    33,266    10,869    5,351 

 

7. Finance income and costs

 

(a) Finance income

 

KZT’000  2022   2021   2020 
Interest income   8,956    17,344    12,880 
Unwinding of discount on loans issued   12,190    35,487    26,452 
    21,146    52,831    39,332 

 

(b) Finance costs

 

KZT’000  2022   2021   2021 
Interest expense on borrowings   99,532    38,687    24,533 
Unwinding of discount on interest-free loans from former owner   31,255    2,534    9,836 
Interest expense on finance leases   11,357    10,521    6,929 
Recognition of discount on loans issued   252    4,901    12,937 
    142,396    56,643    54,235 

 

10
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

8. Income tax

 

(a) Income tax expense (recovery)

 

The major components of income tax expense (recovery) are as follows:

 

KZT’000  2022   2021   2020 
Corporate income tax   –    18,828    18,060 
Origination and reversal of temporary differences   169,099    (358,572)   10,026 
Income tax expense (recovery)   169,099    (339,744)   28,086 

 

A reconciliation of income tax expense (recovery) applicable to accounting profit before tax at the statutory rate to income tax expense at the effective tax rate is as follows:

 

KZT’000  2022   2021   2020 
Profit before taxation   988,410    757,208    391,168 
Income tax rate   20.0%   20.0%   20.0%
At statutory income tax rate   197,682    151,442    78,234 
Tax relief within tax preferences   (198,822)   (344,125)   (18,969)
Unrecognised tax losses (income) within tax preferences   95,040    (212,149)   (79,431)
Non-deductible expenses   75,199    65,088    48,252 
Income tax expense (recovery)   169,099    (339,744)   28,086 
Effective income tax rate   17.1%   -44.9%   7.2%

 

(b) Deferred tax liability

 

The amounts of deferred tax assets (liabilities) are as follows:

 

KZT’000  2022   2021   2020 
Property, plant and equipment   (72,156)   (96,277)   (121,773)
Contract assets   8,681    55,422    36,602 
Lease assets and liabilities   5,166    3,871    1,321 
Loans issued   (3,337)   –    – 
Trade and other receivables   22,206    17,205    5,984 
Borrowings and grants   –    1,991    7,925 
Trade and other payables   2,443    1,538    2,166 
Tax losses carried forward   148,600    306,540    – 
    111,603    290,290    (67,775)
Deferred tax asset   111,603    290,290    5,255 
Deferred tax liability   –    –    (73,030)

 

11
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

8. Income tax, continued

 

Movement in deferred tax (liability) asset is as follows:

 

KZT’000  2022   2021   2021 
At 1 January   290,290    (67,775)   (55,782)
(Charged) credited to profit or loss   (169,099)   358,572    (10,026)
Recognised in additional paid-in capital   (9,588)   (507)   (1,967)
At 31 December   111,603    290,290    (67,775)

 

Some of the Group’s entities are registered in the territories of innovative technology parks, the participants of which have a number of tax preferences, including exemption from corporate income tax. In the reporting years, these entities reduced taxes and did not recognise assets and liabilities, exercising this right.

 

9. Intangible assets

 

KZT’000  2022   2021   2020 
Cost               
At 1 January   2,610,344    1,772,084    995,083 
Additions   866,882    838,260    777,001 
At 31 December   3,477,226    2,610,344    1,772,084 
Amortisation               
At 1 January   433,334    298,611    198,893 
Amortisation charge   193,020    134,723    99,718 
At 31 December   626,354    433,334    298,611 
Net book value               
At 31 December   2,850,872    2,177,010    1,473,473 

 

12
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

10. Property, plant and equipment

 

KZT’000  2022   2021   2020 
Cost            
At 1 January   114,158    123,200    137,723 
Additions   26,192    14,113    39,881 
Disposals   (30,937)   (23,155)   (54,404)
At 31 December   109,413    114,158    123,200 
Depreciation               
At 1 January   61,924    41,840    42,795 
Depreciation charge   21,248    32,374    48,098 
Disposals   (12,501)   (12,290)   (49,053)
At 31 December   70,671    61,924    41,840 
Net book value               
At 31 December   38,742    52,234    81,360 

 

11. Loans receivable

 

KZT’000  2022   2021   2020 
Loans issued to a related party   –    502,504    467,319 
Interest receivable   –    11,013    – 
    –    513,517    467,319 
Discount   –    (9,953)   (39,626)
Total   –    503,564    427,693 
Non-current   –    –    427,693 
Current   –    503,564    – 

 

From 2019 to 2022, the Group issued a number of loans to a related party. The loans are short-term, bore interest of 3%, unsecured and denominated in Russian roubles. The imputed interest cost on the loans was determined at the rates of 14.7% (2021: 8.2%; 2020: 7.8%). The discount at the initial recognition of the loans was recognised in profit or loss in the amount of KZT 252 thousand (2021: KZT 4,901 thousand; 2020: KZT 12,937 thousand). As at 31 December 2022 the loans are repaid in full.

 

13
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

Movement in the loans receivable

 

KZT’000  2022   2021   2020 
Nominal loan and interest balances               
At 1 January   513,517    467,319    408,832 
Loans issued   –    79,977    127,989 
Loans repaid   (28,225)   (57,276)   (35,014)
Interest accrued   2,528    11,013    – 
Non-cash offset   (453,405)   –    – 
Net exchange adjustment   (34,415)   12,484    (34,488)
At 31 December   –    513,517    467,319 
Discount               
At 1 January   (9,953)   (39,626)   (57,811)
Recognition of discount   (252)   (4,901)   (12,937)
Unwinding of discount   12,190    35,487    26,452 
Net exchange adjustment   (1,985)   (913)   4,670 
At 31 December   –    (9,953)   (39,626)
Book value               
At 31 December   –    503,564    427,693 

 

12. Advances paid and other current assets

 

KZT’000  2022   2021   2020 
Advances paid for goods and services   954,208    243,257    77,631 
Deferred expenses   7,500    294    1,314 
VAT reclaimable   1,682    33,849    42,614 
Other   42,427    35,338    25,524 
    1,005,817    312,738    147,083 

 

14
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

13. Trade and other receivables

 

KZT’000  2022   2021   2020 
Contract assets   1,062,858    617,890    34,705 
Trade receivables from third parties   760,754    696,981    559,739 
Receivables from employees   2,599    5,369    36,814 
    1,826,211    1,320,240    631,258 
Allowance for expected credit losses   (136,263)   (98,848)   (35,489)
    1,689,948    1,221,392    595,769 

 

Movement in the allowance for expected credit losses is as follows:

 

KZT’000  2022   2021   2020 
At 1 January   98,848    35,489    9,062 
Accrued   59,392    63,608    26,427 
Written off   (21,977)   (249)   – 
At 31 December   136,263    98,848    35,489 

 

Cash

 

KZT’000  2022   2021   2020 
Cash at bank   337,930    981,453    384,264 
Petty cash   5,046    52,492    53,131 
Cash deposits with maturities of less than three months   400    400    476,200 
    343,376    1,034,345    913,595 

 

14. Equity

 

(a) Invested capital

 

Invested equity comprises charter capital of the Group’s entities as follows:

 

KZT’000  2022   2021   2020 
Prime Source LLP   353,087    154    154 
Prime Source Innovation LLP   100    100    100 
Prime Source Analytic Systems LLP   147    105    105 
InFin IT Solution LLP   240    240    240 
Digitalism LLP   120    120    120 
Elimination   (54)   (54)   (54)
    353,640    665    665 

 

In 2022, the Group received contribution into charter capital of the Group’s entities in the amount of KZT 352,975 thousand (2021: nil; 2020: KZT 114 thousand).

 

15
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

15. Equity, continued

 

(b) Additional paid in capital

 

The Group received interest free loans from its former owner (see note 17) that were recognised at net present value of expected repayment. The discount net of income tax in the amount of KZT 54,206 thousand (2021: KZT 15,854 thousand; 2020: KZT 13,827 thousand) was recognised as additional paid in capital.

 

16. Leases

 

The Group leases office premises. Rental contracts are typically made for fixed periods of equal of less than 12 months but have extension options. The lease contracts do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be subleased or used as security for borrowing purposes.

 

The lease liabilities for these properties were calculated as the present value of the outstanding rentals, using incremental borrowing rates of 11.7-16.1%.

 

The Group considered practical expedients and does not recognise right-of-use assets or lease liabilities for leases which have low value or short-term leases within 12 months of the date of initial application. The payments associated with these leases which are charged directly to the profit or loss on a straight-line basis over the lease term (see note 5).

 

(a) Right-of-use assets

 

KZT’000  2022   2021   2020 
Cost            
At 1 January   100,653    95,566    23,484 
Additions   34,335    5,087    95,566 
Disposals   (5,087)   –    (23,484)
At 31 December   129,901    100,653    95,566 
Amortisation               
At 1 January   29,390    9,984    10,839 
Amortisation charge   23,199    19,406    22,629 
Disposals   (5,087)   –    (23,484)
At 31 December   47,502    29,390    9,984 
Net book value               
At 31 December   82,399    71,263    85,582 

 

16
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

16. Leases, continued

 

(b) Lease liabilities

 

KZT’000  2022   2021   2020 
At 1 January   90,594    92,188    12,230 
Additions   34,335    5,087    95,566 
Interest accrued   11,357    10,521    6,929 
Interest paid   (11,357)   (10,521)   (6,929)
Payments   (16,642)   (6,681)   (15,608)
At 31 December   108,287    90,594    92,188 
Non-current   69,138    67,439    78,305 
Current   39,149    23,155    13,883 

 

17. Borrowings

 

KZT’000  Maturity   Interest rate  Currency   2022   2021   2020 
Loans received from former owner   2023   interest free   KZT    1,207,316    –    – 
Bank loans   2023   12.00%-14.75%   KZT    –    659,840    243,333 
Interest payable                –    –    – 
                 1,207,316    659,840    243,333 

 

Interest free loans from the former owner

 

From 2019 to 2022, the Group received a number of loans from the former owner to finance working capital. The loans are short-term, interest free, unsecured and denominated in Kazakhstan tenge. The imputed interest cost on the loans was determined at the rates of 16.2-18.9% (2021: 10.8%; 2020: 11.9-12.2%). The discount at the initial recognition of the loan was recognised directly in equity as additional paid in capital in the amount of KZT 47,940 thousand (2021: KZT 2,534 thousand; 2020: KZT 9,836 thousand) net of tax of KZT 9,588 thousand (2021: KZT 507 thousand; 2020: KZT 1,967 thousand).

 

Bank loans

 

In 2021 and 2020 the Group received loans from Kazakhstan banks to finance working capital. The loans bore interest of 12.0%-14.7% and were denominated in Kazakhstan tenge. As at 31 December 2022 the bank loans are repaid in full.

 

17
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

17. Borrowings, continued

 

Movement in borrowings

 

KZT’000  2022   2021   2020 
Nominal loan and interest balances               
At 1 January   659,840    243,333    – 
Proceeds from borrowing   2,561,900    2,638,640    1,067,654 
Repayment of borrowings   (1,997,250)   (2,222,133)   (824,321)
Interest accrued   99,532    38,687    24,533 
Interest paid   (100,021)   (38,687)   (24,533)
At 31 December   1,224,001    659,840    243,333 
Discount               
At 1 January   –    –    – 
Recognition of discount   (47,940)   (2,534)   (9,836)
Unwinding of discount   31,255    2,534    9,836 
At 31 December   (16,685)   –    – 
Book value               
At 31 December   1,207,316    659,840    243,333 

 

18. Other taxes payable

 

KZT’000  2022   2021   2020 
Value added tax   201,388    209,818    320,255 
Pension payments   36,848    26,788    22,484 
Personal income tax   16,912    7,331    12,235 
Social insurance   13,410    7,331    – 
Social tax   8,313    7,192    8,813 
Other taxes   5    4    6 
    276,876    258,464    363,793 

 

19. Trade and other payables

 

KZT’000  2022   2021   2020 
Trade payables   505,389    1,122,145    1,141,024 
Salaries and related payables   226,578    168,439    107,310 
Salaries non-staff employees   67,135    829,336    794,371 
Other payables   209    164    118 
    799,311    2,120,084    2,042,823 

 

20. Contract liabilities

 

KZT’000  2022   2021   2020 
Advances received for custom development   834,363    915,060    578,776 
Advances received under licenses   256,867    –    – 
Advances received for technical support   6,643    177,253    8,900 
    1,097,873    1,092,313    587,676 

 

18
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

Reconciliation of profit before taxation to cash flows from operating activities

 

KZT’000  Note   2022   2021   2020 
Profit before taxation        988,410    757,208    391,168 
Adjustments for:                    
Finance income   7(a)   (21,146)   (52,831)   (39,332)
Finance costs   7(b)   142,396    56,643    54,235 
Depreciation and amortisation   4,5    237,467    186,503    170,445 
Impairment losses   13    59,392    63,608    26,427 
Loss on disposal of property, plant and equipment   6(b)   18,436    10,865    5,351 
Unrealised foreign exchange loss (gain)        44,331    (7,766)   41,048 
Operating cash flows before changes in working capital        1,469,286    1,014,230    649,342 
Increase in prepayments and other current assets        (693,079)   (165,655)   (18,496)
Increase in trade and other receivables        (1,050,240)   (670,231)   (132,623)
Increase (decrease) in other taxes payable        18,412    (105,329)   (23,286)
(Decrease) increase in trade and other payables        (867,368)   77,261    626,677 
Increase in contract liabilities        527,852    485,637    57,283 
Cash flows from operations before interest and income tax paid        (595,137)   635,913    1,158,897 

 

22. Financial instruments and financial risk management objectives and policies

 

(a) Overview

 

The Group has exposure to the following risks from its use of financial instruments:

 

● credit risk;

 

● liquidity risk;

 

● market risk.

 

Management of the Group has overall responsibility for the establishment and oversight of the Group’s risk management framework.

 

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

 

19
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

22. Financial risk management objectives and policies, continued

 

Management oversees compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

 

(b) Categories and fair values of financial assets and financial liabilities

 

Categories of financial assets and financial liabilities

 

KZT’000  Note  2022   2021   2020 
Financial assets at amortised costs                   
Loans receivable   11   –    503,564    427,693 
Trade and other receivables   13   1,689,948    1,221,392    595,769 
Cash   14   343,376    1,034,345    913,595 
        2,033,324    2,759,301    1,937,057 
Financial liabilities at amortised cost                   
Lease liabilities   16(b)  (108,287)   (90,594)   (92,188)
Borrowings   17   (1,207,316)   (659,840)   (243,333)
Trade and other payables   19   (799,311)   (2,120,084)   (2,042,823)
        (2,114,914)   (2,870,518)   (2,378,344)

 

Fair values

 

The fair values of each category of financial asset and liability are not materially different from their carrying values as presented.

 

(c) Credit risk

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. This risk arises mainly from the Group’s loans receivable, contract assets, trade receivables and cash.

 

20
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

22. Financial risk management objectives and policies, continued

 

The carrying value of financial assets represents the maximum credit risk exposure. The maximum exposure to credit risk at 31 December was:

 

KZT’000  2022   2021   2020 
Loans receivable   –    503,564    427,693 
Trade and other receivables   1,689,948    1,221,392    595,769 
Cash (less petty cash)   338,330    981,853    860,464 
    2,028,278    2,706,809    1,883,926 

 

Loans receivable

 

The Group’s loans receivable are represented by receivables from employees. In making the decision to provide such loans, the Group performs an analysis to ensure that the overall credit exposure on these loans does not exceed the distributable reserves of the Group.

 

The Group’s exposure to credit risk relates entirely to Kazakhstan debtors.

 

The allowance for impairment of loans receivable is created at loan issuance. There are no arrears within loans receivable.

 

Trade receivables

 

The Group’s exposure to credit risk is influenced by the individual characteristics of each customer. These trade receivables relate to customers that make payment in instalments. The Group regularly monitors its exposure to bad debts in order to minimise this exposure.

 

The Group’s exposure to credit risk relates entirely to Kazakhstan customers.

 

The Group creates an allowance for impairment of trade receivables, which represents its estimate of expected credit losses. The ageing of trade receivables at 31 December was:

 

KZT’000  Gross   Expected loss rate   Impairment 
2022            
Not past due   1,650,693    1%   12,601 
Past due 91-180 days   143,879    64%   92,023 
More than 270 days   31,639    100%   31,639 
    1,826,211    7%   136,263 
2021               
Not past due   1,298,589    6%   77,197 
Past due 91-180 days   –    0%   – 
More than 270 days   21,651    100%   21,651 
    1,320,240    7%   98,848 
2020               
Not past due   631,258    6%   35,489 
Past due 91-180 days   –    0%   – 
More than 270 days   –    0%   – 
    631,258    6%   35,489 

 

21
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

22. Financial risk management objectives and policies, continued

 

Cash

 

Credit risk related to cash is monitored by management in accordance with the policies of the Group. Free funds are held with the most reliable banks in Kazakhstan with ratings of Moody’s from “BB-” to “BB+”. The purpose of this policy is to reduce concentration of credit risk and minimise possible financial loss due to banks’ failure to meet their contractual obligations.

 

(d) Liquidity risk

 

The Group manages liquidity risk by monitoring forecast cash flows and ensuring continuity of funding and flexibility through the use of loans and purchases on credit.

 

Maturity of financial liabilities

 

The table below provides an analysis of the Group’s financial liabilities to be settled on a gross basis by relevant maturity groups from the balance sheet date to the contractual settlement date:

 

KZT’000  Less than 3 months   3 to 12 months   1 to 5 years   Total 
2022                
Lease liabilities   10,477    31,431    88,377    130,285 
Borrowings   –    1,224,001    –    1,224,001 
Trade and other payables   799,311    –    –    799,311 
    809,788    1,255,432    88,377    2,153,597 
2021                    
Lease liabilities   810    24,172    89,230    114,212 
Borrowings   –    659,840    –    659,840 
Trade and other payables   2,120,084    –    –    2,120,084 
    2,120,894    684,012    89,230    2,894,136 
2020                    
Lease liabilities   5,827    8,643    111,243    125,713 
Borrowings   –    243,333    –    243,333 
Trade and other payables   2,042,823    –    –    2,042,823 
    2,048,650    251,976    111,243    2,411,869 

 

22
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

22. Financial risk management objectives and policies, continued

 

Borrowings include expected future interest payments calculated on the basis of interest rates effective on the balance sheet date. Lease liabilities are presented on an undiscounted gross basis.

 

(e) Price risk

 

The Group is not exposed to market risk as it concludes contracts without price change adjustment for goods and services after their sale.

 

(f) Interest rate risk

 

At the reporting dates the Group is not exposed to interest rate risk as there are no financial instruments with floating interest rates.

 

(g) Currency risk

 

The Group is subject to currency risk exposure when performing transactions in currencies other than its functional currency.

 

The Group’s exposure to foreign currency risk was as follows:

 

KZT’000  KZT   USD   RUB   Total 
2022                
Trade and other receivables   1,689,948    –    –    1,689,948 
Cash   343,376    –    –    343,376 
Lease liabilities   (108,287)   –    –    (108,287)
Borrowings   (1,207,316)   –    –    (1,207,316)
Trade and other payables   (565,557)   (188,086)   (45,668)   (799,311)
    152,164    (188,086)   (45,668)   (81,590)

 

KZT’000  KZT   USD   RUB   Total 
2021                    
Loans receivable   –    –    503,564    503,564 
Trade and other receivables   1,221,392    –    –    1,221,392 
Cash   983,797    50,548    –    1,034,345 
Lease liabilities   (90,594)   –    –    (90,594)
Borrowings   (659,840)   –    –    (659,840)
Trade and other payables   (1,893,261)   (185,842)   (40,981)   (2,120,084)
    (438,506)   (135,294)   462,583    (111,217)
2020                    
Loans receivable   –    –    427,693    427,693 
Trade and other receivables   595,769    –    –    595,769 
Cash   888,253    24,415    927    913,595 
Lease liabilities   (92,188)   –    –    (92,188)
Borrowings   (243,333)   –    –    (243,333)
Trade and other payables   (1,975,528)   (25,884)   (41,411)   (2,042,823)
    (827,027)   (1,469)   387,209    (441,287)

 

23
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

22. Financial risk management objectives and policies, continued

 

Financial instruments denominated in tenge are not exposed to foreign currency risk and are provided for reconciliation of total amounts.

 

Sensitivity analysis

 

A 10% weakening of tenge against the following currencies as at 31 December would have increased (decreased) net profit by the amounts shown below. This analysis assumes that all other variables remain constant.

 

KZT’000   2022   2021   2020 
USD    (15,047)   (10,824)   (118)
RUB    (3,653)   37,007    30,977 

 

A 10% strengthening of tenge against the above currencies as at 31 December would have had an equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

 

(h) Capital management

 

The overriding objectives of the Group’s capital management policy are to safeguard and support the business as a going concern and to maintain an optimal capital structure with a view to maximising returns to owners and benefits to other stakeholders by reducing the Group’s cost of capital. The Group’s overall policy remains unchanged from 2020.

 

23. Commitments and contingencies

 

(a) Kazakhstan’s taxation contingencies

 

Inherent uncertainties in interpreting tax legislation

 

The Group is subject to uncertainties relating to the determination of its tax liabilities. Kazakhstan tax legislation and practice are in a state of continuous development and, therefore, are subject to varying interpretations and changes which may be applied retrospectively.

 

Management interpretations of such legislation in applying it to business transactions of the Group may be challenged by the relevant tax authorities and, as a result, the Group may receive claims for additional tax payments, including fines, penalties and interest charges that could have a material adverse effect on the Group’s financial position and results of operations.

 

Period for additional tax assessments

 

Tax authorities in Kazakhstan have the right to raise additional tax assessments for three or five years after the end of the relevant tax period, depending on the taxpayer category or tax period. In certain cases, as determined by the tax legislation, the terms could be extended for three years.

 

24
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

23. Commitments and contingencies, continued

 

Possible additional tax liabilities

 

Management believes that the Group is in compliance with the tax laws and any contractual terms entered into that relate to tax which affect its operations and that, consequently, no additional tax liabilities will arise. However, due to the reasons set out above, the risk remains that the relevant tax authorities may take a differing position with regard to the interpretation of contractual provisions or tax law.

 

The resulting effect of this matter is that additional tax liabilities may arise. However, due to the range of uncertainties described above in assessing any potential additional tax liabilities, it is not practicable for management to estimate the financial effect in terms of the amount of additional tax liabilities, if any, together with any associated penalties and charges for which the Group may be liable.

 

(b) Insurance

 

The insurance industry in Kazakhstan is in a developing stage and many forms of insurance protection common in other parts of the world are not yet generally available. Available insurance programs may not provide full coverage in the event of a major loss.

 

(c) Legal commitments

 

In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a materially adverse effect on the financial condition or results of operations of the Group. As at 31 December 2022, the Group was not involved in any significant legal proceedings.

 

24. Related party disclosures

 

Related parties include the following:

 

● Key executives.

 

● Former owner.

 

● Other related parties.

 

(a) Management remuneration

 

Rewards received by key executives are included in personnel costs of administrative expenses (see note 5) amounted to KZT 20,000 thousand (2021: KZT 17,141 thousand; 2020: KZT 17,037 thousand).

 

25
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

(b) Transactions with related parties

 

In addition to loans issued to a related party (note 11) and loans received from a former owner (note 17) the Group had the following transactions and balances with the related parties:

 

KZT’000  Former owner   Other related parties   Total 
2022            
Due from related parties   –    200,800    200,800 
Due to related parties   –    (300,000)   (300,000)
Sales to related parties   –    354,699    354,699 
2021               
Due from related parties   788,420    16,150    – 
Due to related parties   –    (6,500)   – 
2020               
Due from related parties   788,420    –    – 
Due to related parties   –    –    – 

 

(c) Terms and conditions of transaction with related parties

 

Prices for related party transactions are determined by the parties on an ongoing basis depending on the nature of the transaction.

 

26
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies

 

The following significant accounting policies have been consistently applied in the preparation of the combined financial statements.

 

(a) Foreign currency transactions

 

Transactions in foreign currencies are translated to the functional currency of the Group at the exchange rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange ruling rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate ruling at the date when their fair value was determined. Foreign currency differences arising on retranslation at the exchange rate on the date of the transaction as well as those from retranslation of monetary assets and liabilities at the reporting date are recognised in profit or loss.

 

The following exchange rates were used in preparing the combined financial statements:

 

   2022   2021   2020 
   Year-end   Average   Year-end   Average   Year-end   Average 
US dollar   462.65    460.48    431.67    426.03    420.71    412.95 
Russian rouble   6.43    6.96    5.77    5.79    5.65    5.73 

 

(b) Property, plant and equipment

 

Recognition and measurement

 

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.

 

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

 

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

 

Any gain (loss) on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and is recognised net within other income (other expenses) in profit or loss.

 

Subsequent costs

 

The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced component is recorded as a disposal. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

 

27
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies, continued

 

Depreciation

 

Depreciation is charged to profit or loss on a straight-line basis over the estimated useful life of the individual asset to its estimated residual value. The expected remaining useful lives are as follows:

 

office equipment 3-4 years;

 

other 3-7 years.

 

Useful lives and residual values of property, plant and equipment are analysed at each reporting date.

 

(c) Intangible assets

 

Intangible assets relate largely to software, which are developed by the Group and which have finite useful lives, are stated at cost (which comprises mainly salaries and payroll taxes of the Group’s programmers) less accumulated amortisation and impairment losses.

 

Amortisation

 

Amortisation of intangible assets, which have expected useful lives of 5 to 7 years, is computed under the straight-line method over the estimated useful lives of the assets.

 

(d) Impairment

 

The carrying amounts of non-current assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. If there are indicators of impairment, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount. Such review is undertaken on an asset-by-asset basis, except where such assets do not generate cash flows independent of other assets, in which case the review is undertaken at the cash-generating unit level.

 

If the carrying amount of an asset or its cash-generating unit exceeds the recoverable amount, a provision is recorded to reflect the asset or cash-generating unit at the lower amount. Impairment losses are recognised in profit or loss.

 

Calculation of recoverable amount

 

The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The Group’s cash-generating units are the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

 

Reversals of impairment

 

A previously recognised impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

(e) Accounts receivable

 

Accounts receivable are normally recognised at their nominal value less any expected credit loss and do not generally carry any interest. Expected credit losses are recognised in an allowance account if recoverable. Otherwise, the carrying amount of accounts receivable is written off.

 

Accounting policies for accounts receivable are provided in the Financial instruments section.

 

28
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies, continued

 

(f) Cash

 

Cash comprise cash at bank which is available on demand and subject to insignificant risk of changes in value and petty cash.

 

(g) Leases

 

The Group as lessee

 

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.

 

The lease liability is initially measured at the present value of the lease payments, discounted by using the incremental borrowing rate. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability and by reducing the carrying amount to reflect the lease payments made. Also, the Group remeasures the lease liability to reflect a lease contract modification.

 

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

 

Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs.

 

For contracts that contain a lease component and one or more additional non-lease components, the Group does not separate non-lease components, and accounts for any lease and associated non-lease components as a single arrangement.

 

(h) Borrowings

 

Borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest method.

 

(i) Retirement employee benefits

 

The Group does not have any pension arrangements separate from the state pension system of the Republic of Kazakhstan, which requires current contributions by the employer and employee calculated as a percentage of current gross salary payments.

 

(j) Revenues

 

At contract inception, the Group assesses the goods or services (assets) promised in a contract with a customer and identifies as a performance obligation each promise to transfer to the customer either an asset that is distinct or a series of distinct assets that are substantially the same and that have the same pattern of transfer to the customer.

 

29
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies, continued

 

Sale of goods

 

Sale of goods is recognised when control of the products has transferred. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and the customer has accepted the products in accordance with the sales contract or the acceptance provisions have lapsed.

 

A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

 

Sale of services

 

Revenue from rendering services is recognised in the accounting period in which the services are rendered.

 

Revenue from rendering services is recognised over time if any of the following criteria are met:

 

the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs;

 

the Group’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced; or

 

the Group’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

 

In all other cases Revenue from rendering services is recognised at a point in time.

 

Financing components

 

There are no contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the transaction prices are not adjusted for the time value of money.

 

(k) Finance Income

 

Finance income comprises interest income on funds invested and foreign exchange gains. Interest income is recognised as it accrues, calculated in accordance with the effective interest rate method.

 

(l) Borrowing costs

 

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur.

 

(m) Income tax

 

Income tax for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items charged or credited directly to equity, in which case it is recognised in equity.

 

Current tax expense is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years.

 

Deferred tax is determined using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for taxation purposes.

 

30
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies, continued

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

 

Deferred tax asset is recognised only to the extent that it is probable to receive taxable income in future, which can be utilised against this asset. The amount of deferred tax assets are reduced to the extent that it is not probable that appropriate tax savings would be used.

 

Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

 

(n) Financial instruments

 

The Group recognises financial assets and liabilities on its balance sheet when it becomes a party to the contractual provisions of the instrument.

 

Financial assets

 

Classification and initial measurement

 

Financial assets within the scope of IFRS 9 are classified as financial assets at amortised cost, fair value through profit or loss or fair value through other comprehensive income. The Group determines this classification at initial recognition depending on the business model for managing the financial asset and the contractual terms of the cash flows.

 

Financial assets are classified and measured at amortised cost or fair value through other comprehensive income if the related cash flows are ‘solely payments of principal and interest’ on the principal amount outstanding. Financial assets with cash flows that are not ‘solely payments of principal and interest’ are classified and measured at fair value through profit or loss, irrespective of the business model.

 

At initial recognition financial assets are measured at fair value being the consideration received plus directly attributable transaction costs. Any gain or loss at initial recognition is recognised in the statement of profit or loss.

 

Subsequent measurement

 

Financial assets held for the collection of contractual cash flows that are solely payments of principal and interest (and classified as amortised cost) are subsequently measured at amortised cost using the effective interest rate method (“EIR”). Amortised cost is calculated by taking into account any discount or premium and fees or costs on acquisition. Unwinding of the difference between nominal and amortised values is included in finance income in the statement of profit or loss.

 

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

 

Derecognition

 

A financial asset is derecognised when the Group loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expire or are surrendered.

 

31
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies, continued

 

Impairment of financial assets

 

The Group assesses on a forward-looking basis the expected credit losses that might arise on financial assets measured at amortised cost. This assessment considers the probability of a default event occurring that could result in the expected cash flows due from a counterparty falling short of those contractually agreed.

 

Expected credit losses are estimated for default events possible over the lifetime of a financial asset measured at amortised cost. However, where the financial asset is not a trade receivable measured at amortised cost and there have been no significant increases in that financial asset’s credit risk since initial recognition, expected credit losses are estimated for default events possible within 12 months of the reporting date.

 

Financial liabilities

 

Classification and initial measurement

 

Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at amortised cost or fair value through profit or loss. The Group determines the classification of its financial liabilities at initial recognition.

 

At initial recognition financial liabilities are measured at fair value being the consideration given. Financial liabilities at amortised cost additionally include directly attributable transaction costs.

 

Subsequent measurement

 

Trade and other payables and other financial liabilities are subsequently measured at amortised cost using the EIR method after initial recognition. Amortised cost is calculated by taking into account any discount or premium and fees or costs on acquisition. Unwinding of the difference between nominal and amortised values is included in finance costs in the statement of profit or loss.

 

Financial liabilities measured at fair value through profit or loss are carried on the statement of financial position at fair value with subsequent changes recognised in finance costs in the statement of profit or loss.

 

Derecognition

 

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the statement of profit or loss.

 

Offsetting of financial instruments

 

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when there is an enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

 

Fair value of financial instruments

 

At each reporting date, the fair value of financial instruments that are traded in active markets is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models.

 

32
 

 

Prime Source Group

Combined statements of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

26. Events after the reporting period

 

Repayment of loans received from former owner

 

In January and February 2023, the Group fully repaid the loans received from the former owner, which described in note 17.

 

Attracting bank loans

 

In March 2023, the Group entered into a revolving credit line agreement with Al Hilal Islamic Bank JSC at a fixed interest rate of 16.5%. The credit line is intended to replenish working capital, and is calculated until March 2026. As part of this agreement, during 2023, the Group received a loan in the total amount of KZT 1,880,000 thousand, maturing until to 12 months. During 2023, the Group fully repaid the loans.

 

The Group also opened credit lines agreement at Bereke Bank JSC for refinancing of liabilities at Al Hilal Islamic Bank JSC at the date of refinancing, further development within the limit - working capital replenishment. In 2023, loans were received for the replenishment of working capital in the amount of KZT 1,640,000 thousand, maturing until to 12 months, the interest rate of 20.7%- 21.3%.

 

In April 2024, the Group, under the existing credit line with Bereke Bank JSC, repaid the debt in the amount of KZT 1,173,333 thousand and entered into new bank loan agreements to replenish working capital. As part of this agreement, in April 2024, the Group received a loan in the total amount of KZT 1,174,000 thousand, with a repayment period until April 2025 with an interest rate of 20.7% - 21.3%.

 

Change in ownership structure

In March 2024, Genius Group Limited, a publicly listed company incorporated in Singapore, acquired 100% ownership in FB Prime Source Acquisition LLC from the LZG International Inc. The consideration for the acquisition includes:

● issuance of 73,873,784 ordinary shares of Genius Group Ltd at a fair market value of US 0.397 dollar.
● IP Property and certain business-related assets
● liabilities of FB Prime Source Acquisition not exceeding US 15,000,000 dollars.
● settle the liabilities over 6 months from the date of closing.

 

33