Aeris Environmental
Annual Report 2017

Plain-text annual report

AERIS ENVIRONMENTAL LTD ANNUAL REPORT 2017 LTD ACN 093977336 P A G E 2 C O N T E N T S Chairman and CEO Report Review of Operations Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Australian Securities Exchange Additional Information Corporate Directory 1 4 6 20 22 23 24 25 26 60 62 69 73 ANNUAL REPORT 2017P A G E 1 C H A I R M A N A N D C H I E F E X E C U T I V E O F F I C E R R E P O R T • FY17 milestone year with ‘portfolio of key products completed, validated and launched’: proprietary technologies and distribution footprint now in place • FY18 successfully scaling ‘accelerated growth’ strategy with sales pipeline 5 times last year’s revenue • Extensive trade, customer and industry acceptance of the need to implement Aeris’ ‘clean, green, protect’ solutions. The 2017 financial year was a milestone year for Aeris Environmental Ltd (Aeris or the Company). It was pleasing to deliver growth which demonstrates your Company’s strong momentum and significant potential. In FY17 we again doubled revenue, and importantly we built a solid foundation for long term, sustainable and profitable growth. Aeris develops, manufactures and markets patented, environmentally friendly technology solutions that address the global megatrends of energy efficiency, long term materials protection, healthier air, food and water. With the core guiding principles of environmentally friendly and safe to use products which are cost efficient and outperform conventional toxic chemicals. Smart enzymes combined with hard surface treatments provide remediation and long-term protection from mould and bacterial growth; improve hygiene, offer an array of consumer and technical applications. Aeris’ anti-corrosion coatings are water based with single step easy application. The coatings are often the only available option in high-profile challenging environments – from oil rigs to mines and underground pipes. The coatings are increasingly being adopted by leading technical service groups and HVAC manufactures internationally. SmartENERGY provides up to 33%, energy savings alongside with documented improvements in system efficiency (54- 289% in airflow and up to 40% in coil efficiency). It also delivers independently-validated improvements in indoor air quality across all air-conditioning and refrigeration systems. Having directly invested over $40 million in R&D in developing and validation of its product portfolio, Aeris has now launched the full spectrum of its products to customers around the world. The high profile, landmark validations have led Aeris to leveraging the reference sites into multiple industry applications with sales of an expanded range of products to each customer. Our focus is now firmly on commercialising our intellectual property with validated high profile solutions to rapidly grow our revenues. In parallel, we are seeing growing demand for our Asset Upgrade Agreements, which produce long term, annuity revenue underpinned by multi-year contracts which deliver both strong margins, customer retention and the uptake of a broader range of Aeris solutions. FY18 promises to be an exciting, productive and successful year for Aeris, with over 35 current and pending platinum partners, each with a dedicated customer base, existing revenue and committed purchase volumes to maintain platinum status. Aeris enjoys a growing base of international distributors, global direct customers and wholesale channels partners, who contribute to our rising sales trajectory, with each product portfolio showing strong adoption, and importantly, an outstanding opportunity for cross-selling of platform solutions. Our conservative sales pipeline is over five times the FY17 financial year revenue. AERIS ENVIRONMENTAL LTDP A G E 2 In Calendar year 2018 the Company is targeting the achievement of a cash flow positive operation by driving sales and increasing margins as a consequence of scaling up production. Our aim is to demonstrate that our material investments to date in product development, regulatory approvals, customer validation and global branding will result in material inflection points for the Company’s market capitalisation and sustainable growth in shareholder value. Aeris is undertaking a spectrum of discussions with industry leaders, on a strategic level. This will facilitate the fast tracking adoption of Aeris technologies across large customer bases, and accelerating access to to a number of large vertical markets. The Company recognises the long standing support, and indeed patience, of our shareholders, the outstanding performance of our dedicated employees and the efforts of our board. Our technologies are unquestionably on trend, our products are exceeding customer expectations and all of our team are aligned with the purpose of delivering a business internationally which will be successful by all metrics. Maurie Stang Non-Executive Chairman Peter Bush Chief Executive Officer AerisGuard consumables for HVAC hygiene, and specialty products for remediation and bacterial control. SmartENERGY Ecosystem. OEM advanced coatings for the prevention of corrosion, mould and biofilm ANNUAL REPORT 2017 P A G E 3 The Company’s AerisGuard portfolio of patented products were developed for, and used in, professional healthcare globally (hospital hard surface and central sterilisation) and its SMART technology platform offers the world’s most advanced total solution for HVAC and refrigeration efficiency. AERIS ENVIRONMENTAL LTDP A G E 4 R E V I E W O F O P E R A T I O N S The financial year ended 30 June 2017 has seen strong progress towards delivering all the objectives in the Company’s business plan. Each of the major product groups are now enjoying demonstrable customer acceptance, distributor and trade engagement. Aeris is currently investing in scaling-up its commercial production capabilities, particularly with a multi-region focus on an optimal and cost-efficient supply chain. HIGHLIGHTS • • Successful manufacturing scale-up and commercial launch of the Company’s Smart HUB Ecosystem. Core products for each business unit – AerisGuard consumables, AerisCoat Anti-Corrosion, and Smart HUB SmartENERGY and control – now commercially launched and gaining traction in key global markets. • Rapid growth of platinum programme, with 12 signed partnership, and multiple pending, agreements, each with minimum annual purchase commitments. • Acceleration of programme in key international markets and high value-added opportunities. • Rapidly-increasing adoption of AerisCoat OEM corrosion prevention and protection, along with unique mould and odour remediation product, AerisShield. • • • $1.8 million cash receipts for 2016-17 financial year, being a 120% increase from 2015-16 financial year. Sales accelerating as Aeris moves firmly into commercialisation / monetising phase. 63% of 2016-17 financial year revenue received from new platinum partners and key accounts, demonstrating growing opportunity, as activity is scaled up. Balance of revenue from existing accounts, which are both expanding and recurring. Strong positive lead indicators, including a pipeline of over $15 million rolling into 2017-18 financial year. Known contracted revenue in coming quarters underwriting sales growth. • Aeris Smart HUB range is now launched, with successfully completed multiple high-profile installations. • Two major flagship Building Management Systems and control projects successfully completed, pointing at a strong forward pipeline. • First large-volume sales of corrosion coatings into key global accounts. • Growing strategic engagement with a cross section of high profile, multi-national industry leaders. • Increasing investment on core strategic markets in the USA, Europe and Asia Pacific, with several large-scale project opportunities in each market. ANNUAL REPORT 2017P A G E 5 COMMENTARY During the 2016-17 financial year, the Company successfully embedded its unique technologies into the workflow and processes of a number of key and large-scale customers, targeting annuity revenue and an extension of the range of Aeris’ products that each of these customers has adopted. In this period the Company signed platinum partnership agreements, received orders and trained applicators in the following territories – Australia, India, the USA, Malaysia and the United Arab Emirates, particularly Dubai. Aeris is in advanced negotiations with additional partners in Vietnam, the Philippines, Hong Kong, New Zealand and Australia. In each above mentioned territories, Aeris is developing wholesale and distribution relationships, with partners who have a strong established customer base with sales and technical support capabilities. The Company believes that this is a scalable model that will continue to provide attractive margins by minimising the downstream cost of end customer acquisition, retention and servicing. In parallel, Aeris is continuing to build a base of direct global customers where the Company will be managing strategic supply agreements. Across Aeris’ key business units of hygiene consumables, corrosion resistant coatings and the Smart HUB Ecosystem, the Company has, on top of its base business, a growing pipeline with over $15 million worth of proposals. Each division’s growth is being driven by a business environment that is now prioritising environmental credentials, efficiency, safety, long term protection and an understanding of the total cost of ownership. AERIS ENVIRONMENTAL LTDP A G E 6 D I R E C T O R S ’ R E P O R T The Directors of Aeris Environmental Ltd submit herewith the Annual Financial Report for the financial year ended 30 June 2017. In order to comply with the provisions of the Corporations Act 2001 , the Directors Report is as follows: DIRECTORS The names and details of the Directors and Company Secretary of the Company during or since the end of the financial year are: MAURIE STANG BERNARD STANG Non-Executive Chairman Non-Executive Director Mr M Stang is a director of the Regional Health Care Group of companies and of Novapharm Research. He has over 30 years of experience building and managing successful companies in the Australian healthcare market, and extensive networks within the life-sciences and pharmaceutical sectors, both in Australia and internationally. Since co-founding the Regional Health Care Group, Mr M Stang has been instrumental in building it into one of the region’s leading healthcare product suppliers, with a key joint venture in the Australasian dental market, and successful operating businesses across a range of medical, pharmaceutical and consumer healthcare sectors. Director since 2002 – appointed Chairman in 2002. Directorship of other listed companies held in the last three years: • Non-executive Chairman of Nanosonics Limited (ASX:NAN) since November 2000 • Non-Executive Deputy Chairman of Vectus Biosystems Limited (ASX:VBS) since December 2005. Mr B Stang (B.Arch) is a Co-Founder and Director of the Regional Health Care Group of companies. He serves as the Chief Executive Officer of Stangcorp Pty Ltd, Stoneville Ltd and Brunswick Property Pty Ltd, which are key property entities in the Stang Group. Mr B Stang manages a broad portfolio of investments in the private and listed sectors, and has enjoyed over 40 years of operational leadership in successful healthcare businesses. He serves as a Director of Novapharm Research. Mr B Stang is a Director of Weizmann Australia, which represents the Weizmann Institute of Science in Australia, and the Institute has recently established the Garvan-Weizmann Centre of Cellular Genomics in Sydney, in joint venture with the Garvan Institute. He served as a Non-Executive Director of Nanosonics Limited (ASX:NAN) until 2007. Director since 2002. Directorship of other listed companies held in the last three years: • Non-Executive Director of Vectus Biosystems Limited from December 2005 until October 2016. STEVEN KRITZLER Non-Executive Director ALEX SAVA Mr Kritzler (M.Sc from UNSW in the field of Polymer Chemistry) holds a number of international patents. He is the Technical Director of Novapharm Research. He has over 40 years of experience in commercial R&D in the areas of pharmaceutical, medical, cosmetic and specialty industrial products. Under Mr Kritzler’s technical direction, Novapharm Research has become a world-leader in infection control science. Non-Executive Director Dr Sava (M.Sc, in Chemical Engineering, PhD in Physical Chemistry) spent seven years earlier in his career with the Institute of Semiconductors in Ukraine and four years as a Vice President of New York-based MicroMax Computer Intelligence Inc. He holds over 100 international patents and has authored Director since 2002 Directorship of other listed companies held in the last three years: None. ANNUAL REPORT 2017P A G E 7 over 50 scientific articles. Dr Sava was a Founder and Board member of Nanosonics Pty Ltd from 14 November 2000 until prior to its listing on ASX on 15 May 2007 as Nanosonics Limited. He also made a substantial contribution to the later success of Nanosonics Limited and has undertaken business development activity across many international markets. Dr Sava has scientific, regulatory and commercial experience. Director since 3 October 2016. Directorship of other listed companies held in the last three years: None PETER BUSH COMPANY SECRETARY Mr Robert J Waring (BEc, CA, FCIS, FFin, FAICD) was appointed to the position of Company Secretary in 2002. He has over 40 years experience in financial and corporate roles, including over 25 years in company secretarial roles for ASX listed companies and over 20 years as a Director of ASX listed companies. Mr Waring has over 30 years experience in industry and prior to that, spent nine years with an international firm of chartered accountants. He is a Director of Oakhill Hamilton Pty Ltd, which provides secretarial and corporate advisory services to a range of listed and unlisted companies. Mr Waring is also presently the Company Secretary of ASX-listed companies Nanosonics Limited (ASX:NAN), Vectus Biosystems Limited (ASX:VBS), Brain Resource Limited (ASX:BRC) and Xref Limited (ASX:XF1). Chief Executive Officer, Alternate Director for M and B Stang and Chief Financial Officer Share Registry Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street Abbotsford VIC 3067 GPO Box 2975, Melbourne VIC 3001 Telephone: +61 3 9415 4000 Web: www.computershare.com Mr Bush (B.Com, CA) is the Chief Financial Officer of the Regional Health Care Group of companies (one of the region’s leading diversified healthcare product suppliers, with successful businesses across a range of medical, pharmaceutical, consumer healthcare, and research and development sectors) and of GryphonCapital (an independent merchant bank that facilitates the financing and development of emerging healthcare-related entities). He began his career working for five years at BDO, a global accounting and consulting firm, and has since spent a number of years working in industry. Mr Bush holds a number of private directorships and board positions. Alternate Director since 2011. Directorship of other listed companies held in the last three years: • Non-Executive Director of Vectus Biosystems Limited (ASX:VBS) since July 2015. AERIS ENVIRONMENTAL LTD P A G E 8 D I R E C T O R S ’ R E P O R T DIRECTORS’ MEETINGS The following tables set out the number of Directors’ meetings and Committee meetings held during the financial year and the number of meetings attended by each Director (while they were a Director). Board of Directors Audit Committee Corporate Governance Remuneration and Meetings Meetings Committee Meetings Nomination Committee Number of meetings held Number of meetings attended Maurie Stang Steven Kritzler Bernard Stang Alex Sava * 7 7 6 6 4 4 4 - 4 - 1 1 - 1 - Meetings - - - - - In addition to the above meetings the Board and senior executives conduct formal management meetings. * Alex Sava was appointed a Director on 3 October 2016 and attended all Board meetings held while he was a Director COMMITTEE MEMBERSHIP As at the date of this report, the Company had an Audit Committee, a Corporate Governance Committee and a Remuneration and Nomination Committee of the Board of Directors. Members acting on the Committees of the Board during the year were: Audit Committee Bernard Stang (Chairman) Maurie Stang Corporate Governance Committee Maurie Stang (Chairman) Bernard Stang Remuneration & Nomination Committee Maurie Stang (Chairman) Bernard Stang PRINCIPAL ACTIVITIES The principal activities of the consolidated entity during the course of the financial year were: • Research, development, commercialisation of proprietary technologies and global distribution of the AerisGuard range of products; • Provision of HVAC/R Hygiene and Remediation Technology; and • Provision of Energy Efficiency services. There is no significant change in the nature of activities performed by the Company during the year. ANNUAL REPORT 2017 P A G E 9 REVIEW OF OPERATIONS The results of the operations of the consolidated entity during the financial year were as follows: Income Expenses Loss after income tax 2017 ($) 2,882,259 (6,634,524) (3,752,265) 2016 ($) 1,961,488 (4,027,419) (2,065,931) For a comprehensive review of the Company’s operational performance please refer to the attached Review of Operations Report. AERIS ENVIRONMENTAL LTDP A G E 1 0 D I R E C T O R S ’ R E P O R T DIVIDENDS ENVIRONMENTAL REGULATIONS The Directors do not recommend the payment of a dividend in respect of the year ended 30 June 2017 (2016: Nil). No dividends have been paid or declared since the start of the financial year. The economic entity is not subject to any significant environmental Commonwealth or State regulation in respect of its operating activities. SIGNIFICANT CHANGES IN STATE OF AFFAIRS There have been no significant changes in the state of affairs of the consolidated entity. SIGNIFICANT EVENTS AFTER THE BALANCE DATE In the opinion of the Directors, no matters or circumstances have arisen since the end of the financial year that have significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in future financial years, other than the provision by three of the Company’s Non-Executive Directors of financial support to the Group through Loan Facility Agreements for a total amount of up to $1,500,000, for up to 24 months from the date of the signed Annual Financial Report. LIKELY DEVELOPMENTS AND EXPECTED RESULTS Disclosure of information other than that disclosed elsewhere in this report regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report. INDEMNIFICATION OF OFFICERS AND AUDITORS Indemnification The Company has Deeds of Access and Indemnity with each of the Directors, by which the Company indemnifies each Director in relation to any liability incurred as a result of being a Director of the Company except where there is lack of good faith. During or since the financial year, the Company has not indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. Insurance premiums During the financial year, the Company paid a premium in respect of a contract to insure its Directors and executives against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. During the financial year, the Company has not paid a premium in respect of a contract to insure the Auditor of the Company. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. The Company was not a party to any such proceedings during the year. ANNUAL REPORT 2017P A G E 1 1 DIRECTORS’ INTERESTS NON-AUDIT SERVICES Equity Holdings Ordinary shares Options over ordinary shares Maurie Stang 20,621,822 Bernard Stang 17,003,664 Steven Kritzler 8,331,609 - - - During the year UHY Haines Norton, the Company’s auditor, performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the audit committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: Alex Sava 68,025 100,000 • All non-audit services were subject to the corporate Peter Bush 750,000 - Options granted to Directors and Officers of the company During or since the end of the 2016-17 financial year, the Company granted options for no consideration over unissued ordinary shares in Aeris Environmental Ltd to the following Directors and Officers (2016: NIL). Alex Sava (Non-Executive Director): 100,000 options Robert Waring (Company Secretary): 50,000 options governance procedures adopted by the Company and have been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor. • None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. PARTICULARS OF OPTIONS GRANTED OVER UNISSUED SHARES: 2017 2016 Number of options on issue over 1,845,000 1,270,000 unissued ordinary shares Shares issued in the period as the 900,000 - result of the exercise of options Options expired during the period 20,000 200,000 Options granted during the period 1,495,000 - Full details of options on issue are shown in Note 18. AERIS ENVIRONMENTAL LTDP A G E 1 2 D I R E C T O R S ’ R E P O R T OFFICERS OF THE COMPANY WHO ARE FORMER AUDIT PARTNERS OF UHY HAINES NORTON There are no officers of the company who are former audit partners of UHY Haines Norton AUDITORS UHY Haines Norton continues in office in accordance with section 327 of the Corporations Act 2001. AUDITORS’ INDEPENDENCE DECLARATION The Auditors’ Declaration of Independence for the year ended 30 June 2017 is attached to this Directors’ Report on page 20. CORPORATE GOVERNANCE R E M U N E R A T I O N R E P O R T ( A U D I T E D ) KEY MANAGEMENT PERSONNEL (KMP) The key management personnel of the Company comprise the Directors, Chief Executive Officer and Company Secretary only as follows: Non-Executive Directors Maurie Stang Bernard Stang Steven Kritzler Alex Sava (appointed on 3 October 2016) Aeris Environmental Ltd’s Corporate Governance Statement and ASX Appendix 4G are released to ASX on the same day the Annual Report is released. Executive Peter Bush (Chief Executive Officer and Alternate Director) The Company’s Corporate Governance Statement, and its Corporate Governance Compliance Manual, can be all found on the Company’s website at: http://www.aeris.com.au/ investor-center/ Company Secretary Robert Waring Remuneration policies Details of Aeris’ remuneration policies and practices, together with details of Directors’ and Executives’ Remuneration, are as follows: (a) Overview of remuneration structure The objective of the Company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. Processes have been established to ensure that the levels of compensation and remuneration are sufficient and reasonable, and explicitly linked to the achievement of personal and corporate objectives. The short and long-term incentive plans are specifically aligned to shareholder interests. Aeris’ Remuneration and Nomination Committee advises the Board on remuneration policies and practices generally, ANNUAL REPORT 2017P A G E 1 3 D I R E C T O R S ’ R E P O R T R E M U N E R A T I O N R E P O R T ( A U D I T E D ) and makes specific recommendations on remuneration packages and other terms of employment for staff, including Directors, the Company Secretary and Senior Managers of the Company. The Committee has access to the advice of independent remuneration consultants to ensure the remuneration and incentive schemes are consistent with its philosophy as well as current market practices (b) Non-executive directors During the 2017 financial year, 100,000 share options were issued to Alex Sava, Non-Executive Director, with an exercise price of $0.42 and having a vesting period of three years. Payments to Non-Executive Directors are reviewed annually. (c) Executives The objective of Aeris’ executive reward system is to ensure that remuneration for performance is competitive and appropriate for the results delivered. Executive pay structures include a base salary and superannuation. In addition, executives and senior managers can participate in the Employee Share Option Plan. (d) Short-term incentive (STI) scheme During the financial year ended 30 June 2017, STIs were paid to Peter Bush, Chief Executive Officer, in cash for the achievements against annual performance targets set by the Board at the beginning of the performance period. The performance objectives of Aeris are currently directed to achieving financial targets (sales) complemented by achievement of individual performance goals. All targets are set having regard to prior year performance, market conditions and the Board-approved budgets. Specific targets are not provided in detail due to their commercial sensitivity. The STI arrangement is reviewed annually by the Board. (e) Long-term incentives (LTI) The LTI provide an annual opportunity for selected executives to receive awards in cash and equity. The equity portion, being performance rights, vest over three years and is intended to align a significant portion of an executive’s overall remuneration to shareholder value over a longer term. Equity grants are subject to performance conditions (revenue and / or earnings per share) and are tested against the performance hurdles set at the end of three financial years. If performance hurdles are not met at the vesting date, the rights and options lapse. In addition, performance rights and options will only vest if the executive KMP member remains in continuous employment with Aeris in their current or equivalent position from the date of grant to the respective vesting date of each grant. (f) Share option based compensation In February 2005, Aeris established an Employee Share Option Plan (ESOP). The plan was approved by shareholders at the Annual General Meeting held on 25 November 2004. The plan was re-approved by shareholders at the Annual General Meeting held on 27 November 2014. The terms of the Employee Share Option Plan provides for the following conditions : (i) Vesting 33.33% vest on the first anniversary of grant of options 33.33% vest on the second anniversary of grant of options 33.34% vest on the third anniversary of grant of options (ii) The contractual life of the options issued ranges from three to five years. (iii) The exercise price determined in accordance with the Rules of the plan is based on the weighted average price of the Company’s shares for the 20 trading days prior to the offer. (iv) Each option is convertible to one ordinary share. (v) All options expire on the earlier of their expiry date or 90 days after voluntary termination of the participant’s employment. (vi) There are no voting or dividend rights attached to the options. There are no voting rights attached to the unissued ordinary shares. Voting rights will be attached to the ordinary shares which will be issued when the options have been exercised. (vii) The options issued are on an equity settled basis. There are no cash settlement alternatives. EQUITY HOLDINGS TRANSACTIONS The movement during the reporting period in the number of ordinary shares in Aeris Environmental Ltd held directly, indirectly, or beneficially by each specified Director and specified executive including their personally-related entities, are on the following page. AERIS ENVIRONMENTAL LTD P A G E 1 4 D I R E C T O R S ’ R E P O R T R E M U N E R A T I O N R E P O R T ( A U D I T E D ) 2017 Shares Specified directors Maurie Stang Bernard Stang Steven Kritzler Alex Sava (appointed on 3 October 2016) Specified executives Peter Bush Robert Waring Number held Acquired during year Sold during year Issued on exercise Number held 30 June 2016 of options 30 June 2017 19,816,267 15,928,109 8,331,609 58,025 - 103,000 44,237,010 805,555 1,075,555 - 10,000 - 70,000 1,961,110 - - - - - - - - - - - 20,621,822 17,003,664 8,331,609 68,025 750,000 - 750,000 173,000 750,000 46,948,120 Options Number held Granted during year Lapsed Exercised Number held 30 June 2016 during year during year 30 June 2017 Specified directors Maurie Stang Bernard Stang Steven Kritzler Alex Sava (appointed on 3 October 2016) Specified executives Peter Bush Robert Waring 2016 Shares Specified directors Maurie Stang Bernard Stang Steven Kritzler - - - - - 750,000 - 750,000 - - - - 100,000 - 50,000 150,000 - - - - - - - - - - - - - (750,000) - (750,000) - - - - 100,000 - 50,000 150,000 Number held Acquired during year Sold during year Issued on exercise Number held 30 June 2015 18,816,267 14,928,109 7,331,609 1,000,000 1,000,000 1,000,000 - - - Alex Sava (appointed on 3 October 2016) 60,000 31,025 (33,000) Specified executives Peter Bush Robert Waring - 103,000 41,238,985 - - - - 3,031,025 (33,000) of options 30 June 2016 - - - - - - - 19,816,267 15,928,109 8,331,609 58,025 - 103,000 44,237,010 Options Number held Granted during year Lapsed Exercised Number held 30 June 2015 during year during year 30 June 2016 Specified directors Maurie Stang Bernard Stang Steven Kritzler Alex Sava (appointed on 3 October 2016) Specified executives Peter Bush Robert Waring - - - - 750,000 - 750,000 - - - - - - - - - - - - - - - - - - - - - - - - - 750,000 - 750,000 ANNUAL REPORT 2017 P A G E 1 5 TRANSACTIONS WITH DIRECTORS AND DIRECTOR RELATED ENTITIES A number of specified directors, or their personally-related entities, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities. A number of these entities transacted with the Company in the reporting period. The terms and conditions of those transactions were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to unrelated entities on an arms length basis. Details of these transactions are shown below: Regional Healthcare Group Pty Ltd The company and its controlled entities paid for services provided by Regional Healthcare Group Pty Ltd. Office and administration expenses Rent Distribution expenses Corporate services Mr M Stang and Mr B Stang are Directors and shareholders of Regional Healthcare Group Pty Ltd. Novapharm Research (Australia) Pty Ltd The company and its controlled entities paid for services provided by Novapharm Research (Australia) Pty Ltd. Research and Development Patent and other expenses Mr M Stang, S Kritzler and B Stang are Directors and shareholders of Novapharm Research (Australia) Pty Ltd. Ramlist Pty Ltd The Company and its controlled entities paid rent and utility outgoings to Ramlist Pty Ltd. Mr M Stang and Mr B Stang are Directors and shareholders of Ramlist Pty Ltd. Ensol Systems Pty Ltd The Company and its controlled entities paid for marketing and other operational services to Ensol Systems Pty Ltd Mr M Stang is shareholder of Ensol Systems Pty Ltd. Bright Accountants The Company and its controlled entities paid for accounting services to Bright Accountants Mr P Bush is a related party to Bright Accountants Loan from Directors (contributed equally by M Stang, B Stang and S Kritzler) Interest on loans Loan borrowings Loan repaid Mr M Stang, S Kritzler and B Stang are Non-Executive Directors and shareholders of the Company. Outstanding balances payable from purchases of services Regional Healthcare Group Pty Ltd Novapharm Research (Australia) Pty Ltd Ramlist Pty Ltd Bright Accountants Ensol Systems Outstanding balances at year end are unsecured, interest free and settlement occurs in cash Outstanding loan balances Directors' loan Interest is charged on these loans at 5.45% per annum (ATO benchmark rates) 2017 ($) 2016 ($) 246,489 56,758 43,570 81,033 140,016 36,775 29,295 69,602 304,666 224,478 140,231 116,166 39,853 13,625 86,500 11,907 52,770 - 27,630 - 94,961 - 1,015,000 1,500,000 26,487 119,538 2,989 4,500 84,165 746 (6,010) 289 - - - 1,015,000 AERIS ENVIRONMENTAL LTD P A G E 1 6 D I R E C T O R S ’ R E P O R T R E M U N E R A T I O N R E P O R T ( A U D I T E D ) DETAILS OF DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION FOR THE YEAR ENDED 30 JUNE 2017 Short term benefits Post employment benefits Salary and Director's Fees STI Cash bonus Non-monetary benefits Superannuation Other long- term benefits Equity based benefits Shares Options (Note (ii)) Total Performance Related $ $ $ $ $ $ $ $ % Non-Executive Directors Maurie Stang Bernard Stang Steven Kritzler Alex Sava (appointed 3 October 2016) Total Non-Executive Directors Executive Directors Total Directors Executives (Note (i)) Peter Bush Robert Waring Total - - - - - - - - - - - - - - 211,711 65,043 71,994 - 283,705 65,043 - - - - - - - - - - - - - - - - - 26,292 - 26,292 - - - - - - - - - - - - - - - - - - - - - - - - - - 4,705 4,705 0.0% 0.0% 0.0% 0.0% 4,705 4,705 - - 0.0% 4,705 4,705 - 303,046 2,357 7,062 74,351 382,102 21.5% 0.0% ANNUAL REPORT 2017P A G E 1 7 DETAILS OF DIRECTORS’ AND EXECUTIVE OFFICERS’ REMUNERATION FOR THE YEAR ENDED 30 JUNE 2016 Short term benefits Post employment benefits Salary and Director's Fees STI Cash bonus Non-monetary benefits Superannuation Other long- term benefits Equity based benefits Shares Options (Note (ii)) Total Performance Related $ $ $ $ $ $ $ $ % Non-Executive Directors Maurie Stang Bernard Stang Steven Kritzler Alex Sava (appointed 3 October 2016) Total Non-Executive Directors Executive Directors Total Directors Executives (Note (i)) Peter Bush Robert Waring Total - - - - - - - 195,506 53,164 248,670 - - - - - - - - - - - - - - - - - - - - - - - - - - - 18,573 - 18,573 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 925 215,004 - 53,164 925 268,168 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Notes to the tables of details of directors' and executive officers' remuneration. (i) “Executive Officers” are officers who are or were involved in, concerned in, or who take part in, the management of the affairs of Aeris and/or related bodies corporate. (ii) The fair value of the options is calculated at the date of grant using a Black-Scholes model and allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options allocated to this reporting period. In valuing the options, market conditions have been taken into account in both the current and prior periods. Comparative information was not restated as market conditions were already included in the valuation. The following factors and assumptions were used in determining the fair value of options on grant date. Grant Date Expiry Date Fair value at grant date Exercise price Price of shares on grant date Estimated volatility Risk free interest rate 17-Nov-11 17-Nov-16 08-Jan-15 31-Jul-16 23-Dec-16 14-Oct-21 23-Dec-16 23-Oct-21 $0.0869 $0.0031 $0.2823 $0.2828 $0.17 $0.31 $0.42 $0.42 $0.21 $0.28 $0.37 $0.37 20.5% 5.7% 108.3% 108.3% 5.00% 3.00% 2.34% 2.34% AERIS ENVIRONMENTAL LTDP A G E 1 8 D I R E C T O R S ’ R E P O R T R E M U N E R A T I O N R E P O R T ( A U D I T E D ) EMPLOYMENT CONTRACTS Chief Executive Officer (CEO) : The following sets out the key terms of the employment for the CEO, Peter Bush. Contract term: Continuous employment until notice is given by either party Fixed remuneration: $247,375 This is reviewed annually. Notice period: To terminate the employment, Mr Bush is required to provide Aeris with 3 months written notice. Aeris must provide 3 months written notice. Resignation or termination: On resignation, unless the Board determines otherwise: All unvested short term or long term benefits are forfeited. All vested but unexercised benefits are forfeited after 90 days following cessation of employment. Statutory entitlements: Annual leave applies in all cases of separation. Long Service applies unless service is under 10 years and he is dismissed for misconduct. Termination for serious misconduct: Aeris may immediately terminate employment at any time in case of serious misconduct, and Mr Bush will only be entitled to payment of fixed remuneration until termination date. Such termination will result in all unvested benefits being forfeited. Treatment of any vested but unexercised benefits will be at the discretion of the Board. Post-Termination Restraint of Trade: For a period of 6 months or, if that period is unenforceable, 3 months after termination of employment, Mr Bush must not in the area of Australia or, if that area is unenforceable, New South Wales: i. solicit, canvass, approach or accept any approach from any person who was at any time during his last 12 months with the Company a client of the Company in that part or parts of the business carried on by the Company in which he was employed with a view to obtaining the custom of that person in a business that is the same or similar to the business conducted by the Company; or ii. interfere with the relationship between the Company and its customers, employees or suppliers; or iii. induce or assist in the inducement of any employee of the Company to leave their employment. There are no other contracts to which a Director is a party or under which a Director is entitled to a benefit other than as disclosed above and in note 26 to the financial statements. ANNUAL REPORT 2017P A G E 1 9 LINK BETWEEN REMUNERATION AND PERFORMANCE AND STATUTORY PERFORMANCE INDICATORS The table below shows measures of the group’s financial performance over the last five years as required by the Corporations Act 2001. However, these are not necessarily consistent with the measures used in determining the variable amounts of remuneration to be awarded to KMPs. As a consequence, there may not always be a direct correlation between the statutory key performance measures and the variable remuneration awarded. Loss for the year attributable to owners of Aeris Environmental Ltd Basic loss per share (cents per share) Dividend payments Increase/(decrease) in share price (%) Total KMP remuneration as percentage of loss for the year (%) 2017 2016 2015 2014 2013 (3,747,555) (2,062,727) (2,016,912) (1,067,893) (1,132,159) (2.40) - (33.33%) (10.20%) (1.35) - (6.67%) (13.00%) (1.55) - 309.09% (15.01%) (0.91) - (31.25%) (3.63%) (0.99) - (5.88%) (9.65%) The Group’s sales revenue in the 2017 financial year recorded an increase by 99% and gross profit by 66%. Company is also in discussions with management and remuneration consultants to structure and align KMP remuneration to strategic business objectives with an aim of creation of shareholder wealth. SHARE OPTIONS 150,000 options to take up ordinary shares in Aeris Environmental Ltd issued to key management personnel remain unexercised at 30 June 2017 (2016: 750,000 options). Following options were issued to key management personnel during the year: Alex Sava (Non-Executive Director) Robert Waring (Company Secretary) 2017 100,000 50,000 2016 - - Number of Options There were no options issued to key management personnel which expired or were forfeited during the years 2017 and 2016. Option holders do not have any right, by virtue of the option, to participate in any share issue of the company or any related body corporate or in the interest of any other registered scheme. Signed in accordance with a resolution of the directors made pursuant to s. 298(2) of the Corporations Act 2001. On behalf of the Directors M STANG Director Sydney, 29 September 2017 AERIS ENVIRONMENTAL LTDP A G E 2 0 A U D I T O R ’ S I N D E P E N D E N C E D E C L A R A T I O N ANNUAL REPORT 2017P A G E 2 1 AERIS ENVIRONMENTAL LTDP A G E 2 2 C O N S O L I D A T E D S T A T E M E N T O F P R O F I T O R L O S S A N D O T H E R C O M P R E H E N S I V E I N C O M E FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017 Continuing Operations Revenue Cost of sales Gross profit Other revenue Administration expenses Depreciation and amortisation expense Distribution expense Employee benefits expense Financial expenses Impairment of receivables Research and development expense Occupancy expenses Sales, Marketing and Travel expenses Loss before income tax from continuing operations Income tax benefit Net loss for the year Other Comprehensive Income Items that may be reclassified subsequently to profit or loss Foreign currency translation differences Total comprehensive loss for the year, net of tax Loss for the year attributable to: Owners of Aeris Environmental Ltd Non-controlling interest Total comprehensive loss for the year attributable to: Owners of Aeris Environmental Ltd Non-controlling interest Earnings per share Basic loss per share (cents per share) Loss from continuing operations Diluted loss per share (cents per share) Loss from continuing operations Note 2017 $ 2016 $ 4 4 5 5 5 5 5 5 2,746,816 1,378,086 (1,038,362) (350,272) 1,708,454 1,027,814 135,443 583,402 (1,070,426) (820,233) (58,294) (184,451) (33,788) (85,282) (2,238,206) (1,669,153) (37,848) (674,624) (97,788) (30,957) (508,725) (449,688) (248,173) (225,982) (1,000,416) (687,469) (4,177,265) (2,489,126) 6a 425,000 423,195 (3,752,265) (2,065,931) 21 21 7 30,688 (6,810) (3,721,577) (2,072,741) (3,747,555) (2,062,727) (4,710) (3,204) (3,752,265) (2,065,931) (3,716,867) (2,069,537) (4,710) (3,204) (3,721,577) (2,072,741) (2.40) (1.35) (2.40) (1.35) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. ANNUAL REPORT 2017C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N AS AT 30 JUNE 2017 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other current assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Property, plant and equipment TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Provisions Interest bearing liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated losses Non-controlling interest TOTAL EQUITY P A G E 2 3 2017 $ 2016 $ 1,519,941 5,415,664 1,363,571 1,192,045 256,724 116,059 170,933 135,634 3,256,295 6,914,276 434,663 156,190 590,853 - 151,281 151,281 3,847,148 7,065,557 496,795 219,383 447,997 114,275 1,015,000 716,178 1,577,272 19,159 19,159 10,764 10,764 735,337 1,588,036 3,111,811 5,477,521 41,312,862 40,100,112 1,354,514 1,180,709 (39,560,112) (35,812,557) 4,547 9,257 3,111,811 5,477,521 Note 9 10A 11 12 10B 13 14A 14B 15 16 17 19 20 21 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. AERIS ENVIRONMENTAL LTD P A G E 2 4 C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017 Balance at 1 July 2015 38,600,112 1,186,581 (33,749,830) - 6,036,863 Equity Reserves $ $ Accumulated Non-controlling Total attributable to equity losses $ interest holders of the entity $ $ Loss for the year Other comprehensive income / (loss) Total comprehensive loss for the year Non-controlling interest Transactions with owners in their capacity as owners: Shares issued during year Share issue cost Value of employee services under ESOP Shares issued as consideration for business combinations Balance at 30 June 2016 Balance at 1 July 2016 Loss for the year Other comprehensive income / (loss) Total comprehensive loss for the year Non-controlling interest shareholding - - - - 1,500,000 - - - - (2,062,727) (3,204) (6,810) (6,810) - (2,062,727) - - - 938 - - . - - - - - (3,204) 12,461 - - - - 40,100,112 1,180,709 (35,812,557) 40,100,112 1,180,709 (35,812,557) 9,257 9,257 - (3,747,555) (4,710) 30,688 30,688 - - (3,747,555) (4,710) - - - - - - - - - - - - (2,065,931) (6,810) (2,072,741) 12,461 1,500,000 - 938 - 5,477,521 5,477,521 (3,752,265) 30,688 (3,721,577) - 1,212,750 143,117 Transactions with owners in their capacity as owners: Shares issued during year 1,212,750 Value of employee services under ESOP - 143,117 Balance at 30 June 2017 41,312,862 1,354,514 (39,560,112) 4,547 3,111,811 The above statement of changes in equity should be read in conjunction with the accompanying notes. ANNUAL REPORT 2017C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S P A G E 2 5 FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) R&D tax offset rebate received Interest and other income received Interest paid Note 2017 $ 2016 $ 1,810,167 819,277 (6,317,344) (4,450,469) 351,960 71,235 135,443 583,402 (38,307) (97,788) Net cash used in operating activities 33 (b) (4,058,081) (3,074,345) CASH FLOWS FROM INVESTING ACTIVITIES Investment in term deposits Purchase of property, plant and equipment Net cash (used in) / provided by investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from shares issue Loans repaid* Net cash provided by financing activities - 4,800,000 (65,080) (158,755) (65,080) 4,641,245 196,750 - 196,750 - - - NET INCREASE IN CASH AND CASH EQUIVALENTS (3,926,411) 1,566,900 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 5,415,664 3,855,574 Effects of exchange rate changes on cash and cash equivalents 30,688 (6,810) CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 9A 1,519,941 5,415,664 *During the 2017 financial year Directors’ loan amounting to $1,015,000 was repaid by issuing 2,416,665 company’s ordinary shares. During the 2016 financial year Directors’ loan amounting to $1,500,000 was repaid by issuing 3,000,000 company’s ordinary shares. These transactions did not have any effect on the group’s cash flow. The above consolidated statment of cash flows should be read in conjunction with the accompanying notes. AERIS ENVIRONMENTAL LTDP A G E 2 6 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017 NOTE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Summary of significant accounting policies Financial risk management Critical accounting estimates and judgments Revenue Expenses Income tax Loss per share attributable to the ordinary equity -holders of the Company Auditors’ remuneration Cash and other financial assets Current trade and other receivables Inventories Other current assets Non-current assets Current trade and other payables and provisions Current interest bearing payables Non current provisions Contributed equity Options Reserves Accumulated losses Non-controlling interests Particulars relating to controlled entities Commitments for expenditure Key management personnel disclosures Share based payments Related party disclosures Financial instruments disclosures Contingent liabilities Additional company information Subsequent events Operating Segments Information relating to Parent Entity Notes to cash flow statements ANNUAL REPORT 2017 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T M E N T S P A G E 2 7 1 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Corporate information The financial report of Aeris Environmental Ltd (the Company) for the year ended 30 June 2017 was authorised for issue in accordance with a resolution of the Directors on 27 September 2017. Aeris Environmental Ltd (the parent) is a company limited by shares incorporated in Australia whose shares are publicly listed on the relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. New, revised or amending Accounting Standards and Interpretations adopted Australian Stock Exchange (ASX code: AEI). The consolidated entity has adopted all of the new, revised or The nature of the operations and principal activities of the Group are Australian Accounting Standards Board (‘AASB’) that are mandatory described in the Directors’ Report. for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory Basis of preparation have not been early adopted. amending Accounting Standards and Interpretations issued by the This financial report is a general purpose financial report that Any significant impact on the accounting policies of the consolidated has been prepared in accordance with Australian Accounting entity from the adoption of these Accounting Standards and Standards, Australian Accounting Interpretations, other authoritative Interpretations are disclosed below. pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. • AASB 2014-4 - Amendments to Australian Accounting Standards - Clarification of Acceptable Methods of Depreciation and The financial report has been prepared on an accruals basis and Amortisation. is based on historical costs, modified where applicable, by the measurement at fair value of selected non-current assets, financial • AASB 2014-9 - Amendments to Australian Accounting Standards assets and financial liabilities. – Equity Method in Separate Financial Statements. Going Concern • AASB 2015-3 - Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality. The Standard The Group has incurred an operating loss of $3,752,265 for completes the AASB’s project to remove Australian guidance on the year ended 30 June 2017 and has a net asset balance of materiality from Australian Accounting Standards. $3,111,811 as at 30 June 2017. Thecash balance as at 30 June 2017 aggregated to $1,519,941. • AASB 2015-1 - Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012- Subsequent to the end of the financial year, three of the Company’s Non-Executive Directors have provided financial 2014 Cycle, which include: support to the Group through Loan Facility Agreements for a total AASB 5 – Non-current Assets Held for Sale amount of up to $1,500,000, for up to 24 months from the date of and Discontinued Operations the signed Annual Financial Report. In addition, implementation of product marketing measures are expected to improve the cash AASB 7 – Financial Instruments: Disclosure burn rate significantly. As a consequence of the above, the Directors are of the opinion that the Group will have adequate resources to continue to be AASB 134 – Interim Financial Reporting able to meet its obligations as and when they fall due. AASB 119 – Employee Benefits For this reason they continue to adopt the going concern basis • AASB 2015-2 - Amendments to Australian Accounting Standards in preparing the Annual Financial Report. – Disclosure Initiative: Amendments to AASB 101 Statement of Compliance The adoption of the above standards did not have any material impact Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing on the group. AERIS ENVIRONMENTAL LTDP A G E 2 8 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies iii. Cash and cash equivalents Accounting policies are selected and applied in a manner which ensures that the resultant financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions and other events are reported. Cash and cash equivalents comprise cash on hand, cash in banks, investments in money market instruments and short- term deposits with a maturity of three months or less, net of outstanding bank overdrafts. iv. Comparative amounts The following significant accounting policies have been adopted in the preparation and presentation of the financial report and have been consistently applied unless otherwise stated. Where necessary, comparative amounts have been changed to reflect changes in disclosures in the current year. i. Business Combinations v. Depreciation The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. ii. Borrowing costs All assets have limited useful lives and are depreciated/ amortised using the straight line method over their estimated useful lives, taking into account residual values. Depreciation and amortisation rates and methods are reviewed annually for appropriateness. Depreciation and amortisation are expensed. Depreciation and amortisation are calculated on a straight line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life. The following estimated useful lives are used in the calculation of depreciation. - Computer equipment - Computer software - Field equipment - Office furniture - Plant and equipment - Leasehold improvements - Field equipment under finance lease 2-3 years 3 years 2-3 years 5 years 2-3 years 6 years 2-3 years vi. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year. Borrowing costs include interest or finance charges in respect of finance leases. Interest payments in respect of financial instruments classified as liabilities are included in borrowing costs. Borrowing costs are expensed as incurred. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account ANNUAL REPORT 2017 P A G E 2 9 1 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. vii. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payment Share-based compensation benefits are provided to employees via the Aeris Environmental Ltd Employee Option Plan. Information relating to these schemes is set out in Note 25. The fair value of options granted under the Employee Option Plan is recognised as an employee benefit expenses with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using a Black-Scholes option pricing model. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity. viii. Financial Assets Financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are either: i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit; or ii) designated as such upon initial recognition, where they are managed on a fair value basis or to eliminate or significantly reduce an accounting mismatch. Except for effective hedging instruments, derivatives are also categorised as fair value through profit or loss. Fair value movements are recognised in profit or loss. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets, principally equity securities, that are either designated as available-for-sale or not classified as any other category. After initial recognition, fair value movements are recognised in other comprehensive income through the available-for-sale reserve in equity. Cumulative gain or loss previously reported in the available-for-sale reserve is recognised in profit or loss when the asset is derecognised or impaired. AERIS ENVIRONMENTAL LTD P A G E 3 0 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ix. Financial Instruments issued by the company Debt and Equity Instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual agreement. Interest Interest is classified as an expense consistent with the balance sheet classification of the related debt or equity instruments. x. Financial liabilities Group companies The results and financial positions of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; Income and expenses for each income statement are translated at average exchange rates; and • • All resulting exchange differences are recognised as a separate component of equity. The Group classifies its financial liabilities as measured at amortised cost. The Group does not use derivative financial instruments in economic hedges of currency or interest rate risk. These financial liabilities include the following items: Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. Lease liabilities are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument and subsequently carried at amortised cost using the effective interest method. xi. Foreign currency Foreign currency transactions All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at reporting date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. On consolidation, exchange difference arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in the foreign currency translation reserve. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the statement of profit or loss and other comprehensive income as part of the gain or loss on sale where applicable. xii. Functional and presentation currency The functional and presentation currency of Aeris Environmental Ltd and its Australian subsidiaries is Australian dollars (A$). Overseas subsidiaries use the currency of the primary economic environment in which the entity operates, which is translated to the presentation currency upon consolidation. xiii. Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense. Receivables and payables are recognised inclusive of GST. Exchange differences are recognised in statement of profit or loss and other comprehensive income in the period in which they arise. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the statement of cash flows on a ANNUAL REPORT 2017 P A G E 3 1 Deferred tax is accounted for 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. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Tax consolidation The company and all its wholly-owned Australian resident entities have entered into a tax consolidated group under Australian taxation law. The company is the head entity in the tax-consolidated group comprising all the Australian wholly-owned subsidiaries set out in Note 22. The head entity recognises all of the current and deferred tax assets and liabilities of the tax consolidated group (after elimination of intragroup transactions). xvi. Inventories Inventories and raw materials are carried at the lower of cost and net realisable value. Costs are assigned on first in first out basis. 1 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. xiv. Impairment of assets At each reporting date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase. xv. Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. AERIS ENVIRONMENTAL LTD P A G E 3 2 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES xvii. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires anassessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. xviii. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Aeris Environmental Limited (‘company’ or ‘parent entity’) as at 30 June 2017 and the results of all subsidiaries for the year then ended. Aeris Environmental Limited and its subsidiaries together are referred to in these financial statements as the ‘consolidated entity’. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Subsidiaries are accounted for at cost in the separate financial statements of Aeris Environmental Ltd less any impairment charges. xix. Provisions Provisions are recognised when the consolidated entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is probable that recovery will be received and the amount of the receivable can be measured reliably. ANNUAL REPORT 2017 P A G E 3 3 1 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. xx. Research and development Research and development expenditure is expensed as incurred except to the extent that development expenditure recoverability is assured beyond reasonable doubt, in which case it is capitalised. Deferred development expenditure is amortised on a straight line basis over the period during which the related benefits are expected to be realised once commercial production has commenced. xxi. Recoverable amount of non-current assets The carrying amounts of non-current assets valued on the cost basis are reviewed to determine whether they are in excess of their recoverable amount at reporting date. If the carrying amount of a non-current asset exceeds its recoverable amount, the asset is written down to the lower amount. The write-down is expensed in the reporting period in which it occurs. Where a group of assets working together supports the generation of cash inflows, recoverable amount is assessed in relation to that group of assets. In assessing recoverable amounts of non-current assets, the relevant cash flows have been discounted to their present value. xxii. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: incurred to date as a percentage of total estimated labour hours for each contract. When the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered. Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants related to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Interest income Interest income is recognised as it is accrued using the effective interest rate method. Other income Other income is recognised as it is earned. xxiii. Share capital Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group’s ordinary shares are classified as equity instruments. Any transaction costs associated with the issuing of shares are deducted from share capital. The Group is not subject to any externally imposed capital requirements. xxiv. Borrowings and Convertible notes Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method if the impact is material to the financial report. Sale of goods and disposal of assets Revenue from the sale of goods and disposal of assets is recognised when the consolidated entity has passed the risks and rewards of the goods or assets to the buyer. Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non-current. Revenue from services Revenue from consultancy and engineering services is recognised by reference to the stage of completion. Stage of completion is measured by reference to labour hours Convertible notes are separated into liability and equity components based on the terms of the contract. AERIS ENVIRONMENTAL LTD P A G E 3 4 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES On issuance of the convertible notes, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond. This amount is classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in equity. Transaction costs are deducted from equity, net of associated income tax. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible notes based on the allocation of proceeds to the liability and equity components when the instruments are initially recognised. xxv. Trade and other payables Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services. Trade accounts payable are normally settled within 30 days. xxvi. Trade and other receivables Trade and other receivables are recognised initially at fair value and generally due for settlement within 60 days. The collectability of debts is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is recognised in the income statement as financial expenses. xxvii. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 32. xxviii. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principle market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. ANNUAL REPORT 2017 P A G E 3 5 2. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks; market risk (including currency risk, credit risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. (a) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group is exposed to foreign exchange risk predominantly arising from currency exposures to the US dollar on its loans to its overseas subsidiaries. Currency protection measures may be deemed appropriate in specific commercial circumstances and are subject to strict limits laid down by the Board. The Group has not entered into any foreign currency hedging contracts during the year. (b) Credit risk Credit risk arises from the potential failure of counterparties to meet their obligations under the respective contracts at maturity. There is negligible credit risk on financial assets of the Group since there is limited exposure to individual customers and the economic entity’s exposure is limited to the amount of cash, short term deposits and receivables which have been recognised in the balance sheet. (c) Cash flow and fair value interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are not materially exposed to changes in market interest rates. The Group had a significant interest-bearing liability of $1,015,000 (loan from Directors). Interest is charged on this loan @ 5.45% (ATO benchmark rates). This loan was fully repaid by issue of ordinary shares in Aeris Environmental Ltd. (d) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding to enable the company to operate as a going concern. The Board monitors liquidity on a monthly basis and management monitors liquidity on a daily basis. AERIS ENVIRONMENTAL LTD P A G E 3 6 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 3 . CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (b) Recovery of deferred tax assets Deferred tax assets are not recognised for deductible temporary differences until management considers that it is probable that future taxable profits will be available to utilise those temporary differences. (c) Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using the Black & Scholes model, with the assumptions detailed in Note 25. The accounting estimates and assumptions relating to equity-settled share- based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity. (d) Fair value of financial instruments When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgments and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Management has identified the following critical accounting policies for which significant judgments, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements. The following critical estimates and judgments have been made in respect of the following items: (a) Impairment of non-financial assets other than goodwill The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. These include product and manufacturing performance, technology, economic and political environments and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined. Given the current uncertain economic environment management considered that the indicators of impairment were significant enough and as such these assets have been tested for impairment in this financial period. ANNUAL REPORT 2017 4 . REVENUE Revenue Revenue from sales Revenue from services Other Revenue Interest - other entities Miscellaneous 5 . EXPENSES Loss before income tax includes the following items of expense: Depreciation and amortisation expense Depreciation of leasehold plant and equipment Depreciation of plant and equipment Total depreciation and amortisation expense Employee benefit expenses Base salary and fees Superannuation & statutory oncosts Share based payment expense (Note 25(a) ) Other employee expenses Total employee benefit expenses Financial expenses Interest paid Other Expenses Impairment of receivables Rental & occupancy expenses Research and development expenses P A G E 3 7 2017 $ 2016 $ 1,564,323 1,182,493 635,714 742,372 2,746,816 1,378,086 92,790 42,653 205,130 378,272 135,443 583,402 2017 $ 6,332 51,962 58,294 2016 $ 5,277 28,511 33,788 1,728,921 1,396,024 349,709 252,555 143,117 16,459 938 19,636 2,238,206 1,669,153 37,848 37,848 674,624 248,173 508,725 97,788 97,788 30,957 225,982 449,688 AERIS ENVIRONMENTAL LTDP A G E 3 8 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 6 . INCOME TAX (a) Income tax benefit The prima facie income tax benefit on pre-tax accounting loss reconciles to the income tax benefit in the financial statements as follows: Loss for year Income tax benefit calculated at 30% 2017 $ 2016 $ (4,177,265) (2,489,126) (1,253,180) (746,738) Temporary differences and tax losses not recognised 1,562,205 746,456 - non deductible expenses - Share based payments R&D tax offset rebate received R&D tax offset rebate recevable Income tax benefit attributable to loss (b) Deferred tax balances not recognised Calculated at 30% not brought to account as assets: Interest receivable Deferred tax liabilities Deferred tax assets Tax losses 42,935 281 (351,960) (425,000) (71,235) (351,960) (425,000) (423,195) 2017 $ - - 2016 $ 10,744 10,744 Revenue tax losses available for offset against future tax income 6,951,832 6,302,941 Temporary differences Provision for doubtful debts Provision for employee entitlements Difference between book and tax values of fixed assets Accruals Total deferred tax assets Net deferred tax asset not recognised 84,000 71,563 48,096 7,950 84,107 32,050 49,569 7,200 211,609 172,926 7,163,441 6,475,867 7,163,441 6,465,122 ANNUAL REPORT 2017 P A G E 3 9 (c) Tax consolidation iiMethod of measurement of tax amounts iRelevance of tax consolidation to the consolidated entity Legislation to allow groups comprising a parent entity and its Australian resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes (‘the tax consolidation system’) was substantively enacted on 21 October 2002. The Company, its wholly- owned Australian resident entities and its sister entities within Australia are eligible to consolidate for tax purposes under this legislation and have elected to implement the tax consolidation system from 1 July 2005. The tax consolidated group has adopted the “stand-alone” method of measuring current and deferred tax amounts applicable to each company. iiiTax sharing agreements There are no tax sharing or funding agreements in place. ivTax consolidation contributions There were no amounts recognised for the period as tax consolidations contributions by (or distributions to) equity participants of the tax consolidated group. 7. LOSS PER SHARE AT TRIBUTABLE TO THE ORDINARY EQUIT Y-HOLDERS OF THE COMPANY Basic loss per share (cents per share) Diluted loss per share (cents per share) Net loss used to calculate basic EPS Net loss used to calculate diluted EPS Weighted average number of ordinary shares used to calculate basic EPS Convertible share options Weighted average number of ordinary shares used to calculate diluted EPS 8 . AUDITORS’ REMUNER ATION Remuneration of UHY Haines Norton for : Audit of the annual financial report Review of the half yearly financial report Other services 2017 $ (2.40) 2016 $ (1.35) (2.40) (1.35) (3,747,555) (2,062,727) (3,747,555) (2,062,727) 156,329,954 152,977,902 - - 156,329,954 152,977,902 2017 $ 25,000 12,500 4,330 2016 $ 22,000 11,000 4,200 Total auditors remuneration 41,830 37,200 AERIS ENVIRONMENTAL LTD P A G E 4 0 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 9. CASH AND OTHER FINANCIAL ASSETS Cash and cash equivalents Cash at bank and on hand Term Deposits Deposits on call The carrying amounts of the Group’s cash are a reasonable approximation of their fair values. 1 0 . CURRENT TR ADE AND OTHER RECEIVABLES (a) Current trade and other receivables Trade receivables Less provision for doubtful debts R&D tax offset rebate receivable The carrying amounts of the Group’s current trade and other receivables are a reasonable approximation of their fair values. Impairment of receivables Less than 6 months overdue More than 6 months overdue Movements in provision for impairment of receivables Opening balance Additional provisions recognised Foreign exchange difference Closing balance Amounts recognised in profit or loss During the year, the following losses were recognised in profit or loss in relation to impaired receivables. Impairment losses Individually impaired receivables Movement in provision for impairment 2017 $ 2016 $ 514,514 59,508 1,000,000 5,350,000 5,427 6,156 1,519,941 5,415,664 2017 $ 2016 $ 1,247,126 1,120,443 (308,555) (280,358) 425,000 351,960 1,363,571 1,192,045 - - 308,555 280,358 280,358 278,669 30,000 (1,803) - 1,689 308,555 280,358 (644,624) (30,957) (30,000) - (674,624) (30,957) (b) Non-current trade and other receivables 434,663 - The carrying amounts of non-current trade and other receivables represent amount due from customers for SmartENERGY® projects completed during 2017 financial year which are receivable over 60 months and accounted at fair values. The fair values were calculated based on cash flows discounted using rate appropriate to credit rating of customers. ANNUAL REPORT 2017 P A G E 4 1 2017 $ 256,724 256,724 2016 $ 170,933 170,933 2017 $ 71,144 3,829 41,086 2016 $ 92,086 35,813 7,735 116,059 135,634 11 . INVENTORIES Inventories - at cost 12. OTHER CURRENT ASSETS Prepayments Accrued income Deposits and bonds The carrying amounts of the Group’s other current assets are a reasonable approximation of their fair values. AERIS ENVIRONMENTAL LTD P A G E 4 2 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 13 . NON- CURRENT ASSETS Carrying Values 2017 Property, plant and equipment R & D equipment Computer equipment Field equipment Leasehold improvements Office furniture Plant and equipment 2016 Property, plant and equipment R & D equipment Computer equipment Field equipment Leasehold improvements Office furniture Plant and equipment Reconciliations 2017 R & D equipment Computer equipment Leasehold improvements Office furniture Plant and equipment 2016 R & D equipment Computer equipment Leasehold improvements Office furniture Plant and equipment Cost $ Accumulated depreciation / impairment Net carrying value $ $ 25,011 187,964 58,747 130,228 175,566 106,079 (24,824) (151,340) (58,747) (103,919) (101,237) (87,338) 187 36,624 - 26,309 74,329 18,741 683,595 (527,405) 156,190 25,011 (23,764) 159,236 (127,556) 58,747 130,228 165,091 82,079 (58,747) (97,587) (80,130) (81,328) 1,247 31,680 - 32,641 84,961 752 620,392 (469,112) 151,281 Opening net carrying value Additions Disposals Depreciation / Exchange Closing net Impairment movements carrying value $ $ $ $ $ $ 1,247 31,680 32,641 84,961 752 151,281 3,007 13,617 - 9,690 - - 28,728 - 10,475 24,000 63,203 - 31,301 37,918 88,510 1,025 26,314 158,754 - - - - - - - - - - - - (1,060) (23,784) (6,332) (21,108) (6,010) (58,294) (1,760) (13,239) (5,277) (13,239) (273) (33,788) - - - - - - - - - - - - 187 36,624 26,309 74,329 18,741 156,190 1,247 31,680 32,641 84,961 752 151,281 ANNUAL REPORT 2017 14 . CURRENT TR ADE AND OTHER PAYABLES AND PROVISIONS (a) Unsecured trade and other payables Trade creditors Other payables and accruals GST payable (b) Provisions Annual leave Long service leave P A G E 4 3 2017 $ 379,506 103,816 13,473 496,795 2016 $ 217,111 215,028 15,858 447,997 199,103 20,280 96,068 18,207 219,383 114,275 The carrying amounts of the Group’s current trade and other payables and provisions are a reasonable approximation of their fair values. 15 . CURRENT INTEREST BEARING PAYABLES Unsecured loans from Directors and related entities 2017 $ - - 2016 $ 1,015,000 1,015,000 The carrying amounts of the Group’s current interest bearing payables are a reasonable approximation of their fair values. Interest on loans from Directors and related entities is charged at 5.45% per annum (ATO benchmark rates). AERIS ENVIRONMENTAL LTD P A G E 4 4 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 16 . NON- CURRENT PROVISIONS Long service leave 2017 $ 19,159 19,159 2016 $ 10,764 10,764 The carrying amounts of the Group’s non-current provisions are a reasonable approximation of their fair values. 17. CONTRIBUTED EQUIT Y Share capital 157,745,387 fully paid ordinary shares - no par value (2016: 154,428,722) Fully paid ordinary shares carry one vote per share and carry the right to dividends. Other contributed equity Consideration for issue of share options 2017 $ 2016 $ 41,207,986 39,995,236 104,876 104,876 41,312,862 40,100,112 Movement in ordinary share capital of Aeris Environmental Ltd Number of shares 2017 2017 $ 2016 Number of shares 2016 $ Balance at beginning of year Shares issued during year 154,428,722 39,995,236 151,428,722 38,495,236 Shares issued to Directors towards repayment of their loan 2,416,665 1,015,000 3,000,000 1,500,000 Shares issued to KMP on exercise of options Shares issued to consultants on exercise of options 750,000 150,000 196,250 1,500 - - - - Balance at end of year 157,745,387 41,207,986 154,428,722 39,995,236 For the purposes of these disclosures, the Group considers its capital to comprise its ordinary share capital and accumulated losses. Neither the share based payments reserve nor the translation reserve is considered as capital. ANNUAL REPORT 2017 P A G E 4 5 18 . OPTIONS Grant Date Expiry Date Exercise Price Number on issue 30 June 2016 Granted during year Expired during year Exercised during year Number on issue 30 June 2017 2017 Unlisted * ** * * * 17-Nov-11 17-Nov-16 26-Jul-12 23-Feb-17 31-Jul-14 08-Jan-15 31-Jul-19 31-Jul-16 23-Dec-16 14-Oct-21 23-Dec-16 23-Oct-21 23-Dec-16 01-Aug-20 Total options on issue 2016 Unlisted * * ** * 07-Mar-11 09-Jan-16 31-Mar-11 17-Mar-16 17-Nov-11 17-Nov-16 26-Jul-12 23-Feb-17 31-Jul-14 08-Jan-15 31-Jul-19 31-Jul-16 Total options on issue 0.17 0.22 0.20 0.31 0.42 0.42 0.42 0.25 0.15 0.17 0.22 0.20 0.31 250,000 20,000 500,000 500,000 - - - . - - - - 100,000 945,000 450,000 - (250,000) (20,000) - - - - - - - (500,000) - - (150,000) - - 500,000 - 100,000 945,000 300,000 1,270,000 1,495,000 (20,000) (900,000) 1,845,000 150,000 50,000 250,000 20,000 500,000 500,000 1,470,000 - - - - - - - (150,000) (50,000) - - - - (200,000) - - - - - - - - - 250,000 20,000 500,000 500,000 1,270,000 These options do not entitle the holder to participate in any share issue of the Company or any other body corporate unless the options are exercised prior to the new share issue entitlement date. ** Share options issued as consideration for business combinations * These options expire on the earlier of their expiry date or the date of termination of the employee’s employment, or, in the case of voluntary termination, 90 days after voluntary termination of the employee’s employment AERIS ENVIRONMENTAL LTD P A G E 4 6 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 19. RESERVES Foreign currency translation reserve Share based payments reserve Foreign currency translation reserve Balance at beginning of financial year Foreign exchange translation difference Balance at end of financial year Nature and purpose of reserve 2017 $ 2016 $ (51,877) (82,565) 1,406,391 1,263,274 1,354,514 1,180,709 (82,565) 30,688 (75,755) (6,810) (51,877) (82,565) The foreign currency translation reserve records the impact of the movement of the exchange rate as it relates to the company’s investment in overseas subsidiaries. Share based payments reserve Balance at beginning of financial year 1,263,274 1,262,336 Share based payments during the year allocated to: Employees and consultant Key Management Personnel Balance at end of financial year Nature and purpose of reserve The share based payments reserve records the value of options issued to employees, consultants and Directors, as part of the remuneration for their services and issued in consideration for business combinations. 20 . ACCUMULATED LOSSES Balance at beginning of financial year Net loss for year Balance at end of financial year 136,055 7,062 938 - 1,406,391 1,263,274 2017 $ 2016 $ (35,812,557) (33,749,830) (3,747,555) (2,062,727) (39,560,112) (35,812,557) ANNUAL REPORT 2017 P A G E 4 7 2017 $ 9,257 - (4,710) 2016 $ - 12,461 (3,204) 4,547 9,257 21 . NON- CONTROLLING INTERESTS Balance at beginning of financial year 12,500 shares held by non-controlling interest in Aeris Cleantech Pte Ltd, Singapore Net loss for year Balance at end of financial year 2 2. PARTICULARS RELATING TO CONTROLLED ENTITIES Name of entity Controlled entities Aeris Pty Ltd Aeris Biological Systems Pty Ltd Aeris Hygiene Services Pty Ltd Aeris Environmental LLC Aeris Cleantech Pte Ltd Aeris Cleantech Europe Ltd Country of incorporation Ownership interest Ownership interest Australia Australia Australia USA Singapore Malta 2017 % 100 100 100 100 75 100 2016 % 100 100 100 100 75 100 23 . COMMITMENTS FOR EXPENDITURE Lease commitments Operating leases Commitments on operating leases that relate to below office facilities: Thailand operations branch - up to 1 year Registered office in Sydney - up to 1 year Branch office in Brisbane - up to 1 year - 1 to 3 years - 3 to 5 years 2017 $ 2016 $ 3,768 53,645 106,240 212,480 172,312 548,445 - 57,631 33,945 - - 91,576 AERIS ENVIRONMENTAL LTD P A G E 4 8 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 24 . KEY MANAGEMENT PERSONNEL DISCLOSURES (a) The Directors of Aeris Environmental Ltd during the year were: Maurie Stang Bernard Stang Steven Kritzler Alex Sava (appointed 3 October 2016) (b) Other key management personnel Peter Bush (Chief Executive Officer and Alternate Director) Robert Waring (Company Secretary) (c) Compensation The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below: Short-term employee benefits Post-employment benefits Share-based payments 2017 $ 2016 $ 348,748 248,670 26,292 7,062 18,573 925 382,102 268,168 Further, disclosures relating to key management personnel are set out in remuneration report in the Directors’ Report. 25 . SHARE BASED PAYMENTS (a) Recognised share-based payment expenses The expense recognised for employee services received during the year is shown in the table below: Employee Share Option Plan Employees and consultant Key Management Personnel Total amount arising from share-based payment transactions 2017 $ 136,055 7,062 143,117 2016 $ 938 - 938 ANNUAL REPORT 2017 P A G E 4 9 (b) Details of share-based payment plan The share-based payment plan is described in the remuneration report in Directors’ Report. There have been no cancellations or modifications to the plan during 2017 and 2016. Fair value of options issued The fair value of the options granted under the plan is estimated using the Black & Scholes valuation methodology taking into account the terms and conditions under which the options are granted. The weighted average remaining contractual life for the share options outstanding as at 30 June 2017 is 3.51 years (2016: 1.33 years). The range of exercise prices for options outstanding at the end of the year was $0.20 to $0.42 (2016: $0.17 to $0.31). Following options were issued during the year. To employees and consultants To Key Management Personnel Number of options 2017 2016 1,345,000 150,000 1,495,000 - - - The following table shows the inputs to the Black & Scholes model in respect of options granted during 2017 financial year. Value of Underlying Stock Exercise Price Dividend Yield Volatility (per Year) Risk free rate Maturity Pricing Date Value of Option To Employees and Consultants To Key Management Personnel Options issued 0.370 0.420 0.00% 108.29% 2.34% 1/08/2020 23/12/2016 0.3620 0.370 0.420 0.00% 108.29% 2.34% 0.370 0.420 0.00% 108.29% 2.34% 0.370 0.420 0.00% 108.29% 2.34% 23/10/2021 23/10/2021 14/10/2021 23/12/2016 23/12/2016 23/12/2016 0.2828 0.2828 0.2823 AERIS ENVIRONMENTAL LTD P A G E 5 0 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 26 . RELATED PART Y DISCLOSURES (a) Parent Entity Aeris Environment Ltd. is the parent entity Subsidiaries Interests in subsidiaries are set out in note 22. (b) Key management personnel Disclosures relating to key management personnel are set out in note 24 and the remuneration report in the Directors’ Report. (c) Transactions with Directors and Director related entities Disclosures relating to transactions with Directors and Director related entities are set out in the remuneration report in the Directors’ Report. 27. FINANCIAL INSTRUMENTS DISCLOSURES (a) Capital The Group considers its capital to comprise its ordinary share capital and accumulated retained earnings. In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. In order to achieve this objective, the Group seeks to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through new share issues or debt, the Group considers not only its short-term position but also its long-term operational and strategic objectives. (b) Financial instrument risk exposure and management In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. (c) Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risks arise, are as follows: cash at bank; other receivables; deposits and bonds; and trade and other payables. ANNUAL REPORT 2017 P A G E 5 1 (d) General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and has the responsibility for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Board receives monthly reports through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below: i. Credit risk Credit risk arises principally from the Group’s trade receivables, cash and term deposits. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk at balance sheet date is as follows : Without external credit rating Trade receivables R&D tax offset rebate receivable Deposits and bonds With external credit rating (Moody’s) Deposits with Bankwest (credit rating Aa2) Deposits with Wells Fargo, USA (credit rating Aa1) Deposits with ANZ Bank (credit rating Aa2) ii Liquidity risk 2017 $ 1,247,126 425,000 48,518 2016 $ 1,120,443 351,960 7,735 1,000,812 5,356,156 3,440 493,888 2,851 56,657 3,218,784 6,895,802 Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances (or agreed facilities) to meet expected requirements for a period of at least 45 days. The Board receives cash flow projections on a monthly basis as well as information regarding cash balances. At the balance sheet date, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. The Group does not have a financing facility in place. AERIS ENVIRONMENTAL LTD P A G E 5 2 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Maturity analysis of financial assets and liability based on management’s expectations The risk implied from the values shown in the table below, reflects a balanced view of cash inflows and outflows. Trade payables and other financial liabilities mainly originate from the financing of assets used in our ongoing operations such as property, plant, equipment and investments in working capital (e.g. trade receivables and inventories). These assets are considered in the Group’s overall liquidity risk. Maturity analysis - 2017 Financial assets Cash and cash equivalents Other receivables Security deposits TOTAL Financial liabilities Trade Creditors Other payables and accruals Loans TOTAL Cash flows < 6 mths 6 - 12 mths 1 - 3 years > 3 years $ $ $ $ $ 1,523,770 1,523,770 - - - 1,877,762 1,346,405 61,720 246,882 222,755 41,086 29,300 - - 11,786 3,442,618 2,899,475 61,720 246,882 234,541 379,506 117,289 - 379,506 117,289 - 496,795 496,795 - - - - - - - - - - - - NET MATURITY 2,945,823 2,402,679 61,720 246,882 234,541 Maturity analysis - 2016 Financial assets Cash and cash equivalents Other receivables Security deposits TOTAL Financial liabilities Trade Creditors Other payables and accruals Loans TOTAL 5,463,779 5,463,123 1,192,045 1,192,045 7,735 - 6,663,559 6,655,168 217,111 217,111 230,886 230,886 657 - - 657 - - 1,070,318 27,659 1,042,659 1,518,314 475,656 1,042,659 NET MATURITY 5,145,245 6,179,512 (1,042,002) - - - - - - - - - - - 7,735 7,735 - - - - 7,735 ANNUAL REPORT 2017 P A G E 5 3 iii Market risk (a) Interest rate risk The Group’s exposure to fluctuations in interest rates that are inherent in financial markets arise predominantly from assets and liabilities bearing variable interest rates. The company’s exposure to interest rate risk and the effective weighted average interest rate for classes of financial assets and financial liabilities is set out below : Note Weighted Average Interest Rates Floating Interest Rates Fixed Interest Rates Non-Interest Bearing Total 2017 Financial assets Cash and cash equivalents Deposits Receivables Total Assets Financial liabilities Payables Total Liabilities Net financial assets 2016 Financial assets Cash and cash equivalents Deposits Receivables Total Assets Financial liabilities Payables Loans Total Liabilities Net financial assets 9 9 10 14 9 9 10 14 15 1.00% 2.20% 5.50% 0.00% 2.00% 2.70% 0.00% 0.00% 5.45% 5,427 - 514,514 519,941 - - 1,000,000 41,086 1,041,086 612,945 1,185,289 1,798,234 5,427 1,612,945 1,740,889 3,359,261 - - - - 496,795 496,795 496,795 496,795 5,427 1,612,945 1,244,094 2,862,466 6,156 - 59,508 65,664 - - 5,350,000 7,735 5,357,735 - 1,192,045 1,192,045 6,156 5,350,000 1,259,289 6,615,444 - - - - 447,997 447,997 1,015,000 1,015,000 - 1,015,000 447,997 1,462,997 6,156 4,335,000 811,292 5,152,448 The following sensitivity analysis is based on the interest rate risk exposure in existence at the balance sheet date. The analysis assumes all other variables remain constant. AERIS ENVIRONMENTAL LTD P A G E 5 4 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Sensitivity analysis 2017 Deposits on call Tax charge of 30% Post tax profit increase / (decrease) 2016 Deposits on call Tax charge of 30% Post tax profit increase / (decrease) (b) Currency risk Carrying amount +3% interest rate Profit & Loss -3% interest rate Profit & Loss $ $ $ 5,427 5,427 6,156 6,156 163 163 (49) 114 185 185 (55) 130 (163) (163) 49 (114) (185) (185) 55 (130) The Group’s policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency with the cash generated from their own operations in that currency. Where group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settle them) cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group. The Group’s exposure to foreign currency risk is as follows: Cash at bank Trade and other receivables Trade and other payables Net Exposure 2017 US$ 2,644 11,672 (2,162) 12,154 2016 US$ 2,061 800 (1,336) 1,525 2017 SGD 9,684 12,500 - 22,184 2016 SGD - - (10,700) (10,700) 2017 Euro 2016 Euro 5,000 5,000 - - - - 5,000 5,000 Sensitivity analysis on the foreign currency exposure risk is not disclosed as the foreign currency balances are not material and the impact of any change in exchange rates would be immaterial. (e) Fair value measurement The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Therefore, table detailing the consolidated entity’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement is not required. ANNUAL REPORT 2017 P A G E 5 5 28 . CONTINGENT LIABILITIES There are no contingent liabilities of the company or the Group other than commitments disclosed in note 23 (2016: NIL) 29. ADDITIONAL COMPANY INFORMATION Aeris Environmental Ltd is a listed public company, incorporated in Australia. Principal registered office and principal place of business 5/26-34 Dunning Avenue ROSEBERY NSW 2018 3 0 . SUBSEQUENT EVENTS There have been no matters or circumstances, which have arisen since 30 June 2017 that have significantly affected or may significantly affect: (a) the operations, in financial years subsequent to 30 June 2017, of the consolidated entity; or (b) the results of those operations; (c) the state of affairs, in the financial years subsequent to 30 June 2017, of the consolidated entity; other than: the provision by three of the Company’s Non-Executive Directors of financial support to the Group through Loan Facility Agreements for a total amount of up to $1,500,000 for up to 24 months from the date of the signed Annual Financial Report. AERIS ENVIRONMENTAL LTD P A G E 5 6 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 31 . OPER ATING SEGMENTS Identification of reportable segments From Board of Directors’ (Chief Operating Decision Makers’ - CODM) perspective, the Group is organised into business units based on its geographical area of operation. The Group has identified two reportable segments as mentioned below. The reportable segments are based on aggregated operating segments determined by the similarity of the revenue stream and products sold and/or the services provided in Australia and internationally, as these are the sources of the Group’s major risks and have the most effect on the rates of return. The CODM reviews revenue, COGS, operating expenses, profit before tax, assets & liabilities for the following segments: (a) Australia - Sales and service on account of Australian operations (b) International - Sales & service on account of international operations Intersegment transactions Intersegment transactions are made at arm’s length and are eliminated on consolidation. Intersegment receivables, payables and loans Intersegment loans are initially recognised at the consideration received & are eliminated on consolidation. Major Customer The Group supplies to three of its major customers, through Australian sales segment, (who individually amount to 10% or more of its total revenue) that combined account for 51% of external revenue (2016: Two major customers combined account for 56%). During the year ended 30 June 2017 the most significant client accounts for approximately 21% (2016: 45%) of the consolidated entity’s external revenue through Australian Sales operating segment. ANNUAL REPORT 2017 P A G E 5 7 Operating segment information of the consolidated entity 2017 Revenue Sales Other Income Total Revenue Expenses Cost of goods sold Operating expenses Total Expenses Australia International Intersegment eliminations Consolidated $ $ $ $ 2,722,037 135,443 2,857,480 1,038,388 5,993,227 7,031,615 35,827 - 35,827 11,021 50,878 61,899 (11,048) - (11,048) (11,047) (22,943) (33,990) 2,746,816 135,443 2,882,259 1,038,362 6,021,162 7,059,524 Loss before tax (4,174,135) (26,072) 22,942 (4,177,265) 2016 Revenue Sales Other Income Total Revenue Expenses Cost of goods sold Operating expenses Total Expenses 1,378,086 583,402 1,961,488 350,272 4,088,856 4,439,128 - - - - - - - - 46,398 46,398 (34,912) (34,912) 1,378,086 583,402 1,961,488 350,272 4,100,342 4,450,614 Loss before tax (2,477,640) (46,398) 34,912 (2,489,126) Segment assets and liabilities Assets Liabilities Australia International Total Intersegment elimination Consolidated 2017 $ 2016 $ 2017 $ 2016 $ 3,935,420 59,002 3,994,422 (147,274) 3,847,148 7,177,670 62,834 7,240,504 (174,947) 7,065,557 2,551,084 1,926,205 4,477,289 3,400,066 2,021,036 5,421,102 (3,741,952) (3,833,066) 735,337 1,588,036 AERIS ENVIRONMENTAL LTDP A G E 5 8 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 32. INFORMATION RELATING TO AERIS ENVIRONMENTAL LTD (“ THE PARENT ENTIT Y ” ) Current Assets Total Assets Current Liabilities Total Liabilities Issued Capital (net of costs) Accumulated losses Share-based payment reserve Net loss for the period Total comprehensive loss for the period 2017 $ 2016 $ 3,295,751 6,977,382 3,931,642 7,173,701 712,367 565,508 731,526 1,580,508 41,312,861 40,100,111 (39,519,136) (35,770,192) 1,406,391 1,263,274 3,200,116 5,593,193 (3,748,943) (2,054,344) (3,718,255) (2,061,154) Contractual Obligations / Commitments (Refer Note 23) - - 3 3 . NOTES TO CASH FLOW STATEMENTS (a) Reconciliation of cash For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statement of cash flows is reconciled in the related items in the statement of financial position as follows: Cash at bank and on hand Term Deposits Deposits on call 2017 $ 2016 $ 514,514 59,508 1,000,000 5,350,000 5,427 6,156 1,519,941 5,415,664 ANNUAL REPORT 2017 P A G E 5 9 2017 $ 2016 $ (3,752,265) (2,065,931) 58,294 674,624 143,117 64,745 - 938 (1,280,813) (1,048,579) (85,790) 20,915 175,055 (124,721) 113,503 (124,172) (58,223) 55,393 48,861 52,622 (b) Reconciliation of operating loss after income tax to net cash flows from operating activities Operating loss after income tax Non cash/non-operating items included in profit and loss Depreciation and amortisation Impairment of trade receivables Share based payments Changes in assets and liabilities (Increase) in receivables (Increase) in inventory Decrease / (increase) in other assets Increase in trade creditors (Decrease) / Increase in other creditors and accruals Increase in employee entitlement expense Net cash used in operating activities (4,058,081) (3,074,345) AERIS ENVIRONMENTAL LTDP A G E 6 0 D I R E C T O R S ’ D E C L A R A T I O N In accordance with a resolution of directors, I state that: 1 In the opinion of the Directors: (a) the financial statements and notes, as set out on pages 22 to 59, are in accordance with the Corporations Act 2001 and (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and its performance for the year ended on that date; and (ii) complying with Accounting Standards and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1; and (c) There are reasonable grounds to believe that the company and the consolidated entity will be able to pay its debts as and when they become due and payable; 2 This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2017. On behalf of the Board of Directors M STANG Director Sydney, 29 September 2017 ANNUAL REPORT 2017 P A G E 6 1 AERIS ENVIRONMENTAL LTDP A G E 6 2 I N D E P E N D E N T A U D I T O R ’ S R E P O R T ANNUAL REPORT 2017P A G E 6 3 AERIS ENVIRONMENTAL LTDP A G E 6 4 I N D E P E N D E N T A U D I T O R ’ S R E P O R T ANNUAL REPORT 2017P A G E 6 5 AERIS ENVIRONMENTAL LTDP A G E 6 6 I N D E P E N D E N T A U D I T O R ’ S R E P O R T ANNUAL REPORT 2017P A G E 6 7 AERIS ENVIRONMENTAL LTDP A G E 6 8 I N D E P E N D E N T A U D I T O R ’ S R E P O R T ANNUAL REPORT 2017A U S T R A L I A N S E C U R I T I E S E X C H A N G E A D D I T I O N A L I N F O R M A T I O N P A G E 6 9 Additional information required by the Australian Securities Exchange (ASX) Listing Rule 4.10, and not disclosed elsewhere in this Annual Report, is detailed below. This information was prepared based on the Company’s Share Registry information, its option register, ASX releases and the Company’s Constitution. SHAREHOLDING INFORMATION Distribution of Shareholders Analysis of the quoted fully paid ordinary shares by holding as at 18 September 2017: Spread of Holdings Number of Holders Ordinary shares % of Total Issue Capital 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 500,000 500,001 – 1,000,000 1,000,001 and over Total 39 136 115 303 87 22 29 731 22,891 390,258 988,650 11,701,462 20,411,299 15,545,425 108,685,402 157,745,387 0.01 0.25 0.63 7.42 12.94 9.85 68.90 100.00 Based on the market price at 18 September 2017 there were 73 shareholders with less than a marketable parcel of $500 worth of shares at a share price of $0.255. There are no restricted securities on issue. AERIS ENVIRONMENTAL LTDP A G E 7 0 A U S T R A L I A N S E C U R I T I E S E X C H A N G E A D D I T I O N A L I N F O R M A T I O N Statement of Shareholdings as at 18 September 2017 The names of the 20 largest holders of fully paid ordinary shares are listed below: Rank Shareholder Number of Shares % Holding 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Maurie Stang Bernard Stang Link Traders (Aust) Pty Ltd Steven Kritzler J P Morgan Nominees Australia Limited Pulitano Family Superannuation Pty Ltd HSBC Custody Nominees (Australia) Limited – A/C 2 Australian Shareholder Nominees Pty Ltd Bernard Stang + Maurie Stang HSBC Custody Nominees (Australia) Limited Henderson International Pty Ltd Helensleigh Pty Ltd Radley Investment Co Pty Ltd Wakil Family Group Pty Ltd Hillridge Pty Ltd Citicorp Nominees Pty Limited Jamber Investments Pty Ltd Joshua Aaron Ehrlich Paul Ehrlich + Lauren Ehrlich Grizzley Holdings Pty Limited Total of Top 20 Holdings Other Holdings Total Ordinary Shares 17,779,749 14,863,673 14,651,539 8,331,609 6,382,355 5,564,447 5,243,500 4,543,144 4,184,046 2,819,366 2,474,714 2,438,854 2,225,210 2,157,300 2,024,650 1,859,589 1,782,988 1,700,000 1,525,000 1,388,275 103,940,008 53,805,379 11.27 9.42 9.29 5.28 4.05 3.53 3.32 2.88 2.65 1.79 1.57 1.55 1.41 1.37 1.28 1.18 1.13 1.08 0.97 0.88 65.90 34.10 157,745,387 100.00 ANNUAL REPORT 2017A U S T R A L I A N S E C U R I T I E S E X C H A N G E A D D I T I O N A L I N F O R M A T I O N P A G E 7 1 Unquoted Equity Securities For details of the unissued ordinary shares the Company has under option, refer below and to the “Share Options” section of the Directors’ Report. Number Class of Options Number of Holders 500,000 100,000 725,000 250,000 Options held by each of Chris Rogerson and Scott Gregson, which expire on 31 July 2019 and have an exercise price of 20 cents Options held by Director Alex Sava, which expire on 14 October 2021 and have an exercise price of 42 cents, issued under the Company’s Employee Incentive Plan (EIP) Options held by ten staff members, which expire on 23 October 2021 and have an exercise price of 42 cents, issued under the EIP 220,000 which includes 100,000 options held by Ian Braby, and 50,000 options held by each of Robert Waring and Options held by five key consultants, which expire on 23 October 2021 and have an exercise price of 42 cents, Ian Ernst 300,000 Options held by four consultants, which expire on 1 August 2020 and have an exercise price of 1 cent, which includes 200,000 options held by Carl Henin, and 100,000 options held by each of Guy Picken and Rick Lazar 1,845,000 Total Options on Issue 2 1 10 5 4 22 AERIS ENVIRONMENTAL LTDP A G E 7 2 A U S T R A L I A N S E C U R I T I E S E X C H A N G E A D D I T I O N A L I N F O R M A T I O N Voting Rights At general meetings of the Company, all fully paid ordinary shares carry one vote per share without restriction. On a show of hands, every member present at such meetings, or by proxy, shall have one vote and, upon a poll, each share shall have one vote. Option holders have no voting rights until the options are exercised. Substantial Shareholders Substantial shareholders in Aeris Environmental Ltd, based on Substantial Shareholder Notices received by the ASX and the Company, are as follows: Name Maurie Stang Bernard Stang Link Traders (Aust) Pty Ltd Link Enterprises International Pty Ltd Link Enterprises International Pty Ltd Steven Kritzler On-Market Buy-Back There is no current on-market buy-back of shares in the Company. Number 19,816,267 15,928,109 13,659,371 Class Voting Power Ordinary fully paid shares Ordinary fully paid shares Ordinary fully paid shares 12.80% 10.30% 9.02% 8,331,609 Ordinary fully paid shares 5.40% ANNUAL REPORT 2017C O R P O R A T E D I R E C T O R Y P A G E 7 3 AERIS ENVIRONMENTAL LTD ACN: ABN: 093 977 336 19 093 977 336 DIRECTORS Non-Executive Chairman Maurie Stang Steven Kritzler Non-Executive Director Bernard Stang Non-Executive Director Non-Executive Director Alex Sava CHIEF EXECUTIVE OFFICER Peter Bush Chief Executive Officer, Chief Financial Officer and Alternate Director COMPANY SECRETARY Robert Waring REGISTERED AND PRINCIPAL OFFICE Unit 5, 26-34 Dunning Avenue Rosebery NSW 2018 Australia Telephone: Facsimile: Email: Website: +61 2 8344 1315 +61 2 9697 0944 info@aeris.com.au www.aeris.com.au SHARE REGISTRY Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street, Abbotsford VIC 3067 GPO Box 2975, Melbourne VIC 3001 Australia Telephone: Telephone: Facsimile: Website: Investor Link: +61 3 9415 4000 1300 850 505 (within Australia) +61 3 9473 2500 www.computershare.com www.investorcentre.com AUDITOR UHY Haines Norton Sydney Level 11, 1 York Street, Sydney NSW 2000 GPO Box 4137, Sydney NSW 2001 Telephone: Website: + 61 2 9256 6600 www.uhyhnsydney.com.au STOCK EXCHANGE The Company’s fully paid ordinary shares are quoted on the official list of the Australian Securities Exchange (ASX Limited). ASX CODE AEI AERIS ENVIRONMENTAL LTD AERIS ENVIRONMENTAL LTD ACN 093977336