Aeris Environmental
Annual Report 2020

Plain-text annual report

Annual Report 2020 Aeris Environmental Ltd ACN 093977336 01 Chairman and CEO Report 02 Review of Operations 03 Directors’ Report 04 Auditor’s Independence Declaration 05 Consolidated Statement of Profit or Loss and Other Comprehensive Income 06 Consolidated Statement of Financial Position 07 Consolidated Statement of Changes in Equity 08 Consolidated Statement of Cash Flows 09 Notes to the Consolidated Financial Statements 10 Directors’ Declaration 11 Independent Auditor’s Report 12 Australian Securities Exchange (ASX) Additional Information 13 Corporate Directory 1 3 7 23 25 27 29 31 33 63 65 73 77 s t n e t n o C Chairman and CEO Report 1 01Aeris | Annual Report 2020Chairman and CEO Report It is our pleasure to present you with the Annual Report for the year ended 30 June 2020. hospitals, front and first line responders, by producing and delivering products that were in short supply, and that facilitated the operation of key hospitals and health care services for the Australian community. As outlined at our Annual General Meeting (AGM) in November 2019, Aeris has successfully accelerated the global commercialisation of its portfolio of proprietary environmental hygiene and energy efficiency technologies. The global COVID-19 pandemic has created new challenges for our customers and distributors specifically, and society in general, and we have focussed our efforts on delivering advanced solutions to our customers worldwide. As was the case with most companies, we experienced significant issues in our supply chain during early 2020, which our team worked night and day to address. Equally, the number of regulatory submissions that we have filed, and are continuing to file, in jurisdictions internationally has grown dramatically. We have now gained key approvals and listings for our breakthrough Aeris Active, hospital-grade surface disinfectant in Australia, Europe, the UK, SE Asia and beyond. Recently we have been listed on The Australian Register of Therapeutic Goods (ARTG) with high differentiation claims, which include: “hard surface hospital-grade disinfectant cleaner effective against a broad spectrum of bacteria, including Methicillin- resistant Staphylococcus aureus (MRSA) and Vancomycin- resistant Enterococci (VRE), fungi and viruses such as COVID-19 (Sars Cov-2), Norovirus, and influenza viruses. [Aeris’ product provides] residual antibacterial protection for up to 30 days (or 200 touches) against gram-negative E. coli and gram-positive S. aureus, residual COVID-19 kill for up to seven days, and kills COVID-19 in one minute.” This demonstrates class-leading initial kill, with validated residual properties that are second-to-none. Today Aeris has a network of global distributors across our heating, ventilating, and air-conditioning (HVAC), environmental hygiene, and corrosion and mould prevention portfolios. We have recently restructured our efforts in China, coming together with Shanghai Taitrust Industrial Group Co., Ltd, and are in the process of establishing our own Wholly-Owned Foreign Entity in China. In the USA, we have a wholly-owned subsidiary based in Texas, with distribution in place for our HVAC portfolio through Goodman (Daikin) and other leading entities. We have submitted documentation to the USA EPA for a Section 18 emergency use application for Aeris Active, at both Federal and State levels. These applications are currently being assessed. Aeris has successfully manufactured Aeris Active in bulk and is awaiting relevant approvals to sell into the USA market. Environmental, social and governance (ESG) issues are important drivers of both Aeris’ strategy and its actions. The Company is intent on building ESG considerations into the long-term strategy of the business. Our products are directly aimed at providing environmentally-friendly solutions to our global customers, whilst lifting efficacy and performance levels to a new standard of care. We are actively working to lower the carbon footprint of both the Company and the users of its products and services by promoting energy efficiency that derives two benefits, being lower cost of ownership and longer asset life in the HVAC infrastructure. We are encouraging our production plants to reduce waste, improve packaging and, critically, to optimise the entire supply chain to minimise the Company’s carbon footprint. Our efforts in the elimination of toxic mould see measurable improvements in human health and indoor environmental quality whilst our water- based corrosion treatments see a significant extension to asset life, thereby meeting best practice standards in extending the replacement cycle by up to 50%. Aeris has implemented COVID-19 safety policies throughout its operations, whilst achieving a new annual record for revenue for the 2019-20 financial year of $14.6 million. The Company made a maiden annual pre-tax profit of $1.4 million during this period, which has been impacted significantly by COVID-19. We would like to take this opportunity to thank our team, which has delivered this impressive growth trajectory, whilst noting that our people’s safety has been paramount, with not a single COVID-19 case experienced by Aeris’ employees across all of its activities internationally. We take this opportunity to express our appreciation for the efforts of our newest Director, Michael Ford, who is up for nomination at our upcoming AGM as a Non-Executive Director; he is also the incoming Chairman of our Audit and Risk Committee. Michael is the Chief Financial Officer (CFO) of News Corp Australia, and has over 30 years’ experience in strategy and finance roles, and is a former Group CFO of QBE Insurance and Deputy CFO of the Commonwealth Bank of Australia. Aeris is debt free, and has recently enjoyed outstanding growth and strong cash flows. The Company looks forward to becoming the emerging leader in providing the best environmental protection and energy efficiency in the built environment, whilst driving the Aeris and AerisGuard brands as the most trusted partner to our customers around the world, across both our business and consumer growth markets. As a consequence of the pandemic, Aeris initiated a number of specific programmes to support the needs of our local Maurie Stang Non-Executive Chairman Peter Bush Chief Executive Officer 2 Review of Operations 3 02Aeris | Annual Report 2020Aeris has continued to achieve important milestones that were laid out at the Company’s last AGM in terms of significant revenue growth, and geographical and product expansion. Today Aeris is successfully operating in North America, Europe, Asia Pacific and, of course, in its home market of Australia. The COVID-19 pandemic has created significant supply chain challenges whilst clearly driving unprecedented demand for trusted antiseptic and disinfection technologies. The Company now has key approvals for its leading products in a cross-section of international markets with near-term approval expected for Aeris Active in the USA. Fundamental to the ongoing growth prospects is the fact that Aeris has an entire portfolio of HVAC products together with a disruptive environmental hygiene range that will soon cover every vector of transmission, including skin, hard surface, air and the latest in robotic fogging technology. The AerisGuard brand is increasingly being recognised and specified by customers worldwide, including the US Army, Saudi Aramco, NSW Health, St John’s Ambulance and many more. The Company is well capitalised, is profitable and is cash flow positive, and is building its global leadership team, and successfully increasing its supply chain and production capacity internationally. To support its international expansion, Aeris has validated manufacturing in the USA with the capability to manufacture at substantial scale and in a variety of packaging formats required for the US market. The Company has now expanded its supply chains of raw material and packaging, and has access to increasing capacity in the USA for its more specialised products, such as aerosols. Aeris’ US team continues to develop a broadening range of HVAC wholesalers and distributors, and the Company’s range is increasingly recognised as the emerging market leader, supported by the continuing partnership with Daikin-Goodman in the USA and elsewhere. The North American market is demonstrating significant “pent- up demand” for Aeris’ unique products, and it is anticipated that, subject to one or more EPA approvals for Aeris Active and additional products, the USA will quickly become the lead market for the Company’s products, leveraging Aeris’ outstanding kill-time, extended residual activity and full hospital- grade efficacy in a single application. The Company’s capability to deal with the full spectrum of vectors of contamination with environmentally-friendly product demonstration validated and approved residual properties provides a platform for growth well into the future. Review of Operations Finance Annual recorded revenue for the 2019-20 financial year was $14.6 million and therefore exceeded guidance previously given to the market of $13 million. Aeris made a maiden annual pre- tax profit of $1.4 million. A sustained improvement was made in the gross margin (61% in the June 2020 quarter and 55% for the 2019-20 financial year) due to an increased mix of the Company’s higher-margin branded products. It is anticipated that with greater production efficiency the margin will continue to increase. The cash receipts for the June 2020 quarter were $5.8 million and for the 2019-20 financial year were $14.6 million. The net cash used in operating activities decreased by $2.4 million. Balance sheet movements included an increase in inventory of $2.7 million and an increase in trade debtors of $2.1 million. The significant growth in demand for Aeris’ products has resulted in a substantial increase in both the level of inventory and in trade debtors. The completion of the Company’s $12 million capital raising in the April 2020 quarter followed strong participation from leading institutional and sophisticated investors in the placement of 28 million new fully paid ordinary shares at $0.43 per share. The net proceeds of the fundraising are being used to support growth in Aeris’ manufacturing and supply chain capability, together with expanding the Company’s resources for the growing international distribution network. Aeris is debt free and presents a strong counter-party profile to its business partners both at the supply and distribution facets of its business. The Company continues to drive innovation with an attractive R&D pipeline, which will be well aligned to its anticipated growth in production and fulfilment. North America As a consequence of the COVID-19 pandemic in North America, Aeris is scaling up to meet levels of potential demand unprecedented in the Company’s home markets. Aeris’ regulatory submissions have been supported by high-profile individuals and organisations together with universities in America. The Company has commissioned significant additional production, raw materials and packaging supply, well in excess of its current Australian output. Aeris has now manufactured multiple batches of product at a large volume facility contracted in Texas, which have been shipped to marquee customers across the USA for evaluation, and received positive feedback and indications of significant product demand, pending EPA approval. Because of the ongoing focus on air-conditioning as an important vector of virus transmission, there has been a strong demand for products that address both environmental and ventilation hygiene. The Company is now well positioned to extend its line of environmentally-friendly, AerisGuard-branded cleaners, treatments and hygiene products through multiple 4 quality partners and customers, including Goodman and Motili, which is a large, national service business (a division of Goodman Manufacturing). Motili is currently performing maintenance service on over 45,000 HVAC systems at more than 50 military bases around the USA using the Aeris Multi- Enzyme Coil Cleaner. China The market demand in China has varied considerably during the current pandemic, with significant supply chain disruptions experienced during the period. Aeris continues to build its presence in the Chinese market, with an aim of accessing demand from multiple vertical sectors whilst refining its distribution arrangements and priorities in this vast market. The Company is currently evaluating options for certain domestic production, with the aim of expanding the market opportunity whilst enjoying potential savings in procurement of key raw materials in a more integrated manufacturing and supply chain. Whilst material volumes of products were shipped into China during the financial year, it is anticipated that the restructuring of Aeris’ arrangements in China could lead to a growing annuity business together with priority access to the key government sector. Europe, the Middle East, India and Africa Approvals for Aeris Active have been granted in Europe following relevant EN testing (European Standards). The key residual bactericidal and viricidal claims for COVID-19 have been confirmed, and this approval further demonstrates the Company’s product differentiation. Aeris has in place a growing number of distributors in Europe, with an initial focus on the United Kingdom and France, together with a growing range of additional customers and distributors throughout Europe, the Middle East and Africa. The Company is examining European contract manufacturers to better service the European market. Mould Remediation Aeris has invested in a unique suite of detection, assessment, quality control, remediation of mould products and management of mould, and the Company is targeting the industrial, commercial and consumer markets. The remediation of mould continues to be a significant unmet need worldwide, with the USA EPA equating the risk from mould contamination to be comparable to that of asbestos in respect of human health. Aeris is receiving endorsements from global insurance loss adjusters, and its platinum and wholesale partners. The Company’s mould remediation system is being taken up by distributors and customers internationally because it provides not only a rapid mould kill, but also uniquely long-term residual protection on a full spectrum of hard and soft surfaces. Significant efforts continued during the year on the successful delivery of large-scale mould remediation projects in Townsville, Queensland, with Aeris as the master contractor. Recent successfully-completed large mould remediation projects include a leading not-for-profit group in Sydney, a large university and a Government health service. 5 Aeris | Annual Report 2020Review of Operations of environmental hygiene and HVAC technologies to support the growing needs of Aeris’ domestic and global customers. The Company is in material discussions with potentially large- scale market opportunities covering a variety of geographies, and accessing both business-to-business and business- to-consumer high-volume channels. Aeris believes that its objective of becoming the emerging leader in environmental hygiene is on track, and the Company remains committed to being the trusted partner to its customers and distributors based on Aeris’ proprietary portfolio of disruptive products delivering the promise of clean-green-protect. Corrosion Protection The Company’s water-based, long-lasting anti-corrosion products continue to grow in market share with high-profile customers in Australia, the USA, the Middle East and Asia. Notable sales in the second half of the financial year include Carrier, one of the largest air-conditioner brands in the world, and the supply of products to a leading customer in the oil and gas market. Aeris believes that the potential to apply its novel coatings to multiple industrial and HVAC applications provides a significant growth opportunity for business activity and production levels to increase over time. Environmental Hygiene Aeris Active and its associated products have demonstrated real world differentiation and superiority in both regulatory and marketing studies. In terms of ongoing COVID-19 compliance, Aeris Active uniquely has a dual active, rapid COVID-19 kill and extended residual protection across the full spectrum of surfaces, from high risk to social. Key to the Company’s competitive position is a ‘one step, single application’ in dirty conditions providing the highest levels of compliance, a new ‘gold standard’ in terms of performance. Outlook The opportunities for Aeris continue to strengthen, with each of its product portfolios demonstrating growth and market acceptance. Through the COVID-19 pandemic, the Company has prioritised support of front-line first responders and health care institutions, together with providing a full range 6 Directors’ Report 7 03Aeris | Annual Report 2020Directors’ Report The Directors of Aeris Environmental Ltd submit herewith the Annual Financial Report for the financial year ended 30 June 2020. 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 Non-Executive Chairman Bernard Stang Non-Executive Director Director since 2002 | Appointed Chairman in 2002 Director since 2002 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. Directorship of other listed companies held in the last three years: • Non-Executive Chairman of Nanosonics Limited (ASX:NAN) 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. since November 2000. • Non-Executive Deputy Chairman of Vectus Biosystems Limited (ASX:VBS) since December 2005. Directorship of other listed companies held in the last three years: None Steven Kritzler Non-Executive Director Director since 2002 Michael Ford Non-Executive Director Director since 23 April 2020 Mr Kritzler (M.Sc from the UNSW in the field of Polymer Chemistry) holds a number of international patents. He is the Technical Director of Novapharm Research. Mr Kritzler has over 40 years of experience in commercial R&D in the areas of pharmaceutical, medical, cosmetic and specialty industrial products. Under his technical direction, Novapharm Research has become a world-leader in infection control science. Directorship of other listed companies held in the last three years: None Michael Ford (B.Com, MBA, FCA, FCPA, GAICD) was appointed as a Director in April 2020. He has over 30 years experience in Finance and Strategy roles in a wide range of industries including manufacturing, property and financial services. Michael is the Chief Financial Officer of News Corp Australia and a Director of Foxtel. He is a former Group CFO of QBE Insurance and Deputy CFO of Commonwealth Bank of Australia. Michael is an experienced Company Director and has completed the Advanced Management program at Harvard Business School. Directorship of other listed companies held in the last three years: None 8 Alex Sava Non-Executive Director Director since 3 October 2016 (Did not seek re-election at 2019 AGM) 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 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 (ASX:NAN). 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. Directorship of other listed companies held in the last three years: None Peter Bush Chief Executive Officer, Alternate Director for M and B Stang, and Chief Financial Officer Alternate Director since 2011 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. Directorship of other listed companies held in the last three years: • Non-Executive Director of Vectus Biosystems Limited (ASX:VBS) since July 2015. Robert Waring Company Secretary Mr Robert J Waring (B.Ec, CA, FCIS, FFin, FAICD) was appointed to the position of Company Secretary of the Company in 2002. He has over 40 years of experience in financial and corporate roles, including over 25 years in company secretarial roles for ASX-listed companies and over 19 years as a Director of ASX-listed companies. Mr Waring has over 30 years of 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 company 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 Cobalt Blue Holdings Limited (ASX:COB), Vectus Biosystems Limited (ASX:VBS) and Xref Limited (ASX:XF1). Share Registry Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street Abbotsford VIC 3067 GPO Box 2975, Melbourne VIC 3001 T: +61 3 9415 4000 W: www.computershare.com 9 Aeris | Annual Report 2020 Directors’ Report Directors’ Meetings The following table sets 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). Number of meetings held Number of meetings attended Maurie Stang Steven Kritzler Bernard Stang Michael Ford ** Alex Sava * Board of Directors Audit and Risk Committee Corporate Governance Committee Remuneration and Nomination Committee 10 10 7 9 1 - 4 4 N/A 4 N/A N/A 1 1 N/A 1 N/A N/A 1 1 1 1 N/A N/A * Ceased to be a Director on 27 November 2019. ** Appointed as a Director on 23 April 2020, and appointed as a member of the Audit and Risk Committee on 31 July 2020. In addition to the above meetings the Board and senior executives conduct formal management meetings. Committee Membership As at the date of this Report, the Company had an Audit and Risk 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 financial year were: Audit and Risk Committee Bernard Stang Chairman Maurie Stang Michael Ford Appointed as a member of the Audit and Risk Committee on 31 July 2020. Corporate Governance Committee Maurie Stang Bernard Stang Chairman Remuneration and Nomination Committee Maurie Stang Chairman Bernard Stang Steven Kritzler 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 solutions. There is no significant change in the nature of activities performed by the Company during the financial year. Review of Operations The results of the operations of the consolidated entity during the financial year were as follows: Income Expenses 2020 2019 $ $ 14,669,658 6,980,773 (12,686,717) (10,609,272) Profit (Loss) after income tax 1,982,941 (3,628,499) For a comprehensive review of the Company's operational performance please refer to the Chairman's and Chief Executive Officer's Report. 10 Dividends Proceedings on behalf of the Company The Directors do not recommend the payment of a dividend in respect of the year ended 30 June 2020 (2019: Nil). No dividends have been paid or declared since the start of the financial year. No person has applied for leave of Court to bring proceedings on behalf of the Company or to 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. Significant changes in state of affairs There have been no significant changes in the state of affairs of the Group. 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. The Company was not a party to any such proceedings during the financial year. Directors’ interests Equity Holdings Ordinary shares Rights over ordinary shares Maurie Stang 23,698,288 Likely developments and expected results Bernard Stang 20,527,194 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. Environmental regulations The economic entity is not subject to any significant environmental Commonwealth or State regulation in respect of its operating activities. Indemnification of Officers and Auditors Indemnification The Company has a Deed of Access and Indemnity with each of its 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. 11 - - - - - Steven Kritzler 11,252,785 Michael Ford Alex Sava* Peter Bush 75,000 518,737 750,000 1,323,537 *Director until 26 November 2019 Options or rights granted to Directors and Officers of the Company During or since the end of the 2020 financial year, the Company has not granted any options or rights for no consideration over unissued ordinary shares in Aeris Environmental Ltd to the Directors and Officers (2019: NIL) Particulars of options or rights granted over unissued shares Number of options or rights on issue over unissued ordinary shares Shares issued in the period as the result of the exercise of options or rights Options or rights expired or forfeited during the period Options or rights granted during the period 2020 2019 2,207,291 2,899,037 536,411 150,000 305,335 585,000 150,000 - Full details of options or rights on issue are shown in Note 17 and 24. Aeris | Annual Report 2020 Directors’ Report Non-audit services Remuneration Report (Audited) During the financial 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 financial year by the Auditor and, in accordance with written advice provided by resolution of the Audit and Risk Committee, is satisfied that the provision of those non-audit services during the financial year by the Auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • All non-audit services were subject to the corporate governance procedures adopted by the Company, and have been reviewed by the Audit and Risk 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. 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. Auditor’s Independence Declaration The Auditor’s Declaration of Independence for the year ended 30 June 2020 is attached to this Directors’ Report on page 2 Corporate Governance Aeris Environmental Ltd’s Corporate Governance Statement and ASX Appendix 4G are released to ASX on the same day the Annual Report is released. The Company’s Corporate Governance Statement, and its Corporate Governance Compliance Manual, can be all found on the Company’s website at: www.aeris.com.au/investor-centre Key Management Personnel (KMP) The KMP of the Company comprise the Directors, Chief Executive Officer and Company Secretary only, as follows: Non-Executive Directors Maurie Stang Bernard Stang Steven Kritzler Michael Ford Alex Sava Appointed 23 April 2020 Director until 26 November 2019 Executive Peter Bush (Chief Executive Officer and Alternate Director) 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 that 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, 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 Total compensation for all Non-Executive Directors, as set out in the Company’s 2002 Initial Public Offer (IPO) Prospectus, was $100,000 per annum. It is proposed that a Resolution will be included in the 2020 Notice of Annual General Meeting (AGM) to increase the limit of Directors’ Fees to allow for additional Directors and for the payment of Directors’ Fees for the first time to Directors who have 12 not been compensated with Directors’ Fees since the IPO. This amount will be set in conjunction with advice from external advisors in reference to fees paid to Non- Executive Directors of comparable companies. The base fee for the Chairman is expected to be $75,000 per annum and, for other Non-Executive Directors, is expected to be $60,000 per annum. Directors’ Fees will cover all main Board activities and membership of Committees of the Board. This may be re-assessed if Directors sit on more than one Committee. While it is recognised that various organisations recommend that Non-Executive Directors do not receive performance-related compensation, in the case of Aeris Environmental Ltd, because it is at an early stage of commercialising its technologies and wishes to minimise its cash outgoings, it has in the past, and plans in the future to, partially remunerate its Non-Executive Directors with options, as detailed in the Remuneration Report. There are no retirement benefits provided to Non-Executive Directors, apart from statutory superannuation. 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. Incentive Plan (EIP). The EIP was approved by shareholders at the Annual General Meeting (AGM) held on 27 November 2014 and was re-approved by shareholders at the AGM held on 29 November 2018. The terms where options or shares issued under the EIP normally have the following conditions: i. Vesting 33.3% vest on the first anniversary of grant of options or performance rights, 33.3% vest on the first anniversary of grant of options or performance rights, 33.3% vest on the first anniversary of grant of options or performance rights, ii. The contractual life of the options or performance rights issued ranges from three to five years. iii. The exercise price determined in accordance with the Rules of the EIP is determined by the Board when the performance of staff and contractors is evaluated following a recommendation of the Remuneration and Nomination Committee, normally with external remuneration adviser assistance. The option exercise price will normally be based on the volume weighted average price (VWAP) of the Company’s shares for the 20 trading days prior to the offer. d. Short-term incentives (STI) iv. Each option or performance right is convertible into one fully paid ordinary share. v. All options or performance rights expire on the earlier of their expiry date or 90 days after voluntary termination of the participant’s employment, with a Board discretion in special circumstances. vi. There are no voting or dividend rights attached to options or performance rights. 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 or when the performance rights have been converted into fully paid ordinary shares. vii. The options or performance rights issued are on an equity-settled basis. There are no cash settlement alternatives. During the financial year ended 30 June 2020 no amounts were paid as STIs. 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. During the financial year ended 30 June 2020 no amounts were paid as LTIs. f. Share-based compensation In October 2014, the Board established an Employee 13 Aeris | Annual Report 2020Directors’ Report 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 Executive, including their personally-related entities, are as follows: Number held on 30 June 2019 Acquired during year Sold during year Issued on exercise of options Number held on 30 June 2020 22,630,218 1,068,070 19,459,124 1,068,070 11,252,785 - - 75,000 - - - - 665,085 - (146,348) 750,000 992,326 - - - - 55,749,538 2,211,140 (146,348) - - - - - - - - 23,698,288 20,527,194 11,252,785 75,000 518,737 750,000 992,326 57,814,330 Number held on 30 June 2019 Granted during year Lapsed during year Exercised during year Number held on 30 June 2020 2020 Shares Specified Directors Maurie Stang Bernard Stang Steven Kritzler Michael Ford Appointed 23 April 2020 Alex Sava Director until 26 November 2019 Specified Executives Peter Bush Robert Waring Options and rights Specified Directors Maurie Stang Bernard Stang Steven Kritzler Michael Ford Appointed 23 April 2020 - - - - Alex Sava Director until 26 November 2019 100,000 Specified Executives Peter Bush Robert Waring 1,323,537 50,000 1,473,537 - - - - - - - - - - - - (100,000) - - (100,000) - - - - - - - - - - - - 1,323,537 50,000 1,373,537 14 2019 Shares Specified Directors Number held on 30 June 2018 Acquired during year Sold during year Issued on exercise of options Number held on 30 June 2019 Maurie Stang 20,398,290 2,231,928 Bernard Stang 17,227,196 2,231,928 Steven Kritzler 8,331,609 2,921,176 Alex Sava Director until 26 November 2019 68,025 597,060 Specified Executives Peter Bush 750,000 - Robert Waring 240,857 751,469 47,015,977 8,733,562 - - - - - - - - - - - - - - 22,630,218 19,459,124 11,252,785 665,085 750,000 992,326 55,749,539 Number held on 30 June 2018 Granted during year Lapsed during year Exercised during year Number held on 30 June 2019 - - - - - - - - - - - - - - - - - - - - - - - - - - - 100,000 1,323,537 50,000 1,473,537 Options and rights Specified Directors Maurie Stang Steven Kritzler Bernard Stang Alex Sava Director until 26 November 2019 100,000 Specified Executives Peter Bush Robert Waring 1,323,537 50,000 1,473,537 15 Aeris | Annual Report 2020Directors’ Report 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 as follows. Regional Healthcare Group Pty Ltd The Company and its controlled entities incur expenses for services provided by Regional Healthcare Group Pty Ltd. Office and administration expenses Rent Distribution expenses Corporate services 2020 $ 2019 $ 119,229 154,841 55,483 54,753 70,894 51,767 88,169 88,520 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 incur expenses for services provided by Novapharm Research (Australia) Pty Ltd. Research and development Patent and other expenses 233,575 313,919 148,819 64,696 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 incur expenses for rent and utility outgoings to Ramlist Pty Ltd. 34,789 45,396 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 incur expenses for marketing and other operational services to Ensol Systems Pty Ltd. 109,901 7,570 Mr M Stang is a shareholder of Ensol Systems Pty Ltd. 16 2020 $ 2019 $ Teknik Lighting Solutions Pty Ltd The Company and its controlled entities incur expenses for marketing and other operational services to Teknik Lighting Solutions Pty Ltd. 3,199 8,231 Mr M Stang is a shareholder of Teknik Lighting Solutions Pty Ltd. Bright Accountants The Company and its controlled entities incur expenses for accounting services to Bright Accountants. 68,250 61,840 Mr P Bush is a related party to Bright Accountants. Loans from Directors (Messrs M Stang, B Stang and S Kritzler) Interest on loans Loan borrowings Loan repayments in cash Loan repayments by issue of shares Mr M Stang, S Kritzler and B Stang are Non-Executive Directors and shareholders of the Company. These are unsecured loans with interest charged at ATO benchmark rates. Outstanding balances payable from purchases of services Regional Healthcare Group Pty Ltd Novapharm Research (Australia) Pty Ltd Ramlist Pty Ltd Bright Accountants Ensol Systems Pty Ltd Teknik Lighting Solutions Pty Ltd Outstanding balances at year-end are unsecured, interest free and settlement occurs in cash. - - - - 52,209 1,050,000 750,000 1,500,000 74,479 24,259 30,891 14,892 3,332 882 6,875 6,545 41,531 82,387 216 3,520 17 Aeris | Annual Report 2020Directors’ Report Details of Directors' and Executive officers' remuneration for the year ended 30 June 2020 Short term benefits Post employment benefits Equity based benefits Salary and Director's Fees STI Cash bonus Non- monetary benefits Other long- term benefits Superannuation Shares Options and rights (Note (ii)) Total Performance Related $ $ $ $ $ $ $ $ % Non- Executive Directors Maurie Stang Bernard Stang Steven Kritzler - - - Michael Ford 10,180 Alex Sava 14,361 24,541 - 24,541 Total Non- Executive Directors Executive Directors Total Directors Executives (Note (i)) Peter Bush 285,295 Robert Waring 92,217 Total 402,053 - - - - - - - - - - - - - - - - - - - - - - - - - 967 - 967 - 967 27,103 - 28,070 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 11,147 4,705 19,066 4,705 30,213 0.0% 0.0% 0.0% 0.0% 0.0% - - - 0.0% 4,705 30,213 - 20,279 332,677 2,357 94,574 27,341 457,464 0.0% 0.0% - 18 Details of Directors’ and Executive officers’ remuneration for the year ended 30 June 2019 Short term benefits Salary and Director's Fees STI Cash bonus Non- monetary benefits Post employment benefits Superannuation Other long- term benefits Equity based benefits Shares Options and rights (Note (ii)) Total Performance Related $ $ $ $ $ $ $ $ % Non- Executive Directors Maurie Stang Bernard Stang Steven Kritzler - - - Alex Sava 40,411 40,411 - 40,411 Total Non- Executive Directors Executive Directors Total Directors Executives (Note (i)) Peter Bush 238,816 Robert Waring 100,493 Total 379,720 - - - - - - - - - - - - - - - - - - - - - - - - - - - 22,647 - 22,647 - - - - - - - - - - - - - - - - - - - - - - - - - - 0.0% 0.0% 0.0% 9,410 49,821 0.0% 9,410 49,821 - - 0.0% 9,410 49,821 73,708 335,171 0.0% 4,713 105,206 0.0% 87,831 490,198 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. 19 Aeris | Annual Report 2020Directors’ Report 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 23-Dec-16 14-Oct-21 23-Dec-16 23-Oct-21 $0.2823 $0.2828 $0.42 $0.42 $0.37 $0.37 108.3% 108.3% 2.34% 2.34% The following factors and assumptions were used in determining the fair value of performance shares on issue date. Grant Date Vesting date Price of shares on grant date Exercise price 30-May-18 30-May-18 30-May-18 11-Apr-19 11-Apr-20 11-Apr-21 $0.1650 Not applicable $0.1650 Not applicable $0.1650 Not applicable 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 $312,398 This is reviewed annually. Notice period To terminate his 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 Mr Bush’s service is under 10 years and he is dismissed for misconduct. Termination for serious misconduct Aeris may immediately terminate employment at any time in the case of serious misconduct and Mr Bush will only be entitled to payment of fixed remuneration until the 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 the 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 interfere with the relationship between the Company and its customers, employees or suppliers; or ii. 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 25 to the financial statements. 20 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 KMP. As a consequence, there may not always be a direct correlation between the statutory key performance measures and the variable remuneration awarded. 2020 2019 2018 2017 2016 Profit (Loss) for the year attributable to owners of Aeris Environmental Ltd 1,982,941 (3,628,499) (3,590,176) (3,747,555) (2,062,727) Basic earnings (loss) per share (cents per share) 0.90 (1.98) (2.28) (2.40) (1.35) Dividend payments - - - - - Increase/(decrease) in share price (%) 70.97% 121.43% (50.00%) (33.33%) (6.67%) Total KMP remuneration as percentage of profit (loss) for the year (%) 23.07% (13.51%) (12.01%) (10.20%) (13.00%) The Group’s sales revenue in the 2020 financial year recorded an increase by 114%, complimented by an increase in share price by over 70%. Signed in accordance with a resolution of the Directors made pursuant to section 298(2) of the Corporations Act 2001. On behalf of the Directors The Company is also in discussions with management and remuneration consultants to structure and align KMP remuneration with strategic business objectives, with the aim of creating shareholder wealth. Share options 1,373,537 options and rights to take up ordinary shares in Aeris Environmental Ltd that were issued to KMP remain unexercised at 30 June 2020 (2019: 1,423,537 options and rights). M STANG Director Sydney, 31 August 2020 No options or rights to take up ordinary shares in Aeris Environmental Ltd were issued to KMP during the financial years 2020 and 2019. Options issued to KMP that expired or were forfeited during the year: Alex Sava Number of options and rights 2020 100,000 2019 - 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. 21 Aeris | Annual Report 2020Aeris for the Built Environment Product Portfolios: Hygiene - HVAC&R - Corrosion - Remediation CLEANS PROTECTS OPTIMISES 22 Auditor’s Independence Declaration 23 04Aeris | Annual Report 2020Auditor’s Independence Declaration Level 11 | 1 York Street | Sydney | NSW | 2000 GPO Box 4137 | Sydney | NSW | 2001 t: +61 2 9256 6600 | f: +61 2 9256 6611 sydney@uhyhnsyd.com.au www.uhyhnsydney.com.au Auditor's Independence Declaration under section 307C of the Corporations Act 2001 To the Directors of Aeris Environmental Ltd As auditor for the audit of Aeris Environmental Ltd for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been: (a) no contraventions of the independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Aeris Environmental Ltd and the entities it controlled during the year. Mark Nicholaeff Partner Sydney 31 August 2020 UHY Haines Norton Chartered Accountants An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. 14 UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. Passion beyond numbers 24 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the Financial Year ended 30 June 2020 25 05Aeris | Annual Report 2020Continuing Operations Revenue Cost of sales Gross profit Other revenue Administration expenses Depreciation and amortisation expense Distribution expense Employee benefits expense Financial expenses Impairment expense Research and development and patent expense Occupancy expenses Sales, Marketing and Travel expenses Note 4 4 5 5 5 5 5 5 2020 $ 14,632,962 (6,634,623) 7,998,339 36,696 2019 $ 6,851,258 (4,403,415) 2,447,843 129,515 (1,547,040) (1,481,936) (134,378) (493,700) (67,170) (348,244) (2,497,037) (2,504,114) (38,178) (135,781) (572,602) (249,245) (953,704) (18,615) (72,198) (861,090) (314,355) (996,364) Profit (Loss) before income tax from continuing operations 1,413,370 (4,086,728) Income tax benefit Net profit (loss) for the year Other Comprehensive Income Items that may be reclassified subsequently to profit or loss Foreign currency translation differences Total comprehensive profit (loss) for the year, net of tax Profit (loss) for the year attributable to: Owners of Aeris Environmental Ltd Non-controlling interest Total comprehensive profit (loss) for the year attributable to: Owners of Aeris Environmental Ltd Non-controlling interest Earnings per share Basic earnings (loss) per share (cents per share) Earnings (loss) from continuing operations Diluted earnings (loss) per share (cents per share) Earnings (loss) from continuing operations 6a 569,571 458,229 1,982,941 (3,628,499) 20 20 7 (12,687) (3,249) 1,970,254 (3,631,748) 1,982,941 (3,628,499) - - 1,982,941 (3,628,499) 1,970,254 (3,631,748) - - 1,970,254 (3,631,748) 0.90 0.89 (1.98) (1.98) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 26 Consolidated Statement of Financial Position As at 30 June 2020 27 06Aeris | Annual Report 2020Current Assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total Current Assets Non-Current Assets Trade and other receivables Right-of-use assets Property, plant and equipment Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Lease liabilities Provisions Total Current Liabilities Non-Current Liabilities Lease Liabilities Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Reserves Accumulated losses Non-controlling interest Total Equity Note 9 10A 11 12 10B 13 13 14A 14B 14C 15B 15A 16 18 19 20 2020 $ 12,949,339 5,535,881 3,486,862 262,034 2019 $ 3,467,877 3,442,028 770,073 194,435 22,234,116 7,874,413 3,945 375,501 65,359 444,805 31,632 - 91,498 123,130 22,678,921 7,997,543 2,656,871 2,136,041 88,568 291,964 3,037,403 301,488 31,702 333,190 3,370,593 19,308,328 - 272,135 2,408,176 - 24,543 24,543 2,432,719 5,564,824 62,195,687 1,904,803 50,195,854 2,144,073 (44,795,847) (46,778,788) 3,685 3,685 19,308,328 5,564,824 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 28 Consolidated Statement of Changes in Equity For the Financial Year ended 30 June 2020 29 07Aeris | Annual Report 2020Equity Reserves Accumulated losses Non-controlling interest Total attributable to equity holders of the entity $ $ $ $ $ Balance at 1 July 2018 41,313,362 1,554,309 (42,790,135) 3,685 81,221 (reported as at 30 June 2018) Prior period restatement (Note 1) - - (360,153) - (360,153) Re-stated as at 1 July 2018 41,313,362 1,554,309 (43,150,288) 3,685 (278,932) Loss for the year Other comprehensive income / (loss) Total comprehensive loss for the year - - - - (3,628,499) (3,249) (3,249) - (3,628,499) Transactions with owners in their capacity as owners: Shares issued to Directors towards loan repayment Shares issued to KMP Share placement - Strategic Investors Share Placement Plan Shares issued to consultants on exercise of options Share issue cost 1,500,000 180,000 7,208,692 257,500 1,500 (265,200) - - - - - - Movement in share-based payments reserve - 593,013 . - - - - - - - - - - - - - - - - - Balance at 30 June 2019 Balance at 1 July 2019 Profit for the year Other comprehensive income / (loss) Total comprehensive profit (loss) for the year 50,195,854 2,144,073 (46,778,788) 50,195,854 2,144,073 (46,778,788) 3,685 3,685 - - - - 1,982,941 (12,687) (12,687) - 1,982,941 Transactions with owners in their capacity as owners: Share placement - Strategic Investors 12,040,000 Shares issued against exercise of options and rights Shares issued to consultants Share issue cost 57,533 489,300 (587,000) - - - - Movement in share-based payments reserve - (226,583) - - - - - Balance at 30 June 2020 62,195,687 1,904,803 (44,795,847) 3,685 19,308,328 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 30 (3,628,499) (3,249) (3,631,748) 1,500,000 180,000 7,208,692 257,500 1,500 (265,200) 593,013 5,564,824 5,564,824 1,982,941 (12,687) 1,970,254 12,040,000 57,533 489,300 (587,000) (226,583) - - - - - - - - Consolidated Statement of Cash Flows For the Financial Year ended 30 June 2020 31 08Aeris | Annual Report 2020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 Government Grants Interest and bank fees Net cash used in operating activities Cash Flows From Investing Activities Purchase of property, plant and equipment Net cash used in investing activities Cash Flows from Financing Activities Proceeds from shares issue Share issue cost Loan repayments Loan borrowings Net cash provided by financing activities Net increase in cash and cash equivalents Cash and Cash Equivalents at the Beginning of the Financial Year Effects of exchange rate changes on cash and cash equivalents Note 2020 $ 2019 $ 14,600,592 5,008,876 (16,671,310) (10,583,314) - 1,125,509 19,157 17,540 57,419 46,746 (16,939) (67,956) 32 (b) (2,050,960) (4,412,720) (24,291) (41,489) (24,291) (41,489) 12,042,000 7,467,692 (472,600) - - - (750,000) 1,050,000 11,569,400 7,767,692 9,494,149 3,313,483 3,467,877 157,643 (12,687) (3,249) Cash and Cash Equivalents at the End of the Financial Year 9 12,949,339 3,467,877 *During the 2019 financial year Directors’ loan amounting to $1,500,000 was repaid by issuing 8,823,528 company’s ordinary shares. This transaction did not have any effect on the group’s cash flow. The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 32 Notes to the Consolidated Financial Statements For the Financial Year ended 30 June 2020 33 09Aeris | Annual Report 2020Notes to the Consolidated Financial Statements Notes 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 Summary of significant accounting policies Financial risk management Critical accounting estimates and judgments Revenue Expenses Income tax Earnings (loss) per share attributable to the ordinary equity holders of the Company Auditors' remuneration Cash and cash equivalents Trade and other receivables Inventories Other current assets Non-current assets Current trade and other payables and provisions Non-current liabilities and 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 34 1. Summary of significant accounting policies Corporate information The financial report of Aeris Environmental Ltd (the Group) for the year ended 30 June 2020 was authorised for issue in accordance with a resolution of the Directors on 27 August 2020. Aeris Environmental Ltd (the parent) is a company limited by shares incorporated in Australia whose shares are publicly listed on the Australian Stock Exchange (ASX code: AEI). The nature of the operations and principal activities of the Group are described in the Directors’ Report. Basis of preparation This financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report has been prepared on an accruals basis and is based on historical costs, modified where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. 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 31. 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 2020 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 ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. 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. Going Concern The Group has recorded an operating profit (after tax) of $1,982,941 for the year ended 30 June 2020 (2019 Loss: $3,628,499) and has net assets of $19,308,328 as at 30 June 2020 (2019: $5,564,824). The operating cash burn rate for the financial year ended 30 June 2020 was $2,050,960 (2019: $4,412,720). The cash balance as at 30 June 2020 was $12,949,339 (2019: $3,467,877). Directors are of the opinion that this positive trend will continue and Company will have adequate resources to continue to be able to meet its obligations as and when they fall due. For this reason they continue to adopt the going concern basis in preparing the Annual Financial Report. Statement of Compliance Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing 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 The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. 35 Aeris | Annual Report 2020Notes to the Consolidated Financial Statements Any significant impact on the accounting policies of the consolidated entity from the adoption of these Accounting Standards and Interpretations are disclosed below. AASB 16 Leases The standard replaces AASB 117 ‘Leases’ and for lessees eliminates the classifications of operating leases and finance leases. The consolidated entity has adopted AASB 16 from 1 July 2019. The standard replaces AASB 117 ‘Leases’ and for lessees eliminates the classifications of operating leases and finance leases. Except for short-term leases and leases of low-value assets, right-of-use assets and corresponding lease liabilities are recognised in the statement of financial position. Straight- line operating lease expense recognition is replaced with a depreciation charge for the right-of-use assets (included in operating costs) and an interest expense on the recognised lease liabilities (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results improve as the operating expense is now replaced by interest expense and depreciation in profit or loss. The table below presents a reconciliation of the operating lease commitments as disclosed in the Group’s 30 June 2019 financial statements, to the lease liabilities recognised on the transition date: Operating lease as at 30 June 2019 Less: Rent and outgoings Impact of discounting commitment at company's incremental borrowing rate Add: Others – contracts reassessed as short- term leases and low value assets $ 412,882 (85,989) (2,167) 131,240 Lease liability recognised as at 1 July 2019 455,966 Old Value under New Value under AASB 117 AASB 16 Statement of profit or loss and other comprehensive income $ $ Financial expenses 18,099 38,178 Depreciation 53,913 134,378 Occupancy expenses 335,234 249,245 Statement of financial position Right-of-use asset Lease liabilities - current Lease liabilities - non-current - - - 375,501 88,568 301,488 Re-statement of comparatives The Group has made a retrospective adjustment to a receivable from a customer to reflect the information that was available as at 30 June 2018 but was not provided for in the 2018 financial report. The retrospective adjustment has resulted in an additional impairment charge of $360,153 for the year ended 30 June 2018 with a corresponding decrease in the carrying value of trade receivables. For details of the restatement refer to the table below: June 2018 $ June 2018 $ $ Reported Adjustment Restated 2,131,037 (360,153) 1,770,884 Extract from the financial statements for the year ended 30 June 2018 Trade and other receivables AASB16 was adopted using the modified retrospective approach and as such the comparatives have not been restated. Under this approach the Group has determined the principal portion of their current operating leases which are subject to be accounted for under this standard and recognised as a lease liability (split between current and non-current) and a right to use asset for the same amount as at 1 July 2019. The impact of adoption of this standard is outlined as follows: Net assets 81,221 (360,153) (278,932) Accumulated losses (42,790,135) (360,153) (43,150,288) Total Equity 81,221 (360,153) (278,932) Impairment of trade receivables 108,284 360,153 468,437 Loss after tax (3,230,885) (360,153) (3,591,038) 36 Significant accounting policies 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. 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. 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. 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. (i) Business Combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non- controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. 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 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. (iii) Cash and cash equivalents 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 Where necessary, comparative amounts have been changed to reflect changes in disclosures in the current year. (v) Depreciation All assets have limited useful lives and are depreciated/ 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. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (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 37 Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements 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 24. 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. (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 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. Exchange differences are recognised in statement of profit or loss and other comprehensive income in the period in which they arise. 38 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. 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. 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 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 39 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. 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. Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements 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 21. 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. (xvii) Right-of-use Assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The consolidated entity has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. (xviii) Lease Liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the consolidated entity’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. (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. 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. 40 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: 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. 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 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. 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. Convertible notes are separated into liability and equity components based on the terms of the contract. 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 receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. (xxvii) Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure 41 Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements 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. (xxviii) Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is current when it is expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within twelve months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when; it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within twelve months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. 42 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) 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. (b) 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 24. 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. (c) 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. 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 or liabilities, the Group’s income and operating cash flows are not materially exposed to changes in market interest rates. (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. 3. Critical Accounting Estimates and Judgments 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 43 Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements (h) Employee benefits provision As discussed in note 1, the liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. 4. Revenue Revenue 2020 $ 2019 $ Revenue from sales 12,576,309 2,777,113 Revenue from services 2,056,653 4,074,145 14,632,962 6,851,258 Other revenue 2020 $ 2019 $ Financial income 9,180 57,399 Government Grants Miscellaneous 17,540 9,976 46,746 25,370 36,696 129,515 (d) Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience, historical collection rates, the impact of the Coronavirus (COVID-19) pandemic and forward-looking information that is available. The allowance for expected credit losses, as disclosed in note 10, is calculated based on the information available at the time of preparation. The actual credit losses in future years may be higher or lower. (e) Provision for impairment of inventories The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence. (f) Estimation of useful lives of assets The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. (g) Lease term The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the consolidated entity’s operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements; and the costs and disruption to replace the asset. The consolidated entity reassesses whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances. 44 5. Expenses Profit (Loss) before income tax includes the following items of expense: Depreciation and amortisation expense Depreciation of leasehold assets Depreciation of plant and equipment Total depreciation and amortisation expense Employee benefit expenses Base salary and fees Superannuation & statutory oncosts Share based payment Other employee expenses Total employee benefit expenses Financial expenses Interest, bank fees and other financial expenses Total financial expenses Other expenses Impairment of receivables Rental & occupancy expenses Research and development and patent expenses 45 2020 $ 6,332 128,046 134,378 2020 $ 2,007,835 263,514 145,150 80,538 2,497,037 2020 $ 38,178 38,178 2020 $ 135,781 249,245 572,602 2019 $ 6,332 60,838 67,170 2019 $ 1,594,103 283,454 593,013 33,544 2,504,114 2019 $ 18,615 18,615 2019 $ 72,198 314,355 861,090 Aeris | Annual Report 2020Notes to the Consolidated Financial Statements 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: Profit (Loss) for year Income tax expense (benefit) calculated at 30% R&D tax offset receivable Temporary differences and tax losses not recognised - Non deductible expenses - Share based payments Income tax attributable to profit (loss) (b) Deferred tax balances not recognised Calculated at 30% of not brought to account as assets or liabilities: 2020 $ 1,413,370 424,011 (569,571) (467,555) 43,544 (569,571) 2019 $ (4,086,728) (1,226,019) - 589,886 177,904 (458,229) 2020 $ 2019 $ Deferred tax assets Tax losses Revenue tax losses available for offset against future tax income 7,652,475 7,951,360 Temporary differences Provision for doubtful debts Provision for employee entitlements Difference between book and tax values of fixed assets Accruals Future lease obligations Total deferred tax assets Deferred tax liabilities 51,000 97,100 24,431 14,250 4,366 235,537 89,003 29,540 8,700 - 7,843,622 8,314,140 Difference between book and tax values of fixed assets Total deferred tax liabilities - - - - Net deferred tax asset not recognised 7,843,622 8,314,140 46 (c) Tax consolidation (i) Relevance 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. (ii) Method of measurement of tax amounts The tax consolidated group has adopted the “stand-alone” method of measuring current and deferred tax amounts applicable to each company. (iii) Tax sharing agreements There are no tax sharing or funding agreements in place. (iv) Tax 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. Earnings (loss) per share attributable to the ordinary equity holders of the Company Basic earnings (loss) per share (cents per share) Diluted earnings (loss) per share (cents per share) Net profit (loss) used to calculate basic EPS Net profit (loss) used to calculate diluted EPS 2020 $ 0.90 0.89 2019 $ (1.98) (1.98) 1,982,941 (3,628,499) 1,982,941 (3,628,499) Weighted average number of ordinary shares used to calculate basic EPS 219,677,482 183,224,455 Convertible performance rights and share options 2,207,291 - Weighted average number of ordinary shares used to calculate diluted EPS 221,884,773 183,224,455 In 2019, options and rights eligible for conversion into ordinary shares in future had an anti-dilutive effect, hence diluted EPS was reported same as basic EPS. 8. Auditors’ renumeration Remuneration of UHY Haines Norton for: Audit of the annual financial report Review of the half yearly financial report Other services Total auditors remuneration 47 2020 $ 30,500 15,850 - 46,350 2019 $ 26,000 17,050 8,500 51,550 Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements 9. Cash and cash equivalents Cash at bank and on hand Deposits on call The carrying amounts of the Group’s cash are a reasonable approximation of their fair values. 10. Trade and other receivables (a) Current trade and other receivables Trade receivables Less: Allowance for expected credit losses 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. (b) Non-current trade and other receivables Trade Receivables Less: Allowance for expected credit losses 2020 $ 2019 $ 2,375,477 1,450,012 10,573,862 2,017,865 12,949,339 3,467,877 2020 $ 2019 $ 5,136,310 3,836,978 (170,000) (394,950) 569,571 - 5,535,881 3,442,028 2020 $ 3,945 2019 $ 421,805 - (390,173) 3,945 31,632 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. (c) Allowance for expected credit losses Less than 6 months overdue More than 6 months overdue Movements in provision for impairment of receivables Opening balance Additional provisions recognised Previous provisions written off Foreign exchange difference and other adjustments Closing balance 2020 2019 $ - $ - 170,000 785,123 785,123 170,000 (785,123) - 170,000 768,800 44,879 - (28,556) 785,123 48 (c) Allowance for expected credit losses (continued) 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 Previous provisions written back Movement in provision for impairment 2020 $ (34,660) 68,879 (170,000) (135,781) 2019 $ (27,319) - (44,879) (72,198) (d) The Group applies the simplified approach to providing for expected credit losses prescribed by AASB 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The loss allowance provision as at 30 June 2020 is determined as follows, the expected credit losses incorporate forward looking information. Current receivables Past due Past due Past due Total > 30 days > 60 days > 90 days $ - - 2.5% 7.5% 1,835,970 867,003 1,109,600 1,897,253 5,709,826 - - - - 27,740 142,294 170,034 27,700 142,300 170,000 Expected credit loss % Gross carrying amount Expected credit loss provision Expected credit loss provision (rounded off) 11. Inventories Inventories - at cost 2020 $ 3,486,862 3,486,862 2019 $ 770,073 770,073 2020 $ 2019 $ 218,493 167,965 21,397 7,962 14,182 - 12,306 14,164 262,034 194,435 The carrying amounts of the Group’s inventories are a reasonable approximation of their fair values. 12. Other current assets Prepayments Advance payment to suppliers Accrued income Deposits and bonds The carrying amounts of the Group’s other current assets are a reasonable approximation of their fair values. 49 Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements Cost Accumulated depreciation / impairment Net carrying value $ 25,011 252,985 58,747 130,228 176,456 137,449 455,966 1,236,842 25,011 233,613 58,747 130,228 176,456 129,210 753,265 $ (25,011) (222,163) (58,747) (122,915) (165,642) (121,039) (80,465) (795,982) (25,011) (206,421) (58,747) (116,583) (145,485) (109,520) (661,766) - 30,822 - 7,313 10,814 16,410 375,501 440,860 - 27,192 - 13,645 30,971 19,690 91,498 13. Non-current assets Carrying Values 2020 Property, plant and equipment R & D equipment Computer equipment Field equipment Leasehold improvements Office furniture Plant and equipment Right-of-use asset 2019 Property, plant and equipment R & D equipment Computer equipment Field equipment Leasehold improvements Office furniture Plant and equipment Reconciliations Opening net carrying value Additions Disposals Depreciation / impairment Foreign exchange movements Closing net carrying value 2020 $ $ Computer equipment Leasehold improvements Office furniture Plant and equipment 27,192 13,645 30,971 19,690 19,372 - - 8,240 Right-of-use asset - 455,966 2019 Computer equipment Leasehold improvements Office furniture Plant and equipment 91,498 483,578 29,537 19,977 52,155 13,655 24,829 - 890 17,625 115,325 43,344 $ - - - - - - - - - - - $ (15,904) (6,332) (20,157) (11,520) (80,465) $ 162 - - - - $ 30,822 7,313 10,814 16,410 375,501 (134,378) 162 440,860 (27,174) (6,332) (22,074) (11,590) (67,170) - - - - - 27,192 13,645 30,971 19,690 91,498 50 14. Current trade and other payables and provisions A. Unsecured trade and other payables Trade creditors Other payables and accruals GST and PAYG payable B. Lease liabilities C. Provisions Annual leave Long service leave 2020 $ 2019 $ 2,270,461 1,884,786 395,587 (9,177) 223,884 27,371 2,656,871 2,136,041 88,568 - 266,193 25,771 291,964 248,785 23,350 272,135 The carrying amounts of the Group's current trade and other payables and provisions are a reasonable approximation of their fair values. 15. Non-current liabilities and provisions A. Provisions Long service leave B. Lease liabilities The carrying amounts of the Group’s non-current liabilities and provisions are a reasonable approximation of their fair values. 16. Contributed equity Share capital 2020 $ 31,702 31,702 301,488 2019 $ 24,543 24,543 - 2020 $ 2019 $ 242,545,479 fully paid ordinary shares - no par value 62,195,687 50,195,854 (2019: 211,746,510) Fully paid ordinary shares carry one vote per share and carry the right to dividends. 62,195,687 50,195,854 51 Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements Movement in ordinary share capital of Aeris Environmental Ltd Balance at beginning of year 211,746,510 50,195,854 157,795,387 41,313,362 2020 2020 2019 Number of shares $ Number of shares 2019 $ Shares issued during year Shares issued to Directors towards repayment of their loan Shares issued to KMP - - - - 8,823,528 1,500,000 1,058,824 180,000 Share placement - Strategic Investors 28,000,000 12,040,000 42,404,073 7,208,692 Share Placement Plan Shares issued against exercise of options and rights - - 1,514,698 257,500 536,411 57,533 - - Shares issued to consultants and advisors 2,262,558 489,300 150,000 1,500 242,545,479 62,782,687 211,746,510 50,461,054 Transaction costs relating to share issues - (587,000) - (265,200) Balance at end of year 242,545,479 62,195,687 211,746,510 50,195,854 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. Grant Date Expiry Date Exercise price Number on issue 30 June 2019 Granted during year Expired or forfeited Exercised during year Number on issue 30 June 2020 17. Options 2020 Unlisted * * * * 23-Dec-16 14-Oct-21 23-Dec-16 23-Oct-21 23-Dec-16 01-Aug-20 30-May-18 01-Mar-21 Total options on issue 2019 Unlisted ** * * * * 31-Jul-14 31-Jul-19 23-Dec-16 14-Oct-21 23-Dec-16 23-Oct-21 23-Dec-16 01-Aug-20 30-May-18 01-Mar-21 Total options on issue 0.42 0.42 0.01 0.01 0.20 0.42 0.42 0.01 0.01 100,000 670,000 200,000 100,000 . - - - - (100,000) (175,000) - - - 495,000 - - (200,000) - - 100,000 1,070,000 - (275,000) (200,000) 595,000 500,000 100,000 745,000 350,000 100,000 1,795,000 - - - - - - (500,000) - (75,000) - - - - 100,000 670,000 - - (150,000) 200,000 - 100,000 (575,000) (150,000) 1,070,000 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 52 18. 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 2020 $ 2019 $ (65,483) (52,796) 1,970,286 2,196,869 1,904,803 2,144,073 2020 $ (52,796) (12,687) (65,483) 2019 $ (49,547) (3,249) (52,796) Nature and purpose of reserve 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 Share based payments during the year allocated to: Employees and consultants Key Management Personnel Utilised for share issue Balance at end of financial year 2020 $ 2019 $ 2,196,869 1,603,856 117,809 27,341 (371,733) 1,970,286 505,182 87,831 - 2,196,869 Nature and purpose of reserve The share based payments reserve records the value of options or rights issued to employees, consultants and Directors, as part of the remuneration for their services and issued in consideration for business combinations. 19. Accumulated losses Balance at beginning of financial year Net profit (loss) for year Balance at end of financial year 53 2020 $ 2019 $ (46,778,788) (43,150,288) 1,982,941 (3,628,499) (44,795,847) (46,778,788) Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements 20. Non-controlling interests Balance at beginning of financial year Net profit (loss) for year Balance at end of financial year 2020 $ 3,685 - 3,685 2019 $ 3,685 - 3,685 21. Particulars relating to controlled entities Name of entity Country of incorporation Ownership interest Ownership interest 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 22. Commitments for expenditure Lease commitments Australia Australia Australia USA Singapore Malta Operating leases Commitments on operating leases that relate to below office facilities: Registered office in Sydney - up to 1 year - 1 to 3 years Townsville lease - up to 1 year These commitments relate to short-term leases. 2020 % 100 100 100 100 75 100 2020 $ 56,604 - - 2019 % 100 100 100 100 75 100 2019 $ 55,495 55,495 14,300 56,604 125,290 54 23. Key management personnel disclosures 24. Share based payments (a) The Directors of Aeris Environmental Ltd during the year were: Maurie Stang Bernard Stang Steven Kritzler Michael Ford Alex Sava Peter Bush Appointed 23 April 2020 Director until 26 November 2019 (Alternate Director and Chief Executive Officer) (b) Other key management personnel 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: 2020 2019 $ $ Short-term employee benefits 402,053 379,720 Post-employment benefits Share-based payments 28,070 22,647 27,341 87,831 457,464 490,198 (a) Recognised share-based payment expenses The expense recognised for employee services and external consultants during the year is shown in the table below: Employee Share Option Plan 2020 2019 $ $ Employees and consultant 117,809 505,182 Key Management Personnel 27,341 87,831 Total amount arising from share-based payment transactions 145,150 593,013 (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 2019 and 2020. Fair value of options or rights granted 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 fair value of performance rights granted is based on the market price of shares at the date of issue. Further, disclosures relating to key management personnel are set out in remuneration report in the Directors’ Report. Particulars of options or rights granted over unissued shares See table below. Particulars of options or rights granted over unissued shares Options 2020 2019 Rights 2020 2019 Weighted average remaining contractual life 1.21 years 1.98 years 0.90 years 1.28 years Range of exercise prices Options or rights on issue Employees and consultants Key Management Personnel Options or rights issued during the year Employees and consultants Key Management Personnel Shares issued as a result of exercise of options or rights Employees and consultants Key Management Personnel Options or rights expired or forfeited Employees and consultants Key Management Personnel 55 $0.01 to $0.42 $0.01 to $0.42 - - 545,000 920,000 288,754 505,500 50,000 150,000 1,323,537 1,323,537 595,000 1,070,000 1,612,291 1,829,037 - - - - - - 150,000 - 150,000 200,000 150,000 336,411 - - - 200,000 150,000 336,411 - - - - - - 175,000 100,000 575,000 30,335 10,000 - - - 275,000 575,000 30,335 10,000 Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements The following table shows the inputs to the valuation of options and rights granted during 2020 financial year (2019: NIL) Further quantitative information in respect of these risks is presented throughout these financial statements. Value of Underlying Stock Exercise Price Dividend Yield Volatility (per Year) Risk free rate Maturity Pricing Date Value of Option Rights 0.230 0.000 N/A N/A N/A 25/7/22 9/9/19 0.2300 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; trade and other receivables; deposits and bonds; trade and other payables; and borrowings 25. Related party disclosures (a) Parent Entity Aeris Environmental Ltd is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 21. (b) Key management personnel Disclosures relating to key management personnel are set out in note 23 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. 26. Financial instruments disclosures (a) Capital The Group considers its capital to comprise its ordinary share capital and accumulated losses. 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. (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: 2020 2019 $ $ Trade receivables 4,970,255 3,473,660 R&D tax offset rebate receivable 569,571 - Deposits and bonds 22,347 22,265 Deposits with Bankwest 10,573,694 2,017,519 Deposits with Wells Fargo, USA 31,625 76,081 Deposits with Bank of America, USA 264,978 285 Deposits with ANZ Bank 2,069,226 1,349,821 18,501,696 6,939,631 56 (ii) Liquidity risk 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. 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 of financial assets and liability based on management’s expectations Cash and cash equivalents 12,949,339 12,949,339 Maturity analysis 2020 Financial assets Receivables Security deposits Total Financial liabilities Trade Creditors Other payables and accruals Lease liabilities * Total Net Maturity Receivables Security deposits Total Financial liabilities Trade Creditors Other payables and accruals Total Net Maturity 57 Cash flows < 6 mths 6- 12 mths 1-3 years > 3 years $ $ 5,539,826 5,535,881 3,945 14,182 - - 18,503,347 18,485,220 3,945 2,270,461 2,270,461 386,410 386,410 - - $ - $ - - - - - - $ - - 14,182 14,182 - - 390,056 35,002 36,716 253,687 64,651 3,046,927 2,691,873 36,716 253,687 64,651 15,456,420 15,793,347 (32,771) (253,687) (50,469) - - 3,486,857 3,424,125 28,953 33,779 14,164 - - - 14,164 6,968,898 6,892,002 28,953 33,779 14,164 1,884,786 1,884,786 251,256 251,256 2,136,042 2,136,042 - - - - - - - - - 4,832,856 4,755,960 28,953 33,779 14,164 * Lease liabilities calculated under AASB 16 which is effective from 1 July 2019 2019 Financial assets Cash and cash equivalents 3,467,877 3,467,877 - - Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements (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 : 2020 Financial assets Cash and cash equivalents Deposits Receivables Total Assets Financial liabilities Note Weighted average interest rates Floating interest rates Fixed interest rates Non-interest bearing Total 9 12 10 1.00% 10,573,862 2.20% 5.50% - - - - 2,375,477 12,949,339 14,182 14,182 47,612 5,492,214 5,539,826 10,573,862 47,612 7,881,873 18,503,347 Trade and other payables 14 0.00% - - - - 2,656,871 2,656,871 2,656,871 2,656,871 10,573,862 47,612 5,225,002 15,846,476 Note Weighted average interest rates Floating interest rates Fixed interest rates Non-interest bearing Total 9 12 10 1.00% 2.20% 5.50% 2,017,865 - - - - 1,450,012 3,467,877 14,164 14,164 65,578 3,408,083 3,473,660 2,017,865 65,578 4,872,259 6,955,701 Total Liabilities Net financial assets 2019 Financial assets Cash and cash equivalents Deposits Receivables Total Assets Financial liabilities Trade and other payables 14 0.00% Total Liabilities Net financial assets - - - - 2,136,041 2,136,041 2,136,041 2,136,041 2,017,865 65,578 2,736,218 4,819,660 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. Sensitivity analysis 2020 Carrying amount +2% interest rate Profit & Loss -1% interest rate Profit & Loss 2019 Carrying amount +3% interest rate Profit & Loss -3% interest rate Profit & Loss Deposits on call 10,573,862 211,477 (105,739) Deposits on call 2,017,865 60,536 (60,536) 10,573,862 211,477 (105,739) 2,017,865 60,536 (60,536) Tax charge of 30% (63,443) 31,722 Tax charge of 30% (18,161) 18,161 Post tax profit increase / (decrease) 148,034 (74,017) Post tax profit increase / (decrease) 42,375 (42,375) 58 (B) Currency risk 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 2020 US$ 2019 US$ 2020 SGD 2019 SGD 2020 Euro 2019 Euro 204,447 53,373 9,334 9,334 5,000 5,000 217,919 385,893 12,500 12,500 (559,163) (310,420) - - - - - - (136,797) 128,846 21,834 21,834 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 of 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. 27. Contingent liabilities There are no contingent liabilities of the company or the Group other than commitments disclosed in note 22 (2019: NIL) 28. 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 29. Subsequent events 30. Operating 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: There have been no matters or circumstances, which have arisen since 30 June 2020 that have significantly affected or may significantly affect: a. Australia - Sales and service on account of Australian operations b. International - Sales & service on account of international operations a. the operations, in financial years subsequent to 30 June 2020, of the consolidated entity; b. the results of those operations; or c. the state of affairs, in the financial years subsequent to 30 June 2020, of the consolidated entity. Intersegment transactions Intersegment transactions are made at arm’s length and are eliminated on consolidation. 59 Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements Intersegment receivables, payables and loans Intersegment loans are initially recognised at the consideration received & are eliminated on consolidation. Major Customer The Group supplied to one of its major customers, through Australian sales and services segment, (who individually amount to 10% or more of its total revenue) that combined account for 22% of external revenue (2019: One major customer account for 40%). During the year ended 30 June 2020 the most significant client accounts for approximately 22% (2019: 40%) of the consolidated entity’s external revenue through Australian Sales and Services operating segment. Operating segment information of the consolidated entity 2020 Revenue Sales Other Income Total Revenue Expenses Cost of goods sold Operating expenses Total Expenses Profit before tax 2019 Revenue Sales Other Income Total Revenue Expenses Cost of goods sold Operating expenses Total Expenses Loss before tax Segment assets and liabilities Australia International Total Intersegment elimination Consolidated Australia International Intersegment eliminations Consolidated $ $ $ $ 13,813,583 36,508 13,850,091 6,170,158 6,310,101 12,480,259 1,369,832 6,305,400 129,515 6,434,915 4,139,133 6,481,944 10,621,077 (4,186,162) 1,410,585 189 1,410,774 1,055,670 774,348 1,830,018 (419,244) 570,832 - 570,832 289,257 557,407 846,664 (275,832) (555,509) 14,668,659 - 36,697 (555,509) 14,705,356 (555,509) (462,782) 6,670,319 6,621,667 (1,018,291) 13,291,985 462,782 1,413,370 (24,975) 6,851,257 - 129,515 (24,975) 6,980,772 (24,975) (375,266) 4,403,415 6,664,085 (400,241) 11,067,500 375,266 (4,086,728) Assets 2020 $ Liabilities 2020 $ 2019 $ 2019 $ 22,570,313 7,538,662 5,064,275 3,802,631 1,316,076 860,028 4,156,956 3,184,701 23,886,389 8,398,690 9,221,231 6,987,332 (1,207,468) (401,146) (5,850,638) (4,554,613) 22,678,921 7,997,544 3,370,593 2,432,719 60 31. Information relating to Parent Entity Current Assets Total Assets Current Liabilities Total Liabilities Issued Capital (net of costs) Accumulated losses Share-based payment reserve Net profit (loss) after tax for the period Total comprehensive loss for the period Contractual Obligations / Commitments (Refer Note 22) 32. Notes to cash flow statements 2020 $ 22,163,863 22,646,291 2,877,507 3,210,697 2019 $ 7,375,870 7,538,240 1,961,530 1,986,073 62,195,686 50,195,854 (44,730,376) (46,840,555) 1,970,285 19,435,595 2,196,868 5,552,166 2,110,178 (3,727,778) 2,097,491 (3,731,027) - - (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 Deposits on call 2020 $ 2,375,477 10,573,862 12,949,339 2019 $ 1,450,012 2,017,865 3,467,877 61 Aeris | Annual Report 2020 Notes to the Consolidated Financial Statements (b) Reconciliation of operating profit (loss) after income tax to net cash flows from operating activities Operating profit (loss) after income tax Non cash/non-operating items included in profit and loss Depreciation and amortisation Impairment expense Interest on lease liability Share based payments Changes in assets and liabilities Increase in receivables Increase in inventory Increase in other assets Increase in trade creditors Increase in other creditors and accruals Increase / (Decrease) in employee entitlement expense 2020 $ 2019 $ 1,982,941 (3,628,499) 134,378 135,781 20,079 145,150 67,170 72,198 - 412,287 (2,201,947) (2,716,789) (1,774,973) (451,877) (67,599) 385,675 104,383 26,988 (28,565) 918,367 3,966 (2,793) Net cash used in operating activities (2,050,960) (4,412,720) 62 Directors’ Declaration 63 10Aeris | Annual Report 2020Directors’ Declaration In the opinion of the Directors: 1. 2. 3. 4. the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the consolidated entity’s financial position as at 30 June 2020 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Board of Directors Maurie Stang Director Sydney, 31 August 2020 64 Independent Auditor’s Report For the Financial Year ended 30 June 2020 65 11Aeris | Annual Report 2020Independent Auditor’s Report Level 11 | 1 York Street | Sydney | NSW | 2000 GPO Box 4137 | Sydney | NSW | 2001 t: +61 2 9256 6600 | f: +61 2 9256 6611 sydney@uhyhnsyd.com.au www.uhyhnsydney.com.au INDEPENDENT AUDITOR’S REPORT To the Members of Aeris Environmental Ltd Report on the Audit of the Financial Report Opinion We have audited the financial report of Aeris Environmental Ltd (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and ii. complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. 47 Passion beyond numbers 66 REVENUE RECOGNITION Why a key audit matter How our audit addressed the risk Revenue was identified as a key audit matter as it is considered to be a key performance indicator to the users of the financial report. As disclosed in Note 4 of the financial report, total revenue has increased from $6.85 million for the year ended 30 June 2019 to $14.63 million for the year ended 30 June 2020. Occurrence AASB 15 ‘Revenue from Contracts with Customers’ establishes a framework for determining whether, how much and when revenue is recognised. Under AASB 15, revenue is recognised when a performance obligation is satisfied, i.e. when 'control’ of the goods or services underlying a particular performance obligation is transferred to the customer. For the sale of goods, the performance obligation is for transfer of goods to the customer depending on the terms of shipment. Cut-off Sales made at the end of the year and subsequent to the year-end are of higher risk of cut-off error due to strict revenue recognition requirements of the accounting standards (i.e. when customer obtains control of goods and services). The appropriate recognition needs carefully. revenue to be considered timing of Our procedures included, amongst others: General procedures ► Assessed the Group’s revenue recognition accounting policies for compliance with the requirements of the Australian Accounting Standards. We reviewed these policies to determine whether they have been consistently and appropriately applied. ► Performed walkthroughs around the revenue recognition process and tested controls where appropriate. Occurrence ► Performed analytical procedures on revenue transactions recorded during the period by comparing the current year revenue with the prior year. We also compared gross margins and sales product mix with prior year and obtained explanations from the management for significant variations. ► Tested a sample of sales from the general ledger to the supporting documents such as invoice, purchase order from customer, proof of delivery and receipts. ► Assessed whether any sales transactions represent goods shipped on consignment and, the appropriate adjustments have been made to reverse these transactions. so, whether if A key audit matter is not materially correct for year ended 30 June 2020. is revenue An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. 48 Passion beyond numbers 67 Aeris | Annual Report 2020 Independent Auditor’s Report Cut-off ► Tested sales cut-off by selecting sales made around 30 June 2020 and agreeing it to the invoice, purchase order, proof of delivery and other shipping documents. ► Reviewed the terms of shipping and tested that the customer has obtained the control of goods or services and the sales are recorded within the correct period. Other procedures ► Reviewed the general journals for any unusual transaction to the revenue accounts. ► Reviewed sales return/credit notes after year end to test revenue is recorded in the correct year. RECOVERABILITY OF TRADE RECEIVABLES Why a key audit matter How our audit addressed the risk As disclosed in Note 10 of the financial trade report, receivable balance of $5.14m as at 30 June 2020. recorded a the Group The trade receivables balance as at 30 June increased on account of an 2020 has increase in FY2020. The receivables balance as at 30 June 2020 has increased from $4.26 million as at 30 June 2019 to $5.14 million as at 30 June 2020. in the sales Valuation of trade receivables is a key audit matter in the audit due to the size of the trade receivable balance and the high level of management in determining loss provision. the expected credit judgement used Our procedures included, amongst others: ► Reviewed aged debtor listing including long outstanding receivables and assessed the recoverability of these through inquiry with management and by obtaining sufficient corroborative evidence such as subsequent receipts etc. to support the conclusions. ► Reviewed management’s allowance for expected calculations and loss independently assessed the reasonable of the amounts provided for. credit ► Reviewed subsequent credit notes issued to check for reversal of revenue/receivable. An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. 49 Passion beyond numbers 68 Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. 50 Passion beyond numbers 69 Aeris | Annual Report 2020 Independent Auditor’s Report that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. 51 Passion beyond numbers 70 Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 8 to 13 of the directors’ report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Aeris Environmental Ltd, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Mark Nicholaeff Partner Sydney 31 August 2020 UHY Haines Norton Chartered Accountants An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. 52 Passion beyond numbers 71 Aeris | Annual Report 2020 Independent Auditor’s Report Proven Skin Hygiene Protection In High Traffic Environments Patented protection for washrooms, food preparation and health care environments HAND SANITISING PAPER TOWEL 99.9% reduction in bacteria Eco-friendly, water activated wipes Readily biodegradable Food Preparation High Touch Areas Anti-bacterial instant hand sanitiser Proprietary cosmetic formula KILLS 99.99% OF GERMS! Contains 70% v/v Absolute Ethanol NET CONTENT 500mL l u If Bat Exp Prod r o n m e n t a l s E n v i i A e r L O F O R E X D O N O T S W A L K E E P O U T O F E Y E S S t o r e b e l o w 3 0 º C M A D E I N A U S T R A D I R E C T I O A p p l y A i n e n s u r S A F E T Y I n c a s e I n f o r m i c a u t l e n s u s e f I s e r i t t a n t h a n d s a n i i c f o r m u l a i a l i n s i e t a r y c o s m e t - b a c t e r P r o p r i A n t K I L L S 9 9 . 9 9 % O F G E R M S ! t h a n o l v A b s o l u t e E / 7 0 % v C o n t a i n s N E T C O N T E N T 5 0 0 m L c o d i S a n G e l 5 0 0 m L L a b e l ( w B a r t s A c i Anti-bacterial instant hand sanitiser Proprietary cosmetic formula KILLS 99.99% OF GERMS! Contains 70% v/v Absolute Ethanol NET CONTENT 500mL KILLS 99.99% OF GERMS! KILLS 99.99% OF GERMS! NET CONTENT 500mL NET CONTENT 500mL KILLS 99.99% OF GERMS! KILLS 99.99% OF GERMS! KILLS 99.99% OF GERMS! NET CONTENT 500mL NET CONTENT 500mL NET CONTENT 500mL Non-Alcoholic For sensitive skin Leaves soft skin feel Contains moisturiser & emollient Mild & skin compatible KILLS 99.9% OF GERMS! NET CONTENT 150mL KILLS 99.9% OF GERMS! KILLS 99.9% OF GERMS! KILLS 99.9% OF GERMS! NET CONTENT 150mL NET CONTENT 150mL NET CONTENT 150mL KILLS 99.9% OF KILLS KILLS 99.9% OF NET CONTENT 150mL NET CONTENT 150mL NET CONTENT 150mL NET CONTENT 150mL 150mL Fast acting antiseptic gel Sanitising foam for sensitive skin Personal and Social Hygiene ACTISAN GEL Anti-bacterial instant hand antiseptic Fragrance free & pH balanced Kills 99.99% of germs Registered on the Australian Register of Therapeutic Goods ‘Medical grade’ AUST R 336954 70% ethanol Proprietary emollients Fragrance free ACTISAN ALCOHOL FREE FOAM Anti-bacterial instant hand sanitiser Fragrance free and pH balanced Kills 99.9% of germs Contains emollients and moisturisers Complies to EN 13727 Highly efficient in use Cost effective & fast drying sanitising gel ACTIPRO GEL pH balanced Non-sticky gel Kills 99.99% of germs Economical for social use 72 MKT-149-02Australian Securities Exchange (ASX) Additional Information 73 12Aeris | Annual Report 2020Australian Securities Exchange (ASX) Additional Information Additional information required by 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 and performance rights registers, ASX releases and the Company’s Constitution. Shareholding Information Distribution of Shareholders Analysis of the quoted fully paid ordinary shares by holding as at 22 October 2020: 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 220 436 286 626 140 20 39 1,767 137,353 1,226,913 2,347,748 22,247,075 31,047,654 13,647,439 171,891,297 242,545,479 0.06 0.51 0.97 9.17 12.80 5.63 70.86 100.00 Based on the market price at 22 October 2020 there were 148 shareholders with less than a marketable parcel of $500 worth of shares at a share price of $0.545. There are 117,000 shares that are subject to Company-imposed voluntary escrow. Statement of Shareholdings as at 22 October 2020 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 J P Morgan Nominees Australia Pty Limited Bernard Stang Link Traders (Aust) Pty Ltd National Nominees Limited Steven Kritzler Girdis Superannuation Pty Ltd Potski Pty Ltd HSBC Custody Nominees (Australia) Limited Meditsuper Pty Ltd Development Management & Constructions Pty Ltd BNP Paribas Noms Pty Ltd Bond Street Custodians Limited Kefford Holdings Pty Ltd HSBC Custody Nominees (Australia) Limited – A/C 2 Henderson International Pty Limited Treplo Pty Limited Bennelong Resources Pty Limited Radley Investment Co Pty Ltd Pulitano Family Superannuation Pty Ltd Total of Top 20 Holdings Other Holdings Total Ordinary Shares 20,809,160 19,406,270 17,893,084 17,345,986 13,503,954 11,252,785 6,772,828 6,767,604 5,873,899 4,272,281 4,247,353 3,821,977 3,650,000 3,400,000 2,342,819 2,300,000 2,275,000 2,274,284 2,204,997 2,007,188 152,421,469 90,124,010 242,545,479 8.58 8.00 7.38 7.15 5.57 4.64 2.79 2.79 2.42 1.76 1.75 1.58 1.50 1.40 0.97 0.95 0.94 0.94 0.91 0.83 62.85 37.15 100.00 74 UNQUOTED EQUITY SECURITIES as at 22 October 2020 For details of the unissued ordinary shares of the Company, refer below and to the “Share Options” section of the Directors’ Report. Number Class – Options Number of Holders 375,000 120,000 Options held by four staff members, which expire on 23 October 2021 and have an exercise price of 42 cents, issued under the EIP. Options held by four key consultants, which expire on 23 October 2021 and have an exercise price of 42 cents, which includes 50,000 options held by each of Robert Waring and Ian Ernst. 495,000 Total Options on Issue 4 4 8 Number Class – Performance Rights Number of Holders 1,462,291 150,000 Performance Rights held by Aeris’ CEO Peter Bush (1,323,537 or 90.5%), six staff members and four consultants, which expire on 11 April 2022 with no exercise price, with one third vesting each year for three years commencing on 11 April 2019. 1,612,291 Total Performance Rights on Issue 11 2 13 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 and performance rights holders have no voting rights until the options are exercised or the performance rights convert. SUBSTANTIAL SHAREHOLDERS as at 22 October 2020 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 Perennial Value Management Limited Link Traders (Aust) Pty Ltd Link Enterprises International Pty Ltd Link Enterprises International Pty Ltd On-Market Buy Back Number 23,881,819 20,253,664 19,335,769 Class Voting Power Ordinary fully paid shares Ordinary fully paid shares Ordinary fully paid shares 9.86% 8.36% 7.97% 13,619,954 Ordinary fully paid shares 5.62% There is no current on-market buy-back of shares in the Company. 75 Aeris | Annual Report 2020Australian Securities Exchange (ASX) Additional Information A Whole-of-System Solution for 12 Month Protection in Air Conditioning Systems SURFACE CLEANER & SANITISER BIOACTIVE SURFACE TREATMENT A simple one step cleaning and sanitising solution, which kills bacteria and mould on hard surfaces in HVAC&R systems MULTI-ENZYME COIL CLEANER Safely cleans and removes biofilm and inorganic debris from indoor coils Non-corrosive and safer for the environment INDOOR COIL TREATMENT Anti-microbial treatment of HVAC&R coils Minimises contamination & reduces corrosion Non-corrosive and readily biodegradable Optimises energy efficiency Reduces energy consumption Best used after Multi-Enzyme Coil Cleaner Protect air handling systems from mould & bacteria for up to 12 months! Invisible biostatic coating prevents regrowth of mould & bacteria for up to 12 months Ready-to-use aerosol or bulk product for spraying and fogging Best used after Cleaner & Sanitiser BIOACTIVE FILTER TREATMENT Dramatically reduce mould and odour-causing bacteria growth Inhibits the growth of odour- causing bacteria and mould Extends filter life MULTI-ENZYME CONDENSATE PAN TABLET Advanced multi-functional composition containing specifically selected enzymes & biocides to minimise biofilm formation in condensate drain pans and drain lines Available in three sizes to suit any system 76 MKT-149-02Corporate Directory For the Financial Year ended 30 June 2020 77 13Aeris | Annual Report 2020Corporate Directory Aeris Environmental Ltd Auditor ACN: ABN: 093 977 336 19 093 977 336 Directors Maurie Stang Steven Kritzler Bernard Stang Michael Ford Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer, Chief Financial Officer and Alternate Director 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 Peter Bush 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 Australia GPO Box 2975, Melbourne VIC 3001 Australia Telephone: Telephone: Facsimile: Website: Investor Link: 1300 850 505 (within Australia) +61 3 9415 4000 (outside Australia) +61 3 9473 2500 www.computershare.com www.investorcentre.com/au 78