Aeris Environmental
Annual Report 2021

Plain-text annual report

AERIS ENVIRONMENTAL LTD ACN 093 977 336 20212 AERIS ENVIRONMENTAL2 6 10 30 32 34 36 38 40 84 86 94 98 04 Auditor’s Independence Declaration 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 02 05 Review of Operations 03 Directors’ Report S 01 Chairman and CEO Report T N E T N O C 10 Directors’ Declaration Corporate Directory 13 12 11 Independent Auditor’s Report Australian Securities Exchange (ASX) Additional Information ANNUAL REPORT 20211 0 Chairman and CEO Report 2 AERIS ENVIRONMENTALChairman and CEO Report It is our pleasure to present you with the Company’s Annual Report for the year ended 30 June 2021. As outlined at Aeris’ 2020 Annual General Meeting, the global COVID-19 pandemic has created new challenges and opportunities for the Company, its customers and distributors, and society in general. As the world transitions from the impact of COVID-19 to managing ways of living with the pandemic, Aeris has undertaken a fundamental review of its businesses, priorities and future strategic focus. During the past year businesses have faced a number of significant issues in terms of supply chains, customer demands, pricing and the uncertainties of repeated lockdowns in key markets. The Company had re-allocated resources in the 2020-21 financial year to provide essential product requirements in the Australian hospital sector and experienced a dislocation in terms of its activities in China. The net result was an impact on revenue and a negative trading result in terms of profitability. Notwithstanding the abovementioned headwinds, Aeris continued to invest in new and potentially-disruptive products, expanded its senior leadership team and is now re-entering the important Chinese market, with the Company’s own wholly-owned foreign entity (WOFE) currently being established. In parallel, Aeris has significantly reorganised its commercial activities, with new distribution channels and partners, and a scalable pricing structure, and is redefining its international activities and partnerships to build annuity revenue. Supporting these initiatives are a number of new products and technologies, including the Company’s important Aeris Defence range, which Aeris believes will set the new gold standard in hard surface disinfection and protection, addressing a global market with differentiated COVID-19 claims and efficacy. Building on this momentum is the Company’s launch of its Aeris bioactive filter treatment, which has been recently validated on the bus fleet of The Milwaukee Transport Transit Services in the USA. This proprietary technology provides a marked improvement in the minimum efficiency reporting value (MERV) filter rating, together with an approved COVID-19 claim to restrict the growth of COVID-19 in the filter medium. Approval has been gained by both the Environment Protection Authority (EPA) and Therapeutic Goods Administration (TGA) for this patented technology platform, providing a cost-effective application for both indoor air quality and COVID-19 inhibition in a world where the Delta variant has created universal attention on improving indoor air quality and safety. The Company now has an integrated portfolio of products addressing heating, ventilation and air-conditioning (HVAC) efficiency and safety, together with environmental hygiene and corrosion protection in the built environment. Over recent years, considerable investments have been made in both Aeris’ anti-microbial polymers, and the new antiseptic and disinfectant paper technologies. Both these platforms have broad commercialisation potential and represent material revenue opportunities in the 2022 calendar year. Environmental, social and governance (ESG) are increasingly important drivers for the Company, its customers and its shareholders. Aeris is well positioned to support the needs of all of its stakeholders, both in terms of the Company’s “green technology”, and its focus on energy efficiency and carbon neutrality in Aeris’ product offerings, that are able to be delivered in an integrated fashion to the built environment. The Company’s priorities during the height of the pandemic were to support frontline workers, and to help hospitals to operate safely by supplying antiseptics and disinfectants, demonstrating Aeris’ commitment to “walk the talk” in terms of its ESG policy. From a product portfolio point of view, the Company’s water-based corrosion treatments replace solvent-based legacy products and also result in longer asset life, thereby meeting best practice standards in extending the replacement cycle by up to 50%. Each of Aeris’ disinfectant technologies, such as Aeris Active, Aeris Defence and bioactive filter treatments, are based on the Company’s fully biodegradable polymer, which not only improves residual performance, but is environmentally friendly for its healthcare, commercial, industrial and consumer applications. 3 ANNUAL REPORT 2021Chairman and CEO Report The Board takes this opportunity to thank all the Aeris team members, in Australia and internationally, for working diligently over the past year, which was one of unparalleled disruption and challenges. The safety of the Company’s workforce continues to be paramount, with not a single COVID-19 case experienced by Aeris’ employees across all of its activities internationally. Arising out of the recent Company-wide strategic review, the Board has seen the Aeris team respond enthusiastically to new areas of opportunity and responsibilities, and to changes in the Company’s business model and priorities. These shared objectives and vision support Aeris’ clear focus on annuity revenue growth, and driving shareholder value into the next financial year and beyond. The Company takes this opportunity to express its appreciation for the efforts of Aeris’ newest Directors, Drs Abbie Widin and Jenny Harry, who are up for election at the Company’s upcoming Annual General Meeting as Independent Non-Executive Directors. Dr Widin has over 20 years’ experience in the global consumer goods and consulting markets. She has held various marketing, commercial and management roles in both private and public companies. Dr Harry has 20 years’ experience in the executive management of companies in the biotechnology, diagnostic and biopharmaceutical sectors, and is an accomplished non-executive director of listed and unlisted companies. Aeris enjoys a solid balance sheet, is net debt free, and is now investing in its key international markets, including a re-launch in China. The Company is concentrating its efforts on forming long-term partnerships with companies that have meaningful existing demand for the product categories in the Company’s existing portfolio. Aeris is working on a number of product innovations based on customer demand and the Company’s regulatory approvals continue to grow in key international markets. Aeris believes that the Company’s positioning as a trusted partner in HVAC efficiency and safety, together with its full portfolio of environmental hygiene technologies, enables Aeris to effectively support the needs of its distributers and customers in returning to work, and successfully coping in the new reality of a world where COVID-19 is endemic. Maurie Stang Non-Executive Chairman Peter Bush Chief Executive Officer 4 AERIS ENVIRONMENTALA N N U A L R E P O R T 2 0 2 1 5 2 0 Review of Operations 6 A E R I S E N V I R O N M E N TA L Review of Operations Since the commencement of the global COVID-19 pandemic, the Company has focused many of its activities on supporting customers, distributors and, most particularly, health authorities in Australia with their most urgent needs. The pandemic created significant supply chain challenges for Aeris and unprecedented demand for trusted disinfection technologies during 2020 has been followed by significant oversupply in 2021. The Company is currently completing a comprehensive strategic review of its activities, priorities and business model going forward. The review is focused on the commercialisation and sales of Aeris’ core differentiated product platforms, and new product developments ready for market entry. In line with its recovery agenda and to underpin this, the Company has recently made several senior appointments in sales, marketing and channel management, together with engaging consulting services to direct the Company’s concentration on sales growth. Specifically, Aeris is now focusing on Australia, China and a number of international markets, and verticals. In parallel it is putting in place new trading terms with the Company’s sales and distribution partners with what Aeris believes is a significantly improved business model for the Company and its partners. Aeris has experienced a number of commercial issues arising from the priorities of the last financial (pandemic) year. It is now actively dealing with the legacy of operating in an unprecedented environment and recognising these impacts in an effort to refocus on its growth objectives. The Company is now investing additional resources and focusing on its distribution channels and partners by providing more support and commercial benefits to its partners against new growth objectives. This is aligned with a value proposition of making the built environment safer, more energy efficient and delivering on a broader spectrum of customers’ needs. Finance Annual revenue for the 2020-21 financial year was $7,130,684 (2020 - $14,632,962). The Company made a loss before income tax of $5,985,414 compared to a profit of $1,413,370 in the prior year. The loss results from the problems associated with servicing markets during the pandemic, and a significant deterioration in Aeris’ gross margin (40% in the June 2020-21 year compared to 55% for the 2019-20 financial year), reflecting in large part the impact of the lower margin NSW Health business. The impact of further lockdowns and the Delta virus wave globally in the 2022 financial year, has had a significant effect on sales of a number of the Company’s products and related market access. In accordance with this, the Company has now taken additional inventory provisions, notwithstanding its intention to actively market these products to address excess inventory. It is anticipated that with greater production efficiency, improved manufacturing and supply chain, lower raw material cost objectives and improved mix of product sales, higher margins will progressively be achieved. The Company’s cash receipts from customers for the year were $11,367,172 compared to the previous year of $14,600,592. As 30 June 2021 Aeris has net assets of $13,471,369, compared to $19,308,328 on 30 June 2020. Cash at 30 June 2021 was $11,485,616 compared to 12,949,339 at 30 June 2020. The net cash used in operating activities decreased by $771,000. Balance sheet movements included a decrease in trade debtors of $4,050,872. North America Aeris is focused on improving adoption and distribution of its heating, ventilation, and air-conditioning (HVAC) and environmental hygiene range in North America, together with the sale of its two products – AerisGuard Bioactive Filter Treatment and AerisGuard Bioactive Surface Treatment. Existing EPA approvals for their use in HVAC and refrigeration is to be incorporated into ‘safe re-opening’ plans for protecting HVAC filters and surfaces against the colonisation of bacteria, fungi and viruses, including COVID-19. After the positive evaluation of Aeris Bioactive Filter Treatment on the bus fleet of The Milwaukee Transport Transit Services, Inc, the Company is now working with several municipal transport operators to target the use of product in its air filtration assets. Additionally, Aeris is focused on business development in sectors that are currently ‘re-opening’, including retail and fast-food customers. A N N U A L R E P O R T 2 0 2 1 7 Review of Operations The Company has now received independent laboratory results for AerisGuard Bioactive Surface Treatment to cover additional organisms. This product will be positioned as a general-purpose surface disinfectant, with Aeris’ regulatory consultants working to have the additional claims registered with the U.S. EPA (potentially allowing “COVID-19” kill claims, as well as being added to the EPA’s List N for general purpose disinfectants). China Aeris is moving forward with new initiatives and distribution arrangements together with a number of new relationships in the important Chinese market. This includes assessing options for the production of certain products in China, 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. The Company is finalising the establishment of its wholly-owned foreign entity (WOFE). Aeris’ WOFE in China will place Aeris in a strong position to develop strategic relationships, and joint ventures, in accordance with local ownership requirements, potentially opening both State and Federal business opportunities in China to the Company and its partners. Middle East, India and Europe Aeris continues to investigate a range of potential customers and distributors in Europe and the United Kingdom, and distribution partners in the Middle East and India. The efforts in re-opening various sections of the European and the Middle East economies now provide increasing interest in the spectrum of Aeris’ offerings, making new distribution arrangements a priority. Mould Remediation Aeris has repositioned its mould remediation product range to build on its initial success with key projects in Australia. With clear branding, technical support and an enhanced distributor support programme, the Company’s products are not only highly effective, but provide long-term protection against surfaces becoming re-contaminated with mould, which has been a major challenge for Aeris’ customers and insurers. The Company has rationalised the activities of its project team with a greater focus on product sales and technical support for its international channel partners. Corrosion Protection The Company has a number of water-based, long-lasting anti-corrosion products. Aeris Corrosion Protection Services is evaluating focused on several original equipment manufacturers (OEMs) and downstream customer opportunities both in Australia and the USA, the Middle East and Asia. This business is now progressively re-opening as economic activity expands, particularly in the southern hemisphere. To-date, Aeris’ expansion plans for the OEM corrosion business has been significantly impacted by the Company’s inability to travel and to conduct plant trials. Aeris has the potential to apply its novel coatings to multiple industrial and HVAC applications providing a growth opportunity as business activity and production levels increase over time. Environmental Hygiene In terms of ongoing COVID-19 compliance, both Aeris Defence and Aeris Active are dual active, offering rapid COVID-19 kill and extended residual protection across the full spectrum of surfaces, from high risk to social environments. The product’s competitive position is enhanced by the ‘one step, single application’ even in dirty conditions providing the highest levels of compliance and ‘gold standard’ performance. Aeris has now expanded its senior sales and marketing resources to support the Company’s commercial growth, with additional effort now being applied to the international launch of Aeris Defence. This product is available in a variety of presentations, including the ready-to-use and wipe format, and has been positioned with competitive pricing, ease-of-use and Australian Register of Therapeutic Goods listed surface disinfection claims, including COVID-19. Business development activities with several distributors and end customers has provided early feedback that Aeris Defence has a wide range of applications and attractive in-use features. 8 A E R I S E N V I R O N M E N TA L Environmental, Social and Governance (ESG) Aeris continues to focus on the environmental impact of its products and services. Key to the Company’s strategy is to provide our customers with both improved environmental outcomes and energy efficiency via our products and services. There is increasingly a strengthening commitment towards carbon neutrality and Aeris will be outlining in more detail in its Annual Report the initiatives it will be undertaking, both in its own right and in support of its customers’ ESG objectives. The Company recognises a need to rebuild momentum from the challenges it experienced during the 2021 financial year, which have significantly impacted both its sales and operations. The full spectrum of the Company’s activities is being evaluated as part of the current and comprehensive strategic review. Many changes and improvements are now being implemented, further supported by the significant investments that Aeris has in train across products, regulatory approvals and an expanded team and capability. Outlook The last year saw significant variability in market conditions, lockdowns and re-openings as a result of COVID-19 and its variants, which resulted in a significant deterioration in Aeris’ business. The Company’s strategic review is aimed at critically reviewing the Aeris’ deployment of its resources and developing new plans to support its customers and distributors in meeting their needs and requirements for growth. As the world emerges from the greatest impact of the pandemic, the Company has a strong balance sheet and is net debt free. Supporting the Company’s initiatives are a range of new products, registrations and customer driven product presentations. Aeris’ expanded investment in China is targeting not only domestic opportunities in that market, but also the potential to export novel technologies, such as its new biocidal polymers, in collaboration with prospective partners who already access meaningful global markets. A N N U A L R E P O R T 2 0 2 1 9 3 0 Directors’ Report 10 Directors’ Report The Directors of Aeris Environmental Ltd submit herewith the Annual Financial Report for the financial year ended 30 June 2021. 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 Steven Kritzler Non-Executive Director Mr Maurie Stang has more than three decades of experience building and managing companies in the healthcare and biotechnology industry in Australia and internationally. His strong business development and marketing skills have resulted in the successful commercialisation of intellectual property across global markets. Director since: 2002 – appointed Chairman in 2002 Directorship of other listed companies held in the last three years: Non-Executive Chairman of Nanosonics Limited (ASX:NAN) since November 2000. Non-Executive Deputy Chairman of Vectus Biosystems Limited (ASX:VBS) since December 2005. Mr 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. Director since: 2002. Directorship of other listed companies held in the last three years: None 11 ANNUAL REPORT 2021 Directors’ Report Michael Ford Non-Executive Director Abbie Widin Non-Executive Director Mr Ford (B.Com, MBA, FCA, FCPA, GAICD) has over 30 years of experience in Finance and Strategy roles in a wide range of industries including manufacturing, property and financial services. He is the Chief Financial Officer of News Corp Australia and a Director of Foxtel. Mr Ford is a former Group CFO of QBE Insurance and Deputy CFO of Commonwealth Bank of Australia. He is an experienced Company Director and has completed the Advanced Management program at Harvard Business School. Director since: 23 April 2020. Dr Widin (PhD (Physiology) and B. Med. Science (Hons), both from the University of Sydney, and a Diploma of Business Administration from AGSM) was appointed as a Director in March 2021. She has over 20 years’ experience in the highly-competitive consumer goods and consulting markets. Dr Widin has held various marketing, commercial and management roles in both private and public companies, such as Procter & Gamble (Australia and Europe), SC Johnson, Reckitt Benckiser and Kellogg. She has strengths in marketing strategy, innovation pipelines and leading cross-functional teams. Directorship of other listed companies held in the last three years: None Director since: 2 March 2021. Directorship of other listed companies held in the last three years: None Jenny Harry Non-Executive Director Bernard Stang Non-Executive Director Dr Harry (PhD GAICD) was appointed as a Director in April 2021. She is a graduate of the Harvard Business School General Manager Program and the Australian Institute of Company Directors. Dr Harry has 20 years’ experience in executive management of companies in the biotechnology, diagnostic and biopharmaceutical sectors. She is an accomplished CEO with experience in growing companies from start-up to commercialisation, and has demonstrated expertise in building high-performing teams, establishing global partnerships, capital raising, investor relations, together with corporate governance and compliance. Dr Harry is an experienced Non-Executive Director on the Boards of listed and unlisted companies. She is currently a Non-Executive Director of Neuren Pharmaceuticals Limited (ASX:NEU) and Ondek Pty Ltd, and a member of the Board’s IP sub-Committee of the Children’s Medical Research Institute. Director since: 21 April 2021. Mr B Stang (B.Arch) is a Co-Founder and Director of the Regional Health Care Group of companies. He serves as the Chief Executive Officer of Stangcorp Pty Ltd, Stoneville Ltd and Brunswick Property Pty Ltd, which are key property entities in the Stang Group. Mr B Stang manages a broad portfolio of investments in the private and listed sectors, and has enjoyed over 40 years of operational leadership in successful healthcare businesses. He serves as a Director of Novapharm Research. Mr B Stang is a Director of Weizmann Australia, which represents the Weizmann Institute of Science in Australia, and the Institute has recently established the Garvan-Weizmann Centre of Cellular Genomics in Sydney, in joint venture with the Garvan Institute. He served as a Non-Executive Director of Nanosonics Limited (ASX:NAN) until 2007. Director since: 2002. Did not seek re-election at 2020 AGM. Directorship of other listed companies held in the last three years: Non-Executive Director of Neuren Pharmaceuticals Limited (ASX:NEU) since 2018. Directorship of other listed companies held in the last three years: None 12 A E R I S E N V I R O N M E N TA L Other Key Management Personnel Peter Bush Chief Executive Officer Robert Waring Company Secretary Mr Bush (B.Com, CA) was formerly 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. Appointed: 2013 Directorship of other listed companies held in the last three years: Non-Executive Director of Vectus Biosystems Limited (ASX:VBS) since July 2015. 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 Vectus Biosystems Limited (ASX:VBS) and Xref Limited (ASX:XF1), and is a Non-Executive Director and the Company Secretary of ASX-listed R3D Resources Limited (ASX:R3D). Share Registry Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street Abbotsford VIC 3067 GPO Box 2975, Melbourne VIC 3001 Telephone: +61 3 9415 4000 Web: www.computershare.com A N N U A L R E P O R T 2 0 2 1 13 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 Directors and their Attendance Maurie Stang * Steven Kritzler ** Michael Ford *** Abbie Widin **** Jenny Harry ***** Bernard Stang ****** Board of Directors Audit and Risk Committee Corporate Governance Committee Remuneration and Nomination Committee 9 9 9 9 3 2 5 3 3 N/A 3 N/A N/A 1 1 1 N/A N/A N/A N/A 1 2 2 N/A 2 N/A N/A N/A * Chairman of the Board, the Remuneration and Nomination Committee, **** Appointed as a Director on 2 March 2021 and elected Chair of the and the Corporate Governance Committee. Related Parties Committee on 12 August 2021. ** Ceased to be a member of the Remuneration and Nomination ***** Appointed as a Director on 21 April 2021, and became the third Committee on 1 October 2020. member of both the Audit and Risk Committee, and the Remuneration *** Appointed as the Chairman of the Audit and Risk Committee on 25 Feb and Nomination Committee, on 29 July 2021. 2021, became a member of both the Corporate Governance Committee, ****** Ceased to be a Director on 26 November 2020. and the Remuneration and Nomination Committee on 1 October 2020. The Board has formed a Disclosure Committee and a Related Parties Committee, to meet as and when required, neither of which met during the 2020-21 financial year. The Related Parties Committee met on 12 August 2021. 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, a Remuneration and Nomination Committee, Related Parties Committee and a Disclosure Committee of the Board of Directors. Members acting on the Committees of the Board during the financial year are: Audit and Risk Committee Corporate Governance Committee Related Parties Committee Remuneration and Nomination Committee Michael Ford (Chair) Maurie Stang Jenny Harry Maurie Stang (Chair) Michael Ford Abbie Widin (Chair) Jenny Harry Michael Ford Maurie Stang (Chair) Michael Ford Jenny Harry The Disclosure Committee has not met since it was formed. It is composed of not less than three members, one of whom will be a Non-Executive Director, and will normally also include the Chairman. The Chair of the Committee will be elected by the members at each meeting. 14 AERIS ENVIRONMENTAL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 HVAC/R Hygiene, anti-corrosion and disinfectant products; • provision of HVAC/R Hygiene and Remediation Technology, Indoor Air Quality and Corrosion Protection services. 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 Profit (Loss) after income tax 2021 $ 7,336,311 (13,203,489) (5,867,178) 2020 $ 14,669,658 (12,686,717) 1,982,941 The Company’s Review of Operations commences on page 6 of this report. Dividends Likely developments and expected results The Directors do not recommend the payment of a dividend in respect of the year ended 30 June 2021 (2020: Nil). No dividends have been paid or declared since the start of the financial year. Significant changes in state of affairs 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. There have been no significant changes in the state of affairs of the Group. Environmental regulations The economic entity is not subject to any significant environmental Commonwealth or State regulation in respect of its operating activities. 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. 15 ANNUAL REPORT 2021 Directors’ Report 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. Proceedings on behalf of the Company 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. The Company was not a party to any such proceedings during the financial year. Directors’ interests Equity holdings Maurie Stang Bernard Stang (Director until 26 November 2020) Steven Kritzler Michael Ford Abbie Widin (Joined 2 March 2021) Jenny Harry (Joined 21 April 2021) Ordinary shares Rights over ordinary shares 23,698,288 18,786,639 11,252,785 75,000 - - - - - - - - 16 AERIS ENVIRONMENTALOptions or rights granted to Directors and Officers of the Company During or since the end of the 2021 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 (2020: 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 forfieted during the period Options or rights granted during the period Full details of options or rights on issue are shown in Note 17 and 24. 2021 1,406,600 1,182,358 218,333 - 2020 2,807,291 836,411 305,335 150,000 Non-audit services 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 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 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 2021 is attached to this Directors’ Report on page 30. 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 17 ANNUAL REPORT 2021Directors’ Report REMUNERATION REPORT (AUDITED) Key Management Personnel (KMP) The KMP of the Company comprise the Directors, Chief Executive Officer and Company Secretary only, as follows: Non-Executive Directors Executive Maurie Stang Bernard Stang (Director until 26 November 2020) Steven Kritzler Michael Ford Abbie Widin (Joined 2 March 2021) Jenny Harry (Joined 21 April 2021) Peter Bush (Chief Executive Officer) 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 was approved at the Company’s 2014 Annual General Meeting (AGM) at $300,000 per annum. It is proposed that a Resolution will be included in the 2021 Notice of AGM to increase the limit of Directors’ Fees by $150,000. The increase is to provide some headroom in the future for an increase in the rate of Directors’ fees and to enable Aeris to appoint additional Directors as the Company grows. It is noted that Directors’ Fees are payable for the first time in the 2020-21 financial year for two Directors who have not been compensated with Directors’ Fees since the 2002 IPO. Amounts paid to Directors are 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 $90,000 per annum and, for other Non-Executive Directors $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 a relatively 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. 18 AERIS ENVIRONMENTALc) Executives The objective of Aeris’ executive reward system is to ensure that remuneration for performance is competitive and appropriate for the results delivered. Executive pay structures include a base salary and superannuation. In addition, executives and senior managers can participate in the Employee Share Option Plan. d) Short-term incentives (STI) During the financial year ended 30 June 2021 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 2021 no amounts were paid as LTIs. f) Share-based compensation In October 2014, the Board established an Employee 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 second anniversary of grant of options or performance rights, and 33.4% vest on the third 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. 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. 19 ANNUAL REPORT 2021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 30 June 2020 Acquired during year Sold during year Issued on exercise of options Number held 30 June 2021 2021 Shares Specified Directors Maurie Stang Bernard Stang (Director until 26 Nov 2020) 20,527,194 23,698,288 11,252,785 75,000 - - - - - - - - - (1,740,555) - - - - - - 750,000 882,358 992,326 - 57,295,593 882,358 (1,740,555) - - - - - - - - - 23,698,288 18,786,639 11,252,785 75,000 - - 1,632,358 992,326 56,437,396 Number held on 30 June 2021 - - - - - - - - - - - - (882,358) 441,179 - 50,000 (882,358) 491,179 Number held on 30 June 2020 Granted during year Lapsed during year Exercised during year - - - - - - 1,323,537 50,000 1,373,537 - - - - - - - - - - - - - - - - - - Steven Kritzler Michael Ford Abbie Widin (Joined 2 March 2021) Jenny Harry (Joined 21 April 2021) Specified Executives Peter Bush Robert Waring 2021 Options and rights Specified Directors Maurie Stang Bernard Stang (Director until 26 Nov 2020) Steven Kritzler Michael Ford Abbie Widin (Joined 2 March 2021) Jenny Harry (Joined 21 April 2021) Specified Executives Peter Bush Robert Waring 20 AERIS ENVIRONMENTALNumber held on 30 June 2019 Acquired during year Sold during year Issued on exercise of options Number held on 30 June 2020 2020 Shares Specified Directors Maurie Stang Bernard Stang Steven Kritzler 22,630,218 1,068,070 19,459,124 1,068,070 11,252,785 - - - - - Michael Ford (Joined 23 April 2020) - 75,000 Alex Sava (Director until 26 November 2019) 665,085 - (146,348) Specified Executives Peter Bush Robert Waring 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 2020 Options and rights Specified Directors Maurie Stang Bernard Stang Steven Kritzler Michael Ford (Joined 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) - - - - - - - - Number held on 30 June 2020 - - - - - 1,323,537 50,000 1,373,537 21 ANNUAL REPORT 2021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 Insurance expenses Rent Distribution expenses Corporate services 2021 $ 157,775 136,913 56,604 34,127 84,374 2020 $ 117,552 1,677 55,483 70,894 88,169 The Company and its controlled entities transacted with Regional Healthcare Group Pty Ltd and invoiced them for sale of goods and administrative charges. 56,819 402,691 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 The Company and its controlled entities transacted with Novapharm Research (Australia) Pty Ltd and invoiced them for providing supply chain functions 193,849 208,895 233,575 148,819 50,000 45,627 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. Mr M Stang and Mr B Stang are Directors and shareholders of Ramlist Pty Ltd. 52,537 34,789 22 AERIS ENVIRONMENTALEnsol Systems Pty Ltd The Company and its controlled entities incur expenses for marketing and other operational services to Ensol Systems Pty Ltd. The Company and its controlled entities transacted with Ensol Systems Pty Ltd and invoiced them for administrative charges Mr M Stang is a shareholder of Ensol Systems Pty Ltd. 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. The Company and its controlled entities transacted with Teknik Lighting Solutions Pty Ltd. and invoiced them for administrative charges Mr M Stang is a shareholder of Teknik Lighting Solutions Pty Ltd. Henry Schein 2021 $ 2020 $ 136,561 109,901 27,941 24,160 2,032 1,609 3,199 8,846 The Company and its controlled entities sold products to Henry Schein 38,866 1,042,810 Mr M Stang is a Director of Henry Schein Vectus Biosystems Limited The Company and its controlled entities provided financial and other services to Vectus Biosystems Limited 28,081 22,717 Mr M Stang and Mr P Bush are Directors and Shareholders of Vectus Biosystems Limited Bright Accountants The Company and its controlled entities incur expenses for accounting services from Bright Accountants. 52,111 68,250 Mr P Bush is a related party to Bright Accountants. Oakhill Hamilton Pty Ltd The Company and its controlled entities incur expenses for company secretarial services from Oakhill Hamilton Pty Ltd. Mr R Waring is a Director and Shareholder of Oakhill Hamilton Pty Ltd. 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 Oakhill Hamilton Pty Ltd. Outstanding balances receivable for sales and services provided Henry Schein Vectus Biosystems Limited Regional Healthcare Group Pty Ltd Novapharm Research (Australia) Pty Ltd Ensol Systems Pty Ltd Teknik Lighting Solutions Pty Ltd Outstanding balances at year-end are unsecured, interest free and settlement occurs in cash. 111,035 124,791 114,547 19,181 6,849 - 20,606 165 9,186 - 28,181 17,877 - 30,735 1,239 74,479 30,891 3,332 6,875 41,531 216 14,952 - 10,664 178,164 111,735 12,352 3,587 23 ANNUAL REPORT 2021Directors’ Report Details of Directors’ and Executive officers’ remuneration for the year ended 30 June 2021 Short term benefits Post em- ployment benefits Superan- nuation Other long-term benefits Equity based benefits Shares Options and rights (Note (ii)) Total Perfor- mance Related Non- monetary benefits $ $ $ $ $ $ % - - - - - - - - - - - - 7,808 - 5,205 2,728 1,847 1,412 19,000 - 19,000 26,654 - 45,654 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 90,000 0.0% - 0.0% 60,000 0.0% 60,000 0.0% 21,236 0.0% 16,274 0.0% 247,510 - 0.0% 247,510 8,088 315,031 0.0% - 82,371 0.0% 8,088 644,912 Salary and Director's Fees $ STI Cash bonus $ Non-Executive Directors Maurie Stang 82,192 Bernard Stang - Steven Kritzler 54,795 Michael Ford 57,272 Abbie Widin 19,389 Jenny Harry 14,862 Total Non-Executive Directors Executive Directors Total Directors 228,510 - 228,510 Executives (Note (i)) Peter Bush 280,289 Robert Waring 82,371 Total 591,170 - - - - - - - - - - - - 24 AERIS ENVIRONMENTALDetails of Directors’ and Executive officers’ remuneration for the year ended 30 June 2020 Short term benefits Post em- ployment benefits Superannu- ation Other long-term benefits Equity based benefits Shares Options and rights (Note (ii)) Total Perfor- mance Related Non- monetary benefits Salary and Director's Fees $ STI Cash bonus $ Non-Executive Directors Maurie Stang Bernard Stang Steven Kritzler - - - Michael Ford 10,180 Alex Sava 14,361 Total Non-Executive Directors Executive Directors Total Directors 24,541 - 24,541 Executives (Note (i)) Peter Bush 285,295 Robert Waring 92,217 Total 402,053 - - - - - - - - - - - $ $ $ $ $ $ % - - - - - - - - - - - - - - 967 - 967 - 967 27,103 - 28,070 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 0.0% 0.0% 0.0% 11,147 0.0% 4,705 19,066 0.0% 4,705 30,213 - - 0% 4,705 30,213 20,279 332,677 0.0% 2,357 94,574 0.0% 27,341 457,464 25 ANNUAL REPORT 2021Directors’ Report Notes to the tables of details of Directors’ and Executive Officers’ remuneration. i) “Executive Officers” are officers who are or were involved in, concerned in, or who take part in, the management of the affairs of Aeris and/or related bodies corporate. ii) The fair value of the options is calculated at the date of grant using a Black-Scholes model and allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options allocated to this reporting period. In valuing the options, market conditions have been taken into account in both the current and prior periods. Comparative information was not restated as market conditions were already included in the valuation. The following factors and assumptions were used in determining the fair value of options on grant date. Grant Date Expiry Date Fair value at grant date Exercise price 23-Dec-16 14-Oct-21 $0.2823 23-Dec-16 23-Oct-21 $0.2828 $0.42 $0.42 Price of shares on grant date $0.37 $0.37 Estimated volatility Risk free interest rate 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 30-May-18 30-May-18 30-May-18 11-Apr-19 11-Apr-20 11-Apr-21 Price of shares on grant date $0.1650 $0.1650 $0.1650 Exercise price Not applicable Not applicable Not applicable 26 A E R I S E N V I R O N M E N TA L Executive employment Chief Executive Officer (CEO): The following sets out the key terms of the employment for the CEO, Peter Bush Term: Continuous employment until notice is given by either party Fixed remuneration: $306,943. 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. On resignation, unless the Board determines otherwise: Resignation or termination: All unvested short term or long term benefits are forfeited. Statutory entitlements: Termination for serious misconduct: Post-Termination Restraint of Trade: All vested but unexercised benefits are forfeited after 90 days following cessation of employment. 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. 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. 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 (ii) interfere with the relationship between the Company and its customers, employees or suppliers; or (iii) induce or assist in the inducement of any employee of the Company to leave their employment. There are no 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. A N N U A L R E P O R T 2 0 2 1 27 Directors’ Report 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. Profit (Loss) for the year attributable to owners of (5,867,178) 1,982,941 (3,628,499) (3,590,176) (3,747,555) 2021 2020 2019 2018 2017 Aeris Environmental Ltd Basic earnings (loss) per share (cents per share) (2.41) Dividend payments - 0.90 - (1.98) (2.28) (2.40) - - - Increase/(decrease) in share price (%) -71.42% 70.97% 121.43% -50.00% -33.33% Total KMP remuneration as percentage of profit (loss) for the year (%) -10.99% 23.07% -13.51% -12.01% -10.20% 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 491,179 options and rights to take up ordinary shares in Aeris Environmental Ltd that were issued to KMP remain unexercised at 30 June 2021 (2020: 1,373,537 options and rights). No options or rights to take up ordinary shares in Aeris Environmental Ltd were issued to KMP during the financial years 2021 and 2020. No options issued to KMP were expired or were forfeited during the years 2021 and 2020. Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate, or in the interest of any other registered scheme. Signed in accordance with a resolution of the Directors made pursuant to section 298(2) of the Corporations Act 2001. On behalf of the Directors Maurie Stang Non-Executive Chairman Sydney, 30 September 2021 28 A E R I S E N V I R O N M E N TA L A N N U A L R E P O R T 2 0 2 1 29 4 0 Auditor’s Independence Declaration 30 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 lead auditor for the audit of Aeris Environmental Ltd for the year ended 30 June 2021, 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 30 September 2021 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. 31 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 31 ANNUAL REPORT 2021 5 0 Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Financial Year Ended 30 June 2021 32 Consolidated Statement of Profit or Loss and Other Comprehensive Income 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 Profit (Loss) before income tax from continuing operations 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 Note 2021 $ 2020 $ 4 4 5 5 5 5 5 5 20 20 7 7,130,684 14,632,962 (4,375,528) (6,634,623) 2,755,156 7,998,339 205,627 36,696 (1,875,021) (1,547,040) (132,552) (528,559) (134,378) (493,700) (3,148,284) (2,497,037) (56,409) (1,462,697) (812,429) (313,894) (616,352) (38,178) (135,781) (572,602) (249,245) (953,704) (5,985,414) 1,413,370 118,236 569,571 (5,867,178) 1,982,941 (90,774) (12,687) (5,957,952) 1,970,254 (5,867,178) 1,982,941 - - (5,867,178) 1,982,941 (5,957,952) 1,970,254 - - (5,957,952) 1,970,254 (2.41) 0.90 (2.41) 0.89 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 33 ANNUAL REPORT 20216 0 Consolidated Statement of Financial Position as at 30 June 2021 34 Consolidated Statement of Financial Position CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other current assets Note 9 10A 11 12 2021 $ 2020 $ 11,485,616 12,949,339 1,485,009 5,535,881 2,811,899 3,486,862 367,022 262,034 TOTAL CURRENT ASSETS 16,149,546 22,234,116 NON-CURRENT ASSETS Trade and other receivables Right-of-use assets Property, plant and equipment 10B 13 13 - 295,036 106,017 3,945 375,501 65,359 TOTAL NON-CURRENT ASSETS 401,053 444,805 TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Lease liabilities Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Lease Liabilities Provisions 16,550,599 22,678,921 14A 14B 14C 15B 15A 2,337,692 2,656,871 91,225 388,669 88,568 291,964 2,817,586 3,037,403 227,113 34,533 301,488 31,702 TOTAL NON-CURRENT LIABILITIES 261,646 333,190 TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated losses Non-controlling interest TOTAL EQUITY 3,079,232 3,370,593 13,471,368 19,308,328 16 18 19 20 62,430,276 62,195,687 1,700,432 1,904,803 (50,663,025) (44,795,847) 3,685 3,685 13,471,368 19,308,328 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 35 ANNUAL REPORT 20217 0 Consolidated Statement of Changes in Equity for the Financial Year Ended 30 June 2021 36 Consolidated Statement of Changes in Equity Equity Reserves Accumulated losses Non- controlling interest Total attributable to equity holders of the entity Balance at 1 July 2019 50,195,854 2,144,073 (46,778,788) 3,685 5,564,824 $ $ $ $ $ Loss for the year Other comprehensive income/ (loss) Total comprehensive loss for the year - - - - 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 Movement in share-based payments reserve 57,533 489,300 (587,000) - - - - - (226,583) - - - - - - - - - - - - - Balance at 30 June 2020 62,195,687 1,904,803 (44,795,847) Balance at 1 July 2020 62,195,687 1,904,803 (44,795,847) 3,685 3,685 Profit for the year Other comprehensive income / (loss) Total comprehensive profit (loss) for the year - - - - (5,867,178) (90,774) - (90,774) (5,867,178) Transactions with owners in their capacity as owners: Shares issued against exercise of options and rights Shares issued to consultants Movement in share-based payments reserve 145,589 89,000 - - - (113,597) - - - - - - - - - 1,982,941 (12,687) 1,970,254 12,040,000 57,533 489,300 (587,000) (226,583) 19,308,328 19,308,328 (5,867,178) (90,774) (5,957,952) 145,589 89,000 (113,597) Balance at 30 June 2021 62,430,276 1,700,432 (50,663,025) 3,685 13,471,368 The above statement of changes in equity should be read in conjunction with the accompanying notes. 37 ANNUAL REPORT 20218 0 Consolidated Statement of Cash Flows for the Financial Year Ended 30 June 2021 38 Consolidated Statement of Cash Flows 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 other financial cost Note 2021 $ 2020 $ 11,367,172 14,600,592 (13,484,135) (16,671,310) 687,807 24,465 181,162 (56,409) - 19,157 17,540 (16,939) Net cash used in operating activities 32 (b) (1,279,937) (2,050,960) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (93,359) (24,291) Net cash used in investing activities (93,359) (24,291) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from shares issue Share issue cost Net cash provided by financing activities - - - 12,042,000 (472,600) 11,569,400 NET INCREASE IN CASH AND CASH EQUIVALENTS (1,373,296) 9,494,149 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 12,949,339 3,467,877 Effects of exchange rate changes on cash & cash equivalents (90,426) (12,687) CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 9 11,485,616 12,949,339 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 39 ANNUAL REPORT 20219 0 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2021 40 Notes to the Consolidated Financial Statements Note 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Summary of significant accounting policies Financial risk management Critical accounting estimates and judgments Revenue Expenses Income tax 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 Aeris Environmental Ltd ("The Parent Entity") Notes to cash flow statements Litigation with Aus Made Express International Group Pty Ltd 41 ANNUAL REPORT 2021Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies Corporate information Principles of consolidation The financial report of Aeris Environmental Ltd (the Group) for the year ended 30 June 2021 was authorised for issue in accordance with a resolution of the Directors on 30 September 2021. 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. The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Aeris Environmental Limited (‘company’ or ‘parent entity’) as at 30 June 2021 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. 42 A E R I S E N V I R O N M E N TA L 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. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: Conceptual Framework for Financial Reporting (Conceptual Framework) The consolidated entity has adopted the revised Conceptual Framework from 1 July 2020. The Conceptual Framework contains new definition and recognition criteria as well as new guidance on measurement that affects several Accounting Standards, but it has not had a material impact on the consolidated entity’s financial statements. 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 loss (after tax) of $5,867,178 for the year ended 30 June 2021 (2020 Profit: $1,982,941) and has net assets of $13,471,368 as at 30 June 2021 (2020: $19,308,328). The operating cash burn rate for the financial year ended 30 June 2021 was $1,279,937 (2020: $2,050,960). The cash balance as at 30 June 2021 was $11,485,616 (2020: $12,949,339). 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. A N N U A L R E P O R T 2 0 2 1 43 Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies cont. Significant accounting policies ii) Borrowing costs 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. 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. 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. 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/ amortised using the straight line method over their estimated useful lives, taking into account residual values. Depreciation and amortisation rates and methods are reviewed annually for appropriateness. Depreciation and amortisation are expensed. Depreciation and amortisation are calculated on a straight line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life. The following estimated useful lives are used in the calculation of depreciation. Computer equipment Computer software Field equipment Office furniture Plant and equipment Leasehold improvements Field equipment under finance lease 2-3 years 3 years 2-3 years 5 years 2-3 years 6 years 2-3 years 44 A E R I S E N V I R O N M E N TA L 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 long service leave not expected to be settled within 12 months of the reporting date is recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payment Share-based compensation benefits are provided to employees via the Aeris Environmental Ltd Employee Option Plan. Information relating to these schemes is set out in Note 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. A N N U A L R E P O R T 2 0 2 1 45 Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies cont. 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. 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. 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. 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. 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 46 A E R I S E N V I R O N M E N TA L 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. 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. Receivables and payables are recognised inclusive of GST. xv) Income tax 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 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. At each reporting date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, 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 A N N U A L R E P O R T 2 0 2 1 47 Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies cont. 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. 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. 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. 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. 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 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. 48 A E R I S E N V I R O N M E N TA L 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. 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. A N N U A L R E P O R T 2 0 2 1 49 Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies cont. 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. 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. xxiv) Borrowings and Convertible notes xxvi) Trade and other receivables 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. 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. 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 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 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 50 A E R I S E N V I R O N M E N TA L take place either: in the principle market; or in the absence of a principal market, in the most advantageous market. 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. 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. A N N U A L R E P O R T 2 0 2 1 51 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. Notes to the Consolidated Financial Statements 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. 52 A E R I S E N V I R O N M E N TA L 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 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. 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 indepth evaluation of customers expected to incur future credit losses. 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. A N N U A L R E P O R T 2 0 2 1 53 Notes to the Consolidated Financial Statements 3. Critical Accounting Estimates and Judgments cont. f) Estimation of useful lives of assets 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. 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. 54 A E R I S E N V I R O N M E N TA L 4. Revenue Revenue Revenue from sales Revenue from services Other revenue Financial income Government Grants Miscellaneous 2021 $ 2020 $ 6,054,152 12,576,309 1,076,532 2,056,653 7,130,684 14,632,962 2021 $ 5,587 181,162 18,878 205,627 2020 $ 9,180 17,540 9,976 36,696 A N N U A L R E P O R T 2 0 2 1 55 Notes to the Consolidated Financial Statements 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 Other expenses Impairment of receivables Impairment of inventory Rental & occupancy expenses Research and development and patent expenses 2021 $ 6,332 126,219 132,552 2021 $ 2,722,895 317,050 24,492 83,847 2020 $ 6,332 128,046 134,378 2020 $ 2,007,835 263,514 145,150 80,538 3,148,284 2,497,037 2021 $ 56,409 56,409 2021 $ 271,697 1,191,000 313,894 812,429 2020 $ 38,178 38,178 2020 $ 135,781 - 249,245 572,602 56 A E R I S E N V I R O N M E N TA L 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 26% (2020 - 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 26% (2020: 30%) of not brought to account as assets or liabilities: Deferred tax assets Tax losses 2021 $ (5,985,414) (1,556,208) - 1,416,394 21,578 (118,236) 2020 $ 1,413,370 424,011 (569,571) (467,555) 43,544 (569,571) 2021 $ 2020 $ Revenue tax losses available for offset against future tax income 6,728,307 7,652,475 Temporary differences Provision for doubtful debts Provision for inventory impairment Provision for employee entitlements Difference between book and tax values of fixed assets Accruals Future lease obligations Total deferred tax assets Deferred tax liabilities 90,000 297,750 105,800 17,160 7,500 5,826 524,036 7,252,343 51,000 - 97,100 24,431 14,250 4,366 191,147 7,843,622 Difference between book and tax values of fixed assets Total deferred tax liabilities Net deferred tax asset not recognised - - - - 7,252,343 7,843,622 A N N U A L R E P O R T 2 0 2 1 57 Notes to the Consolidated Financial Statements 6. Income Tax (cont.) 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) 2021 $ (2.41) (2.41) 2020 $ 0.90 0.89 Net profit (loss) used to calculate basic EPS (5,867,178) 1,982,941 Net profit (loss) used to calculate diluted EPS (5,867,178) 1,982,941 Weighted average number of ordinary shares used to calculate basic EPS 243,104,095 219,677,482 Convertible performance rights and share options - 2,207,291 Weighted average number of ordinary shares used to calculate diluted EPS* 243,104,095 221,884,773 *Options and rights eligible for conversion into ordinary shares in future have an anti-dilutive effect, hence diluted EPS is same as basic EPS. 58 A E R I S E N V I R O N M E N TA L 8. Auditors’ Remuneration Remuneration of UHY Haines Norton for : Audit of the annual financial report Review of the half yearly financial report Total auditors remuneration 9. Cash and Cash Equivalents Cash at bank and on hand Deposits on call 2021 $ 31,200 16,200 47,400 2020 $ 30,500 15,850 46,350 2021 $ 906,653 10,578,963 11,485,616 2020 $ 2,375,477 10,573,862 12,949,339 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 2021 $ 1,845,009 (360,000) - 1,485,009 2020 $ 5,136,310 (170,000) 569,571 5,535,881 The carrying amounts of the Group’s cash are a reasonable approximation of their fair values. A N N U A L R E P O R T 2 0 2 1 59 Notes to the Consolidated Financial Statements 10. Trade and Other Receivables (cont.) b) Non-current trade and other receivables Trade Receivables Less: Allowance for expected credit losses 2021 $ - - - 2020 $ 3,945 - 3,945 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 Closing balance Amounts recognised in profit or loss During the year, the following losses were recognised in profit or loss in relation to impaired receivables. Individually impaired receivables Previous provisons written back Movement in provision for impairment 2021 $ - 2020 $ - 360,000 170,000 170,000 190,000 - 360,000 (81,697) - (190,000) (271,697) 785,123 170,000 (785,123) 170,000 (34,660) 68,879 (170,000) (135,781) 60 A E R I S E N V I R O N M E N TA L d) In the 2020 financial year, the Group applied the simplified approach to provide 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 were grouped based on shared credit risk characteristics and the days past due. The loss allowance provision as at 30 June 2020 was determined as follows. Expected credit loss % Gross carrying amount Expected credit loss provision Expected credit loss provision (rounded off) Current receivables Past due > 30 days Past due > 60 days Past due > 90 days Total $ - - 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 For the 2021 financial year, the Group has undertaken an indepth evaluation of each individual customer which the entity considers to have a risk of incurring credit losses. Based on the evaluation and considering average industry credit terms of 60 days, loss allowance provision as at 30 June 2021 was calculated and grouped as follows: Gross carrying amount Expected credit loss provision 11. Inventories Inventories - at cost Current <60 days 598,051 Past due > 60 days Past due > 90 days Total $ 118,930 1,128,028 1,845,009 - - 360,000 360,000 2021 $ 2,811,899 2,811,899 2020 $ 3,486,862 3,486,862 The carrying amounts of the Group’s inventories are a reasonable approximation of their fair values. A N N U A L R E P O R T 2 0 2 1 61 Notes to the Consolidated Financial Statements 12. Other Current Assets Prepayments Advance payment to suppliers Accrued income Deposits, bonds and other receivables 2021 $ 351,751 - - 15,271 367,022 2020 $ 218,493 21,397 7,962 14,182 262,034 The carrying amounts of the Group’s other current assets are a reasonable approximation of their fair values. 13. Non-Current Assets Carrying Values 2021 Property, plant and equipment R & D equipment Computer equipment Field equipment Leasehold improvements Office furniture Plant and equipment Right-of-use asset 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 62 A E R I S E N V I R O N M E N TA L Cost $ 40,773 277,094 58,747 130,228 179,918 187,474 455,966 1,330,200 Cost $ 25,011 252,985 58,747 130,228 176,456 137,449 455,966 1,236,842 Accumulated depreciation / impairment Net carrying value $ $ (26,062) (241,740) (58,747) (129,247) (175,080) (137,340) (160,930) (929,146) 14,711 35,354 - 981 4,838 50,134 295,036 401,054 Accumulated depreciation / impairment Net carrying value $ (25,011) (222,163) (58,747) (122,915) (165,642) (121,039) (80,465) (795,982) $ - 30,822 - 7,313 10,814 16,410 375,501 440,860 Reconciliations 2021 Computer equipment Leasehold improvements Office furniture Plant and equipment R&D Equipment Right-of-use asset Opening net carrying value $ 30,822 7,313 10,814 16,410 - 375,501 440,860 Opening net carrying Additions Disposals Depreciation / Impairment Exchange movements Closing net carrying value $ 24,109 - 3,462 50,026 15,762 - 93,359 $ - - - - - - - $ (18,966) (6,332) (9,438) (16,301) (1,051) (80,465) $ $ (614) 35,351 - - - - - 981 4,838 50,136 14,712 295,036 (132,552) (614) 401,054 Reconciliations value Additions Disposals 2020 Computer equipment Leasehold improvements Office furniture Plant and equipment Right-of-use asset $ 27,192 13,645 30,971 19,690 $ 19,372 - - 8,240 - 455,966 91,498 483,578 $ - - - - - - Depreciation / Impairment Exchange movements $ (15,904) (6,332) (20,157) (11,520) (80,465) $ 162 - - - - Closing net carrying value $ 30,822 7,313 10,814 16,410 375,501 (134,378) 162 440,860 A N N U A L R E P O R T 2 0 2 1 63 Notes to the Consolidated Financial Statements 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 2021 $ 1,683,461 664,411 (10,180) 2,337,692 2020 $ 2,270,461 395,587 (9,177) 2,656,871 91,225 88,568 354,645 34,024 388,669 266,193 25,771 291,964 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 2021 $ 34,533 34,533 2020 $ 31,702 31,702 b) Lease liabilities 227,113 301,488 The carrying amounts of the Group’s non-current liabilities and provisions are a reasonable approximation of their fair values. 64 A E R I S E N V I R O N M E N TA L c) Particulars relating to lease liabilities The lease liabilities refers to office space leased in Brisbane. The Group follows AASB 16 for accounting of leases and resulting assets are disclosed as “Right-of-use Asset” in note 13. Current and non-current lease liability are disclosed in notes 14 and 15. The financial statements shows the following amounts relating to leases: Depreciation Interest expense (included in finance cost) Value of Right-of-Use asset included in property, plant and equipment Expense relating to short-term leases (included in occupancy expenses) Total cash flows for leases 16. Contributed Equity Share capital 2021 $ 80,465 16,850 295,036 63,197 187,854 2020 $ 80,465 20,079 375,501 75,700 207,566 2021 $ 2020 $ 243,827,837 fully paid ordinary shares - no par value 62,430,276 62,195,687 (2020: 242,545,479) 62,430,276 62,195,687 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Movement in ordinary share capital of Aeris Environmental Ltd Balance at beginning of year Shares issued during year Shares issued to Directors towards repayment of their loan Shares issued to KMP Share placement - Strategic Investors Share Placement Plan 2021 2021 2020 2020 No. of shares $ No. of shares $ 242,545,479 62,195,687 211,746,510 50,195,854 - - - - - - - - - - - - 28,000,000 12,040,000 - - Shares issued against exercise of options and rights Shares issued to consultants and advisors 882,358 400,000 145,589 536,411 57,533 89,000 2,262,558 489,300 243,827,837 62,430,276 242,545,479 62,782,687 Transaction costs relating to share issues - - - (587,000) 243,827,837 62,430,276 242,545,479 62,195,687 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. A N N U A L R E P O R T 2 0 2 1 65 Notes to the Consolidated Financial Statements 17. Options 2021 Unlisted Grant Date Expiry Date Exercise Price * * 23-Dec-16 23-Oct-21 30-May-18 01-Mar-21 0.42 0.01 Total options on issue Number on issue 30 June 2020 495,000 100,000 595,000 Granted during year Expired or forfeited Exercised during year - - - (100,000) (100,000) (200,000) - - - Number on issue 30 June 2021 395,000 - 395,000 The carrying amounts of the Group’s current trade and other payables and provisions are a reasonable approximation of their fair values. 2020 Unlisted Grant Date Expiry Date Exercise Price * * * * 23-Dec-16 14-Oct-21 23-Dec-16 23-Oct-21 23-Dec-16 01-Aug-20 30-May-18 01-Mar-21 0.42 0.42 0.01 0.01 Total options on issue Number on issue 30 June 2019 100,000 670,000 200,000 100,000 1,070,000 Granted during year - - - - - Exercised during year Number on issue 30 June 2020 Expired or forfeited (100,000) (175,000) - - - 495,000 - 100,000 595,000 - - (200,000) - (275,000) (200,000) 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. • 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. 66 A E R I S E N V I R O N M E N TA L 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 Nature and purpose of reserve 2021 $ (156,257) 1,856,689 1,700,432 2021 $ (65,483) (90,774) (156,257) 2020 $ (65,483) 1,970,286 1,904,803 2020 $ (52,796) (12,687) (65,483) 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 2021 $ 2020 $ Balance at beginning of financial year 1,970,286 2,196,869 Share based payments during the year allocated to: Employees and consultants Key Management Personnel Utilised for share issue Balance at end of financial year Nature and purpose of reserve 74,904 8,088 (196,589) 1,856,689 117,809 27,341 (371,733) 1,970,286 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. A N N U A L R E P O R T 2 0 2 1 67 Notes to the Consolidated Financial Statements 19. Accumulated Losses Balance at beginning of financial year Net profit (loss) for year Balance at end of financial year 20. Non-Controlling Interests Balance at beginning of financial year Net loss for year Balance at end of financial year 2021 $ (44,795,847) (5,867,178) (50,663,025) 2020 $ (46,778,788) 1,982,941 (44,795,847) 2021 $ 3,685 - 3,685 2020 $ 3,685 - 3,685 21. Particulars Relating to Controlled Entities Name of entity Controlled entities Aeris Pty Ltd Aeris Biological Systems Pty Ltd Aeris Hygiene Services Pty Ltd Aeris Environmental LLC Aeris Cleantech Pte Ltd Aeris Cleantech Europe Ltd Aeris Environmental (UK) Ltd Country of incorporation Ownership interest 2021 Ownership interest 2020 Australia Australia Australia USA Singapore Malta UK % 100 100 100 100 75 100 100 % 100 100 100 100 75 100 N/A 68 A E R I S E N V I R O N M E N TA L 22. Commitments for Expenditure Commitments for manufacturing of inventory within 1 year Lease commitments Operating leases - short term 2021 $ 487,500 2020 $ - Commitments on operating leases that relate to below office facilities: Registered office in Sydney - up to 1 year Balance at end of financial year - 487,500 56,604 56,604 23. Key Management Personnel Disclosures a) The Directors of Aeris Environmental Ltd during the year were: Maurie Stang Bernard Stang - Director until 26 November 2020 Steven Kritzler Michael Ford Abbie Widin - Joined 2 March 2021 Jenny Harry - Joined 21 April 2021 b) Other key management personnel Peter Bush (Chief Executive Officer) Robert Waring (Company Secretary) c) Compensation The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below: Short-term employee benefits Post-employment benefits Share-based payments 2021 $ 591,170 45,654 8,088 2020 $ 402,053 28,070 27,341 644,912 457,464 Further, disclosures relating to key management personnel are set out in remuneration report in the Directors’ Report. A N N U A L R E P O R T 2 0 2 1 69 Notes to the Consolidated Financial Statements 24. Share Based Payments 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 Employees and consultant Key Management Personnel Total amount arising from share-based payment transactions 2021 $ 74,904 8,088 82,992 2020 $ 117,809 27,341 145,150 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 2021 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. Particulars of options or rights granted over unissued shares Weighted average remaining contractual life 0.32 years 1.21 years 1.04 years 1.93 years Range of exercise prices $0.42 $0.01 to $0.42 - - Options Rights 2021 2020 2021 2020 Options or rights on issue Employees and consultants Key Management Personnel Options or rights granted 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 345,000 50,000 395,000 545,000 50,000 570,421 441,179 888,754 1,323,537 595,000 1,011,600 2,212,291 - - - - - - - - - - - - 150,000 - 150,000 200,000 - 300,000 882,358 636,411 - 200,000 1,182,358 636,411 70 A E R I S E N V I R O N M E N TA L 24. Share Based Payments (cont.) Particulars of options or rights granted over unissued shares (cont.) Options or rights expired or forfeited Employees and consultants Key Management Personnel Options Rights 2021 2020 2021 2020 200,000 - 200,000 175,000 100,000 275,000 18,333 30,335 - - 18,333 30,335 The following table shows the inputs to the valuation of options and rights granted during 2020 financial year (2021: NIL) Value of Underlying Stock Exercise Price Dividend Yield Volatility (per Year) Risk free rate Maturity Pricing Date Value of Option Rights issue 0.230 0.000 N/A N/A N/A 25/7/22 9/9/19 0.2300 25. Related Party Disclosures a) Parent Entity 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. 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. A N N U A L R E P O R T 2 0 2 1 71 Notes to the Consolidated Financial Statements 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. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. c) Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risks arise, are as follows: cash at bank; trade and other receivables; deposits and bonds and trade and other payables 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. 72 A E R I S E N V I R O N M E N TA L The maximum exposure to credit risk at balance sheet date is as follows : Trade receivables R&D tax offset rebate receivable Deposits and bonds Deposits with Bankwest Deposits with Wells Fargo, USA Deposits with Bank of America, USA Deposits with ANZ Bank (ii) Liquidity risk 2021 $ 1,485,009 - 15,271 2020 $ 4,970,255 569,571 22,347 10,578,975 10,573,694 7,826 73,145 824,311 12,984,537 31,625 264,978 2,069,226 18,501,696 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. A N N U A L R E P O R T 2 0 2 1 73 Notes to the Consolidated Financial Statements 26. Financial Instruments Disclosures (cont.) (ii) Liquidity risk (cont.) Maturity analysis of financial assets and liability based on management’s expectations Maturity analysis - 2021 Financial assets Cash and cash equivalents Receivables Security deposits TOTAL Financial liabilities Trade Creditors Other payables and accruals Lease liabilities * TOTAL Cash flows < 6 mths 6- 12 mths 1-3 years > 3 years $ $ 11,485,616 11,485,616 1,485,009 1,485,009 15,271 - 12,985,896 12,970,625 1,683,461 1,683,461 654,230 318,338 654,230 38,036 2,656,029 2,375,727 $ - - - - - - $ - - - - - - $ - - 15,271 15,271 - - 39,849 39,849 175,802 175,802 64,651 64,651 NET MATURITY 10,329,866 10,594,898 (39,849) (175,802) (49,380) Cash flows < 6 mths 6- 12 mths 1-3 years > 3 years Maturity analysis - 2020 Financial assets $ $ Cash and cash equivalents 12,949,339 12,949,339 $ - 5,539,826 5,535,881 3,945 14,182 - - 18,503,347 18,485,220 3,945 2,270,461 2,270,461 386,410 390,056 386,410 35,002 3,046,927 2,691,873 - - 36,716 36,716 253,687 253,687 64,651 64,651 $ - - - - - - $ - - 14,182 14,182 - - Receivables Security deposits TOTAL Financial liabilities Trade Creditors Other payables and accruals Lease liabilities * TOTAL NET MATURITY 15,456,420 15,793,347 (32,771) (253,687) (50,469) * Lease liabilities calculated under AASB 16 which is effective from 1 July 2019 74 A E R I S E N V I R O N M E N TA L (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: 2021 Financial assets Cash and cash equivalents Deposits Receivables Total Assets Financial liabilities Lease liabilities Trade and other payables Total Liabilities Net financial assets 2020 Financial assets Cash and cash equivalents Deposits Receivables Total Assets Financial liabilities Lease liabilities Trade and other payables Total Liabilities Net financial assets Weighted Average Interest Rates Floating Interest Rates Fixed Inter- est Rates Non-Inter- est Bearing Total 1.00% 10,578,963 2.20% 0.00% - - 10,578,963 - - - - 906,653 11,485,616 15,271 15,271 1,485,009 1,485,009 2,406,933 12,985,896 Note 9 12 10 14, 15 14 4.71% 0.00% - - - 318,338 - 318,338 - 2,337,692 2,337,692 318,338 2,337,692 2,656,030 10,578,963 (318,338) 69,241 10,329,865 Weighted Average Interest Rates Floating Interest Rates Fixed Inter- est Rates Non-Inter- est Bearing Total 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 Note 9 12 10 14, 15 14 4.71% 0.00% - - - 390,056 - 390,056 - 2,656,871 2,656,871 390,056 2,656,871 3,046,927 10,573,862 (342,444) 5,225,002 15,456,420 * Lease liabilities calculated under AASB 16 which is effective from 1 July 2019 A N N U A L R E P O R T 2 0 2 1 75 Notes to the Consolidated Financial Statements 26. Financial Instruments Disclosures (cont.) (iii) Market risk (cont.) 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 2021 Deposits on call Tax charge of 30% Post tax profit increase / (decrease) Sensitivity analysis 2020 Deposits on call Tax charge of 30% Post tax profit increase / (decrease) (b) Currency risk Carrying amount 10,578,963 10,578,963 +2% interest rate Profit & Loss -1% interest rate Profit & Loss 211,579 211,579 (63,474) 148,105 (105,790) (105,790) 31,737 (74,053) Carrying amount 10,573,862 10,573,862 +2% interest rate Profit & Loss -1% interest rate Profit & Loss 211,477 211,477 (63,443) 148,034 (105,739) (105,739) 31,722 (74,017) 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, including inter-company balances which are eliminated on consolidation, is as follows: Cash at bank Trade and other receivables 2021 US$ 61,277 116,852 2020 US$ 204,447 217,919 Trade and other payables (3,052,244) (2,798,646) Net Exposure (2,874,115) (2,376,280) 2021 SGD 9,334 12,500 (5,778) 16,056 2020 SGD 9,334 12,500 (5,778) 16,056 2021 Euro - 2020 Euro 5,000 (5,330) (3,575) - (5,330) - 1,425 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. 76 A E R I S E N V I R O N M E N TA L (e) Fair value measurement The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Therefore, table detailing the consolidated entity’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement is not required. 27. Contingent Liabilities In relation to the litigation referred to in note 33, although the matter is being considered at the Court, the directors are expecting a settlement to happen within October 2021. A contingent liability in the form of legal cost would arise only if settlement does not happen and the matter continues until the hearing expected in late 2022 financial year. Aeris believes that disclosure of the estimated financial effect of this can be expected to seriously prejudice its legal position, and consequently, has not made disclosures of these amounts. There are no other contingent liabilities of the company or the Group other than the above and commitments disclosed in note 22 (2020: 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 There have been no matters or circumstances, which have arisen since 30 June 2021 that have significantly affected or may significantly affect: (a) the operations, in financial years subsequent to 30 June 2021, of the consolidated entity; or (b) the results of those operations; (c) the state of affairs, in the financial years subsequent to 30 June 2021, of the consolidated entity. A N N U A L R E P O R T 2 0 2 1 77 Notes to the Consolidated Financial Statements 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: (a) (b) Australia - Sales and service on account of Australian operations International - Sales & service on account of international operations Intersegment transactions Intersegment transactions are made at arm’s length and are eliminated on consolidation. Intersegment receivables, payables and loans Intersegment loans are initially recognised at the consideration received & are eliminated on consolidation. Major Customer During the year ended 30 June 2021 the most significant client accounts for approximately 33% (2020: 22%) of the consolidated entity’s external revenue through Australian Sales and Services operating segment. There were no other customers who individually amounted to 10% or more of the total revenue during 2020 and 2021. 78 A E R I S E N V I R O N M E N TA L Operating segment information of the consolidated entity 2021 Revenue Sales Other Income Total Revenue Expenses Cost of goods sold Operating expenses Total Expenses Australia International Intersegment eliminations Consolidated $ $ $ $ 6,292,080 205,625 6,497,705 956,848 (118,244) 7,130,684 2 - 205,627 956,850 (118,244) 7,336,311 3,795,309 8,619,182 698,463 841,905 (118,244) (514,890) 4,375,528 8,946,197 12,414,491 1,540,368 (633,134) 13,321,725 Profit before tax (5,916,785) (583,519) 514,890 (5,985,414) 2020 Revenue Sales Other Income Total Revenue Expenses Cost of goods sold Operating expenses Total Expenses Australia International Intersegment eliminations Consolidated $ $ $ $ 13,777,886 1,410,585 (555,509) 14,632,962 36,507 189 - 36,696 13,814,393 1,410,774 (555,509) 14,669,658 6,134,462 6,310,101 1,055,670 774,348 (555,509) (462,784) 6,634,623 6,621,665 12,444,563 1,830,018 (1,018,293) 13,256,288 Loss before tax 1,369,830 (419,244) 462,784 1,413,370 A N N U A L R E P O R T 2 0 2 1 79 Notes to the Consolidated Financial Statements 30. Operating Segments (cont.) Segment assets and liabilities 2021 Australia International Total Assets 2021 $ 2020 $ Liabilities 2021 $ 2020 $ 16,548,826 22,570,313 964,955 1,316,076 4,777,701 4,083,079 5,064,275 4,156,956 17,513,781 23,886,389 8,860,780 9,221,231 Intersegment elimination (963,181) (1,207,468) (5,781,548) (5,850,638) Consolidated 16,550,600 22,678,921 3,079,232 3,370,593 Disaggregation of revenue from contracts with customers The group derives revenue from the transfer of goods and services over time and at a point in time in the following major geographical segments: Segment revenue Intersegment elimination Australia International 2021 $ 2020 $ 2021 $ 2020 $ 6,292,080 13,777,886 956,848 1,410,585 (118,244) (555,509) - - Revenue from external customers 6,173,836 13,222,377 956,848 1,410,585 Timing of revenue recognition At a point in time Over time 5,097,304 11,165,724 956,848 1,410,585 1,076,532 2,056,653 - - 6,173,836 13,222,377 956,848 1,410,585 80 A E R I S E N V I R O N M E N TA L 31. Information Relating To Aeris Environmental Ltd (“The 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 (a) Reconciliation of cash 2021 $ 2020 $ 16,107,507 22,163,863 16,548,763 22,646,291 2,734,030 2,961,142 2,877,507 3,210,697 62,430,275 62,195,686 (50,699,342) (44,730,376) 1,856,688 1,970,285 13,587,620 19,435,595 (5,798,371) (5,889,145) 487,500 2,110,178 2,097,491 56,604 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 2021 $ 2020 $ 906,653 2,375,477 10,578,963 10,573,862 11,485,616 12,949,339 A N N U A L R E P O R T 2 0 2 1 81 Notes to the Consolidated Financial Statements 32. Notes to Cash Flow Statements cont. (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 Other adjustments Changes in assets and liabilities Decrease / (Increase) in receivables Decrease / (Increase) in inventory Decrease / (Increase) in other assets (Decrease) / Increase in trade creditors (Decrease) / Increase in other creditors and accruals Increase / (Decrease) in employee entitlement expense 2021 $ 2020 $ (5,867,178) 1,982,941 132,552 1,462,697 16,850 82,992 38,000 134,378 135,781 20,079 145,150 - 3,864,817 (2,201,947) (516,038) (104,988) (587,000) 97,824 99,535 (2,716,789) (67,599) 385,675 104,383 26,988 Net cash used in operating activities (1,279,937) (2,050,960) 82 A E R I S E N V I R O N M E N TA L 33. Litigation With Aus Made Express International Group Pty Ltd The Group had a number of concerns in relation to the performance and conduct of Aus Made Express International Group Pty Ltd ACN 604 566 065 (Aus Made) and Mr Huifeng Lui (a director of Aus Made), in relation to the distribution agreement that was announced to ASX on 11 April 2019. The Company engaged Dentons Lawyers to review the matters underlying those concerns and, on 11 September 2020, Dentons issued a letter to Aus Made’s lawyers which outlined those concerns and demanded certain action. Aus Made did not comply with these demands, but in-turn, on 25 September 2020, provided notification of the commencement of proceedings against Aeris, and two other parties, in the Supreme Court of NSW. In each case, the Group does not accept liability and disputes the basis for the claims alleged by Aus Made in the Court documents. Whilst the subject of the dispute is contractual and commercial in confidence, the Group is vigorously defending these claims and is considering its position as to a number of potential counterclaims. The Group believes that the value of the counterclaims significantly exceeds the amount claimed by Aus Made, and in any event, the Group is of the view that these claims by Aus Made are without merit. The Group believes that disclosure of the estimated financial effect of these matters can be expected to seriously prejudice its legal position, and consequently, has not made disclosures of these amounts. The Group continues to expect settlement (given AusMade agreed to this in principal) and intend to make the final settlement offer upon lodgement of evidence. A N N U A L R E P O R T 2 0 2 1 83 0 1 Directors’ Declaration 84 Directors’ Declaration In the opinion of the Directors: 1. 2. 3. 4. the attached financial statements and notes that are set out on pages 32 to 83 and remuneration disclosures that are contained in the Remuneration Report in the Directors’ Report 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 2021 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 Non-Executive Deputy Chairman Maurie Stang Non-Executive Chairman Sydney, 30 September 2021 A N N U A L R E P O R T 2 0 2 1 85 1 1 Independent Auditor’s Report 86 Independent Auditor’s Report INDEPENDENT AUDITOR’S REPORT To the Members of Aeris Environmental Ltd Report on the Audit of the Financial Report Opinion 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 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 2021, 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 2021 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. Passion beyond numbers A N N U A L R E P O R T 2 0 2 1 87 PROVISION FOR INVENTORY OBSOLESCENCE Why a key audit matter How our audit addressed the risk Our procedures included, amongst others: for (cid:377)(cid:3) We discussed with management the accounting policies impairment of inventory and their procedures for estimating the provision for impairment of inventory and assessed these policies in accordance with the requirements of the Australian Accounting Standards. the appropriateness of (cid:377)(cid:3) Performed substantive on stock management’s obsolescence as at 30 June 2021, including the testing of ageing and the use by date. testing of assessment As disclosed in Note 11 of the financial report, the Group recorded an inventory balance of $2.81 million as at 30 June 2021, net of provision for obsolescence. Impairment balance of $1.19 million for FY21 is disclosed within Note 5 of the financial report. Inventory obsolescence has been identified as a major risk due to the downturn in sales in FY2021. Inventory was purchased with a high expectation that the growth in sales that occurred in FY2021, but on the contrary there has been a substantial downturn in sales in the FY2021. in FY2020 would continue Much of inventory has a use by date which increases the risk of inventory becoming obsolete if the Group is unable to sell it in time. RECOVERABILITY OF TRADE RECEIVABLES Why a key audit matter How our audit addressed the risk As disclosed in Note 10 of the financial report, trade the Group recorded a receivable balance of $1.49 million as at 30 June 2021, net of expected credit losses. The trade receivables balance as at 30 June 2021 has decreased on account of a decrease in the sales in FY2021. The gross trade receivables balance has decreased from $5.14 million as at 30 June 2020 to $1.85 million as at 30 June 2021. The allowance for expected credit losses has Our procedures included, amongst others: (cid:377)(cid:3) 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. (cid:377)(cid:3) Reviewed management’s allowance for expected calculations and loss independently assessed the reasonable of the amounts provided for. credit 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. Passion beyond numbers 88 AERIS ENVIRONMENTALincreased from $0.17 million as at 30 June 2020 to $0.36 million as at 30 June 2021. (cid:377)(cid:3) Reviewed subsequent credit notes issued to check for reversal of revenue/receivable. 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 loss determining provision. the expected credit judgement used 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 (excluding “other revenue”) has decreased from $14.63 million for the year ended 30 June 2020 to $7.13 million for the year ended 30 June 2021. 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. Our procedures included, amongst others: General procedures (cid:377)(cid:3) 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. (cid:377)(cid:3) Performed walkthroughs around the revenue recognition process and tested controls where appropriate. Occurrence (cid:377)(cid:3) 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. 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. Passion beyond numbers 89 ANNUAL REPORT 2021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 (cid:377)(cid:3) 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. (cid:377)(cid:3) Assessed whether any sales transactions represent goods shipped on consignment the appropriate and, adjustments have been made to reverse these transactions. so, whether if is not A key audit matter materially correct for year ended 30 June 2021. is revenue Cut-off (cid:377)(cid:3) Tested sales cut-off by selecting sales made around 30 June 2021 and agreeing it to the invoice, purchase order, proof of delivery and other shipping documents. (cid:377)(cid:3) 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 (cid:377)(cid:3) Reviewed the general journals for any unusual transaction to the revenue accounts. (cid:377)(cid:3) Reviewed sales return/credit notes after year end to test revenue is recorded in the correct year. 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 2021, but does not include the financial report and our auditor’s report thereon. 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. Passion beyond numbers 90 AERIS ENVIRONMENTAL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: (cid:121) 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 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. (cid:121) 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. 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. Passion beyond numbers 91 ANNUAL REPORT 2021(cid:121) (cid:121) (cid:121) 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. (cid:121) 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. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 18 to 28 of the directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Aeris Environmental Ltd for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. 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. Passion beyond numbers 92 AERIS ENVIRONMENTAL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 30 September 2021 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. Passion beyond numbers 93 ANNUAL REPORT 2021 2 1 Australian Securities Exchange (ASX) Additional Information 94 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 21 September 2021: Spread of Holdings Number of Holders Ordinary shares % of Total Issued 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 185 384 250 585 140 20 43 101,999 1,137,448 1,996,785 21,159,584 31,265,711 13,577,969 174,588,341 0.04 0.47 0.82 8.68 12.82 5.57 71.60 1,607 243,827,837 100.00 Based on the market price at 21 September 2021 there were 443 shareholders with less than a marketable parcel of $500 worth of shares at a share price of $0.135. There are 117,000 shares that are subject to Company-imposed voluntary escrow. A N N U A L R E P O R T 2 0 2 1 95 Australian Securities Exchange (ASX) Additional Information Statement of Shareholdings as at 21 September 2021 The names of the 20 largest holders of fully paid ordinary shares are listed below: Rank Shareholder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 J P Morgan Nominees Australia Pty Limited Maurie Stang Bernard Stang National Nominees Limited BNP Paribas Noms Pty Ltd Link Traders (Aust) Pty Ltd Steven Kritzler Girdis Superannuation Pty Ltd Potski Pty Ltd Kefford Holdings Pty Ltd Meditsuper Pty Ltd Development Management & Constructions Pty Ltd Lotsa Nominees Pty Ltd Steven Kritzler BNP Paribas Nominees Pty Ltd Six Sis Ltd Treplo Pty Limited Bennelong Resources Pty Limited Radley Investment Co Pty Ltd Bond Street Custodians Limited Henderson International Pty Limited Number of Shares 21,126,051 20,809,160 16,152,529 12,461,185 11,090,539 10,170,621 8,331,609 6,922,828 6,917,604 5,442,000 4,272,281 4,247,353 3,333,333 2,921,176 2,446,675 2,300,000 2,275,000 2,274,284 2,211,597 2,133,510 % Holding 8.66 8.53 6.62 5.11 4.55 4.17 3.42 2.84 2.84 2.23 1.75 1.74 1.37 1.20 1.00 0.94 0.93 0.93 0.91 0.88 Total of Top 20 Holdings Other Holdings Total Ordinary Shares 147,839,335 95,988,502 243,827,837 60.62 39.38 100.00 Unquoted Equity Securities as at 21 September 2021 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 275,000 120,000 Options held by three staff members, which expire on 23 October 2021 and have an exercise price of 42 cents, with one third vesting each year for three years commencing on 23 October 2017, issued under the EIP. Options held by four key consultants, which expire on 23 October 2021 and have an exercise price of 42 cents, with one third vesting each year for three years commencing on 23 October 2017, which includes 50,000 options held by each of Robert Waring and Ian Ernst. 395,000 Total Options on Issue Number of Holders 3 4 7 96 AERIS ENVIRONMENTALUnquoted Equity Securities as at 21 September 2021 (cont.) Number Class – Performance Rights 548,183 150,000 Performance Rights held by Aeris’ CEO Peter Bush (441,179 or 80.5%), three staff members and three 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. Performance Rights held by two consultants (Bruce Davison – 100,000 and Andrey Vegera – 50,000), which expire on 25 July 2023 with no exercise price, with one third vesting each year for three years commencing on 25 July 2020. 698,183 Total Performance Rights on Issue Number of Holders 7 2 9 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 21 September 2021 Substantial shareholders in Aeris Environmental Ltd, based on Substantial Shareholder Notices received by the ASX and the Company, are as follows: Name Maurie Stang Number Class Voting Power 23,881,819 Ordinary fully paid shares 9.86% 9.02% 8.36% Perennial Value Management Limited 21,867,964 Ordinary fully paid shares Bernard Stang 20,253,664 Ordinary fully paid shares Link Traders (Aust) Pty Ltd Link Enterprises International Pty Ltd Link Enterprises International Pty Ltd 13,619,954 Ordinary fully paid shares 5.62% On-Market Buy-Back There is no current on-market buy-back of shares in the Company. 97 ANNUAL REPORT 20213 1 Corporate Directory 98 Corporate Directory Aeris Environmental Ltd Share Registry ACN: ABN: 093 977 336 19 093 977 336 Directors Maurie Stang Steven Kritzler Michael Ford Abbie Widin Jenny Harry Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Company Secretary Robert Waring 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: Auditor 1300 850 505 (within Australia) +61 3 9415 4000 (outside Australia) +61 3 9473 2500 www.computershare.com www.investorcentre.com/au Chief Executive Officer and Chief Financial Officer UHY Haines Norton Sydney Level 11, 1 York Street, Sydney NSW 2000 Peter Bush GPO Box 4137, Sydney NSW 2001 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 Telephone: Website: + 61 2 9256 6600 www.uhyhnsydney.com.au Stock Exchange Listing The Company’s fully paid ordinary shares are quoted on the official list of the Australian Securities Exchange (ASX Limited). ASX Code AEI A N N U A L R E P O R T 2 0 2 1 99 100 AERIS ENVIRONMENTAL101 ANNUAL REPORT 2021