Aeris Environmental
Annual Report 2022

Plain-text annual report

2 2 0 ACN 093 977 3362 Annual Report Aeris Environmental Ltd pg 1 Annual Report 2022pg 2 Aeris Environmental LtdContents Chairman and CEO Report ........................................................................................................... 04 Review of Operations ..................................................................................................................... 06 Directors’ Report .............................................................................................................................. 14 Auditor’s Independence Declaration ....................................................................................... 40 Statement of profit or loss and other comprehensive income ....................................... 44 Statement of financial position .................................................................................................. 46 Statement of changes in equity ................................................................................................. 48 Consolidated statement of cash flows..................................................................................... 50 Notes to the financial statements ............................................................................................. 52 Directors’ Declaration ...................................................................................................................106 Independent Auditor’s Report ..................................................................................................108 Australian Securities Exchange (ASX) Additional Information......................................116 Corporate Directory......................................................................................................................120 pg 3 Annual Report 2022Chairman and CEO Report Dear Shareholders Since the onset of the pandemic the impact on both business and society has been unprecedented. The challenge and the opportunity for the Company are adapting to the “new norm” whilst focussing on the current priorities of its customers and distributors. Aeris’ Board recognises that the performance of the Company in terms of shareholder value and top- line sales has been disappointing. The market volatility impacting each sector of the business has been extraordinary. The Company acknowledges that it must adapt more quickly to these changing conditions and the related business environment. To this end, today we have a new CEO and a refreshed team, and have re-examined our corporate strategy, the outcomes of which are now being implemented. Aeris’ strategic focus is the application of products and services to improve energy efficiency and environmental hygiene in the built environment. Today’s customers, particularly those in the enterprise market, are now implementing Environmental, Social and Governance (ESG) practices as fundamental to their shareholder requirements and indeed their business strategy. Aeris is positioning itself at the heart of these requirements through its concentration on reducing energy consumption, achieving a lower carbon footprint, improving indoor air quality and the safety of hard surfaces. Our scientific background and in-field capabilities enable Aeris to be a committed partner in assessing product performance, implementing effective strategies, and reporting improvements on ESG related baselines, which is becoming mandatory in this new era. A similar opportunity exists in the farm to fork value chain, where the core competencies of energy efficiency and environmental hygiene offer high value to customers. Operating system efficiencies and food hygiene for enhanced shelf life and quality are significant R&D drivers to complement our existing product suite. pg 4 Aeris Environmental LtdWe have acted on customer and distributor feedback to adapt our products, packaging, and pricing to improve our competitive positioning both domestically and internationally. This renewed customer-centric focus is expected to facilitate stronger and more successful relationships with our customers and distributors. Key to our plans going forward is the focus on profitable recurring revenue to create a viable scaling and attractive business model. Of critical importance is Aeris’ investment in improving the workflow and profitability of our customers globally, whilst in parallel achieving their environmental and OH&S goals. The Company has appointed specialised resources to its key international markets, and we are already seeing better engagement with our distribution partners. This has been attained by targeting specific product ranges to address opportunities with our environmental, hygiene, energy efficiency, mould and corrosion protection products and pursuing channel partners who have specific domain knowledge and expertise in their local markets. The China market continues to offer considerable promise. Aeris’ WFOE entity in Shanghai is now in place and providing sizable opportunities, particularly in the government sector, which are only available to companies with a local presence. First orders have been received and shipped and a multi-channel approach to the market is being developed with a number of Chinese companies, each having a strong track record in both market development and sales. Aeris today is fully focussed on leveraging its new strategic direction and commercial-ready product portfolio, whilst investing in relationships with corporations and individuals who share our belief that innovation remains at the heart of meeting both the social and business challenges our customers are facing globally. This includes new and promising relationships with a range of international OEMs that share our market focus and are delivering leading technologies in our space. With Andrew Just having joined Aeris as CEO in late March 2022, we believe that the Company is now well positioned to meet both the business and social goals of our customers. The product portfolio is rapidly evolving and demonstrating significant differentiation in the marketplace. The Aeris team and Board recognise both the challenges and opportunities before us, and we are committed to the growth of annuity revenue and increased shareholder value. Maurie Stang Chairman Andrew Just CEO pg 5 Annual Report 2022Review of Operations pg 6 Aeris Environmental Ltd2022 Annual Report: Review of Operations As the Company transitions to meet the market demands of the Covid endemic, it is evolving its traditional core business competencies to directly serve the growing ESG requirements of customers. The financial year ending 30th June 2022 witnessed depressed demand for pandemic related products such as hand sanitiser, with Aeris experiencing falling demand for some of its leading products and bloated inventories. Whilst these products provided a significant revenue stream during pandemic times, this is clearly a commoditized market segment and not a core focus moving forward. The learnings and the opportunities derived from the peak of the pandemic are now leveraging what we believe is an attractive and sustainable business model focused on the ESG value levers of environmental hygiene and energy efficiency. The tail end of the financial year was dedicated to clarifying the forward focus of the Company, addressing resource allocation opportunities, and moving swiftly to enact the ensuing change program. We see real opportunities in serving the global needs of energy usage reduction and safety of indoor environments, with the Aeris product platform having substantial and significant advantages in delivering a clear and cost-effective solution. Updating and improving our business focus to prepare for scaling up and expanding its product reach was a top priority for the Company over the last quarter of the financial year. Our essential value proposition is making built environments safer through measurable improved air quality, hard surface residual disinfection, and significantly more energy efficient through optimizing the performance and lifespan of our current assets. This value proposition directly addresses customers’ needs to improve performances on ESG metrics. pg 7 Annual Report 2022Finance Annual revenue for the 2021-22 financial year was $2,678,133 (2021: $7,130,684). The Company made a loss before income tax of $7,423,212 compared to a loss of $5,985,414 in the prior year. The loss primarily results from the problems associated with servicing markets during the pandemic and the commoditization of pandemic related products, such as hand sanitiser and cleaning products. Gross margins were steady at 45% (improved from 39% in the June 2020-21 year), reflecting the proportional revenue shift away from lower margin products. The Company’s cash receipts from customers for the year were $3,240,986 compared to the previous year of $11,367,172. As 30 June 2022 Aeris has net assets of $6,592,865 compared to $13,471,368 on 30 June 2021. Cash at 30 June 2022 was $5,303,142 compared to $11,485,616 at 30 June 2021. The net cash used in operating activities increased by $4,827,418. Balance sheet movements included a decrease in trade debtors of $392,773. HVAC&R Aeris is focused on escalating the adoption and distribution of its heating, ventilation, air-conditioning, and refrigeration (HVAC&R) product range which delivers lower energy consumption, improved air quality and a lighter carbon footprint. The human and environmental safety profile of this product range, compared to incumbents, offers an improved corporate responsibility position and cost savings for customers. This core technology is the foundation for our ability to improve customers’ ESG performance and represents a key growth driver for Aeris. During the last quarter of the financial year, Aeris commenced a focused effort on revitalizing its HVAC&R product range with a view to updating and improving the body of evidence for how these products affect energy efficiency and air purity. This work has generated interest from key clients who are eager to participate in case studies, with a view to Aeris generating annuity revenue on an ongoing basis. pg 8 Aeris Environmental LtdEnvironmental Hygiene Aeris Defence achieved a new level of approval from the Australian Government Therapeutic Goods Administration (TGA), endorsing the claim of residual kill protection against COVID-19 for 24 hours. This is our flagship hard surface disinfectant, applicable across the full spectrum of hard surfaces, from high risk e.g., aged care facilities to social environments. The upgraded TGA approval provides an important differentiator from competitors’ products and the advanced formulation, driven by market research, positions the product well for solid sales growth in the coming year. The Aeris Defence value proposition of “protects between cleans” has resonated with target markets and is supported by Aeris’ range of disinfectant products, such as our hard surface disinfecting biodegradable paper rolls. A new product “Mould Pro” was launched late in the financial year, specifically targeting this topical issue in the domestic market. It is clear that throughout the equatorial regions of the world, mould and mildew are a pervasive problem. The triple actions of Mould Pro of killing, cleaning, and preventing regrowth of mould all position it well to build as a strong brand over time. Aeris now has a complete system of managing mould, suitable for all customers from professional remediators through to spot cleans and prevention. Specialty Products and Services Aeris’ advisory service enjoyed a busy year, with several consulting projects completed for customers requesting water damage and mould remediation assessments. Our scientists in this team conducted pivotal training for government staff, leading to accreditation as official consultants for the Queensland Government. Regular work is now underway for the Queensland Health Department. This technical support is a key plank for the overall Aeris value proposition, with our program results in energy efficiency and clean air quality being backed by robust data and industry leading methods. Our Corrosion Protection product range saw early but strong interest from several new Original Equipment Manufacturers (OEMs), with trials currently underway at two USA-based air conditioning coil manufacturers. Although a long sales cycle, these OEMs offer a very worthwhile recurring revenue stream over time. The Company is investing in further research and development on this product range in order to expand the application use cases and thereby broaden the market. pg 9 Annual Report 2022International Aeris has identified substantial opportunities in several international markets, with attention on the USA and China. In the USA, the 2021-22 financial year witnessed resource changes in the Company’s structure, reduced operational costs and putting in place a leaner and more scalable model. After some turbulent revenue years, we have now secured a key representative, who was instrumental in prior customer success, to rebuild the traditional customer base and develop new opportunities. As the global environment continues to favour sovereign self-sufficiency, the US manufacturing partners are a key factor in the Company’s distribution strategy for the US market. Two contract manufacturing partners are in place, with multiple products being evaluated for domestic production. Recently our AerisGuard Surface Treatment achieved an upgraded EPA approval to now endorse a claim of SARS-CoV-2 efficacy. The Company’s plans to develop a stable path to market in China have progressed, with market mapping of channels covering wholesaler packaging and distribution, provincial distribution channels, a third-party ecommerce partnership, and direct registration and marketing activities. China’s central government has affirmed its zero COVID policy pledge which bodes well for both our HVAC&R and Environmental Hygiene platform offerings. Weathering the global macroeconomic storm, it remains a positive outlook for this market based on the central government stance on Covid and the exclusive claims within the Aeris product range. The Middle East and Europe continue to hold promise as developing markets for Aeris products, although disrupted supply chains were a handbrake to developing channel partners during the financial year. As trading conditions stabilize the core products can be developed with registrations and new distribution partners. pg 10 Aeris Environmental LtdAustralia The financial year saw domestic revenues collapse, largely driven by the large fall in demand for sanitization products as lockdowns and social controls eased, combined with the dual impacts of oversupply and decreased demand on pricing levels. Whilst the pandemic offered short term revenue from sales of hand sanitiser, attention was diverted from investment in building the core business of HVAC&R. Refreshing the product focus, updating branding to match customer needs, and upgrading key product formulations were all highly valuable activities in the financial year and worthwhile investments for the coming year. In addition, we have implemented new distribution policies aimed directly at a better engagement with our distribution channels both locally and internationally. These new programs are based on an elevated sense of long-term partnerships and value propositions that will underpin sustainable relationships. The Australian market presents both challenges and opportunities evident from the global supply chain risks, and positive steps were made to ensure domestic production is secured and stable. The volatile and high freight rates for import and export are driving advantages in local manufacturing, and significant effort was devoted to improving the demand and supply forecasting efficiency. Looking forward, the Australian market offers an opportunity to “bolt on” additional products and services to our target verticals to improve customer engagement, increase profits, and support our target goal to be the market leader in environmental hygiene and energy efficiency products and services. Market feedback, particularly from enterprise level customers, has provided a clear and attractive path for our future investment and development. pg 11 Annual Report 2022ESG Aeris is focused on its ability to deliver ESG benefits to customers, and further develop its capabilities in this area. Our core product range delivers environmental benefits of reduced carbon footprints through direct energy usage reductions, cleaner air and surfaces free from harmful pathogens, and more environmentally friendly products which have safer use profiles than competitive products. The social benefits of our programs assist to fulfill the duty of care for occupants of built environments and could potentially contribute to lower absenteeism and rates of illness due to airborne viruses, moulds and bacteria. The compliance advantages of Aeris’ programs include greater assurance on meeting OH&S and WH&S requirements, as well as increasingly stringent EPA requirements. Overall, the Aeris value proposition is one that has a high impact on ESG related metrics and needs, and hence is a sharp focus for the Company moving forward. Outlook The 2021-22 financial year witnessed highly challenging market conditions, with global supply chain disruptions and pandemic related demand changes negatively affecting the Company. A pivotal change program is underway to refresh and refocus the strategy on market opportunities that are available, commercially interesting, and scalable both in domestic and international markets. Resource deployment and go to market strategies are being aligned with these goals, driven by customer needs. The Company continues to be net debt free. Despite experiencing a challenging year, the Company has responded to the changing environment by defining a clear strategic vision for its products to capitalize on an opportunity for long term growth and building shareholder value. Whilst market conditions are likely to demonstrate ongoing volatility it is becoming evident that investments are and will continue to be made in protecting occupants in the built environment and lowering carbon footprints through energy efficiency and improved processes. This is Aeris’ market focus and will continue to evolve to meet the needs of our customers in achieving these important goals. pg 12 Aeris Environmental Ltdpg 13 Annual Report 2022Directors’ Report pg 14 Aeris Environmental LtdDirectors’ Report The Directors of Aeris Environmental Ltd submit herewith the Annual Report for the financial year ended 30 June 2022. 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 Aeris Environmental Ltd during the whole of the financial year and up to the date of this Report, unless otherwise stated: 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: 24 July 2002 - appointed Chairman in 2002 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 in Research has become a world-leader infection control science. Directorship of other listed companies held in the last three years: Director since: 24 July 2002 Directorship of other listed companies held in the last three years: None Non-Executive Chairman of Nanosonics Limited (ASX:NAN) until 1 July 2022 (Deputy Chairman since 1 July 2022). Non-Executive Deputy Chairman of Vectus Biosystems Limited (ASX:VBS) since December 2005. pg 15 Annual Report 2022Jenny Harry Non-Executive Director Abbie Widin Non-Executive Director Dr Widin (PhD (Physiology) and B. Med. Science (Hons), both from the University of Sydney, and a Diploma of Business Administration from AGSM, and GAICD) 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. Director since: 2 March 2021 Directorship of other listed companies held in the last three years: None Michael Ford 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 is an experienced He Bank of Australia. Company Director and has completed the Advanced Management program at Harvard Business School. Director from 23 April 2020 until he resigned on 14 December 2021 Directorships of other listed companies held in the last three years: None Dr Harry (PhD GAICD) was appointed as a Director in April 2021. She is a graduate the Harvard Business School General of Manager Program and the Australian Institute of Company Directors. Dr Harry has 25 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 a member of the Board’s IP sub-Committee of the Children’s Medical Research Institute. Director since: 21 April 2021 Directorship of other listed companies held in the last three years: Non-Executive Director of Neuren Pharmaceuticals Limited (ASX:NEU) since 2018. pg 16 Aeris Environmental LtdOther Key Management Personnel Andrew Just Chief Executive Officer Peter Bush Chief Executive Officer Mr Just (Bec., Hec., MBA, GAICD) was formerly the Regional Director Asia Pacific for Radiometer, a Danaher Company. He has 30 years’ global experience in delivering growth and scale leading Fortune 500 competencies with companies, including GE Healthcare, Danaher, Stryker, and Cochlear. Andrew has held a variety of senior leadership roles across diverse business functions, with expertise in sales and marketing, performance management, commercial transactions, and operations in both turnaround and growth environments. Appointed: 28 March 2022 Directorships of other listed companies held in the last three years: Non-Executive Director of Singular Health Group (ASX:SHG) since March 2021. Robert Waring Company Secretary Mr Bush (B.Com, CA) was formerly the Chief Financial Officer of the Regional Health Care Group of companies and of Gryphon Capital (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. Resigned on 28 March 2022. Directorship of other listed companies held in the last three years: Non-Executive Director of Vectus Biosystems Limited (ASX:VBS) since July 2015. roles secretarial 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 30 years in for ASX-listed company 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). pg 17 Annual Report 2022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 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). Board of Directors Audit and Risk Committee Corporate Governance Committee Remuneration and Nomination Committee Number of meetings held Directors and their attendance Maurie Stang* Steven Kritzler Michael Ford** Abbie Widin*** Jenny Harry**** 12 12 11 6 12 12 3 3 - 1 - 3 1 1 - 1 - - - - - - - - *Chairman of the Board. Chairman of both the Remuneration and Nomination Committee, and the Corporate Governance Committee until 24 February 2022. **Ceased to be a Director on 14 December 2021, and also ceased to be a member of the Audit and Risk Committee (and its Chairman), the Corporate Governance Committee, and the Remuneration and Nomination Committee on 14 December 2021. ***Became Chair of the Related Parties Committee on 12 August 2021. ****Became the third member of both the Audit and Risk Committee, and the Remuneration and Nomination Committee, on 29 July 2021. Became the Chair of the Audit and Risk Committee, the Remuneration and Nomination Committee, and the Corporate Governance Committee on 24 February 2022. In addition, the Board has a Disclosure Committee and a Related Parties Committee, to meet as and when required. The Disclosure Committee did not meet during the 2021-22 financial year and the Related Parties Committee met three times. Update and sales meetings were also attended by some or all Directors during the financial year. pg 18 Aeris Environmental Ltd 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, a 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 – Jenny Harry (Chair), Maurie Stang, and Michael Ford (previous Chair, for part of year) Corporate Governance Committee – Jenny Harry (Chair), Maurie Stang (previous Chair), and Michael Ford (part of year) Related Parties Committee - Abbie Widin (Chair), Jenny Harry, and Michael Ford (part of year) Remuneration and Nomination Committee – Jenny Harry (Chair), Maurie Stang (previous Chair), and Michael Ford (part of year) 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. 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. pg 19 Annual Report 2022Review of operations The results of the operations of the consolidated entity during the financial year were as follows: Income Expenses Loss after income tax 2022 $ 2021 $ Change $ 2,806,835 7,336,311 (4,529,476) (9,937,262) (13,203,489) 3,266,227 (7,130,427) (5,867,178) (1,263,249) Change % (62%) (25%) 22% The Company’s Review of Operations commences on page 7 of this report. Dividends The Directors do not recommend the payment of a dividend in respect of the year ended 30 June 2022 (2021: Nil). No dividends have been paid or declared since the start of the financial year. Significant changes in the state of affairs There have been no significant changes in the state of affairs of the Group. Significant events after the balance date On 15 July 2022, 550,000 options with an exercise price of $0.01 were issued to consultant Tim Fortin for services performed from June 2021 to January 2022. The options vested on the date of issue and each option may be exercised from the date of issue at any time up until the expiry date of 15 July 2025. On 5 August 2022, former CEO Peter Bush was issued 1,068,531 performance rights, with no exercise price, in accordance with contractual commitments for prior years’ service, which were due to expire (if not converted) at 5pm on 1 July 2023. On 2 September 2022, former CEO Peter Bush was issued 1,068,531 shares on the conversion of his 1,068,531 performance rights that were issued on 5 August 2022 and two consultants were issued a total of 150,000 shares on the conversion of their performance rights that were issued on 9 September 2019. On 2 September 2022, a contractor was issued 50,000 shares as the result of work completed, issued at a deemed issue price of $0.05 per share. pg 20 Aeris Environmental Ltd There have been no other matters or circumstances, which have arisen since 30 June 2022 that have significantly affected or may significantly affect: (a) the operations, in financial years subsequent to 30 June 2022, of the consolidated entity; (b) the results of those operations; or (c) the state of affairs, in the financial years subsequent to 30 June 2022, of the consolidated entity. Likely developments and expected results of operations Disclosure of information other than that disclosed elsewhere in this Report regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this Report. Environmental regulations The economic entity is not subject to any significant environmental Commonwealth or State regulation in respect of its operating activities. Indemnification of Officers and Auditors Indemnification The Company has a Deed of Access and Indemnity with each of its Directors, by which the Company indemnifies each Director in relation to any liability incurred as a result of being a Director of the Company except where there is lack of good faith. During or since the financial year, the Company has not indemnified or agreed to indemnify the Auditor of the Company or any related entity against a liability incurred by the Auditor. Insurance Premiums During the financial year, the Company paid a premium in respect of a contract to insure its Directors and executives against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. During the financial year, the Company has not paid a premium in respect of a contract to insure the Auditor of the Company. pg 21 Annual Report 2022 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 Steven Kritzler Michael Ford (Director until 14 December 2021) Particulars of options or rights granted over unissued shares Number of options or rights on issue over unissued ordinary shares Shares issued in the period as the result of the exercise of options or rights Options or rights expired or forfeited during the period Ordinary shares Rights over ordinary shares 23,698,288 11,252,785 75,000 35,026,073 2022 150,000 548,183 708,417 1,406,600 - - - - 2021 1,406,600 1,182,358 218,333 2,807,291 Full details of options or rights on issue are shown in note 25 and note 26. Non-audit services There were no non-audit services provided during the financial year by the auditor. 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. pg 22 Aeris Environmental Ltd 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 2022 is attached to this Directors’ Report on page 41. 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 found on the Company’s website at: https://www. aeris.com.au/investors pg 23 Annual Report 2022Remuneration Report (audited) Key Management Personnel (KMP) The KMP of the Company comprise the Directors and Chief Executive Officer only, as follows: Non-Executive Directors Executive Maurie Stang Steven Kritzler Abbie Widin Jenny Harry Michael Ford (Director until 14 December 2021) Andrew Just (Chief Executive Officer appointed 28 March 2022) Peter Bush (Chief Executive Officer until 28 March 2022) Robert Waring, who was considered to be a KMP in the previous financial year is now no longer considered to be a KMP at the start of the 2022 financial year. He was the Company Secretary throughout the full year ended 30 June 2022. Principles used to determine the nature and amount of remuneration 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, however no external report was received in the financial year. pg 24 Aeris Environmental Ltd 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. A Resolution was approved at the AGM held on 27 January 2022 to increase the limit of Directors’ Fees by $150,000. The increase provides 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 were set out in conjunction with advice from external advisors in reference to fees paid to Non-Executive Directors of comparable companies, however no external report was received in the financial year. 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, 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. 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 2022 no amounts were paid to KMPs 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 pg 25 Annual Report 2022 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 2022 no amounts were paid as LTIs to KMPs. 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 and 27 January 2022. The terms where options or shares issued under the EIP normally have the following conditions: • • • 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. The contractual life of the options or performance rights issued ranges from three to five years. 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. • Each option or performance right is convertible into one fully paid ordinary share. • 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. 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. The options or performance rights issued are on an equity-settled basis. There are no cash settlement alternatives. • • pg 26 Aeris Environmental LtdEquity holdings transactions Equity holdings transactions Equity holdings transactions Equity holdings transactions The movement during the reporting period in the number of ordinary shares in Aeris Environmental Ltd 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 held directly, indirectly or beneficially by each specified Director and Executive, including their personally related entities, are as follows: related entities, are as follows: Balance at the start of the year Received as part of remuneration Additions Disposals/ other 2022 Ordinary shares Specified Directors Maurie Stang Steven Kritzler Michael Ford Abbie Widin Jenny Harry 23,698,288 11,252,785 75,000 - - 35,026,073 Specified Executives Peter Bush (CEO until 28 March 2022) 1,632,358 Andrew Just (Appointed CEO on 28 March 2022) - 1,632,358 36,658,431 - - - - - - - - - - - - - - - - 441,179 - 441,179 441,179 - - - - - - - - - - Balance at the end of the year 23,698,288 11,252,785 75,000 - - 35,026,073 2,073,537 - 2,073,537 37,099,610 pg 27 Annual Report 20222021 Ordinary shares Specified Directors Maurie Stang Bernard Stang (Director until 26 Nov 2020) Steven Kritzler Michael Ford Abbie Widin (Appointed a Director on 2 March 2021) Jenny Harry (Appointed a Director on 21 April 2021) Specified Executives Peter Bush Robert Waring * Balance at the start of the year Received as part of remuneration Additions Disposals/ other Balance at the end of the year 23,698,288 20,527,194 11,252,785 75,000 - - 55,553,267 - - - - - - - 750,000 992,326 1,742,326 57,295,593 882,358 - 882,358 882,358 - - - - - - - - - - - - 23,698,288 (1,740,555) 18,786,639 - - - - 11,252,785 75,000 - - (1,740,555) 53,812,712 - - - 1,632,358 992,326 2,624,684 (1,740,555) 56,437,396 *Robert Waring, who was considered to be a KMP in the previous financial year is now no longer considered to be a KMP at the start of the 2022 financial year. He remains the Company Secretary throughout the full year ended 30 June 2022. pg 28 Aeris Environmental Ltd2022 Options and rights Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year Specified Directors Maurie Stang Steven Kritzler Michael Ford Abbie Widin Jenny Harry - - - - - - Specified Executives Peter Bush (CEO until 28 March 2022) 441,179 Andrew Just (Appointed CEO on 28 March 2022) - 441,179 - - - - - - - - - - - - - - - (441,179) - (441,179) - - - - - - - - - - - - - - - - - - 2021 Options and rights Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year Specified Directors Maurie Stang Bernard Stang (Director until 26 Nov 2020) Steven Kritzler Michael Ford Abbie Widin (Appointed a Director on 2 March 2021) Jenny Harry (Appointed a Director on 21 April 2021) Specified Executives Peter Bush Robert Waring - - - - - - - 1,323,537 50,000 1,373,537 - - - - - - - - - - - - - - - - - (882,358) - (882,358) - - - - - - - - - - - - - - - - - 441,179 50,000 491,179 pg 29 Annual Report 2022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. There were no options over ordinary shares issued to Directors and other key management personnel as part of compensation that were outstanding at 30 June 2022. pg 30 Aeris Environmental Ltd 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 expenses The Company and its controlled entities transacted with Regional Healthcare Group Pty Ltd as customer for: Sale of goods and administrative charges Sales returns Mr M Stang is a Director and Shareholder 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 Parent and other expenses The Company and its controlled entities transacted with Novapharm Research (Australia) Pty Ltd and invoiced them for providing supply chain functions Mr M Stang and S Kritzler 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 is a Director and Shareholder of Ramlist Pty Ltd. Ensol Systems Pty Ltd The Company and its controlled entities incur expenses for marketing and other operational services to Ensol Systems Pty Ltd. 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. and invoiced them for administrative charges 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. 2022 $ 2021 $ 174,340 1,613 63,678 36,034 88,261 85,253 (152,398) 157,775 136,913 56,604 34,127 84,374 56,819 - 353,137 4,136 193,849 208,895 54,071 50,000 24,113 52,537 17,317 18,982 136,561 27,941 2,720 1,705 2,032 1,609 pg 31 Annual Report 2022Henry Schein The Company and its controlled entities sold products to Henry Schein - 38,866 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 Mr M Stang and Mr P Bush are Directors and Shareholders of Vectus Biosystems Limited 24,552 28,081 Bright Accountants The Company and its controlled entities incur expenses for accounting services from Bright Accountants. - 52,111 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 177,004 111,035 Mr R Waring is a Director and Shareholder of Oakhill Hamilton Pty Ltd Outstanding balances payable from purchase of services Regional Healthcare Group Pty Ltd - for purchase of services 39,192 114,547 Regional Healthcare Group Pty Ltd - for refund owing from credits due to sales returns Novapharm Research (Australia) Pty Ltd Ramlist Pty Ltd Ensol Systems Pty Ltd Teknik Lighting Solutions Pty Ltd Oakhill Hamilton Pty Ltd. Outstanding balances receivable for sales and services provided Vectus Biosystems Limited Regional Healthcare Group Pty Ltd Novapharm Research (Australia) Pty Ltd Ensol Systems Pty Ltd Teknik Lighting Solutions Pty Ltd 112,517 98,352 - 1,761 - 10,484 12,916 - 5,364 - 54 - 19,181 6,849 20,606 165 9,186 28,181 17,877 - 30,735 1,239 pg 32 Aeris Environmental LtdDetails of remuneration 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: Amounts of remuneration Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables. Termination payments Equity based benefits Post- employment benefits Super- annuation $ 8,182 5,455 1,261 5,456 5,456 2022 Short-term benefits Salary & Director’s fees $ STI Cash bonus $ Non- monetary benefits $ Non-Executive Directors: Maurie Stang Steven Kritzler Michael Ford (Resigned 14 December 2021) Abbie Widin Jenny Harry Executives (Note (i)): Executives (Note (i)): Peter Bush (Resigned 28 March 2022)* Andrew Just (Appointed CEO on 28 March 2022) 81,818 54,545 26,453 54,565 54,565 223,724 68,750 564,420 - - - - - - - - - - - - - - - - 22,346 140,045 5,892 - 54,048 140,045 $ - - - - - Shares $ - - - - - - - - Options & rights (Note (ii)) $ - - - - - Total $ 90,000 60,000 27,714 60,021 60,021 59,838 445,953 - 74,642 59,838 818,351 *During the year ended 30 June 2022, Peter Bush received shares on exercise of old performance rights; these have been expensed by the Company and previously reported in other financial years. pg 33 Annual Report 2022 2021 Short-term benefits Salary & Director’s fees $ STI Cash bonus $ Non- monetary benefits $ Non-Executive Directors: Maurie Stang Bernard Stang Steven Kritzler Michael Ford Abbie Widin Jenny Harry Executives (Note (i)): Executives (Note (i)): Peter Bush Robert Waring 82,192 - 54,795 57,272 19,389 14,862 280,289 82,371 591,170 - - - - - - - - - - - - - - - - - - Post- employment benefits Super- annuation $ 7,808 - 5,205 2,728 1,847 1,412 26,654 - 45,654 Termination payments Equity based benefits Shares $ - - - - - - - - - Options & rights (Note (ii)) $ - - - - - - Total $ 90,000 - 60,000 60,000 21,236 16,274 8,088 315,031 - 82,371 8,088 644,912 $ - - - - - - - - - pg 34 Aeris Environmental Ltd Notes to the tables of details of Directors’ and Executive Officers’ remuneration. i) “Executive Officers” are officers who are or were involved in, concerned in, or who take part in, the management of the affairs of Aeris and/or related bodies corporate. ii) The fair value of the options is calculated at the date of grant using a Black-Scholes model and allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options allocated to this reporting period. In valuing the options, market conditions have been taken into account in both the current and prior periods. Comparative information was not restated as market conditions were already included in the valuation. The following factors and assumptions were used in determining the fair value of options on grant date. Grant Date Expiry Date Fair value at grant date Exercise price Price on shares on grant date Estimated volatility % Risk free interest rate % 23/12/2016 23/12/2016 14/10/2021 23/10/2021 $0.2823 $0.2828 $0.42 $0.42 $0.37 $0.37 108.30% 108.30% 2.34% 2.34% The following factors and assumptions were used in determining the fair value of performance shares on issue date. Grant Date 30/05/2018 30/05/2018 30/05/2018 Vesting Date Price of shares on grant date Exercise price 11/04/2019 11/04/2020 11/04/2021 $0.1650 $0.1650 $0.1650 Not applicable Not applicable Not applicable pg 35 Annual Report 2022Executive employment Chief Executive Officer (CEO): The following sets out the key terms of the employment for the former CEO, Peter Bush Term: Fixed remuneration: Notice period: Continuous employment until notice is given by either party $246,070. This is reviewed annually. To terminate his employment, Mr Bush is required to provide Aeris with 3 months written notice. Aeris must provide 3 months written notice. Resignation or termination: On resignation, unless the Board determines otherwise: Statutory entitlements: Termination for serious misconduct: Post-Termination Restraint of Trade: All unvested short term or long term-benefits are forfeited. 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, canvas, 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 under which a Director is entitled to benefit other than as disclosed above and note 32 to the financial statements. pg 36 Aeris Environmental LtdChief Executive Officer (CEO): The following sets out the key terms of the employment for the CEO, Andrew Just Term: Fixed remuneration: Notice period: Continuous employment until notice is given by either party $302,500. This is reviewed annually. To terminate his employment, Mr Just is required to provide Aeris with 3 months written notice. Aeris must provide 3 months written notice. Resignation or termination: On resignation, unless the Board determines otherwise: Statutory entitlements: Termination for serious misconduct: Post-Termination Restraint of Trade: All unvested short term or long-term benefits are forfeited. All vested but unexercised benefits are forfeited 90 days following cessation of employment. Annual leave applies in all cases of separation. Long Service applies unless Mr Just’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 Just 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 12 months or, if that period is unreasonable, 6 months after the termination of employment, Mr Just must not, in the area of New South Wales or, if that area is unreasonable, the half of New South Wales closest to the Company’s place of business where the CEO last worked for the Company: (i) solicit, canvas, approach or accept any approach from any person who was at any time during his time 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 under which a Director is entitled to benefit other than as disclosed above and note 32 to the financial statements. pg 37 Annual Report 2022Link between remuneration and performance statutory performance indicators The table 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 Aeris Environmental Ltd Basic Earnings (loss) per share (cents per share) Increase/(decrease) in share price (%) Total KMP remuneration as percentage of profit (loss) for the year (%) 2022 $ 2021 $ 2020 $ 2019 $ 2018 $ (7,130,427) (5,867,178) 1,982,941 (3,628,499) (3,590,176) (2.92) (2.41) 0.90 (1.98) (2.28) (68.00%) (10.47%) (71.42%) (10.99%) 70.97% 23.07% 121.43% (13.51%) (50.00%) (12.01%) Share options and performance rights There are no options and performance rights to take up ordinary shares in Aeris Environmental Ltd that were issued to KMP that remain unexercised at 30 June 2022 (2021: 491,179 options and performance rights). No options or performance rights to take up ordinary shares in Aeris Environmental Ltd were issued to KMP during the financial years 2022 and 2021. Subsequent to year-end, former CEO Peter Bush was issued 1,068,531 performance rights, with no exercise price, in accordance with contractual commitments for prior years’ service, which expire (if not converted) at 5pm on 1 July 2023. No options issued to KMP expired or were forfeited during the years 2022 and 2021. 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. This concludes the remuneration report, which has been audited. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors Maurie Stang Sydney 30 September 2022 Non-Executive Chairman pg 38 Aeris Environmental Ltd pg 39 Annual Report 2022Auditor’s Independence Declaration For the year ended 30 June 2022 pg 40 Aeris Environmental Ltd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 2022, 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 2022 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. 22 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 pg 41 Annual Report 2022 Financial Statements - Contents Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors' declaration Independent auditor's report to the members of Aeris Environmental Ltd Australian Securities Exchange (ASX) Additional Information Corporate directory 44 46 48 50 52 106 108 116 120 General information The financial statements cover Aeris Environmental Ltd as a consolidated entity consisting of Aeris Environmental Ltd and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Aeris Environmental Ltd’s functional and presentation currency. Aeris Environmental Ltd is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: 5/26-34 Dunning Avenue ROSEBERY NSW 2018 A description of the nature of the consolidated entity’s operations and its principal activities are included in the Directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 30 September 2022. The Directors have the power to amend and reissue the financial statements. pg 42 Aeris Environmental Ltdpg 43 Annual Report 2022Statement of profit or loss and other comprehensive income For the year ended 30 June 2022 pg 44 Aeris Environmental LtdRevenue Expenses Research and development and patent expense Employee benefits expense Depreciation and amortisation expense Impairment of assets Finance costs Cost of sales Distribution Sales, Marketing and Travel expenses Occupancy Administration Loss before income tax benefit Income tax benefit Note 5 6 6 6 2022 $ 2021 $ 2,806,835 7,336,311 (636,100) (2,568,260) (99,851) (1,594,891) (12,457) (812,429) (3,148,284) (132,552) (1,462,697) (56,409) (1,472,176) (4,375,528) (571,255) (699,275) (432,498) (528,559) (616,352) (313,894) (2,143,284) (1,875,021) (7,423,212) (5,985,414) 7 292,785 118,236 Loss after income tax benefit for the year attributable to the owners of Aeris Environmental Ltd 21 (7,130,427) (5,867,178) Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the year, net of tax 57,301 57,301 (90,774) (90,774) Total comprehensive income for the year attributable to the owners of Aeris Environmental Ltd (7,073,126) (5,957,952) Basic earnings per share Diluted earnings per share 24 24 Cents (2.92) (2.92) Cents (2.41) (2.41) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. pg 45 Annual Report 2022Statement of financial position As at 30 June 2022 pg 46 Aeris Environmental LtdAssets Current Assets Cash and cash equivalents Trade and other receivables Inventories Other Total current assets Non-current assets Property, plant and equipment Right-of-use assets Total non-current assets Total assets Liabilities Current Liabilities Trade and other payables Lease liabilities Provisions Total current liabilities Non-current liabilities Lease liabilities Provisions Total non-current liabilities Total liabilities Net Assets Equity Issued capital Reserves Accumulated losses Equity attributable to the owners of Aeris Environmental Ltd Non-controlling interest Total equity Note 2022 $ 2021 $ 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 5,303,142 1,092,236 1,262,798 310,401 7,968,577 109,255 - 109,255 11,485,616 1,485,009 2,811,899 367,022 16,149,546 106,017 295,036 401,053 8,077,832 16,550,599 1,392,486 2,337,691 - 92,481 91,225 388,669 1,484,967 2,817,585 - - - 227,113 34,533 261,646 1,484,967 3,079,231 6,592,865 13,471,368 62,520,726 1,861,906 62,430,276 1,700,432 (57,793,452) (50,663,025) 6,589,180 13,467,683 3,685 3,685 6,592,865 13,471,368 The above statement of financial position should be read in conjunction with the accompanying notes. pg 47 Annual Report 2022Statement of changes in equity For the year ended 30 June 2022 pg 48 Aeris Environmental LtdConsolidated Issued Capital $ Reserves $ Retained Profits $ Non-controlling interest $ Total equity $ Balance at 1 July 2020 62,195,687 1,904,803 (44,795,847) 3,685 19,308,328 Loss after income tax benefit for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year 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 - - - - (5,867,178) (90,774) - (90,774) (5,867,178) 145,589 89,000 - - - (113,597) - - - - - - - - - (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 Consolidated Issued Capital $ Reserves $ Retained Profits $ Non-controlling interest $ Total equity $ Balance at 1 July 2021 62,430,276 1,700,432 (50,663,025) 3,685 13,471,368 Loss after income tax benefit for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year - - - - (7,130,427) 57,301 - 57,301 (7,130,427) Shares issued 90,450 - Transactions with owners in their capacity as owners: Share-based payments (note 20) - 104,173 - - - - - - - (7,130,427) 57,301 (7,073,126) 90,450 104,173 Balance at 30 June 2022 62,520,726 1,861,906 (57,793,452) 3,685 6,592,865 The above statement of changes in equity should be read in conjunction with the accompanying notes. pg 49 Annual Report 2022Consolidated statement of cash flows For the year ended 30 June 2022 pg 50 Aeris Environmental LtdCash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers (inclusive of GST) R&D tax offset rebate received Interest received Government grants Interest and other finance costs paid Net cash used in operating activities Note 2022 $ 2021 $ 3,240,986 11,367,172 (9,343,010) (13,484,135) - 687,807 (6,102,024) (1,429,156) - - (5,332) 24,465 181,162 (56,409) 36 (6,107,356) (1,279,938) Cash flows from investing activities Payments for property, plant and equipment 12 Net cash used in investing activities Cash flows from financing activities Repayment of lease liabilities Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents (63,826) (63,826) (93,359) (93,359) (68,595) (68,595) (6,239,777) 11,485,616 57,303 - - (1,373,297) 12,949,339 (90,426) Cash and cash equivalents at the end of the financial year 8 5,303,142 11,485,616 The above statement of cash flows should be read in conjunction with the accompanying notes. pg 51 Annual Report 2022Notes to the financial statements 30 June 2022 pg 52 Aeris Environmental LtdNote 1. Significant accounting policies Corporate information The financial report of Aeris Environmental Ltd (the Group) for the year ended 30 June 2022 was authorised for issue in accordance with a resolution of the Directors on 30 September 2022. 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 operations and principal activities of the Group are described in the Directors’ Report. New or amended Accounting Standards and Interpretations adopted No new or amended Accounting Standards were applicable to the Group for the current financial year. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. 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. pg 53 Annual Report 2022Going concern The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business. As disclosed in the financial statements, the Group earned annual revenue for the financial year ended 30 June 2022 of $2,678,133 (2021: $7,130,684) and made a loss before income tax of $7,423,212 (2021: $5,985,414). The Group’s cash outflow for the financial year ended 30 June 2022 was $6,239,777 (2021: $1,373,297). Cash at 30 June 2022 was $5,303,142 compared to $11,485,616 at 30 June 2021. The loss before income tax and cash outflow for the financial year ended 30 June 2022, and the cash as at 30 June 2022 prima facie give rise to a material uncertainty that may cast significant doubt over the Company’s ability to continue as a going concern. Therefore, the Company may be unable to realise its assets and discharge its liabilities in the normal course of business at the amounts stated in the financial report. However, the Directors believe the Company will be able to continue as a going concern, subject to the successful implementation of the following mitigating factors in relation to material uncertainty: • • Significant fixed and variable cost reductions were executed in July 2022, with the resulting substantial lowering of the long-term cost structures achieved. This will lead to a significant reduction in the net cash flow outflows for the year ending 30 June 2023. The sales outlook for the Company is markedly improved from previous year, with a conservative sales budget still yielding significant growth. Several new products are slated to be introduced. • Our forecast budget for the year ending 30 June 2023 has a cash outflow of an amount that is less than the current cash balance in the bank, therefore we believe the above will lead to a significant reduction in the net operating cash outflow. • July and August 2022 saw the budget being largely achieved from a net loss perspective, demonstrating the reasonable and achievable nature of the budget. Accordingly, this financial report has been prepared on a going concern basis. Therefore, no adjustments have been made to the financial report relating to the recoverability and classification of the carrying amounts of assets or the amounts and classifications of liabilities that might be necessary should the Company not continue as a going concern. pg 54 Aeris Environmental LtdBasis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods and which the Group has decided not to early adopt. These standards are not expected to have a material impact on the Consolidated Entity in the current or future reporting periods and on foreseeable future transactions. Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, investment properties, certain classes of property, plant and equipment and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. 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 33. pg 55 Annual Report 2022  Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Aeris Environmental Ltd (‘Company’ or ‘parent entity’) as at 30 June 2022 and the results of all subsidiaries for the year then ended. Aeris Environmental Ltd and its subsidiaries together are referred to in these financial statements as the ‘consolidated entity’. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Subsidiaries are accounted for at cost in the separate financial statements of Aeris Environment Ltd less any impairment charges. pg 56 Aeris Environmental Ltd Significant accounting policies Accounting policies are selected and applied in a manner which ensures that the resultant financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions and other events are reported. 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. Foreign currency translation 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. 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 statement of financial position presented are translated at the closing rate at the date of that balance sheet; • Income and expenses for each statement of profit or loss are translated at average exchange rates; and • All resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange difference arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in the foreign currency translation reserve. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the statement of profit or loss and other comprehensive income as part of the gain or loss on sale where applicable. pg 57 Annual Report 2022 Revenue recognition The consolidated entity recognises revenue as follows: Sale of goods and disposal of assets Revenue from the sale of goods and disposal of assets is recognised when the consolidated entity has passed the risks and rewards of the goods or assets to the buyer. Revenue from services Revenue from consultancy and engineering services is recognised by reference to the stage of completion. Stage of completion is measured by reference to labour hours incurred to date as a percentage of total estimated labour hours for each contract. When the contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses incurred are eligible to be recovered. Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants related to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Interest income Interest income is recognised as it is accrued using the effective interest rate method. Other income Other income is recognised as it is earned. pg 58 Aeris Environmental Ltd Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is accounted for using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Tax consolidation The Company and all its wholly-owned Australian resident entities have entered into a tax consolidated group under Australian taxation law. The Company is the head entity in the tax-consolidated group comprising all the Australian wholly-owned subsidiaries set out in note 34. The head entity recognises all of the current and deferred tax assets and liabilities of the tax consolidated group (after elimination of intragroup transactions). pg 59 Annual Report 2022  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 classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. 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. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. pg 60 Aeris Environmental Ltd  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. Financial assets Financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are either: i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit; or ii) designated as such upon initial recognition, where they are managed on a fair value basis or to eliminate or significantly reduce an accounting mismatch. Except for effective hedging instruments, derivatives are also categorised as fair value through profit or loss. Fair value movements are recognised in profit or loss. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets, principally equity securities, that are either designated as available-for-sale or not classified as any other category. After initial recognition, fair value movements are recognised in other comprehensive income through the available-for-sale reserve in equity. Cumulative gain or loss previously reported in the available- for-sale reserve is recognised in profit or loss when the asset is derecognised or impaired. pg 61 Annual Report 2022 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. 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 2-3 years 3 years 2-3 years 5 years 2-3 years 6 years Field equipment under finance lease 2-3 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. pg 62 Aeris Environmental Ltd 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. Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The consolidated entity has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. Financial liabilities The Group classifies its financial liabilities as measured at amortised cost. The Group does not use derivative financial instruments in economic hedges of currency or interest rate risk. These financial liabilities include the following items: Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. Lease liabilities are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument and subsequently carried at amortised cost using the effective interest method. pg 63 Annual Report 2022 Impairment of assets At each reporting date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase. 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. pg 64 Aeris Environmental Ltd 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. Borrowings and convertible notes Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method if the impact is material to the financial report. Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non-current. Convertible notes are separated into liability and equity components based on the terms of the contract. On issuance of the convertible notes, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond. This amount is classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in equity. Transaction costs are deducted from equity, net of associated income tax. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible notes based on the allocation of proceeds to the liability and equity components when the instruments are initially recognised. pg 65 Annual Report 2022 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. 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 wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at 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 high quality corporate 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. pg 66 Aeris Environmental Ltd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 26. 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. pg 67 Annual Report 2022Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. 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 at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of 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. 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. pg 68 Aeris Environmental Ltd 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. 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. Comparative amounts Where necessary, comparative amounts have been changed to reflect changes in disclosures in the current year. pg 69 Annual Report 2022 Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Aeris Environmental Ltd, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial 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. Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. pg 70 Aeris Environmental Ltd Note 2. Critical accounting judgements, estimates and assumptions 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: Share-based payment transactions The consolidated entity 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 by using either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. 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 profit or loss and equity. 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 9, is calculated based on in-depth evaluation of customers expected to incur future credit losses. The actual credit losses in future years may be higher or lower. 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. pg 71 Annual Report 2022Estimation of useful lives of assets The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. 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. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. 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. 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. pg 72 Aeris Environmental LtdNote 3. 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 program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. 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. 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. 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. 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. pg 73 Annual Report 2022 Note 4. Operating segments Identification of reportable operating segments From Board of Directors’ (Chief Operating Decision Makers’ - CODM) perspective, the Group is organised into business units based on its geographical area of operation. The Group has identified two reportable segments as mentioned below. The reportable segments are based on aggregated operating segments determined by the similarity of the revenue stream and products sold and/or the services provided in Australia and internationally, as these are the sources of the Group’s major risks and have the most effect on the rates of return. The CODM reviews revenue, COGS, operating expenses, profit before tax, assets & liabilities for the following segments: (a) Australia - Sales and service on account of Australian operations (b) International - Sales and 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 and are eliminated on consolidation. Major customer During the year ended 30 June 2022 the most significant client accounts for approximately 15% (2021: 33%) 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 2022 and 2021. pg 74 Aeris Environmental LtdOperating segment information of the consolidated entity 2022 Revenue Sales Other income Total Revenue Expenses Cost of goods sold Operating expenses Total Expenses Profit (Loss) before tax 2021 Revenue Sales Other income Total Revenue Expenses Cost of goods sold Operating expenses Total Expenses Profit (Loss) before tax Australia International Intersegment eliminations Consolidated 2,558,829 117,639 2,676,468 188,776 11,063 199,839 (69,472) 2,678,133 - 128,702 (69,472) 2,806,835 (1,362,628) (9,029,213) (179,020) (962,112) 69,472 (1,472,176) 1,233,454 (8,757,871) (10,391,841) (1,141,132) 1,302,926 (10,230,047) (7,715,373) (941,293) 1,233,454 (7,423,212) Australia International Intersegment eliminations Consolidated 6,292,080 956,848 (118,244) 7,130,684 205,625 2 - 205,627 6,497,705 956,850 (118,244) 7,336,311 (3,795,309) (8,619,182) (698,463) (841,905) 118,244 (4,375,528) 514,890 (8,946,197) (12,414,491) (1,540,368) 633,134 (13,321,725) (5,916,786) (583,518) 514,890 (5,985,414) pg 75 Annual Report 2022Segment assets and liabilities Segment assets and liabilities Australia International Total Assets 2022 Assets 2021 Liabilities 2022 Liabilities 2021 9,082,505 16,548,826 2,436,327 4,777,701 1,866,865 964,955 6,454,193 4,083,079 10,949,370 17,513,781 8,890,520 8,860,780 Intersegment elimination (2,871,538) (963,181) (7,405,553) (5,781,548) Consolidated 8,077,832 16,550,600 1,484,967 3,079,232 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 for the following major geographical segments: Segment revenue Intersegment elimination Australia 2022 Australia 2021 International 2022 International 2021 2,558,829 6,292,080 188,776 956,848 (69,472) (118,244) - - Revenue from external customers 2,489,357 6,173,836 188,776 956,848 Timing of revenue recognition At a point in time Over time 1,782,756 5,097,304 188,776 956,848 706,601 1,076,532 - - 2,489,357 6,173,836 188,776 956,848 pg 76 Aeris Environmental LtdNote 5. Revenue Revenue from contracts with customers Revenue from sales Revenue from services Total Revenue Other revenue Government grants Financial income Revenue Consolidated 2022 $ 2021 $ 1,971,532 706,601 2,678,133 124,257 4,445 128,702 2,806,835 6,054,152 1,076,532 7,130,684 200,040 5,587 205,627 7,336,311 pg 77 Annual Report 2022Note 6. Expenses Profit (Loss) before income tax includes the following items of expense: Loss before income tax includes the following specific expenses Depreciation Leasehold improvements Plant and equipment Right-of-use assets Total depreciation Employment benefit expenses Base salary and fees Superannuation & statutory costs Share based payment Other employment expenses Consolidated 2022 $ 2021 $ 981 59,607 39,263 99,851 2,120,948 352,751 64,381 30,180 6,332 45,754 80,465 132,551 2,722,895 317,050 24,492 83,847 Total employment benefit expenses 2,568,260 3,148,284 Finance costs Interest, bank fees and other financial expenses 12,457 56,409 Other expenses Impairment (recovery) of receivables Impairment of inventory Rental & occupancy expenses Research and development and patent expenses 145,646 1,365,000 432,498 636,100 271,697 1,191,000 313,894 812,429 pg 78 Aeris Environmental LtdNote 7. 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: Income tax benefit Current tax Aggregate income tax benefit Consolidated 2022 $ 2021 $ (292,785) (292,785) (118,236) (118,236) Numerical reconciliation of income tax benefit and tax at the statutory rate Loss before income tax benefit Tax at the statutory tax rate of 25% (2021: 26%) (7,423,212) (1,855,803) (5,985,414) (1,556,208) Temporary differences and tax losses not recognised: Non-deductible expenses Share-based payments R&D tax offset receivable Income tax benefit 1,839,708 16,095 - (292,785) (292,785) 1,416,394 21,578 (118,236) - (118,236) Deferred tax balances not recognised Calculated at 25% (2021: 26%) of not brought to account assets or liabilities: Deferred tax assets not recognised Tax losses Revenue tax losses available for offset against future taxable income 7,845,547 6,728,307 Consolidated 2022 $ 2021 $ Deferred tax assets not recognised comprises temporary differences attributable to: Allowance for expected credit losses Provision for inventory impairment Provision for employee entitlements Difference between book and tax values of fixed assets Accrued expenses Future lease obligations 53,589 639,000 40,260 (7,308) 132,145 - 857,686 8,703,233 90,000 297,750 105,800 17,160 7,500 5,826 524,036 7,252,343 pg 79 Annual Report 2022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. Note 8. Current assets - cash and cash equivalents Cash at bank and on hand Cash on deposit Consolidated 2022 $ 269,737 5,033,405 5,303,142 2021 $ 906,653 5,033,405 11,485,616 The carrying amount of the Group’s cash balances are a reasonable approximation of their fair values. pg 80 Aeris Environmental LtdNote 9. Current assets - trade and other receivables Trade receivables Less: Allowance for expected credit losses R&D tax offset rebate receivable Consolidated 2022 $ 1,013,805 (214,354) 799,451 292,785 1,092,236 2021 $ 1,845,009 (360,000) 1,485,009 - 1,485,009 The carrying amounts of the Group’s receivables are a reasonable approximation of their fair values. Allowance for expected credit losses For the 2022 and 2021 financial years, the Group has undertaken an in-depth 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 was calculated and grouped as follows: Consolidated Current < 60 days Past due > 60 days Past due > 90 days Expected credit loss rate 2022 % - - 2021 % - - Carrying Amount 2022 $ 2021 $ 324,829 598,051 148,855 118,930 Allowance for expected credit losses 2022 $ - - 2021 $ - - 39.68629% 31.91410% 540,121 1,128,028 214,354 360,000 1,013,805 1,845,009 214,354 360,000 Less than 6 months overdue More than 6 months overdue 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 provisions written back Movement in provision for impairment Consolidated 2022 $ - 214,354 - 195,646 (50,000) 2021 $ - 360,000 (81,697) - (190,000) pg 81 Annual Report 2022 Movements in the allowance for expected credit losses are as follows: Opening balance Additional provisions recognised Unused amounts reversed Closing balance Note 10. Current assets - inventories Inventories - at cost Less: Provision for impairment Consolidated 2022 $ 360,000 50,000 (195,646) 214,354 2021 $ 170,000 190,000 - 360,000 Consolidated 2022 $ 3,818,798 (2,556,000) 1,262,798 2021 $ 4,002,899 (1,191,000) 2,811,899 The carrying amounts of the Group’s inventories are a reasonable approximation of their fair values. Note 11. Current assets - other Prepayments Deposits, bonds and other receivables Consolidated 2022 $ 288,402 21,999 310,401 2021 $ 351,751 15,271 367,022 The carrying amount of the Group’s other current assets are a reasonable approximation of their fair values. pg 82 Aeris Environmental LtdNote 12. Non-current assets - property, plant and equipment Consolidated Leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment under lease Less: Accumulated depreciation Computer equipment - at cost Less: Accumulated depreciation Office equipment - at cost Less: Accumulated depreciation Field equipment - at cost Less: Accumulated depreciation R & D equipment - at cost Less: Accumulated depreciation Software - at cost Less: Accumulated depreciation 2022 $ 130,228 (130,228) - 187,474 (162,801) 24,673 347,393 (318,736) 28,657 133,595 (130,789) 2,806 51,647 (51,647) - 40,773 (32,367) 8,406 50,762 (6,049) 44,713 109,255 2021 $ 130,228 (129,247) 981 187,474 (137,338) 50,136 331,582 (296,231) 35,351 133,595 (128,757) 4,838 51,647 (51,647) - 40,773 (26,062) 14,711 2,817 (2,817) - 106,017 pg 83 Annual Report 2022Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Computer equipment $ Leasehold improvements $ Offie furniture $ Plant and equipment $ R&D Equipment $ Software $ Balance at 1 July 2020 Additions Exchange differences 30,822 24,109 (614) 7,313 - - 10,814 3,462 - 16,410 50,026 - - 15,762 - Depreciation expense (18,966) (6,332) (9,438) (16,300) (1,051) Balance at 30 June 2021 Additions 35,351 15,881 981 - 4,838 50,136 14,711 - - - Depreciation expense (22,575) (981) (2,032) (25,463) (6,305) - - - - - 47,945 (3,232) Total $ 65,359 93,359 (614) (52,087) 106,017 63,826 (60,588) Balance at 30 June 2022 28,657 - 2,806 24,673 8,406 44,713 109,255 Note 13. Non-current assets - right-of-use assets Land and buildings - right-of-use Less: Accumulated depreciation Reconciliations Consolidated 2022 $ - - - 2021 $ 455,965 (160,929) 295,036 Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2020 Depreciation expense Balance at 30 June 2021 Disposals Depreciation expense Balance at 30 June 2022 Refer to note 17 for further information on lease liabilities. pg 84 Consolidated Right-of-use asset $ 375,501 (80,465) 295,036 (255,773) (39,263) - - Total $ 375,501 (80,465) 295,036 (255,773) (39,263) Aeris Environmental LtdNote 14. Current liabilities - trade and other payables Trade payables GST and PAYG payable Other payables Consolidated 2022 $ 524,578 35,287 832,621 1,392,486 2021 $ 1,592,014 (10,180) 755,857 2,337,691 Refer to note 27 for further information on financial instruments. The carrying amounts of the Group’s current trade and other payables are a reasonable approximation of their fair values. Note 15. Current liabilities - lease liabilities Lease liability Consolidated 2022 $ - 2021 $ 91,225 Refer to note 17 for further information on lease liabilities and note 27 for further information on financial instruments. Note 16. Current liabilities - provisions Annual leave Long service leave Consolidated 2022 $ 92,481 - 92,481 2021 $ 354,645 34,024 388,669 The carrying amounts of the Group’s provisions are a reasonable approximation of their fair values. pg 85 Annual Report 2022Note 17. Non-current liabilities - lease liabilities Lease liability Refer to note 27 for further information on financial instruments. Consolidated 2022 $ - 2021 $ 227,113 Particulars relating to lease liabilities The Group had recognised ‘Right-of-Use Asset’ and an associated ‘Lease Liability’ in the 2021 financial year for the office space leased in Brisbane following AASB 16 for accounting of leases. During the year ended 30 June 2022, it was decided not to take up the renewal option upon expiry of lease on 12 February 2022. Following this decision, the Group has adjusted the carrying amount of ‘Right-of-Use Asset’ and ‘Lease Liability’ to that effect and as a result the values have significantly decreased with no balances at 30 June 2022. The ‘Right-of-Use Asset’ is disclosed in note 13 and the current lease liability is disclosed in note 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 Consolidated 2022 $ 2021 $ 39,263 10,160 - 39,263 72,630 80,465 16,850 295,036 63,197 187,854 pg 86 Aeris Environmental LtdNote 18. Non-current liabilities - provisions Long service leave Consolidated 2022 $ - 2021 $ 34,533 The carrying amounts of the Group’s non-current liabilities and provisions are a reasonable approximation of their fair values. Note 19. Equity - issued capital Ordinary shares - fully paid 244,376,020 243,827,837 62,520,726 62,430,276 2022 Shares 2021 Shares 2022 $ 2021 $ Fully paid ordinary shares carry one vote per share and carry the right to dividends. Movements in reserves Details Balance - no par value Shares issued on exercise of options Shares issued to consultants and advisors Date Shares Issue Price S 1 July 2020 242,545,479 882,358 400,000 $0.16 $0.22 $0.08 $0.49 62,195,687 145,589 89,000 62,430,276 37,500 52,950 Balance - no par value 30 June 2021 243,827,837 Shares issued on conversion of performance rights Shares issued on conversion of performance rights 441,179 107,004 Balance - no par value 30 June 2022 244,376,020 62,520,726 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. Share buy-back There is no current on-market share buy-back. pg 87 Annual Report 2022Note 20. Equity - reserves Foreign currency reserve Share-based payments reserve Movements in reserves Consolidated 2022 $ (98,955) 1,960,861 1,861,906 2021 $ (156,257) 1,856,689 1,700,432 Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2020 Foreign currency translation Share based payments during the year allocated to: Employees and consultants Key Management Personnel Utilised for share issue Balance at 30 June 2021 Foreign currency translation Share based payments during the year allocated to: Employees and consultants Key Management Personnel Utilized for share issue Foreign Currency translation reserve $ Share based payments reserve $ Total $ (65,483) 1,970,286 1,904,803 (90,774) - (90,774) - - - 74,904 8,088 74,904 8,088 (196,589) (196,589) (156,257) 1,856,689 1,700,432 57,301 - 57,301 - - - 134,685 134,685 59,938 (90,450) 59,938 (90,450) Balance at 30 June 2022 (98,956) 1,960,862 1,861,906 Nature and purpose of reserve The foreign currency translation reserve records the impact of the movement of the exchange rate as it relates to the Company’s investment in overseas subsidiaries. The share-based payments reserve records the value of options or performance rights issued to employees, consultants and Directors, as part of the remuneration for their services and issued in consideration for business combinations. pg 88 Aeris Environmental LtdNote 21. Equity - accumulated losses Accumulated losses at the beginning of the financial year Loss after income tax benefit for the year Accumulated losses at the end of the financial year Consolidated 2022 $ (50,663,025) (7,130,427) (57,793,452) 2021 $ (44,795,847) (5,867,178) (50,663,025) Note 22. Equity - non-controlling interest Retained profits Consolidated 2022 $ 3,685 2021 $ 3,685 Note 23. Equity - dividends There were no dividends paid, recommended or declared during the current or previous financial year. pg 89 Annual Report 2022Note 24. Earnings per share Loss after income tax attributable to the owners of Aeris Environmental Ltd Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating diluted earnings per share* Basic earnings per share Diluted earnings per share Consolidated 2022 $ 2021 $ (7,130,427) (5,867,178) Number Number 243,957,661 243,104,095 243,957,661 243,104,095 Cents (2.92) (2.92) Cents (2.41) (2.41) Options and performance rights eligible for conversion into ordinary shares in future Performance rights** Options over ordinary shares issued subsequent to year-end Performance rights issues subsequent to year-end** Number 150,000 550,000 1,068,831 1,768,831 Number 1,011,600 - - 1,011,600 *Options and rights eligible for conversion into ordinary shares in future have an anti-dilutive effect, hence diluted EPS is same as basic EPS. **These performance rights were converted into ordinary shares subsequent to year-end (refer to note 35). pg 90 Aeris Environmental LtdNote 25. Options Set out below are summaries of options granted under the plan: 2022 Unlisted Grant Date Expiry Date Exercise Price 23/12/2016 23/10/2021 $0.42 2021 Unlisted Grant Date Expiry Date 23/12/2016 23/10/2021 30/05/2018 01/03/2021 Exercise Price $0.42 $0.01 Balance at the start of the year 395,000 395,000 Granted Exercised - - - - Expired/ forfeited/ other (395,000) (395,000) Balance at the end of the year - - Balance at the start of the year 495,000 100,000 595,000 Granted Exercised - - - - - - Expired/ forfeited/ other Balance at the end of the year (100,000) 395,000 (100,000) - (200,000) 395,000 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. pg 91 Annual Report 2022 Note 26. Share-based payments 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 arising from share-based payment transactions Details of share-based payment plan Consolidated 2022 $ 2021 $ 104,173 - 104,173 74,904 8,088 82,992 The share-based payment plan is described in the remuneration report in the Directors’ Report. There have been no cancellations or modifications to the plan during 2022 and 2021. 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. pg 92 Aeris Environmental Ltd Particulars of options or performance rights granted over unissued shares: 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 Options Rights 2022 2021 2022 2021 - - - - - - - - - 345,000 50,000 395,000 150,000 - 570,421 441,179 150,000 1,011,600 - - - - - - - - - - - - 107,004 441,179 548,183 300,000 882,358 1,182,358 Options or rights expired or forfeited: Employee and consultants Key management personnel Weighted average remaining contractual life Range of exercise prices 345,000 50,000 395,000 0 years $0.42 200,000 313,417 18,333 - - - 200,000 313,417 18,333 0.32 years 1.07 years 1.04 years $0.42 - - *Robert Waring, who was considered to be a KMP in the previous financial year is now no longer considered to be a KMP at the start of the 2022 financial year. He was the Company Secretary throughout the full year ended 30 June 2022. pg 93 Annual Report 2022 Note 27. Financial instruments Financial risk management objectives 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. 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. 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 pg 94 Aeris Environmental Ltd General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and has the responsibility for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Board receives monthly reports through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below: (i) Credit risk Credit risk arises principally from the Group’s trade receivables, cash and term deposits. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk at balance sheet date is as follows: 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 Consolidated 2022 $ 799,451 292,785 21,999 2021 $ 1,485,009 - 15,271 5,033,419 10,578,975 - 61,395 208,328 6,417,377 7,826 73,145 824,311 12,984,537 pg 95 Annual Report 2022 (ii) Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances (or agreed facilities) to meet expected requirements for a period of at least 45 days. The Board receives cash flow projections on a monthly basis as well as information regarding cash balances. At the balance sheet date, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. Maturity analysis of financial assets and liability based on management’s expectations The risk implied from the values shown in the table below, reflects a balanced view of cash inflows and outflows. Trade payables and other financial liabilities mainly originate from the financing of assets used in our ongoing operations such as property, plant, equipment and investments in working capital (e.g. trade receivables and inventories). These assets are considered in the Group’s overall liquidity risk. Maturity analysis - 2022 Financial assets Cash flows $ <6 months $ 6-12 months $ 1-3 years $ >3 years $ Cash and cash equivalents 5,303,142 5,303,142 Trade and other receivables R&D tax offset rebate receivable Security deposits Financial liabilities Trade payables Other payables including GST and PAYG payable Net Maturity 799,451 292,785 21,999 799,451 292,785 - 6,417,377 6,395,378 (524,578) (524,578) (867,908) (867,908) (1,392,486) (1,392,486) 5,024,891 5,002,892 - - - - - - - - - - - - - - - - - - - - - 21,999 21,999 - - - 21,999 pg 96 Aeris Environmental LtdMaturity analysis - 2021 Financial assets Cash flows $ <6 months $ 6-12 months $ 1-3 years $ >3 years $ Cash and cash equivalents 11,485,616 11,485,616 Trade and other receivables 1,485,009 1,485,009 Security deposits 15,271 - 12,985,896 12,970,625 Financial liabilities Trade payables (1,683,461) (1,683,461) Other payables and accruals (654,230) (654,230) Lease liabilities* (318,338) (38,036) Net Maturity (2,656,029) (2,375,727) 10,329,867 10,594,898 - - - - - - - - - - - - (39,849) (39,849) (39,849) (175,802) (175,802) (175,802) - - 15,271 15,271 - - (64,651) (64,651) (49,380) * Lease liabilities calculated under AASB 16 which is effective from 1 July 2019. pg 97 Annual Report 2022 (iii) Market risk 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: Notes Weighted Average Interest Rates Floating Interest Rates Fixed Interest Rates Non- Interest Bearing Total 2022 Financial assets Cash and cash equivalents Deposits Trade and other receivables Total assets Financial liabilities 8 11 9 0.20% 2.20% 0.00% 5,033,405 - - 5,033,405 Trade and other payables 14 0.00% - 2021 Financial assets Cash and cash equivalents Deposits Trade and other receivables 8 11 9 1.00% 2.20% 0.00% - - - - - - - - - - 269,737 5,303,142 21,999 21,999 1,092,236 1,092,236 1,383,972 6,417,377 (1,392,486) (1,392,486) (8,514) 5,024,891 906,653 11,485,616 15,271 15,271 1,485,009 1,485,009 2,406,933 12,985,896 5,033,405 10,578,963 - - 10,578,963 15, 17 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 10,329,866 Total assets Financial liabilities Lease liabilities Trade and other payables Total liabilities Net financial assets pg 98 Aeris Environmental Ltd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 Carrying Amount +2% Interest Rate Profit or Loss -1% Interest Rate Profit or Loss 2022 Deposits on call Tax charge of 25% 2021 Deposits on call Tax charge of 26% Currency risk 5,033,405 - 5,033,405 10,578,963 - 10,578,963 100,668 (25,167) 75,501 211,579 (55,011) 156,568 (50,334) 12,584 (37,750) (105,790) 27,505 (78,285) 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: 2022 US$ 2021 US$ Cash at bank 42,309 61,277 2022 SGD 9,334 2021 SGD 9,334 33,230 116,852 12,500 12,500 2022 Euro 2021 Euro - - - - 2022 GBP - 6,556 2021 GBP - - (3,081,489) (3,052,244) (5,778) (5,778) (7,457) (5,330) (87,781) (3,695) (3,005,950) (2,874,115) 16,056 16,056 (7,457) (5,330) (81,225) (3,695) Trade and other receivables Trade and other payables 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. pg 99 Annual Report 2022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. Note 28. Key management personnel disclosures Directors The following persons were Directors of Aeris Environmental Ltd during the financial year: Maurie Stang Steven Kritzler Abbie Widin Jenny Harry Michael Ford - Director until 14 December 2021 Other key management personnel The following persons also had the authority and responsibility for planning, directing and controlling the major activities of the consolidated entity, directly or indirectly, during the financial year: Andrew Just (Chief Executive Officer - appointed on 28 March 2022) Peter Bush (Chief Executive Officer until 28 March 2022) Robert Waring, who was considered to be a KMP in the previous financial year is now no longer considered to be a KMP at the start of the 2022 financial year. He was the Company Secretary throughout the full year ended 30 June 2022. pg 100 Aeris Environmental Ltd  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 Consolidated 2022 $ 704,465 54,048 59,838 818,351 2021 $ 591,170 45,654 8,088 644,912 Further, disclosures relating to key management personnel are set out in remuneration report in the Directors’ Report. Note 29. Remuneration of auditors Remuneration of UHY Haines Norton for - Audit of the annual financial report Review of the half yearly financial report Consolidated 2022 $ 2021 $ 35,900 19,576 55,476 31,200 16,200 47,400 Note 30. Contingent liabilities There are no contingent liabilities of the Company or the Group. Note 31. Commitments for expenditure Commitments for manufacturing of inventory within 1 year Consolidated 2022 $ - 2021 $ 487,500 pg 101 Annual Report 2022Note 32. Related party transactions Parent entity Aeris Environmental Ltd is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 34. Key management personnel Disclosures relating to key management personnel are set out in note 28 and the remuneration report included in the Directors’ Report. Transactions with related parties Disclosures relating to transactions with Directors and Director related entities are set out in the remuneration report in the Directors’ Report. Receivable from and payable to related parties There were trade receivables from and trade payables to related parties at the current and previous reporting date, which are set out in the remuneration report in the Directors’ Report. Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. pg 102 Aeris Environmental Ltd Note 33. Parent entity information 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 to 31) Parent 2022 $ 6,936,049 8,086,981 (1,441,009) (1,441,009) 62,520,725 (57,835,612) 1,960,861 6,645,974 (7,136,271) (7,078,970) - Parent 2021 $ 16,107,507 16,548,763 (2,734,030) (2,961,142) 62,430,275 (50,699,342) 1,856,688 13,587,621 (5,798,371) (5,889,145) 487,500 Note 34. Interests in subsidiaries - particulars relating to controlled entities The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1: Name of entity 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 Shanghai Aeris Environmental Technology Co., Ltd Principal place of business / Country of incorporation Ownership Interest 2022 % 2021 % Australia Australia Australia USA Singapore Malta UK China 100.00% 100.00% 100.00% 100.00% 75.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 75.00% 100.00% 100.00% - pg 103 Annual Report 2022Note 35. Subsequent events On 15 July 2022, 550,000 options with an exercise price of $0.01 were issued to consultant Tim Fortin for services performed from June 2021 to January 2022. The options vested on the date of issue and each option may be exercised from the date of issue at any time up until the expiry date of 15 July 2025. On 5 August 2022, former CEO Peter Bush was issued 1,068,531 performance rights, with no exercise price, in accordance with contractual commitments for prior years’ service, which were due to expire (if not converted) at 5pm on 1 July 2023. On 2 September 2022, former CEO Peter Bush was issued 1,068,531 shares on the conversion of his 1,068,531 performance rights that were issued on 5 August 2022 and two consultants were issued a total of 150,000 shares on the conversion of their performance rights that were issued on 9 September 2019. On 2 September 2022, a contractor was issued 50,000 shares as the result of work completed, issued at a deemed issue price of $0.05 per share. There have been no other matters or circumstances, which have arisen since 30 June 2022 that have significantly affected or may significantly affect: (a) the operations, in financial years subsequent to 30 June 2022, of the consolidated entity; (b) the results of those operations; or (c) the state of affairs, in the financial years subsequent to 30 June 2022, of the consolidated entity. Note 36. Reconciliation of loss after income tax to net cash used in operating activities Reconciliation of cash For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statement of cash flows is reconciled in the related items in the statement of financial position as follows: Cash at bank and on hand Deposits on call pg 104 2022 269,737 5,033,405 5,303,142 2021 906,653 10,578,963 11,485,616 Aeris Environmental LtdLoss after income tax benefit for the year Adjustments for: Depreciation and amortisation Impairment of current assets Interest on lease liability Share-based payments Other adjustments Change in operating assets and liabilities: Decrease in trade and other receivables Decrease/(increase) in inventories Decrease/(increase) in other operating assets Decrease in trade and other payables Increase/(decrease) in employee benefits Increase in other creditors and accruals Net cash used in operating activities Consolidated 2022 $ (7,130,427) 2021 $ (5,867,178) 99,851 1,594,891 7,125 104,172 90,450 156,154 184,101 63,349 (946,301) (330,721) - 132,552 1,462,697 16,850 82,992 38,000 3,864,817 (516,038) (104,988) (587,000) 99,535 97,823 (6,107,356) (1,279,938) Note 37. Additional company information Aeris Environmental Ltd is a public listed company, incorporated in Australia. Principal registered office and principal place of business 5/26-34 Dunning Avenue ROSEBERY NSW 2018 pg 105 Annual Report 2022Directors’ Declaration 30 June 2022 pg 106 Aeris Environmental LtdIn the Directors’ opinion: • • • • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the consolidated entity’s financial position as at 30 June 2022 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 Directors Maurie Stang Sydney 30 September 2022 Non-Executive Chairman pg 107 Annual Report 2022 Independent Auditor’s Report to the members of Aeris Environmental Ltd pg 108 Aeris Environmental Ltd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 2022, 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 2022 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. Material Uncertainty Related to Going Concern We draw attention to Note 1 of the financial report, which discloses the Group’s ability to continue as a going concern. The matters described in Note 1 of the Financial Report, indicate a material uncertainty that may cast doubt on the Group’s ability to continue as a going concern and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report. Our opinion is not modified in respect of this matter. 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. 61 Passion beyond numbers pg 109 Annual Report 2022 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. We have determined the matters described below to be the key audit matters to be communicated in our report. PROVISION FOR INVENTORY OBSOLESCENCE Why a key audit matter How our audit addressed the risk As disclosed in Note 10 of the financial report, the Group recorded an inventory balance of $1.26 million as at 30 June 2022, net of provision for obsolescence. Impairment expense balance of $1.37 million for FY22 is disclosed within Note 6 of the financial report. Inventory obsolescence has been identified as a major risk due to the fact that the significant amounts of Group holds inventory that is obsolete, as most of the inventory has use by dates and the sales for these line items are not sufficient to clear the number of stock items held by the use by date. Our procedures included, amongst others: for ► We discussed with management the accounting policies impairment of inventory and their procedures for estimating the provision for impairment and assessed the appropriateness of these policies in accordance with the requirements of the Australian Accounting Standards. ► Performed substantive on management’s stock obsolescence as at 30 June 2022, including the testing of ageing, the use by date and forecasted sales. testing of assessment RECOVERABILITY OF TRADE RECEIVABLES Why a key audit matter How our audit addressed the risk As disclosed in Note 9 of the financial report, trade receivable balance of $0.80 million as at 30 June 2022, net of expected credit losses. recorded a the Group The gross trade receivables balance has decreased from $1.85 million as at 30 June Our procedures included, amongst others: ► Reviewed aged debtor listing including long outstanding receivables and assessed the recoverability of these through inquiry with management and by obtaining sufficient 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. 62 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 pg 110 Aeris Environmental Ltd 2021 to $1.01 million as at 30 June 2022. The allowance for expected credit losses has decreased from $0.36 million as at 30 June 2021 to $0.21 million as at 30 June 2022. Valuation of trade receivables is a key audit matter due to the size of the trade receivable balance and the high level of management in judgement determining loss provision. used the expected credit GOING CONCERN corroborative evidence such as subsequent receipts etc. to support the conclusions. ► Reviewed management’s allowance for calculations and loss expected independently assessed the reasonable of the amounts provided for. credit ► Reviewed subsequent credit notes issued to check for reversal of revenue/receivable. Why a key audit matter How our audit addressed the risk The Group has had a history of making losses. The net loss after tax for 2022 was $7.13 million (2021: loss of $5.87 million). Therefore, there is a risk that the Group may not have the ability to continue as a going concern. At 30 June 2022, the Group had $5.30 million (2021: $11.49 million) of cash in the bank. The net cash outflow from operating activities in 2022 was $6.11 million (2021: outflow of $1.28 million). A key audit matter is the Group’s ability to continue as a going concern. Our audit procedures included, amongst others: ► Assessed the cash flow projections for 15 months from the end of the financial year ended 30 June 2022. ► Assessed the significant forecast cash flows including cost reductions executed post 30 June 2022. We used our knowledge of the Group, its industry and current status of these initiatives to assess the level of the associated uncertainty. ► Discussed with management the forecast cash flows and the cost reductions executed post 30 June 2022. the financial the Group’s going concern ► Evaluated disclosures report by in comparing them to our understanding of the matter, conditions events incorporated into the cash flow projection assessment, the Group’s plans to address those events or conditions, and accounting standards requirements. the or 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. 63 Passion beyond numbers pg 111 Annual Report 2022 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 2022, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence 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 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. 64 Passion beyond numbers pg 112 Aeris Environmental Ltd involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. 65 Passion beyond numbers pg 113 Annual Report 2022 Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 24 to 38 of the directors’ report for the year ended 30 June 2022. In our opinion, the Remuneration Report of Aeris Environmental Ltd for the year ended 30 June 2022, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Mark Nicholaeff Partner Sydney 30 September 2022 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. 66 Passion beyond numbers pg 114 Aeris Environmental Ltd pg 115 Annual Report 2022Australian Securities Exchange (ASX) Additional Information pg 116 Aeris Environmental Ltd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 Register, ASX releases and the Company’s Constitution. SHAREHOLDING INFORMATION Distribution of Shareholders Analysis of the quoted fully paid ordinary shares by holding as at 26 September 2022: 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 180 349 229 507 147 25 45 93,304 1,039,034 1,840,945 18,335,413 33,620,820 17,554,138 173,160,897 0.04 0.42 0.75 7.46 13.69 7.15 70.49 1,482 245,644,551 100.00 Based on the market price at 26 September 2022 there were 801 shareholders with less than a marketable parcel of $500 worth of shares at a share price of $0.04. There are 117,000 shares that are subject to Company-imposed voluntary escrow. pg 117 Annual Report 2022Statement of Shareholdings as at 26 September 2022 The names of the 20 largest holders of fully paid ordinary shares are listed below: Rank Shareholder Number of Shares % Holding 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 National Nominees Limited J P Morgan Nominees Australia Pty Limited Maurie Stang Stang Family Holding Co Pty Ltd Steven Kritzler Bernard Stang Girdis Superannuation Pty Ltd Potski Pty Ltd Energy Trading Systems Pty Ltd Kefford Holdings Pty Ltd Meditsuper Pty Ltd Development Management & Constructions Pty Ltd Seguro Super Pty Ltd Towns Corporation Pty Ltd Bennelong Resources Pty Limited Lotsa Nominees Pty Ltd Benlee Company Pty Ltd Dillon Ventures Pty Ltd Steven Kritzler BNP Paribas Noms Pty Ltd 18,372,993 16,899,999 15,279,749 11,083,084 8,331,609 6,960,000 6,922,828 6,917,604 5,529,411 4,738,610 4,272,281 4,247,353 4,105,695 3,909,000 3,500,000 3,333,333 3,168,283 3,142,068 2,921,176 2,827,706 7.48 6.88 6.22 4.51 3.39 2.83 2.82 2.82 2.25 1.93 1.74 1.73 1.67 1.59 1.42 1.36 1.29 1.28 1.19 1.15 Total of Top 20 Holdings 136,462,782 Other Holdings 109,181,769 Total Ordinary Shares 245,644,551 55.55 44.45 100.00 pg 118 Aeris Environmental LtdUNQUOTED EQUITY SECURITIES as at 26 September 2022 For details of the unissued ordinary shares of the Company, refer below and to the “Share Options” section of the Directors’ Report. Number Class – Options Number of Holders 550,000 Options issued to consultant Timothy Fortin on 15 July 2022, which vested on the date of issue, and which expire (if not exercised) on 15 July 2025, and have an exercise price of 1 cent. 550,000 Total Options on Issue 1 1 VOTING RIGHTS At general meetings of the Company, all fully paid ordinary shares carry one vote per share without restriction. On a show of hands, every member present at such meetings, or by proxy, shall have one vote and, upon a poll, each share shall have one vote. Option holders have no voting rights until their options are exercised into shares. SUBSTANTIAL SHAREHOLDERS as at 26 September 2022 Substantial shareholders in Aeris Environmental Ltd, based on Substantial Shareholder Notices received by the ASX and the Company, are as follows: Name Maurie Stang Bernard Stang Number Class Voting Power 23,881,819 Ordinary fully paid shares 20,253,664 Ordinary fully paid shares Perennial Value Management Limited 19,332,848 Ordinary fully paid shares ON-MARKET BUY-BACK There is no current on-market buy-back of shares in the Company. 9.86% 8.36% 7.91% pg 119 Annual Report 2022Corporate Directory pg 120 Aeris Environmental LtdAeris Environmental Ltd 093 977 336 ACN: 19 093 977 336 ABN: Directors Maurie Stang Steven Kritzler Abbie Widin Jenny Harry Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer Andrew Just Company Secretary Robert Waring Registered and Principal Office Unit 5, Level 1, 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 Auditor UHY Haines Norton Sydney Level 11, 1 York Street, Sydney NSW 2000 GPO Box 4137, Sydney NSW 2001 + 61 2 9256 6600 Telephone: www.uhyhnsydney.com.au Website: Share Registry Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street, Abbotsford VIC 3067 Australia GPO Box 2975, Melbourne VIC 3001 Australia Stock Exchange The Company’s fully paid ordinary shares are quoted on the official list of the Australian Securities Exchange (ASX Limited). 1300 850 505 (within Australia) +61 3 9415 4000 (outside Telephone: Telephone: Australia) Facsimile: Website: Investor Link: www.investorcentre.com/au +61 3 9473 2500 www.computershare.com ASX Code AEI pg 121 Annual Report 2022 pg 122 Aeris Environmental Ltd