1414 Degrees
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 18/19 CORPORATE DIRECTORY CURRENT DIRECTORS Kevin Moriarty - Executive Chairman Robert Shepherd - Non Executive Director Dana Larson - Non Executive Director SOLICITORS HWL Ebsworth Lawyers Level 21, 91 Kin William Street Adelaide SA 5000 COMPANY SECRETARY Richard Willson REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS 1414 Derees Limited Level 4, 81 Flinders Street Adelaide SA 5000 Telephone: +61 8 8357 8273 SHARE REGISTRY Computershare Investor Services Pty Limited Level 5, 115 Grenfell Street Adelaide SA 5000 Telephone: +61 3 9415 4000 Website: www.computershare.com.au STOCK EXCHANGE 1414 Derees Limited shares are quoted on the Australian Securities Exchane (ASX:14D) Wallmans Lawyers Level 5, 400 Kin William Street Adelaide SA 5000 PATENT & TRADE MARK ATTORNEYS Madderns Level 4, 19 Gouer Street Adelaide SA 5000 AUDITOR BDO Advisory (SA) Pty Ltd Level 7, 420 Kin William Street Adelaide SA 5000 WEBSITE www.1414derees.com.au We are deliverin. Thank you for your support and commitment to the rowth of our Company. 1414 DEGREES LIMITED | ANNUAL REPORT 18/19 Global opportunities continue to be presented to us and we are rowin our 21 stron team on both a technical and corporate level. Thank you for your support and commitment. Many shareholders have assisted us to realise our potential with referrals, notes of acknowledement and by sharin enthusiasm for the rowth of 1414 Derees. Your Company is well positioned to enable and benefit from the transition to a rowin renewable enery market. Our enery solutions will lower costs and carbon risk, providin positive economic and environmental outcomes for shareholders and the wider community. Yours sincerely, DR KEVIN MORIARTY EXECUTIVE CHAIRMAN Chairman's Letter to Shareholders At the same time, increased lare scale renewable eneration comin onto the electricity rid has led to fallin prices for lon term power purchase areements (PPAs), and increased opportunities for storae to earn revenues from arbitrae. The key outcome for shareholders has been your Company brinin forward the plans outlined in the prospectus, to sell enery supply solutions for customers. Our thermal enery storae will be at the core of each tailored enery supply areement for heat and electricity customers. Renewable enery will be sourced either locally or throuh PPAs over the electricity network, and converted to heat for the customer or traded on the rid creatin multiple sources of revenue. As also outlined in the prospectus, your Company will partner with retail and financin entities to deliver solutions to these customers. Our recently announced areements with Enova Enery, Ampcontrol and BE Power are intended to develop solutions for the Stone and Wood brewery in New South Wales, and a Nectar Farms reenhouse in South Australia, followin feasibility studies. Realisation of these projects or others under consideration will provide a stron foundation for commercialisation of the electrically chared TESS up to iawatt hour scale. Our as fired enery storae system (GAS-TESS) will enable a different revenue model based on direct sales to wastewater treatment utilities and industries includin dairies and food processors, backed by operation and maintenance areements. Your Company continues to develop its people and culture to deliver our vision. Dr Kevin Moriarty Executive Chairman Dear Shareholders, I am pleased to report that your Company has continued its rowth trajectory, focused on the interation of storae for a viable renewable enery future – both within Australia and internationally. We have been deliverin on the objectives outlined in the IPO prospectus a year ao, adaptin them where necessary to accommodate a chanin enery market. The core focus for your Company is to develop its enery storae technoloy and prove it in operational sites. This is proressin well, with the GAS-TESS now operatin at SA Water’s Glenel Wastewater Treatment Plant, and the recently announced new pilot sites and partnerships that will allow us to prove viability of the TESS-IND and the TESS-GRID. Our revenue strateies have been adapted to accommodate developments in the National Electricity Market alonside the fallin market for renewable enery certificates. The latter underpinned the economic model for the installation of renewable eneration on the sites of heat customers, includin packain manufacturers and the poultry industry.                 1414 DEGREES LIMITED | ANNUAL REPORT 18/19 Corporate Governance 1414 Derees Limited and the Board are committed to achievin and demonstratin the hihest standards of corporate overnance. The Company has reviewed its corporate overnance practices aainst the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. The 2019 Corporate Governance Statement is dated as at 30 June 2019 and reflects the corporate overnance practices in place throuhout the 2019 financial year. The 2019 Corporate Governance Statement has been approved by the Board. A description of the Company’s current corporate overnance practices is set out in the Corporate Governance Statement which can be viewed at www.1414derees.com.au 1414 DEGREES LIMITED ACN 138 803 620 ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 CONTENTS Directors' Report Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Cash Flows Statement of Changes in Equity Notes to the Financial Statements Directors' Declaration Independent Auditor's Report Page 1 9 10 11 12 13 26 27 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2019 Page 1 The directors of 1414 Degrees Limited present their report on the company for the financial year ended 30 June 2019. DIRECTORS The following persons were directors of 1414 Degrees Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Kevin Charles Moriarty - Chairman Robert John Keith Shepherd Dana Larson COMPANY SECRETARY Richard Willson PRINCIPAL ACTIVITIES 1414 Degrees Limited is commercialising bulk energy storage solutions to transform intermittent renewable generation into baseload electricity and decarbonise heat supply. Its technology uses renewable electricity or biogas to provide combined heat and power solutions for consumers while stabilising electricity grids. Its silicon-based thermal energy storage devices provide compact solutions with the advantages of scalability, low cost, long life and flexible placement. DIVIDENDS No dividends have been paid during or since the financial year ended 30 June 2019. REVIEW OF OPERATIONS A summary of economic revenues and results is set out below: The Company’s technology continued to receive enquiries from Australian and global companies and utilities, attracted by the ability to provide a combination of base load heat and electric power sourced from renewables. The future of the company as a provider of combined heat and power solutions to lower costs for consumers came more sharply into focus. This contrasts with other storage that focus solely on electricity - a smaller market than heat. Large scale electrification of heat energy could make this Company a market leader, reducing emissions for a much greater market segment than electricity generation and consumption. Preliminary commissioning of a full sized electrically charged TESS-IND prototype was completed in late 2018 at the Company’s facility at Southlink Industrial Park. Two turbine runs of three and eight hours, powered from stored energy, were verified by Bureau Veritas Asset Integrity and Reliability Services Pty Ltd. A full test of capability was deferred pending installation of a fully insulated, redesigned TESS-IND MkII at a commercial site with heat demand. The Company continued to evaluate commercial sites for TESS, particularly those that are currently using LPG because of the favourable financials. It entered into an arrangement with Austcor’s majority shareholder, ABBE Corrugated Pty Ltd to undertake studies for a pilot TESS at their Victorian plant. That plant uses network gas and the project is still under consideration. The proposed TESS hot water supply for Pepe’s Ducks is still under consideration. In December the GAS-TESS components were moved from Southlink Industrial Park to the Company’s first commercial test site at SA Water’s Glenelg Wastewater Treatment Plant. In March the GAS-TESS was commissioned and entered into an extended period of characterisation test runs. The GAS-TESS reached operating temperature and started generating electricity and heat for the wastewater treatment plant very quickly considering it is the first build of the technology. Augmentations to enhance performance will be determined following several months of operational testing. The business development team continues to refine commercial revenue models for the electrically charged TESS, focusing on the conversion of intermittent renewable electricity supply into on-demand heat and electricity for consumers. These indicate favourable revenue outcomes for the foreseeable future at appropriate sites. The analysis is being extended to small and large sites that have been proposed to the company by consumers. The team has also been developing business models and agreements for TESS units in conjunction with a community retailer, and progressed assessments of large heat consuming industries located near sub stations on the national electricity network. High level modelling, based on low-cost power purchase agreements and energy trading, projects positive revenues for the company and lower energy costs for the industrial consumers. This modelling continues to be refined and extended to encompass future energy market scenarios. Research and development activity focused on lower cost thermal storage and higher efficiency. The intention is to achieve very large-scale silicon storage with decreasing cost per unit of stored energy. During the financial year the company completed its IPO and listed on the Australian Securities Exchange (ASX). SIGNIFICANT CHANGES IN STATE OF AFFAIRS In the twelve month period ending 30 June 2019 the company issued 46,680,977 shares raising $16,143,155.00. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR Nil. ENVIRONMENTAL REGULATION The company is not subject to significant environmental regulations and is not aware of any breaches of any environmental regulations during the year. 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2019 Page 2 MEETINGS OF DIRECTORS The number of meetings of the board of directors (including board committees) held during the year ended 30 June 2018, and the number of meetings attended by each director are set out below: Directors Kevin Moriarty Robert Shepherd Dana Larson Board Committee Held Attended Held Attended 7 7 7 7 7 7 0 0 0 0 0 0 INFORMATION ON DIRECTORS Name: Title: Qualifications: Kevin Moriarty Executive Chairman BSc (Hons), Ph.D., MAusIMM Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Contractual rights to shares: Kevin has over 40 years of mining and oil exploration and development experience and 29 years of corporate experience in roles including Chairman and Managing Director of listed companies. He founded and led several companies to develop mines in Australia and Africa. He has served as director and chairman of a number of ASX listed companies guiding their restructure and relisting. He has researched deep sea sediments, cave and fossil deposits and published papers on climate change as an honorary research fellow of Flinders University and the Australian National University. None None 12,403,000 ordinary shares None None Name: Title: Qualifications: Robert Shepherd Non-Executive Director FIPA, CTA, JP Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Contractual rights to shares: Robert is a qualified accountant who has practised for 49 years as a public accountant specialising in income tax compliance and company administration. He has owned and managed his own practice with a clientele ranging from primary producers, small business retail clients and medium sized businesses. He has had local Government experience and held a senior executive position for several years in a national sporting body in addition to operating his accounting practice. He is a founding investor and director of 1414 Degrees from its incorporation, involved in management, administration and has provided significant funding through the development of the Company. None None 7,107,594 ordinary shares None None Name: Title: Qualifications: Dana Larson Non-Executive Director B.Sc Chemical and Petroleum Engineering Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Contractual rights to shares: Dana is an energy expert with 16 years’ of experience primarily focusing on acquisitions, reservoir engineering, financial modelling, and engineering management. He has a passion for cultivating a culture of success and for leveraging technical knowledge to create and optimise value for companies. He consults for hedge funds and wealthy individuals on exploration & production, mining, and renewable energy and is currently running an energy acquisition and divestiture consultancy. None None 250,000 ordinary shares None None 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2019 Page 3 COMPANY SECRETARY Richard Willson is an experienced, Non-Executive Director, Company Secretary and CFO with more than 20 years’ experience predominantly within the mining and agricultural sectors for both publicly listed and private companies. Richard has a Bachelor of Accounting from the University of South Australia, is a Fellow of CPA Australia, and a Fellow of the Australian Institute of Company Directors. He is a Non-Executive Director of Titomic Limited (ASX:TTT), AusTin Mining Limited (ASX:ANW), Thomson Resources Limited (ASX:TMZ), Graphene Technology Solutions Limited, Unity Housing Company Limited, and Variety SA; and Company Secretary of a number of ASX Listed Companies. Richard is the Chairman of the Audit Committee of Titomic Limited, AusTin Mining Limited, and Unity Housing Company, and is the Chairman of the Remuneration & Nomination Committee of Titomic Limited. REMUNERATION REPORT (AUDITED) The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: ● ● ● ● Principles used to determine the nature and amount of remuneration Details of remuneration Employment agreements Share-based compensation Additional disclosures relating to key management personnel ● Principles used to determine the nature and amount of remuneration The objective of the consolidated entity's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: ● ● ● ● competitiveness and reasonableness acceptability to shareholders performance linkage / alignment of executive compensation transparency The Board is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the Company depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The Board has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the Company. The reward framework is designed to align executive reward to shareholders' interests. The Board have considered that it should seek to enhance shareholders' interests by: ● having economic profit as a core component of plan design ● ● focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value attracting and retaining high calibre executives Additionally, the reward framework should seek to enhance executives' interests by: ● ● ● rewarding capability and experience reflecting competitive reward for contribution to growth in shareholder wealth providing a clear structure for earning rewards In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Non-executive directors’ remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. The Board may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. The chairman's fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market . Non-executive directors do not receive share Performance Rights or other incentives. ASX listing rules require the aggregate non-executive directors' remuneration be determined periodically by a general meeting. The maximum annual aggregate remuneration for non-executive directors has been set at $300,000.   1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2019 Page 4 Executive remuneration The Company aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has three components: ● ● ● base pay and non-monetary benefits share-based payments other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. The Company has a Performance Rights Plan under which it can issue Performance Rights to staff and executives. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the Company are set out in the following tables. The key management personnel of the Company consisted of the following directors of 1414 Degrees Ltd: ● ● ● Robert Shepherd - Non-Executive Director Dana Larson - Non-Executive Director Kevin Moriarty – Executive Chairman and Chief Executive Officer And the following persons: ● ● ● Penelope Bettison - Head of Corporate Services Richard Willson - Company Secretary Jordan Parham - Chief Operating Officer (appointed on 14 January 2019) Short-term benefits Post- employment benefits Long-term benefits Share-based payments Cash salary and fees Cash bonus Non- monetary Super- annuation Long service leave Equity- settled shares Equity- settled Performance Rights Total 2019 $ $ $ $ $ $ $ $ Non-Executive Directors: Robert Shepherd Dana Larson * Executive Directors: 32,167 23,333 Kevin Moriarty (Chairman) 297,749 Other Key Management Personnel: Penelope Bettison Richard Willson Jordan Parham ** 195,750 106,400 99,000 754,399 - - - - - - - - - - - - - - 3,056 - - - 20,479 6,046 18,525 9,386 8,716 60,162 3,795 954 1,891 12,686 - - - - - - - - - - 35,223 23,333 324,275 11,341 869 14,183 26,393 229,412 117,609 123,790 853,641 * ** Represents remuneration from 1 December 2018 to 30 June 2019 Represents remuneration from 14 January 2019 to 30 June 2019 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2019 Page 5 Short-term benefits Post- employment benefits Long-term benefits Share-based payments Cash salary and fees Cash bonus Non- monetary Super- annuation Long service leave Equity- settled shares Equity- settled Performance Rights Total 2018 $ $ $ $ $ $ $ $ Non-Executive Directors: Robert Shepherd Dana Larson Executive Directors: Kevin Moriarty (Chairman) Matthew Johnson Other Key Management Personnel: Penelope Bettison Richard Willson Employment agreements - - 80,710 79,575 160,024 91,557 411,866 - - - - - - - - - - - - - - - - - - - 50,000 6,938 - 13,991 8,177 29,105 315 - 410 262 987 - - - - 50,000 - - - - - - - - 50,000 87,963 79,575 174,424 99,996 491,957 Remuneration and other terms of employment for key management personnel are formalised in employment agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: Term of agreement: Details: Robert Shepherd Non-Executive Director 11 September 2009 Ongoing Director fee for the year ending 30 June 2019 of $40,000 plus superannuation. Name: Title: Agreement commenced: Term of agreement: Details: Dana Larson Non-Executive Director 1 December 2018 Ongoing Director fee for the year ending 30 June 2019 of $40,000. Name: Title: Agreement commenced: Term of agreement: Kevin Moriarty Executive Chairman and Chief Executive Officer 1 January 2018 2 years Details: Base salary for the year ending 30 June 2019 of $150,000 plus superannuation before IPO and 295,000 plus superannuation after IPO. 6-month termination notice by either party. Name: Title: Agreement commenced: Term of agreement: Details: Name: Title: Agreement commenced: Term of agreement: Details: Penelope Bettison Head of Corporate Services 1 March 2019; varied from previous fixed term agreement Ongoing Base salary for the year ending 30 June 2019 of $195,000 plus superannuation. 3 month termination notice by either party. Issue of Performance Rights to the value of $101,995, vesting after 12 months subject to meeting performance criteria 1 : 14D Shares achieving a 30 Day VWAP of $0.70 by 31/12/2019 and criteria 2 : 14D Shares achieving a 30 day VWAP of $1.00 by 31/12/2020. Richard Willson Company Secretary 19 October 2017; varied effective 1 February 2019 Ongoing Base salary for the year ending 30 June 2019 of $62,400 plus superannuation,. 3 month termination notice by either party. Issue of Performance Rights to the value of $7, 261, vesting after 12 months subject to meeting performance criteria 1 : 14D Shares achieving a 30 Day VWAP of $0.70 by 31/12/2019 and criteria 2 : 14D Shares achieving a 30 day VWAP of $1.00 by 31/12/2020. 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2019 Page 6 Employment agreements (Continued) Name: Title: Agreement commenced: Term of agreement: Details: Jordan Parham Chief Operating Officer 14 January 2019 Ongoing Base salary for the year ending 30 June 2019 of $195,000 plus superannuation. 3 month termination notice by either party. Issue of Performance Rights to the value of $45,750, vesting after 12 months subject to meeting performance criteria 1 : Successful performance review on 15/01/2020 and criteria 2 : Successful test of specific R&D activities by 31/12/2019. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2019 Performance Rights The terms and conditions of each grant of Performance Rights ("PR") over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Name Penelope Bettison Richard Willson Jordan Parham Number of PR granted 250,000 500,000 25,000 25,000 100,000 100,000 Grant date Vesting date Expiry date Exercise price 2-Apr-19 2-Apr-19 2-Apr-19 2-Apr-19 2-Apr-19 2-Apr-19 15-Jan-21 15-Jan-22 15-Jan-21 15-Jan-22 14-Jan-20 14-Jan-20 15-Jan-21 15-Jan-22 15-Jan-21 15-Jan-22 14-Jan-20 14-Jan-20 - - - - - - Fair value per PR at grant date $0.2161 $0.2351 $0.2161 $0.2351 $0.3050 $0.3050 PR granted carry no dividend or voting rights. None of the performance rights in the table are currently vested and therefore cannot be exercised. All PR were granted over unissued fully paid ordinary shares in the company. The number of PR granted was determined having regard to the satisfaction of performance measures and weightings as described above in the section 'Company performance and link to remuneration'. PR vest based on the provision of service over the vesting period whereby the executive becomes beneficially entitled to the option on vesting date. PR are exercisable by the holder as from the vesting date. There has not been any alteration to the terms or conditions of the grant since the grant date. There are no amounts paid or payable by the recipient in relation to the granting of such PR other than on their potential exercise. Values of PR over ordinary shares granted, exercised and lapsed for directors and other key management personnel as part of compensation during the year ended 30 June 2019 are set out below: Name Penelope Bettison Richard Willson Jordan Parham Company performance link to remuneration Value of PR granted during the year $ Value of PR exercised during the year $ Value of PR Remuneration consisting of PR for the year % lapsed during the year $ 101,995 7,261 45,750 155,006 - - - - - - - - 5% 1% 11% 17% The remuneration of key management personnel is linked to the development of the company’s intangible assets, the company completing its IPO and the continued progress towards developing the pilot TESS plants as described in the review of operations. 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2019 Page 7 Other transactions with key management personnel and their related parties Merchant Accounting, a company related to Robert Shepherd, charged accounting fees of $6,000 during the year and no balance relating to these charges was outstanding at 30 June 2019. All transactions were made on normal commercial terms and conditions and at market rates. This Accounting fee was recognised as an expense in the period. This concludes the remuneration report, which has been Audited. Additional disclosures relating to key management personnel Shareholding The number of shares in the company held during the financial year by each director and other members of key management personnel of the Company, including their personally related parties, is set out below: Ordinary shares Robert Shepherd Dana Larson Kevin Moriarty Penelope Bettison Richard Willson Jordan Parham Balance at the start of the year Received as part of remuneration Additions Disposals/ other 7,107,594 250,000 12,403,000 1,000,000 - - 20,760,594 - - - - - - - - - - - - - - - - - - - - - Balance at the date of this report 7,107,594 250,000 12,403,000 1,000,000 - - 20,760,594 Performance Rights holding The number of PR over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the Company, including their personally related parties, is set out below: PR over ordinary shares Penelope Bettison Richard Willson Jordan Parham Balance at the start of the year Granted Exercised - - - - 750,000 50,000 200,000 1,000,000 Expired/ forfeited/ other Balance at the date of this report - - - - - - - - 750,000 50,000 200,000 1,000,000 None of the performance rights in the table above are currently vested and therefore cannot be exercised. 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2019 Page 8 INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS No indemnities have been given or insurance premiums paid, during or since the end of the financial year, for any person who is or has been an auditor of 1414 Degrees Limited. To the extent permitted by law, the Company has indemnified (fully insured) each director and the secretary of the Company for a premium of $56,000. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings (that may be brought) against the officers in their capacity as officers of the Company or a related body, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a willful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave 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. NON-AUDIT SERVICES Details of the amounts paid or payable to the auditor for non-audit services provided by the auditor are outlined in note 7 to the financial statements. The amounts is Nil during the financial year. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 49 to the financial statements do not compromise the external auditor's independence ● ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF ACCOUNTING FIRM BDO There are no officers of the company who are former partners of Accounting Firm BDO. AUDITOR'S INDEPENDENCE DECLARATION A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. AUDITOR Accounting Firm BDO continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. Kevin Moriarty Executive Chairman Adelaide Dated this 30th day of August 2019 1414 DEGREES LIMITED ACN 138 803 620 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 Other Income Administration and Professional Expenses Occupancy Expenses Marketing Expenses Depreciation and Amortisation Employee Benefits Expense Share Based Payments (Equity-settled) Directors Fees Other Expenses Finance Costs IPO Expense (Loss) before income tax Income tax benefit / (expense) (Loss) for the year Other comprehensive income for the year Items that will be reclassified subsequently to profit Total comprehensive (loss) for the year Basic loss per share Diluted loss per share Note 5 6 6 8 16 16 Page 9 2019 AUD$ 2018 AUD$ 298,820 63,387 926,439 365,709 218,528 33,658 1,567,347 103,339 53,333 700,113 74,507 526,662 (4,270,815) - (4,270,815) 566,136 419,547 165,142 24,533 1,311,411 2,173,765 79,575 808,137 - - (5,484,860) - (5,484,860) - - - - - - (4,270,815) (5,484,860) (2.58) cents (2.58) cents (5.03) cents (5.03) cents The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 1414 DEGREES LIMITED ACN 138 803 620 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 Note 9 10 11 12 13 14 15 17 Page 10 2019 AUD$ 2018 AUD$ 9,721,192 2,448,344 216,215 12,385,751 928,242 2,480,610 406,015 3,814,867 135,487 5,109,045 5,244,532 17,630,283 139,614 2,174,579 2,314,193 6,129,060 485,316 126,031 611,347 1,115,303 63,505 1,178,808 93,005 93,005 704,352 - - 1,178,808 16,925,931 4,950,252 29,097,294 123,111 (12,294,474) 16,925,931 12,954,139 19,772 (8,023,659) 4,950,252 ASSETS Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-current assets Property, plant and equipment Intangible Assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Provision for employee benefits Total current liabilities Non-current liabilities Provision for employee benefits Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Share Based Payments Reserve Accumulated losses Total equity The above statement of financial position should be read in conjunction with the accompanying notes. 1414 DEGREES LIMITED ACN 138 803 620 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019 Cash flows from operating activities Cash received from customers Cash paid to suppliers and employees Government grants Interest received Interest paid Net cash inflow/(outflow) from operating activities Cash flows from investing activities Purchase of property, plant and equipment Payments for product development activities Government grant received and used for intangible asset Research and development tax offset received and used for intangible asset Net cash inflow/(outflow) from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Transaction costs related to issues of shares or options Proceeds from exercise of share options Proceeds from the issue of shares Net cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Net foreign exchange differences Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Note 18 9 The above statement of cash flows should be read in conjunction with the accompanying notes. Page 11 2019 AUD$ 2018 AUD$ 8,250 (4,291,809) 60,273 163,770 (74,507) (4,134,023) 51,257 (3,182,962) 9,290 - (3,122,416) (29,531) (6,068,625) 430,930 2,568,476 (3,098,750) (164,146) (5,161,873) 1,461,070 459,748 (3,405,201) 1,335,493 (1,335,493) (315,839) 31,657 16,306,690 16,022,508 8,789,735 3,215 928,242 9,721,192 - - - - 5,847,854 5,847,854 (679,763) - 1,608,005 928,242 1414 DEGREES LIMITED ACN 138 803 620 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 Page 12 Contributed equity $ Share Based Payments Reserve $ Accumulated Losses $ Total equity $ At 1 July 2017 5,066,285 386,007 (3,038,799) 2,413,493 Loss for the year Other comprehensive income Total comprehensive income for the year - - - - - - (5,484,860) - (5,484,860) (5,484,860) - (5,484,860) Transactions with owners in their capacity as owners Share Based Payments - shares granted and issued in the year Share Based Payments - annual expense for pre-existing arrangements Share Based Payment - cancellation without replacement Share Based Payment - cancellation with replacement shares Contributions of equity net of transaction costs At 30 June 2018 Loss for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Dividends paid Employee Share Scheme - Performance Rights Issue Contributions of equity net of transaction costs At 30 June 2019 90,000 - - 1,950,000 5,847,854 7,887,854 - 8,402 (116,541) (258,096) - (366,235) - - 500,000 - - 500,000 90,000 8,402 383,459 1,691,904 5,847,854 8,021,619 12,954,139 19,772 (8,023,659) 4,950,252 - - - - - - (4,270,815) - (4,270,815) (4,270,815) - (4,270,815) - - 16,143,155 16,143,155 - 103,339 - 103,339 - - - - - 103,339 16,143,155 16,246,494 29,097,294 123,111 (12,294,474) 16,925,931 The above statement of changes in equity should be read in conjunction with the accompanying notes. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Page 13 NOTE 1 CORPORATE INFORMATION The financial statements of 1414 Degrees Limited for the year ended 30 June 2019 were authorised for issue in accordance with a resolution of the directors on 20 August 2019 and cover the company as required by Australian Accounting Standards. The financial statements are presented in the Australian currency. 1414 Degrees Limited is a company limited by shares incorporated and domiciled in Australia. The address of the company's registered office and principal place of business is Level 4, 81 Flinders Street, Adelaide SA 5000.  NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation These financial statements are general purpose financial statements prepared in accordance with Australian Accounting Standards, Australian Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board. The company is a for-profit company for financial reporting purposes under Australian Accounting Standards. 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. The financial statements have been prepared on an accruals basis and are based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied. Amounts have been rounded to whole dollars. The following significant accounting policies have been adopted in the preparation and presentation of the financial statements. The accounting policies have been consistently applied, unless otherwise stated. (b) Other Income Recognition All revenue is stated net of the amount of goods and services tax (GST). Grant Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the company will comply with all the attached conditions. Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to intangible assets are deducted from the cost of the asset. Interest Interest is recognised as interest accrues using the effective interest method. The effective interest method uses the effective interest rate which is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial asset. (c) Goods and Services Tax (GST) Revenues and expenses are recognised net of GST except where GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Page 14 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Income Tax The income tax expense for the period is the tax payable on the current period's taxable income based on the national income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax base of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for all temporary differences, between carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, at the tax rates expected to apply when the assets are recovered or liabilities settled. Exceptions are made for certain temporary differences arising on initial recognition of an asset or a liability if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit. Deferred tax assets are only recognised for deductible temporary differences and unused tax losses if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax balances relating to amounts recognised directly in other comprehensive income are also recognised in other comprehensive income. (e) Impairment of Assets At the end of each reporting period, the company assesses whether there is any indication that individual assets are impaired. Where impairment indicators exist, recoverable amount is determined and impairment losses are recognised in profit or loss where the asset's carrying value exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purpose of assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The intangible asset that is not yet ready for use is also tested for impairment annually. Where it is not possible to estimate recoverable amount for an individual asset, recoverable amount is determined for the cash-generating unit to which the asset belongs. (f) Cash and Cash Equivalents For the purposes of the Statement of Cash Flows, cash and cash equivalents includes cash on hand and at bank, deposits held at call with financial institutions, other short term, highly liquid investments, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and bank overdrafts. (g) Property, Plant and Equipment Plant and equipment is stated at historical cost, including costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, less depreciation and any impairments. The carrying amount of plant and equipment is reviewed annually by the directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets' employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The depreciable amount of all fixed assets is depreciated on a straight line or diminishing value basis over the asset’s useful life to the company commencing from the time the asset is held ready for use. The following estimated useful lives will be used in the calculation of depreciation: - Plant and equipment 2 - 15 years The assets' residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. Gains and losses on disposals are calculated as the difference between the net disposal proceeds and the asset's carrying amount and are included in profit or loss in the year that the item is derecognised. (h) Intangible Assets Product Development Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Expenditure capitalised comprises costs of materials and services. The carrying value of development costs is reviewed annually when the asset is not yet available for use, or when events or circumstances indicate that the carrying value may be impaired. As the asset is not yet available for use, the useful life has not yet been determined. The R&D refund is recognised on an accrual basis, calculated using actual costs incurred on eligible activities and is subject to potential review by Government for up to 5 years. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Page 15 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Leases Leases of property, plant and equipment where the company has substantially all the risks and rewards of ownership are classified as finance leases and capitalised at inception of the lease at the fair value of the leased property, or if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Leases where the lessor retains substantially all the risks and rewards of ownership of the net asset are classified as operating leases. Payments made under operating leases (net of incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Lease income from operating leases is recognised in profit or loss on a straight-line basis over the lease term. (j) Trade and Other Payables Trade and other payables represent liabilities for goods and services provided to the company prior to the year end and which are unpaid. These amounts are unsecured and are usually paid within 30 days of recognition. All trade and other payables are non interest bearing. (k) 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 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. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the American or Black- Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non- vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Page 16 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (l) Contributed Equity Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit. (m) 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. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless, an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, it's carrying value is written off. Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be 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 a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the entity intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition. Impairment of financial assets The entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss. (n) Accounting Standards Issued But Not Yet Effective Certain new accounting standards and interpretations have been published that are not mandatory for reporting periods ending 30 June 2019. At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective or adopted. Standards and Interpretations in issue not yet adopted AASB 16 'Leases' Effective for annual 1-Jan-19 Expected to be initially 30-Jun-20 The company has not assessed the impact of adoption. (o) Application of new and revised Accounting Standards The company has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the company. AASB 9 Financial Instruments The entity has adopted AASB 9 from 1 July 2018. The standard introduced new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading or 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Page 17 NOTE 2 (o) Application of new and revised Accounting Standards (continued) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) AASB 9 Financial Instruments (Continued) contingent consideration recognised in a business combination) in other comprehensive income ('OCI'). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available. Impact of adoption AASB 9 was adopted using the modified retrospective approach and as such comparatives have not been restated. The impact of adoption on opening retained profits as at 1 July 2018 was nil. AASB 15 Revenue from Contracts with Customers The entity has adopted AASB 15 from 1 July 2018. There was no impact because the entity has not recognised revenue. NOTE 3 ACCOUNTING ESTIMATES AND JUDGEMENTS The directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the company. Key Estimates - Impairment The company assesses impairment at the end of each reporting period by evaluating conditions and events specific to the company that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. With respect to cash flow projections for intangible assets and those with a finite useful life but not yet considered ready for use, relevant inputs have been factored into valuation models for the next 5 years on the basis of management’s expectations regarding the growth of the market and the company’s ability to capture market share. Pre-tax discount rates of 5% have been used in all models. The intangible asset is tested for impairment at the end of the reporting period. Key Judgements - Product Development Included within intangible assets at the end of the reporting period is Product Development with a net carrying value of $5,109,045 (2018: $2,174,579 ) being the carrying value of the Product Development intangible asset of $13,017,713 (2018: $6,949,088) less the associated Government Grant funding of $2,332,000 (2018: $1,901,070) and the R&D refundable tax offsets applied of $5,576,668 (2018: $2,873,439). The directors believe that while the development and commercialisation of the technology remains in-progress and the asset is not yet generating economic benefits (beyond customer trials), it is not considered ready for use. A reliable estimate for the useful life of the asset will only be capable of being determined once the asset is assessed as ready for use, after which point, amortisation will commence. The directors are satisfied that it is probable that the intangible asset will generate future economic benefits based on internal financial models and potential project scenario analysis. NOTE 4 SEGMENT REPORTING There is only one segment which is the entire business, which operates entirely within Australia. OTHER INCOME NOTE 5 Interest Received Rent & Office Recoveries Provision of services Government grants NOTE 6 Profit(loss) before income tax includes the following specific expenses: EXPENSES Depreciation expense Furniture and fixtures Office equipment Superannuation expense Defined contribution superannuation expense 2019 AUD$ 2018 AUD$ 238,547 - - 60,273 298,820 9,290 39,097 15,000 - 63,387 17,282 16,376 33,658 13,145 11,387 24,533 121,533 121,533 105,383 105,383 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 EXPENSES (continued) NOTE 6 Share based payment expense Employee Share Scheme - Performance Rights Shares issued during the period - new arrangements Amortisation of pre-existing agreements still on hand at respective balance date Expense of cancelling pre-existing arrangement and issuing replacement shares Expense of cancelling pre-existing arrangement without replacement NOTE 7 Audit services AUDITORS' REMUNERATION Amounts paid/payable to BDO for audit of the financial statements of the company Amounts paid/payable to a related practice of the auditor for corporate finance services NOTE 8 INCOME TAX EXPENSE Income Tax expense/(benefit) comprises: Current tax expense Current tax expense/(benefit) Adjustments for previous years Total current income tax expense Deferred tax expense Origination and reversal of temporary differences Total income tax expense/(benefit) in profit or loss The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense/(benefit) in the financial statements as follows: Profit/(Loss) from operations before tax Income tax calculated at 27.5% Tax effect of amounts which are not deductible (taxable) in calculating taxable income Non-deductible expenses Assessable income not included in profit/loss Other reconciling items Timing differences on deferred tax assets not recognised Tax losses not recognised The amount of gross tax losses relating to Australian operations that are carried forward is $5,388,118 (2018: $2,160,039). NOTE 9 CASH AND CASH EQUIVALENTS Cash at bank Cash term deposits An amount of $215,582 included as cash has been set aside to support a bank guarantee issued to the landlord of the rented premises. NOTE 10 TRADE AND OTHER RECEIVABLES Trade receivables R&D refundable tax offset Other receivables Page 18 2019 AUD$ 2018 AUD$ 103,339 - - - - 103,339 - 90,000 8,042 1,691,904 383,459 2,173,405 32,105 - 32,105 19,413 27,000 46,413 - - - - - - - - - - - - (4,270,815) (5,484,860) (1,174,474) (1,508,336) 172,984 118,506 599,405 402,253 (48,789) (31,241) 44,051 887,722 - 17,464 520,456 - 1,588,487 928,242 8,132,705 - 9,721,192 928,242 - 8,250 2,448,344 2,313,591 - 158,769 2,448,344 2,480,610 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 11 OTHER CURRENT ASSETS Prepayments Prepaid IPO Costs Accrued Interests Receivable NOTE 12 PROPERTY, PLANT AND EQUIPMENT Plant and equipment At cost Accumulated depreciation Reconciliation of Plant and equipment Balance at the beginning of the year Additions Disposals Depreciation expense Closing carrying value Total Property, Plant and Equipment INTANGIBLE ASSETS NOTE 13 Product Development - Intellectual Property Intangible assets under development - at cost Government Grants applied R&D Refundable Tax Offset applied Accumulated amortisation Reconciliation of Product Development - Intellectual Property Balance at the beginning of the year Additions Government Grants applied R&D Refundable Tax Offset applied Closing carrying value Total Intangible Assets Page 19 2019 AUD$ 2018 AUD$ 141,438 - - 406,015 74,777 216,215 - 406,015 193,678 (58,191) 135,487 139,614 29,532 - (33,658) 135,487 164,146 (24,533) 139,614 - 164,146 - (24,533) 139,614 135,487 139,614 13,017,713 (2,332,000) (5,576,668) - 5,109,045 2,174,579 6,068,625 (430,930) (2,703,229) 5,109,045 5,109,045 6,949,088 (1,901,070) (2,873,439) - 2,174,579 787,367 5,161,873 (1,461,070) (2,313,591) 2,174,579 2,174,579 Intellectual property consists of TESS (thermal energy storage system) development of bulk energy storage solutions. No amortisation has been recognised as the intellectual property is not available for use as at 30 June 2019. The intangible asset is tested for impairment annually. The government grant relates to accelerating the commercialisation of the company's intellectual property. The recoverable amount of the entity's intangible assets has been determined by a value-in-use calculation using a discounted cash flow model, based on a 4 year projection period approved by management and extrapolated for a further 4 years using a steady rate. Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive. The following key assumptions were used in the discounted cash flow model: ● 10% pre-tax discount rate; ● No revenue earned until 2021; ● 50% per annum projected revenue growth rate from 2021 to 2023; ● 20% per annum projected revenue growth rate from 2024 to 2027; ● 10% per annum increase in operating costs and overheads from 2021 to 2027. The discount rate of 10% pre-tax reflects management’s estimate of the time value of money and the consolidated entity’s weighted average cost of capital, the risk free rate and the volatility of the share price relative to market movements. Management believes the projected revenue growth rate is justified, based on the potential indicated in the market. There were no other key assumptions. TRADE AND OTHER PAYABLES NOTE 14 Trade and other payables Other payables and accruals 424,013 61,303 485,316 1,015,540 99,763 1,115,303 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 15 CONTRIBUTED EQUITY Share capital Ordinary shares - authorised, issued and fully paid opening balance Shares issued Exercise of share options Costs of issue Ordinary shares - authorised, issued and fully paid closing balance Page 20 2019 No. of Shares 2019 AUD$ 125,708,946 12,954,139 46,590,528 16,306,690 90,449 31,657 - (195,192) 172,389,923 29,097,294 Ordinary shareholders are entitled to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. Every ordinary shareholder present at a meeting in person or by proxy is entitled to one vote on a show of hands or by poll. Ordinary shares have no par value. Capital Management Management controls the capital of the company in order to ensure that the company can fund its operations and continue as a going concern. The company's capital includes ordinary share capital and financial liabilities, supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the company’s capital by assessing the company’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. There have been no changes in the strategy adopted by management to control the capital of the company since the prior year and the objectives for managing capital have been met. NOTE 16 EARNINGS PER SHARE Earnings per share for profit (loss) Profit (loss) after income tax Profit (loss) after income tax attributable to the owners of 1414 Degrees Ltd 2019 AUD$ 2018 AUD$ (4,270,815) (5,484,860) (4,270,815) (5,484,860) Profit (loss) after income tax attributable to the owners of 1414 Degrees Ltd used in calculating diluted earnings per share (4,270,815) (5,484,860) Basic earnings per share Diluted earnings per share Weighted average number of ordinary shares Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options over ordinary shares if dilutive Convertible notes Cents Cents (2.58) (2.58) (5.03) (5.03) Number Number 165,823,930 109,097,161 - - - - - - Weighted average number of ordinary shares used in calculating diluted earnings per share 165,823,930 109,097,161 The performance rights have not been taken into account when calculating diluted earnings per share as they are anti dilutive. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Page 21 NOTE 17 SHARE BASED PAYMENTS No shares were issued to key management personnel in this financial year. In the year ended 30 June 2018 former key management personnel were issued 3,600,000 ordinary shares as a result of the cancellation and replacement of share based payment contracts. A share option plan has been established by the company, whereby the company may, at the discretion of the board, grant Performance Rights (PR) over ordinary shares in the company to certain employees of the company. The PR are issued for nil consideration and are granted in accordance with performance guidelines established by the board. Set out below are summaries of PR granted under the plan: 2019 Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised 2/04/2019 2/04/2019 2/04/2019 2/04/2019 2/04/2019 2/04/2019 2/04/2019 1/07/2019 14/01/2020 15/01/2020 1/07/2020 15/01/2021 15/01/2022 15/01/2023 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 - - - - - - - - 75,000 200,000 925,000 350,000 925,000 2,225,000 1,100,000 5,800,000 Expired/ forfeited/ other Balance at the end of the year - - - - - - - - - - (200,000) - - (1,250,000) - 75,000 200,000 725,000 350,000 925,000 975,000 1,100,000 (1,450,000) 4,350,000 Weighted average exercise price $0.00 $0.00 $0.00 $0.00 $0.00 There is no Performance Rights exercisable at the end of the financial year and no Performance Rights granted during 2018 financial year. The weighted average share price during the financial year was $0.30. The weighted average remaining contractual life of Performance Rights outstanding at the end of the financial year was 2.01 years (2018: Nil). For the PR granted during the current financial year, the valuation model used for PR with market performance conditions is The American model while The Black Scholes model is used for PR with non-market performance conditions. The risk-free interest rates are based on the government bond yield for relevant periods. The expected volatility is based on the actual market volatility between 12/09/2018 and 2/04/2019 for the shares of the company. The valuation model inputs used to determine the fair value at the grant date are as follows: Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk-free Fair value interest rate at grant date 2/04/2019 2/04/2019 2/04/2019 2/04/2019 2/04/2019 2/04/2019 2/04/2019 2/04/2019 2/04/2019 1/07/2019 14/01/2020 15/01/2020 1/07/2020 15/01/2021 15/01/2022 15/01/2023 15/01/2021 15/01/2022 $0.305 $0.305 $0.305 $0.305 $0.305 $0.305 $0.305 $0.305 $0.305 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 99.50% 99.50% 99.50% 99.50% 99.50% 99.50% 99.50% 99.50% 99.50% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.46% 1.46% 1.46% 1.46% 1.46% 1.40% 1.40% 1.46% 1.46% $0.3050 $0.3050 $0.3050 $0.3050 $0.3050 $0.3050 $0.3050 $0.2161 $0.2351 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 18 Reconciliation of profit after income tax to net cash flow from operating activities CASH FLOW INFORMATION Loss for the year Non-cash flows in profit/(loss): - Depreciation and Amortisation - Share Based Payments - Foreign exchange differences - IPO Cost Expensed Change in operating assets and liabilities - (increase)/decrease in trade and other receivables - (increase)/decrease in other current assets - increase/(decrease) in trade and other payables - increase/(decrease) in employee benefits Net cash flow from operating activities CONTINGENCIES NOTE 19 Contingent Liabilities At 30 June 2019 those charged with governance of the company note that there are no known contingent liabilities (2018: nil). Page 22 2019 AUD$ 2018 AUD$ (4,270,815) (5,484,860) 33,658 103,339 (3,215) 526,662 24,533 2,173,765 - - 167,019 (216,215) (629,987) 155,531 (4,134,023) (143,541) (406,015) 713,702 - (3,122,416) NOTE 20 (a) RELATED PARTY Related Party Transactions Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Transactions with related parties: i. - Merchant Accounting, a company related to Robert Shepherd, charged accounting fees of $6,000 during the year and no balance relating to these charges was outstanding at 30 June 2019. (b) Director and Director-related Interests in the Company Ordinary shares Robert Shepherd Dana Larson Kevin Moriarty NOTE 21 The totals of remuneration paid to KMP of the company during the year are as follows: KEY MANAGEMENT PERSONNEL COMPENSATION Short-term employee benefits Post-employment benefits Other long term benefits Share-based payments Total KMP compensation These amounts represent the company's employee benefits expense for the year. Balance at the start of the year Received as part of remuneration Additions Disposals/ other Balance at the date of this report 7,107,594 250,000 12,403,000 19,760,594 - - - - - - - - - - - - 7,107,594 250,000 12,403,000 19,760,594 2019 AUD$ 2018 AUD$ 754,399 60,162 12,686 26,393 411,866 29,105 987 50,000 853,641 491,957 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Page 23 NOTE 22 FINANCIAL RISK MANAGEMENT The company's financial instruments consist mainly of deposits with banks, accounts receivable and payable. The totals for each category of financial instruments, measured in accordance with AASB 9 as detailed in the accounting policies to these financial statements, are as follows: Financial Assets Financial Assets at amortised cost: Cash and cash equivalents Trade and other receivables - R&D tax refund Total financial assets Financial Liabilities Financial Liabilities at amortised cost: Trade and other payables Total financial liabilities General objectives, policies and processes Note 9 10 14 2019 AUD$ 2018 AUD$ 9,721,192 2,448,344 12,169,536 928,242 2,480,610 3,408,852 485,316 485,316 1,115,303 1,115,303 In common with all other businesses, the company is exposed to risks that arise from its use of financial instruments. This note describes the company’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 company’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. Market Risk The company’s activities have no material exposure to financial risks of changes in interest rates. The company analyses it’s risk by considering sensitivity on its interest rate exposures and determining the potential impact on it’s effected expenses and revenue of movements in these rates. If the potential variance is material then management may seek to minimise this exposure but it does not consider this to be the case at this time. The company undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. In order to protect against exchange rate movements, the company is holding deposits of foreign currency to cover major commercial cost in foreign currency. The foreign currency amounts were purchased around the time the future commitments were entered into to secure the costs in Australian Dollar. Credit Risk Credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The company does not have any material credit risk exposure to any single debtor or company of debtors under financial instruments entered into by the company, except for the Australian Taxation Office which is the counterparty to the R&D refundable tax offset shown in note 10. Trade receivables represent the maximum exposure to credit risk, credit quality is considered good. Liquidity Risk Liquidity risk is the risk that the company will not be able to meet its financial obligations as they fall due. The directors manage liquidity risk by monitoring forecast cash flows and ensuring that the company's operations are adequate to meet liabilities due. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Page 24 NOTE 22 FINANCIAL RISK MANAGEMENT (continued) Financial liability and financial asset maturity analysis Within 1 year 1 to 5 years Over 5 years AUD$ 2019 AU$ 2018 AU$ 2019 AU$ 2018 AUD$ 2019 AUD$ 2018 Total AUD$ 2019 AUD$ 2018 Financial liabilities due for settlement Trade and other payables Total expected outflows 485,316 485,316 1,115,303 1,115,303 Financial assets - cash flows realisable Cash at bank Trade and other receivables Cash term deposits Sensitivity Analysis 1,588,487 928,242 2,448,344 8,132,705 12,169,536 2,480,610 - 3,408,852 - - - - - - - - - - - - - - - - - - - - - - - - 485,316 485,316 1,115,303 1,115,303 1,588,487 928,242 2,448,344 8,132,705 12,169,536 2,480,610 - 3,408,852 Interest rate risk At 30th June 2019 investment in Cash, Fixed Interest and Floating Interest rate deposits amounted to $9,721,192. A +/-1% change in interest rates during the year ended 30th June 2019 will result in a +/- change in net interest income of $97,212. At 30th June 2018 investment in Cash, Fixed Interest and Floating Interest rate deposits amounted to $928,242. A +/-1% change in interest rates during the year ended 30th June 2018 will result in a +/- change in net interest income of $9,280. Management has considered that both a positive and negative 1% variance is sufficient to illustrate the potential variations in interest income. Foreign currency risk Cash at bank held in or trade payables denominated in US dollars Euros Assets Liabilities 2019 AUD$ 2018 AUD$ 2019 AUD$ 2018 AUD$ 356,053 - 356,053 - - - - 8,989 8,989 513 36,549 37,062 The company had net assets denominated in foreign currencies of $347,064 as at 30 June 2019 (2018: net liabilities $37,062). Based on this exposure, had the Australian dollar weakened by 10%/strengthened by 5% (2018: weakened by 5%/strengthened by 5%) against these foreign currencies with all other variables held constant, the company's profit before tax for the year would have been $34,706 higher/$17,352 lower (2018: $1,853 lower/$1,853 higher) and equity would have been $34,706 higher/$17,352 lower (2018: $1,853 lower/$1,853 higher). The percentage change is the expected overall volatility of the significant currencies, which is based on management’s assessment of reasonable possible fluctuations taking into consideration movements over the last 6 months each year and the spot rate at each reporting date. The actual foreign exchange gain for the year ended 30 June 2019 was $2,951 (2018: loss of $43,410). 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 NOTE 23 COMMITMENTS FOR EXPENDITURE Operating leases commitments - minimum lease payment due: Within 1 Year Greater than 1 year and not greater than 5 years Greater than 5 years Terms of lease arrangements The Company has in place an operating underlease for its principal place of business which expires on 29/02/2020 The Company has in place an operating lease for its industrial facilities which expires on 31/08/2020 NOTE 24 SUBSEQUENT EVENTS Nil. Page 25 2019 AUD$ 2018 AUD$ 312,401 20,093 - 332,495 398,571 322,741 - 721,312 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' DECLARATION Page 26 In accordance with a resolution of the directors of 1414 Degrees Limited, the directors of the company declare that: 1 2 3 The financial statements, comprising the statement of profit or loss and other comprehensive income, statement of financial position, statement of cash flows, statement of changes in equity and accompanying notes are prepared in accordance with Australian Accounting Standards and present fairly the company's financial position as at 30 June 2019 and its performance for the year ended on that date. The company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. In the directors' opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Kevin Moriarty Executive Chairman Adelaide Dated this 30th day of August 2019 Tel: +61 8 7324 6000 Fax: +61 8 7324 6111 www.bdo.com.au Level 7, BDO Centre 420 King William St Adelaide SA 5000 GPO Box 2018, Adelaide SA 5001 AUSTRALIA DECLARATION OF INDEPENDENCE BY ANDREW TICKLE TO THE DIRECTORS OF 1414 DEGREES LIMTIED As lead auditor of 1414 Degrees Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. Andrew Tickle Director BDO Audit (SA) Pty Ltd Adelaide, 30 August 2019 BDO Audit (SA) Pty Ltd ABN 33 161 379 086 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (SA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Tel: +61 8 7324 6000 Fax: +61 8 7324 6111 www.bdo.com.au Level 7, BDO Centre 420 King William St Adelaide SA 5000 GPO Box 2018, Adelaide SA 5001 AUSTRALIA INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF 1414 DEGREES LIMITED Report on the Audit of the Financial Report Opinion We have audited the financial report of 1414 Degrees Limited (the Company), which comprises the statement of financial position as at 30 June 2019, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies, and the directors’ declaration. In our opinion the accompanying financial report of 1414 Degrees Limited, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Company’s financial position as at 30 June 2019 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 Company in accordance with 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 confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. 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. BDO Audit (SA) Pty Ltd ABN 33 161 379 086 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (SA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Intangible Asset Key audit matter How the matter was addressed in our audit The carrying value of the intangible asset Our audit procedures included, but were not limited to: product development – intellectual property as set out in note 13 is a key audit matter due to:  Assessing the composition of development costs and the capitalisation criteria against the requirements of AASB  The significance of the total balance (29% 138 – Intangible Assets. of total assets)  The level of audit procedures undertaken to evaluate management’s application of the recognition criteria for internally generated intangible assets required by AASB 138 Intangible Assets.  The level of judgment applied by management and inherent subjectivity in their assessment of the potential impairment of the asset and compliance with the requirements of AASB 136 Impairment of Assets.  Agreeing a sample of additions to supporting documentation, and ensuring the amounts were appropriately capitalised.  Obtaining an understanding of the key processes and controls associated with the allocation of costs to the product development category.  Assessing the results of trials of the prototype product and the potential market size for similar applications of the technology in future.  Assessing and evaluating management’s assumptions and calculations of the value in use assessment of future cash flows.  Considering key assumptions, including forecasted cash flows against the latest board approved budgets and assessing the discount rate using our own valuation specialist.  Performing sensitivity analysis on the key financial assumptions of forecasted cash flows and discount rate in the model and considering the likelihood of such movements in such key assumptions. Other information The directors are responsible for the other information. The other information comprises the information contained in the Company’s annual report for the year ended 30 June 2019, 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 we do not express any form of assurance conclusion thereon. 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 Company’s ability 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 Company or to cease operations, or has 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. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 3 to 7 of the directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of 1414 Degrees Limited, for the year ended 30 June 2019, 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. BDO Audit (SA) Pty Ltd Andrew Tickle Director Adelaide, 30 August 2019 ASX additional information Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 28 August 2019. Share Capital - 172,389,923 fully paid Ordinary Shares are held by 3,254 individual Shareholders. - 32,015,865 Restricted Ordinary Shares (until 10-9-2020) are held by 12 individual Shareholders. FOCEM PTY LTD holds 12,403,000 (38.7%) of these Restricted Ordinary Shares. - 15,826,839 Ordinary Shares are subject to Voluntary Escrow; 7,282,312 until 30-6-2020 held by one Shareholder, and 8,544,527 until 1-9-2019 held by one Shareholder. - 11,557,293 Listed Options with an exercise price of 35 cents per Option, expiring 21-8-2020 are held by 1,835 individual holders. - 5,800,000 Unlisted Performance Rights with various performance hurdles are held by 16 individual holders. GRANT MATHIESON holds 1,450,000 (25%) of these Performance Rights. - All Ordinary Shares carry one vote per share. - There is no current on-market buyback. % No. of holders Securities 120,715,895 42,329,053 7,513,690 1,814,493 16,792 70.02% 24.55% 4.36% 1.05% 0.01% 172,389,923 100.00% % 5.47% 42.99% 30.76% 19.76% 1.01% 100.00% 8.97% 178 1,399 1,001 643 33 3,254 292 Distribution of Equity Securities The number of shareholders, by size of holding, in each class are: Range 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Unmarketable Parcels at 23.5 cents per share Substantial Shareholders (As disclosed in substantial holding notices given to the Company) FOCEM PTY LTD MR HAROLD TOMBLIN + MRS JUDITH JOHNSTON MATTHEW JOHNSON / SUSAN JOHNSON Twenty largest holders of Quoted Ordinary Shares Rank 1 2 3 4 5 6 7 8 9 10 11 11 13 14 15 16 17 17 17 17 17 17 17 17 Name MR HAROLD TOMBLIN + MRS JUDITH JOHNSTON MR JOHN MOSS + MRS WENDY MOSS MEWTWO GLOBAL INVESTMENTS LLC MR JOHN LANGLEY HANCOCK J P MORGAN NOMINEES AUSTRALIA PTY LIMITED LHO LA PTY LTD KNIGHTS VALLEY LTD PACIFIC COMMUNICATION AND INVESTMENT CONSULTANTS PTY LTD BENGER SUPERANNUATION PTY LTD CITICORP NOMINEES PTY LIMITED RANAT INVESTMENTS PTY LTD MR PIERRE ANDRE VAN DER MERWE + MRS LOUISE VAN DER MERWE

MARHFEL PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED AMMJOHN PTY LTD FRANK MARKERT PTY LTD AMACHONG NOMINEES PTY LTD MR IAN ROSS BURDON + MS CATHERINE LOUISE TAYLOR MR IAN ROSS BURDON + MS CATHERINE LOUISE TAYLOR MR JOHN YOK HONG CHONG + MRS ANNE CHONG SEBALLIE PTY LTD DR MICHAEL ROBERT SNOW WICKS FAMILY SUPER PTY LTD DR JOHN YANG Total Balance of register Grand total No. of Shares Held % 12,403,000 10,814,527 9,973,487 7.20% 6.27% 5.80% No. of Shares Held 10,514,670 8,567,427 4,333,333 3,438,333 3,150,789 2,000,000 1,666,500 1,583,558 1,450,000 1,385,877 1,250,000 1,250,000 1,125,000 1,078,973 1,026,171 1,015,299 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 52,835,930 87,538,128 140,374,058 % 7.49% 6.10% 3.09% 2.45% 2.24% 1.42% 1.19% 1.13% 1.03% 0.99% 0.89% 0.89% 0.80% 0.77% 0.73% 0.72% 0.71% 0.71% 0.71% 0.71% 0.71% 0.71% 0.71% 0.71% 37.64% 62.36% 100.00% Twenty largest holders of Quoted Options Rank 1 2 3 4 5 6 6 6 6 6 11 12 13 14 15 16 17 18 18 18 18 18 18 18 Name MR PARAMJIT SINGH NAGRA + MRS SURINDER KAUR NAGRA WILLIAM BAMBLING + JOYCE BAMBLING AMIR KARLINER + TANIA KARLINER MR IAN STUART FISHER DARLING & CO PTY LTD MR JOHN EDGAR FISHER JOHN GRAHAM WARBURTON MHK INVESTMENTS PTY LTD MR MARK WILLIAM WILLIAMS + MRS KATRINA ANN WILLIAMS MR SIMON JOHN MORAN + MRS CHRISTINE JOYCE MORAN ENVIROMATTERS PTY LTD MR ANDREW ROBERT RAMSDEN CITICORP NOMINEES PTY LIMITED RIVERSLEIGH ASSETS PTY LTD MR JOHN EDGAR FISHER + MRS MARYANN FISHER MR KIERAN MAURICE MORAN MICHAEL MASON AEROFEN PTY LTD BROWNBOX PROPERTY PTY LTD INVIA CUSTODIAN PTY LTD MR MARTIN SULLIVAN NAYLOR-STEWART INVESTMENTS PTY LTD R & C SWANN PTY LTD STEVEN CHRISTOPHER CONROY + MARGARET ANNE CONROY Total Balance of register Grand total No. of Options Held 208,732 150,000 125,000 100,000 88,375 75,000 75,000 75,000 75,000 75,000 72,500 71,429 71,411 71,250 68,750 63,685 53,100 50,000 50,000 50,000 50,000 50,000 50,000 50,000 1,869,232 9,688,061 11,557,293 % 1.81% 1.30% 1.08% 0.87% 0.76% 0.65% 0.65% 0.65% 0.65% 0.65% 0.63% 0.62% 0.62% 0.62% 0.59% 0.55% 0.46% 0.43% 0.43% 0.43% 0.43% 0.43% 0.43% 0.43% 16.17% 83.83% 100.00% Business Objectives & Use of Cash 1414 Degrees Limited has used Cash and Cash Equivalents held at the time of listing in a manner consistent with its stated business objectives. 1414DEGREES.COM.AU 1414 DEGREES LTD ADDRESS POSTAL EMAIL PHONE ABN 57 138 803 620 Level 4, 81 Flinders St Adelaide SA 5000 GPO Box 2166, Adelaide SA 5001 info@1414dereescom.au +61 8 83.57 8273