1414 Degrees
Annual Report 2021

Plain-text annual report

ANNUAL REPORT 20/21 CORPORATE DIRECTORY CURRENT DIRECTORS Tony Sacre - Chairman Peter Gan - Non Executive Director Dana Larson - Non Executive Director STOCK EXCHANGE 1414 Degrees Limited shares are quoted on the Australian Securities Exchange (ASX:14D) COMPANY SECRETARY Tania Sargent REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS 1414 Degrees Limited 136 Daws Road Melrose Park SA 5039 Telephone: +61 8 8357 8273 Email: info@1414degrees.com.au SOLICITORS HWL Ebsworth Lawyers Level 21, 91 King William Street Adelaide SA 5000 PATENT & TRADE MARK ATTORNEYS Madderns Level 4, 19 Gouger Street Adelaide SA 5000 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 AUDITOR BDO Audit (SA) Pty Ltd Level 7, 420 King William Street Adelaide SA 5000 WEBSITE www.1414degrees.com.au Chairman's Letter to Shareholders 1414 DEGREES LIMITED | ANNUAL REPORT 20/21 Based on the excellent foundation of work outlined above, a clear vision for the Company going forward as outlined to the board recently by our new Chief Executive; the strength and quality of our engineering technical team which is led by our impressive Chief Operating Officer, Jordan Parham; and our Board renewal I believe that the future of 1414 Degrees technology and its potential for positive business outcomes is strong. Finally, I would like to say that I like to operate an ‘open door’ policy, so if you do have any questions or would like to discuss anything with me directly, please feel free to do so. My details are below. Best wishes, TONY SACRE CHAIRMAN tsacre@1414degrees.com.au technology to deliver the global drive to decarbonisation. In my opinion, 1414 Degrees renewable high temperature heat technology can provide a solution to one of the greatest engineering and commercial challenges for a low-carbon energy future. This year the team has focussed on the development and refinement of SiBox™, the latest generation of our thermal energy storage technology, to efficiently and robustly harness the exceptionally high latent heat capacity of molten silicon to store energy from intermittent renewable energy. SiBox offers unique and competitive advantages to provide heat solutions for industrial and combined heat and power applications, the demand for which will increase in the future, and we are in a good position to capitalise on this with the SiBox Demonstration Module. These advancements have been facilitated by locating all staff, both corporate and technical, in one location at the Daws Road site in Melrose Park, South Australia. The site delivers excellent space for our research and development work with opportunities for collaboration and cost efficiencies. In addition, a strategic and measured approach to the Aurora Energy Project has been undertaken to ensure the Company maximises the potential of the site and return for shareholders. Supporting all our employees and new Chief Executive Officer, Matt Squire, is an important task for the Board and me as we drive 1414 Degrees’ business plan forward and deliver a strong pipeline of opportunities in this increasingly critical sector. Please be confident that, in Matt, you have an experienced and capable executive at the helm who will keep the Company focussed on meeting the challenges of successfully commercialising the SiBox™ technology and delivering shareholder value. Tony Sacre Chairman Dear Shareholders, The 2021 Financial Year was a year which brought quite significant change in the Company’s executive team and also saw some key changes to our Board, including the appointment of myself as Non- Executive Director and Chairman. Whilst I have spoken to several of the shareholder base since I joined, I’m aware that I would be a new name and face to many of you. Therefore, as way of introduction to my background and experience, I’m the Chief Executive Officer of Bentleys, one of Australia’s largest Accounting and Financial Services firms with nineteen offices and approximately 750 staff across Australia and New Zealand. I believe my experience in executive leadership, governance and strategic planning and execution are the key skills 1414 Degrees were looking for when approaching me for the role. In turn, it was 1414 Degrees’ exciting technology in the renewable energy and storage space which attracted me to the role. With each day we see further evidence supporting the need for clean energy CEO's Letter to Shareholders 1414 DEGREES LIMITED | ANNUAL REPORT 20/21 are all looking for solutions to further decarbonise their operations. The Australian Renewable Energy Agency has highlighted that “a key challenge for industry is the need for high-temperature heat”. The need for long duration energy storage, and the opportunity that is offered by the delivery of renewable, high temperature heat was recognised by 1414 Degrees and its founding shareholders. The initial concept projects developed by 1414 Degrees, and supported by SA Government and Commonwealth funding, remain an excellent platform from which we have developed our intellectual property. The Company’s experience in developing storage techniques that utilise the latent heat properties of silicon has culminated in our latest generation thermal energy storage, SiBox™. SiBox provides us with the opportunity to create a product that could prove to be disruptive for energy users and renewable energy developers in its scalability and flexibility. I certainly intend for us to continue the drive to develop a commercial silicon based energy storage solution that builds on our prior investments. Over the last year the Company’s Research & Development team has focussed its development efforts on thermal storage media options for SiBox which are significantly different in design and superior to our previous generation of storage media. The leading options have undergone extensive testing in anticipated real-life conditions and rigorous assessment of their properties, including chemical composition, energy storage density and structural integrity. The outcomes of this testing and analysis has enabled us to finalise the SiBox module design. In parallel with this work, we have continued our collaboration with the University of Adelaide to develop new low- cost silicon-based alloys to further improve the competitiveness of the SiBox storage media for different high-temperature applications. The key next step in our technology demonstration and scale up program is to build a 1 MWh SiBox Demonstration Module. In the last year we have progressed full-system design, optimisation activities and selection of the most robust, energy dense and lowest cost storage media option. A final work program and budget was established enabling construction activities to commence in 2022. We aim to commence running and testing the Demonstration Module at the end of 2022 followed up with a rigorous test program that proves the commercial utility of SiBox throughout 2023. We believe that the SiBox Demonstration Module will prove our technology’s ability to deliver a commercial solution for heat intensive industries to capture renewable energy in a more usable form. The flexibility of the technology will also enable it to be configured into existing industrial energy user infrastructure and energy supply networks, offering a large array of commercialisation opportunities. We are continuing to progress a renewable energy generation hub at the Aurora Energy Project (AEP) north of Port Augusta. Our development approvals are being modified to allow us to develop an initial commercial battery storage facility which will underpin the electrical connection stage of the Project. This will serve to strengthen and enhance regional infrastructure and pave the way for the next stage of solar generation developments including a baseload pilot project that demonstrates our SiBox technology. An expanded solar monitoring regime is in place and planning and connection approvals will be progressed in the next 12 months. Our Glenelg project is presently utilised as a demonstration platform, and we will be looking at further opportunities for this asset in the future. We have also developed a more fulsome awareness of how our Matt Squire Chief Executive Officer Dear Shareholders, I’m very excited to have joined the team at 1414 Degrees and thank you for the messages of welcome I received when I started in August. The last 12 months have seen the world continue to call for a response to climate change and the recognition for a need to create an energy future underpinned by renewables. The public, governments and financiers are accelerating their demand for clean energy solutions. I believe that large, traditional energy companies will almost universally expand their allocation of capital towards clean energy projects which are offering increasing returns to shareholders through improved economies of scale and technological improvements. We are also seeing the widespread adoption of renewable energy where possible within many industries’ supply chains including manufacturing, minerals processing, agriculture and transport. However, the challenges to the adoption of renewable energy for many industries is significant. Sectors such as cement, building products and steel manufacturing 1414 DEGREES LIMITED | ANNUAL REPORT 20/21 energy storage systems can utilise renewable gas streams and add more value to water and waste industries. I would like to acknowledge the excellent support that we have received from SA Water in providing us the opportunity to do this. A prudent focus on shareholder funds has been maintained by consolidating our activities to one site at Melrose Park which ensures our technical, commercial and corporate staff are able to effectively collaborate. This will enhance innovation as we develop our SiBox Demonstration Module and look for commercial pilot applications. Adelaide is a city that has some of the world’s highest concentration of renewable energy and it is probably no coincidence it is consistently considered one of the world’s most liveable. The support of the SA State Government and other stakeholders such as SA Water provides us with the ideal base from which to operate. Finally, I would like to acknowledge the outstanding efforts and dedication of the staff at 1414 Degrees in what has been a difficult year. It is not easy to progress new technologies such as ours, however I’m very confident that we have a diligent and collaborative team that will deliver this for shareholders in the future. Thank you for your ongoing support of 1414 Degrees and we look forward to updating you on an exciting year in 2022. Yours sincerely, Matthew Squire Chief Executive Officer 1414 DEGREES LIMITED | ANNUAL REPORT 20/21 This has been a transformative year for the advancement of 1414 Degrees’ technology. Renewed emphasis on our core thermal storage, and its unmatched potential to provide high temperature renewable heat, has culminated in a robust and efficient design for our next generation modular SiBox." Dr Mahesh Venkataraman Technology Manager "My focus this year has been on optimising the storage media for our next generation of silicon storage. We’ve run six months of testing in real-life conditions which sets us up to deliver the SiBox Demonstration Module. Nathan Levinson Mechanical Research Engineer After a busy year of testing, experiments and design work our Demonstration Module is taking shape. I’m looking forward to seeing it all come to fruition when we begin building in 2022." Josh Zowtyj Product Development Engineer 1414 DEGREES LIMITED | ANNUAL REPORT 20/21 Leveraging the learnings from Glenelg I’ve been focussed on developing the commercial model for gas-fired thermal energy storage. It’s encouraging to see that energy value can be maximised by pairing with conventional generating assets to create a hybrid system with synergistic value." Wil Grosser Project Engineer "Joining 14D and having the opportunity to contribute to cutting edge thermal energy storage technology is a dream come true. To be a graduate engineer and have the opportunity to learn from a team of specialists in this groundbreaking industry is amazing. Callum Phelps Graduate Engineer This year we brought the whole company together in one location, setting us up to commercialise the SiBox technology. In SiBox we’ve created a technology that will enable large industrial and utility customers to cost-effectively decarbonise." Dr Jordan Parham Chief Operating Officer 1414 DEGREES LIMITED | ANNUAL REPORT 20/21 1414 DEGREES LIMITED | ANNUAL REPORT 19/20 Corporate Governance 1414 Degrees Limited and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The Company has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (4th edition) published by the ASX Corporate Governance Council. The 2021 Corporate Governance Statement is dated as at 30 June 2021 and reflects the corporate governance practices in place throughout the 2021 financial year. The 2021 Corporate Governance Statement has been approved by the Board. A description of the Company’s current corporate governance practices is set out in the Corporate Governance Statement which can be viewed at www.1414degrees.com.au 1414 DEGREES LIMITED ACN 138 803 620 ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 1414 DEGREES LIMITED ACN 138 803 620 ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 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 11 12 13 14 15 30 31 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2021 Page 1 The directors of 1414 Degrees Limited present their report on the Group for the financial year ended 30 June 2021. 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 - Resigned as Director 19 July 2021 and as Executive Chairman 2 September 2021 Dana Larson Penelope Bettison - Appointed 27 September 2019. Resigned 28 July 2020 Ian Little - Appointed 27 September 2019. Resigned 1 July 2020 Richard Willson - Appointed 2 July 2020, Resigned 24 May 2021 Tony Sacre - Appointed 3 June 2021 Peter Gan - Appointed 4 January 2021 Jamie Summons - Managing Director - Appointed 14 January 2021, Ceased Employment 23 June 2021 COMPANY SECRETARY Richard Willson - Resigned 24 May 2021 Tania Sargent - Appointed 25 May 2021 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 2021. REVIEW OF OPERATIONS The Company’s strategies, structure and people have continued to evolve as it progresses through the development of a new technology in a dynamic market. In the past year, there have been several significant achievements regarding the technical and commercial development of our silicon based thermal energy storage technology and Aurora Energy Project. This is occurring as we continue to see a very favourable investment environment for clean energy technology and renewable energy generation projects. The Company relocated to new premises in April 2021, uniting all staff for the first time, which will enhance our internal collaboration and provide for ongoing cost efficiencies. GAS-TESS The GAS-TESS pilot facility (Glenelg project) has operated since April 2019 at SA Water’s Glenelg Wastewater Treatment Plant (WWTP). The project was granted acceptance as an embedded generator in the NEM in July 2019 and received final permanent development approvals by local council in November 2020. Sufficient testing and operation has been undertaken to validate design models and assess the GAS-TESS pilot’s strengths and weakness versus conventional generating plant. The Glenelg project as presently configured is not commercial for continuous operation however it remains available for periodic demonstration of the Company’s technology and a backup for biogas to energy conversion on the site. Future investment opportunities to enhance its utilisation and performance are available and SA Water remains supportive of the ongoing development of the GAS-TESS technology. The total carrying value of the Gas-TESS asset was impaired in June 2021 ($2,863,285). In the last year studies have continued on broader applications of the GAS-TESS technology and future commercialisation pathways. In particular these have focussed on hybrid approaches with other conventional generating assets. We continue to look for and work with potential partners interested in the value GAS-TESS technology can add to their operations, including water utilities and other applications where there is waste gas or variable/ intermittent gas streams with calorific value that require emissions management solutions. SIBOX THERMAL ENERGY STORAGE TECHNOLOGY The Company’s core research and development to harness the high energy density of molten silicon has resulted in a new, robust, scalable and energy dense storage media concept. This breakthrough technology, arranged in a new internal heat exchanger design, is called ‘SiBox™’. Over the past year R&D efforts have focussed on refining the three preferred thermal storage media concepts for SiBox. Samples have now completed six months of rigorous testing under anticipated real-life conditions. As the key next step in commercialisation of the SiBox™ technology, we plan to construct a 1 MWh SiBox Demonstration Module by September 2022. The Demonstration Module will be a full-scale single module of the large scale SiBox concept with a focus on storage of renewable electricity and delivery of this energy as high temperature heat when required. Following its construction, the Demonstration Module will undergo a period of rigorous operations and testing in an environment that simulates commercial operations. This will advance the Technical Readiness Level of the SiBox technology and provide confidence to large scale industrial and utility customers, thereby accelerating SiBox commercialisation as a flexible and scalable clean energy solution. In the last year full-system design, optimisation activities and selection of the most robust, energy dense and lowest cost storage media option have been progressed. A final work program and budget was established enabling construction activities to commence in 2022. 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2021 Page 2 AURORA ENERGY PROJECT In December 2019, the Company acquired SolarReserve Australia II Pty Ltd, now renamed SiliconAurora Ltd a fully owned subsidiary of 1414 Degrees Ltd. SiliconAurora is developing the Aurora Energy Project (AEP) near Port Augusta in South Australia. The Company made the strategic acquisition as part of a strategy to participate in dispatchable renewable energy generation developments, which will increasingly be in demand. The AEP site has had significant investment including the 275kV transmission line which is immediately adjacent to the project and is the primary energy source for OzMinerals’ long-term operations at Prominent Hill and Carapateena mines. The line, operated by Electranet, also provides a connection point to the National Electricity Market (NEM), making the site well suited for wholesale renewable energy generation, electricity storage and grid stability support services. Once an initial renewable energy development is established, the site also provides the Company with a potential location to demonstrate its SiBox technology on a larger scale following successful operation of the Demonstration Module. The AEP has development approval for a 70 MW solar PV farm and 150 MW of generation from a concentrated solar thermal plant (CSP). During the year the Company has undertaken a significant review of the AEP and revised the preferred development concept in order to maximise commercial return whilst progressing electrical connection to the site and opening up the development of large-scale solar energy generation in the future. Relevant approvals for the updated AEP project design have been obtained, including Crown Sponsorship and Office of the Technical Regulator Certificate. A variation to the existing Development Approval has also been lodged to include a 140MW/280MWh hr battery and the SiBox pilot. Solar monitoring activities at the location are continuing and will provide suitable data for future CSP and solar generation development. The Company has been progressing commercial discussions with relevant third parties including customers and Electranet, as well as undertaking the technical studies required for the granting of a transmission connection agreement. We have also been working with potential providers for key equipment. INTELLECTUAL PROPERTY Current status of patents and trade names • Patent 2010282232– “Thermal Energy Storage Apparatus, Arrangement and Method”. Granted in AU, NZL, EU, China and US. • Patent 2012292959 – Thermal Energy Storage Apparatus” joint ownership. CCT dispute resolved. Granted in AU, NZL, EU, China and US. • PCT Application 2018239960 “Energy Storage and Retrieval System” (TESS-IND). Some issues raised in EU, response in progress. Granted in AU, NZL and US. • PCT Application PCT/AU2019/000113 “Energy Recovery System” (GAS-TESS). Proceeding with National/Regional Phase registration Aus, NZL, EU and US. • Australian provisional patent application No. 2020904050 (SiBox Storage Media). In application/patent pending. • SiBox trademark registered in AU, PRC, USA, EU. The Company continues to actively manage, document and protect all its intellectual property. As part of this, during the year the Company successfully resolved a dispute with Climate Change Technologies (CCT) concerning a very early patent. COVID-19 The COVID-19 pandemic caused the Group to review its budgets and work practices. The Company continues to monitor its finances and workplace arrangements to manage the risk from COVID- 19 and related lockdowns. 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2021 Page 3 SIGNIFICANT CHANGES IN STATE OF AFFAIRS An oversubscribed Share Purchase Place (SPP) closed in October 2020 securing further investment of $3,175,539. The SPP provided an opportunity for all eligible shareholders to subscribe up to $30,000 at 12 cents a share, a 12.6% discount to the volume weighted average price of shares on the ASX during the 5 trading days immediately prior to the announcement of the SPP Offer on 3 September 2020. 26,463,035 Ordinary Shares were issued on Wednesday, 21st of October 2020. On June 30, 2021 the Company had 200,310,458 Ordinary Shares on issue and 3677 shareholders. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR The company has new leadership at Management and Board level, with the appointment of Matthew Squire as Chief Executive Officer and Tony Sacre as Chair of the Board. These appointments significantly enhance the commercial, strategic and governance capabilities of the Company. ENVIRONMENTAL REGULATION The Group is not subject to significant environmental regulations and is not aware of any breaches of any environmental regulations during the year. MEETINGS OF DIRECTORS The number of meetings of the board of directors (including board committees) held during the year ended 30 June 2021, and the number of meetings attended by each director are set out below: Directors Kevin Moriarty Dana Larson Peter Gan Jamie Summons Richard Willson Tony Sacre Board Committee Held Attended Held Attended 4 4 2 2 4 0 4 2 2 2 4 0 0 1 1 0 0 1 0 1 1 0 0 1 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 12,653,000 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): Special responsibilities: 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 Member of the Independent Board Committee 250,000 ordinary shares None None Name: Title: Qualifications: Penelope Bettison - Appointed 27 September 2019. Resigned 28 July 2020. Executive Director BBus, GAICD, FAMI, CPM Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Contractual rights to shares: Penelope has 20 years' experience in marketing and business management and is the Company's Head of Corporate Services. She founded and was a Director and Brand Strategist at Pitstop Marketing. Her experience spans a wide range of industries including financial services, engineering, education, government, business events and tourism. None None 0 ordinary shares None None 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2021 Page 4 Name: Title: Qualifications: Richard Willson - Appointed 2 July 2020, Resigned 24 May 2021. Non-Executive Director & Company Secretary BAcc, FCPA, FAICD Experience and expertise: Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Contractual rights to shares: Richard is an experienced Non-Executive Director, Company Secretary and CFO with more than 20 years’ experience with 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), 1414 Degrees Limited (ASX:14D), Graphene Technology Solutions Limited, the not-for-profit Unity Housing Company 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. Titomic Limited (ASX:TTT), AusTin Mining Limited (ASX:ANW), Thomson Resources Limited (ASX:TMZ) None 0 ordinary shares None None Name: Title: Qualifications: Peter Gan Non-Executive Director BEng (Hons), MBA Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Peter is an experienced executive and governance professional, having held positions as Chief Executive Officer, Chief Operating Officer and Company Secretary with both listed and private companies. Peter's experience includes roles with energy companies, technology start-ups and professional services, whilst also having extensive experience in capital markets. Peter has an Engineering degrees (Hons) and also holds a Masters in Business Administration. Royal Wins Corporation None Member of the Independent Board Committee 0 ordinary shares None None Name: Title: Qualifications: Tony Sacre Chairman and Non-Executive Director BBus, FINSIA, ACA, ACPA, MBA, GAICD Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Tony is an experienced Non-Executive Director and Executive with more than 25 years' experience with both publicly listed and private companies. Tony is currently the CEO of Bentleys, Australia's twelfth largest national accounting organisation. Tony's experience includes roles with international financial institutions, Australia's primary securities exchange and large professional services organisations. Tony has a Bachelor of Business (Queensland University of Technology), is a Fellow of the Securities Institute of Australia, a Chartered Accountant and Certified Practising Accountant, holds a Masters in Business Administration (Macquarie University) and is a Graduate of the Australian Institute of Company Directors. None None Chair of the Independent Board Committee 0 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. COMPANY SECRETARY Tania Sargent is an experienced governance, company secretary and non-executive director and is the current State Chair of the Governance Institute. Tania has a Bachelor of Arts (Accounting) from the University of South Australia, is a member of the Institute of Chartered Accountants (Aust & NZ), has completed a Masters in Business Administration, is a graduate member of the Australian Institute of Company Directors and has completed a Diploma of Applied Corporate Governance with the Governance Institute of Australia. 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2021 Page 5 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 Group 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 Group. 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. Non-executive directors do not receive share Performance Rights or other incentives. The chairman's fees are determined independently to the fees of non-executive directors based on comparative roles in the external market. 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 2021 Page 6 Executive remuneration The Group 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 Group 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 Group are set out in the following tables. The key management personnel of the Group consisted of the following directors of 1414 Degrees Ltd: ● ● ● ● ● ● Jamie Summons - Managing Director - Ceased Employment 23 June 2021 Dana Larson - Non-Executive Director Tony Sacre - Chairman and Non-Executive Director- Appointed 3 June 2021 Peter Gan - Non-Executive Director - Appointed 4 January 2021 Penelope Bettison - Executive Director (Appointed 27 September 2019. Resigned 28 July 2020) and Head of Corporate Services (Resigned 28 August 2020) Kevin Moriarty – Executive Chairman - Resigned as Director 19 July 2021 and as Executive Chairman 2 September 2021 And the following persons: ● ● ● ● Matthew Squire - Chief Executive Officer - Appointed 1 August 2021 Richard Willson - Non-Executive Director and Company Secretary - Appointed as director on 1 July 2020 - Resigned 24 May 2021 Jordan Parham - Chief Operating Officer Marie Pavlik - Chief Executive Officer (SiliconAurora) and Business Development Manager - Appointed 14 January 2020, Redundancy 5 March 2021 Short-term benefits Post- employment benefits Long-term benefits Share-based payments Salary and fees $ Cash bonus $ Non- monetary Super- annuation Long service leave $ $ $ Equity- settled shares $ Equity-settled Performance Rights $ Total $ 5,417 30,000 20,000 80,438 182,500 73,362 - 132,002 170,937 128,635 823,291 - - - - - - - - - - - - - - - - - - - - - - - - - - 7,048 - - - - 17,337 5,424 7,443 - - 10,847 16,239 10,444 67,339 - - 5,669 - 13,112 - - - - - - - - - - - - - - - - - - - - 15,000 35,800 50,800 5,417 30,000 20,000 87,486 207,280 78,786 142,849 207,845 174,879 954,542 2021 Non-Executive Directors: Tony Sacre * Dana Larson Peter Gan * Richard Willson ** Executive Directors: Kevin Moriarty Penelope Bettison *** Other Key Management Personnel: Matthew Squire Jamie Summons **** Jordan Parham Marie Pavlik ***** * ** *** **** ***** No payments in the year to 30 June 2021 - 1st payment in July 2021 Represents remuneration from 1 July 2020 to 24 May 2021 Represents remuneration from 1 July 2020 to 28 August 2020 Represents remuneration from 14 January 2021 to 23 June 2021 Represents remuneration from 1 July 2020 to 5 March 2021 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2021 Page 7 Short-term benefits Post- employment benefits Long-term benefits Share-based payments Cash bonus $ Non- monetary Super- annuation Long service leave $ $ $ Equity- settled shares $ Equity-settled Performance Rights $ Total $ - - - - - - - - - - - - - - - - - - - 1,342 - 2,404 19,255 17,367 5,928 17,367 6,977 70,641 - - - 514 2,612 1,043 3,191 1,552 8,911 - - - - - - - - - - - - - 15,469 31,667 27,712 - (8,696) 278,050 194,096 (737) 29,250 - 19,817 68,634 233,461 81,972 931,060 Cash salary and fees $ 14,127 31,667 25,308 258,281 182,812 62,400 183,653 73,442 831,690 2020 Robert Shepherd * Dana Larson Ian Little ** Executive Directors: Kevin Moriarty (Chairman) Penelope Bettison *** Other Key Management Personnel: Richard Willson Jordan Parham Marie Pavlik **** * ** *** **** Represents remuneration from 1 July 2019 to 7 November 2019 Represents remuneration from 27 September 2019 to 30 June 2020 Moved from "Other Key Management Personnel" to "Executive Directors" due to appointment 27 September 2019 Represents remuneration from 14 January 2020 to 30 June 2020 Employment agreements 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: Dana Larson Non-Executive Director 1 December 2018; varied effective 1 November 2020 Ongoing Director fee for the year ending 30 June 2021 of $40,000. Name: Title: Agreement commenced: Term of agreement: Details: Kevin Moriarty Executive Chairman 1 January 2020; varied effective 1 April 2020; varied effective 1 July 2021 2 years Base salary for the year ending 30 June 2021 of $200,000 plus superannuation. 3 month termination notice by either party. Name: Title: Agreement commenced: Term of agreement: Details: Tony Sacre Chairman and Non-Executive Director 3 June 2021 Ongoing Director fee for the year ending 30 June 2021 of $65,000 Name: Title: Agreement commenced: Term of agreement: Details: Peter Gan Non-Executive Director 4 January 2021 Ongoing Director fee for the year ending 30 June 2021 of $40,000. Name: Title: Agreement commenced: Term of agreement: Details: Penelope Bettison Executive Director (Appointed 27 September 2019, Resigned 28 July 2020) & Head of Corporate Services (resigned 28 August 2020) 1 March 2019; varied effective 1 April 2020 Resigned 28 August 2020 Base salary for the year ending 30 June 2021 of $195,000 plus superannuation. 3 month termination notice by either party. Name: Title: Agreement commenced: Term of agreement: Details: Richard Willson Company Secretary 19 October 2017 Resigned 24 May 2021 Base salary for the year ending 30 June 2021 of $46,800 plus superannuation. 3 month termination notice by either party. 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2021 Page 8 Employment agreements (Continued) Name: Title: Agreement commenced: Term of agreement: Details: Matthew Squire Chief Executive Officer 1 August 2021 Ongoing Base salary for the year ending 30 June 2022 of $350,000 plus superannuation. 3 month termination notice by either party. Name: Title: Agreement commenced: Term of agreement: Details: Jamie Summons Managing Director 4 January 2021 Ceased Employment 23 June 2021 Base salary for the year ending 30 June 2021 of $250,000 plus superannuation. 3 month termination notice by either party. Name: Title: Agreement commenced: Term of agreement: Details: Jordan Parham Chief Operating Officer 14 January 2019; varied effective 1 April 2020 Ongoing Base salary for the year ending 30 June 2021 of $180,000 plus superannuation. 3 month termination notice by either party. Name: Title: Agreement commenced: Term of agreement: Details: Marie Pavlik Chief Executive Officer (SiliconAurora) & Business Development Manager 14 January 2020; varied effective 1 April 2020 Redundancy 5 March 2021 Base salary for the year ending 30 June 2021 of $170,000 plus superannuation. 4 week termination notice by either party. 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 2021 Performance Rights There were no Performance Rights ("PR") issued to directors and other key management personnel as part of compensation during the year ended 30 June 2021. 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 2021 are set out below: Name Marie Pavlik Jordan Parham Richard Willson Kevin Moriarty Dana Larson Company performance link to remuneration Value of PR granted during the year $ Value of PR exercised during the year $ Value of PR lapsed during the year $ Remuneration consisting of PR for the year % 126,700 248,450 60,000 120,000 15,000 570,150 35,800 15,000 - - - 50,800 (90,900) (22,800) (60,000) (173,700) 20% 7% The remuneration of key management personnel is linked to the development of the Group’s intangible assets, the continued progress towards developing the TESS technology and progress on the Aurora site at Port Augusta. 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2021 Page 9 Other transactions with key management personnel and their related parties Nil This concludes the audited remuneration report. Additional disclosures relating to key management personnel Shareholding The number of shares in the Group held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: 2020 Ordinary shares Robert Shepherd* Dana Larson Ian Little Kevin Moriarty Penelope Bettison** Richard Willson Jordan Parham Marie Pavlik*** 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 - - - - - - - - - - - - - - - 150,000 - 150,000 (7,107,594) - - - (1,000,000) - - 5,564 (8,102,030) Disposals/other' is to recognise resignation on 7 November 2019 and hence removal of shareholding from disclosure at the date of this report. Disposals/other' is to recognise resignation from KMP on 28 August 2020 and hence removal of shareholding from disclosure at the date of this report. Appointed 14 January 2020. 'Disposals/Other' denotes balance held prior to joining the group. Balance at the date of this report - 250,000 - 12,403,000 - - 150,000 5,564 12,808,564 Balance at the date of this report - - 250,000 12,653,000 - - 150,000 - 255,564 13,308,564 Balance at the start of the year Received as part of remuneration Additions Disposals/ other - - 250,000 12,403,000 - - 150,000 - 5,564 12,808,564 - - - - - - - - - - - - - 250,000 - - 100,000 - 250,000 600,000 - - - - - - (100,000) - - (100,000) * ** *** 2021 Ordinary shares Tony Sacre Peter Gan Dana Larson Kevin Moriarty Penelope Bettison Richard Willson Jordan Parham Matthew Squire Marie Pavlik Performance Rights holding The number of PR over ordinary shares in the Group held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: 2020 PR over ordinary shares Penelope Bettison Richard Willson Jordan Parham 2021 PR over ordinary shares Richard Willson Kevin Moriarty Marie Pavlik Dana Larson Jordan Parham Balance at the start of the year 750,000 50,000 200,000 1,000,000 Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the date of this report - - - - - - (150,000) (150,000) (750,000) (25,000) (50,000) (825,000) - 25,000 - 25,000 Granted Exercised Expired/ forfeited/ other Balance at the date of this report 25,000 - - - - 25,000 400,000 800,000 950,000 100,000 1,450,000 3,700,000 - - (250,000) - (100,000) (350,000) (425,000) - (700,000) - (200,000) (1,325,000) - 800,000 - 100,000 1,150,000 2,050,000 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 2021 Page 10 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. The Group has indemnified the Directors and executives of the Group for costs incurred, in their capacity as a Director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Group paid a premium in respect of a contract to insure the Directors and executives of the Group against a liability to the extent permitted by the Corporations Act 2001 . The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. PROCEEDINGS ON BEHALF OF THE GROUP No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group 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 amount is nil during the financial year as no non-audit services were provided (2020: $nil). OFFICERS OF THE GROUP WHO ARE FORMER PARTNERS OF ACCOUNTING FIRM BDO There are no officers of the Group who are former partners of Accounting Firm BDO Audit (SA) Pty Ltd. AUDITOR'S INDEPENDENCE DECLARATION A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. AUDITOR Accounting Firm BDO Audit (SA) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. Tony Sacre Chairman and Non-Executive Director Dated this 30th day of September 2021 1414 DEGREES LIMITED ACN 138 803 620 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021 Other Income Research and Development Expenses Administration and Professional Expenses Occupancy Expenses Marketing Expenses Depreciation and Amortisation Asset Impairment Employee Benefits Expense Share Based Payments (Equity-settled) Directors Fees Other Expenses Finance Costs (Loss) before income tax Income tax benefit / (expense) (Loss) for the year Other comprehensive income for the year Items that will be reclassified subsequently to profit or loss: Total comprehensive (loss) for the year Basic loss per share Diluted loss per share Note 5 6 8 16 16 Page 11 2021 AUD$ 2020 AUD$ 486,553 411,054 6,553 1,319,515 73,739 50,851 136,772 2,933,040 1,285,226 252,949 83,561 214,276 104,249 (5,974,178) - (5,974,178) - 906,889 37,042 76,521 300,221 - 1,451,631 93,932 71,935 253,098 85,743 (2,865,958) - (2,865,958) - - - - - - (5,974,178) (2,865,958) (3.11) cents (3.11) cents (1.66) cents (1.66) cents The above consolidated 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 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 Note 9 10 11 12 13 14 15 17 Page 12 2021 AUD$ 2020 AUD$ 5,704,957 544,370 131,721 6,381,048 4,395,479 1,436,805 142,882 5,975,166 173,434 5,661,300 1,601,502 7,436,236 13,817,284 204,155 8,359,688 1,126,136 9,689,979 15,665,145 608,819 78,825 315,000 1,002,644 31,072 1,255,232 - 1,286,304 2,288,948 355,139 90,628 129,938 575,705 14,906 975,485 - 990,391 1,566,096 11,528,336 14,099,049 32,486,429 196,904 (21,154,997) 11,528,336 29,197,369 116,968 (15,215,288) 14,099,049 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 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 Right-of-use assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Provision for employee benefits Lease liabilities Total current liabilities Non-current liabilities Provision for employee benefits Lease liabilities (NC) Convertible notes Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Share Based Payments Reserve Accumulated losses Total equity 1414 DEGREES LIMITED ACN 138 803 620 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021 Cash flows from operating activities Cash received from customers Cash paid to suppliers and employees Government grants Interest received Interest paid Interest paid on lease liabilities Net cash inflow/(outflow) from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of entities 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 Repayment of lease liabilities 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 consolidated statement of cash flows should be read in conjunction with the accompanying notes. Page 13 2021 AUD$ 2020 AUD$ 50,975 (2,912,441) 492,250 18,398 - (42,637) (2,393,455) (7,548) - (1,376,133) 16,000 1,954,840 587,159 - - - (59,492) - 3,175,540 3,116,048 1,309,752 (274) 4,395,479 5,704,957 24,991 (2,981,431) 233,636 148,623 (9,500) (23,533) (2,607,214) (36,263) (2,000,000) (3,278,550) 236,000 2,743,782 (2,335,031) - - (398,868) - - - (398,868) (5,341,113) 15,400 9,721,192 4,395,479 1414 DEGREES LIMITED ACN 138 803 620 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2021 Page 14 Contributed equity $ Share Based Payments Reserve $ Accumulated Losses $ Total equity $ 29,097,294 123,111 29,097,294 123,111 (12,314,612) (34,718) (12,349,330) - - - - - - (2,865,958) - (2,865,958) 16,905,793 (34,718) 16,871,075 (2,865,958) - (2,865,958) - 100,075 - 100,075 93,932 (100,075) - (6,143) 29,197,369 116,968 - - - - - - - - - - 93,932 - - 93,932 (15,215,288) 34,471 (5,974,178) - (5,974,178) 14,099,049 34,471 (5,974,178) - (5,974,178) - 173,013 3,116,047 3,289,060 252,949 (173,013) - 79,936 - - - - 252,949 - 3,116,047 3,368,996 32,486,429 196,904 (21,154,997) 11,528,336 At 30 June 2019 Adjustment for change in accounting policy (note 1) Balance at 1 July 2019 - Restated Loss for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Employee Share Scheme - Performance Rights Valuation Employee Share Scheme - Conversion of Performance Rights Contributions of equity net of transaction costs At 30 June 2020 Adjustment for prior period restatement of leased asset (note 27) Loss for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Employee Share Scheme - Performance Rights Valuation Employee Share Scheme - Conversion of Performance Rights Contributions of equity net of transaction costs At 30 June 2021 The above consolidated 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 2021 Page 15 NOTE 1 CORPORATE INFORMATION The financial statements of 1414 Degrees Limited for the year ended 30 June 2021 were authorised for issue in accordance with a resolution of the directors on 30 September 2021 and cover the group as required by Australian Accounting Standards. The financial statements are presented in the Australian currency. 1414 Degrees Limited is a group limited by shares incorporated and domiciled in Australia. The address of the group's registered office and principal place of business is 136 Daws Rd, Melrose Park SA 5039 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 group is a for-profit group 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 group 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 2021 Page 16 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 group 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. Goodwill on business acquisition and the intangible asset that is not yet ready for use is tested for impairment annually, or more frequently if events or changes in circumstances indicated that they might be impaired. 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 group 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. Goodwill Goodwill is calculated as the excess of the: ● ● ● over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. consideration transferred, amount of any non-controlling interests in the acquired entity, and acquisition-date fair value of any previous equity interest in the acquired entity 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Page 17 NOTE 2 (h) Intangible Assets (Continued) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes. (i) Leases Right-of-use Assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The consolidated entity has elected to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease Liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. (j) Trade and Other Payables Trade and other payables represent liabilities for goods and services provided to the group 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. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Page 18 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. 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) Principles of Consolidation Subsidiaries Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity where the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the group. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively. (o) Business Combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: - fair values of the assets transferred - liabilities incurred to the former owners of the acquired business - equity interests issued by the group - fair value of any asset or liability resulting from a contingent consideration arrangement, and - fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Page 19 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) NOTE 2 (o) Business Combinations (continued) The excess of the: - consideration transferred, - amount of any non-controlling interest in the acquired entity, and - acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss. (p) Accounting Standards Issued But Not Yet Effective There are no accounting standards that have not been early adopted for the year ended 30 June 2021 but will be applicable to the group in future reporting periods which are expected to have a material impact on the financial statements. (q) Application of new and revised Accounting Standards The group 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 group. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Page 20 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 group. Key Estimates - Impairment The group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the group 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 on the basis of management’s expectations regarding the growth of the market and the group’s ability to capture market share. Pre-tax discount rates of 11% have been used in all models. With respect to cash flow projections for the goodwill on business acquisition, the calculations use cash flow projections based on the most readily available modelling work performed for/by the entity. Relevant inputs have been factored into models on the basis of management’s expectations regarding potential revenues and the group’s ability to capture market share. Pre-tax discount rates of 11% have been used in all models. The goodwill on business acquisition and intangible asset is tested for impairment annually 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 $3,789,832 (2020: $6,488,220 ) being the carrying value of the Product Development intangible asset of $9,801,097 (2020: $16,296,263) less the associated Government Grant funding of $1,000,000 (2020: $2,568,000) and the R&D refundable tax offsets applied of $5,011,265 (2020: $7,240,043). 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, excluding the GASS TESS asset at the SA Water (Glenelg) site, for which an impairment was recorded this financial year ($2,933,040). NOTE 4 SEGMENT REPORTING There is only one segment which is the entire business, which operates entirely within Australia. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 OTHER INCOME NOTE 5 Interest Received Rent & Office Recoveries Claim Settlement Provision of services Government grants NOTE 6 Profit(loss) before income tax includes the following specific expenses: EXPENSES Defined contribution superannuation expense Right of Use Assets - Depreciation expense Right of Use Assets - Interest expense NOTE 7 Audit services AUDITORS' REMUNERATION Amounts paid/payable to BDO for audit/review of the financial statements of the group 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 26.0% 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 Tax expense NOTE 9 CASH AND CASH EQUIVALENTS Cash at bank Cash term deposits An amount of $295,113 included as cash has been set aside to support a bank guarantee issued to the landlord of the rented premises. NOTE 10 TRADE AND OTHER RECEIVABLES Trade receivables R&D refundable tax offset Other receivables Page 21 2021 AUD$ 2020 AUD$ 18,828 4,257 46,718 - 416,750 486,553 107,841 103,539 104,249 315,629 31,225 - 31,225 - - - - - - 79,198 22,720 - 309,136 411,054 123,987 252,415 85,743 462,145 37,000 - 37,000 - - - - - - (5,974,178) (2,865,958) (1,553,286) (788,138) 1,553,286 81,795 4,160 (49,319) 503 1,516,147 - 788,138 29,862 64,900 (48,893) (34,226) 776,495 - 5,704,957 4,395,479 - - 5,704,957 4,395,479 696 538,577 5,097 544,370 63,000 1,367,937 5,868 1,436,805 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 INTANGIBLE ASSETS NOTE 11 Product Development Product Development - Intellectual Property Intangible assets under development - at cost Government Grants applied R&D Refundable Tax Offset applied Reconciliation of Product Development - Intellectual Property Balance at the beginning of the year Additions Government Grants applied R&D Refundable Tax Offset applied GAS TESS Impairment Closing carrying value Page 22 2021 AUD$ 2020 AUD$ 9,801,097 (1,000,000) (5,011,265) 3,789,832 6,488,220 1,376,133 (16,000) (1,125,481) (2,933,040) 3,789,832 16,296,263 (2,568,000) (7,240,043) 6,488,220 5,109,045 3,278,550 (236,000) (1,663,375) - 6,488,220 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 2021. The intangible asset is tested for impairment annually. The government grant relates to accelerating the commercialisation of the group's intellectual property. The recoverable amount of the group's Product Development intangible asset has been determined by a value-in-use calculation using a discounted cash flow model, based on an 8 year projection period approved by management. The following key assumptions were used in the discounted cash flow model: ● 11% pre-tax discount rate; ● No revenue earned until 2024; ● Major project deliverables in 2024, 2027, and 2030. The discount rate of 11% 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 revenue presented in the model is justified, based on the potential indicated in the market. There were no other key assumptions. Goodwill on business acquisition Goodwill on business acquisition (Note 19) Reconciliation of goodwill on business acquisition Balance at the beginning of the year Purchase of SiliconAurora Pty Ltd Closing carrying value Goodwill is tested for impairment annually. 1,871,468 1,871,468 1,871,468 - 1,871,468 1,871,468 1,871,468 - 1,871,468 1,871,468 The recoverable amount of the group's goodwill intangible asset has been determined by a value-in-use calculation using a discounted cash flow model, based on an 11 year projection period approved by management. The following key assumptions were used in the discounted cash flow model: ● 11% pre-tax discount rate; ● Consistent revenue beginning in FY2023 ● Revenue and CAPEX based on modelling recently performed for the Group; ● Financing mix unknown, however model based on 100% debt in order to consider impacts of interest and debt repayments The discount rate of 11% 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 revenue presented in the model is justified, based on modelling work referred to above. There were no other key assumptions. NON-CURRENT ASSETS - RIGHT-OF-USE ASSETS NOTE 12 Land and buildings - right-of-use Less: Accumulated depreciation Additions to the right-of-use assets during the year were $570,436 TRADE AND OTHER PAYABLES NOTE 13 Trade and other payables Other payables and accruals 1,766,174 (164,672) 1,601,502 2,256,668 (1,130,532) 1,126,136 395,133 213,686 608,819 297,339 57,800 355,139 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 14 Lease liabilities NON-CURRENT LIABILITIES - LEASE LIABILITIES Lease Type Term Tripartite Agreement - Pastoral Lease Office Space 40 years 2 years & 2 months, 1 year right of renewal Rate Applied to Lease Liability 6.23% 4.98% Page 23 2021 AUD$ 2020 AUD$ 1,255,232 975,485 965,089 290,143 1,255,232 975,485 - 975,485 NOTE 15 CONTRIBUTED EQUITY Share capital Ordinary shares - authorised, issued and fully paid opening balance Employee Share Scheme - Conversion of Performance Rights Share Purchase Plan Costs of issue Ordinary shares - authorised, issued and fully paid closing balance 2021 No. of Shares 2021 AUD$ 2020 No. of Shares 2020 AUD$ 172,904,923 29,197,369 172,389,923 29,097,294 942,500 173,013 515,000 100,075 26,463,035 3,175,540 - (59,493) - - - - 200,310,458 32,486,429 172,904,923 29,197,369 Ordinary shareholders are entitled to participate in dividends and the proceeds on winding up of the group 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 group in order to ensure that the group can fund its operations and continue as a going concern. The group's capital includes ordinary share capital and financial liabilities, supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the group’s capital by assessing the group’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 group 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 2021 AUD$ 2020 AUD$ (5,974,178) (2,865,958) (5,974,178) (2,865,958) Profit (loss) after income tax attributable to the owners of 1414 Degrees Ltd used in calculating diluted earnings per share (5,974,178) (2,865,958) 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 (3.11) (3.11) (1.66) (1.66) Number Number 191,870,410 172,612,635 - - - - - - Weighted average number of ordinary shares used in calculating diluted earnings per share 191,870,410 172,612,635 The 4,625,000 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 2021 Page 24 NOTE 17 SHARE BASED PAYMENTS 350,000 shares were issued to key management personnel in this financial year as part of the group's Performance Rights plan. In the year ended 30 June 2020 150,000 shares were issued to key management personnel during the financial year. A Performance Rights plan was established by the group in the 2019 financial year, whereby the group may, at the discretion of the board, grant Performance Rights (PR) over ordinary shares in the group to certain employees of the group. 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's outstanding at the end of the financial year: 2021 2020 Grant date Expiry date Exercise price 2/04/2019 2/04/2019 2/04/2019 2/04/2019 23/07/2020 23/07/2020 23/07/2020 23/07/2020 23/07/2020 23/07/2020 30/11/2020 30/11/2020 9/04/2021 9/04/2021 9/04/2021 9/04/2021 9/04/2021 9/04/2021 9/04/2021 1/07/2020 15/01/2021 15/01/2022 15/01/2023 31/07/2020 1/07/2021 15/01/2021 15/01/2022 1/07/2022 15/01/2023 30/11/2021 30/11/2022 15/07/2021 31/07/2021 1/09/2021 15/01/2022 15/01/2023 15/01/2024 31/12/2021 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Balance at the start of the year 250,000 775,000 875,000 750,000 - - - - - - - - - - - - 2,650,000 Granted Exercised Expired/ forfeited/ other Balance at the end of the year - - - - 742,500 250,000 600,000 400,000 100,000 1,000,000 700,000 600,000 250,000 100,000 100,000 325,000 100,000 500,000 500,000 6,267,500 (75,000) (125,000) - - (542,500) - (200,000) - - - - - - - - - - - - (942,500) (175,000) (650,000) (875,000) (250,000) (200,000) (400,000) (400,000) (200,000) (200,000) (3,350,000) - - - 500,000 - 250,000 - 100,000 1,000,000 500,000 400,000 250,000 100,000 100,000 325,000 100,000 500,000 500,000 4,625,000 Weighted average exercise price $0.00 $0.00 $0.00 $0.00 $0.00 Grant date Expiry date 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 Exercise price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Balance at the start of the year 75,000 200,000 725,000 350,000 925,000 975,000 1,100,000 4,350,000 Granted Exercised Expired/ forfeited/ other Balance at the end of the year - - - - - - - - (70,000) (150,000) (295,000) - - - - (515,000) (5,000) (50,000) (430,000) (100,000) (150,000) (100,000) (350,000) - - - 250,000 775,000 875,000 750,000 (1,185,000) 2,650,000 Weighted average exercise price $0.00 $0.00 $0.00 $0.00 $0.00 There are no Performance Rights exercisable at the end of the financial year. The weighted average remaining contractual life of Performance Rights outstanding at the end of the financial year was 0.94 years (2020: 1.12). During the year the expense recognised in relation to the valuation of these Performance Rights was $253k. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 18 Reconciliation of profit after income tax to net cash flow from operating activities CASH FLOW INFORMATION Loss for the year Non-cash flows in profit/(loss): - Depreciation and Amortisation - Share Based Payments - Foreign exchange differences - Asset Impairment Change in operating assets and liabilities - (increase)/decrease in trade and other receivables - (increase)/decrease in other current assets - increase/(decrease) in trade and other payables - increase/(decrease) in employee benefits Net cash flow from operating activities NOTE 19 BUSINESS COMBINATION Page 25 2021 AUD$ 2020 AUD$ (5,974,178) (2,865,958) 136,772 252,949 274 2,933,040 300,221 93,932 (15,400) 771 11,161 241,393 4,363 (2,393,455) (5,851) 73,333 (73,990) (113,502) (2,607,214) On 13 December 2019 1414 Degrees Ltd acquired 100% of the issued shares in SolarReserve II Pty Ltd (Renamed to SiliconAurora Pty Ltd). SiliconAurora owns the advanced Aurora Solar Energy Project ("Aurora Project") near Port Augusta in South Australia. The group proposes to develop the Aurora Project, which has approval for 70MW of solar photovoltaic (PV) and 150MW of concentrated solar thermal plant (CSP) systems, and intends to demonstrate its world leading TESS-GRID technology. Details of the purchase consideration, the net assets acquired and goodwill are as follows: Cash paid Total purchase consideration The assets and liabilities recognised as a result of the acquisition are as follows: Cash GST Receivable Property, plant and equipment Right-of-use assets Lease liabilities - Current Lease liabilities - Non-Current Net identifiable assets acquired Add: Goodwill (Note 11) AUD$ 2,000,000 2,000,000 Fair Value AUD$ 1,000 8,809 85,601 1,052,115 (110,000) (908,993) 128,532 1,871,468 2,000,000 The goodwill is attributable to SiliconAurora's approval of 70MW of PV and 150MW of CSP systems, access to land resources and development activity to progress an expanded renewable energy project and demonstrate the Group's TESS-GRID technology. Documentation and contracts were obtained as part of the purchase, however these do not qualify for separate recognition. CONTINGENCIES NOTE 20 Contingent Liabilities At 30 June 2021 those charged with governance of the group note that there are no known contingent liabilities (2020: nil). NOTE 21 (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. There were no transactions with related parties during the year ended 30 June 2021 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Page 26 RELATED PARTY (continued) NOTE 21 (b) Director and Director-related Interests in the group Disclosures relating to director and director-related interests, as well as key management personnel are set out in Note 22 below and the remuneration report included in the director's report. NOTE 22 The totals of remuneration paid to KMP of the group 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 group's employee benefits and shared-based-payments expense for the year. NOTE 23 The group's financial instruments consist mainly of deposits with banks, accounts receivable and payable. FINANCIAL RISK MANAGEMENT 2021 AUD$ 2020 AUD$ 823,291 67,339 13,112 50,800 831,690 70,641 8,911 19,817 954,542 931,060 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 Note 9 10 13 2021 AUD$ 2020 AUD$ 4,395,479 5,704,957 538,577 1,367,937 5,763,416 6,243,534 608,819 608,819 355,139 355,139 General objectives, policies and processes In common with all other businesses, the group is exposed to risks that arise from its use of financial instruments. This note describes the group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. Market Risk The group’s activities have no material exposure to financial risks of changes in interest rates. The group 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 group 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. Credit Risk Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The group does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the group, 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. 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Page 27 NOTE 23 FINANCIAL RISK MANAGEMENT (continued) Liquidity Risk Liquidity risk is the risk that the group 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 group's operations are adequate to meet liabilities due. Financial liability and financial asset maturity analysis Within 1 year 1 to 5 years Over 5 years AUD$ 2021 AU$ 2020 AU$ 2021 AU$ 2020 AUD$ 2021 AUD$ 2020 Total AUD$ 2021 AUD$ 2020 Financial liabilities due for settlement Trade and other payables Lease Liabilities Financial assets - cash flows realisable Cash at bank Trade and other receivables Cash term deposits Sensitivity Analysis Interest rate risk 608,819 315,000 923,819 5,704,957 538,577 - 6,243,534 355,139 110,000 465,139 - 333,104 333,104 - 68,202 68,202 - 922,128 922,128 - 927,221 927,221 608,819 1,570,232 2,179,051 355,139 1,105,423 1,460,562 4,395,479 1,367,937 - 5,763,416 - - - - - - - - - - - - - - - - 5,704,957 4,395,479 538,577 - 6,243,534 1,367,937 - 5,763,416 At 30th June 2021 investment in Cash, Fixed Interest and Floating Interest rate deposits amounted to $5,704,957. A +/-1% change in interest rates during the year ended 30th June 2021 will result in a +/- change in net interest income of $57,050. At 30th June 2020 investment in Cash, Fixed Interest and Floating Interest rate deposits amounted to $4,395,479. A +/-1% change in interest rates during the year ended 30th June 2020 will result in a +/- change in net interest income of $43,955. Management has considered that both a positive and negative 1% variance is sufficient to illustrate the potential variations in interest income. Foreign currency risk Cash at bank held in or trade payables denominated in US dollars Euros Assets Liabilities 2021 AUD$ 2020 AUD$ 2021 AUD$ 2020 AUD$ 772 510 1,282 1,493 4,303 5,796 - - - - 14,661 14,661 The group had net assets denominated in foreign currencies of $1,282 as at 30 June 2021 (2020: net liability of $8,865). Based on this exposure, had the Australian dollar weakened by 10%/strengthened by 5% (2020: weakened by 10%/strengthened by 5%) against these foreign currencies with all other variables held constant, the group's profit before tax for the year would have been $128 lower/$64 higher (2020: $887 higher/$443 lower) and equity would have been $128 lower/$64 higher (2020: $887 higher/$443 lower). 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 loss for the year ended 30 June 2021 was $497 (2020: loss of $21,472). 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Page 28 NOTE 24 COMMITMENTS FOR EXPENDITURE There are no capital commitments as at 30 June 2021 (2020: nil) SUBSEQUENT EVENTS NOTE 25 The company has new leadership at Management and Board level, with the appointment of Matthew Squire as Chief Executive Officer and Tony Sacre as Chair of the Board. These appointments significantly enhance the commercial, strategic and governance capabilities of the Company. NOTE 26 Set out below is the supplementary information about the parent entity. PARENT ENTITY INFORMATION Statement of Profit or Loss and Other Comprehensive Income Loss after income tax Total comprehensive income Statement of Financial Position Total Current Assets Total Assets Total Current Liabilities Total Liabilities Equity Contributed equity Share Based Payments Reserve Accumulated losses Total Equity/(Deficiency) Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2021. Contingent Liabilities The parent entity had no contingent liabilities as at 30 June 2021. Capital Commitments - Property, Plant and Equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2021. The accounting policies of the parent entity are consistent with those of the Group, as disclosed in Note 2. NOTE 27 RESTATEMENT OF PRIOR PERIOD 2021 AUD$ 2020 AUD$ (4,835,687) (2,526,376) (4,835,687) (2,526,376) 2021 AUD$ 6,380,048 12,655,784 2020 AUD$ 5,974,166 14,604,064 (528,977) (207,763) 130,388 145,294 32,486,429 29,197,369 196,904 116,968 (19,691,254) 12,992,079 (14,855,567) 14,458,770 The group determined that an error was made in the initial accounting for the right of use asset and lease liability on acquisition of SiliconAurora Pty Ltd on 13 December 2019. A formula calculation error had resulted in an overstatement of the right of use asset and lease liability which has been corrected in the comparative figures to this financial report. The impact on each of the affected financial statement line items for the prior period is shown below. 30 June 2020 Right of use asset Total assets Lease liability Total liabilities Accumulated losses Other equity Total equity Depreciation and amortisation expense Finance costs (Loss) before tax for the year NOTE 28 INTERESTS IN SUBSIDIARIES As previously reported Adjustment As restated 2,674,765 17,213,774 (1,548,629) (1,548,629) 1,126,136 15,665,145 2,619,581 3,080,254 (1,514,158) (1,514,158) 1,105,423 1,566,096 (15,180,817) 29,314,337 14,133,520 (34,471) - (34,471) (15,215,288) 29,314,337 14,099,049 342,076 29,555 (2,851,625) (41,855) 56,188 14,333 300,221 85,743 (2,865,958) The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned subsidiaries in accordance with the accounting policy described in note 1: Name SiliconAurora Pty Ltd Aurora FinCo Pty Ltd Principal place of business / Country of incorporation Australia Australia Ownership Interest 2020 2021 100% 100% 100% 100% 1414 DEGREES LIMITED ACN 138 803 620 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Page 29 NOTE 29 DEFERRED TAXES The balance comprises temporary differences attributable to: Deferred tax assets attributable to: Tax losses - Australia Capital Raising Costs - 5yr write-off Employee benefits Superannuation accrual Interest accrual Lease liability Set-off deferred tax liabilities pursuant to set-off provisions: Deferred tax liabilities attributable to: Intangible assets Accrued interest revenue Right of use asset Net deferred tax asset/(liability) balance The amount of gross tax losses relating to Australian operations that are carried forward is $14,171,581 (2020: $8,197,403). 2021 2020 689,660 290,552 27,395 10,858 15,571 313,808 1,347,844 1,210,045 420,749 26,384 11,385 - 622,411 2,290,974 (947,458) (1,622,055) (10) (400,376) (1,347,844) (228) (668,691) (2,290,974) - - 1414 DEGREES LIMITED ACN 138 803 620 DIRECTORS' DECLARATION Page 30 In accordance with a resolution of the directors of 1414 Degrees Limited, the directors of the group declare that: 1 2 3 4 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 group's financial position as at 30 June 2021 and its performance for the year ended on that date. The group 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 group will be able to pay its debts as and when they become due and payable. The directors have been given the declarations as required by s295A of the Corporations Act. 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: Tony Sacre Chairman and Non-Executive Director Sydney Dated this 30th day of September 2021 Tel: +61 8 7324 6000 Fax: +61 8 7324 6111 www.bdo.com.au BDO Centre Level 7, 420 King William Street 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) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, 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 the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (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 – Product Development 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 11 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. 138 – Intangible Assets.  The level of audit procedures undertaken to evaluate management’s application of  Agreeing a sample of additions to supporting documentation, and ensuring the amounts were the recognition criteria for internally appropriately capitalised. generated intangible assets required by AASB 138 Intangible Assets.  Obtaining an understanding of the key processes and controls associated with the allocation of costs to the  The level of judgment applied by product development category. 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.  Assessing the results of trials of the prototype product and the potential market size for similar applications of the technology.  Considering and evaluating assumptions contained within management’s impairment assessment and assessing the discount rate applied.  Performing a sensitivity analysis on the key financial assumptions of the forecasted cash flows and discount rate in the model and considering the likelihood of such movements in these key assumptions. Intangible Asset - Goodwill 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: goodwill on business acquisition as set out in note 11 is a key audit matter due to:  Assessing the activities of the subsidiary in the period and management plans for future development of the relevant  The significance of the total balance. site.  The level of audit procedures undertaken to evaluate management’s application of the recognition criteria for goodwill required by AASB 138 Intangible Assets.  Vouching the on-going third party support of the development agreement.  Considering and evaluating assumptions contained within management’s impairment assessment and assessing the  The level of judgment applied by discount rate applied. 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.  Performing a sensitivity analysis on the key financial assumptions of the forecasted cash flows and discount rate in the model and considering the likelihood of such movements in these key assumptions. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2021, but does not include the financial report and the 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 ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.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 5 to 9 of the directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of 1414 Degrees Limited, for the year ended 30 June 2021, 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 Paul Gosnold Director Adelaide, 30 September 2021 Tel: +61 8 7324 6000 Fax: +61 8 7324 6111 www.bdo.com.au Level 7, BDO Centre 420 King William Street Adelaide SA 5000 GPO Box 2018, Adelaide SA 5001 AUSTRALIA DECLARATION OF INDEPENDENCE BY PAUL GOSNOLD TO THE DIRECTORS OF 1414 DEGREES LIMITED As lead auditor of 1414 Degrees Limited for the year ended 30 June 2021, 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. This declaration is in respect of 1414 Degrees Limited and the entities it controlled during the period. Paul Gosnold Director BDO Audit (SA) Pty Ltd Adelaide, 30 September 2021 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. 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 20 September 2021. Share Capital - 200,560,458 fully paid Ordinary Shares are held by 3,650 individual Shareholders. - 3,375,000 Unlisted Performance Rights with various performance hurdles are held by 8 individual holders. - All Ordinary Shares carry one vote per share. - There is no current on-market buyback. 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 10.0 cents per share Substantial Shareholders (As disclosed in substantial holding notices given to the Company) FOCEM PTY LTD Twenty largest holders of Quoted Ordinary Shares Rank Name Securities 16,088 2,435,376 6,879,071 53,977,551 137,252,372 200,560,458 % 0.01% 1.21% 3.43% 26.91% 68.43% 100.00% No. of holders 50 777 918 1,638 267 3,650 736 % 1.37% 21.29% 25.15% 44.88% 7.32% 100.00% 20.16% No. of Shares Held % 12,653,000 6.31% 1 FOCEM PTY LTD 2 AMMJOHN PTY LTD 3 MR JOHN HENRY MOSS + MRS WENDY ELIZABETH MOSS 4 MR ROBERT JOHN KEITH SHEPHERD + MRS LYNETTE DOROTHY SHEPHERD 5 BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD 6 MEWTWO GLOBAL INVESTMENTS LLC 7 MR HAROLD TOMBLIN + MRS JUDITH JOHNSTON 8 CITICORP NOMINEES PTY LIMITED 9 MR JOHN LANGLEY HANCOCK 10 MS SUSAN JOHNSON 11 BENGER SUPERANNUATION PTY LIMITED 12 MR JONATHAN WHALLEY + MRS MARTINE ANNE WHALLEY 13 LHO LA PTY LTD 13 RANAT INVESTMENTS PTY LTD 15 KNIGHTS VALLEY LTD 16 MR IAN ROSS BURDON + MS CATHERINE LOUISE TAYLOR 16 MR IAN ROSS BURDON + MS CATHERINE LOUISE TAYLOR 16 MR TREVOR WRIGHT + MRS OLIVE WRIGHT 19 MS MARETTA ALYSSA LAYTON 20 BNP PARIBAS NOMINEES PTY LTD Total Balance of register Grand total No. of Shares Held 12,653,000 5,439,868 5,249,188 5,150,470 4,689,600 4,333,333 4,206,976 3,449,791 2,778,333 2,657,448 2,300,000 2,180,708 2,000,000 2,000,000 1,666,500 1,500,000 1,500,000 1,500,000 1,257,000 1,254,006 67,766,221 132,794,237 200,560,458 % 6.31 2.71 2.62 2.57 2.34 2.16 2.10 1.72 1.39 1.33 1.15 1.09 1.00 1.00 0.83 0.75 0.75 0.75 0.63 0.63 33.79 66.21 100.00% 1414DEGREES.COM.AU 1414 DEGREES LTD ADDRESS PHONE EMAIL ABN 57 138 803 620 136 Daws Road, Melrose Park SA 5039 +61 8 8357 8273 info@1414degreescom.au 

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