Advanced Braking Technology Limited
Annual Report 2021

Plain-text annual report

ADVANCED BRAKING TECHNOLOGY LTD AND CONTROLLED ENTITIES ABN 66 099 107 623 CORPORATE DIRECTORY Directors Dagmar Parsons David Slack Adam Levine Mark Lindh Company Secretary Kaitlin Smith Registered Office 19 Creative Street Wangara, WA 6065 Telephone: + 61 8 9302 1922 Telephone: 1800 317 543 Auditors Moore Australia Audit (WA) Level 15, Exchange Tower 2 The Esplanade Perth, WA, 6000 Country of Incorporation Australia Legal form of entity Listed public company Chief Executive Officer John Annand Chief Financial Officer Paige Exley Bankers National Australia Bank Ltd 12 / 100 St Georges Terrace Perth, WA, 6000 Share Registry Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace Perth, WA, 6000 Telephone: + 61 8 9323 2000 Facsimile: + 61 8 9323 2033 ASX Home Branch Australian Securities Exchange (ASX) Level 40, Central Park 152-158 St George’s Terrace Perth, WA, 6000 ASX Code ABV – Ordinary shares ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 2 TABLE OF CONTENTS TABLE OF CONTENTS CORPORATE DIRECTORY TABLE OF CONTENTS CHAIRMAN’S REVIEW CHIEF EXECUTIVE OFFICER’S REVIEW OPERATING AND FINANCIAL REVIEW DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2021 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT SHAREHOLDER INFORMATION 2 3 4 5 6 10 21 22 23 24 25 26 59 60 65 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 3 CHAIRMAN’S REVIEW CHAIRMAN’S REVIEW Dear Shareholder, I am pleased to present to our shareholders and broader stakeholders our 2021 Annual Report. It is satisfying to report further improvements in our financial performance, notwithstanding the ongoing challenges due to COVID-19 and the impacts from lockdowns globally. Advanced Braking Technology (‘ABT’ or the ‘Company’) remained resilient from the impacts of the pandemic with minimal disruption to manufacturing with our largely Australian-based supply chain and increasing time to secure supply of components from overseas. We are aware that, despite this backdrop, we are incredibly fortunate to have finished the year in a far stronger position than when it began. This was achieved through an ongoing commitment to increasing sales through broadening our customer base within the mining industry as well as other markets, prudent cost management and our strategic objective to build a robust business. The strategic decision made by the Board and Management, over two years ago, to run the business in a more cost- effective manner has paid off in the last two financial years. The Company made a concerted effort to discharge all significant debt in prior periods, including the extinguishment of our convertible notes. This has ensured that the Company can focus on growing organically in a sustainable manner while also better structuring ABT to pursue inorganic growth prospects through either acquisitions, strategic partnerships or joint ventures. Having delivered significantly improved financial results over the last two years and with a strong product portfolio, the Company is now positioned to actively deliver its strategic objectives, ensuring increased shareholder value as we investigate opportunities that will allow ABT to achieve size, and to significantly upscale the business. With the increased focus on electric, autonomous and connected vehicles, and the environmental considerations regarding brake emissions, we continue to explore opportunities as a business to actively engage in these megatrends. Management are focused on ensuring that we will play a role in these trends. Underpinning our future growth prospects are the recent addition of a Director of Strategy and Commercial to drive business growth through inorganic growth opportunities and the appointment, just prior to FY21, of a new Director of Sales and Marketing to drive organic growth. These key appointments ensure ABT can actively engage both in the Australian and global marketplace. This is demonstrated in the consistent improvement of sales in FY21. It also allowed ABT to participate in signature events to raise awareness of ABT’s capabilities and product offering, as evidenced by our recent award-winning presentation at the EuroBrake virtual conference in May 2021 and participation in various high profile Australian conferences throughout the year. We are focused on building on our 20+ years of experience as the original manufacturer of sealed wet brake technology, remaining true to our Australian origins and continuing to protect people, equipment and the environment. We will continue to deliver on innovation, safety and environmental responsibility as a reflection of ABT’s ethos. We are looking forward to the future and are really pleased with the results achieved over the past two years. I would like to thank the Board and the entire ABT team for their efforts and contribution. The leadership of the business, headed by CEO, John Annand is acknowledged and the focus on delivering sustainable results has ensured that we have a viable and stable platform for future growth. Finally, I would like to thank our shareholders for their continued support of ABT and look forward to engaging with you at our upcoming Annual General Meeting. Dagmar Parsons Chairman ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 4 CHIEF EXECUTIVE OFFICER’S REVIEW CHIEF EXECUTIVE OFFICER’S REVIEW Dear Shareholder, FY21 has been a significant year for Advanced Braking Technology (‘ABT’) as we continued to execute our strategy and demonstrate financial results that support our growth objectives. Operationally, we have seen the result of this strategy through the continued support of our existing customer base, coupled with progressing our strategy of driving further diversification across both our customer base and the industries that we service. This includes investigating opportunities that exist within the heavy vehicle transport sector, where maintenance and safety issues have identified a need for a sealed heavy duty brake solution. We have worked hard to deepen our relationships with the broader global market by participating in both the EuroBrake virtual conference and Land Forces conference in Brisbane. These events created opportunities for us to demonstrate our products and enhance education and awareness amongst our sector, and we continue to explore opportunities to engage with new partners and customers to broaden our reach and product scope. ABT has had a strong year with our core product portfolio, delivering $9.7m in operating revenue, driving a 15% uplift in total revenue to $10.45m. Additionally, we delivered stable product sales margins of 46.3% and a positive EBITDA result at $0.91m for the year compared to $0.65m for FY20. With a focus on both prudent cost management initiatives and driving improvements in sales, alongside stable gross margins, we delivered a significantly improved net profit of $0.62m (FY20: $0.17m). We remain prudently resourced and finished the year with a cash balance of $1.41m as at 30 June 2021. These cash reserves ensure we can continue to fund our ongoing operations and drive innovation in our products. As touched on in the letter from the Chairman, we have made a number of strategic hires that will be instrumental in driving our strategy forward over the coming years. In particular, ABT appointed Andrew Booth, as Director of Strategy and Commercial. Andrew will be critical in identifying and assessing opportunities for the business including acquisitions, strategic alliances or joint ventures, in order to accelerate the upscaling of the business. Ben Suda was appointed as Director of Sales and Marketing and has been instrumental in ensuring ABT is positioned to engage with industry leaders, partners and sector participants to ensure we remain actively engaged in conversations on environmental concerns, and current trends in autonomous and electric vehicles. Additionally, we appointed a new Engineering Manager in David Newcombe who will continue to drive innovation in our product portfolio to deliver advancements to position us for the future to ensure we can participate in the industry megatrends. We revised our strategy and structure nearly two years ago and we continue to demonstrate the success of these initiatives in our results at each reporting period. We are pleased, once more, to deliver growth in our key metrics, allowing us to pursue opportunities that will deliver further growth in the business. The delivery of our organic growth strategy is evidenced in our numbers. We are pleased with the progress made to date to increase sales, control costs and maintain margins across our core product portfolio, as we also continue to assess inorganic growth opportunities that can accelerate our growth and broaden our product offering. We thank our employees, stakeholders and shareholders for their ongoing support over the past year. John Annand Chief Executive Officer ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 5 OPERATING AND FINANCIAL REVIEW OPERATING AND FINANCIAL REVIEW Business Overview Advanced Braking Technology Ltd (‘ABT’ or the ‘Company’) is an Australian company listed on the Australian Securities Exchange (ASX:ABV) that designs, manufactures and distributes its innovative braking solutions worldwide. From its head office in Perth, Western Australia, ABT continues to develop its product portfolio for a diverse range of industries that have a strong requirement for safety and environmental responsibility, including the mining, defence, civil construction and waste management industries. ABT’s innovative braking solutions are well known for their unparalleled safety, improved productivity, zero emissions and durability in the world’s harshest conditions. As the Company’s reputation has grown, demand for ABT's brakes has expanded internationally with its braking solutions being used in all seven continents across the globe. Approximately 32% of operating sales comes from overseas locations including Canada, Europe, Asia-Pacific, South Africa and Chile in which ABT has key distribution partners. ABT has three key suppliers who are all located in Australia and represent approximately 60% of ABT’s supply chain inputs. ABT’s primarily Australian-based supply chain has contributed to the Company’s operational resilience to deliver ongoing sales growth and record financial year results despite the global impact of coronavirus (COVID-19). During FY21, ABT offered three key products: • ABT Failsafe Brakes • ABT Failsafe Emergency Driveline Brakes • Terra Dura Brakes During FY21, the Company continued to deliver improvements in our financial and operational performance. These improvements included: • strengthening its financial and working capital position through record year-on-year sales growth, maintaining margins and focused cost control on expenses, resulting in a positive cash flow from operations for the year; further diversifying the product portfolio, customer base and the industries to which we supply our innovative braking solutions; strengthening our Intellectual Property and patent protection; and • • maintaining a low debt structure, following $2.25million (m) of debt extinguished in FY20. • The improvements outlined above have set the Company up for a strong FY22 and will support ABT’s growth strategy. In addition to product development and sales growth, the Company continues to work on the intangible aspects of the business including corporate culture, systems and processes and stakeholder management, all of which improves business performance and creates the foundation for the Company to execute its growth strategy. Impact of COVID-19 In FY21, the impact on ABT’s operations due to COVID-19 was not material. ABT continues to review the COVID-19 operating environment and has continued to amend its business operations to reflect the changing operating environment. The Company’s primary customer base remains within the mining and civil construction industries, which to-date, have continued to operate during this challenging period. The Company has benefited from the financial assistance measures provided by both the Federal and Western Australian governments, to help protect both the business operations and its employees. During FY21, ABT received approximately $0.105m in financial assistance. Financial Summary ABT achieved revenues of $10.45m for FY21 (FY20: $9.08m), which represents an approximately 15% increase on the prior year. The net profit for the year is $0.62m (FY20: $0.17m), an improvement of 263% on the prior year. These results were achieved through an increase in sales revenue, with controlled expense increases of 4%, when compared to FY20. The Company’s net assets as at 30 June 2021 have increased approximately 18% or $0.73m on FY20 balances, primarily due to an increased cash balance of $1.41m, which is up $0.9m from the 30 June 2020 balance of $0.52m. ABT experienced only minor increases in total liabilities of $0.15m at 30 June 2021, which relates primarily to higher levels of inventory purchasing to support the increasing operating sales revenues and the annual renewal of ABT’s insurance premium financing facility. The increase in liabilities is offset by a similar increase in trade receivables of $0.15m to $1.43m at 30 June 2021 on the prior year (FY20: $1.28m). ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 6 OPERATING AND FINANCIAL REVIEW Revenue Operating revenue in FY21 of $9.7m (FY20: $8.35m) was achieved primarily from sales of the Company’s core Failsafe products and associated spares and consumables into the mining and civil construction industries. The product margin for brake kits and consumable sales was slightly lower than the prior year at 46.3% (FY20: 48.5%) however the gross margin for FY21 is 46.3% was consistent with the prior year (FY20: 46.3%). The estimated research and development (R&D) tax incentive refund for the year of $512k (FY20: $520k) remains at a similar level to the prior year, as the Company engaged in a focused product research and development program. During FY21, ABT received approximately $0.105m in financial assistance related to COVID-19 and received funds of $0.096m in relation to a Defence Global Competitiveness Grant of up to $0.24m. The balance of the grant funding of $0.144m is expected to be received in the first half of FY22. Expenses Expenses for FY21 totalled $4.62m (FY20: $4.43m) representing a 4% or $0.19m increase on FY20 expenses. Cost reductions in FY21 were primarily finance expenses, with a reduction of $0.21m to $0.083m on FY20 costs of $0.3m, following the extinguishment of $2.25m of borrowings during FY20. ABT has maintained a low level of working capital finance facilities during the year for operational purposes, including equipment finance and insurance premium funding of $0.231m. Cost increases during FY21 were primarily employee expenses resulting in a $0.187m increase to $2.91m on FY20 expenses of $2.72m, due to increasing operational requirements. Focused inventory management resulted in an increase in inventory obsolescence expenses totalling $0.079m, representing an increase of $0.078m on FY20 expenses of $0.001m and global insurance market increases resulted in an increase to insurance costs of $0.067m on FY20 expenses of $0.14m to FY21 insurance expense of $0.21m. Cash Sales revenue growth of approximately $1.35m on the prior year and a Company-wide controlled cost focus, has resulted in a net cash inflow from operating activities of $1.21m for the year and a cash balance of $1.41m, which has increased $0.9m from the 30 June 2020 balance of $0.52m. Strategy implementation and product development With the improved financial and operational performance achieved during FY21, the Company is now well placed to implement its growth strategy, which is depicted below. The growth strategy will be implemented through: • • • organic growth of our existing business through continual internal innovation; pursuing high impact growth opportunities in markets that require innovative braking systems for transport and mobility solutions of the future; inorganic growth through implementing our Joint Ventures, Partnering and Acquisitions strategy; and ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 7 OPERATING AND FINANCIAL REVIEW • increasing control of our supply chain. Diversification has been a key theme for the Company in FY21 and this will continue into FY22 through the further diversification of: • • • • • our product offering; the industries which we supply; our customer base; the geographic locations in which our products are found; and our network of suppliers and distributors. This objective was achieved in FY21 by being successful in expanding product sales within the mining, defence and civil construction industries. Of particular note was the Company entering into its first long term supply agreement for the supply of 1,100 hill-hold brakes to Thales Australia for installation on the Hawkei Protected Mobility Vehicle – Light, a project which demonstrated our ability to design, prototype and test braking solutions to the highest defence standards. With a focus on exploiting our existing product range and capitalising on our historical R&D, the Company is well placed to increase sales during FY22 to a broad range of customers in a diverse range of industries across a number of geographic regions. Our future product offering will be primarily based on the existing Failsafe and Terra Dura brake technology. The vehicle variants to which these products can be fitted will be prioritised based on market intelligence and listening to the requirements of the customer, whilst at the same time ensuring an acceptable return on investment is achieved. The Company will continue to develop its product offering through ongoing R&D to ensure it remains relevant long into the future as automation and electrification of vehicles gains momentum around the world, and the environmental impacts from non-exhaust vehicle emissions, including brake dust particles, are better understood by government and consumers. Business Risk The material business risks faced by the company that are likely to have an effect on the financial prospects of the company are detailed below. In addition to general market and economic risks, such as share market risk, shareholder dilution, general economic conditions, legislative change and unforeseen expenses, shareholders should be aware of risk specific to ABT, which may include but are not limited to the following: (a) Operational Risk - The current and future operations of the Company, including development, assembly, manufacturing and sales may be effected by a range of factors including: (1) Production may not be able to keep up with demand because of component shortages outside of the Company’s control; (2) Shortage of supply of customer vehicles to customers fleets; (3) Sales targets may not be met because of a downturn in the industries which the Company supplies or through sales and operational staff shortages due to the inability to recruit suitably qualified staff in a very tight labour market to service our customers; (4) (A) competitor(s) developing a product range that emulates the performance of the Company’s products; (5) The mining industry may use vehicles in its operations for which the Company has not yet developed a suitable brake; and (6) The inherent risk of supplying safety critical products to motor vehicles where any defect or failure may give rise to direct or consequential harm to plant or personnel. (b) Performance Risk - The financial performance of the Company in any given year may have an adverse effect on the net carrying value of the Company’s intellectual property as well as the Company’s capacity to achieve an acceptable financial result and cash flow balance. (c) Currency Risk - The Company trades with over ninety percent (90%) of its suppliers in Australian dollars. As a result, currency risk on purchases is negligible. The Company sells product into foreign markets and the sales are rarely ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 8 OPERATING AND FINANCIAL REVIEW denominated in a foreign currency. In the financial year 2021, sales receipt from overseas currencies accounted for less than one percent (1%) of total operational sales and is therefore considered to have a negligible risk. The Company therefore, has minimal exposure to foreign currency fluctuations against AUD between the date of sale or purchase and the date of receipt or payment. Refer to Note 27 for more information. (d) Interest rate risk - The Company invests working capital cash surpluses by placing funds on a short-term deposit and/or cash maximiser account at the prevailing interest rates. There is a risk that income earned from interest bearing accounts, will fall short of target or the Company’s target rate of return. Refer to Note 27 for more information. (e) Credit Risk - The Company sells product on 30-day net credit terms. Although the Company insures customers domestically and internationally, were it is able to, there is still an exposure of $5,000 for each claim, plus 10% of the remaining balance on the customers account up to insured limits. The insurer has the right to refuse insurance on specific or new debtors based on their credit assessment. Refer to Note 27 for more information. (f) Warranty - The Company’s products are sold under a twelve (12) month warranty. If a product fails during the period there is a risk that the product may have to be replaced under warranty, free of charge. In addition, in the event of product failure and consequential loss, the Company may be liable to pay damages for product failure. The Company has product liability insurance for a limit of up to $20m. (g) Obsolescence - The Company assembles its products from components purchased and stocked at various locations. Technology is constantly providing improvements in components and there is a risk that either component stock of the Company’s products could be subject to obsolescence due to technical innovations in materials, applications or methods. ABT has a focused inventory management program to identify components or applications that may be approaching obsolescence. (h) Global Climate Change – The Company is exposed to climate change impacts that effect the production of metal components and oil. Impacts to these raw commodities would have a significant financial impact on the Company’s operations and product offering. ABT seeks to reduce its environmental impacts in meaningful ways, such as recycling and seeking alternative low environmental impact substitutes for its product inputs. Growth and Outlook For FY22 and beyond, revenues will be derived from a broader product offering. Furthermore, the Company has diversified its customer base to include customers not only in our primary mining market, but also the defence, waste management and civil construction industries. ABT not only has the product portfolio to meet the existing needs of both current and future customers, but we believe we have the intellectual property that will ensure we can participate in future braking technology that will not only assist the environment but will help create a sustainable future for vehicle transportation. The growth plan will deliver a greater product offering to a broader customer base across diverse industries which in turn will lead to increasing revenues, profits and ultimately shareholder value. With the strong foundations we now have in place, ABT is now well placed to reward shareholders for their continued support. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 9 DIRECTORS’ REPORT DIRECTORS’ REPORT The Directors of Advanced Braking Technology Ltd (‘Company’ or ‘ABT’) and its controlled entity Advanced Braking Pty Ltd (the ‘Group’ or the ‘Consolidated Group’ or the ‘Consolidated Entity’), present the annual financial report for the financial year ended 30 June 2021. For the purposes of the Corporations Act 2001, the Directors provide the report as follows: Directors The following persons were Directors of the Company during or since the end of the financial year up to the date of this report: Name Dagmar Parsons David Slack Adam Levine Mark Lindh Position Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Appointment Date 22 April 2018 9 September 2009 9 April 2013 27 June 2017 Particulars of each director’s experience and qualifications are set out later in this report. Principal activities The principal activity of the Consolidated Group during the course of the year was the research, development, design, commercialisation and manufacture of the ABT Failsafe Brakes, ABT Failsafe Emergency Driveline Brakes and Terra Dura Brakes and associated braking systems. Operating results The results of the Consolidated Group for the year ended 30 June 2021 were a net profit from continuing activities, after income tax, of $620,000 (2020: net profit $171,000). Revenues from trading activities were $9,701,000 (2020: $8,349,000). Revenues from other activities were $747,000 (2020: $730,000). Dividends There have been no dividends paid or declared by the Company in the last two years. Summary of Material Transactions Issue of Securities On 18 February 2021, the Company issued 5,958,109 unlisted options to an employee and key management personnel, Mr Ben Suda as approved by shareholders at the Company’s Annual General Meeting (AGM) held on 18 November 2020 and pursuant to the Company’s Share Option Plan approved by shareholders at the Company’s AGM held 27 November 2019. The terms of the options are: Number 1,489,527 1,489,527 2,979,055 Exercise Price $0.04 $0.04 $0.04 Vesting condition 1 Year Vesting 2 Year Vesting 3 Year Vesting Expiry Date 30 June 2023 30 June 2023 30 June 2024 Licence agreement for Thales Australia Hawkei PMV-L project ABT has entered into a Technology Licence Agreement with VEEM Ltd (VEEM) for VEEM to manufacture and supply ABT’s specialised park brake mechanism for Thales’ Hawkei Protected Mobility Vehicle – Light project. In May 2019, ABT was selected to provide brake related design, prototype development and testing services to Thales, who have been contracted by the Commonwealth of Australia to supply 1,100 Hawkei PMV-L vehicles as part of the LAND 121 project. Following the successful design and testing of a prototype, ABT worked closely with Thales to determine how the Company was best placed to participate in the manufacture and supply phase. It was agreed that ABT would participate through a Technology Licence Agreement that protects its Intellectual Property and provides the best risk and return outcome. ABT has licenced the manufacture and supply of 1,100 park brake mechanisms for consideration of approximately $630,000 in licence and engineering support fees and product revenue for the supply of specified components for 1,100 brake mechanisms, by the earlier ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 10 DIRECTORS’ REPORT of 29 April 2022 or the date that VEEM sells 1,100 brake mechanisms to Thales Australia Ltd. In addition, ABT will supply spare parts and consumables for the life of product. VEEM’s supply of the brake mechanisms to Thales Australia Ltd for Thales’ Hawkei Protected Mobility Vehicle – Light project commenced in July 2020. During the year, ABT supplied components for approximately 55% of the 1,100 park brake mechanisms to be manufactured and supplied by VEEM. In addition to component sales, ABT has also generated licence and engineering support fees resulting from VEEM’s supply of completed brake mechanisms to Thales. Defence Global Competitiveness Grant ABT was awarded a Defence Global Competitiveness Grant (‘Grant’) to the value of $0.24m by the Centre for Defence Industry Capability. The Grant was awarded to provide funding for the manufacturing of defence vehicle components for use within ABT designed braking mechanisms. The Grant funds were used primarily to acquire machinery to allow ABT to manufacture specific components that form part of the braking mechanism, as well as internal training and progressing the Company’s ISO accreditation. Grant funding will be provided over two financial years with $0.096m provided in FY21, and the balance of $0.144m to be provided in FY22. Research and Development tax incentive On 17 September 2020, ABT received $534,000 as a refundable tax offset for eligible research and development expenditure relating to the development of its innovative braking solutions during FY20, following the lodgement of the Company’s FY20 income tax return. Significant Changes in the State of Affairs On 6 December 2020, Mr Andrew Booth was appointed as Director - Strategy & Commercial of the Group to actively identify inorganic growth opportunities for the Company. On 22 March 2021, the Company appointed Mr David Newcombe as Engineering Manager of the Group, following the resignation of Mr Tony Van Litsenborgh as Engineering Manager on 16 April 2021. During the prior reporting period, global health warnings were made by the World Health organisation (WHO) regarding the Coronavirus (COVID-19) pandemic and the Australian Governor General declared that a human biosecurity emergency exists on 18 March 2020. There have been widespread and varying operational impacts to many industries that form ABT’s supply chain and customers in Australia and overseas. During FY21, the impact on ABT’s operations was not material and ABT amended its business operations to reflect the changing operating environment. The Company’s primary customer base remains within the mining and civil construction industries, which to-date have continued to operate during the period of emergency. The Company has benefited from the financial assistance measures provided by both the Federal and Western Australian governments, to help protect both the business operations and its employees. During FY21, ABT received approximately $0.105m in financial assistance from government sources. Other than as described elsewhere in this report there were no significant changes in the state of affairs of the Company during the financial year. Events subsequent to balance date The impact of COVID-19 pandemic is ongoing and while it has been financially positive for the Group up to 30 June 2021, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. On 19 July 2021, ABT announced to the ASX the lapse of 5,958,109 KMP Options, exercisable at $0.04 and expiring 30 June 2023, following the resignation of Mr Tony Van Litsenborgh. No other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect the company's operations, the results of those operations, or the company's state of affairs in future financial years. Future developments The Group will continue to commercialise the FailSafe sealed wet braking system and Terra Dura sealed dry braking system business in Australia and Overseas markets. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 11 DIRECTORS’ REPORT Environmental regulation The Consolidated Entity is not subject to any particular and significant environmental regulation under a law of the Commonwealth or of a State or Territory. Information Relating to Directors and Officers Ms Dagmar Parsons Dipl.-Ing. (TH), MBA, GAICD Chairman and Non-Executive Director, Appointed 22 April 2018 Ms Parsons has more than 25 years of experience in the mining and resources industry across a range of functions, working in senior executive roles with Worley Parsons, AECOM and Downer. Ms Parsons has worked with major national and multinational entities to drive critical market success by providing strategic direction, visionary leadership and innovative thinking. As a Mechanical Engineer, Ms Parsons has developed an in-depth knowledge of engineering, manufacturing, and service industry environments in the Mining, Oil and Gas, Power and Infrastructure sectors. Ms Parsons has considerable experience in transforming and growing complex businesses across diverse corporate, operational and entrepreneurial roles in Australia, Asia and Europe. She has a strong appreciation of the role of good governance in setting, implementing and over sighting strategic imperatives. Ms Parsons is the Managing Director of Rail Safety Systems Pty Ltd, a Non- Executive Director of Transport Safety Systems Group Ltd and a Non-Executive Director of Greenvale Mining Limited. Ms Parsons holds a Masters Degree in Mechanical Engineering and a Masters in Business Administration. She is also a graduate member of the Australian Institute of Company Directors. Mr David Slack Non-Executive Director, Appointed 9 September 2009 Mr Slack is the founding Managing Director of Australian equity fund manager Karara Capital Pty Ltd. Mr Slack is also a director of a private company, Transport Safety Group Ltd, which has developed an innovative wireless solar rail crossing technology in the commercialisation phase. Over the past 30 years, Mr Slack has made a significant contribution to the Australian funds management industry. Notably, he was co-founder and joint managing director of Portfolio Partners Limited, which was sold to Norwich Union in 1998. Prior to that, Mr Slack was a founding executive director of County Nat West Investment Management, where he was head of Australian Equities. He was a non-executive director of the Victorian Funds Management Corporation until 2007, holding positions of deputy Chair and Chair of the Board Investment Committee. David has a Bachelor of Economics with Honours and is a fellow of FINSIA. He is a member of the Australian Institute of Company Directors. Mr Adam Levine LL.B (Hon), B.Ec (Acc). Non-Executive Director, Appointed 9 April 2013 Mr Levine, a lawyer by profession, has over 25 years national and global experience in structuring and executing private equity investments and corporate finance transactions both as legal advisor and a principal investor. The Founder and Executive Chair of law firm Rockwell Bates, Mr Levine has grown the storied Melbourne based legal firm from a boutique M&A practice established during the height of the 2008 GFC, into a pre-eminent private wealth law firm focused on building and protecting clients’ wealth. Mr Levine is also the Executive Chair and Founder of the Rockwell Group which undertakes principal investments into regulated financial and professional services businesses. Mr Levine’s extensive private equity experience and proactive investment practice have been the major contributory factor to the Rockwell Group’s success with a portfolio IRR in excess of most leading national and global private equity funds. Mr Levine is the Chair of the Audit & Risk Committee (a position which he has held for several years). He brings a very analytical and inquiring mind when engaging with, challenging and supporting the key Executives of the company. His current outside directorships include Rockwell Group Holdings Pty Ltd, Rockwell Bates Pty Ltd, FMD Financial Pty Ltd, and a number of other private companies. Mr Levine is also the founder (with his wife) and Chair of the Rockwell Foundation, a private ancillary fund, which focuses on supporting opportunities for under privileged youth. He is also a Trustee Director of the Australian Jewish Museum Foundation Limited. Mr Mark Lindh Non-Executive Director, Appointed 27 June 2017 Mr Mark Lindh is an investment banker and corporate advisor, with in excess of 15 years of experience in Australian equity and debt markets as well as advising on capital raisings, mergers and acquisitions and investor relations. He is a founding executive director of Adelaide Equity Partners Limited, an Australian investment and advisory company and is non- executive director of Bass Oil Limited and Aerometrex Ltd. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 12 DIRECTORS’ REPORT Directorships of other listed companies Directorships of other listed companies held by Directors in the 3 years immediately before the end of the financial year, or at date of retirement if earlier, are as follows: Name Mr Mark Lindh Company Period of Directorship Bass Oil Limited (ASX code: BAS) Aerometrex Ltd (ASX code: AMX) December 2014 to date May 2019 to date Ms Dagmar Parsons Greenvale Mining Ltd (ASX code: GRV) June 2021 to date Chief Executive Officer Mr John Annand B.Bus, CA, AGIA ACG, A Fin Mr Annand brings significant experience to the role of CEO gained in executive finance and operations roles with ASX-listed and multi- national resources and pharmaceutical companies. Prior to his current role at ABT, he held the role of Acting CEO and Chief Financial Officer at Norwest Energy NL and more recently Chief Operations Officer at AusCann Group Holdings Limited. He also held a number of management roles during his 16 years with Woodside Energy including Commercial Manager and Finance Manager. Mr Annand’s prior experience has seen him responsible for strategy development and execution, marketing, research and development, operations, supply chain management, contract management, capital raisings, investor relations and corporate governance. He also brings to the CEO role customer, stakeholder, and joint venture relationship skills gained from working across international jurisdictions and diverse industries. In addition to his accounting and corporate governance qualifications, John also holds a Bachelor of Business and a Graduate Diploma in Applied Finance and Investment. Chief Financial Officer Ms Paige Exley B.Com, CA, FGIA FCG (CS) Ms Exley is a Chartered Accountant and Chartered Secretary, with over 20 years of experience in financial and management accounting. She brings significant experience to the position, gained in finance and governance roles with ASX-listed companies in Australia, with domestic and overseas operations, in industries such as resources, mining services, information technology, professional services, not-for-profit and retail. Ms Exley’s prior experience has seen her responsible for business finance functions, asset development, corporate compliance, continuous process improvement, treasury management, capital raisings, investor relations and corporate governance. Company Secretary Ms Kaitlin Smith B.Com (Acc), CA, FGIA Ms Smith was appointed joint Company Secretary 19 July 2018 and Company Secretary on 10 August 2018. Ms Smith provides Company Secretarial and Accounting services to various public and proprietary companies. She holds a Bachelor of Commerce (Accounting), is a Chartered Accountant and is a fellow member of the Governance Institute of Australia. Directors’ interests The relevant interest of each Director in the share capital of the Company, as notified by the Directors to the Australian Securities Exchange in accordance with s205G(1) of the Corporations Act 2001, at the date of this report is as follows: Director D Parsons D Slack A Levine M Lindh Ordinary shares (as at 30/09/2021) 840,000 69,169,252 777,778 3,033,334 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 13 DIRECTORS’ REPORT Directors’ meetings During the financial year there were 18 meetings of Directors, including committees of Directors but excluding circulating and written resolutions. The attendances of the Directors at these meetings were: Directors’ Meetings Audit Committee Number eligible to attend 11 11 11 11 Number attended 11 11 11 11 Number eligible to attend 5 5 5 5 Number attended 5 4 5 5 Remuneration & Nomination Committee Number Number attended eligible to attend 2 2 2 2 2 2 2 2 D Parsons D Slack A Levine M Lindh REMUNERATION REPORT (AUDITED) This remuneration report for the year ended 30 June 2021 outlines the remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited as required by section 308(3C) of the Act. The remuneration report details the remuneration arrangements for key management personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Parent Company. Individual key management personnel disclosures Details of KMP of the Parent and Group are set out below. Directors Name D Parsons D Slack A Levine M Lindh Executives Name J Annand P Exley T Van Litsenborgh B Suda A Booth D Newcombe Position Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Appointment Date 22 April 2018 9 September 2009 9 April 2013 27 June 2017 Position Chief Executive Officer Chief Financial Officer Engineering Manager Director - Sales & Marketing Director - Strategy & Commercial Engineering Manager Appointment Date 20 August 2018 20 November 2018 10 December 2018 1 June 2020 6 December 2020 22 March 2021 Board Oversight of Remuneration Remuneration Committee Resignation Date - - - - Resignation Date - - 16 April 2021 - - - During the year, the Remuneration Committee met two times to make recommendations to the Board on remuneration policy and to recommend salary reviews and short and long-term incentives for the Company’s executives. Remuneration Policy The remuneration policy of the Company is to pay executive directors and executives at market rates which are sourced from average wage and salary publications are subject to periodic reviews by external consultants and which may include a mix of short and long- term incentives linked to performance and aligned with market practice. In addition, Directors and employees may be issued shares and share options to encourage loyalty and to provide an incentive through the sharing of wealth created through equity growth which ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 14 DIRECTORS’ REPORT is linked to Company performance. The Remuneration Committee members believe the remuneration policy to be appropriate and effective and tailored to increase congruence between shareholders and Directors and executives. The following table shows the gross revenue, net profit / loss and ABV share price of the Company at the end of each respective financial year. Company Performance Total Revenue ($‘000) Net profit / (loss) ($‘000) ABV Share price 30 June 2021 30 June 2020 30 June 2019 30 June 2018 30 June 2017 10,448 620 3.5 cents 9,079 171 2.4 cents 7,430 (1,713) 1.9 cents 7,870 (1,656) 2.8 cents 7,686 (565) 5.5 cents Non-Executive Director remuneration arrangements Remuneration policy The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The amount of aggregate remuneration sought to be approved by Shareholders and the fee structure is reviewed against fees paid to non-executive directors of comparable companies. The Company’s Constitution and the ASX listing rules specify that the Non- Executive Directors’ fee pool shall be determined from time to time by a general meeting. The latest determination was at the 2005 Annual General Meeting (AGM) held on 1 November 2005 when Shareholders approved an aggregate fee pool of $300,000 per year. Structure The remuneration of Non-Executive Directors consists of directors’ fees. There are no schemes for retirement benefits for Non- Executive Directors other than statutory superannuation and Non-Executive Directors do not participate in any incentive programs. Other than the Chairman, each Non-Executive Director received a base fee of $55,000 per annum plus the superannuation guarantee contribution. The Chairman received a base fee of $85,000 plus the superannuation guarantee contribution. Voting and comments from the Company’s 2020 Annual General Meeting At the Company’s most recent Annual General Meeting held in November 2020, over 96% of eligible votes were cast for the adoption of the 30 June 2020 remuneration report. As no comments were received from shareholders who had voted against the resolution at that meeting, the Board does not propose any action with respect to its resolution at this time. The Board considers its remuneration policy to be appropriate and properly aligned with the current size and performance of the Group. Executive remuneration arrangements Remuneration level and mix The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group and aligned with market practice. ABT undertakes an annual remuneration review to determine the total remuneration positioning against the market. Remuneration Structure In the financial year ended 30 June 2021, the executive remuneration framework consisted of the following components: - - Fixed remuneration; and Variable remuneration The table below illustrates the structure of Advanced Braking Technology Ltd’s executive remuneration arrangements: Remuneration component Fixed remuneration Short-term incentive component (STI) Payment Vehicle Purpose Link to performance Represented by total employment cost (TEC). Comprises base salary, plus superannuation contributions. Paid in cash or share based incentives for KMPs. A share-based scheme was put in place for KMP executives. Set with reference to role, market and experience. Based on annual appraisal and reference to market rates. Rewards executives for their contribution to achievement of Group and business unit outcomes. Linked to key performance indicators including group performance such as sales revenue, profit targets, and performance against budget and ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 15 DIRECTORS’ REPORT Long-term incentive component (LTI) Paid in cash or share based incentives for KMPs. During the FY20 year, a new share-based scheme was put in place for KMP executives. Equity holdings and transactions Rewards executives for their contribution to performance of Group. targets such as product commercialisation. All grants are at the discretion of the Board of Directors. Linked to Total Shareholder Return, sales budgets and profit targets. At judgement and discretion of the Board of Directors. The movement during the reporting period in the number of securities of Advanced Braking Technology Ltd held, directly, indirectly or beneficially, by each Director or Executive, including their related party entities, are as follows: i) Ordinary Shares (a) Directors D Parsons D Slack A Levine M Lindh Total (b) Executives J Annand P Exley T Van Litsenborgh B Suda A Booth D Newcombe Note Held at 1 July 2020 Granted as compensatio n during year Exercise of options during year 500,000 67,645,664 777,778 3,033,334 71,956,776 - 36,000 - - - - 1. 2. 3. - - - - - - - - - - - Other movement during year 340,000 1,523,588 - - 1,863,588 220,000 164,000 - - - - 384,000 Held at date of resignation n/a n/a n/a n/a n/a n/a - n/a n/a n/a - Held at 30 June 2021 840,000 69,169,252 777,778 3,033,334 73,820,364 220,000 200,000 - - - - 420,000 - - - - - - - - - - - - Total 1. T Van Litsenborgh ceased employment on 16 April 2021. 2. A Booth commenced employment on 6 December 2020. 3. D Newcombe commenced employment on 22 March 2021. 36,000 - ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 16 DIRECTORS’ REPORT ii) Unlisted Options (a) Directors D Parsons D Slack A Levine M Lindh Total (b) Executives J Annand P Exley T Van Litsenborgh B Suda A Booth D Newcombe Total Held at 1 July 2020 - - - - - 11,916,217 5,958,109 5,958,109 Granted during the period as compensation 1 - - - - - - - - - - - 5,958,109 - - 23,832,435 5,958,109 Exercised during the period Held at 30 June 2021 (or date of resignation) Vested and exercisable at 30 June 2021 - - - - - - - - - - - - - - - - - 11,916,217 5,958,109 5,958,109 5,958,109 - - - - - - - 2,979,054 1,489,527 - - - - 29,790,544 4,468,581 1. The unlisted options granted and issued during the period are unvested and subject to vesting conditions. Refer to Note 22 for further details. Details of Remuneration of Directors and Executives The details of the nature and amount of remuneration for each Director and Executive (Key Management Personnel) of the Company are: Directors Year 2021 Directors D Parsons D Slack A Levine M Lindh Total Short term benefits Salary & Fees $000’s 85 55 65 55 260 Share based remuneration $000’s - - - - - Post-Employment Superannuation $000’s 8 5 - 5 18 Termination Benefits $000’s - - - - - Note 1. 2021 Total $000’s 93 60 65 60 278 Performance based Remuneration % - - - - - 1. Mr A Levine - $5,019 of Directors fee paid during the period related to a prepayment of services provided for the financial year ended 30 June 2022. Year 2020 Directors D Parsons D Slack A Levine M Lindh Total Note 2020 Short term benefits Salary & Fees $000’s 85 27 58 55 225 Share based remuneration $000’s - - - - - Post-Employment Superannuation $000’s 8 3 2 5 18 Termination Benefits $000’s - - - - - Total $000’s 93 30 60 60 243 Performance based Remuneration % - - - - - ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 17 DIRECTORS’ REPORT Executives Year 2021 Executives J Annand P Exley T Van Litsenborgh B Suda A Booth D Newcombe Total Note 1 2 3 2021 Short-term benefits Salary & fees Bonus or Commission $000’s 308 174 157 210 120 42 1,011 $000’s - - - - - - - Share based remuneration $000’s 72 36 (26) 27 - - 109 Post- Employment Superannuation $000’s 22 17 14 20 11 4 88 Performance- based remuneration % 18 16 (18) 11 - - 9 Total $000’s 402 227 145 257 131 46 1,208 1. T Van Litsenborgh resigned on 16 April 2021 2. A Booth commenced employment on 6 December 2020. 3. D Newcombe commenced employment on 22 March 2021. Year 2020 Executives J Annand P Exley T Van Litsenborgh G Lewis B Suda Total Note 1 2 3 2020 Short-term benefits Salary & fees Bonus or Commission $000’s 303 157 182 146 18 806 $000’s - - - - - - Share based remuneration $000’s 53 26 26 - - 105 Post- Employment Superannuation $000’s 26 15 17 13 2 73 Performance- based remuneration % 14 13 12 - - 11 Total $000’s 382 198 225 159 20 984 1. P Exley was appointed Chief Financial Officer on 31 October 2019. 2. G Lewis ceased employment on 28 February 2020. 3. B Suda commenced employment on 1 June 2020. Cash Bonuses, Performance-related Bonuses and Share-based Payments Details of STI’s and LTI’s are as follows: Short term incentives No STI’s were accrued, earned or provided during the financial year’s 2021 or 2020. Long term incentive plan On 27 November 2019, shareholders approved the adoption of the ABT Share Option Plan. The issue of unlisted options pursuant to the ABT Share Option plan are as follows: Executive Issue Date 26 Feb 2020 J Annand P Exley 26 Feb 2020 T Van Litsenborgh 1. 26 Feb 2020 18 Feb 2021 B Suda Number of KMP Options - Vesting 1 year from issue 2,979,054 1,489,527 1,489,527 1,489,527 7,447,635 Number of KMP Options - Vesting 2 years from issue 2,979,054 1,489,527 1,489,527 1,489,527 7,447,635 Number of KMP Options - Vesting 3 years from issue 5,958,109 2,979,055 2,979,055 2,979,055 14,895,274 Total KMP Options on Expiring 30 June 2023 11,916,217 5,958,109 5,958,109 2,979,054 26,811,489 Total KMP Options on Expiring 30 June 2024 - - - 2,979,055 2,979,055 Exercise Price $0.04 $0.04 $0.04 $0.04 Total 1. 5,958,109 unlisted options lapsed on 19/7/2021 following Mr Van Litsenborgh’s resignation. The unlisted options vest over a 3-year period from issue date and are subject to vesting conditions. Refer to Note 22 for details of the valuation methodology and assumptions for these share options. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 18 Executive Contracts The employment terms and conditions of all Executive KMP are formalised in contracts of employment. DIRECTORS’ REPORT The terms of the employment contracts with all Executives require both parties to provide three months of notice to terminate the contract. Other Equity-related KMP Transactions There have been no other transactions involving equity instruments apart from those described in the tables above relating to options and shareholdings. Loans to KMP No loans have been provided to Directors or Executive during the period. Transactions with key management personnel Refer to Note 26 for details of transactions with Directors and key management personnel. Options As at the date of this report, the Group has options over ordinary shares. These issues have been issued on the following terms: Options on issue Unlisted Options KMP Options KMP Options Total Number 5,000,000 20,853,380 2,979,055 28,832,435 Exercise Price $0.025 $0.04 $0.04 Expiry date 30 June 2022 30 June 2023 30 June 2024 Vested /Exercisable 5,000,000 4,468,581 - 9,468,581 Indemnification and Insurance of Directors, Officers and Auditor During the course of the year the Company has paid $27,850 in premiums for Directors and Officers liability insurance for costs and expenses incurred by them in defending legal proceedings arising out of their conduct while acting in the capacity of director or officer of the Company, other than conduct involving wilful breach of duty in relation to the Company. The Company has not during or since the end of the financial year, in respect of an auditor of the Consolidated Group, paid a premium to indemnify an auditor against a liability incurred as an auditor, including costs and expenses in successfully defending legal proceedings. Proceedings on behalf of the Company No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Auditor’s Independence Declaration The Auditor’s independence declaration is included after this Directors’ Report. Non-Audit Services The Board of Directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: all non-audit services are reviewed and approved to ensure they do not adversely affect the integrity and – objectivity of the auditor; and – the nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 19 The following fees were paid or payable to the auditor for non-audit services provided during the year ended 30 June 2021: DIRECTORS’ REPORT AUDITOR’S REMUNERATION Remuneration of the auditor of the Consolidated Group for: Moore Australia Audit (WA) Pty Ltd Audit or review of the financial statements Moore Australia (WA) Pty Ltd Taxation services CONSOLIDATED GROUP 2020 $’000 2021 $’000 49 10 59 43 12 55 Rounding of Amounts The Company is an entity to which ASIC Class Order 98/100 applies and accordingly, amounts in the financial statements and Directors’ report have been rounded to the nearest thousand dollars. Signed in accordance with a resolution of the Board of Directors. Dagmar Parsons Non-Executive Chairman 30 September 2021 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 20 Moore Australia Audit (WA) Level 15, Exchange Tower, 2 The Esplanade, Perth, WA 6000 PO Box 5785, St Georges Terrace, WA 6831 T +61 8 9225 5355 F +61 8 9225 6181 www.moore-australia.com.au AUDITORS’ INDEPENDENCE DECLARATION UNDER S307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF ADVANCED BRAKING TECHNOLOGY LIMITED I declare that, to the best of my knowledge and belief, during the year ended 30 June 2021 there have been no contraventions of: i. ii. SL Tan Partner The auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and Any applicable code of professional conduct in relation to the audit. Moore Australia Audit (WA) Chartered Accountants Signed at Perth on the 30thday of September 2021 Moore Australia Audit (WA) – ABN 16 874 357 907 An independent member of Moore Global Network Limited - members in principal cities throughout the world. Liability limited by a scheme approved under Professional Standards Legislation 21 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE 13CONSOLIDATED GROUP 2020 $'000 8,349 (4,482) 2021 $'000 9,701 (5,211) NOTES 3 Revenues from trading activities Cost of sales Gross Profit Revenues from other activities Expenses Amortisation of intellectual property Audit and accounting fees Bad and doubtful debts Consulting and contract labour expenses Consumables and minor equipment Depreciation expense Employee expenses Finance expenses Information technology expenses Insurance Inventory obsolescence expense Legal fees Marketing and advertising expenses Patent expense Property expenses Telephone and other communication Travel and accommodation Warranty expense Other expenses Total expenses Profit / (loss) from continuing operations Profit / (loss) before income tax Income tax Profit / (loss) after income tax Other comprehensive income/(loss) Items that may be reclassified subsequently to profit or loss Total comprehensive profit / (loss) for the period Basic profit / (loss) per share (cents) Diluted earnings per share (cents) 4,490 3,867 747 730 (64) (71) - (305) (177) (180) (2,905) (83) (84) (207) (79) (17) (68) (49) (52) (33) (70) (24) (149) (64) (54) (10) (311) (113) (206) (2,718) (295) (49) (140) (1) (33) (26) (40) (47) (32) (114) (50) (123) (4,617) (4,426) 620 620 - 620 - 620 Cents 0.16 0.15 171 171 - 171 - 171 Cents 0.05 0.05 2 3 3 3 4 7 7 The consolidated statement of profit and loss and other comprehensive income should be read in conjunction with the notes to the financial statements. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 22 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 CONSOLIDATED STATEMENT OF FINANCIAL POSITI3CONSOLIDATED GROUP NOTES 2021 $'000 2020 $'000 CURRENT ASSETS Cash and Cash equivalents Trade and other Receivables Inventories Other current assets Total current assets NON-CURRENT ASSETS Property, plant and equipment Right of use assets Intangibles Total non-current assets TOTAL ASSETS CURRENT LIABILITIES Trade and other Payables Interest bearing liabilities Provisions Total current liabilities NON-CURRENT LIABILITIES Interest-bearing liabilities Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued Capital Reserves Accumulated losses TOTAL EQUITY 8 9 10 11 13 14 15 16 17 18 17 18 19 20 21 1,411 516 1,426 1,275 1,773 2,001 743 714 5,353 4,506 450 292 422 487 607 671 1,479 1,450 6,832 5,956 1,147 283 256 1,686 406 18 424 1,165 55 257 1,477 472 14 486 2,110 1,963 4,722 3,993 55,819 55,819 278 169 (51,375) (51,995) 4,722 3,993 The consolidated statement of financial position should be read in conjunction with the notes to the financial statements. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 23 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021 CONSOLIDATED GROUP 2021 $'000 2020 $'000 NOTES Net cash flows from operating activities Receipts from customers Payments to suppliers, consultants and employees Interest paid Interest received Other – Grants and R&D tax incentive Net cash provided by / (used in) operating activities 25 Cash flows from investing activities Proceeds from disposal of property, plant and equipment Purchase of property, plant and equipment Net cash provided by / (used in) investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Borrowing costs Proceeds from issue of shares Cost of issuing shares Net cash provided by / (used in) financing activities 10,209 (9,727) (9) 4 735 1,212 - (274) (274) - (18) (25) - - (43) 8,941 (9,274) (227) 3 799 242 79 (26) 53 517 (944) (20) - (48) (495) Net increase / (decrease) in cash and cash equivalents held 895 (200) Cash and Cash equivalents at the beginning of the financial year Cash and Cash equivalents at the end of the financial year 8 516 1,411 716 516 The consolidated statement of cash flow should be read in conjunction with the notes to the financial statements. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 24 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2021 CONSOLIDATED GROUP At 1 July 2020 Profit for the year Share-based payments Total comprehensive income / (loss) for the year Issue of ordinary shares Transaction costs relating to share issues Total transactions with owners Attributable to equity holders of the parent Issued Capital Accumulated Losses Other Reserves Total $'000 $'000 $'000 $'000 55,819 (51,995) - - - - - - 620 - 620 - - - 169 - 109 109 - - - 3,993 620 109 729 - - - At 30 June 2021 55,819 (51,375) 278 4,722 CONSOLIDATED GROUP At 1 July 2019 Profit for the year Total comprehensive income / (loss) for the year Issue of ordinary shares Transaction costs relating to share issues Total transactions with owners - - - 1,636 (17) 1,619 171 - 171 - - - - 169 169 - - - 171 169 340 1,636 (17) 1,619 At 30 June 2020 55,819 (51,995) 169 3,993 The consolidated statement of changes in equity should be read in conjunction with the notes to the financial statements. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 25 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTES TO THE FINANCIAL STATEMENTS 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation These general-purpose financial statements have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and International Financial Reporting Standards as issued by the International Accounting Standards Board. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. The financial report is presented in Australian dollars. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. These financial statements were authorised for issue by the Board of Directors on 30 September 2021. New and amended accounting policies adopted by the Group (a) The Company has considered the implications of new or amended Accounting Standards which have become applicable for the current financial report and the Company has not changed its accounting policies as there were no new standards for adoption during the period. Principles of Consolidation (b) The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (Advanced Braking Technology Ltd) and all of the subsidiaries. Subsidiaries are entities the parent controls. The parent controls an entity when it 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 over the entity. A list of the subsidiaries is provided in Note 12. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as “non-controlling interests”. The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary’s net assets on liquidation at either fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income. Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed as incurred. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 26 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. Foreign Currency Transactions and Balances (c) Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income; otherwise the exchange difference is recognised in profit or loss. Group companies The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation currency, are translated as follows: - - - assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; retained earnings are translated at the exchange rates prevailing at the date of the transaction. income and expenses are translated at average exchange rates for the period; and Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. These differences are recognised in profit or loss in the period in which the operation is disposed. Cash and Cash Equivalents (d) Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments, net of any bank overdrafts. Bank overdrafts are reported within short-term borrowings in current liabilities in the statement of financial position. Goods and Services Tax (GST) (e) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or payments to suppliers. Impairment of Assets (f) At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (e.g. in accordance with the revaluation model in AASB 116). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 27 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. (g) Income Tax The income tax expense / (revenue) for the year comprises current income tax expense / (income) and deferred tax expense / (income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities / (assets) are measured at the amounts expected to be paid to / (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense / (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. (h) Financial Instruments Recognition and initial measurement Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the Company commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments (except for trade receivables) are initially measured at fair value plus transaction costs, except where the instrument is classified "at fair value through profit or loss", in which case transaction costs are expensed to profit or loss immediately. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted. Trade receivables are initially measured at the transaction price if the trade receivables do not contain a significant financing component or if the practical expedient was applied as specified in AASB 15.63. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 28 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Classification and subsequent measurement Financial liabilities Financial instruments are subsequently measured at: • • amortised cost; or fair value through profit or loss. A financial liability is measured at fair value through profit and loss if the financial liability is: - - - a contingent consideration of an acquirer in a business combination to which AASB 3: Business Combinations applies; held for trading; or initially designated as at fair value through profit or loss. All other financial liabilities are subsequently measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest expense in profit or loss over the relevant period. The effective interest rate is the internal rate of return of the financial asset or liability. That is, it is the rate that exactly discounts the estimated future cash flows through the expected life of the instrument to the net carrying amount at initial recognition. A financial liability is held for trading if: - - - it is incurred for the purpose of repurchasing or repaying in the near term; part of a portfolio where there is an actual pattern of short-term profit taking; or a derivative financial instrument (except for a derivative that is in a financial guarantee contract or a derivative that is in effective a hedging relationship). Any gains or losses arising on changes in fair value are recognised in profit or loss, to the extent that they are not part of a designated hedging relationship recognised in profit or loss. The change in fair value of the financial liability attributable to changes in the issuer's credit risk is taken to other comprehensive income and are not subsequently reclassified to profit or loss. Instead, they are transferred to retained earnings upon derecognition of the financial liability. If taking the change in credit risk in other comprehensive income enlarges or creates an accounting mismatch, then these gains or losses should be taken to profit or loss rather than other comprehensive income. A financial liability cannot be reclassified. Financial assets Financial assets are subsequently measured at: - - - amortised cost; fair value through other comprehensive income; or fair value through profit or loss. Measurement is on the basis of two primary criteria: - - the contractual cash flow characteristics of the financial asset; and the business model for managing the financial assets. A financial asset that meets the following conditions is subsequently measured at amortised cost: - - the financial asset is managed solely to collect contractual cash flows; and the contractual terms within the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates. A financial asset that meets the following conditions is subsequently measured at fair value through other comprehensive income: the contractual terms within the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates; - ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 29 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 - the business model for managing the financial assets comprises both contractual cash flows collection and the selling of the financial asset. By default, all other financial assets that do not meet the measurement conditions of amortised cost and fair value through other comprehensive income are subsequently measured at fair value through profit or loss. The Group initially designates a financial instrument as measured at fair value through profit or loss if: - - - it eliminates or significantly reduces a measurement or recognition inconsistency (often referred to as “accounting mismatch”) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; it is in accordance with the documented risk management or investment strategy, and information about the groupings was documented appropriately, so that the performance of the financial liability that was part of a Company of financial liabilities or financial assets can be managed and evaluated consistently on a fair value basis; it is a hybrid contract that contains an embedded derivative that significantly modifies the cash flows otherwise required by the contract. The initial designation of the financial instruments to measure at fair value through profit or loss is a one-time option on initial classification and is irrevocable until the financial asset is derecognised. Equity instruments At initial recognition, as long as the equity instrument is not held for trading and not a contingent consideration recognised by an acquirer in a business combination to which AASB 3: Business Combinations applies, the Group has the option to make an irrevocable election to measure any subsequent changes in fair value of the equity instruments in other comprehensive income, while the dividend revenue received on underlying equity instruments investment will still be recognised in profit or loss. The Group currently has no equity instrument financial assets. Regular way purchases and sales of financial assets are recognised and derecognised at settlement date in accordance with the Company's accounting policy. Derecognition Derecognition refers to the removal of a previously recognised financial asset or financial liability from the statement of financial position. Derecognition of financial liabilities A liability is derecognised when it is extinguished (ie when the obligation in the contract is discharged, cancelled or expires). An exchange of an existing financial liability for a new one with substantially modified terms, or a substantial modification to the terms of a financial liability is treated as an extinguishment of the existing liability and recognition of a new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. Derecognition of financial assets A financial asset is derecognised when the holder's contractual rights to its cash flows expires, or the asset is transferred in such a way that all the risks and rewards of ownership are substantially transferred. All of the following criteria need to be satisfied for derecognition of financial asset: - - - the right to receive cash flows from the asset has expired or been transferred; all risk and rewards of ownership of the asset have been substantially transferred; and the Company no longer controls the asset (ie the Group has no practical ability to make a unilateral decision to sell the asset to a third party). On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 30 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 On derecognition of a debt instrument classified as at fair value through other comprehensive income, the cumulative gain or loss previously accumulated in the investment revaluation reserve is reclassified to profit or loss. On derecognition of an investment in equity which was elected to be classified under fair value through other comprehensive income, the cumulative gain or loss previously accumulated in the investment revaluation reserve is not reclassified to profit or loss but is transferred to retained earnings. Impairment The Group recognises a loss allowance for expected credit losses on: - - - - financial assets that are measured at amortised cost or fair value through other comprehensive income; contract assets (eg amounts due from customers under construction contracts); loan commitments that are not measured at fair value through profit or loss; and financial guarantee contracts that are not measured at fair value through profit or loss. Loss allowance is not recognised for: - - financial assets measured at fair value through profit or loss; or equity instruments measured at fair value through other comprehensive income. Expected credit losses are the probability-weighted estimate of credit losses over the expected life of a financial instrument. A credit loss is the difference between all contractual cash flows that are due, and all cash flows expected to be received, all discounted at the original effective interest rate of the financial instrument. The Group uses the following approach to impairment, as applicable under AASB 9: Financial Instruments: - the simplified approach Simplified approach The simplified approach does not require tracking of changes in credit risk at every reporting period, but instead requires the recognition of lifetime expected credit loss at all times. This approach is applicable to: - trade receivables or contract assets that result from transactions within the scope of AASB 15: Revenue from Contracts with Customers and which do not contain a significant financing component In measuring the expected credit loss, a provision matrix for trade receivables is used taking into consideration various data to get to an expected credit loss (ie diversity of customer base, appropriate groupings of historical loss experience, etc). Recognition of expected credit losses in financial statements At each reporting date, the Group recognises the movement in the loss allowance as an impairment gain or loss in the statement of profit or loss and other comprehensive income. The carrying amount of financial assets measured at amortised cost includes the loss allowance relating to that asset. Provisions (i) Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result, and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. Earnings per share (j) Basic earnings per share (“EPS”) is calculated by dividing the net profit or loss attributable to members of the parent entity for the reporting period, after excluding any costs of servicing equity (other than ordinary shares and converting preference shares classified as ordinary shares for EPS calculation purposes), by the weighted average number of ordinary shares of the Company, adjusted for any bonus issue. Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and the effect on revenues and expenses of conversion to ordinary shares associated with dilutive potential ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 31 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 ordinary shares, by the weighted average number of ordinary shares and dilutive potential ordinary shares adjusted for any bonus issue. Inventories (k) Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Such costs are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a weighted average basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Revenue and Other Income (l) The Group has adopted AASB 15 Revenue from Contracts with Customers from 1 July 2018. Under AASB 15, revenues are generated by the Group through the design, development, manufacture and distribution of improved vehicle braking systems based on the Group’s patented technology to customers worldwide. For sales of products, revenue is recognised in a point in time when control of the products has transferred to the customer, which is usually when the products are delivered to the customers. Volume discounts could be provided with the sale of these items depending on the volume of aggregate sales made to eligible customers. Revenue from the rendering of services is recognised upon the delivery of the service to the customer. A receivable will be recognised when the goods or services are delivered. The Group’s right to consideration is deemed unconditional at this time as only the passage of time is required before payment of that consideration is due. There is no financing component because sales are made within standard credit terms as agreed with the customers. All sales revenues to external customers are recognised at a point in time. Other Revenue Interest revenue is recognised using the effective interest rate method. Dividend revenue is recognised when the right to receive a dividend has been established. (m) Government Grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received, and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset. Where it is expected that a grant will be repaid if certain conditions are met, the liability to repay the grant is recognised as the conditions are met and the liability crystallises. R&D Tax incentives have been accounted for as government grants and are recognised on an accruals basis. Intangibles Other than Goodwill (n) Technology Assets / Patents Such assets are recognised at cost of acquisition. The cost of technology assets is amortised over the average life of the patents granted for each technology asset on a straight-line basis. The average life of a patent varies between 10 and 20 years and technology assets in the Intellectual Property purchased from Safe Effect Technologies International Ltd (SETI) was initially amortised over 15 years. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period. The amortisation rate was reassessed in prior years, based on the extended patents, which currently run through to December 2030. Research and 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 is expected to deliver future economic benefits and these benefits can be measured reliably. Development costs have a finite life and are amortised on a systematic basis based on the future economic benefits over the useful life of the project. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 32 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated: • • • • • • the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and the ability to measure reliably the expenditure attributed to the intangible asset during its development. Capitalised development costs will be amortised over their expected useful lives once commercial sales commence. (o) Leases The Group as lessee At inception of a contract, the Group assesses if the contract contains or is a lease. If there is a lease present, a right-of- use asset and a corresponding lease liability are recognised by the Group where the Group is a lessee. However, all contracts that are classified as short-term leases (ie a lease with a remaining lease term of 12 months or less) and leases of low-value assets are recognised as an operating expenses on a straight-line basis over the term of the lease. Initially the lease liability is measured at the present value of the lease payments still to be paid at the commencement date. The lease payments are discounted at the interest rate implicit in the lease. If this rate cannot be readily determined, the Group uses the incremental borrowing rate. Lease payments included in the measurement of the lease liability are as follows: – – fixed lease payments less any lease incentives; variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; the amount expected to be payable by the lessee under residual value guarantees; – the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; – lease payments under extension options, if the lessee is reasonably certain to exercise the options; and – – payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. The right-of-use assets comprise the initial measurement of the corresponding lease liability, any lease payments made at or before the commencement date and any initial direct costs. The subsequent measurement of the right-of-use assets is at cost less accumulated depreciation and impairment losses. Right-of-use assets are depreciated over the lease term or useful life of the underlying asset, whichever is the shortest. Where a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group anticipates to exercise a purchase option, the specific asset is depreciated over the useful life of the underlying asset. Property, Plant and Equipment (p) Each class of property, plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment Plant and equipment is measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 33 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 The carrying amount of plant and equipment is reviewed periodically by 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 asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the consolidated group includes the cost of materials and externally supplied services. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are expensed to profit and loss during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The following estimated useful lives are used in the calculation of depreciation: Class of Fixed Asset Plant and equipment Motor vehicles Office equipment and furniture Software Leasehold improvements 2-5 years 3-15 years 3-5 years 3-5 years 5-10 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in profit and loss. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. (q) Employee Benefits Short-term employee benefits Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short-term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The Group’s obligations for short-term employee benefits such as wages, salaries and sick leave are recognised as a part of current trade and other payables in the statement of financial position. The Group’s obligations for employees’ annual leave and long service leave entitlements are recognised as provisions in the statement of financial position. Other long-term employee benefits Provision is made for employees’ long service leave and annual leave entitlements not expected to be settled wholly within 12 months after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on government bonds that have maturity dates that approximate the terms of the obligations. Any re-measurements for changes in assumptions of obligations for other long-term employee benefits are recognised in profit or loss in the periods in which the changes occur. The Group’s obligations for long-term employee benefits are presented as non-current provisions in its statement of financial position, except where the Group does not have an unconditional right to defer settlement for at least 12 months after the end of the reporting period, in which case the obligations are presented as current provisions. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 34 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Equity-settled compensation The Group operates an employee share/option ownership plan. Share-based payments to employees and Directors are measured at the fair value of the instruments issued and amortised over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using the Black-Scholes pricing model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognised for services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest. Comparative Figures (r) When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Where the Group has retrospectively applied an accounting policy, made a retrospective restatement of items in the financial statements or reclassified items in its financial statements, an additional statement of financial position as at the beginning of the earliest comparative period will be disclosed. Rounding of Amounts (s) The parent entity has applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial statements and Directors’ report have been rounded off to the nearest $1,000. Fair Value of Assets and Liabilities (t) The Group measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly (i.e. unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (i.e. the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (i.e. the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. The fair value of liabilities and the entity’s own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instrument, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. Critical Accounting Judgements, Estimates and Judgments (u) 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. Coronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the company based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the company operates. Other than as addressed in specific notes, there does ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 35 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the Company unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. Key Estimates – Impairment The group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to the impairment of assets. Where an impairment trigger exists, the recoverable amount of the assets is determined. Fair value less cost to sell and value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. Key Estimates - Share based payment transactions The fair value of any options issued as remuneration is measured using the Black-Scholes model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on historic volatility adjusted for changes expected due to publicly available information, if any), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Key Estimates - Recoverability of Intangible Assets (Development Expenditure) The recoverability of capitalised development expenditure recognised as a non-current asset is dependent upon the successful commercialisation, or alternatively sale, of the respective intellectual property which comprise the assets. New Standards and Interpretations not yet adopted (v) A number of new accounting standards, amendments to standards and interpretations are not yet effective for 30 June 2021 reporting period and have not been early adopted in preparing these financial statements. The directors' assessment of these new accounting standards (to the extent relevant to the Group) and interpretations is that they are not expected to have a material effect on the financial statements of the Group. Going Concern Basis of Preparation (w) The financial report has been prepared on the going concern basis that contemplates the continuity of normal business activities and the realisation of assets and extinguishment of liabilities in the ordinary course of business. For the year ended 30 June 2021, the Group recorded a profit after tax of $0.620m (2020: $0.171m) and reported operating cash inflows of $1.212m (2020: inflows $0.242m). At balance date and as detailed in Note 17, the Company has current borrowings of $0.283m (2020: $0.055m). The ability of the Company to continue as a going concern is dependent on it being able successfully raise further funding or generate adequate cashflows from its operations or a combination of both. The Directors believe that the going concern basis is appropriate, primarily based on current working capital available combined with budgeted cashflows expected to be generated from trading operations over the next 12 months. The Directors believe that as at the date of signing the financial statements, there are reasonable grounds to believe that, having regards to the matters set out above, the Group will be able to continue to operate as a going concern and to meet its obligations as and when they fall due, for at least the next 12 months. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 36 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 2 REVENUES FROM OTHER ACTIVITIES Other activities - interest received - net foreign exchange (loss) / gain - profit / (loss) from sale of fixed assets - R&D Tax Incentive - CDIC Defence Grant - other Government Grants related to the coronavirus (COVID-19) - Other income Total revenue from other activities 3 PROFIT / (LOSS) BEFORE INCOME TAX Profit / (Loss) before income tax has been determined after deducting the following expenses: Cost of sales Finance expenses Depreciation of non-current assets - plant and equipment - motor vehicle - office equipment and furniture - leasehold improvements - software -right of use assets Total depreciation Bad and doubtful debts - trade debtors Total bad and doubtful debts Inventory obsolescence expense CONSOLIDATED GROUP 2020 $’000 2021 $’000 4 (1) (1) 526 96 105 18 747 3 (7) 14 609 - 110 1 730 5,211 4,482 83 72 15 18 9 1 65 180 - - 79 295 90 17 18 9 6 66 206 10 10 1 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 37 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 4. INCOME TAX EXPENSE Note a. b. c. d. The components of tax expense comprise: Current tax Deferred tax Income tax The prima facie tax benefit on profit / (loss) from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax benefit on profit / (loss) from ordinary activities before income tax at 26% (2020: 27.5%) Add tax effect of: - Non-allowable items - Revenue losses and other deferred tax balances not recognised - Recoupment of prior year losses not previously recognised - R&D tax incentive - Other non-assessable items Income tax Deferred tax recognised at 26% (2020:26%): Deferred tax liabilities: Prepayments Intellectual Property Deferred tax assets: Carry forward revenue losses Net deferred tax Unrecognised deferred tax assets at 26% (2020:26%): Carry forward revenue losses Carry forward capital losses Capital raising costs Provisions and accruals Leases Intangible assets Other 4e 4e CONSOLIDATED GROUP 2020 $’000 2021 $’000 - - - 161 352 60 (416) (136) (21) - (6) (74) 80 - 4,602 76 20 132 9 5 4 4,848 - - - 47 379 154 (391) (168) (21) - (6) (42) 48 - 5,149 79 40 118 6 2 5 5,399 The tax benefits of the above deferred tax assets will only be obtained if: (a) the company derives future assessable income of a nature and of an amount sufficient to enable the benefits to be utilised; the company continues to comply with the conditions for deductibility imposed by law; and no changes in income tax legislation adversely affect the company in utilising the benefits. (b) (c) Corporate Tax Rate: e. The corporate tax rate for eligible companies will reduce from 30% to 25% by 30 June 2022 providing certain turnover thresholds and other criteria are met. Deferred tax assets and liabilities are required to be measured at the tax rate that is expected to apply in the future income year when the asset is realised, or the liability is settled. The Directors have determined that the deferred tax balances be measured at the tax rates stated. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 38 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 5. Key Management Personnel Compensation Refer to the remuneration report contained in the directors’ report for details of the remuneration paid or payable to each member of the Group’s key management personnel (KMP) for the year ended 30 June 2021. The totals of remuneration paid to KMP’s of the company and the Group during the year are as follows: Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments Total KMP compensation 2021 $000 1,271 106 - 135 1,512 2020 $000 1,031 91 - 105 1,227 Short-term employee benefits These amounts include fees and benefits paid to the Non-Executive Chairman and Non-Executive Directors as well as all salary, paid leave benefits, fringe benefits and cash bonuses awarded to Executive Directors and other KMP. Post-employment benefits These amounts are the superannuation contributions made during the year. 6. AUDITOR’S REMUNERATION Remuneration of the auditor of the Consolidated Group for: Audit or review of the financial statements Taxation services 7. EARNINGS PER SHARE Basic Earnings per share Net profit / (loss) ($’000’s) CONSOLIDATED GROUP 2021 $’000 49 10 59 $’000 620 Number (‘000’s) 2020 $’000 43 12 55 $’000 171 Number (‘000’s) i) Weighted average number of ordinary shares during the year used in calculation of basic EPS (in ‘000’s) 379,149 349,097 ii) Weighted average number of diluted options during the year used in calculation of basic EPS (in ‘000’s) 30,987 12,846 Basic profit / (loss) per share (cents) Diluted profit / (loss) per share (cents) Cents 0.16 0.15 Cents 0.05 0.05 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 39 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 8 CASH AND CASH EQUIVALENTS Cash at bank Short term bank deposits CONSOLIDATED GROUP 2021 $’000 1,369 42 1,411 2020 $’000 474 42 516 The effective interest rate on short-term bank deposits was 0.42% (2020: 2.01%) and can mature with 30 days of notice. Reconciliation of cash Cash at the end of the financial year as shown in the Cash Flows Statement is reconciled to items in the Balance Sheet as follows: Cash at bank 1,411 516 Advanced Braking Pty Ltd has an invoice finance facility agreement with NAB under which it may borrow up to $0.5m or 80% secured against debtors. The amount which may be borrowed at any time varies depending on the trade debtor balance. At 30 June 2021, the borrowing facility available was $500,000 (2020: $500,000) and the amount borrowed was nil (2020: nil). Borrowings are secured by a general security agreement over the assets of Advanced Braking Pty Ltd and are guaranteed by Advanced Braking Technology Ltd. 9 TRADE AND OTHER RECEIVABLES Note CONSOLIDATED GROUP Current Trade receivables Provision for impairment Total current trade and other receivables 2021 $’000 1,446 (20) 1,426 2020 $’000 1,295 (20) 1,275 9a(i) The following table shows the movement in lifetime expected credit loss that has been recognised for trade and other receivables in accordance with the simplified approach set out in AASB 9: Financial Instruments. Note CONSOLIDATED GROUP Net measure- ment of loss allowance Opening balance under AASB 139 Adjust- ment for AASB 9 1 July 2019 Amounts written off Closing balance 30 June 2020 $000 $000 $000 $000 $000 a. Lifetime Expected Credit Loss: Credit Impaired (i) Current trade receivables (10) (10) - - (10) (10) - - (20) (20) ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 40 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 9 TRADE AND OTHER RECEIVABLES (Continued) (i) Current trade receivables Note CONSOLIDATED GROUP Opening balance under AASB 139 Adjust- ment for AASB 9 1 July 2020 Net measure- ment of loss allowance Amounts written off Closing balance 30 June 2021 $000 (20) (20) $000 $000 $000 - - - - - - $000 (20) (20) The Group applies the simplified approach to providing for expected credit losses prescribed by AASB 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The loss allowance provision as at 30 June 2021 is determined as follows: - - the expected credit losses also incorporate forward-looking information. The amounts written off are all due to customers declaring bankruptcy, or term receivables that have now become unrecoverable. 2021 Expected loss rate Gross carrying amount Loss allowing provision 2020 Expected loss rate Gross carrying amount Loss allowing provision 10 INVENTORIES Current Finished goods Components and WIP Less: Provision for obsolescence 11 OTHER CURRENT ASSETS Prepayments Other receivables - R&D Tax incentive Current >30 days past due >60 days past due >90 days past due $000 $000 $000 $000 0% 1,053 - 0% 335 - 35% 58 (20) 0% - - Current >30 days past due >60 days past due >90 days past due $000 $000 $000 $000 0% 1,116 - 0% 149 - 68% 30 (20) 0% - - Total $000 1.38% 1,446 (20) Total $000 1.5% 1,295 (20) CONSOLIDATED GROUP 2020 $’000 - 2,085 (84) 2,001 194 520 714 2021 $’000 - 1,886 (113) 1,773 231 512 743 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 41 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 12. CONTROLLED ENTITES Advanced Braking Pty Ltd ACN 088 129 917 (Incorporated in WA) Class and number of shares: ordinary 2021 Number 200,002 PARENT ENTITY 2020 Number 200,002 On 28 May 2002, the parent entity acquired 100% of Advanced Braking Pty Ltd for a purchase consideration of $200,002. The principal activity of the Company is brake research, design, engineering and commercialisation, and sales of brakes and brake parts. CONSOLIDATED GROUP 13 PROPERTY, PLANT AND EQUIPMENT Plant and equipment at cost Less: accumulated depreciation Motor vehicles at cost Less: accumulated depreciation Leasehold Improvements at cost Less: accumulated depreciation Office equipment and furniture at cost Less: accumulated depreciation Software at cost Less: accumulated depreciation Total at net written down value 2021 $’000 874 (520) 354 75 (66) 9 94 (35) 59 100 (72) 28 80 (80) - 450 2020 $’000 620 (457) 163 75 (51) 24 91 (26) 65 151 (112) 39 120 (119) 1 292 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 42 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 13 PROPERTY, PLANT AND EQUIPMENT (continued) Reconciliation Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year. CONSOLIDATED GROUP Plant & Equipment Motor Vehicles Office Equipment & Furniture Leasehold Improvements Software Total 2021 $'000 $'000 $'000 Balance at the beginning of year Additions Disposals Written-off 163 263 - - 24 - - - Depreciation expense (72) (15) Carrying amount at the end of year 354 9 39 8 (1) - (18) 28 $'000 65 3 - - (9) 59 $'000 $'000 1 - - - 292 274 (1) - (1) (115) - 450 2020 $'000 $'000 $'000 $'000 $'000 $'000 Balance at the beginning of year Additions Disposals Written-off Depreciation expense 240 13 - - (90) 98 - (57) - (17) Carrying amount at the end of year 163 24 47 10 - - (18) 39 71 3 - - (9) 65 7 - - - 463 26 (57) - (6) (140) 1 292 14. RIGHT-OF-USE ASSETS The Group's lease portfolio currently includes buildings. This lease runs for a period of 5 years with an option to renew for a further 5-year period after that period. The extension option which management were reasonably certain to be exercised have been included in the calculation of the lease liability. The Group has elected not to recognise right-of-use assets for low value items and any short-term leases. (i) AASB 16 related amounts recognised in the balance sheet Right-of-use assets Leased building Accumulated depreciation Depreciation expense for the year ended ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 CONSOLIDATED GROUP 2020 $’000 2021 $’000 553 (131) 422 65 553 (66) 487 66 43 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 14. RIGHT-OF-USE ASSETS (continued) (ii) AASB 16 related amounts recognised in the statement of profit or loss Depreciation charge related to right-of-use assets Interest expense on lease liabilities (under finance cost) Short-term leases expense Low-value asset leases expense Variable lease payment expense (iii) Total cash outflows for leases - Financing cash outflow (principal repaid) - Operating cash outflow (finance costs) 15. INTANGIBLES Wet Brake technology assigned from Safe Effect Technologies International Ltd Less - Accumulated amortisation Carrying amount at the end of year CONSOLIDATED GROUP 2020 $’000 2021 $’000 65 39 - 27 - 2021 $’000 85 39 66 43 - 14 - 2020 $’000 92 43 CONSOLIDATED GROUP 2020 $’000 2021 $’000 2,984 (2,377) 607 2,984 (2,313) 671 Total carrying amount at the end of year 607 671 Reconciliation Movement in the carrying amounts for each class of intangible asset between the beginning and the end of the current financial year: CONSOLIDATED GROUP 2021 Balance at the beginning of year Amortisation expense Carrying amount at the end of year Wet Brake Technology $'000 671 (64) 607 Total $'000 671 (64) 607 2020 Balance at the beginning of year Amortisation expense Carrying amount at the end of year $'000 735 (64) 671 $'000 735 (64) 671 Impairment Disclosure An impairment assessment of intangibles was performed in April 2017, triggered by the impending introduction of the new polymer Terra Durra brake. This assessment confirmed the carrying amount of the SIBS (Failsafe) Wet Brake Intellectual Property and extended the amortisation period to December 2030 to coincide with the expiry date of the existing patents. No impairment assessment of intangibles was performed 2021 or 2020, as there were no impairment triggers. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 44 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 16 TRADE AND OTHER PAYABLES Current (unsecured) Trade creditors Other payables Accrued expenses 17 (a) INTEREST BEARING LIABILITIES Current Insurance Premium funding (i) Other (secured) Lease liability – Right-of-use assets Total CONSOLIDATED GROUP 2020 $’000 771 283 111 2021 $’000 1,092 56 (1) 1,147 1,165 214 17 231 52 283 - 7 7 48 55 (i) The insurance premium funding is an unsecured finance arrangement for the Company’s annual insurance premiums with Attvest Finance Pty Ltd. The amount outstanding for the remaining period of the arrangement, being 10 months is $214,000. The interest rate of the funding is approx. 4.43% pa. (b) Non-current Other Lease Liability – Right of use asset (c) Total CONSOLIDATED GROUP 2020 $’000 16 2021 $’000 - 406 406 456 472 (c) Lease Liability – Right of use asset The measurement principles of AASB 16 are only applied from 1 July 2019. At the date of initial application, the right-of-use assets equals to the lease liabilities and there was no adjustment to the retained earnings. The lease liabilities are presented below: Balance at 1 July Payments Interest charges during the period Balance at 30 June 2020 CONSOLIDATED GROUP 2020 $’000 553 (92) 43 2021 $’000 504 (85) 39 458 504 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 18 PROVISIONS Current Warranties Employee entitlements Total Non-Current Employee Entitlements Total (b) Number of Employees Number of employees at year-end Australia Total 19 ISSUED CAPITAL (a) Ordinary Shares CONSOLIDATED GROUP 2020 $’000 82 175 2021 $’000 96 160 256 257 18 14 14 14 Number Number 15 15 18 18 The Parent Entity had issued 379,148,766 (2020: 379,148,766) fully paid ordinary shares as at the 30 June 2021. Ordinary shares Balance at beginning of the financial year 1 July 24 July 2019 – Issue of shares to a consultant 24 July 2019 – Issue of shares to a consultant 24 July 2019 – Issue of shares to a consultant 23 October 2019 – Convertible Notes converted to shares 29 October 2019 – Convertible Notes converted to shares 11 November 2019 – Convertible Notes converted to shares 14 November 2019 – Convertible Notes converted to shares 09 December 2019 – Convertible Notes converted to shares Transaction costs relating to share issues Balance at end of financial year 2021 Number of shares $’000 2020 Number of shares $’000 379,148,766 55,819 379,148,766 379,148,766 55,819 - 55,819 150,754 184,049 520,833 500,000 950,000 72,541,668 1,500,000 5,751,666 297,049,796 54,200 3 3 5 10 19 1,451 30 115 379,148,766 55,836 (17) 379,148,766 55,819 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 46 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 (b) Options Unlisted Options Balance at beginning of the financial year 1 July 2019 24 July 2019 – Issue of unlisted options to a consultant 26 February 2020 – Issue of KMP Options 18 February 2021 – Issue of KMP Options 18 February 2021 – Issue of KMP Options Balance at end of financial year 30 June 2021 (i) Weighted Average exercise price (c) Capital Management Number of options Exercise price $ Expiry date - 5,000,000 23,832,435 2,979,054 2,979,055 34,790,544 0.025 0.040 0.040 0.040 0.038 30 June 2022 30 June 2023 30 June 2023 30 June 2024 WAEP (i) Management controls the capital of the Group in order to maintain a good debt to equity ratio, provide the Shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. Advanced Braking Pty Ltd has a finance agreement with NAB under which it may borrow up to $500,000 secured against debtors. The amount which may be drawn down at any time is dependent on the debtor balance - see note 9. 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. These responses include the management of debt levels, distributions to Shareholders, share issues and convertible note issues. Management aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The gearing ratios for the years ended 30 June 2021 and 30 June 2020 are as below. The gearing ratio is calculated as net debt divided by total capital. Net debt is defined as interest bearing liabilities less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the statement of financial position plus net debt. Gearing ratio CONSOLIDATED GROUP 2020 0.3% 2021 (18.1%) As the Group’s gearing ratio has dropped significantly in 2021 due to the Group’s increased equity position and low levels of interest bearing liabilities, the Group’s capital risk management focus has become the management of its current working capital position to meet anticipated operating requirements. The working capital positions of the Group at 30 June 2021 and 30 June 2020 were as follows: Cash and cash equivalents Trade and other receivables Other current assets Trade and other payables Current interest bearing liabilities Current provisions Working Capital Position as at 30 June CONSOLIDATED GROUP 2020 $’000 516 1,275 714 (1,165) (55) (257) 1,028 2021 $’000 1,411 1,426 743 (1,147) (283) (256) 1,894 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 47 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 20 RESERVES Option reserve Share based payment reserve Total reserves at the end of the financial year 21 ACCUMULATED LOSSES Accumulated losses at the beginning of the financial year Net profit / (loss) attributable to members of the parent entity Accumulated losses at the end of the financial year 22 SHARE-BASED PAYMENTS (a) Share-based payment expense Shares Schedule of share-based payments (i) 24 July 2019 – Issue of 150,754 shares to a consultant 24 July 2019 – Issue of 184,049 shares to a consultant 24 July 2019 – Issue of 520,833 shares to a consultant Total allocated to Issued Capital Options (ii) 24 July 2019 – Issue of 5,000,000 unlisted options to a consultant Total allocated to Issued Capital 26 February 2020 – Issue of 23,832,435 unlisted options to KMP 18 February 2021 – Issue of 5,958,109 unlisted options to KMP (1.) 16 April 2021 – Lapse of 5,958,109 unlisted options to KMP (2.) Total allocated to Share-based Payment Reserve CONSOLIDATED GROUP 2020 $’000 64 105 169 2021 $’000 64 214 278 CONSOLIDATED GROUP 2020 $’000 (52,166) 171 (51,995) 2021 $’000 (51,995) 620 (51,375) CONSOLIDATED GROUP 2020 $’000 180 2021 $’000 109 - - - - - - 137 27 (55) 109 3 3 5 11 64 64 105 - - 105 (b) Options issued during the period 1. Pursuant to ABT’s Share Option Plan, key management personnel, Mr Ben Suda was granted and issued a total of 5,958,109 unlisted options which have an exercise price of $0.04 per share which are subject to vesting conditions (KMP Options). The KMP Options were issued on 18 February 2021 and are subject to the following vesting conditions: • Ongoing employment; and • Vesting in 3 tranches over a 3-year period, as below. KMP Options Vesting 1 year issue date (Tranche 1) 25% from KMP Options Vesting 2 years issue date (Tranche 2) 25% from KMP Options Vesting 3 years issue date (Tranche 3) 50% from 1,489,527 1,489,527 2,979,055 Total 5,958,109 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 48 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 2. During the period, 5,958,109 unlisted options issued to a KMP in 2020 were not able to meet the vesting conditions, due to the resignation of KMP Mr Tony Van Litsenborgh on 16 April 2021. An amount of $55,000 was reversed in relation to the total valuation of the KMP options amortised to his resignation date, comprised of $26,000 and $29,000 related to the amortisation during the years ended 30 June 2020 and 30 June 2021 respectively. (c) Unlisted options valuation The fair value of the equity settled share options granted during the period are estimated at the date of grant using a Black-Scholes model taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the year ended 30 June 2021 Fair value at grant date Share price at grant date Exercise price Expected volatility Expected life Expected dividends Risk-free interest rate Number of options issued Valuation KMP Options Tranche 1 KMP Options Tranche 2 KMP Options Tranche 3 $0.019 $0.043 $0.04 111% 1 year Nil 0.1% 1,489,527 $28,352 $0.0251 $0.043 $0.04 111% 2 years Nil 0.09% 1,489,527 $37,389 $0.0291 $0.043 $0.04 111% 3 years Nil 0.11% 2,979,055 $86,667 The total value of the KMP Options is $152,407 at the date they were granted. The KMP Options are subject to vesting conditions: • • ongoing service and vest in three tranches at 1, 2 and 3 years from the date of issue. The KMP Option valuations are amortised over the period of vesting for each tranche, as follows: 2021 KMP Options Tranche 1 Tranche 2 Tranche 3 Total FY2021 $10,253 $6,761 $10,447 $27,462 FY2022 $18,099 $18,695 $28,889 $65,682 FY2023 - $11,934 $28,889 $40,822 FY2024 - - $18,441 $18,441 Total $28,352 $37,389 $86,667 $152,407 KMP Options issued in during the prior year, FY20, have a remaining value of $92,510. The KMP Options are subject to vesting conditions: • • ongoing service and vest in three tranches at 1, 2 and 3 years from the date of issue. The KMP Option valuations are amortised over the remaining period of vesting, as follows: 2020 KMP Options Tranche 1 Tranche 2 Tranche 3 Total FY2021 $19,162 $33,988 $55,146 $108,297 FY2022 - $14,247 $55,146 $69,394 FY2023 - - $23,116 $23,116 Total $19,162 $48,236 $133,409 $200,807 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 49 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 23 CONTRACT AND LEASING COMMITMENTS (a) Finance lease commitments Payable - not later than 1 year - later than 1 year but not later than 5 years Less future finance charges CONSOLIDATED GROUP 2020 $’000 - - - - - 2021 $’000 - - - - - (b) Operating lease commitments Non-cancellable operating lease contracted for but not capitalised in the financial statements Payable - not later than 1 year - later than 1 year but not later than 5 years - - - - - - The liabilities associated with leases now form part of the borrowings disclosure at Note 17. 24 SEGMENT REPORTING The Consolidated Group’s principal activities are research and development, commercialisation and manufacture of Failsafe wet sealed braking systems and the Terra Dura dry sealed braking systems, predominantly in Australia and via distribution arrangements to other countries. For management purposes, the Group is organised into one main operating segment. All of the Group’s activities are interrelated and discrete financial information is reported to the Board (Chief Operating Decision Maker) as a single segment. The financial results from this segment are equivalent to the financial statements of the group. (a) Revenue by geographical region Revenue attributable to external customers is disclosed below based on the location of the external customer. Australia Oversea / Export Total revenue from trading activities (b) Assets by geographical region The location of segment assets by geographical location of the assets is disclosed below: Australia Total assets (c) Major customers CONSOLIDATED GROUP 2020 $’000 5,684 2,665 8,349 2021 $’000 6,683 3,018 9,701 6,832 6,832 5,956 5,956 The Group has a number of customers to whom it provides both products and services. The four most significant customers comprise: Significance 1st 2nd 3rd 4th 2021 % of total revenue from trading activities 2020 % of total revenue from trading activities 9.6% 8.3% 8.0% 7.9% 7.6% 7.1% 6.9% 5.1% ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 50 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 25 (a) CASH FLOW INFORMATION Reconciliation of Cash Flow from operations with profit / (loss) after income tax Profit / (loss) from ordinary activities after income tax (Profit) / loss on disposal of property, plant and equipment Share-based payment expense Non-cash flows in loss from ordinary activities Depreciation and impairment Amortisation of IP Other Changes in assets and liabilities (Increase) / decrease in trade and other receivables (Increase) / decrease in inventories (Increase) / decrease in other current assets Increase / (decrease) in trade and other payables Increase / (decrease) in provisions Cash inflows / (outflows) from operations (b) Non-cash financing and investing activities 2021 During the year to 30 June 2021, CONSOLIDATED GROUP 2020 $’000 2021 $’000 620 - 109 180 64 221 (150) 229 (29) 198 (9) 1,212 171 (14) 180 206 64 (66) 20 (165) (117) (123) 66 222 a) On 18 November 2021, the Company received shareholder approval to issue 5,958,109 options to key management personnel. On 18 February 2021, pursuant to the Share Option Plan, key management personnel were granted and issued a total of 5,958,109 unlisted options (KMP Options). 2,979,054 unlisted options have an exercise price of $0.04 per share and an expiry date of 30 June 2023, subject to vesting conditions and a further 2,979,055 unlisted options exercisable at $0.04 and an expiry date of 30 June 2024, subject to vesting conditions. 2020 During the year to 30 June 2020, b) On 24 July 2019, the Company issued: a. 855,636 ordinary shares to a consultant, K S Capital Pty Limited, in lieu of $11,000 in fees for services under an agreement to provide corporate advisory services to ABT dated 7 May 2019. b. 5,000,000 unlisted options with an exercise of $0.025 and an expiry date of 30 June 2022 to a consultant, K S Capital Pty Limited under an agreement to provide corporate advisory services dated 7 May 2019. c) During November and December 2019, the Company converted convertible notes with a face value of $1,624,867 into 81,243,334 ordinary shares at $0.02 per share. d) On 27 November 2019, the Company received shareholder approval for the adoption of a new Share Option Plan and key management personnel were granted and issued a total of 23,832,435 unlisted options which have an exercise price of $0.04 per share and an expiry date of 30 June 2023, subject to vesting conditions (KMP Options). ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 51 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 26 (a) RELATED PARTY TRANSACTIONS Intercompany transactions Transactions between related parties are on normal commercial terms and conditions except for intercompany loans which are provided at no interest and are treated by the Parent Entity as an investment in the subsidiary. Related party transactions are eliminated on consolidation. (b) Transactions with Directors and Key Management Personnel (i) (ii) (iii) During the reporting period the Company made payments of $3,497 to Rockwell Bates Pty Ltd T/A R. B. Flinders for legal services on an arms-length basis at commercial rates. R. B. Flinders is a related party of Director, Adam Levine of which he is a director and shareholder. During the reporting period the Company made payments totalling $60,225 to Rockwell Group Holdings Pty Ltd for director’s fees for Adam Levine for FY21 and $5,019 as a prepayment for director’s fees for FY22. Rockwell Group Holdings Pty Ltd is a related party of Director, Adam Levine of which he is a director and shareholder. During the reporting period the Company made payments totalling $40,875 to AE Administrative Services Pty Ltd for company secretarial, accounting and administration services on an arms-length basis at commercial rates. AE Administrative Services Pty Ltd is a related party of Director, Mark Lindh of which he is a director. (iv) During 2021, no securities were issued to directors as remuneration. 27 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Overview The Company and its Subsidiary (“Group”) have exposure to the risks below from financial instruments: i) Market risk; ii) Liquidity risk; iii) Credit risk. The Directors have responsibility for the development and control of the risk management framework. The Audit Committee, established by the Directors, is responsible for development and monitoring of risk management policies. The Group’s principal financial instruments comprise cash, interest bearing deposits, lease and an invoice finance facility (see note 8). The purpose of these financial instruments is to finance the growth of the Group and to provide working capital for the Group’s operations. The Group has various other financial instruments including trade debtors and trade creditors which arise directly out of its operations and through the negotiation of trading terms with customers and suppliers. During the period under review, the Group has not traded in financial instruments. However, it is Group policy to hedge foreign currency against fluctuations where appropriate, which may result in exchange losses. The main risks arising from the Group’s financial instruments are market risk, including interest rate risk and foreign currency risk, liquidity risk and credit risk. The Directors review and agree policy for managing each of these risks and they are summarised as follows: ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 52 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 (a) Market Risk Interest rate risk The economic entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: 2021 Financial assets Cash Receivables - current Other receivables (note 11) R&D Tax incentive Total financial assets Financial liabilities Payables Interest Payable Insurance Premium funding Finance lease liabilities Total financial liabilities Average Interest Rate % Floating Interest Rate $’000 Within 1 Year 1 to 5 Years $’000 $’000 Non- Interest Bearing $’000 0.34% - - - - 4.43% 7.91% 1,411 - - 1,411 - - - - - - - - - - - 214 69 283 - - - - - - - 406 406 - 1,426 512 1,938 1,147 - - - 1,147 Total $’000 1,411 1,426 512 3,349 1,147 - 214 475 1,836 Net Financial Assets / (Liabilities) 1,411 (283) (406) 791 1,513 Interest rate risk 2020 Financial assets Cash Receivables - current Other receivables (note 11) R&D Tax incentive Total financial assets Financial liabilities Payables Interest Payable Finance lease liabilities Convertible notes Total financial liabilities Average Interest Rate % Floating Interest Rate $’000 Within 1 Year 1 to 5 Years $’000 $’000 Non- Interest Bearing $’000 0.15% - - - - 7.89% 15.0% 516 - - 516 - - - - - - - - - - - 55 - 55 - - - - - - 472 - 472 - 1,275 520 1,795 1,165 - - - 1,165 Total $’000 516 1,275 520 2,311 1,165 - 527 - 1,692 Net Financial Assets / (Liabilities) 516 (55) (472) 630 619 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 53 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 As at 30 June 2021 Advanced Braking Pty Ltd was entitled to interest on deposits at the National Australia Bank at rates at the weighted average of 0.34% per annum (2020: 0.15% per annum). The sensitivity analysis below is based on the interest rate risk exposure in existence at the balance sheet date. The 0.25% (2020: 0.50%) interest rate sensitivity is based on reasonable possible changes, over a financial year, using an observed range of historical Australian Reserve Bank rate movement over the last two years. Possible movements before tax: +0.25% (2020: 0.5%) per annum -0.25% (2020: -0.5%) per annum Net financial (liabilities)/assets as above Non-financial assets and liabilities -Inventories -Property, plant & equipment -Right-of-use assets -Intangible Assets -Other current assets-prepayments (note 11) -Provisions - Current -Provisions - Non-current Net (liabilities)/assets as per the Balance Sheet CONSOLIDATED GROUP 2020 2021 $’000 $’000 4 (4) 3 (3) CONSOLIDATED GROUP 2020 2021 $’000 1,513 1,773 450 422 607 231 (256) (18) 4,722 $’000 619 2,001 292 487 671 194 (257) (14) 3,993 The Directors’ objective is to earn the highest rate of interest on deposits with minimum risk. The Directors’ policy therefore is to place deposits with recognised banks which offer the highest variable and/or fixed rates. Similarly, loans and asset finance contracts are shopped to find the lowest rates of interest expense. Foreign Currency Risk The Company currently has minimal foreign exchange exposure with regard to both the receivables and payables and currently has no offshore assets. At 30 June 2021, the Company does not have any forward foreign exchange contracts in place. As at 30 June 2021 the Group had the following exposure to foreign currency: Financial Asset Cash and cash equivalents Trade and other receivables Financial Liabilities Payables Net Exposure CONSOLIDATED GROUP 2020 2021 $’000 $’000 - - - - - - (17) (17) (14) (14) ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 54 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 The following sensitivity analysis is based on the foreign currency risk exposure in existence at the balance sheet date. The 11% (2020: 7%) sensitivity is based on reasonable possible changes, over a financial year, using an observed range of actual historical rates in foreign exchange movements over the last two years. In the year to 30 June 2021, if the Australian Dollar had moved, as illustrated in the table below, with all other variables held constant, the results before tax relating to financial assets and would have been affected as shown below: Possible movements before tax: Pre-Tax Profit – higher/(lower) +11% (2020: +7%) per annum -11% (2020: -7%) per annum CONSOLIDATED GROUP 2020 2021 $’000 $’000 (2) 2 (1) 1 (b) Liquidity Risk The Group’s objective is to fund new product development and commercialisation through Shareholder equity, convertible notes, government grants, R&D tax incentives, lease finance and bank funding where available. The Group manages liquidity risk by maintaining adequate cash reserves through share issues, convertible note issues, debtor finance, secured bank lending and asset finance. Future funding requirements are determined through the monitoring of regular cash flow forecasts, which reflect management’s expectations in respect of future turnover, development of new markets and products, capital investment and the settlement of financial assets and liabilities. The following are the contractual maturities of financial liabilities, including estimated interest payments: CONSOLIDATED GROUP 2020 $’000 2021 $’000 0 – 6 months 6 – 12 months 1 – 5 years 29 40 286 355 27 28 472 527 The following table discloses maturity analysis of financial assets and liabilities based on management expectation: CONSOLIDATED GROUP AS AT 30 JUNE 2021 < 6 Mths $'000 6 - 12 Mths $'000 1 - 5 Years $'000 Financial Assets Cash and cash equivalents Trade and other receivables Accrued Income R&D tax incentive Total financial assets Financial Liabilities Payables Lease liabilities Insurance Premium funding Total financial liabilities Net exposure 1,411 1,426 512 3,349 1,147 29 214 1,390 1,959 - - - - - 40 - 40 - - - - - 286 - 286 (40) (286) Total $'000 1,411 1,426 512 3,349 1,147 355 214 1,716 1,633 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 55 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 CONSOLIDATED GROUP AS AT 30 JUNE 2020 < 6 Mths $'000 6 - 12 Mths $'000 1 - 5 Years $'000 Financial Assets Cash and cash equivalents Trade and other receivables Accrued Income R&D tax incentive Total financial assets Financial Liabilities Payables Hire purchase and finance lease liabilities R&D rebate loan Convertible Note accrued interest Convertible notes Total financial liabilities Net exposure (c) Credit risk 516 1,275 520 2,311 1,165 27 - - - 1,192 1,119 Total $'000 516 1,275 520 2,311 1,165 527 - - - 1,692 - - - - - 28 - - - 28 - - - - - 472 - - - 472 (28) (472) 619 The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties other than those receivables specifically provided for and mentioned within Note 9. The class of assets described as "trade and other receivables" is considered to be the main source of credit risk related to the Group. On a geographical basis, the Group has significant credit risk exposures in Australia given the substantial operations in that region. The Group’s exposure to credit risk for receivables at the end of the reporting period in that regions is as follows: AUD Australia CONSOLIDATED GROUP 2021 $’000 1,426 1,426 2020 $’000 1,275 1,275 There has been no change in the estimation techniques used or significant assumptions made during the current reporting period. The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery; for example, when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or when the trade receivables are over two years past due, whichever occurs earlier. None of the trade receivables that have been written off are subject to enforcement activities. (d) Net fair values The financial assets and liabilities included in current asset and current liabilities in the Balance Sheet position are carried at amounts that approximate net fair values or recoverable amount. Impairment assessments in financial year 2021 resulted in no adjustment to the provision for obsolete inventory. Intangible assets as at 30 June 2021 only comprises the Wet Brake technology assigned from Safe Effect Technologies International Ltd on 27 June 2006. The amortisation period is to December 2030, being the current life of patents, which underpin the carrying value. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 56 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 28 CONTINGENT LIABILITIES There are no contingent liabilities. 29 EVENTS SUBSEQUENT TO BALANCE DATE The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has been financially positive for the company up to 30 June 2021, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. On 19 July 2021, ABT announced to the ASX the lapse of 5,958,109 KMP Options, exercisable at $0.04 and expiring 30 June 2023, following the resignation of KMP, Mr Tony Van Litsenborgh. No other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect the company's operations, the results of those operations, or the company's state of affairs in future financial years. 30 PARENT INFORMATION The following information has been extracted from the books and records of the parent company and has been prepared in accordance with Accounting Standards. STATEMENT OF FINANCIAL POSITION ASSETS Current assets Non-current assets TOTAL ASSETS LIABILITIES Current liabilities Non-current liabilities TOTAL LIABILITIES EQUITY Issued Capital Other reserves Accumulated losses TOTAL EQUITY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Total profit/(loss) after tax Total Comprehensive Income/(Loss) PARENT ENTITY 2020 $'000 2021 $'000 30 7,309 7,339 63 - 63 7 7,338 7,345 63 - 63 55,819 278 (48,821) 7,276 55,819 169 (48,706) 7,282 PARENT ENTITY 2020 $'000 (504) (504) 2021 $'000 (115) (115) ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 57 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 Guarantees At 30 June 2021, Advanced Braking Technology Ltd provides a guarantee and indemnity in relation to the obligations of Advanced Braking Pty Ltd in favour of NAB in connection with an invoice finance facility which was established during the 2013 financial year. Advanced Braking Technology Ltd has provided guarantees to a number of suppliers of Advanced Braking Pty Ltd in connection with the subsidiary negotiating finance under lease agreements, the R&D rebate loan and in relation to the Perth leased premises. The Directors have also resolved that the Company will continue to provide financial support to its subsidiaries for as long as it is required. Contingent Liabilities There are no contingent liabilities. Contractual Commitments As at 30 June 2021, Advanced Braking Technology Ltd had not entered into any contractual commitments for the acquisition of property, plant and equipment (2020: Nil). ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 58 DIRECTORS’ DECLARATION The Directors of the Company declare that: 1. The financial statements and notes, as set out on pages 22 to 58, are in accordance with the Corporations Act 2001: a) comply with Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes compliance with International Financial Reporting Standards (IFRS); and b) give a true and fair view of the financial position as at 30 June 2021 and of the performance for the year ended on that date of the Consolidated Group. 2. The Chief Executive Officer and Chief Finance Officer have each given the declarations required by s295A of the Corporations Act 2001. 3. In the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors and is signed by authority for and on behalf of the Directors by: Dagmar Parsons Chairman Sydney, New South Wales 30 September 2021 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 59 Moore Australia Audit (WA) Level 15, Exchange Tower, 2 The Esplanade, Perth, WA 6000 PO Box 5785, St Georges Terrace, WA 6831 T +61 8 9225 5355 F +61 8 9225 6181 www.moore-australia.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ADVANCED BRAKING TECHNOLOGY LIMITED REPORT ON THE AUDIT OF THE FINANCIAL REPORT Opinion We have audited the financial report of Advanced Braking Technology Limited (the Company) and its subsidiary (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 statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion: a) 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 then ended; 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the “Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We 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. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Moore Australia Audit (WA) – ABN 16 874 357 907. An independent member of Moore Global Network Limited - members in principal cities throughout the world. Liability limited by a scheme approved under Professional Standards Legislation 60 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ADVANCED BRAKING TECHNOLOGY LIMITED (CONTINUED) Key Audit Matters (continued) Valuation of Failsafe (WET) Brake Technology Refer to Notes 1(n) & 15 Intangibles The carrying value of Advanced Braking’s Failsafe Brake Technology as at 30 June 2021 was $607,000 and the related amortisation charge for the year ended 30 June 2021 was $64,000. The carrying value and amortisation rate are reviewed annually by management with reference to current and forecast trading performance, relevant technological factors and other operational indicators. This involves a significant amount of management judgement. This is a key area of audit focus because the carrying value is material and the value is subject to significant management judgement and estimates. Our audit procedures included, amongst others: • Assessed the reasonableness of management’s assertions and estimates regarding estimated useful life of the asset with reference to its patent information currently registered with local and foreign intellectual property government agencies. • Held discussions with management that the amortisation period (useful life) at the end of the financial year remained appropriate and that there were no conditions which would adversely affect the valuation of the intangibles • Assessment of any impairment the market capitalisation of triggers by the comparing Company against the carrying value of its total net assets at balance date. The year-end market capitalisation of $13.27 million far exceeded the net asset value. There were no other impairment triggers based on the Group’s improved financial performance and position during the year and its future budgeted performance. • Tested the amortisation expense recorded and ensured consistency with the accounting policy. • Considered whether the relevant disclosures in the statements were appropriate and financial adequate. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 61 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ADVANCED BRAKING TECHNOLOGY LIMITED (CONTINUED) Key Matters (continued) Existence and Valuation of Inventories Refer to Note 10 Inventories The carrying value of inventory as at 30 June 2021 was $1.77 million. Inventory comprises finished goods and components. Inventories are held in significant quantities and are valued at the lower of cost and net realisable value (NRV). A provision for obsolete and slow-moving inventory is raised by management, the assessment of which is subject to significant management judgement. Obsolete and slow-moving inventory could result in an overstatement of the carrying value of inventories as the recorded cost may be higher than the net realisable value. Given inventories are the Company’s single largest asset, we have therefore inventory existence and valuation as a key audit matter. identified Our procedures to test the existence and valuation of inventories included, amongst others: • Testing the relevant internal control procedures relating to the existence and valuation of inventory, including attendance at the physical near count inventory and undertaking our own test counts period-end • Testing a sample of items and comparing our count results with those of the Group's representative and investigating any variances inventory • Performing test of details on historical costs, including testing the mathematical accuracy of the final inventory listing. • Held discussions with management to corroborate assumptions understand and applied in ensuring slow moving, old and certain inventory lines have been appropriately valued or adequately provided for or impaired • Testing a sample of to subsequent sales to ensure that they were recorded at the lower of cost and net realisable value inventory items • Reviewing gross margins for any unusual patterns compared to prior periods ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 62 Key Matters (continued) Valuation of Receivables Refer to Note 9 Trade & Other Receivables Valuation of receivables is a key audit matter. It is due to the size of the account balances and the judgements required in determining their carrying value that this is a key area of audit focus. Trade debtors amounted to $1.43 million as at 30 June 2021. The Group assesses periodically and at each year end the expected credit loss associated with its receivables. When there is expected credit loss impairment, the amount and timing of future cash flows are estimated based on historical, current and forward-looking loss experience for assets with similar credit risk characteristics. Our procedures included, amongst others: • Review of the level of export trade credit insurance debtors, for subsequent receipt collections from debtors and ageing analysis post year end. relevant cover • Review of expected credit loss workings and assessments prepared by management in including an relation to trade receivables, analysis of the credit risk characteristics attributed to significant trade debtors as part of our assessment of the adequacy of impairment provisions. • Discussion with management and the directors as to the existence of any arrears/disputes with debtors and the impact these factors have had on the assessment of impairment provisions by management. • Review of disclosures made in the notes to the financial statements Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2021, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly 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. ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 63 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ADVANCED BRAKING TECHNOLOGY LIMITED (CONTINUED) 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 at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2021.pdf. This description forms part of our audit report. REPORT ON THE REMUNERATION REPORT Opinion on the Remuneration Report We have audited the Remuneration Report as included in the directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Advanced Braking Technology 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. SL TAN PARTNER MOORE AUSTRALIA AUDIT (WA) CHARTERED ACCOUNTANTS Signed at Perth on the 30th day of September 2021 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 64 SHAREHOLDER INFORMATION Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out below. 1. Statement of issued capital at 27 September 2021. (a) Distribution of fully paid ordinary shares Size of Holding 1 1,001 5,001 10,001 100,001 Total - - - - and 1,000 5,000 10,000 100,000 Over Number of Shareholders Shares Held % Units 230 298 165 519 268 1,480 135,024 816,580 1,284,456 20,448,990 356,463,716 379,148,766 0.04 0.22 0.34 5.39 94.01 100.00 (b) (c) There are 767 Shareholders with less than a marketable parcel. There are no restrictions on voting rights attached to the ordinary shares on issue. On a show of hands, every member present in person shall have one vote and upon a poll, every member present in person or by proxy shall have one vote for every share held. 2. Substantial Shareholders The Company has the following substantial Shareholder at 27 September 2021: Mr Keith Knowles Mr David Slack Mr Craig Chapman 28.94% 109,736,141 ordinary shares 18.24% 69,169,252 ordinary shares 5.26% 19,961,975 ordinary shares 3. Shareholders The twenty largest Shareholders hold 66.61% of the total issued ordinary shares in the Company as at 27 September 2021. 4. Share Options on issue at 27 September 2021 The Company has the following unquoted equity securities on issue: • • • 5,000,000 unlisted options, exercisable at $0.025 on or before 30 June 2022, which are held by 1 holder, K. S. Capital Pty Ltd. 20,853,380 unlisted options, exercisable at $0.04 on or before 30 June 2023, which are held by 3 holders who are Key Management Personnel and are subject to vesting conditions. Refer to Note 22 for more information. 2,979,055 unlisted options, exercisable at $0.04 on or before 30 June 2024, which are held by 1 holder who is a member of Key Management Personnel and are subject to vesting conditions. Refer to Note 22 for more information. The options held by Key Management Personnel were issued pursuant to an employee incentive scheme. 5. 6. On-market buy-back. There is no current on-market buy-back. Quotation Ordinary shares in Advanced Braking Technology Ltd are listed on the Australian Securities Exchange (ASX:ABV). ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 65 SHAREHOLDER INFORMATION 8. Largest Fully Paid Ordinary Shareholders The names of the twenty largest Shareholders at 27 September 2021, who hold 66.61% of the fully paid ordinary shares in the Company, are: Rank Name MR KEITH KNOWLES PARKS AUSTRALIA PTY LTD DASI INVESTMENTS PTY LTD MR CRAIG GRAEME CHAPMAN WINDPAC PTY LTD WINDPAC PTY LTD MR PETER RODNEY BOWER RP INVEST PTY LTD HIMSTEDT & CO PTY LTD MR EVAN PHILIP CLUCAS + MS LEANNE JANE WESTON CHARMED5 PTY LTD MR DAVID EARL SLACK MR KEITH KNOWLES SCINTILLA STRATEGIC INVESTMENTS LIMITED MR KYM FRAHN + MRS WENDY LEANNE FRAHN TOKEN NOMINEES PTY LTD ONKAPARINGA HOLDINGS PTY LTD MYALL RESOURCES PTY LTD M/S TRACEY-ANN PALMER MR COLIN JAMES SHARP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total Number of Shares 53,859,731 52,936,086 26,523,588 19,961,975 19,622,167 18,981,633 11,100,000 8,600,000 5,000,000 4,606,250 4,134,042 4,041,864 3,813,967 3,750,000 3,398,504 2,533,334 2,500,000 2,450,000 2,414,490 2,325,000 % of Issued Shares 14.21 13.96 7.00 5.26 5.18 5.01 2.93 2.27 1.32 1.21 1.09 1.07 1.01 0.99 0.90 0.67 0.66 0.65 0.64 0.61 252,552,631 66.61 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 66 This page has intentionally been left blank ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 67 ABN 66 099 107 623 19 Creative Street Wangara, Western Australia 6065 ADVANCED BRAKING TECHNOLOGY LTD - ANNUAL REPORT 2021 

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