Capital Power
Annual Report 2023

Plain-text annual report

CAP-XX Limited ABN 47 050 845 291 Annual report 2023 Annual report 2023 Contents Corporate directory Chief Executive review Chairman’s report Business review Directors’ report Independence declaration Corporate governance statement Financial statements Directors’ declaration Independent audit report to the members Page 3 5 6 8 12 19 20 29 67 68 Page 2 Corporate directory Directors Secretaries Patrick Elliott Chairman Bruce Grey Non-Executive Director Steen Feldskov Non-Executive Director Lars Stegmann Chief Executive Officer Robert Buckingham Michael Taylor Notice of annual general meeting The annual general meeting of CAP-XX Limited will be held at: CAP-XX Limited Unit 1 13A Stanton Road Seven Hills NSW 2147 Australia time: 7.00pm date: 3rd November 2023 Suite 126 117 Old Pittwater Road Brookvale NSW 2100 Australia Unit 1 13A Stanton Road Seven Hills NSW 2147 Computershare Investor Services Pty Ltd Yarra Falls 452 Johnston Street Abbotsford Victoria 3067 Australia Computershare Investor Services plc The Pavilions Bridgwater Road Bristol BS99 6ZY United Kingdom Registered office Principal place of business Registrars to shares Registrars to depositary interests Page 3 Corporate directory (continued) Nominated adviser and joint broker to the Company Joint broker to the Company Auditor Solicitors to the Company as to Australian law Solicitors to the Company as to English law Allenby Capital 5 St Helen’s Place London EC3A 6AB Cavendish Securities plc 6 7 8 Tokenhouse Yard London EC2R 7AS BDO Level 11 1 Margaret Street Sydney NSW 2000 Australia Dentons 77 Castlereagh Street Sydney New South Wales 2000 Australia DAC Beachcroft 100 Fetter Lane London EC4A 1BN United Kingdom Bankers Commonwealth Bank of Australia 120 Pitt Street Sydney, NSW 2000 Australia Stock exchange listings Shares are quoted on AIM, a market operated by London Stock Exchange plc under the code CPX Website address www.cap-xx.com Page 4 Chief Executive’s review There is no denying that these have been tough times for our organisation, and I want to acknowledge the hard work and dedication of our entire team in the face of adversity. The past few months have been marked by a volatile market, economic uncertainties and unprecedented challenges. We've seen our revenues decline, and our bottom line has been hit hard. It's not easy to stand before you and admit that we've faced difficulties, but it's important to recognise the reality of our situation. However, I want to emphasise that even in these trying times, there is a silver lining. The challenges encountered have provided us with invaluable lessons and opportunities for growth. As a company, we've demonstrated resilience and adaptability in the face of adversity. Our team has come together, demonstrating an unwavering commitment to our mission and values. While our results for the past few months may not be what we had hoped for, I want to assure you that we are well-positioned for a brighter future. We have a strategic plan in place that will help us navigate these turbulent waters and emerge stronger on the other side. First and foremost, our commitment to innovation remains steadfast. We have a pipeline of exciting new products and services that are set to launch in the coming months. These innovations will not only meet the changing needs of our customers but also give us a competitive edge in the market. Additionally, we are taking proactive measures to streamline our operations and optimise efficiency. This includes cost-saving initiatives that will help us weather the current economic challenges and position us for sustained profitability in the future. Furthermore, we are actively diversifying our revenue streams and exploring new markets. We understand the importance of not relying solely on one segment of the market, especially in volatile times. Our expansion into new territories and industries is a strategic move that will mitigate risks and open up new growth opportunities. One of our greatest assets is our dedicated and talented team. Our employees have shown incredible commitment and adaptability during these challenging times. We will continue to invest in their development and well-being, ensuring that we have the best talent driving our success. In times like these, maintaining strong relationships with our partners, suppliers and customers is paramount. We are working closely with them to navigate the current market conditions, and these collaborations are critical to our future success. Together, we will find innovative solutions to the challenges we face. While we cannot predict the exact timeline for a market recovery, we are confident that the positive trends we see on the horizon will lead to improved results in the coming months. We have a clear vision for the future, and we remain unwavering in our commitment to achieving our long-term goals. In conclusion, I want to express my gratitude to all of our employees, shareholders, customers and partners, for your continued support and dedication. These are undoubtedly difficult times, but they are also times of great opportunity for growth and transformation. Together, we will emerge from this challenging period stronger, more resilient and better positioned for success, and we look forward to achieving great things together in the months and years ahead. Lars Stegmann Chief Executive Officer Page 5 Chairman’s Report The past year for CAP-XX has been one of major change and developments, which has established the company for short to medium term success. The major change is in the executive leadership of the Company with the appointment of Lars Stegmann as CEO, replacing CAP-XX’s founder Anthony Kongats. Lars brings to CAP-XX an extensive results and customer focussed background in power electronics and international sales and marketing. He has joined CAP-XX as we drive the expansion of our sales and distribution channels. This is the next step as the commissioning of the Seven Hills, Sydney manufacturing facility is largely completed and the plant operating efficiently, albeit with room for further improvement. The need now is to drive volumes to get the full benefit of this expansion and achieve profitable operations after many years of painful losses. Another significant development was the completion of a capital raising of approximately £2.7 million, via a combination of a placing, subscription and retail offer. The fundraising was completed in two tranches and the final tranche completed in the first week of June 2023, the proceeds to be used for expansion of the current product range, increasing the sales and marketing footprint, litigation expenses, capital expenditure (predominately production equipment) and general working capital. We are grateful for the support of our shareholders through the provision of the necessary capital. I am pleased to report that the development and broadening of the CAP-XX product range remains broadly on track, with the commissioning of the DMH production line at Seven Hills expected to deliver samples before the end of the current calendar year. We expect volumes to ramp up by early in the next calendar year. Several customers are in the latter stages of sampling these products for potentially high-volume applications, and feedback on customer evaluation is encouraging. The DMH product is a very thin (0.4 mm) supercapacitor suitable for numerous applications in IoT, Medical, Telecommunications and Industrial sectors. In addition, the long-awaited 3V supercapacitor product is able to be produced in volume and is currently being evaluated by several potential large volume customers. These are anticipated to be realised in the second half of the current financial year. Finally, the development work on the cylindrical surface mount device (SMD) is nearing completion with production trials underway. The SMD device offers customers supercapacitor performance in a form factor that is more suitable for many automated manufacturing assembly lines. These new products are expected to deliver significant sales gains as we achieve design wins over the coming year. To ensure that we maximise the benefits of our existing product range and new products, we have also expanded our distribution network. Digikey was brought on as a distributor in April 2023 and to date has processed over 50 customer enquiries and sales. Numerous other Tier 1 and Tier 2 distributors are also in negotiation to stock the CAP-XX product range. To avoid further delays, we will continue to discuss with Tier 3 and Tier 4 distributors to expand our network and services. As an integral part of our new distribution strategy, we are ensuring that the customer and their specific requirements are the core focus. The CAP-XX direct sales force is being expanded to ensure that a greater geographic reach is in place while CAP- XX representatives will have smaller regional territories, with a consummate increase in customer communication. To ensure that cash reserves are conserved, the additional sales representatives are being engaged on a commission basis. This has already resulted in driving short-term sales growth and early results are promising. New sales representatives are currently in place in the US (three), Europe, India and South Africa. Negotiations are in the final stages with several other representative organisations which will further expand the sales base. Seven Hills production is currently operating on a single shift basis, which is matched with current demand and has the capacity to rapidly ramp production to meet the expected increase in demand. The successful commissioning of the new manufacturing lines has resulted in a lower cost of in-house production. An evaluation is underway to determine when the current Seven Hills product range can be expanded in order to reduce the risk of reliance on the contract manufacturer in Penang. During the year delayed COVID issues continued to impact the performance and output of the contract manufacturer in Penang. However, as the travel bans were lifted in the second half of the financial year, our engineers were again able to travel to support this facility. I am pleased to report that output continues to increase, although there is still more remedial work to be done to have this facility performing at historical levels. CAP-XX continues to pursue a patent infringement action against Maxwell Technologies, a wholly owned subsidiary of Tesla Inc. As previously announced, due to the unavailability of expert witnesses for Maxwell, the trial date was deferred from July 2023 to December 2023. In September 2023, CAP-XX was advised that Tesla had lodged a patent infringement claim against CAP-XX for patent infringement in a Texas court. On the data and evidence lodged to date, CAP-XX is of the opinion that the claim is baseless and that it will be vigorously defended. CAP-XX remains in dispute with AVX over AVX’s contractual performance in relation to the licence agreement granted by CAP-XX to AVX. The Company remains confident that positive outcomes will be reached in both cases in the current financial year. Page 6 Total Company sales revenue for the year to 30 June 2023 decreased by 35% to A$3.6 million (2022: A$5.6 million). The largest drop in sales revenue by product category was cylindrical cans which bore the full brunt of the supply chain issues during late 2022 and early 2023, while Seven Hills manufactured products were on par in both volume and dollars compared with the previous year. As reported at the half year, sales were being negatively impacted due mainly to worldwide supply chain issues and customers/distributors being over-stocked. It was also highlighted that it was too early to determine when the recovery would occur although the second half revenue was expected to be higher than the first. This was achieved, albeit at a lower rate than what was initially expected. Conversely, the fourth quarter revenue of FY23 was by far the best performing quarter of FY23 in terms of sales revenue and, as highlighted earlier, orders are continuing to increase, notably into the first quarter of FY24. Despite the sharp decrease in top line sales revenue, the reported gross margin decreased by 2.1 percentage points from 45.4% to 43.3% due to the relatively resilient performance of the proprietary prismatic product lines. The EBITDA loss for the year to 30 June 2023 was a loss of A$3.9 million (2022: loss of A$2.8 million), with the main variances being the gross margin shortfall (A$1.0 million) due to the lower than estimated revenue and the costs associated with the changeover of CEO (A$0.9 million), which was offset by lower legal expenses (A$1.5 million). When adjusted for these one-off factors, the like for like comparison is an adjusted EBITDA loss of A$1.3 million (2022: loss of A$0.5 million). These results reflect the past and we believe that CAP-XX is through the worst and recovering from the revenue shortfall experienced during 2022/23. Whilst our FY2023 results are disappointing, we have numerous reasons to believe that CAP-XX is turning around under Lars Stegmann’s leadership. Paramount in this is the strong team of employees we have who have embraced and are contributing to the changes that are needed to enable CAP-XX to perform well for its customers and shareholders while meeting or exceeding the necessary standards of ESG. We are indebted to all of our staff. The Board is confident that with the increased focus on the customer, new distribution strategy and appointment of new sales representatives, will drive the increase in sales required for the Company to achieve its positive EBITDA goal in the shortest possible time frame. Patrick Elliott Chairman 29 September 2023 Page 7 Business Review Review of Operations and Activities The reported EBITDA loss for the year to 30 June 2023 was a loss of A$3.9 million (2022: loss of A$2.8 million), with the main variances being the gross margin shortfall (A$1.0 million) due to the lower than estimated revenue and the costs associated with the changeover of CEO ($0.9 million), which was offset by lower legal expenses (A$1.5m). When adjusted for these one-off factors, the like for like comparison is an adjusted EBITDA loss of A$1.3 million (2022: loss of A$0.5 million). Cash reserves as at 30 June 2023 were A$2.6 million, up from A$1.6 million as at 30 June 2022. The increase in cash reserves is the direct result of the £2.7 million gross proceeds of the capital raise that was completed in early June 2023. In addition, the Board anticipates that the Company will be in receipt of a Federal Government R&D tax rebate of approximately A$2.1 million, with these funds expected to be received before the end of the current calendar year, of which A$1.0 million has been drawn down against a revolving line of credit secured by the R&D tax rebate. The Company is undertaking a full evaluation of the way it analyses and reports its sales pipeline in order to ensure that all nominated opportunities are rigorously evaluated and to ensure a realistic probability of conversion of the orderbook to firm schedules within the short to medium term. This process will be completed before the end of the current calendar year. The current level of committed orders outstanding totals US$1.4 million, which is up 75% on the same time last year. Historically, CAP-XX received blanket orders, which covered the customer’s next 12 months scheduled demand. Over the past two years, customers ordering patterns have changed, mainly as a result of overstocking and overall supply chain issues. Today, customers are typically only willing to provide firm orders which cover the following three months, and it is now uncommon to receive orders which cover a full 12 months. As a result, the orders outstanding are predominately for customer delivery during the period ending December 2023. Sales representatives are reporting that the overstocking issue in the supercapacitor markets are easing, and there is increasing confidence that demand and market confidence is beginning to return. Total product sales revenue for the year to 30 June 2023 was A$3.3 million (2022: A$5.1 million) which represents a 35% year- on-year decrease. This follows a 44% increase in year-on-year product sales in the previous year. The contributing factors underlying this decrease, as highlighted previously, include the worldwide supply chain issues in the capacitor market, overstocking from previous years by distributors and customers, and a lack of short-term confidence in the electronic component market. Operational expenditure, excluding the legal costs for patent infringement and direct costs of the Murata project, increased by 15% from A$6.3 million to A$7.2 million. The increase in expenditure is primarily attributable to the costs associated with the change in CEO. Business Environment The Board believes that CAP-XX’s technology provides a significant competitive advantage over existing supercapacitor manufacturers such as TDK Corporation, Skeleton, Eaton, LSMitron, Nippon Chemicon Corporation and other Chinese and Korean competitors. The Board believes that these companies are unable to match the CAP-XX technology in terms of thinness, power density, energy density and reliability. Most of the Company’s competitors only manufacture higher-capacity cylindrical cells used in large package modules and focus on applications where the combination of thinness, energy density and power density are not important considerations for the customer. These competitor products usually prove unsuitable for the various markets collectively labelled the Internet of Things (IoT) market, which is the key area that CAP-XX is targeting with the former Murata products and CAP-XX’s existing prismatic products. As reported previously, IoT applications, one of the fastest growing segments of the electronics market, provide one of the greatest opportunities for CAP-XX's products. Driven by customer requests, manufacturers are constantly moving to new wireless protocols and adding to the functions and applications available on IoT enabled devices. Some of these new functions require high electrical power within the actual IoT device. Examples are e-locks, drug dispensing, facial recognition, and haptic feedback. Other devices are powered by energy harvesting and are battery-less. Others use low power batteries such as 3 Volt coin cell batteries. All of this means that power management continues to be an increasingly important consideration. The other important factor is size, as devices have tended to become smaller whilst their electrical power demands have increased. The Company continues to be successful in winning new business from a range of these markets, such as industrial actuators, e- locks, agricultural sensors, wireless displays, smart-meters, payment and handheld terminals, medical wearables, automotive dashcams and communication systems. Page 8 In the past, CAP-XX has faced competition in various markets from cheaper cylindrical supercapacitors where our thin form factor, high power and long life are not valued as highly as lower initial cost components from competitors. To counteract this, the Company released a range of cylindrical cells. Modest sales revenue for these products was first recorded during FY 2019. Since then, sales have continued to grow strongly, with the Company being successful in winning a number of large volume orders, with large volume opportunities currently being evaluated by customers. As previously reported, automotive applications such as TruckStart, Stop-Start systems, regenerative energy capture or KERS (Kinetic Energy Recovery Systems), distributed power, hybrid electric vehicles and electric vehicles still present substantial opportunities for large supercapacitors. A number of CAP-XX's competitors are active in these markets, and the Board believes that the Company has significant advantages over the competition in certain applications. Consistent with this strategy the Board took the opportunity to sign an exclusive distribution agreement with an established external partner who have a suite of qualified automotive products ready to market. These products are private label of CAP-XX and are known as CAPMOD and TruckStart. CAPMOD is a range of large high voltage modules intended to support a multitude of large automotive, transportation and renewable energy applications such as wind farms, solar installations. TruckStart is a relaunched version of our previous truck- start product. During the year we also launched a new range of Lithium-ion supercapacitors which are a hybrid device part lithium ion and part supercapacitor, that have excellent cycle life and very low leakage current. This make these products an attractive alternative to lithium ion batteries are used where high power and long life are needed. Opportunities Our customers’ markets are constantly evolving as new products and technologies threaten the incumbents. In this environment, CAP-XX needs to always remain alert and be flexible to changing business conditions and market needs. This creates opportunities to offer products that address what our markets want. CAP-XX is continuing to refine the products that it offers for the various IoT applications and other markets. The Company has introduced its DMF and DMT thin prismatic supercapacitors to address the space-constrained and/or power-hungry needs of many IoT products. These products are already being shipped from the Company’s Seven Hills factory. The Company plans to commission and commence shipments of the very thin DMH supercapacitor around Q4 2023. At only 400 microns in thickness, the Board believes that this is the best performing supercapacitor in its class. Customers are already evaluating these parts with pleasing results and large volume orders are expected in the forthcoming months. The Company also plans to use its 3 Volt chemistry in the DMF products made at Seven Hills. The Company had previously planned to produce 3 Volt products in Malaysia but the ongoing disruptions and travel restrictions caused by COVID made this impractical. The first 3 Volt products from Seven Hills have been sent to customers for evaluation. The development of the 3 Volt product has been targeted to meet demand for small, inexpensive, energy efficient power solutions for thin wearables, key FOBs and other IoT devices, especially those using 3 Volt coin cell lithium ion batteries, such as the CR2032 battery. In the future, there is an opportunity to migrate this same 3 Volt technology into larger prismatic supercapacitors, automotive modules, and other products for high-energy, high-power applications. As already noted, CAP-XX is concentrating on a small number of automotive opportunities. To further increase the Company’s likelihood of success, the Board is investigating a strategy of partnering with automotive and military Tier-1/Tier-2 suppliers, through either a new license agreement or a joint venture, to supply the automotive markets. The Board believes that such partnerships will be beneficial for all parties involved. The Company intends to continue using its intellectual property to develop additional substantial and recurring income. A significant benefit of the existing licencing agreements is that they validate CAP-XX’s technology leadership in the field of supercapacitors and energy storage, and the potential for supercapacitors as a mainstream consumer electronics technology. Our licensees’ product lines and sales activities are also increasing our exposure to markets and customers that were previously beyond the Company’s reach. It is also important to note that the strategy of our licensees is to offer product ranges targeted at certain end markets. As such, none of them meet the product type or size requirements for all markets and all applications, leaving scope for CAP-XX to supply these other markets directly using products made by CAP-XX and its contract manufacturers. Strategies for Growth Given the high level of market interest in CAP-XX’s technology and its high-performance supercapacitors, the Company believes that the IoT markets, in particular, offer significant opportunities for growth and to reach the key strategic objective of CAP-XX achieving profitability and positive cashflow. The Company continues to engage in discussions aimed at securing business in the IoT space with a significant number of global original equipment manufacturers (OEMs). CAP-XX is strengthening its relationships with these organisations and has Page 9 regular engineering meetings with design teams, manufacturing groups and contract manufacturers. The Company is unable to comment on specific clients, but the Board is pleased with the overall progress and is confident that the available market for supercapacitors is increasing as manufacturers become more familiar with the technology. Over the last year, the Company has aligned its marketing activities to specifically focus on a number of different IoT markets, such as asset tracking, automotive, e-locks, medical devices, handheld terminals, smart meters, wearables and wireless sensors. The efforts to date have produced a significant increase in visits to the Company’s webpages and sales enquiries. The Board expects this growth to continue. CAP-XX’s strong environmental credentials, which have been recognised by the London Stock Exchange providing the Company with its Green Economy Mark, are consistent with this strategy. The Company will continue to monitor new opportunities to increase its sales, through its current distributors, via direct sales to customers and new product offerings. These offerings may take the form of complementary energy storage devices and modules. The Company is also increasing the size of its own sales force and adding new distributors to ensure that global coverage and penetration is maximised. It is important that the Company is able to benefit from the large investment made over many years in building its patent portfolio. Where third parties are found to be infringing these patent rights, the Company has and will continue to vigorously defend its rights, even if this means pursuing legal action as it did successfully against Ioxus. Research and Development The markets in which the Company operates are competitive and are characterised by rapid technological change. CAP-XX has a strong competitive position in prismatic supercapacitors in all of its target markets as a result of its capability to produce supercapacitors with a high energy and power density in a small, conveniently sized, flat package. CAP-XX’s devices are also lightweight, work over a broad temperature range and have an operating lifetime measured in years. To stay ahead of the competition, the Company is developing a strong pipeline of new products to follow the DMH and 3 Volt products already discussed. CAP-XX’s R&D efforts are focused on a mix of short, medium and long-term opportunities, covering new products, cost reductions and improved product performance. CAP-XX has a research facility within its Seven Hills site in Sydney, Australia, where a team of six scientists work to maintain CAP-XX’s leading technology position in electrodes, separators and electrolyte materials and their assembly into supercapacitor devices. This team is supported by 11 engineers. During 2023, significant progress has been made in a number of key areas including improvements on the former coating, DMF and DMT lines, new cell chemistries, improving the life of cells, developing new packaging concepts, reducing the cost per cell and developing new electronics to optimise the performance of the Company’s modules. CAP-XX has also signed numerous collaboration agreements with leading research institutions, whilst the Company’s Scientific Advisory Board provides CAP-XX with clear direction on commercially relevant technologies for its ongoing R&D programme. The Company's success depends on its ability to protect and prevent any infringements of its intellectual property. To protect this important asset, the Company has considerable intellectual property embodied in its patents covering the design, manufacture and use of its high-performance supercapacitors. The CAP-XX patent portfolio currently consists of seven patent families, with seven granted national patents with an additional two patent applications pending in various jurisdictions. The Company’s intellectual property strategy has been to build value by focusing on opportunities to capture market share and exclude competition, with an IP portfolio capable of generating licensing revenue. The Directors believe that comprehensive embodiments and interlocking patent groups, combined with a ‘quick to file, quick to abandon’ policy, have given the Company a strong and focused IP portfolio. Outlook The major focus for CAP-XX continues to be to become profitable and cashflow positive as soon as possible. This will be achieved by increasing product sales from the newly installed facilities at Seven Hills, through an increased focus on the customer, new distribution strategy and expansion of the sales force, supplemented by the newly launched product families and the intellectual property which the Company is continuously developing. Page 10 A reconciliation of EBITDA from operations to the reported loss attributable to owners of CAP-XX Limited in the consolidated statement of profit or loss is tabled below: EBITDA and Adjusted EBITDA Calculation Loss attributable to owners of CAP-XX Limited Depreciation Interest Expense Share Based payments Interest Income EBITDA CEO transition costs Legal costs Bad debts Adjusted EBITDA Consolidated 2023 2022 $ (5,559,127) 741,552 328,207 613,980 $ (4,938,860) 726,155 294,444 1,133,399 (664) (3,894) (3,876,052) (2,788,756) 872,122 1,472,664 189,491 - 2,338,322 - (1,341,775) (450,434) Certain financial information in the Chairman's Report and Business Review reference Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) and adjusted EBITDA have been derived from the audited financial statements. EBITDA and adjusted EBITDA positions are non-IFRS financial information used by Directors and Management to assess the underlying performance of the business and as such have not been reviewed in accordance with Australian Auditing Standards. Page 11 Directors’ report Your directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of CAP-XX Limited (the Company or CAP-XX) and the entities it controlled at the end of, or during, the year ended 30 June 2023. Directors The following persons were directors of CAP-XX Limited during the financial year and up to the date of this report: Chairman Patrick Elliott Bruce Grey Non-Executive Director Steen Feldskov Non-Executive Director Chief Executive Officer (appointed on 9th June, 2023) Lars Stegmann Anthony Kongats Chief Executive Officer (resigned on 16th May, 2023) Principal activities The Group’s principal continuing activities during the financial year consisted of the development, manufacture and sale of supercapacitors. There have been no significant changes in the nature of the Group’s activities. Dividends No dividends were paid, declared or recommended during the financial year or since 30 June 2023. Review of operations The Group experienced net losses of $5,559,127 during the year ended 30 June 2023 (2022: loss of $4,938,860). Information on the operations and financial position of the Group and its business strategies and prospects is set out on pages 7 to 9 of this Annual Report. Significant changes in the state of affairs There were no significant changes in the group's state of affairs during the financial year ended 30 June 2023. Matters subsequent to the end of the financial year The necessary paperwork associated with the receipt of the R&D Tax rebate for the 2023 financial year is in the final stages of being lodged with the relevant Government authorities and is expected to be received before the end of the current calendar year. The rebate is expected to be approximately AUD $2.1 million. There were no other matters or circumstances that have arisen since 30 June 2023 that have significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Likely developments and expected results of operations Information on likely developments in the Group’s operations and expected results of operations have been discussed in the Chairman’s Statement and Business Review. Environmental regulation The Group holds an Environment Protection licence and is subject to standard waste management environmental regulations in respect of its research and manufacturing activities conducted at Seven Hills, Sydney, Australia. The licence requires discharges to air and water to be below specified levels of contaminants, and solid wastes to be removed to an appropriate disposal facility. These requirements arise under the Clean Air Act 1961, Clean Waters Act 1970, Pollution Control Act 1970, Noise Control Act 1975 and the Waste Minimisation & Management Act 1995. During the year there were no breaches of the regulatory requirements. Page 12 Directors’ report (continued) Information on directors Patrick Elliott Non-executive director. Age 71. Experience and qualifications Pat is a company director specialising in the resources sector with over 40 years’ experience in investment and corporate management. His early career was at Consolidated Gold Fields Australia Limited and covered investment analysis and management, minerals marketing (copper, tin, rutile and zircon). In 1979 he went into investment banking and became Head of Corporate Finance for Morgan Grenfell Australia Limited in 1982. Pat subsequently became Managing Director of Natcorp Investments Ltd in 1986 which owned a number of manufacturing businesses. After its takeover he became an active early stage venture capital investor with an emphasis on resources. He is Chairman of Argonaut Resources NL and Tamboran Resources Limited. He is also a director of Rockfire Resources PLC and Kirrama Resources Pty. Limited as well as a number of privately owned companies. Pat holds an MBA in Mineral Economics (Macquarie University) and B Comm. (University NSW). Specific Board responsibilities Chairman of Audit Committee, Member of the Remuneration Committee Interests in shares and options 12,973,298 ordinary shares in CAP-XX Limited (including shares held by Panstyn Investments Pty Limited). 2,300,000 options over ordinary shares in CAP-XX Limited. Lars Stegmann Chief Executive Officer. Age 53. Experience and qualifications Lars has spent more than two decades in international sales, project, and management roles. Lars has considerable experience in the field of power electronics, electronic components and systems, as well as extensive sales and marketing background in the automotive, automation, industrial, marine and medical technology industries. Prior to joining CAP-XX, Lars worked as Vice President and General Manager of C&K, the electronics switch and component manufacturer which is now part of Littelfuse Inc. Lars holds an engineering degree (Dipl. Ing.) in power electronics and an MBA from Zurich International Business School. He is based in Hamburg Germany. Specific Board responsibilities Nil. Interests in shares and options Nil ordinary shares in CAP-XX Limited. 20,000,000 options over ordinary shares in CAP-XX Limited. Page 13 Directors’ report (continued) Bruce Grey Non-executive director. Age 77. Experience and qualifications Bruce most recently was Managing Director of the Advanced Manufacturing Cooperative Research Centre and previously Managing Director of the Bishop Technology Group Limited. Bruce was Chairman of Advanced Braking Technology Limited listed on the ASX from 2013 to 2018. Bruce has been an Executive Director of two Australian public companies and for 10 years until 2009, was Chairman of a German joint venture between Bishop and Mercedes-Benz Lenkungen GmbH. Bruce has more than 25 years experience in managing industry R&D and 30 plus years experience in international commercialisation of Australian innovation and has been directly responsible for creating new manufacturing facilities in Germany, Thailand and South Korea and indirectly the US, all based on Australian innovation. Bruce was Group General Manager of Clyde Industries Limited from 1985 until 1995. In 2005 Bruce was appointed Chairman of the Federal Government’s Advanced Manufacturing Action Agenda. Bruce is currently Chairman of the Industry Advisory Network for the University of NSW, Faculty of Engineering, School of Manufacturing Engineering. He is also currently Senior Consultant for Cavendish Associates. Bruce was a director of the Murdoch Children’s Research Institute and Chairman of the IP and commercialisation committee and a member of the audit, finance and risk committee from 2011 to 2018. In 2012 Bruce was appointed to the Australian Federal Government's Clean Technology Investment Committee. Bruce is a Fellow of the Australian Academy of Technological Sciences and Engineering. Specific Board responsibilities Member of the Audit Committee Member of the Remuneration Committee Interests in shares and options 9,689,987 ordinary shares in CAP-XX Limited (including shares held by Grey Invest Pty Limited). 2,300,000 options over ordinary shares in CAP-XX Limited. Steen Feldskov Non-executive director. Age 65. Experience and qualifications Steen joins the CAP-XX board with nearly 40 years of experience working in the electronics industry, with approximately half of that time involved in the sale and marketing of electronic components and the remainder in senior management roles for electronics companies. He is currently the Country Manager for the Danish office of Hamamatsu Photonics Deutschland GmbH, a subsidiary of the Tokyo-listed Hamamatsu Photonics K.K. the Japanese manufacturer of optical sensors, electric light sources, and other optical devices. Steen received a Bachelor of Science degree in Electrical Engineering from the University of Southern Denmark and a Bachelor of Commerce degree in Marketing from the Copenhagen Business School, Denmark. Steen is also a Member of the Danish Management Society. Specific Board responsibilities Member of the Audit Committee Member of the Remuneration Committee Interests in shares and options 400,000 ordinary shares in CAP-XX Limited 2,300,000 options over ordinary shares in CAP-XX Limited. Page 14 Anthony Kongats Managing Director. Age 65. Resigned May 16th, 2023 Experience and qualifications Anthony founded the Company in 1997. Prior to CAP-XX, he was the managing director of a manufacturer of passive components before selling the business to a competitor. Previously, Anthony worked as a management consultant with McKinsey & Company and held various engineering positions in Australia and Europe. He has a Bachelor of Engineering degree (honours) in engineering from the University of New South Wales, a Bachelor of Science degree from the University of Sydney and an MBA from the Australian Graduate School of Management. Specific Board responsibilities Nil. Interests in shares and options 14,609,051 ordinary shares in CAP-XX Limited (including shares held by Ducon Management Pty Limited and Management Matters Pty Limited). 11,800,000 options over ordinary shares in CAP-XX Limited. Company Secretaries The Company Secretary is Robert Buckingham. Robert was appointed Company Secretary on 20 April 2006 and is Managing Partner of Allan Hall Partnership, Chartered Accountants, a position he has held since 1989. He has a Bachelor of Commerce degree (honours) from the University of New South Wales and is a member of Chartered Accountants Australia & New Zealand and a Member of CPA Australia. On 25 November, 2008, Michael Taylor, Chief Financial Officer, was appointed as Co-Company Secretary. Michael graduated from Kuring-Gai College with a Bachelor of Business and from Macquarie University with a Master of Applied Finance. He is a Member of CPA Australia. Page 15 Directors’ report (continued) Meetings of Directors The number of meetings of the Company’s board of directors and of each board committee held, during the year ended 30 June 2023, and the number of meetings attended by each director were: Patrick Elliott Bruce Grey Steen Feldskov Anthony Kongats (resigned 16th May 2023) Lars Stegmann (appointed 9 June 2023) Full Meetings of Directors Audit Committee Meetings Remuneration Committee Meetings A 9 9 9 8 1 B 9 9 9 8 1 A 2 2 2 - - B 2 2 2 - - A 2 2 2 - - B 2 2 2 - - A = Number of meetings attended B = Number of meetings held during the time the director held office or was a member of the committee during the year Directors’ remuneration Details of the remuneration of each director of CAP-XX Limited, for the year ended 30 June 2023, are set out in the following table. The cash bonuses are dependent on the satisfaction of performance conditions. All other elements of remuneration are not directly related to performance. Directors of CAP-XX Limited 2023 Name Executive directors Anthony Kongats Lars Stegmann Non-executive directors Patrick Elliott Bruce Grey Steen Feldskov Cash salary and accrued fees $ 541,933 74,477 - - - Total 616,410 Primary Cash bonus $ Non- monetary benefits $ Post-employment Equity Super- annuation $ Retirement benefits $ Options $ Total $ - - - - - - - 59,104 7,448 322,103 - 109,326 15,117 1,032,466 97,042 48,998 48,998 48,998 - - - - - - 35,921 35,921 57,464 84,919 84,919 106,462 146,994 66,552 322,103 253,749 1,405,808 Details of the remuneration of each director of CAP-XX Limited, for the year ended 30 June 2022, are set out in the following table. The cash bonuses are dependent on the satisfaction of performance conditions. All other elements of remuneration are not directly related to performance. Directors of CAP-XX Limited 2022 Name Executive directors Anthony Kongats Non-Executive directors Patrick Elliott Bruce Grey Steen Feldskov Cash salary and accrued fees $ 326,863 - - - Total 326,863 Primary Cash bonus $ Non- monetary benefits $ Post-employment Equity Super- annuation $ Retirement benefits $ Options $ Total $ - - - - - - 27,450 49,660 49,660 11,380 - - - 110,700 27,450 - - - - - 224,242 578,555 73,693 73,693 26,245 123,353 123,353 37,625 397,873 862,886 Page 16 Directors’ report (continued) Loans to directors and executives The Group has no loans to directors and/or executives. Share options granted to directors and the most highly remunerated officers No options over unissued ordinary shares of CAP-XX have been granted since the end of the financial year to any of the directors or the five most highly remunerated officers of the Company and Group as part of their remuneration. Refer to Note 30 to the financial statements for details on options issued during the year. Shares under option Unissued ordinary shares of CAP-XX Limited under option at the date of this report are as follows: Date Options Granted Expiry Date Issue Price of Shares Number Under Option 14 October 2021 12 April 2022 13 May 2023 14 October 2026 12 April 2027 13 May 2028 £0.0595 £0.0560 £0.0131 34,440,000 2,300,000 20,000,000 No option holder has any right under the options to participate in any other share issue of the Company or of any other entity. 56,740,000 Indemnification CAP-XX has agreed to indemnify the current directors and executive officers of the Group and former directors of the Company against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as directors of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. No indemnities have been given to any person who is or has been an auditor of the Group. Proceedings on behalf of the Company No person has applied to the court under section 237 of the Corporations Act 2001, for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the Group, for all or part of those proceedings. Insurance Premiums The directors have not included details of the nature of the liabilities covered nor the amount of the premium paid in respect of the Directors’ and Officers’ liability insurance contracts, as such disclosure is prohibited under the terms of the contract. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 17. Page 17 Directors’ report (continued) Non-audit Services It is the Group’s policy to employ BDO on assignments additional to their statutory audit duties where BDO's expertise and experience with the Group are important. These assignments are principally tax advice where BDO is awarded assignments on a competitive basis. It is the Group’s policy to seek competitive tenders for all major consulting projects. Details of the amounts paid or payable to the auditor (BDO) for audit and non-audit services provided, during the year, are set out in Note 24 to the financial statements. The Directors are of the opinion that the services disclosed in Note 24 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: (a) all non-audit services have been reviewed and approved to ensure that they do not impact on the integrity and objectivity of the auditor; and (b) none of the services undermine the general principles relating to auditor independence set out in APES110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the Auditor's own work, acting in a management or decision-making capacity for the Company, acting as an advocate for the Company, or jointly sharing economic risks and rewards. This report is made in accordance with a resolution of the directors. Patrick Elliott Director Sydney 29th September 2023 Page 18 Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret Street Sydney NSW 2000 Australia DECLARATION OF INDEPENDENCE BY MARTIN COYLE TO THE DIRECTORS OF CAP-XX LIMITED As lead auditor of Cap-XX Limited for the year ended 30 June 2023, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Cap-XX Limited and the entities it controlled during the period. Martin Coyle Director BDO Audit Pty Ltd Sydney 29 September 2023 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Corporate Governance Statement THE QUOTED COMPANY ALLIANCE (QCA) CODE The Directors recognise the importance of good corporate governance and have chosen to adopt and apply the 2018 Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’). The QCA Code was developed by the QCA in consultation with a number of significant institutional small company investors, as an alternative corporate governance code applicable to AIM companies. The underlying principle of the QCA Code is that “the purpose of good corporate governance is to ensure that the company is managed in an efficient, effective and entrepreneurial manner for the benefit of all shareholders over the longer term”. To determine how the Company addresses the key governance principles defined in the QCA code please refer to the below table. Pat Elliott, Non-executive Chairman THE PRINCIPLES OF THE QUOTED COMPANY ALLIANCE (QCA) CODE DELIVER GROWTH QCA Code Principle Application (as set out by QCA) What we do and why 1. Establish a strategy and business model which promote long-term value for shareholders The board must be able to express a shared view of the company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the company intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future. 2. Seek to understand and meet shareholder needs and expectations Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base. The board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions. The Company’s overall business strategic objective is to obtain at a minimum, an operating cash breakeven position by increasing the adoption of the Company’s intellectual property and products, both large and small, into key target markets via future license deals; joint ventures and direct product sales. Once this has been achieved, the Company will continue to further develop and drive the adoptions of its intellectual property so that the Company achieves significant profit levels. The key challenges to the business and how these are mitigated is detailed on pages 6 to 8 of the Group’s Annual Report and Accounts for the year ended 30 June 2023 under the “Business Review” heading. The CAP-XX Board is aware of the need to protect the interests of all shareholders, balancing the interest of minority shareholders with those of institutional shareholders. The Board regards regular communications with shareholders as one of its key responsibilities. CAP-XX is committed to engaging with shareholders and this effort is led by the Chief Executive Officer. In order to gauge shareholder sentiment, CAP-XX meets with key Page 20 Corporate Governance Statement (continued) QCA Code Principle Application (as set out by QCA) What we do and why institutional shareholders typically every six months and when necessary, solicits feedback from its larger shareholders via its broker. CAP-XX welcomes shareholder contact at any time and communications should be sent in the first instance to mailto:investor.relations@cap-xx.com. CAP-XX will generally exercise discretion responding to individual shareholders correspondence but will update the market via regulatory and non-regulatory announcements and via its annual and interim financial reports. CAP-XX holds an open Q&A session at every Annual General Meeting and attends investor events to engage with retail shareholders. This communication allows the CAP-XX board to understand the shareholder’s views and to ensure that the strategies and objectives of the Company are aligned with shareholders. In its decision-making, the Board will have regard to the ascertained expectations and needs of its shareholders (as appropriate and in accordance with its statutory and fiduciary duties). The Board believes the Company’s mode of engaging with shareholders is adequate and effective. The Directors are aware of the Company’s corporate social responsibilities and the impact the CAP-XX business activities have on the communities in which CAP-XX’s businesses operate. On the basis of the Directors’ experience and their operational knowledge of the Company, the Directors believe that the key resources and relationships on which the Company relies are the Company’s employees, partners, suppliers, regulatory authorities and contractors. The Company’s operations and working methodologies take into account the requirement to balance the needs of all these stakeholder groups while maintaining focus on the Board’s primary responsibility to promote the success of the Company for the benefits of its shareholders. The executive member of the Board holds regular staff group and individual update meetings in order to communicate CAP-XX’s strategy, progress versus targets and to receive feedback and solicit opinion. Page 21 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The board needs to identify the company’s stakeholders and understand their needs, interests and expectations. Where matters that relate to the company’s impact on society, the communities within which it operates or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model. Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups. Corporate Governance Statement (continued) QCA Code Principle Application (as set out by QCA) What we do and why The Company endeavours to take account of feedback received from stakeholders, making necessary amendments to working arrangements and operational plans where appropriate and where such amendments are consistent with the Company’s long-term strategy. The CAP-XX Board considers the feedback of relevant stakeholders in its decision-making and in the formulation of strategy. However, no material changes to the Company’s processes were required for the year ended 30 June 2023, or more recently, as a result of feedback that has been received by the Company from the stated key resources and relationships on which the business relies. The Company takes due account of any impact that its activities may have on the environment and seeks to minimise this impact whenever possible. Through various procedures and systems that the Company operates, especially in the manufacturing process, the Company ensures full compliance with health and safety and environmental legislation relevant to its activities. CAP-XX is certified to IOS9001:2015. The Board has a number of responsibilities specifically relating to risk including: -  Monitoring the effectiveness of CAP-XX’s risk management systems, including compliance with regulatory requirements;  Satisfying itself through regular reporting and oversight that appropriate internal and external control mechanisms are in place and are being implemented; and  Approving CAP-XX’s financial statements and monitoring financial performance against the approved budget. The Board has established Audit and Remuneration Committees. Full details of which are contained in the Corporate Governance sections of the Company’s website. The Board receives regular feedback from its external auditors on the state of its risk management and internal controls. The Board does not consider it would be appropriate to Page 22 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation The board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the company’s supply chain, from key suppliers to end- customer. Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take (risk tolerance and risk appetite). Corporate Governance Statement (continued) QCA Code Principle Application (as set out by QCA) What we do and why have its own internal audit function at the present time, given the Company’s size and nature of its current operations. The Group does complete regular fraud and internal risk questionnaires which are completed and reviewed on a six- monthly basis. At present the internal audit of financial controls form part of the responsibilities of the Group’s finance function. MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK QCA Code Principle Application (as set out by QCA) What we do and why 5. Maintain the board as a well- functioning, balanced team led by the chair The board members have a collective responsibility and legal obligation to promote the interests of the company, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the board. The board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight. The board should have an appropriate balance between executive and non-executive directors and should have at least two independent non- executive directors. Independence is a board judgement. The board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively. Directors must commit the time necessary to fulfill their roles. The Board comprises of four directors, three of whom are independent non-executive directors. Although the non- executive directors are shareholders of the Company, given the size of their shareholding and that none of the non-executive directors have any day-to-day involvement in the running of the business, the Company considers the non-executive directors to be independent. The Chairman of the CAP-XX Board is Mr Patrick Elliott who was first elected to the Board in July 2011. All of the non-executive Directors are subject to election by shareholders at the first Annual General Meeting after their appointment to the Board and at least one third of the Board must retire and seek re-election at every Annual General Meeting. All Directors are expected to devote the necessary time commitments required by their position and where possible should attend all Board meetings. The Board meets at regular scheduled intervals and follows a formal agenda, papers and reports are sent to the Directors in a timely manner, prior to the Board meetings. It also meets as and when required. During the financial year ended 30 June 2023, nine Board meetings were held as well as two Audit Committee meetings and two Remuneration Committee meetings Page 23 Corporate Governance Statement (continued) QCA Code Principle Application (as set out by QCA) What we do and why 6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities The board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The board should understand and challenge its own diversity, including gender balance, as part of its composition. The board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a board. As companies evolve, the mix of skills and experience required on the board will change, and board composition will need to evolve to reflect this change. The Company’s Corporate Governance Statement (available on the CAP-XX website) provides further details, including how the Board evaluates its own performance. The CAP-XX Annual Report and Accounts for the year ended 30 June 2023 also explains the governance framework and provides data on the number of Board and Committee meetings (and Director attendance at the same) Directors who have been appointed to the Board have been chosen because of the skills and experience they offer. Full biographical details of the directors are included on the CAP-XX Website (https://www.cap- xx.com/key-personnel/ ) and also on pages 10 and 11 of the CAP-XX Annual Report and Accounts for the year ended 30 June 2023. The Company encourages continuing education of its directors and officers where appropriate in order to ensure that they have the necessary skills and knowledge to meet their respective obligations to the Company. As noted above the Company has put in place an Audit Committee and a Remuneration Committee. The responsibilities of both Committees are set out in the Corporate Governance Statement on the CAP-XX website (https://www.cap-xx.com/the- company/corporate-governance/) and the terms of reference. 7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement The board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors. The board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team. It is healthy for membership of the board to be periodically refreshed. Succession planning is a vital task for boards. No member of the board should become indispensable. At the highest level, the CAP-XX Board judges its own performance by reference to the Company’s progress against targets set out in the Company’s strategic plan. The Board formally evaluates its own performance as a unit at least once a year with an assessment of its effectiveness. Areas are identified where improvements can be made, and active steps are taken to make improvements accordingly. This assessment is led by CAP-XX Chairman. The Board’s annual effectiveness review was conducted and high- level recommendations were Page 24 Corporate Governance Statement (continued) QCA Code Principle Application (as set out by QCA) What we do and why discussed and agreed. These recommendations and the associated improvements are consistently being monitored at the regular Board meetings. The performance of the individual Directors including the Chairman are monitored on an ongoing basis. On an annual basis, the Remuneration Committee evaluates the individual Director’s performance as part of the review of remuneration and share equity grants. Given the scale and scope of the current operation and the risk management framework, the Directors are of the view that a formal evaluation process of the effectiveness of both the Audit and Remuneration Committees is not required at this stage. The need for an evaluation process is monitored on an on-going basis. The Board and the Remuneration Committee will also regularly discuss the Board’s balance, the Board’s current skills set and remuneration to ensure that the Board structure is fit for purpose and is appropriate for the next phase of CAP-XX’s development and growth. The composition of the Company’s Board including individual directors has changed in the past twelve months due to the change in Chief Executive Officer in May 2023. The Board are still of the view that the above processes are appropriate for the Company’s requirements, given the size and nature of the CAP-XX business. The Board uses the results of its evaluation process when considering the adequacy of the composition of the Board and any succession planning requirements. However, there are no plans at present for changes or additions to the Board and the Directors believe that the current Board meets the needs of the Company’s current and medium- term requirements. 8. Promote a corporate culture that is based on ethical values and behaviours The board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset The CAP-XX Board considers that confidence in its integrity can only be achieved if its employees and officers conduct themselves ethically in all of Page 25 Corporate Governance Statement (continued) QCA Code Principle Application (as set out by QCA) What we do and why and a source of competitive advantage. The policy set by the board should be visible in the actions and decisions of the chief executive and the rest of the management team. Corporate values should guide the objectives and strategy of the company. The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company. The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company. their commercial dealings on CAP-XX’s behalf. CAP-XX has therefore recognised that it should actively promote ethical conduct amongst its employees, officers and contractors. CAP-XX has adopted, amongst other policies to promote ethical and responsible decision making, a code of conduct which applies to all directors, officers, employees, consultants and contractors of CAP-XX, which the Board and Management will seek to enforce where appropriate. The CAP-XX Board and management conduct themselves ethically at all times and promote a culture that is in line with standards set out on the website. CAP-XX values its reputation for ethical behaviour and has a set of values that are at the core of its business philosophy. 9. Maintain governance structures and processes that are fit for purpose and support good decision- making by the board The company should maintain governance structures and processes in line with its corporate culture and appropriate to its: • size and complexity; and • capacity, appetite and tolerance for risk. CAP-XX’s Corporate Governance Statement on pages 18 to 26 of the Company’s Annual Report for the year ended 30 June 2023 explains the structures which are in place at Board and Committee level and how these interact, including the roles which individual Directors fulfil on the Board. The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company. At present, the Board is satisfied with the Company’s corporate governance, given the Company’s size and the nature of its operations, and as such there are no specific plans for changes to the Company’s corporate governance arrangements in the shorter term. There is a clear separation of the roles of Chief Executive Officer and Non- executive Chairman. The Chairman has overall responsibility for corporate governance matters in the Company, leadership of the board and ensuring its effectiveness on all aspects of its role. The Chief Executive Officer leads the executive team and is responsible for implementing those actions required to deliver on the agreed strategy. The matters reserved as the responsibilities of the CAP-XX board include:-  Developing, providing input into and final approval of the Company’s strategic plan;  Evaluating, approving and monitoring the strategic and Page 26 Corporate Governance Statement (continued) QCA Code Principle Application (as set out by QCA) What we do and why financial plans and performance objectives of the Company;  Reviewing, ratifying and monitoring systems of risk management and internal compliance and control, codes of conduct and legal compliance;  Evaluating and monitoring annual budgets and business plans;  Ensuring appropriate resources are available to senior management;  Approving all accounting policies, financial reports and external communications by the Company;  Appointing, re-appointing or removing CAP-XX’s external auditors; and  Appointing, monitoring and managing the performance and remuneration of executive directors and senior executives. Details of the Company’s audit and remuneration committees, including their terms of reference can be found here: https://www.cap- xx.com/aim-rule-26/ Beneath the Board there is an operational governance framework which facilitates the effective management of the business by an Executive Committee. This organisation structure is kept under continual review and evolves as the needs and requirements of the business changes as it grows and develops. BUILD TRUST QCA Code Principle Application (as set out by QCA) What we do and why 10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders. A healthy dialogue should exist between the board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company. In particular, appropriate communication and reporting structure should exist between the board and all constituent parts of its shareholder base. This will assist: the communication of shareholders’  views to the board; and The Company’s governance structure is explained through the Corporate Governance Statement which is available on the CAP-XX website and is supplemented by the disclosures provided in this compliance statement and explanations set out in the “Corporate Governance” section of the CAP-XX Annual Report for the year ended 30 June 2023. The communication and interaction between CAP-XX and its shareholders are explained in the disclosure above (see principle 2) . Page 27 Corporate Governance Statement (continued) the shareholders’ understanding of  the unique circumstances and constraints faced by the company. It should be clear where these communication practices are described (annual report or website). Audit and Remuneration Committee’s membership is included in the CAP-XX Annual Report for the year ended 30 June 2023 as well as the full disclosure of CAP-XX Directors remuneration. Responsibilities of both the Audit and Remuneration Committee’s responsibilities can be found on the CAP-XX website (available here https://www.cap-xx.com/aim-rule- 26/) Historical Annual and Interim Reports with all notices, circulars and results of resolutions since the Company’s ordinary shares were admitted to trading on in April 2006 can also be found on the CAP-XX website (available here https://www.cap- xx.com/investors/financial- performance/ The Company encourages two-way communication with both its institutional and private investors and responds quickly to all queries received. The Chairman talks regularly with the Group’s major shareholders and ensures that their views are communicated fully to the Board. The Board recognizes the AGM as an important opportunity to meet private shareholders. The Directors are available to listen to the views of shareholders informally immediately following the AGM. Page 28 CAP-XX Limited Financial statements - 30 June 2023 Contents Consolidated statement of profit or loss Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements Page 30 31 32 33 34 35 This financial report covers the Group consisting of CAP-XX Limited and its subsidiaries. The financial report is presented in Australian Dollars. CAP-XX Limited is a company limited by shares, incorporated and domiciled in Australia. Its principal place of business is: Unit1 13 A Stanton Road Seven Hills NSW 2147 Its registered office is: Suite 126 117 Old Pittwater Road Brookvale NSW 2100 A description of the nature of the Group's operations and its principal activities is included in the Chairman’s Statement on page 5, Business Review on pages 6 to 8 and in the directors’ report on pages 9 to 15, all of which are not part of this financial report. The financial report was authorised for issue by the directors on 29th September 2023. The Directors have the power to amend and reissue the financial report. Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally at minimum cost to the Group. All press releases, financial reports and other information are available at our Investors’ Centre on our website: www.cap-xx.com. Page 29 CAP-XX Limited Consolidated statement of profit or loss For the year ended 30 June 2023 Currency: Australian Dollars Notes Revenue from contracts with customers Cost of sales Gross Profit Other revenue Other income General and administrative expenses Process and engineering expenses Selling and marketing expenses Research and development expenses Share based payment expense Other expenses Loss before income tax Income tax benefit Net loss for the year 5 7 5 6 7 8 Consolidated 2023 $ 2022 $ 3,631,690 (2,060,527) 5,557,260 (3,032,921) 1,571,163 2,524,339 664 2,165,429 3,894 2,272,442 (4,264,901) (1,357,516) (846,536) (1,677,478) (613,980) (535,972) (4,478,616) (1,222,409) (886,494) (1,572,421) (1,133,399) (446,196) (5,559,127) (4,938,860) - - (5,559,127) (4,938,860) Loss attributable to owners of CAP-XX Limited (5,559,127) (4,938,860) Earnings per share for loss attributable to the ordinary equity holders of the Company Basic loss per share Diluted loss per share 32 32 Cents (1.1) (1.1) Cents (1.0) (1.0) The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes. Page 30 CAP-XX Limited Consolidated statement of comprehensive income For the year ended 30 June 2023 Currency: Australian Dollars Notes Consolidated 2023 $ 2022 $ Loss for the year (5,559,127) (4,938,860) Other comprehensive income/(loss) Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations 22 (27,433) (53,490) Other comprehensive income for the year, net of tax (27,433) (53,490) Total comprehensive (loss)/income for the year attributable to owners of CAP-XX Limited (5,586,560) (4,992,350) The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. Page 31 CAP-XX Limited Consolidated statement of financial position As at 30 June 2023 Currency: Australian Dollars Notes 2023 $ 2022 $ Consolidated ASSETS Current assets Cash and cash equivalents Receivables Inventories Other Total current assets Non-current assets Property, plant and equipment Right of use assets Other Total non-current assets Total assets LIABILITIES Current liabilities Payables Lease liabilities Provisions Interest bearing liabilities Total current liabilities Non-current liabilities Lease liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Accumulated losses TOTAL EQUITY 9 10 11 12 13 14 15 16 17 18 19 17 20 2,643,810 959,515 2,201,906 2,429,946 8,235,177 2,428,233 2,193,777 204,808 4,826,818 1,614,714 1,116,902 1,836,148 2,143,011 6,710,775 2,696,120 2,549,276 204,808 5,450,204 13,061,995 12,160,979 1,833,557 194,888 632,655 1,038,054 3,699,154 2,024,584 803,910 2,828,494 1,281,367 193,261 868,096 - 2,342,724 2,218,062 757,245 2,975,307 6,527,648 5,318,031 6,534,347 6,842,948 21 22 22 119,175,769 8,100,320 (120,741,742) 6,534,347 114,511,790 7,513,773 (115,182,615) 6,842,948 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. Page 32 CAP-XX Limited Consolidated statement of changes in equity For the year ended 30 June 2023 Currency: Australian Dollars Notes Contributed Equity $ Reserves $ Accumulated losses $ Total $ Consolidated Balance as 1 July 2021 108,766,530 6,433,864 (110,243,755) 4,956,639 Loss for the year Other comprehensive income Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs and tax Employee share options - value of employee services 21 22 - - - (4,938,860) (4,938,860) (53,490) - (53,490) 5,745,260 - - 1,133,399 - - 5,745,260 1,133,399 Balance at 30 June 2022 114,511,790 7,513,773 (115,182,615) 6,842,948 Loss for the year Other comprehensive income Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs and tax Employee share options - value of employee services 21 22 - - - (5,559,127) (5,559,127) (27,433) - (27,433) 4,663,979 - - 613,980 - - 4,663,979 613,980 Balance at 30 June 2023 119,175,769 8,100,320 (120,741,742) 6,534,347 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Page 33 CAP-XX Limited Consolidated statement of cash flows For the year ended 30 June 2023 Currency: Australian Dollars Notes Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Tax credit received Interest paid on lease liabilities Interest received Net cash (outflow) from operating activities 29 13 21 21 19 Cash flows from investing activities Payments for property, plant and equipment Contribution from lessor Net cash (outflow) from investing activities Cash flows from financing activities Proceeds from issue of shares Costs associated with the issue of shares Proceeds from / (repayment of) borrowings Principal repayments for lease liabilities Net cash inflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year Consolidated 2023 $ 2022 $ 3,806,845 5122,173 (9,976,681) (6,169,836) 2,043,384 (207,787) 664 (4,333,575) (10,604,235) (5.482,062) 3,200,660 (290,873) 3,894 (2,568,381) (118,166) - (118,166) 5,074,950 (410,971) 1,038,054 (193,763) 5,508,270 (189,902) 163,000 (26,902) 6,106,584 (456,053) (1,400,000) (169,175) 4,081,356 1,056,529 1,486,073 1,614,714 182,601 (27,433) (53,960) 9 2,643,810 1,614,714 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. Page 34 CAP-XX Limited Notes to the financial statements 30 June 2023 Contents of the notes to the financial statements 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Summary of significant accounting policies Financial risk management Critical accounting estimates and judgements Segment information Revenue Other income Expenses Income tax benefit Current assets – Cash and cash equivalents Current assets – Receivables Current assets – Inventories Current assets – Other Non-current assets – Property, plant and equipment Non-current assets – Right-of-use assets Non-current assets – Other Current liabilities – Payables Current liabilities – Lease liabilities Current liabilities – Provisions Current liabilities – Interest bearing liabilities Non-current liabilities – Provisions Contributed equity Reserves and accumulated losses Key management personnel disclosures Remuneration of auditors Key commitments and contingencies Related party transactions Subsidiaries Events occurring after the balance sheet date Reconciliation of loss after income tax to net cash outflow from operating activities Share-based payments Economic dependency Earnings per share Parent entity Page 36 44 45 47 49 50 50 51 52 52 53 53 53 54 55 55 55 56 57 57 58 59 60 61 61 61 61 62 62 63 65 66 66 Page 35 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 1 Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of CAP-XX Limited and its subsidiaries. All amounts shown are in Australian Dollars, rounded to the nearest Dollar, unless otherwise stated. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. CAP-XX Limited is a for-profit entity for the purpose of preparing the financial statements. Compliance with IFRS The consolidated financial statements of the CAP-XX Limited Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention These financial statements have been prepared under the historical cost convention. Critical accounting estimates The preparation of financial statements in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. b) Continuation as a going concern During the year ended 30 June 2023, the Group incurred an operating loss before tax and net cash outflows from operating activities as disclosed in the statement of profit or loss and the statement of cash flows, respectively. Due to these operating losses and net cash outflows there is material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern and therefore it may be unable to realise its assets and settle its liabilities and commitments in the normal course of business and at the amounts stated in the financial statements. The continuing viability of the Group and its ability to continue as a going concern and meet its debts and commitments as they fall due are dependent upon the Group being successful with respect to the following factors: i. ii. The Group receiving the proceeds from the R&D Tax concession which is in the final stages of being lodged with the Australian Taxation Office in September 2023. CAP-XX has a proven track record with R&D rebate submissions over several years and this years return is consistent with previous years and has been reviewed and submitted by BDO, A portion of the R&D rebate will be used to repay the short term loan; The number and size of several business development opportunities from existing and emerging markets are converted into sales revenue with the Group needing to ensure that product development and manufacturing capacity is available to satisfy the customers product specifications and timing demands for existing and new products; iii. Ongoing technology license and contractual disputes with several existing and new customers need to be finalised to ensure that ongoing revenue and cash flow is generated in a timely manner and associated legal expenditure is minimised; iv. v. Continue the close and effective monitoring of the Group's operating expenditure, including the continued realisation of identified operating cost initiatives. The Board approves an annual budget and regularly receives forecasts from management to monitor performance against budget and to consider longer term prospects; and The ability of the Group to raise additional funds from shareholders, new investors and debt markets. The Group has successfully conducted a number of small equity placements in recent years and therefore there is a reasonable expectation that alternate sources of funding can be sourced. The Directors believe that the Group will be successful in achieving favourable outcomes on the above matters and that it will have sufficient funds to pay its debts and meet its commitments for at least the next 12 months from the date of this financial report, and accordingly, have prepared the financial report on a going concern basis. At this time, the directors are of the opinion that no asset is likely to be realised for an amount less than the amount at which it is Page 36 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 1 Summary of significant accounting policies (continued) recorded in the financial report at 30 June 2023. As such, no adjustments have been made to the financial statements relating to the recoverability and classification of the asset carrying amounts or classification of liabilities that might be necessary should the Group not continue as a going concern. (c) Principles of Consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of CAP-XX Limited (''Company'' or “Parent Entity”) as at 30 June 2023 and the results of all subsidiaries for the year then ended. CAP-XX Limited and its subsidiaries together are referred to in this financial report as the “Group” or the “Consolidated Entity”. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the entity to affect those returns through its power to direct the activities of the entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Consolidated Entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses incurred by the Group are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non- controlling interest in the subsidiary together with any cumulative transaction differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. (d) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board. (e) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is CAP-XX Limited’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss on a net basis within other income or other expenses. (iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:  assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; income and expenses for each statement of profit or loss are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and  Page 37 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 1 Summary of significant accounting policies (continued)  all resulting exchange differences are recognised in other comprehensive income. (e) Foreign currency translation When a foreign operation is sold, a proportionate share of such exchange differences are recognised in the statement of profit or loss as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. (f) Revenue recognition The Group applies the principles outlined within AASB 15 “Revenue from contracts with customers” . The core principle of AASB 15 is that revenue should only be recognised as the entity receives the benefit of the goods or services provided under a commercial contract, in an amount that reflects the consideration to which the entity expects to be entitled for the transfer of the goods or services. A practical expedient has been adopted whereby the impact of significant financing components have not been considered as the Group expected, at contract inception, that the period between the transfer of the good or service and when the customer pays for that good or service is less than one year. Determining the transaction price The Group’s revenue is derived from fixed price agreements and therefore the amount of revenues to be earned from each agreement is determined by reference to those fixed prices. There is no variable consideration within these agreements. Allocation of amounts to performance obligations For most agreements, there is only one performance obligation and a fixed unit price for the good or service provided. As such, there is no judgement involved in the allocation of amounts to specific performance obligations. In those instances where there is more than one performance obligation, the unit price is clearly defined and is allocated against the specific performance obligation. Some goods sold by the Group include warrantees which require the Group to either replace or mend a defective product during the warranty period if the goods fail to comply with agreed-upon specifications. In accordance with AASB 15, such assurance warranties are not accounted for as separate obligations and hence no revenue is allocated to them. Sale of goods revenue is recognised at a point in time when the Group have met all of their performance obligations including delivery, if applicable. There is limited judgement in identifying the point control passes; once the goods have left the warehouse or when the goods are delivered, depending on the type of good. Royalty agreements are in place, whereby customers are required to pay the Group a portion of sales revenue, in return for the use of patented software. Revenue is recognised at a point in time when the underlying goods are sold. Fixed rate royalties are recognised over the period of the underlying agreement. Licence revenue in relation to the contracted use of the Group’s patents or technology is recognised at a point in time when the licence agreement is signed and the Group has the present right to payment. (g) Government grants Grants from the government, including the R&D Tax incentive, are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Income from government grants, including the R&D tax incentive, is recognised in the statement of profit or loss when the right to receive the payment is established. (h) Income tax The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for Page 38 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 1 Summary of significant accounting policies (continued) (h) Income tax (continued) each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised directly in equity. Tax consolidation legislation CAP-XX Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2002. The head entity, CAP-XX Limited, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a standalone taxpayer in its own right. In addition to its own current and deferred tax amounts, CAP-XX Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Tax funding agreements are currently not in place. Amounts assumed are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities. (i) Impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. The Group recognises a loss allowance for expected credit losses on financial assets which are measured at amortised cost. The measurement of the loss allowance depends upon the Group's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. Page 39 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 1 Summary of significant accounting policies (continued) (j) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of approximately three months that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (k) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less any allowance for expected credit loss. Trade receivables are generally due for settlement no more than 30 days from the date of recognition. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by directly reducing the carrying amount. An allowance for expected credit loss is specifically recognised when there is objective evidence that the Group will not be able to collect the receivable. Financial difficulties of the debtor or default payments are considered objective evidence of impairment. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and aging. The expected loss rates are based on the Group’s historical credit losses experienced over the two year period prior to the period end. The historical loss rates are then adjusted for both current and forward-looking information on macroeconomic factors affecting the Group’s customers. (l) Inventories Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on a basis of first in first out. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Raw materials held for development purposes are also stated at the lower of cost and net realisable value, hence are generally recognised in the statement of profit or loss as an expense when received. (m) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values due to their short term nature. (n) Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. 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 charged to the statement of profit or loss during the financial period in which they are incurred. Capital work in progress is not depreciated until the asset is installed and ready for use. Depreciation on assets is calculated using the straight-line method to allocate their cost amounts, net of their residual values over their estimate useful lives as follows: Furniture and fittings Plant and equipment – Manufacturing Plant and equipment – Research & Development 2-10 years 2-10 years 2-10 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. 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 (note 1(i)). Page 40 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 1 Summary of significant accounting policies (continued) (n) Property, plant and equipment (continued) Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of profit or loss. (o) Right of use Asset A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. (p) Research & Development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, which varies from 3 to 5 years. (q) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 55 days of recognition. (r) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. (s) Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. (t) Employee benefits (i) Wages and salaries and annual leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in other provisions in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Page 41 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 1 Summary of significant accounting policies (continued) (t) Employee benefits (continued) Long service leave (ii) The liability for long service leave is recognised as part of the provision for employee benefits and measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Retirement benefit obligations The Group does not maintain a Group superannuation plan. The Group makes defined fixed percentage contributions for all Australian resident employees to complying third party superannuation funds. The Group’s legal or constructive obligation is limited to these contributions. Contributions to the defined contribution complying third party superannuation funds are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (iv) Share-based payments Share-based compensation benefits are provided to employees via the CAP-XX Limited Share Option Exchange Plan and the CAP-XX Limited Employee Share Option Plan. Information relating to these schemes is set out in note 30. The fair value of options granted under the CAP-XX Limited Share Option Exchange Plan and the CAP-XX Limited Employee Share Option Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. Non marketing vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to vest based on the non-marketing vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. The 2006 Share Option Exchange Plan and the CAP-XX Limited Employee Share Option Plan are both administered by the Board of Directors of CAP-XX Limited. When options are exercised, the entity transfers the appropriate amount of shares to the employee. The proceeds received net of any directly attributable transactions costs are credited directly to equity. (v) Bonus plans The Group recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation. (u) Lease liability A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Page 42 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 1 Summary of significant accounting policies (continued) (v) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where such ordinary shares are subsequently re-issued, any consideration received, net of any directly attributable incremental transactions costs and the related income tax effects, is included in equity attributable to the owners of Group. (w) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (x) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority 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 taxation authority, are presented as operating cash flow. (y) New, revised or amending Accounting Standards and Interpretations adopted The Group has adopted all new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. These new or amended Accounting Standards and Interpretations have not had a material effect on the financial statements for the year ended 30 June 2023. (aa) New Accounting Standards and Interpretations not yet mandatory or early adopted Any revised or amending Accounting Standards or Interpretations that are not yet mandatory for the year ended 30 June 2023 have not been early adopted. (ab) Parent entity financial information The financial information for the parent entity, CAP-XX Limited, disclosed in note 33 has been prepared on the same basis as the consolidated financial statements, except as set out below: Investments in subsidiaries (i) Investments in subsidiaries are accounted for at cost in the financial statements of CAP-XX Limited. Page 43 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 2 Financial risk management The Group's activities expose it to a variety of financial risks; market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group holds the following financial instruments: Consolidated 2023 $ 2022 $ Financial assets Cash and cash equivalents 2,643,810 1,614,714 Trade and other receivables 959,515 1,116,902 Financial liabilities Trade and other payables Interest bearing liabilities Lease liabilities (a) Market risk 3,603,325 2,731,616 1,833,557 1,038,054 2,219,472 1,281,367 - 2,411,323 5,091,083 3,692,690 Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group operates internationally and is exposed to foreign exchange risk arising particularly from currency exposures to the US dollar. The Group sells most of its products and services in US dollars, buys the majority of its raw materials and pays its contract tolling fees in US dollars. Its USA operations are financed out of the net proceeds. Sensitivity analysis The Group’s after tax loss and equity for the year would have been $52,630 lower/ $57,893 higher (2022: $50,032 lower/$55,035 higher) had the Australian dollar strengthened/weakened by 10% against the US dollar, mainly as a result of foreign exchange gains/losses on the translation of US dollar denominated sales and purchases of goods and services. The Group's exposure to foreign currency risk at the end of the reporting period, was as follows: USD $ 170,579 608,158 496,798 2023 GBP £ Euro € 2022 USD $ GBP £ Euro € 859,228 - 38,073 16,219 - 73,924 280,818 501,467 316,857 15,452 - 1,113 16,662 - 21,450 Cash and cash equivalents Trade receivables Trade payables (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The Group has some concentration of credit risk. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The consolidated entity does not hold any collateral. Page 44 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 2 Financial risk management (continued) (b) Credit risk (continued) The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. These indicators also suggest whether there has been an increase in credit risk. Cash and cash equivalents are placed in financial institutions with good credit ratings. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash, to ensure debts are paid as and when they fall due. The Group has experienced recurring operating losses and operating cash outflows since inception to 30 June 2023 as the Group is transitioning from development stage. Historically the Group has not committed to any credit facilities and rather has relied upon equity financing through private and public equity investors. Recently, the Group has entered into a credit facility with a finance provider which uses the R&D rebate as collateral. Once the R&D rebate is received the finance provider is paid the amount drawn down at this date. Details of the current status of this facility can be found in note 19. Details of the liquidity risk associated with the Group’s lease liabilities are outlined in note 17. (d) Interest rate risk The Group’s interest-rate risk mainly arises from interest bearing assets, with the Group’s income and operating cash flows exposed to changes in market interest rates. The interest bearing assets have been predominantly deposited at short term fixed rates exposing the Group to cash flow interest-rate risk. The Group’s exposure to interest-rate risk is immaterial in terms of the possible impact on profit or loss or equity. It has therefore not been included in the sensitivity analysis. (e) Fair value estimation The carrying amount of financial assets and liabilities recorded in the financial statements represents their respective net fair value unless otherwise noted, determined in accordance with the accounting policies disclosed in note 1. Note 3 Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Apart from the going concern assumption as discussed in note 1(b), the estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (b) Critical judgements in applying the entity’s accounting policies (i) Impairment loss on plant and equipment The Group has continued to use the Sydney, Australia manufacturing site for the production of electrode material and selected supercapacitor product lines, whilst the larger volume supercapacitor product lines are outsourced. Page 45 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 3 Critical accounting estimates and judgements (continued) In assessing the carrying value of its plant and equipment, the Group considers whether previous impairment write downs remain adequate and the current depreciation rates fairly reflect the carrying value of such assets. (ii) Fair value of share options Share-based compensation benefits are provided to employees via the 2006 Share Option Exchange Plan and the CAP-XX Limited Employee Share Option Plan. The fair value of options granted under the 2006 Share Option Exchange Plan and the CAP-XX Limited Employee Share Option Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is determined using the Black-Scholes option pricing model. The key inputs and assumptions used in the model is set out in note 30. (iii) Inventory provision The Group makes estimates and assumptions concerning the future saleability of inventory for amounts in excess of cost. The provision for inventory obsolescence is based on management’s expectation of the future price of inventory, taking into account the age and condition and demand of the inventory and management’s assessment of future demand for the inventory. (iv) Lease make good provision A provision has been made for the present value of anticipated costs for the future restoration of leased premises. The provision includes future cost estimates associated with departing the premise at the termination of the current lease period and requires assumptions regarding the cost estimates and departure dates. The provision recognised is periodically reviewed and updated based on the facts and circumstances available at the time. (v) Warranty provision In determining the level of provision required for warranties, the Group has made judgements in respect of he expected performance of the products, the number and frequency of customers who will actually claim under the stated warranty and the costs of fulfilling the conditions of the warranty. The provision is based on estimates generated from historical warranty data associated with similar products and services. (vi) Lease term The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the consolidated entity's operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements; and the costs and disruption to replace the asset. The consolidated entity reassesses whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances. (vii) Research and development incentive Judgement is required in determining the amount of grant revenue relating to the research and development incentive claim. There are certain transactions and calculations undertake during the ordinary course of business for which the ultimate tax determination may be subject to change. The Group calculates its research and development claim based on the Group’s understanding of the tax law. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the profit or loss in the year in which such determination is made. Note 4 Segment information Page 46 CAP-XX Limited Notes to the financial statements 30 June 2023 (a) Description of segments Management has determined the operating segment based on the reports reviewed by the Board that are used to make strategic decisions. Management has identified one reportable segment which is the development, manufacture and sale of supercapacitors. Although the Group is managed on a global basis, it generates revenue in 3 main geographical areas being Asia Pacific, North America and Europe. Segment revenues are allocated based on the country in which the user is located. Cost of sales are allocated based on the country in which the production of supercapacitors occur. 30 June 2023 Revenue Cost of sales Gross (Loss)/Profit Interest revenue Other income General and administrative expenses Process and engineering expenses Selling and marketing expenses Research and development expenses Project expenses Share based payment expenses Other expenses Geographical Segments Asia Pacific Europe North America Total $ $ 880,877 1,967,154 (2,060,527) - (1,179,650) 1,967,154 $ 783,659 - 783,659 $ 3,631,690 (2,060,527) 1,571,163 664 2,165,429 (4,264,901) (1,357,516) (846,536) (1,677,478) - (613,980) (535,972) - - - - - - - - - - - - - - - - - - 664 2,165,429 (4,264,901) (1,357,516) (846,536) (1,677,478) - (613,980) (535,972) (Loss)/Profit before income tax (8,309,940) 1,967,154 783,659 (5,559,127) Net (loss)/profit for the year (8,309,940) 1,967,154 783,659 (5,559,127) Other comprehensive income Exchange differences arising in translation of foreign operations Total comprehensive income/(loss), net of tax Total assets Total liabilities (Loss)/Profit before income tax includes the following specific expenses: Depreciation and amortisation Share based payments (27,433) - (8,337,373) 1,967,154 - 783,659 (27,433) (5,586,560) 13,061,995 6,527,648 741,552 613,980 - - - - - - - - 13,061,995 6,527,648 741,552 613,980 Page 47 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 4 Segment information (continued) 30 June 2022 Revenue Cost of sales Gross (Loss)/Profit Interest revenue Other income General and administrative expenses Process and engineering expenses Selling and marketing expenses Research and development expenses Share Based Payment expenses Other expenses Asia Pacific Geographical Segments North America Europe $ 2,375,794 (3,032,921) $ 2,207,081 - $ 974,385 - Total $ 5,557,260 (3,032,921) (657,127) 2,207,081 974,385 2,524,339 3,894 2,272,442 (4,478,616) (1,222,409) (886,494) (1,572,421) (1,133,399) (446,196) - - - - - - - - - - - - - - - - 3,894 2,272,442 (4,478,616) (1,222,409) (886,494) (1,572,421) (1,133,399) (446,196) (Loss)/Profit before income tax (8,120,326) 2,207,081 974,385 (4,938,860) Net (loss)/profit for the year (8,120,326) 2,207,081 974,385 (4,938,860) Other comprehensive income Exchange differences arising in translation of foreign operations Total comprehensive income/(loss), net of tax (53,490) (8,173,816) - 2,207,081 - 974,385 (53,490) (4,992,350) Total assets Total liabilities 12,160,979 5,318,031 (Loss)/Profit before income tax includes the following specific expenses: Depreciation and amortisation Share based payments 726,155 1,133,399 - - - - - - - - 12,160,979 5,318,031 726,155 1,133,399 Page 48 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 5 Revenue Sales revenue Sale of goods (recognised at a point in time) Licence Fees & Royalties (recognised at a point in time) Other revenue Interest Disaggregation of Revenue Consolidated 2023 $ 2022 $ 3,288,692 5,069,186 342,998 3,631,690 488,074 5,557,260 664 3,894 The Group has disaggregated revenue into various categories in the following table which is intended to - Depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic date; and - Enable users to understand the relationship with revenue segment information provided in Note 4. Consolidated – 2023 Geographical regions Asia Pacific Europe Americas Consolidated – 2022 Geographical regions Asia Pacific Europe Americas Supercapacitors Licence Fees and Royalties Total 880,877 1,967,154 440,661 - - 342,998 880,877 1,967,154 783,659 3,288,692 342,998 3,631,690 Supercapacitors Licence Fees and Royalties Total 2,375,794 2,207,081 486,311 - - 488,074 2,375,794 2,207,081 974,385 5,069,186 488,074 5,557,260 Page 49 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 6 Other income Consolidated Foreign Exchange Gains – (net) R&D Tax Incentive Government Grants Note 7 Expenses Loss before income tax includes the following specific expenses: Cost of sale of goods Direct materials and labour Indirect manufacturing expenses Total cost of sale of goods Depreciation Plant and equipment Furniture and fittings Leasehold improvements Right of use Assets Total depreciation Other expenses – movement in provisions Allowance for expected credit loss Provision for Withholding Tax Diminution Interest - lease liabilities Interest – make good Interest – R&D Advance Employee benefits expense Superannuation expense Share based payments 2023 $ 22,045 2,143,384 - 2,165,429 2022 $ 199,308 2,073,134 - 2,272,442 Consolidated 2023 $ 2022 $ 1,786,716 273,811 2,060,527 2,685,204 347,717 3,032,921 384,635 294 1,124 355,499 741,552 189,491 18,274 206,663 40,999 80,545 366,930 113 1,915 357,197 726,155 120,484 31,268 225,151 - 69,293 535,972 446,196 4,161,394 3,282,855 397,130 309,077 613,980 1,133,399 Page 50 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 8 Income tax benefit (a) Numerical reconciliation of income tax benefit to prima facie tax benefit Loss before tax Tax at the Australian tax rate of 25% (2022: 25%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Share based payments (Non-assessable) / non-deductible items Benefit arising from temporary differences and tax losses not recognised Income tax benefit (b) Tax losses Consolidated 2023 $ 2022 $ (5,559,127) (4,938,860) (1,389,782) (1,234,715) 153,245 773,126 (463,411) 283,350 645,696 (305,669) 463,411 - 305,669 - Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit @ 25% (2022: 25%) 96,618,330 24,154,582 94,281,067 23,570,267 All unused tax losses were incurred by Australian entities. The deferred tax assets in relation to the tax losses will only be obtained if: i) the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised, and the Group continues to comply with the conditions for deductibility imposed by tax legislation, and no changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the losses. ii) iii) (c) Unrecognised temporary differences Temporary differences for which no deferred tax asset has been recognised Potential tax benefit @ 25% (2022: 25%) 3,092,505 773,126 2,925,099 731,275 CAP-XX Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2002. The accounting policy in relation to this legislation is set out in note 1(h). CAP-XX Limited has not recognised any tax consolidation distribution from or to wholly tax consolidated entities. Page 51 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 9 Current assets – Cash and cash equivalents Cash at bank and on hand Cash on deposit Consolidated 2023 $ 402,636 2,241,174 2,643,810 2022 $ 173,183 1,441,531 1,614,714 Note 10 Current assets – Receivables Consolidated Trade receivables Other receivables Provision for expected credit losses 2023 $ 919,459 581,079 (541,023) 959,515 2022 $ 929,986 538,448 (351,532) 1,116,902 Movements in the provision for expected credit losses are as follows: Consolidated 2023 $ 351,532 189,491 541,023 2022 $ 231,048 120,484 351,532 Opening balance Allowance for expected credit loss Closing balance (b) Past due but not impaired There were no trade receivables at 30 June 2023 that were past due but not impaired (2022: Nil). (c) Fair value and credit risk Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value. The current receivables are non-interest bearing. There is some concentration of credit risk with respect to current receivables, as the Group has a limited number of customers, internationally dispersed. (d) Foreign exchange and interest rate risk Information about the Group's exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in note 2. Page 52 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 11 Current assets – Inventories Consolidated Raw materials and stores Work in progress Finished goods Obsolescence provision 2023 $ 1,052,509 77,764 1,249,911 (178,278) 2,201,906 2022 $ 1,102,421 23,713 907,325 (197,311) 1,836,148 Note 12 Current assets – Other Consolidated Research & Development - Tax Credit Prepayments Other Receivables 2023 $ 2,070,000 348,128 11,818 2,429,946 2022 $ 1,970,000 161,637 11,374 2,143,011 Note 13 Non-current assets – Property, plant Consolidated and equipment Plant and equipment at cost Accumulated depreciation Capital Works in Progress Net book amount Furniture and fittings at cost Accumulated depreciation Net book amount Leasehold improvements at cost Accumulated depreciation Net book amount Total property, plant and equipment Total accumulated depreciation Total net book amount 2023 $ 2022 $ 20,146,977 (17,740,516) 12,203 2,418,664 20,041,635 (17,355,881) - 2,685,754 69,394 (67,130) 2,264 478,470 (471,165) 7,305 68,773 (66,836) 1,937 478,470 (470,041) 8,429 20,707,044 (18,278,811) 2,428,233 20,588,878 (17,892,758) 2,696,120 Page 53 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 13 Non-current assets – Property, plant and equipment (continued) Movement in classes of assets: Consolidated Plant and equipment $ Leasehold improvements $ Furniture and fittings $ Year ended 2023 Opening net book amount Additions Depreciation 2,685,754 117,545 (384,635) Closing net book amount 2,418,664 8,429 - (1,124) 7,305 Total $ 2,696,120 118,166 (386,053) 1,937 621 (294) 2,264 2,428,233 Movement in classes of assets: Consolidated Year ended 2022 Opening net book amount Additions Contributions from Lessor Depreciation Closing net book amount Plant and equipment $ 3,034,197 181,487 (163,000) (366,930) 2,685,754 Leasehold improvements $ Furniture and fittings $ 3,923 6,421 - (1,915) 8,429 56 1,994 - (113) 1,937 Total $ 3,038,176 189,902 (163,000) (369,990) 2,696,120 Note 14 Non-current assets – Right-of use Consolidated Leased Assets Right-of-use Leased assets at cost Accumulated depreciation Net book amount 2023 $ 2022 $ 3,407,991 (1,214,214) 2,193,777 3,407,991 (858,715) 2,549,276 Movement in classes of assets: Consolidated Office Premises & Warehouse $ Office Equipment Total $ $ Year ended 2023 Opening book amount Additions Depreciation Closing net book amount 2,505,857 - (330,581) 2,175,276 43,419 - (24,918) 18,501 2,549,276 - (355,499) 2,193,777 Movement in classes of assets: Consolidated Office Premises & Warehouse Office Equipment Total Year ended 2022 Opening Book Amount Additions Depreciation Closing net book amount 2,837,470 - (331,613) 2,505,857 69,003 - (25,584) 43,419 2,906,473 - (357,197) 2,549,276 Page 54 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 15 Non-current assets - Other Consolidated Rental bond 2023 $ 2022 $ 204,808 204,808 A term of the current lease agreement for the Seven Hills premises is a requirement for the Group to have a bank guarantee in place as security for the landlord against loss or damage from any event of default. The rental bond of $204,808 represents the current value of this bank guarantee. Note 16 Current liabilities – Payables Trade payables Other payables and accrued expenses Consolidated 2023 $ 2022 $ 1,677,270 156,287 1,833,557 1,131,501 149,866 1,281,367 The carrying amount of trade and other payables are assumed to approximate their fair values due to their short term nature. Note 17 Lease liabilities Lease Liabilities – current Lease liabilities – non current 2023 $ 2022 $ 194,888 2,024,584 2,219,472 193,261 2,218,062 2,411,323 The Group holds a 10 year lease for property in Seven Hills, Sydney, NSW. This lease agreement includes an option to extend for 2 additional periods of 5 years. As at 30 June 2023, the Group have not included this option to extend within the lease liability, with such an extension not considered to be reasonably certain. Reconciliation of lease liabilities at the beginning and end of the financial year are set out below: Balance from previous Year Additions Interest on lease liabilities Repayments on lease liabilities Balance as at 30 June 2023 2023 $ 2022 2,411,323 2,580,498 - - 206,663 225,151 (398,514) (394,326) 2,219,472 2,411,323 Page 55 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 17 Lease Liabilities (continued) The following are the remaining contractual maturities for the Group’s lease liabilities: Year ended 2023 Lease liabilities Less than 1 year $ 2-5 years $ Over 5 years $ Contractual cash flows $ Carrying Amount $ 399,774 1,797,581 770,573 2,967,928 2,219,472 Year ended 2022 Lease liabilities Less than 1 year $ 2-5 years $ Over 5 years $ Contractual cash flows $ Carrying Amount $ 401,551 1,727,843 1,240,085 3,369,479 2,411,323 Note 18 Current liabilities – Provisions Consolidated Employee benefits – annual leave and long service leave 2023 $ 632,655 632,655 2022 $ 868,096 868,096 (a) Amounts not expected to be settled within the next 12 months Provision for employee benefits includes accruals for annual leave. The entire obligation is presented as current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave within the next 12 months. The following amounts reflect leave that is not expected to be taken within the next 12 months: Annual leave obligation not expected to be settled after 12 months (b) Risk exposure Consolidated 2023 $ 2022 $ 198,799 268,315 Information about the Group’s exposure to foreign exchange risk is provided in note 2. (c) Product returns and warranties Provision is made for estimated product returns and warranty claims in respect of products sold. The Group provides a one year warranty on products sold to customers. There is no warranty provision as at 30 June 2023 (2022: nil). Page 56 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 19 Current liabilities – Interest bearing liabilities Consolidated Short term borrowings 2023 $ 1,038,054 1,038,054 2022 $ - - During the year the Group entered into a borrowing facility in order to provide short term liquidity and general working capital. The balance was borrowed against the expected Research and Development grant (refer to Note 12) and will be repaid upon receipt of this grant in calendar year 2023. The facility attracted a monthly interest rate of 1.25%. Movements in interest bearing liabilities Movements in interest bearing liabilities during the financial years are set out below: Carrying amount at start of year Borrowings drawn down Repayments Interest expense Carrying amount at end of year Note 20 Non-current liabilities – Provisions Employee benefits – long service leave Make good provision (a) Make good provision Consolidated 2023 $ - 957,509 - 80,545 1,038,054 2022 $ 1,400,000 - (1,400,000) - - 2023 $ 70,133 733,777 803,910 2022 $ 64,467 692,778 757,245 The Group is required to restore the leased premises of its office/warehouse to their original condition at the end of the respective lease term. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold improvements. Page 57 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 20 - Non-current liabilities – Provisions (continued) (b) Movements in provisions Movements in the make good on premises provision during the financial year are set out below: Carrying amount at start of year Additions – new leased premises Charged to profit or loss - additional provisions recognised/(reversed) Carrying amount at end of year Note 21 Contributed equity Consolidated 2023 $ 2022 $ 692,778 - 40,999 - 733,777 687,350 - 5,428 - 692,778 Consolidated 2023 Shares 2022 Shares (a) Share capital Fully paid ordinary shares (no par value) 716,014,958 509,173,491 (b) Movement in ordinary share capital: Date Details 1 July 2021 4 August 2021 4 August 2021 4 August 2021 24 November 2021 30 June 2022 1 July 2022 12 July 2022 12 May 2023 6 June 2023 6 June 2023 Balance Issue of Shares Issue of Shares Issue of Shares – Costs Issue of Shares Balance Balance Issue of Shares Issue of Shares Issue of Shares Issue of Shares – Costs 30 June 2023 Balance (c) Ordinary shares Number of shares 456,804,083 51,629,100 - 740,308 509,173,491 509,173,491 1,062,343 76,535,370 129,243,754 - 716,014,958 Issue price $ $0.10 $0.09 $0.13 $0.10 $0.02 $0.02 108,766,530 5,416,958 689,626 (456,053) 94,729 114,511,790 114,511,790 103,427 1,860,322 3,111,201 (410,971) 119,175,769 At 30 June 2023, there were 716,014,958 (2022: 509,173,491) issued ordinary shares which were fully paid, with no par value. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Group in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Page 58 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 21 Contributed equity (continued) (d) Options Information relating to the CAP-XX Limited Share Option Exchange and CAP-XX Limited Employee Share Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in note 30. (e) Capital management plan The consolidated entity's objectives when managing capital is to safeguard its ability to continue as a going concern that it can provide returns for shareholders and benefits to other stakeholders and to maintain an optimum structure to reduce the cost of capital. The consolidated entity would look to raise capital when an opportunity to invest in a business or company was value adding relative to the company's current share price at the time of the investment. The consolidated entity would actively pursue additional investments in the short term as it continues to integrate and grow its existing business in order to maximise synergies. The capital risk management policy remains unchanged from the 2022 Annual report. Note 22 Reserves and accumulated losses (a) Reserves Foreign currency translation reserve Share-based payments reserve Movements: Foreign currency translation reserve Balance 1 July Currency translation differences arising during the year Balance 30 June Share-based payments reserve Balance 1 July Option expense Balance 30 June (b) Accumulated losses Consolidated 2023 $ 2022 $ (359,147) 8,459,467 8,100,320 (331,714) 7,845,487 7,513,773 (331,714) (27,433) (359,147) 7,845,487 613,980 8,459,467 (278,224) (53,490) (331,714) 6,712,088 1,133,399 7,845,487 Movements in accumulated losses were as follows: Balance 1 July Net (loss) for the year Balance 30 June Consolidated 2023 2022 $ (115,182,615) (5,559,127) (120,741,742) $ (110,243,755) (4,938,860) (115,182,615) (c) Nature and purpose of reserves (i) Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve, as described in note 1(e). The reserve is recognised in profit and loss when the net investment is disposed of. (ii) Share-based payments reserve The share-based payments reserve is used to recognise the fair value of options issued but not exercised. Page 59 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 23 Key management personnel disclosures (a) Directors The names of the directors who have held office during the financial year are as follows: Executive director Anthony Kongats (Managing Director) – resigned 16th May 2023 Lars Stegmann (Chief Executive Officer) – appointed 9th June 2023 Non-executive directors Patrick Elliott (Non-Executive Chairman) Bruce Grey (Non-Executive Director) Steen Feldskov (Non-Executive Director) (b) Key management personnel compensation Key management personnel compensation is set out below. The key management personnel include all the directors of the Company and those executives that report directly to the Managing Director. The following were key management personnel up to the date of the report unless otherwise stated:- Alex Bilyk, VP Research Jeff Colton – Resigned 31 May 2023 Song Hee Lau, General Manager Sales & Marketing Asia Pacific Jean Pierre Mars, Retired 28/7/2022 Michael Taylor, Chief Financial Officer Dallas Garratt, VP Operations Catherine Wang, General Manager Quality Henry Huang – Manager, Applications Engineering Short-term benefits Post-employment benefits Share-based payments Total Consolidated 2023 $ 2022 $ 2,030,943 525,223 513,790 3,069,956 1,758,726 166,965 922,731 2,848,422 (c) Other transactions with key management personnel or entities related to them The following directors of the Company, and therefore each a related party as defined in the AIM Rules for Companies, participated in a subscription of new ordinary shares in the Company on 4 May 2023 (the “Subscription”):  Patrick Elliot, the Company’s Chairman, subscribed for 3,846,154 new ordinary shares in the Subscription, which represented an amount of £50,000 at the Subscription’s issue price of 1.3 pence per new ordinary share (the “Issue Price”).  Bruce Grey, one of the Company’s Non-Executive Directors, subscribed for 2,307,692 new ordinary shares in the Subscription, which represented an amount of £30,000 at the Issue Price.  Anthony Kongats, the Company’s previous CEO, subscribed for 4,615,385 new ordinary shares in the Subscription, which represented an amount of £60,000 at the Issue Price. Page 60 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 24 Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the Group, its related practices and non-related audit firms: Consolidated 2023 $ 2022 $ BDO Audit services Audit of financial statements Total remuneration for audit services 69,996 69,996 69,350 69,350 Taxation services Tax compliance services, including review of company income tax returns, employee share scheme and R&D Tax concession Total remuneration of BDO 77,785 147,781 58,199 127,549 It is the Group’s policy to employ BDO on assignments additional to their statutory audit duties where BDO’s expertise and experience with the Group are important. These assignments are principally tax advice, or where BDO is awarded assignments on a competitive basis. It is the Group’s policy to seek competitive tenders for all major consulting projects. Note 25 Commitments and contingencies CAP-XX continues to pursue a patent infringement action against Maxwell Technologies, a wholly owned subsidiary of Tesla Inc. As previously announced, due to the unavailability of expert witnesses for Maxwell, the trial date was deferred from July 2023 to December 2023. In September 2023, CAP-XX was advised that Tesla had lodged a patent infringement claim against CAP-XX for patent infringement in a Texas court. On the data and evidence lodged to date, CAP-XX is of the opinion that the claim is baseless and that it will be vigorously defended. Note 26 Related party transactions (a) Parent entity The ultimate parent entity within the Group is CAP-XX Limited. (b) Subsidiaries Interests in subsidiaries are set out in note 27. (c) Key management personnel Disclosures relating to key management personnel are set out in note 23. (d) Other Canaccord Genuity Asset Management Limited, a substantial shareholder of the Company and therefore a related party as defined in the AIM Rules for Companies, subscribed for 53,846,160 new ordinary shares in a placing of new ordinary shares on 4 May 2023, which represented an amount of £700,000.03 at the issue price of 1.3 pence per new ordinary share. Page 61 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 27 Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(c): Name of entity Country of incorporation Class of shares Equity holding * 30 June 2023 % 30 June 2022 % CAP-XX (Australia) Pty Ltd CAP-XX Research Pty Ltd CAP-XX USA, Inc Australia Australia United States Ordinary Ordinary Ordinary 100 100 100 100 100 100 * The proportion of ownership interest is equal to the proportion of voting power held. Note 28 Events occurring after the balance sheet date The necessary paperwork associated with the receipt of the R&D Tax rebate for the 2023 financial year is in the final stages of being lodged with the relevant Government authorities and is expected to be received before the end of the current calendar year. The rebate is expected to be approximately AUD $2.1 million. There were no other matters or circumstances that have arisen since 30 June 2023 that have significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Note 29 Reconciliation of loss after tax to net cash outflow from operating activities Net loss Depreciation and amortisation Expected credit loss expense Interest charged on financial liability Non-cash employee benefit expense – share based payments Changes in assets and liabilities: (Increase) in receivables (Increase) in inventories (Increase)/Decrease in other assets Increase in payables (Decrease)/Increase in provisions Net cash outflow from operating activities Consolidated 2023 $ 2022 $ (5,559,127) (4,938,860) 741,552 189,491 80,545 613,980 726,155 120,484 - 1,133,399 (32,105) (365,758) (286,935) 665,409 (380,627) (4,333,575) (314,603) (769,883) 1,053,965 300,659 120,303 (2,568,381) Page 62 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 30 Share-based payments (a) CAP-XX Limited Employee Share Option Plan The CAP-XX Limited Employee Share Option Plan (the “CAP-XX Limited Plan”) provides for the grant of share options for the purchase of ordinary shares of the Group by officers, employees, consultants, advisors and directors of the Group or a related body corporate. The Board is responsible for administration of the CAP-XX Limited Plan. The Board determines the term of each option, the option exercise price, and the number of shares for which each option is granted and the rate at which each option is exercisable. Unless otherwise determined by the Board an offer of Options must not provide for an exercise price that is less than the volume weighted average sale price of a share traded on AIM over a defined period. Set out below is a summary of options granted under the CAP-XX Limited Plan: Grant Date Expiry date Consolidated – 2023 Exercise price Balance at start of the year Granted during the year Exercised during the year Forfeited & expired during the year Balance at end of the year Exercisable at end of the year $ Number Number Number Number Number Number 11 December 2017 11 December 2022 14 October 2021 14 October 2026 £0.1150 14,695,000 £0.0595 34,490,000 - - 12 April 2022 12 April 2027 11 May 2023 11 May 2028 £0.0560 2,300,000 - £0.0131 - 20,000,000 - - - (14,695,000) - (50,000) 34,440,000 17,655,200 - - 2,300,000 20,000,000 1,012,000 - Weighted Average Exercise Price $0.10 $0.02 $0.10 $0.08 $0.11 51,485,000 20,000,000 - (14,745,000) 56,740,000 15,465,582 Fair value of options granted There were 20,000,000 share options issued for the year ended 30 June 2023. The assessed fair value at grant date of options granted, during the year ended 30 June 2023, under the CAP-XX Limited Plan was A$0.02 on 11 May 2023. The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The model inputs for options granted included: (a) options are granted for nil consideration, have a: o o 4 -10 year life and 25% vest 24 months after the Vesting Commencement Date, and 6.25% of Total Option shall vest on each subsequent quarterly anniversary of the Vesting Commencement Date thereafter; specific vesting criteria in some minor instances. (b) exercise price: refer tables above (c) grant date: refer tables above (d) expiry date: refer tables above (e) share price at grant date (f) expected volatility of share price over option life of 79.6% (g) risk free rate of 2.75% Page 63 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 30 Share-based payments (continued) Exercise price $ Balance at start of the year Number Granted during the year Number Exercised during the year Number Forfeited & expired during the year Number Balance at end of the year Number Exercisable at end of the year Number £0.1150 14,775,000 £0.0595 - - 34,665,000 - 2,300,000 14,775,000 36,965,000 $0.20 $0.10 - - - - - (80,000) 14,695,000 14,695,000 (175,000) 34,490,000 11,063,573 - 2,300,000 - (255,000) 51,485,000 25,758,573 $0.10 $0.10 $0.16 Grant Date Expiry date Consolidated – 2022 11 December 2017 11 December 2022 14 October 2021 14 October 2026 12 April 2022 12 April 2027 £0.0560 Weighted Average Exercise Price Fair value of options granted There were 36,965,000 share options issued for the year ended 30 June 2022 (2021: Nil). The assessed fair value at grant date of options granted, during the year ended 30 June 2023, under the CAP-XX Limited Plan was A$0.13 on 14 October 2021 and A$0.13 on 10 April 2022. The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The model inputs for options granted included: (a) options are granted for nil consideration, have a: o o 4 -10 year life and 25% vest 6 months after the Vesting Commencement Date, and 1/42 of Total Option shall vest on each monthly anniversary of the Vesting Commencement Date thereafter; specific vesting criteria in some minor instances. (b) exercise price: refer tables above (c) grant date: refer tables above (d) expiry date: refer tables above (e) share price at grant date (f) expected volatility of share price over option life of 80% (g) risk free rate of 0.3% Page 64 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 30 Share-based payments (continued) (b) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: Options issued under CAP-XX Limited Employee Share Option Plan Note 31 Economic dependency Consolidated 2023 $ 2022 $ 613,980 613,980 1,133,399 1,133,399 The Group is highly dependent upon a small number of customers and potential customers. Alternative sources of revenue are being sought to reduce future dependency on any particular entity. The Group is also dependent upon Malaysian contract manufacturers to fulfil a large proportion of sales orders and external shareholders due to the capital raising activities during the year. Note 32 Earnings per share Earnings per share for (loss) attributable to the ordinary equity holders of the Group. Basic earnings per share (a) (Loss) attributable to the ordinary equity holders of the Company Diluted earnings per share (b) (Loss) attributable to the ordinary equity holders of the Company (c) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Consolidated 2023 Cents (1.1) (1.1) 2022 Cents (1.0) (1.0) Consolidated 2023 Number 2022 Number 529,010,650 503,924,604 Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 529,010,650 503,924,604 Options are considered to be potential ordinary shares. The options are not included in the calculation of diluted earnings per share because they are anti-dilutive. These options could potentially dilute basic earnings per share in the future. Page 65 CAP-XX Limited Notes to the financial statements 30 June 2023 Note 33 Parent Entity (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Statement of financial position Current assets Total assets Current liabilities Total liabilities Net Assets Shareholders’ equity Issued capital Reserves Share-based payments Accumulated losses (i) 2023 $ 2022 $ 5,062,879 5,062,879 1,965,685 1,965,685 3,097,194 3,944,564 3,944,564 417,745 417,745 3,526,819 119,175,769 114,511,790 8,459,467 (124,538,042) 7,845,487 (118,830,458) Loss for the year Total comprehensive income/(loss) (i) Reconciliation to prior year accumulated losses Balance at beginning of period 1/07/2022 Net loss for the year Balance at end of period 30/06/2023 (5,707,584) (5,707,584) (118,830,458) (5,707,584) (124,538,042) (5,385,078) (5,385,078) Contingent Assets The parent had no material contingent assets as at 30 June 2023 and 30 June 2022. Contingent Liabilities The parent had no material contingent liabilities as at 30 June 2023 and 30 June 2022. Capital commitments - Property, plant and equipment The parent had no capital commitments for property, plant and equipment as at 30 June 2023 and 30 June 2022. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1. Page 66 CAP-XX Limited Directors’ declaration 30 June 2023 Directors’ declaration In the directors’ opinion: (a) the financial statements and notes set out on pages 29 to 66 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Australian Accounting Standards, the Corporations Regulations 2001 and mandatory professional reporting requirements; and giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its performance, as represented by the results of its operations, changes in equity and cash flows, for the financial year ended on that date; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the chief executive officer and chief financial officer in the form contained in section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Patrick Elliott Director Sydney 29 September 2023 Page 67 Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret Street Sydney NSW 2000 Australia INDEPENDENT AUDITOR'S REPORT To the members of CAP-XX Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of CAP-XX Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2023, the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Material uncertainty related to going concern We draw attention to Note 1 in the financial report which describes the events and/or conditions which give rise to the existence of a material uncertainty that may cast significant doubt about the group’s ability to continue as a going concern and therefore the group may be unable to realise its assets and discharge its liabilities in the normal course of business. Our opinion is not modified in respect of this matter. Key audit matters Except for the matter described in the material uncertainty related to going concern section, we have determined that there are no other key audit matters to communicate in our report. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2023, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. 2 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_2020.pdf This description forms part of our auditor’s report. BDO Audit Pty Ltd Martin Coyle Director Sydney, 29 September 2023 3 

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