Hazer Group
Annual Report 2016

Plain-text annual report

Hazer Group Limited Appendix 4E Final report 1. Company details Name of entity: ABN: Reporting period: Previous period: Hazer Group Limited 40 144 044 600 For the year ended 30 June 2016 For the year ended 30 June 2015 2. Results for announcement to the market Revenues from ordinary activities Loss from ordinary activities after tax attributable to the owners of Hazer Group Limited Loss for the year attributable to the owners of Hazer Group Limited Dividends up up up 1,160% to 83,552 $ 253% to 1,844,358 253% to 1,844,358 Final dividend for the year ended 30 June 2015 Interim dividend for the year ended 30 June 2016 No dividend has been declared. Comments The loss for the company amounted to $1,844,358 (30 June 2015: $522,493). Amount per security Cents Franked amount per security Cents 0.0 0.0 0.0 0.0 On 30 November 2015, the Company was admitted to the official list of the Australian Securities Exchange (‘ASX’) after successfully raising $5,000,000 before expenses from the issue of 25,000,000 fully paid ordinary shares at $0.20 per share (‘initial public offering’). Official quotation of the Company’s securities commenced on 2 December 2015. Losses after income tax increased by 253% on the prior year as the Company increased research and development activities to commercialise the Hazer Process. Research and development paths undertaken included process scale-up work, graphite product development / functionalisation and graphite commercialisation work. The Company’s cash and cash equivalents were $4,677,919 at 30 June 2016 (30 June 2015: $562,927) and net assets at 30 June 2016 were $4,420,770 (30 June 2015: $545,091) The operating cash outflow for the year increased by 516% to $1,455,137 (30 June 2015: $236,381) largely as a result of increased research and development activities. Financing cash inflows increased by 660% to $5,570,129 (30 June 2015: $733,113) as a result of the initial public offering, a placement of 3,195,000 ordinary shares at $0.28 per share on 18 March 2016 which raised $894,600 before costs and a pro-rata Entitlement Option Issue pursuant to a Prospectus lodged on 21 March 2016 which raised $150,453 before costs. The Company confirms in the period from admission to the official list of the ASX to 30 June 2016, that it used its cash and assets in a form readily convertible to cash, in a manner consistent with its business objectives. As an early stage company, the Company’s business model is highly dependent on the achievement of continued technical development success as well as future funding, customer engagement and general financial and economic factors. For personal use onlyReporting period Cents Previous period Cents 6.85 1.51 Hazer Group Limited Appendix 4E Preliminary final report 3. Net tangible assets Net tangible assets per ordinary security 4. Control gained over entities Not applicable 5. Loss of control over entities Not applicable. 6. Details of associates and joint venture entities Not applicable 7. Audit qualification or review The financial statements have been audited and an unqualified opinion has been issued. 8. Attachments The Annual Report of Hazer Group Limited for the year ended 30 June 2016 is attached. 9. Signed Signed ______________________________ Date: 31 August 2016 Geoff Pocock Director For personal use onlyHazer Group Limited ABN 40 144 044 600 Annual Report – 30 June 2016 HazerGroup For personal use onlyHazerGroup CORPORATE DIRECTORY Directors Geoff Pocock (Managing Director) Rick Hopkins (Non-Executive Chairman) Bryant McLarty (Non-Executive Director) Danielle Lee (Non-Executive Director) Andrew Harris (Non-Executive Director) Company secretary Emma Waldon Registered office Principal place of business Share register Auditor Solicitors Bankers 7/29 The Avenue Nedlands Western Australia 6009 Phone: 08 9389 7050 7/29 The Avenue Nedlands Western Australia 6009 Phone: 08 9389 7050 Link Market Services Limited Central Park Level 4, 152 St Georges Terrace Perth WA 6000 Phone: 1300 554 474 RSM Australia Partners 8 St Georges Terrace Perth Western Australia 6000 Fairweather Corporate Lawyers 595 Stirling Highway Cottesloe WA 6011 Commonwealth Bank of Australia 150 St Georges Terrace Perth WA 6000 Stock exchange listing Hazer Group Limited shares are listed on the Australian Securities Exchange (ASX code: HZR) Website www.hazergroup.com.au Corporate Governance Statement http://www.hazergroup.com.au/about/corporate-governance HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyCHAIRMAN’S LETTER HazerGroup Dear Shareholder On behalf of the Board I am pleased to present the 2016 Annual Report to shareholders. During the past year the Company successfully completed fund raisings totalling $6m (before costs) and listed on the Australian Securities Exchange. Funds raised have, and will, predominantly be used to further develop the Hazer Process, the Company’s core technology. The Hazer Process allows the production of hydrogen and graphite from methane in a low CO2 emission process.. Distinguishing features of the Hazer Process from existing commercial hydrogen production technologies include the co- production of high purity graphite, thus reducing the CO2 emissions associated with traditional hydrogen production and also providing economic benefits to reduce the overall production costs, and the use of low cost iron ore fines as a catalyst for the process. Initial scale up of an original research-scale reactor has been demonstrated and the Company’s strategy is to further scale- up and commercialise the Hazer Process so as to be able to supply hydrogen gas and high purity graphite to the significant global hydrogen and graphite markets. The Company is supported by an experienced Board of Directors and management team led by Geoff Pocock as managing director and Dr Andrew Cornejo as Chief Technical Officer. Geoff Pocock is an experienced strategy consultant and commercialisation professional with more than 20 years experience across the commercialisation process. Andrew Cornejo is the lead inventor of the Hazer Process and is a mechanical engineer with experience in design, project management and commissioning. Andrew. The Company reached an important agreement during the year with the University of Sydney which provides access to the world class facilities of the University’s Laboratory of Sustainable Technologies (“LST”). The LST has particular expertise in graphite and nano materials technology as well as chemical engineering scale up expertise and experience in the “hydrogen economy”. Dr Andrew Cornejo relocated to Sydney to actively manage and direct all activities undertaken with Sydney University. This research collaboration has given the Company access to facilities and further expertise that has allowed the Company to bring forward the commercialisation timeline of the Hazer Process. ‐ We were also pleased to secure a number of key additional appointments. Dr Andrew Harris, lead Director of Laing O’Rourke Engineering Excellence Group, was appointed as a Non-Executive Director and Dr Andrew Minett was appointed Chairman of the newly created Science Advisory Committee. Both individuals have significant expertise in process development, hydrogen production and new energy technologies. In addition, Terry Walsh, a commercial lawyer with 20 years project development experience, commenced with the Company as its Business Development Executive. I look forward to your continued support as a shareholder as the Company continues its commercialisation activities. Yours faithfully Mr Rick Hopkins Non-Executive Chairman Hazer Group Limited HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyMANAGING DIRECTOR’S REPORT HazerGroup ABOUT HAZER GROUP Hazer Group Limited (“Hazer” or the “Company”) is the commercialisation entity for the Hazer Process – a novel potential low cost, low emission hydrogen and graphite production technology, originally developed at the University of Western Australia. Initial scale up of an original research-scale reactor has been demonstrated and the Company’s strategy is to further scale- up and commercialise the Hazer Process so as to supply hydrogen gas and high purity bulk graphite to the significant hydrogen and graphite markets. In December 2015, the Company completed a heavily oversubscribed $5m initial public offering capital raising and listed on ASX (ASX:HZR and HZRO). Funds will provide up to 2 years of ongoing development activities. THE HAZER PROCESS The Hazer Process allows the production of hydrogen from methane together with the production of high purity graphite through a process known as Thermo Catalytic Methane Decomposition (or “methane cracking”). The overriding distinguishing feature of the Hazer Process from existing commercial hydrogen production technologies is the co-production of high purity graphite, the production of this synthetic graphite product addresses both economic and environmental aspects of existing hydrogen production processes. By co-producing synthetic graphite in addition to hydrogen, the overall costs of the hydrogen production process can be reduced, providing lower cost hydrogen. Furthermore, the overall CO2 emissions associated with hydrogen production are minimised, potentially enabling hydrogen to be more effectively used in energy markets including vehicle fuel and stationary power generation. Hazer uses low cost iron ore as a catalyst for the Hazer Process; the use of this low cost catalyst is a key driver of the beneficial economics of the Hazer Process. HAZER’S COST ADVANTAGE The use of low cost feedstocks, a low cost catalyst and the co-production of both hydrogen and a high grade synthetic graphite product, gives Hazer the potential to become highly cost competitive across a number of industries - the industrial hydrogen market, the global graphite market and the “clean hydrogen” demand required for the growing hydrogen economy. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyMANAGING DIRECTOR’S REPORT HazerGroup OPERATIONS In February 2016, the Company reached an agreement with the University of Sydney to undertake its core development and commercialisation activities at their world class Laboratory of Sustainable Technologies, part of the University’s School of Chemical and Biomolecular Engineering. Since moving into these premises, the Company has constructed and commissioned a Static Bed Reactor, enabling Hazer to assess the effect of different iron ore types and sizes on the hydrogen and graphite product quality. In addition to this reactor, construction and commissioning of a Fluidised Bed Reactor has allowed for the further scale-up of Hazer’s process. This new reactor is capable of generating up to one kilogram of graphite per day, over 3,000 times the amounts previously produced. HAZER GRAPHITE PURITY In August 2016, the Company announced results from initial tests undertaken to demonstrate the purity and characteristics of Hazer’s graphite against that of industry grade graphite, including commercial battery grade graphite. This characterisation and testing process is an important step before embarking on a graphite development program, as it provides the Company with critical benchmark data needed to further optimise the reaction conditions that will improve the yield and quality of the graphite. Hazer produced graphite at 99% tgc (total graphite content), through initial methane decomposition and a single stage chemical purification. Importantly, the chemical purification was undertaken without the use of hydrofluoric acid (HF). Prior to chemical purification, the graphite product harvested directly from the Hazer reactor under non-optimised conditions has tgc purity of 86%. The general characteristics of Hazer graphite produced under non-optimised conditions show excellent comparison to high- end commercial forms of graphite, including primary synthetic graphite and synthetic spherical graphite SG, used for upper end lithium-ion batteries, and little resemblance to lower value amorphous carbon AC (Carbon Black). The Company is extremely pleased with these initial results using large-scale laboratory reactors and believe they will provide a strong platform for further growth, through both optimisation of the core reaction conditions and further application testing of Hazer’s graphite for batteries and other key graphite markets. It is promising that even under non-optimized conditions the characteristics of the graphite produced by the Hazer Process correlates well with commercially available premium graphite. These initial results show that Hazer’s graphite is highly crystalline with few defects, key requirements for high-end graphite markets such as battery applications. SCALE-UP DEVELOPMENT UNDERWAY The Company has now set in place a development and testing roadmap that focuses on the lithium-ion battery vertical for its graphite product, as well as potential applications in other graphite markets. With additional characterisation testing currently underway, as well as further optimisation of reactor conditions, Hazer hopes to enhance the yield and quality of the graphite produced. We look forward to updating the market with new results produced under optimised conditions and plan to send this graphite for independent testing at a globally recognised testing facility. Hazer also plans to develop and test small-scale lithium-ion batteries within its laboratory using synthetic graphite produced from the Hazer Process. Work also continues towards the design and construction of a pilot plant that will be capable of producing hundreds of kilograms of combined hydrogen and graphite products per day, to be undertaken in 2017. In March 2016, Hazer signed an agreement with chemical engineering group Kemplant, who are assisting Hazer with its current scale up development and the design of this initial pilot plant to showcase the Hazer technology. Mr Geoff Pocock Managing Director HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT Hazer Group Limited HazerGroup The directors present their report, together with the financial statements, on the company (referred to hereafter as the 'company') consisting of Hazer Group Limited (referred to hereafter as the 'company' or 'parent entity') for the year ended 30 June 2016. Directors The following persons were directors of Hazer Group Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Geoff Pocock Rick Hopkins Bryant McLarty Danielle Lee (appointed on 16 September 2015) Andrew Harris (appointed 21 June 2016) Principal activities During the financial year the principal continuing activities of the company consisted of research and development of novel graphite and hydrogen production technology. The Company has intellectual property rights to a technology which allows the production of hydrogen gas from methane (natural gas) with negligible carbon dioxide emissions and the co-production of a high purity graphite product (the ‘Hazer Process’). Costs associated with the research and development of novel graphite and hydrogen production technology have not at the reporting date met the criteria for recognition as an intangible asset. As a result, the company has recognised these costs as an expense when incurred. The company will re-assess the treatment of these costs during future periods as the company continues to progress with the development of its technology. Dividends There were no dividends paid during the year. Review of operations The loss for the company amounted to $1,844,358 (30 June 2015: $522,493). On 30 November 2015, the Company was admitted to the official list of the Australian Securities Exchange (‘ASX’) after successfully raising $5,000,000 before expenses from the issue of 25,000,000 fully paid ordinary shares at $0.20 per share (‘initial public offering’). Official quotation of the Company’s securities commenced on 2 December 2015. Losses after income tax increased by 253% on the prior year as the Company increased research and development activities to commercialise the Hazer Process. Research and development paths undertaken included process scale-up work, graphite product development / functionalisation and graphite commercialisation work. The Company’s cash and cash equivalents were $4,677,919 at 30 June 2016 (30 June 2015: $562,927) and net assets at 30 June 2016 were $4,420,770 (30 June 2015: $545,091) The operating cash outflow for the year increased by 516% to $1,455,137 (30 June 2015: $236,381) largely as a result of increased research and development activities. Financing cash inflows increased by 660% to $5,570,129 (30 June 2015: $733,113) as a result of the initial public offering, a placement of 3,195,000 ordinary shares at $0.28 per share on 18 March 2016 which raised $894,600 before costs and a pro-rata Entitlement Option Issue pursuant to a Prospectus lodged on 21 March 2016 which raised $150,453 before costs. The Company confirms in the period from admission to the official list of the ASX to 30 June 2016, that it used its cash and assets in a form readily convertible to cash, in a manner consistent with its business objectives. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT HazerGroup As an early stage company, the Company’s business model is highly dependent on the achievement of continued technical development success as well as future funding, customer engagement and general financial and economic factors. Significant changes in the state of affairs There were no significant changes in the state of affairs of the company during the financial year. Matters subsequent to the end of the financial year On 22 July 2016, the following options were issued to the Chairman of the Science Advisory Committee (i) 575,000 options exercisable at $0.55 each and expiring 30 June 2019 which vest 6 months after appointment provided the holder has continued to be engaged as an employee or contractor of the Company prior to the vesting date and (ii) 575,000 options exercisable at $0.75 each and expiring 30 June 2020 which vest 18 months after appointment provided the holder has continued to be engaged as an employee or contractor of the Company prior to the vesting date. On 1 July 2016, the same options as noted above were resolved to be issued to Andrew Harris as a Director of the Company and are subject to shareholder approval at the next annual general meeting. The details of the options resolved to be issued whilst still subject to shareholder approval at the next annual general meeting are as follows (i) 575,000 options exercisable at $0.55 each and expiring 30 June 2019 which vest 6 months after appointment provided the holder has continued to be engaged as an employee or contractor of the Company prior to the vesting date and (ii) 575,000 options exercisable at $0.75 each and expiring 30 June 2020 which vest 18 months after appointment provided the holder has continued to be engaged as an employee or contractor of the Company prior to the vesting date. On 29 July 2016, 33,632 ordinary shares were issued on the exercise of 33,632 listed options (ASX code: HZRO) at an exercise price of $0.30 each generating share issue proceeds of $10,090. No other matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect the company's operations, the results of those operations, or the company's state of affairs in future financial years. Likely developments and expected results of operations Information on likely developments in the operations of the company and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the company. Environmental regulation The company is not subject to any significant environmental regulation under Australian Commonwealth or State law. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT HazerGroup Information on directors Name: Title: Qualifications: Experience and expertise: Geoff Pocock Managing Director Bachelor of Science (first class honours) from University of Western Australia; Bachelor of Laws (University of Western Australia) and Post Graduate Diploma in Applied Finance and Investment from Securities Institute of Australia. is an experienced strategy consultant and commercialisation Geoff Pocock professional, with over 20 years’ experience across the commercialisation process. Geoff’s experience has covered technical roles, executive management as well as significant corporate finance and strategy roles with a number of technology commercialisation ventures. Geoff is the Principal of Polaris Consulting (WA) Pty Ltd, a specialist boutique commercialisation strategy and corporate advisory business based in Western Australia. Prior to founding Hazer, he was a founder and Managing Director of Dynamic Microbials Limited, an unlisted public drug discovery company working on the identification and development of novel antibiotics for specialist human health application. Geoff was an Executive Director/Managing Director of Dynamic from the Company’s inception until the Company was acquired by its parent Phylogica Ltd in an all-scrip merger in 2008. Geoff has extensive strategy consulting and corporate advisory experience, through a number of boutique Western Australian corporate/advisory firms, and he was a Founder and executive of a mid-tier strategy consulting firm, overseeing the growth of the firm from its formation and initial operations to it becoming the largest strategy consulting firm in Western Australia with over 20 professional staff, with a concomitant increase in revenue and profitability. Director since 6 August 2010 Length of service: Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Interests in shares: Interest in options: Contractual rights to shares: Chief Executive Officer 4,200,000 1,050,000 (Listed options) and 7,000,000 (Unlisted options) None Experience and expertise: Name: Title: Qualifications: Rick Hopkins Non-Executive Chairman Bachelor of Commerce from the University of Western Australia, a Postgraduate Diploma in Business from Curtin University of Technology and a Graduate Diploma in Applied Finance and Investment from the Financial Services Institute of Australia. Rick is a fellow of Chartered Accountants Australia and New Zealand and a fellow of Financial Services Institute of Australia. Rick Hopkins is a Chartered Accountant with over 30 years of experience advising on corporate, taxation and accounting matters. Rick is currently a partner at PKF Lawler, having previously been a Director at Barringtons Chartered Accountants. He has vast experience advising on project management, corporate and taxation matters for a wide range of corporate clients. His particular expertise extends to corporate and structuring advice, capital raising, tax, and cash flow planning. He has worked on various committees of The Tax Institute and Chartered Accountants Australia and New Zealand. Director since 6 August 2010 Length of service: Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Audit and Risk Committee and the Remuneration and Nomination Committee 800,010 200,003 (Listed options) and 1,300,000 (Unlisted options) None Interests in shares: Interests in options: Contractual rights to shares: HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT HazerGroup Name: Title: Qualifications: Experience and expertise: Bryant McLarty Non-Executive Director Nil Bryant is the Executive Chairman of Mac Equity Partners, a boutique Western Australian stockbroking and corporate advisory business operating since 2009. Clients include ASX listed, public and private companies, wholesale high net worth investors and overseas funds who are provided with a complete range of services including capital raising, share trading, corporate advisory, marketing, presentation, consulting and strategic advice. Bryant has over 20 years’ experience in public capital markets and raising capital for technology ventures. Bryant was the Executive Chairman of PharmAust Limited (ASX:PAA), during which time it provided highly specialised medicinal and synthetic chemistry services on a contract basis to clients. Bryant was also a Non Executive Director of Avation PLC (LSE:AVAP), a specialist commercial passenger aircraft leasing company managing a fleet of 24 aircraft, from 2008 to 2013. Avation also has a subsidiary that supplies aircraft parts and spares to a range of operators internationally. Director since 28 April 2015 Length of service: Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: Member of the Audit and Risk Committee and Chairman of Remuneration and Nomination Committee 2,312,469 545,995 (Listed options) and 5,550,000 (Unlisted options- includes related party transactions) None HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT HazerGroup Experience and expertise: Name: Title: Qualifications: Danielle Lee (appointed on 16 September 2015) Non-Executive Director Bachelor of Economics from the University of Western Australia, Bachelor of Laws from the University of Western Australia (first class honours); Post Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia. Danielle is a corporate lawyer with more than 20 years’ experience shared between private law firms and the Australian Securities Exchange (ASX). Danielle is currently special counsel at Jackson McDonald working in the corporate commercial team. Danielle’s main practice areas are corporate advisory, governance and equity capital markets. Danielle advises on a range of corporate and commercial transactions including capital raisings, business and share acquisitions, shareholder agreements and joint venture arrangements. Danielle regularly advises on issues relating to the Corporations Act and ASX Listing Rules. Danielle was previously counsel for Fairweather Corporate Lawyers for approximately 7 years after having worked for approximately 9 years as legal counsel at ASX Sydney and Assistant Manager at ASX Perth. Director since 16 September 2015 Length of service: Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chairman of Audit and Risk Committee and member of Remuneration and Nomination Committee None 950,000 (Unlisted options) None Interests in shares: Interests in options: Contractual rights to shares: Experience and expertise: Name: Title: Qualifications: Andrew Harris (appointed 21 June 2016) Non-Executive Director PhD in engineering from the University of Cambridge and undergraduate degrees in engineering and science from the University of Queensland. A Fellow of the Institution of Chemical Engineers and Engineers Australia and a member of the Australian Institute of Company Directors Dr Andrew Harris is highly experienced in renewable energy, sustainability, biomimicry, nanotechnology, process engineering and the hydrogen energy economy. He is the lead Director of the Engineering Excellence Group within Laing O’Rourke’s internal engineering and innovation team. Laing O’Rourke is one of the world’s largest privately owned engineering and construction companies, with annual revenues of $8 billion, 15,000 staff and operations in Europe, North America, the Middle East, Asia and Australia. The Engineering Excellence Group was established to be a global centre of excellence, to transform Laing O’Rourke’s capabilities through strategic innovation, research and development, and enhanced technical performance. Dr Harris is also Professor of Chemical and Bimolecular Engineering at the University of Sydney and co- director of the Laboratory for Sustainable Technology, the state of art laboratory where Hazer has established its core development activities for the Hazer Process. Dr Harris was the youngest ever professor of Chemical Engineering appointed at the University of Sydney. cer of Zenogen Pty Ltd, a Dr Harris was also previously the Chief Technology O Sydney-based hydrogen production technology company, and was a co-founder of Oak Nano, a University of Sydney start-up commercialising novel carbon nanotube technology. Oak Nano designed and built the largest carbon nanotube production facility in the southern hemisphere. Director since 21 June 2016 Length of service: Other current directorships: None Former directorships (last 3 years): None None Special responsibilities: None Interests in shares: None Interests in options: None Contractual rights to shares: ffi HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT HazerGroup 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Emma Waldon has held the role of Company Secretary since 10 August 2015. Emma has diverse global corporate advisory, capital markets and corporate governance experience having held roles in accounting and debt and equity capital markets in Australia and the United Kingdom. Emma Waldon qualified as a Chartered Accountant with Ernst & Young in Perth, worked as an Equities Analyst with Euroz Securities and spent 9 years in London with Bank of Scotland and Lloyds Bank originating and re-structuring debt finance for private equity leveraged buy-outs of businesses across Europe. Emma was most recently a Director within Deloitte’s financial advisory services division in Perth and is currently a Non-Executive Director and the Company Secretary of Moko Social Media Limited. Emma Waldon completed a Bachelor of Commerce at UWA, is a member of the Institute of Chartered Accountants of Australia, a Fellow of the Financial Services Institute of Australasia and a Certificated Member of the Governance Institute of Australia. Meetings of directors The number of meetings of directors (including meetings of committees of directors) held during the year ended 30 June 2016, and the number of meetings attended by each director were: Geoff Pocock Rick Hopkins Bryant McLarty Danielle Lee Andrew Harris Full board Attended Held 3 3 3 3 - 3 3 3 3 - Held: represents the number of meetings held during the time the director held office. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the company, in accordance with the requirements of the Corporations Act 2001 and its regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. HazerGroup The remuneration report is set out under the following main headings: ● Principles used to determine the nature and amount of remuneration ● Details of remuneration ● Service agreements ● Share-based compensation ● Additional information ● Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: ● competitiveness and reasonableness ● acceptability to shareholders ● performance linkage / alignment of executive compensation ● ● capital management transparency The performance of the company depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel and is based on the following factors: Alignment to shareholders' interests: ● focuses on sustained growth in shareholder wealth, including growth in the share price, as well as focusing the executive on key non-financial drivers of value ● attracts and retains high calibre executives Alignment to program participants' interests: rewards capability and experience ● ● reflects competitive reward for contribution to growth in shareholder wealth ● provides a clear structure for earning rewards In accordance with best practice corporate governance, the structure of non-executive directors and executive remunerations are separate. Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and payments are reviewed annually by the Nomination and Remuneration Committee. The Nomination and Remuneration Committee may, from time to time, receive advice from independent remuneration consultants to ensure non- executive directors' fees and payments are appropriate and in line with the market. The chairman's fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market. The chairman is not present at any discussions relating to the determination of his own remuneration. Non-executive directors do not receive any retirement benefits, other than statutory superannuation. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT HazerGroup ASX listing rules require the aggregate non-executive directors remuneration be determined periodically by a general meeting. Aggregate fixed remuneration for all non-executive directors as determined by the Board is not to exceed $300,000 per annum. Directors’ fees cover all main board and committee activities. The level of non-executive director fixed fees as at the reporting date are as follows: Rick Hopkins $35,000 plus statutory superannuation per annum Bryant McLarty $25,000 plus statutory superannuation per annum Danielle Lee $25,000 plus statutory superannuation per annum Andrew Harris $25,000 plus statutory superannuation per annum Non-executive directors may also receive performance related compensation via options following receipt of shareholder approval. Options issued to directors in the year ended 30 June 2016 were issued prior to the Company’s official listing on the ASX and disclosed in a Prospectus lodged on 22 September 2015. The issue of share based payments as part of non- executive director remuneration ensures that director remuneration is competitive with market standards as well as providing an incentive to pursue longer term success for the Company. It also reduces the demand on the cash resources of the Company, and assists in ensuring the continuity of service of directors who have extensive knowledge of the Company, its business activities and assets and the industry in which it operates. Details of share-based compensation is contained in this report. Executive remuneration The company aims to reward executives with a level and mix of remuneration based on their position and responsibility, which has both fixed and variable components. The executive remuneration and reward framework has four components: ● base pay and non-monetary benefits ● short-term performance incentives ● share-based payments ● other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually based on individual and business unit performance, the overall performance of the company and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the company and provides additional value to the executive. Performance based short-term incentives ('STI') may be provided to executives to align the targets of the business with the targets of those executives responsible for meeting those targets. The long-term incentives ('LTI') include long service leave and share-based payments. Shares and options may be awarded to executives based on long-term incentive measures including increasing shareholder value. Share based LTIs issued to the Managing Director are subject to shareholder approval. Options issued to the Managing Director in the year ended 30 June 2016 were issued prior to the Company’s official listing on the ASX and disclosed in a Prospectus lodged on 22 September 2015. Use of remuneration consultants During the financial year ended 30 June 2016, the Company did not engage the services of independent remuneration consultants to review its existing remuneration policies and provide recommendations on how to improve both the STI and LTI programs. Voting and comments made at the company's Annual General Meeting ('AGM') Following the Company’s admission to the official list of the ASX on 30 November 2015, the Corporations Act requires that a resolution to adopt the Remuneration Report be put to the vote of the Company. This will be undertaken at the next AGM of the Company. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT Details of remuneration HazerGroup Amounts of remuneration Details of the remuneration of key management personnel of the company are set out in the following tables. The key management personnel of the company consisted of the following directors of Hazer Group Limited: ● Geoff Pocock – Managing Director ● Rick Hopkins – Non- Executive Chairman ● Bryant McLarty – Non- Executive Director ● Danielle Lee - Non- Executive Director (appointed 16 September 2015) ● Andrew Harris – Non- Executive Director (appointed 21 June 2016) Short-term benefits Post- employment benefits Long-term benefits Share-based payments Cash salary and fees $ Cash bonus $ Non- monetary $ Super- Long service leave $ annuation $ Equity- settled $ Total $ 29,167 4,167 20,833 2,083 140,000 196,250 - - - - - - - - - - - - 2,771 396 1,979 198 13,300 18,644 - - - - - - 21,375 13,979 15,594 - 53,313 18,542 38,406 2,281 69,894 120,842 223,194 335,736 2016 Non-Executive Directors: Rick Hopkins* Bryant McLarty**^ Danielle Lee* Andrew Harris*** Executive Directors: Geoff Pocock**** Represents remuneration from 1 September 2015 to 30 June 2016 * ** Represents remuneration from 1 May 2015 to 30 June 2016 *** Represents remuneration from 1 June 2015 to 30 June 2016 **** Represents remuneration from 1 December 2015 to 30 June 2016 ^ The share based payments above are only those made in capacity as Director. They do not include amounts for other services paid. Related party payments have been disclosed in Note 16. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT Short-term benefits Post- employment benefits Long-term benefits Share-based payments HazerGroup Cash salary and fees $ Cash bonus $ Non- monetary $ Super- Long service leave $ annuation $ Equity- settled $ Total $ - - - - - - - - - - - - - - - - - - - - - - - - 43,621 43,621 43,621 43,621 2015 Non-Executive Directors: Rick Hopkins Bryant McLarty Executive Directors: Geoff Pocock The proportion of remuneration linked to performance and the fixed proportion are as follows: Name Non-Executive Directors: Rick Hopkins Bryant McLarty Danielle Lee Andrew Harris Executive Directors: Geoff Pocock Fixed remuneration 2016 2015 At risk - STI 2016 2015 At risk - LTI 2016 2015 - - - 100% - 60% 25% 59% - - - - - - - - 40% 75% 41% - - - - - 69% - - - 31% 100% Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement commenced: Term of agreement: Details: Geoff Pocock Managing Director and Chief Executive Officer 1 December 2015 Open Base salary $240,000 plus statutory superannuation, to be reviewed by the Remuneration and Nomination Committee 12 months from commencement and every 12 months thereafter or as otherwise agreed. 6 month termination notice by either party. 6 month non-solicitation clause after termination. The Company may terminate without notice in certain circumstances such as misconduct. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT Share-based compensation HazerGroup Options The terms and conditions of each grant of options over ordinary shares during this financial year affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Option series Series A Series C Series D Total Number of options issued Grant date Vesting date and exercisable date Expiry date Exercise price Fair value per option at grant date 350,000 16 September 2015 2 December 2015 31 December 2017 31 December 2018 31 December 2019 3,350,000 16 September 2015 2 June 2016 3,350,000 16 September 2015 2 June 2017 7,050,000 $0.25 $0.25 $0.40 $0.011 $0.017 $0.018 The Series A are primary Options which upon exercise result in the issue of one Share and one Series B Option (a secondary option) are exercisable at $0.40 each and expire 31 December 2020. This is a reload feature and has been accounted for as such under AASB 2 “Share-based payments”. The options vest if the holder has continued to be engaged as an employee, contractor, consultant or Board member of the Company prior to the vesting date. Options granted carry no dividend or voting rights. The number of options over ordinary shares granted to and vested by directors and other key management personnel as part of compensation during the year ended 30 June 2016 are set out below: Name Geoff Pocock Rick Hopkins Bryant McLarty Danielle Lee Andrew Harris Total Number of options granted during the year 2016 4,000,000 1,300,000 800,000 950,000 - 7,050,000 Number of options granted during the year 2015 3,000,000 - - - - 3,000,000 Number of options vested during the year 2016 2,000,000 750,000 400,000 550,000 - 3,700,000 Number of options vested during the year 2015 3,000,000 - - - - 3,000,000 Values of options over ordinary shares granted, exercised and lapsed for directors and other key management personnel as part of compensation during the year ended 30 June 2016 are set out below: Name Geoff Pocock Rick Hopkins Bryant McLarty Danielle Lee Andrew Harris Value of options granted during the year $ 69,894 21,375 13,979 15,594 - 120,842 Value of options exercised during the year $ Value of Remuneration consisting of options options lapsed for the during the year year % $ - - - - - - - - - - - - 31% 40% 75% 41% - - HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use only DIRECTORS’ REPORT Additional disclosures relating to key management personnel Shareholding The number of shares in the company held during the financial year by each director and other members of key management personnel of the company, including their personally related parties, is set out below: HazerGroup Ordinary shares Geoff Pocock Rick Hopkins Bryant McLarty Danielle Lee Andrew Harris Balance at the start of the year Received as part of remuneration Additions Disposals/ other Additions Balance at the end of the year subsequent to the year end 4,200,000 800,010 1,800,000 - - 6,800,010 - - - - - - - - 393,979 - - 393,979 - - - - - 4,200,000 800,010 2,193,979 - - 7,193,989 - - 118,490 - - 118,490 Option holding The number of options over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the company, including their personally related parties, is set out below: Options over ordinary shares Geoff Pocock Rick Hopkins Bryant McLarty Danielle Lee Andrew Harris Balance at the start of the year 3,000,000 - 2,500,000^ - - 5,500,000 Expired/ forfeited/ Granted Exercised Other * Balance at the end of the year Additions subsequent to the year end 4,000,000 1,300,000 800,000 950,000 - 7,050,000 1,050,000 - - 200,003 - 2,795,995^^ - - - 8,050,000 1,500,003 6,095,995 950,000 - 4,045,998 16,595,998 - - - - - - - - * Other represents listed options (ASX code: HZRO) issued as a result of each Director’s participation in an entitlement option issue pursuant to a prospectus lodged on 21 March 2016. ^ During the 2015 financial year, Mac Equity Partners Pty Ltd (a company controlled by Bryant McLarty) were appointed as underwriters for the capital raising that occurred in the 2015 financial year. Pursuant to an underwriter’s agreement, Mac Equity Partners Pty Ltd were issued with 5,000,000 series A options valued at $72,703. Bryant McLarty was issued 2,500,000 of these options valued at $36,351 as a nominated party of Mac Equity Partners Pty Ltd. ^^ Bryant McLarty was issued 2,250,000 options valued at $249,746 as a nominated party of Mac Equity Partners Pty Ltd (a company controlled by Bryant McLarty) pursuant to an agreement appointing Mac Equity Partners Pty Ltd as lead manager of the initial public offering of the Company during the 2016 financial year. Please refer below for further details. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use only DIRECTORS’ REPORT HazerGroup Other transactions with key management personnel and their related parties During the financial year, the following payments were made to key management personnel and their related parties: - Mac Equity Partners Pty Ltd, a company controlled by Bryant McLarty, received a $300,000 capital raising fee and 10,000,000 Series E options valued at $1,109,953 as lead manager to the initial public offering. Mac Equity Partners Pty Ltd was entitled to pass on any part of the fees to Australian financial services licensees or authorised representatives or nominate parties to receive some of the Series E options. Bryant McLarty received 2,250,000 series E options valued at $249,746. - Mac Equity Partners (International) Pty Ltd a company of which Bryant McLarty and Geoff Pocock are directors and shareholders received: o $147,600 pursuant to a corporate services agreement to provide office space, internet, telephone, company secretarial and accounting services to the Company; and o a $35,784 capital raising fee as lead manager to a placement completed on 18 March 2016. - Polaris Consulting (WA) Pty Ltd, a company controlled by Geoff Pocock, received $185,000 pursuant to a services agreement to provide operational management services until the listing of the Company on the ASX. This agreement ceased upon listing on the ASX. The amount received included a $50,000 success fee payable upon the listing of the Company on the ASX prior to 31 December 2015. - PKF Lawler, a company of which Rick Hopkins is a partner, received $15,357 for the provision of accounting services. All transactions were made on normal commercial terms and conditions and at market rates. This concludes the remuneration report, which has been audited. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT Shares under option Unissued ordinary shares of Hazer Group Limited under option at the date of this report are as follows: Option series Grant date Expiry date Series A Series A Series A Series C Series D Series E Series E Listed options Total 30 January 2015 9 February 2015 16 September 2015 16 September 2015 16 September 2015 2 December 2015 14 March 2016 28 April 2016 30 June 2016 31 December 2017 31 December 2017 31 December 2017 31 December 2018 31 December 2019 31 December 2018 31 December 2018 31 December 2018 Additions/Disposals/Exercise subsequent to year end Series F Series G Listed options Total 1July 2016 1July 2016 28 April 2016 30 June 2019 30 June 2020 31 December 2018 Exercise price $0.25 $0.25 $0.25 $0.25 $0.40 $0.30 $0.30 $0.30 $0.55 $0.75 $0.30 HazerGroup Number under option 8,000,000 3,000,000 500,000 5,250,000 5,250,000 10,000,000 300,000 15,041,564 47,341,564 575,000 575,000 (33,632) 48,457,932 The Series A are primary Options which upon exercise result in the issue of one Share and one Series B Option (a secondary option) are exercisable at $0.40 each and expire 31 December 2020. No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate. Shares issued on the exercise of options The following ordinary shares of Hazer Group Limited were issued during the year ended 30 June 2016 and up to the date of this report on the exercise of options granted: Date options granted Date shares issued 28 April 2016 28 April 2016 Total 30 June 2016 29 July 2016 Exercise price Number of shares issued $0.30 $0.30 3,750 33,632 37,382 Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor. During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ REPORT HazerGroup Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 13 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 13 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and ● none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. Officers of the company who are former partners of RSM Australia Partners There are no officers of the company who are former partners of RSM Australia Partners. 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 the following page. Auditor RSM Australia Partners continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors ______________________________ Geoff Pocock Managing Director 31 August 2016 Perth HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyAUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Hazer Group Limited for the year ended 30 June 2016, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Perth, WA Dated: 31 August 2016 TUTU PHONG Partner For personal use only CONTENTS Contents Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors' declaration Independent auditor's report to the members of Hazer Group Limited Shareholder information General information HazerGroup The financial statements cover Hazer Group Limited as a company consisting of Hazer Group Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Hazer Group Limited's functional and presentation currency. Hazer Group Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are: Registered office 7/29 The Avenue Nedlands WA 6009 Principal place of business 7/29 The Avenue Nedlands WA 6009 A description of the nature of the company’s operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 31 August 2016. The directors have the power to amend and reissue the financial statements. HAZER GROUP LIMITED ANNUAL REPROT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlySTATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue Interest received Other income Expenses Administration expenses Consulting and research expenses Share based payments Finance costs Employee benefits expense Loss before income tax expense Income tax expense HazerGroup Note 2016 $ 2015 $ 59,606 23,946 6,632 - (712,929) (601,992) (149,908) (181) (462,900) (59,164) (204,836) (264,994) (131) - (1,844,358) (522,493) 8 - - Loss after income tax expense for the year (1,844,358) (522,493) Other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive loss for the year Basic loss per share Diluted loss per share - - (1,844,358) (522,493) Cents Cents 20 20 3.57 3.57 2.24 2.24 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlySTATEMENT OF FINANCIAL POSITION Assets Current assets Cash and cash equivalents Other current assets Total current assets Total assets Liabilities Current liabilities Trade and other payables Provisions Total current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity HazerGroup Note 2016 $ 2015 $ 4 5 6 7 4,677,919 75,768 4,753,687 562,927 28,388 591,315 4,753,687 591,315 114,276 218,641 332,917 46,224 - 46,224 332,917 46,224 4,420,770 545,091 9 10 11 5,993,682 1,438,694 (3,011,606) 1,582,945 129,394 (1,167,248) 4,420,770 545,091 The above statement of financial position should be read in conjunction with the accompanying notes HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlySTATEMENT OF CHANGES IN EQUITY 2015 Issued capital $ Reserves $ Accumulated losses $ Total equity $ HazerGroup Balance at 1 July 2014 714,232 - - - - (644,755) 69,477 (522,493) (522,493) - - (522,493) (522,493) - - - Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive loss for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 9) Share- based payments (note 19) 733,113 135,600 - 129,394 - - 733,113 264,994 Balance at 30 June 2015 1,582,945 129,394 (1,167,248) 545,091 2016 Issued capital $ Reserves $ Accumulated losses $ Total equity $ Balance at 1 July 2015 1,582,945 129,394 (1,167,248) 545,091 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive loss for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 9) Share-based payments (note 19) - - - - (1,844,358) (1,844,358) - - - - (1,844,358) (1,844,358) 4,368,737 42,000 - 1,309,300 - - 4,368,737 1,351,300 Balance at 30 June 2016 5,993,682 1,438,694 (3,011,606) 4,420,770 The above statement of changes in equity should be read in conjunction with the accompanying notes HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlySTATEMENT OF CASH FLOWS Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other finance costs paid Research and development tax rebate received HazerGroup Note 2016 $ 2015 $ - (1,527,891) - (242,882) (1,527,891) (242,882) 48,990 (181) 23,945 6,632 (131) - Net cash used in operating activities 18 (1,455,137) (236,381) Cash flows from financing activities Proceeds from issue of shares Share issue transaction costs Proceeds from exercise of share options Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 6,045,053 (476,049) 1,125 733,113 - - 5,570,129 733,113 4,114,992 562,927 496,732 66,195 Cash and cash equivalents at the end of the financial year 4 4,667,919 562,927 The above statement of cash flows should be read in conjunction with the accompanying notes HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS HazerGroup Note 1. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New, revised or amending Accounting Standards and Interpretations adopted The company has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the company. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is Hazer Group Limited's functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars 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 financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS HazerGroup Note 1. Significant accounting policies (Cont’d) Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other income Other income is primarily the research and development tax refund received for a claim under the Commonwealth Government’s Research and Development Tax Incentive Regime. Revenue is recorded once it is probable that the company will receive the benefit. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or ● When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 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. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS HazerGroup Note 1. Significant accounting policies (Cont’d) 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 three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. Trade and other payables These amounts represent liabilities for goods and services provided to the company prior to the end of the financial year and 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 30 days of recognition. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments The company provides benefits in the form of share-based payments, whereby persons render services in exchange for shares or rights over shares (‘equity settled transactions’). The company does not provide cash settled share-based payments. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using an option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the company receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the period in which the service conditions are fulfilled, ending on the date on which the relevant persons become fully entitled to the award (the ‘vesting period’). The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. All changes in the liability are recognised in profit or loss. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the company or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the company or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS HazerGroup Note 1. Significant accounting policies (Cont’d) Issued capital 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. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Hazer Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Research and development Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it is probable that the project will be success considering its commercial and technical feasibility; the company is able to use or sell the asset; the company has sufficient resources; and intent to complete the development and its costs can be measured reliably. Capitalised development costs are amortised on a straight line basis over the period of their expected benefit. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS Note 1. Significant accounting policies (Cont’d) New Accounting Standards and Interpretations not yet mandatory or early adopted A number of Australian Accounting Standards that have been issued or amended but are not yet effective have not been adopted by the Company for the annual reporting period ended 30 June 2016. The effect of these new or amended Accounting Standards is expected to give rise to additional disclosures and new policies being adopted. Refer below for the Standards relevant to the Company that are not yet effective and have not been early adopted. HazerGroup Application date of standard 1 January 2019 Application date for Company 1 July 2019 Reference Title Summary AASB 16 Leases The key features of AASB 16 are as follows: Lessee accounting • Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. • A lessee measures right-of-use assets similarly to other non- financial assets and lease liabilities similarly to other financial liabilities. • Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. • AASB 16 contains disclosure requirements for lessees Lessor accounting • AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. • AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk. AASB 16 supersedes: (a) AASB 117 Leases (b) Interpretation 4 Determining whether an Arrangement contains a Lease (c) SIC-15 Operating Leases—Incentives (d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. Note 2: Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS Note 2. Critical accounting judgements, estimates and assumptions (Cont’d) Share-based payment transactions The company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. HazerGroup Note 3. Operating segments The Company has considered the requirements of AASB8 – Operating Segments and has identified its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The company operates as a single segment being research and development of novel graphite and hydrogen production technology. The board of directors review the earnings before tax and net assets of the company. The information is reported on a monthly basis. There is no difference between the audited financial report and the internal reports generated for review. The company is domiciled in Australia and is currently in the development phase and hence has not begun to generate revenue from operations. All the assets are located in Australia. Note 4. Cash and cash equivalents Cash at bank Cash on deposit Note 5. Other current assets Prepayments GST refundable Accrued interest Note 6. Trade and other payables Trade payables Other payables 2016 $ 2015 $ 1,177,919 3,500,000 562,927 - 4,677,919 562,927 2016 $ 22,500 42,652 10,616 2015 $ - 28,388 - 75,768 28,388 2016 $ 41,478 72,798 2015 $ 46,224 - 114,276 46,224 HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS Note 7. Provisions Employee benefits - current Research agreement Note 8. Income Tax HazerGroup 2016 $ 18,641 200,000 218,641 2015 $ - - - The prima facie tax receivable on loss before income tax is reconciled to the income tax expense as follows: Prima facie benefit on operating loss at 28.5% (2015: 30%) Tax losses not brought to account Income tax benefit attributable to operating loss 2016 $ 2015 $ 525,642 (525,642) 156,758 (156,758) - - A potential deferred tax asset, attributable to tax losses carried forward, amounts to approximately $748,092 (2015: $222,450) and has not been brought to account at reporting date because the directors do not believe it is appropriate to regard realisation of the deferred tax asset as probable at this point in time. This benefit will only be obtained if: • • • the company derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the loss and research and development expenditure to be realised; the company continues to comply with the conditions for deductibility imposed by law; and no changes in tax legislation adversely affect the company in realising the benefit from the deductions for the loss and research and development expenditure. Note 9. Equity - issued capital Ordinary shares Listed options 2016 Shares 2015 Shares 2016 $ 2015 $ 64,540,752 36,192,002 5,845,279 1,582,945 15,041,564 - 148,403 - HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS Note 9. Equity - issued capital (cont) Ordinary share capital Movements in ordinary share capital HazerGroup Details Date No of shares Issue price $ Balance Issue of shares on the exercise of rights Share issue transaction costs, net of tax Issue of shares Issue of shares Issue of shares on the exercise of rights Share issue transaction costs, net of tax Issue of shares Issue of shares Balance Balance Issue of shares Share issue transaction costs, net of tax Issue of shares Share issue transaction costs, net of tax Issue of shares to contractors Issue of shares on exercise of options Balance 1 July 2014 30 January 2015 30 January 2015 30 January 2015 9 February 2015 24 April 2015 24 April 2015 24 April 2015 19 May 2015 30 June 2015 2 December 2015 2 December 2015 18 March 2016 18 March 2016 18 March 2016 30 June 2016 30 June 2016 Listed options Movements in listed options Balance Issue of entitlement options Option issue transaction costs, net of tax Exercise of options Balance Total issued capital 28 April 2016 28 April 2016 30 June 2016 30 June 2016 30 June 2016 15,299,010 13,841,833 - 3,750,000 1,250,000 1,457,177 - 393,982 200,000 36,192,002 25,000,000 - 3,195,000 - 150,000 3,750 64,540,752 15,045,314 - (3,750) 15,041,564 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.20 $0.28 $0.28 $0.30 $0.01 714,232 692,092 (145,000) 187,500 62,500 72,859 (30,937) 19,699 10,000 1,582,945 5,000,000 (1,611,416) 894,600 (63,975) 42,000 1,125 5,845,279 150,453 (2,050) - 148,403 5,993,682 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is no current on-market share buy-back scheme in place. Capital risk management The company’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use only NOTES TO THE FINANCIAL STATEMENTS Note 9. Equity - issued capital (cont) HazerGroup In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The company would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current company's share price at the time of the investment. The company is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The capital risk management policy remains unchanged from the previous financial reporting year. Note 10. Equity - reserves Option reserve 2016 $ 2015 $ 1,438,694 129,394 1,438,694 129,394 Option reserve The option reserve records items recognised as expenses on the valuation of share options. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Balance at 1 July 2014 Issue of options Balance at 30 June 2015 1 July 2015 New options issued during the year vesting over multiple periods Issue of options Balance at 30 June 2016 Note 11. Equity – accumulated losses Accumulated losses at the beginning of the financial year Loss after income tax expense for the year Accumulated losses at the end of the financial year No of Options - 11,000,000 11,000,000 Value $ - 129,394 129,394 21,300,000 1,309,300 32,300,000 1,438,694 2016 $ 2015 $ 1,167,248 1,844,358 644,755 522,493 3,011,606 1,167,248 HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS Note 12. Key management personnel disclosures Compensation The aggregate compensation made to key management personnel of the company is set out below: HazerGroup Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Note 13. Remuneration of auditors 2016 $ 196,250 18,644 - 120,842 2015 $ - - - 43,621 335,736 43,621 During the financial year the following fees were paid or payable for services provided by RSM Australia Partners, the auditor of the company, its network firms and unrelated firms: Audit services Audit or review of the financial statements Other services Investigating Accountants Report Note 14. Contingent assets and liabilities The company does not have any contingent assets or contingent liabilities at 30 June 2016. Note 15. Commitments Corporate services – including lease of office space, company and secretarial services Committed at the reporting date but not recognised as liabilities, payable: Within one year Total 2016 $ 2015 $ 39,000 10,000 - 10,000 39,000 20,000 2016 $ 2015 $ 13,000 13,000 13,000 13,000 HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS HazerGroup Note 16. Related party transactions Key management personnel Disclosures relating to key management personnel are set out in note 12 and the remuneration report in the directors' report. Transactions with related parties During the financial year, the following transactions occurred with related parties: - Mac Equity Partners Pty Ltd, a company controlled by Bryant McLarty, received a $300,000 capital raising fee and 10,000,000 Series E options as lead manager to the initial public offering. Mac Equity Partners Pty Ltd was entitled to pass on any part of the fees to Australian financial services licensees or authorised representatives or nominate parties to receive some of the Series E options. Bryant McLarty received 2,250,000 series E options valued at $249,746. - Mac Equity Partners (International) Pty Ltd a company of which Bryant McLarty and Geoff Pocock are directors and shareholders received: o $147,600 pursuant to a corporate services agreement to provide office space, internet, telephone, company secretarial and accounting services to the Company; and o a $35,784 capital raising fee as lead manager to a placement completed on 18 March 2016. - Polaris Consulting (WA) Pty Ltd, a company controlled by Geoff Pocock, received $185,000 pursuant to a services agreement to provide operational management services until the listing of the Company on the ASX. This agreement ceased upon listing on the ASX. The amount received included a $50,000 success fee payable upon the listing of the Company on the ASX prior to 31 December 2015. - PKF Lawler, a company of which Rick Hopkins is a partner, received $15,357 for the provision of accounting services. All transactions were made on normal commercial terms and conditions and at market rates. Receivable from and payable to related parties There was $12,777 owing to PKF Lawler at 30 June 2016. In the previous financial year, there was $32,656 owing to Polaris Consulting (WA) Pty Ltd at 30 June 2015. Note 17. Events after the reporting period On 22 July 2016, the following options were issued to the Chairman of the Science Advisory Committee (i) 575,000 options exercisable at $0.55 each which vest 6 months after appointment provided the holder has continued to be engaged as an employee or contractor of the Company prior to the vesting date and (ii) 575,000 options exercisable at $0.75 each which vest 18 months after appointment provided the holder has continued to be engaged as an employee or contractor of the Company prior to the vesting date. On 1 July 2016, the same options as noted above were resolved to be issued to Andrew Harris as a Director of the Company and are subject to shareholder approval at the next annual general meeting. The details of the options resolved to be issued whilst still subject to shareholder approval at the next annual general meeting are as follows (i) 575,000 options exercisable at $0.55 each and expiring 30 June 2019 which vest 6 months after appointment provided the holder has continued to be engaged as an employee or contractor of the Company prior to the vesting date and (ii) 575,000 options exercisable at $0.75 each and expiring 30 June 2020 which vest 18 months after appointment provided the holder has continued to be engaged as an employee or contractor of the Company prior to the vesting date. On 29 July 2016 33,632 ordinary shares were issued on the exercise of 33,632 listed options (ASX code: HZRO) at an exercise price of $0.30 each generating share issue proceeds of $10,090. No other matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect the company’s operations, the results of those operations, or the company’s state of affairs in future financial years. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS Note 18. Reconciliation of profit after income tax to net cash from operating activities Loss after income tax expense for the year Adjustments for: Share-based payments Change in operating assets and liabilities: trade and other receivables trade and other payables employee benefits other provisions - - - - Net cash used in operating activities Note 19. Share based payments HazerGroup 2016 $ 2015 $ (1,844,358) (522,493) 149,908 264,994 (47,380) 68,052 18,641 200,000 (25,106) 46,224 - - (1,455,137) (236,381) For the year ended 30 June 2016: On 18 March 2016, 150,000 shares were issued to contractors at an issue price of $0.28 per share with a total value of $42,000. Set out below are summaries of the movements of options granted to key management personnel, employees and contractors of the company: 2016 Grant date Expiry date 30/01/2015 09/02/2015 16/09/2015 16/09/2015 16/09/2015 25/11/2015 14/03/2016 31/12/2017 31/12/2017 31/12/2017 31/12/2018 31/12/2019 31/12/2018 31/12/2018 Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year $0.25 $0.25 $0.25 $0.25 $0.40 $0.30 $0.30 8,000,000 3,000,000 - - - - - 11,000,000 - - 500,000 5,250,000 5,250,000 10,000,000 300,000 21,300,000 - - - - - - - - - - - - - - - - 8,000,000 3,000,000 500,000 5,250,000 5,250,000 10,000,000 300,000 32,300,000 Weighted average exercise price $0.25 $0.31 $0.00 $0.00 $0.29 For the year ended 30 June 2015: On 30 January 2015, 1,250,000 shares were issued to key management personnel and 2,500,000 shares were issued to creditors for underwriting and other capital raising costs at an issue price of $0.05 per share with a total value of $187,500. On 9 February 2015, 1,250,000 shares were issued to key management personnel at an issue price of $0.05 per share with a total value of $62,500. On 24 April 2015, 393,982 shares were issued to creditors at an issue price of $0.05 per share with a total value of $19,699. Of this amount, $19,099 related to capital raising costs. On 19 May 2015, 200,000 shares were issued to creditors at an issue price of $0.05 per share with a total value of $10,000. Set out below are summaries of the movements of options granted to key management personnel, employees and contractors of the company: HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use only NOTES TO THE FINANCIAL STATEMENTS HazerGroup Note 19. Share based payments (cont) 2015 Grant date Expiry date 30/01/2015 09/02/2015 31/12/2017 31/12/2017 Exercise price $0.25 $0.25 Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year - - - 8,000,000 3,000,000 11,000,000 - - - - - - 8,000,000 3,000,000 11,000,000 Weighted average exercise price $0.00 $0.25 $0.00 $0.00 $0.25 Set out below are the options exercisable at the end of the financial year: Option series Grant date Expiry date Series A Series A Series A Series C Series D Series E Series E 30/01/2015 09/02/2015 16/09/2015 16/09/2015 16/09/2015 25/11/2015 14/03/2016 31/12/2017 31/12/2017 31/12/2017 31/12/2018 31/12/2019 31/12/2018 31/12/2018 2016 Number 2015 Number 8,000,000 8,000,000 3,000,000 - - - - - 3,000,000 500,000 5,250,000 5,250,000 10,000,000 300,000 32,300,000 11,000,000 The Series A Options are primary Options which upon the exercise of each Series A Option result in the issue of one Share and one Series B Option (a secondary Option). Series B Options have an exercise price of 40 cents and an expiry date of 31 December 2020. The Series D Options vest on 2 June 2017, 18 months after the Company was admitted to the official list of the ASX, provided the holder (or nominee) has continued to be engaged as an employee, contractor, consultant or Board member of the Company prior to the vesting date. 300,000 Series E options vest on 18 September 2016 provided the holder (or nominee) has continued to be engaged as an employee, contractor, consultant or Board member of the Company prior to the vesting date. The total value of the share options outlined above was $1,510,517 valued using the Black-Scholes model. During the year ended 30 June 2016, $149,908 was charged to profit or loss. A portion of the options issued above was recognised in equity as a capital raising cost as it relates to capital raising efforts during the financial year. The remainder will be expensed in future financial periods. The weighted average remaining contractual life of options outstanding at the end of the financial year was 2.31 years (2015: 2.5 years). For the options granted during the current financial year, the valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date 16/09/2015 16/09/2015 16/09/2015 25/11/2015 14/03/2016 31/12/2017 31/12/2018 31/12/2019 31/12/2018 31/12/2018 Share price at grant date Exercise price Expected volatility Dividend yield Risk-free Fair value interest rate at grant date $0.05 $0.05 $0.05 $0.20 $0.28 $0.25 $0.25 $0.40 $0.30 $0.30 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.86% 1.84% 1.98% 2.06% 1.95% $0.011 $0.017 $0.018 $0.111 $0.166 HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyNOTES TO THE FINANCIAL STATEMENTS HazerGroup Note 19. Share based payments (cont) Expenses arising from share based payment transactions Total expenses arising from share based payment transactions recognised during the period were as follows: Options issued to KMP Options issued to employees/consultants Shares issued to employees/consultants Less: Options issued as part of capital raising Total Note 20. Earnings per share Loss after income tax Non-controlling interest 2016 $ 2015 $ 120,842 1,156,099 42,000 43,621 158,476 135,600 (1,169,033) (72,703) 149,908 264,994 2016 $ 2015 $ 1,844,358 - 522,493 - Loss after income tax attributable to the owners of Hazer Group Limited 1,844,358 522,493 Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options over ordinary shares Number Number 51,633,810 23,319,680 32,300,000 11,000,000 Weighted average number of ordinary shares used in calculating diluted earnings per share 83,933,810 34,319,680 Basic loss per share Diluted loss per share Cents Cents 3.57 3.57 2.24 2.24 HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyDIRECTORS’ DECLARATION HazerGroup In the directors' opinion: ● ● ● ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the company’s financial position as at 30 June 2016 and of its performance for the financial year ended on that date; there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors ______________________________ Geoff Pocock Managing Director 31 August 2016 Perth HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlyINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HAZER GROUP LIMITED Report on the Financial Report We have audited the accompanying financial report of Hazer Group Limited, which comprises the statement of financial position as at 30 June 2016, the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration. Directors’ Responsibility 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 is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. For personal use only Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Hazer Group Limited, would be in the same terms if given to the directors as at the time of this auditor's report. Opinion In our opinion: (a) the financial report of Hazer Group Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included within the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Hazer Group Limited for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001. RSM AUSTRALIA PARTNERS Perth, WA Dated: 31 August 2016 TUTU PHONG Partner For personal use only SHAREHOLDER INFORMATION ASX Additional Information The Company’s ordinary shares are quoted as ‘HZR’ on ASX. The Company’s listed options are quoted as ‘HZRO’ on ASX. The shareholder information set out below was applicable as at 5 August 2016. HazerGroup Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Holding less than a marketable parcel 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Holding less than a marketable parcel Number of ordinary Number of holders shares of ordinary shares 46,804,450 14,649,277 2,112,427 974,575 33,655 100 375 242 316 46 64,574,384 1,079 - - Number of listed options Number of holders of listed options 7,049,399 6,711,153 632,327 562,839 52,214 15,007,932 85,409 29 188 80 204 72 573 99 HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use onlySHAREHOLDER INFORMATION Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of each class of quoted equity securities are listed below: HazerGroup OOFY PROSSER PTY LTD POINT AT INFINITY PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED MINERAL RESOURCES LIMITED THE UNIVERSITY OF WESTERN AUSTRALIA MR PAUL HARTLEY WATTS MR BRYANT JAMES MCLARTY MR JOHN OAKLEY CLINTON KINETIC TRADE PTY LTD MR JOHN OAKLEY CLINTON & MRS LILIAN ACHIENG CLINTON MRS HELEN LEWIS JAKANA PTY LTD MR BRYANT JAMES MCLARTY MR JASON PAUL SKINNER CL SEWARD & CO PROPRIETARY LTD MR NICHOLAS STUART BEATON DUNCAN MRS CLAIRE ELIZABETH ALLEN NATIONAL NOMINEES LIMITED MR PETER HOWELLS ZERO NOMINEES PTY LTD POINT AT INFINITY PTY LTD OOFY PROSSER PTY LTD MINERAL RESOURCES LIMITED MR PAUL HARTLEY WATTS MR BRYANT JAMES MCLARTY MR MARK DOUGLAS HOLMES KINETIC TRADE PTY LTD MR MARTIN DURISKA NEW MEDICAL ENTERPRISES PTY LTD JAKANA PTY LTD MR BRYANT JAMES MCLARTY MRS CLAIRE ELIZABETH ALLEN MR PETER HOWELLS MR JOHN OAKLEY CLINTON MR JOHN COLIN LOOSEMORE & MRS SUSAN MARJORY LOOSEMORE MR NICHOLAS STUART BEATON DUNCAN ZERO NOMINEES PTY LTD MR ERIK TYLER MARIA POCOCK CREGGAN HOLDINGS LTD Ordinary shares Number held % of total shares issued 3,700,000 3,548,583 2,088,134 2,000,000 1,666,667 1,500,000 1,350,000 1,256,159 1,075,000 953,031 899,000 815,000 813,979 808,744 800,000 724,000 685,000 677,780 600,000 562,752 5.73 5.50 3.24 3.10 2.58 2.32 2.09 1.95 1.67 1.48 1.39 1.26 1.26 1.25 1.24 1.12 1.06 1.05 0.93 0.87 26,523,829 41.09 Listed options Number held % of total shares issued 937,146 925,000 500,000 400,000 337,500 335,704 268,750 263,989 250,000 203,750 200,995 171,250 162,500 152,411 150,000 146,000 142,500 136,545 125,000 125,000 6.24 6.16 3.33 2.67 2.25 2.24 1.79 1.76 1.67 1.36 1.34 1.14 1.08 1.02 1.00 0.97 0.95 0.91 0.83 0.83 HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 5,934,090 39.54 For personal use onlySHAREHOLDER INFORMATION Unquoted equity securities Options over ordinary shares – Series A Options over ordinary shares – Series C Options over ordinary shares – Series D Options over ordinary shares – Series E Options over ordinary shares – Series F Options over ordinary shares – Series G Total Restricted securities Securities subject to ASX imposed restrictions on trading are set out below: Ordinary shares Options over ordinary shares – Series A Options over ordinary shares – Series C Options over ordinary shares – Series D Options over ordinary shares – Series E Substantial holders Substantial holders in the company are set out below: Geoff Pocock Andrew Cornejo Voting rights The voting rights attached to ordinary shares are set out below: HazerGroup Number on issue Number of holders 11,500,000 5,250,000 5,250,000 10,300,000 575,000 575,000 33,450,000 7 6 6 9 1 1 Number restricted Restricted until 10,219,837 11,350,000 4,850,000 4,850,000 10,000,000 2 Dec 2017 2 Dec 2017 2 Dec 2017 2 Dec 2017 2 Dec 2017 Ordinary shares Number held % of total shares issued 4,200,000 3,748,583 6.50 5.81 Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. On-market Buy-back There is no current on-market buy-back of the Company’s securities in place. HAZER GROUP LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 For personal use only

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