COMPANY NUMBER: 4834265 ANNUAL REPORT 2024 For personal use only DIRECTORS Ross Love Executive Chair & CEO Sam Wright Non-Executive Director Brian Wall Non-Executive Director Miroljub Miletic Non-Executive Director Heinrich Loechteken Non-Executive Director COMPANY SECRETARY Sam Wright REGISTERED AND CORPORATE OFFICE Suite 116, 1 Kyle Way Claremont WA 6010 Australia Telephone: +61 8 6161 7412 Facsimile: +61 8 9467 6111 Email: info@structuralmonitoring.systems REGISTERED OFFICE UNITED KINGDOM The Old Court 8 Tufton Street Ashford Kent TN23 1PF United Kingdom CANADA OFFICE 100-966 Crowley Avenue Kelowna British Colombia. Canada V1Y OL1 www.aem-corp.com SHARE REGISTRY Computershare Investor Centre Pty Ltd GPO Box 2975 Melbourne VIC 3001 Enquiries (within Australia) 1300 850 505 Enquiries (from Overseas) +61 3 9415 4000 www.investorcentre.com/contact STOCK EXCHANGE LISTING Australian Securities Exchange (Home Exchange: Perth, Western Australia) Code: SMN STRUCTURAL MONITORING SYSTEMS PLC WEBSITE www.structuralmonitoring.systems STRUCTURAL MONITORING SYSTEMS PLC MAILING ADDRESS PO Box 661 Nedlands Western Australia 6909 AUDITORS Gerald Edelman LLP 73 Cornhill London EC3V 3QQ CORPORATE DIRECTORY 2 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 For personal use only Important Notices Structural Monitoring Systems Plc (the Company) is incorporated in the United Kingdom under the laws of England and Wales. The Company is not subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations Act 2001 dealing with the acquisition of shares (including substantial holdings and takeovers). CONTENTS Strategic report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Directors’ report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Statement of profit or loss and other comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Statement of financial position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Statement of cash flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Statement of changes in equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Notes to the financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Consolidated entity disclosure statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Independent auditors' report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Shareholder information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 3 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 For personal use only STRATEGIC REPORT REVIEW OF OPERATIONS Structural Monitoring Systems Plc (“SMS," "the Company" or “the Group”) and its Canadian-based, wholly owned subsidiary, Anodyne Electronics Manufacturing Corp (“AEM”), recorded record total sales for the 2024 financial year (FY24) of $27.95m, an increase of 25% on the prior year (FY23). At the reporting date, the balance of Group cash and cash equivalents was $1.26m (2023: $0.96m). Borrowings as at 30 June 2024 amounted to $6.33m (2023: $5.42m). During the year the Group’s bankers, Royal Bank of Canada increased the limit of the Line of credit facility by C$1.00m, from C$3.75m to C$4.75m. The Group recorded a loss after tax for the year of $1.04m (2023: $3.31m) a decrease of 69% on the year prior. The financial performance of the Group for the year ended 30 June 2024 is summarised as follows: FY24 FY23 % CONSOLIDATED $000’ $000’ Gross Revenue 27,951 22,381 25 Net Loss After Tax (1,041) (3,314) (69) EBITDA/(LBITDA) 1,993 (274) - Since recording a Group loss after tax of $3.31m in FY23 the SMS Group has achieved significant growth in revenue and profitability, recording a maiden profit in the June quarter (refer ASX announcement: 31 July 2024). Gross revenues have increased by 78% over the 2-year period. This increase in growth and profitability has been due to product development in AEM’s special mission avionics products which are now being received well in the market and also to increased contract manufacturing revenue utilising available manufacturing capacity at the AEM operations facility in Kelowna, British Colombia. This turnaround has been achieved with only a modest injection of capital over the last two years, with two share placements totalling $2.9m before issue costs and an increase in the Group’s debt facility of C$1.00m. A review of operations of each operating business within AEM follows: AEM CVM™ During the year, the AEM team continued to focus on the completion of the final testing procedures required to finalise the certification of the Company’s CVM™ Smart Sensors for the Aft Pressure Bulkhead (APB) inspection – Boeing Service Bulletin 737-53-1418 - with an updated timeline supplied by Boeing. The Company announced on 6 June 2024 that Boeing was conducting evaluations of the final testing which was completed in May. The Company announced in a statement on 5 August 2024, subsequent to the reporting date, that Boeing Technical Design Review had confirmed that all outstanding Aft Pressure Bulkhead tests had been successfully completed and that the outstanding technical design issues arising from their initial review in February had now been closed off. As referenced in the August announcement, the next step in the process is the final compilation by the engineers and review by the E-UM of the compliance summary report, which represents the entirety of the compliance package, and which is expected to be completed by October 2024, according to Boeing’s anticipated updated timeline. SMS Group Chief Technical Officer Trevor Lynch-Staunton P.Eng reported that all technical concerns had been resolved but that several steps still remained in the process, both within Boeing and also within the FAA. 4 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 For personal use only STRATEGIC REPORT Continued The updated timeline provided by Boeing detailed the FAA acceptance of the Certification Plan in August 2024, the submission of final documentation to Boeing ODA (its internal certification authority) by September 2024 and anticipated submission of the Boeing Service Bulletins and Compliance Report to the FAA by November 2024. As announced and experienced previously, these are timelines outside of the Company’s control and which may be subject to further change due to resourcing or external demands. While the August milestone confirms the Company’s ongoing confidence in the process and ultimate outcome, there remain a number of key steps in the process to be completed. However, as previously stated, this achievement does increase the confidence with which the Company is able to engage with its potential customer group and its existing contracted customer, Delta Air Lines. The milestone also provides further confidence to concurrently pursue additional applications, which is already occurring. The CVM™ sales and engineering teams attended several key industry events during the year with Mr Lynch-Staunton presenting at the ILA Berlin Air Show. CVM™’s installation and training partner, TESTIA, presented a new co-authored paper entitled: An Exploration of Leveraging CVM™ Sensors to Monitor Structures Across Various Industries – Part 1: Mining, Infrastructure and Marine. The paper was co-written by TESTIA’s Aswin Haridas and Holger Speckmann and AEM’s Trevor Lynch-Staunton and Dennis Roach. While the financial performance of the CVM™ business segment, as detailed below, continues to be challenged by the timeline of the FAA approval process, we remain confident in an ultimately successful result and note the increasing interest from our US airline customers as timelines are met and progress achieved. AEM CVM™ recorded gross revenue for the year of $0.13m (2023: $0.36m). AEM AVIONICS The AEM Avionics business segment performed strongly across all key metrics during the year. This strong financial performance is expected to continue in succeeding quarters as AEM special mission products are received by the market. AEM announced in April that its new modern MTP136D forest service radio had received critical Federal Communication Commission (FCC) and Innovation, Science and Economic Development Canada (ISED) certifications. These certifications pave the way for acceptance by the US Forest Service (USFS) and a pending Supplemental Type Certification (STC). Subsequent to the reporting date, the STC was issued on 30 July 2024 and marks a milestone towards full acceptance by the USFS. AEM also progressed a partnership expansion during the year with Texas Aerospace Technologies, a subsidiary of Texas Aerospace Services, to add AEM’s new MTP136D modern panel mount P25 VHF FM Forest Service radio to its existing lineup of product offerings for Latin American customers. The broader management team remains focused on expansion into existing key international markets for future targeted growth and also announced a new distribution agreement with South African based Safomar Technologies in February 2024. The successful launch of the MTP136D is a key pillar of AEM’s ongoing investment in a growing suite of avionics and audio products in the Special Mission Aviation sector and builds on the continued growth of its existing line up of products to facilitate ongoing positive growth. AEM Avionics recorded gross revenue for the year of $11.13m (2023: $9.33m), an increase of 19.3% on the prior year. AEM CONTRACT MANUFACTURING AEM’s ongoing focus, as articulated throughout the year, remained on maintaining high quality manufacturing projects which has again ensured the delivery of solid results for the financial year. 5 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 For personal use only STRATEGIC REPORT Continued The Company’s strategy continues to be to support a limited number of customers generating the highest possible rate of return while remaining agile in its ability to meet increased demand for its own IP products. AEM Contract Manufacturing recorded gross revenue for the year of $16.69m (2023: $12.69m), an increase of 31.5% on the prior year. CORPORATE LOC Facility During the year, SMS executed revised credit facilities with its Canadian Bankers, Royal Bank of Canada. The revised facilities included an increase of C$1.00m to C$4.75m (increased to C$6.00m subsequent to the balance date) in the revolving line of credit (“LOC”) and a new C$500K lease finance facility, illustrating RBC’s ongoing confidence in the growth of the AEM businesses. Share-based payments Following approval by shareholders at the Annual General Meeting (AGM) held on 8 December 2023, the Company issued 300,000 CDIs to Executive Chair, Ross Love as the sign on award agreed in his remuneration package. On 28 June 2024 the Company issued a total of 553,845 CDIs to members of the management team as part of their remuneration for FY24. The CDIs, which were issued under the SMS Employee Incentive Plan, are escrowed until 20 November 2024. Share placement On 1 November 2023 the Company completed a successful single tranche placement raising $1.00m before costs through the issue of 2,325,581 CDIs at an issue price of $0.43 per CDI. Bell Potter acted as Lead Manager for the Placement. The funds raised were directed towards funding the ongoing commercialisation of the Company’s CVM™ technology and general working capital across the AEM Avionics and AEM Contract Manufacturing business segments. Brand and digital presence A new SMS investor focused website and domain was successfully launched during the June quarter, which recognises the further integration of the Groups’ businesses from both a digital and operational perspective. Projected Outlook Looking ahead to FY25, the SMS Group is poised to continue growth and profitability trends established over the last two years with Special Mission Avionics and the anticipated Federal Aviation Administration approval towards Aft Pressure Bulkhead certification leading the pathway forward. The Company continues to focus on growth opportunities through targeted acquisitions within the industry to facilitate that growth. AEM AVIONICS AEM continues to see strong demand for their avionics products, with a stable outlook on integration completions throughout the year. In July 2024, AEM’s first Transport Canada Supplemental Type Certificate (STC) was issued for its new MTP136D panel mount forest service radio. In addition to this STC, the radio is on track toward formal acceptance into the USFS approved equipment list for all its aerial firefighting contractors which will clear the way for take up among fires service cooperator 6 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 For personal use only STRATEGIC REPORT Continued agencies in California, Colorado, Oregon, and Washington State. AEM anticipates the MTP136D sales pipeline will continue to grow as North American operators return aircraft from summer operations for maintenance and the timeline for formal USFS acceptance is solidified. Expansion of the aerial firefighting market is projected to continue as countries invest resources into more capable fleets to combat the increased frequency and severity of fire events. The AEM sales and marketing team will expand their direct outreach program, solidifying their position with current customers and programs and also targeting net new users. AEM continues to be well supported by our network of external sales support in identified growth regions. The team is gearing up for a busy year with a full and growing roster of industry tradeshows and events to showcase its special mission products and ongoing developments. As part of AEM’s ongoing investment in a growing suite of avionics and audio products it is expected that several new product derivatives will be announced during the latter portion of the financial year, supported with launch customer orders. AEM CONTRACT MANUFACTURING AEM remains focused on high-value contract manufacturing projects supporting a limited number of customers while generating the highest possible rate of return on utilisation of its resources. AEM CVM™ As mentioned previously in this report, the team is progressing towards submission of the Boeing Service Bulletins and Compliance Report to the FAA by November 2024, according to the updated timeline supplied by Boeing. The anticipated successful achievement of this milestone will enable the full commercialisation of the CVM™ technology which has been the Company’s focus for many years. This will enable the Group to expand its customer base and derive commercial revenue from future sales of its CVM™ sensor kits to applicable and identified markets. We continue to develop our relationship with global non-destructive testing consultants and service provider TESTIA, an Airbus company. In addition to participating in a series of Delta Air Lines’ APB installations, members of the TESTIA team have become certified CVM™ installers. AEM and TESTIA continue working in tandem on the development of its end-to-end installation training program. TESTIA remains a valuable partner and is committed to the provision of business development and sales support services across Europe. As we are confident in achieving a positive outcome for the Boeing Service Bulletins, we remain actively engaged with Delta Air Lines, United Airlines, Southwest Airlines and American Airlines on this application, as well as exploring further potential applications for our sensors on both Boeing and Airbus aircraft. Analysis Using Key Financial Performance Indicators and Milestones As at 30 June 2024, the Group had approximately $1.26m cash at bank (2023: $0.96m). The Group recorded a loss after tax for the financial year of $1.04m (2023: $3.31m). The decrease in loss resulted from increased sales in special mission avionics and contract manufacturing, whilst maintaining operating and finance costs at similar levels to the prior year. The Group recorded revenue during the year of $27.95m (2023: $22.38m), an increase of 25% year on year. Other key expenses during the year were consumables and raw materials used of $13.29m (2023: $10.82m), depreciation and amortisation expenses of $2.21m (2023: $2.35m), employee costs of $8.63m (2023: $8.26m) and sales and marketing expenses of $1.03m (2023: $1.10m). In accordance with IAS 38 Intangible assets the Group has capitalised development expenses of $0.65m (2023: $1.12m) incurred in the internal development of products at the commercialisation stage of development. 7 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 For personal use only STRATEGIC REPORT Continued At the reporting date the Group had net assets of $14.62m (2023: $14.91m). The Group had trade and other receivables of $1.96m, inventory of $13.97m and intangible assets of $6.77m, including goodwill of $1.57m. The key movement during the year was an increase of C$1.00m in the Group’s debt facility with Royal Bank of Canada. Issued capital increased by $1.40m principally as the result of a $1.00m share placement during the year before issue costs of $0.09m. The Group EBITDA for the financial year was $1.99m. (2023: LBITDA $0.27m). Loss per share for the financial year was 0.77 cents per share (2023: Loss per share 2.49 cents). Net tangible assets at the reporting date were 5.72 cents per ordinary security (2023: 5.57 cents). All financials are quoted in Australian dollars unless otherwise stated. Principal Risks and Uncertainties The principal risks and how they are managed are set out on page 19 of the Director’s Report S172 STATEMENT The Board has a duty under s172 of the Companies Act 2006 to promote the success of the Company of the benefit of its members as a whole. All decisions are made with this objective and the Board considers the long-term implications of its actions. The Group has a continuous stakeholder engagement programme in which Executive and Non-Executive Directors participate to ensure the Board is aware of stakeholder interests. The Group believes its employees are its greatest asset and it seeks to establish policies that provide a working environment that is safe, enjoyable and rewarding. Critical to the success of the Group is its long-term relationship with its suppliers and customers, as well as its shareholders. The Board believes the decisions it has made have been appropriated both to support these stakeholders and to foster stronger, long-term relationships with them. The Company has a duty to meet compliance requirements with ASIC and observe listing rules to maintain its listing on the Australian Securities Exchange. The Group has a duty to meet debt covenants with its bankers and these are reviewed on a monthly basis. The Group is mindful of its role with its local communities and seeks to minimise the impact of its operations on the environment and to be a good neighbour. Overall, in considering and taking decisions the Board seeks to act in the best interests of the business and all its stakeholders, treating all members fairly. The Strategic Report was signed on behalf of the Board. Ross Love Executive Chair & CEO 30 September 2024 8 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 For personal use only DIRECTORS’ REPORT 9 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Your directors submit their report for the year ended 30 June 2024. DIRECTORS AND OFFICERS The names of the Company’s directors and officers in office during the year and until the date of this report are as below. Ross Love (Executive Chair & CEO, appointed 13 July 2022) Mr Love is an experienced executive and consultant with wide public and private sector experience in developing and executing policy reforms and business strategy transformations in Australia and the United States. He has worked with senior decision makers in government at State and Commonwealth level in Australia, the State and City Governments of New York, and the UN, as well as with Executive teams and Boards in the corporate and non-profit sectors. Formerly a Senior Partner at the Boston Consulting Group where he worked for over 25 years, Mr Love was most recently head of its New York business and prior to that it’s Australian and New Zealand business. Mr Love completed the Advanced Development Program at the London Business School and MPA (2) at the Kennedy School of Government, Harvard University. He has a first-class BA Honours degree from the University of Western Australia. Mr Love has not held directorships of any other ASX listed companies in the last 3 years. Sam Wright (Non-Executive Director, appointed 14 October 2020 and Company Secretary) Mr Wright has twenty years experience in the administration of ASX listed companies, corporate governance and corporate finance. He is a member of the Australian Institute of Company Directors, the Financial Services Institute of Australasia, and the Governance Institute of Australia. Mr Wright is currently a Director of ASX listed companies, Great Dirt Resources Limited, Reach Resources Limited and Structural Monitoring Systems plc. Previously Sam was Finance Director of PharmAust Limited (resigned 16 May 2024). Mr Wright is currently Company Secretary for ASX and London Stock Exchange dual listed company, Resolute Mining Limited as well as ASX and Börse Frankfurt dual listed companies, Buxton Resources Limited and Dynamic Holdings Limited. He has also filled the role of Director and Company Secretary with companies in Australia, North America and the United Kingdom. Mr Wright is the Managing Director of Perth-based corporate advisory firm Straight Lines Consultancy, specialising in the provision of corporate services to public companies Mr Wright has extensive experience in relation to public company responsibilities, including ASX and ASIC compliance, control and implementation of corporate governance, statutory financial reporting, merger and acquisition transactions, IPO listings and shareholder relations with both retail and institutional investors. Brian Wall (Non-Executive Director, appointed 20 June 2022) Mr Wall has held leadership roles in a 35 year plus career with organisations such as Cintas, Troika Ventures, The Pattison Group and most recently, Anodyne Electronics Corporation (“AEM”) a subsidiary of SMS. Mr Wall joined AEM in August 2019 and held the position of Chief Executive until August 2022. He successfully navigated the company through the COVID-19 pandemic successfully position the company for profitable growth in several sectors and overseen the move to its new facility in Kelowna, BC. Mr Wall has not held directorships of any other ASX listed companies in the last 3 years. For personal use only 10 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Heinrich Loechteken (Non-Executive Director, appointed 15 November 2022) Mr Loechteken has held a variety of executive roles in the aviation and corporate finance fields and has a deep understanding of aircraft leasing and a strong record of financial and operational restructuring of companies ahead of sale or IPO. He is currently CEO of JLPS Ireland Limited, which offers transportation leasing services encompassing aircraft, ships, maritime containers and solar power generation equipment. Prior to taking on his current role, Heinrich held senior executive roles at MC Aviation Partners, International Lease Finance Corporation and AerCap. Heinrich holds a Diplom-Kaufmann (German MBA equivalent) from the University of Muenstar, Germany 1990. Miroljub Miletic (Non-Executive Director, appointed 15 November 2022) Mr Miletic is the Managing Director and founder of MEMKO Pty Ltd with an impressive record of leadership and achievement in both the Australian and international aerospace industries. His contribution to the field of Aviation and Aerospace was recognised by the award of an Honorary Doctorate in Engineering (Aerospace) by RMIT University, Melbourne, Australia in 2012. During his professional career, he has worked on a range of large commercial and military aircraft projects and has held a number of senior leadership positions including Director Engineering & Quality Assurance and Manager of Business Development and Planning with the Boeing Company Australia. PRINCIPAL ACTIVITIES During the financial year the principal continuing activities of the consolidated entity consisted of the design, development and manufacture of avionic products and the provision of contract electronics manufacturing services to the aviation industry as well as implementation of its commercialisation strategy for its CVM™ technology. SHAREHOLDER MEETINGS Structural Monitoring Systems Plc held its Annual General Meeting of Shareholders in Melbourne, Victoria on 8th December 2023. Resolutions 6, 7B, 7C, 8 and 9 were withdrawn. All other resolutions were carried via a poll. Resolutions that were put to shareholders were passed by a poll. STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Strategic Report and Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare group and company financial statements for each financial year. The Directors are required under the rules of the Australian Securities Exchange to prepare group and company financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the United Kingdom (“UK”). The financial statements are required by law and IFRS adopted by the UK to present fairly the financial position of the group and the company and the financial performance of the group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. DIRECTORS' REPORT Continued For personal use only 11 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group and the company for that period. In preparing the group and company financial statements, the Directors are required to: a. select suitable accounting policies and then apply them consistently; b. make judgements and accounting estimates that are reasonable and prudent; c. state whether they have been prepared in accordance with IFRSs adopted by the UK;and d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and the company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the www.structuralmonitoring.systems website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 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. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. EVENTS SUBSEQUENT TO THE REPORTING DATE Subsequent to the reporting date, AEM bankers, Royal Bank of Canada have increased the limit on the Line of Credit (“LOC”) facility from C$4.75m to C$6.00m. The LOC facility is issued under the Export Development Canada (“EDC”) Trade Expansion Lending Program. Other than the above, no matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. RESULTS AND DIVIDEND The operating loss, after income tax, for the year was $1.04m (2023: $3.31m). No dividends were proposed or paid during the financial year. SHARE CAPITAL The impact on share capital and share premium account of the share issues during the year, is disclosed in note 23 in the notes to the financial statements. DIRECTORS' REPORT Continued For personal use only 12 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 GOING CONCERN The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities, the continued financial performance of AEM and the realisation of assets and discharge of liabilities in the normal course of business as well as the availability of an established operating line of credit facility of up to C$4.75 million (Increased subsequent to the reporting date to C$6.00 million). The facility which is provided by AEM’s bankers is long standing and is secured on receivables and inventory and is subject to loan covenants. The Directors expect compliance with the covenants to continue to be met. The Directors have prepared forecasts in respect of future trading. Achievement of such forecasts would rely on the continued availability of loan facilities with Royal Bank of Canada which are repayable on demand. In developing these forecasts, the Directors have made assumptions and performed sensitivity analysis on variables such revenues and exchange rates based upon their view of the current and future economic conditions that will prevail over the forecast period of 12 months from the date of signing these financial statements. The Directors therefore continue to adopt the going concern basis of accounting in preparing the financial statements It is noted, there is a material uncertainty over going concern should the Group be unable to execute one or more of the following, raising capital through the issue of shares, amending the current debt structure to release further funds, meet its revenue targets or reduce/defer employee costs or other operating costs. DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the Directors of the Group during the financial year: Board meetings Audit committee Remuneration committee Director A B A B A B R Love 4 4 - - - - S Wright 4 4 - - - - B Wall 4 4 - - 1 1 H Loechteken 3 4 - - 1 1 M Miletic 4 4 - - 1 1 A – Number of meetings attended B – Number of meetings held during the time which the Director held office during the year In addition to formal Directors’ meetings held during the year regular executive meetings were held on a weekly basis throughout the year. The Board is not currently of a sufficient size and structure to establish an audit committee. At present, the full Board carries out the duties that would ordinarily be assigned to an audit committee under the written terms of reference for that committee. As the Company grows in size, it is planned that the Company will establish a separate audit committee with its own audit committee charter. Under the Board’s charter, the specific responsibilities of the Board include to recommend to shareholders the appointment of the external auditor and to meet with the external auditor when required and without management being present. The Board meets with the Company’s auditors at regular intervals to continually assess and monitor the performance of the external auditors DIRECTORS' REPORT Continued For personal use only 13 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 REMUNERATION REPORT (AUDITED) REMUNERATION POLICY The Remuneration Committee of the Board of Directors of Structural Monitoring Systems Plc is responsible for determining and reviewing compensation arrangements for the Directors and executives. The Remuneration Committee (or the Board of directors) assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high-quality board and executive team. Such officers are given the opportunity to receive their base emoluments in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the company. To assist in achieving these objectives, the Remuneration Committee links the nature and amount of executive directors’ and senior executives’ emoluments to the Company’s financial and operational performance. Executive directors and employees have the opportunity to qualify for participation in the Company Employee Incentive Plan. It is the Remuneration Committee’s policy that employment agreements shall be entered into with the Executive Chair and all other executives. Any options or performance rights held lapse when the service period is completed. For personal use only 14 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 DIRECTORS' REPORT Continued REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS Details of the nature and amount of each major element of remuneration of each Director of the Group and each of the Group executives who receive the highest remuneration are: Salary & Fees Post Employment Share-based payments Total 30 June 2024 Cash Bonus Superannu- ation Options over CDIs CDIs $ $ $ $ $ $ Directors Ross Love 325,000 - - - 166,500 491,500 Sam Wright* 120,000 - - - - 120,000 Brian Wall 75,000 - - - - 75,000 Heinrich Loechteken 75,000 - - - - 75,000 Miroljub Miletic 67,568 - 7,432 - - 75,000 Executive Gary Elwell 120,000 - - - 36,500 156,500 Total 782,568 - 7,432 - 203,000 993,000 Salary & Fees Post Employment Share-based payments Total 30 June 2023 Cash Bonus Superannu- ation Options over CDIs CDIs $ $ $ $ $ $ Directors Ross Love(1) 321,822 - - 185,095 - 506,917 Sam Wright* 120,000 - - - - 120,000 Brian Wall 273,523 54,875 12,883 - - 341,281 Heinrich Loechteken(2) 47,182 - - - - 47,182 Miroljub Miletic(2) 43,594 - 4,578 - - 48,172 Bryant McLarty(3) 28,125 - - - - 28,125 Hendrik Deurloo(4) - - - - - - Executive Gary Elwell 116,667 - - - - 116,667 Total 950,913 54,875 17,461 185,095 - 1,208,344 (1 ) appointed 13 July 2022 (2) appointed 15 November 2022 (3) appointed 20 October 2021, resigned 15 November 2022 (4) appointed 1 April 2022, resigned 15 November 2022 *Sam Wright receives $75,000 as Company Secretary and $45,000 as Non-executive Director. For personal use only 15 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 DIRECTORS' REPORT Continued SHARE-BASED COMPENSATION At the 2023 AGM, the Company did not receive any feedback at the AGM regarding its remuneration practices. The value of CDIs granted, options converted and lapsed for directors and executives as part of compensation during the year ended 30 June 2024 are set out below: Value of CDIs granted Value of options converted Value of options lapsed Name $ $ $ Directors Ross Love 166,500 - - Sam Wright - - - Brian Wall - - - Heinrich Loechteken - - - Miroljub Miletic - - - Executive Gary Elwell 36,500 - - Total 203,000 - - SERVICE AGREEMENTS Remuneration and other terms of employment for Directors and executives are formalised in service agreements. Details of these agreements are as follows: Name: Ross Love Title: Executive Chair & CEO Agreement commenced: 13 July 2022 Term of agreement: no fixed term Details: Base salary $325,000 plus statutory superannuation, if applicable, to be reviewed annually by the Remuneration Committee. Subject to termination notice of 6 months notice by either party. Name: Sam Wright Title: Non-Executive Director & Company Secretary Agreement commenced: 1 January 2021 Term of agreement: no fixed term Details: Base salary $45,000 as Non-executive Director plus $75,000 as Company Secretary to be reviewed annually by the Remuneration Committee. Subject to termination notice of 1 month by the Director and 2 months’ notice by the company. Name: Heinrich Loechteken Title: Non-Executive Director Agreement commenced: 15 November 2022 Term of agreement: no fixed term Details: Base salary $75,000 to be reviewed annually by the Remuneration Committee. No termination period in place. For personal use only 16 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 DIRECTORS' REPORT Continued Name: Gary Elwell Title: Chief Financial Officer Agreement commenced: 1 May 2020 Term of agreement: no fixed term Details: Base salary $120,000 (increased to $150,000 on 25 September 2024) to be reviewed annually by the Remuneration Committee. A termination period of one month is in place. Name: Brian Wall Title: Non-Executive Director Agreement commenced: 20 June 2022 Term of agreement: no fixed term Details: Base salary $75,000, to be reviewed annually by the Remuneration Committee. No termination period in place. Name: Miroljub Miletic Title: Non-Executive Director Agreement commenced: 15 November 2022 Term of agreement: no fixed term Details: Base salary of $75,000, including statutory superannuation, to be reviewed annually by the Remuneration Committee. No termination period in place. Directors and executives have no entitlement to termination payments in the event of removal for misconduct. SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL CDIs held in Structural Monitoring Systems Plc: 30 June 2024 Balance at beg of year CDIs held on appointment/ resignation date Granted as Remunera- tion Exercise of options Net Change Other Balance at end of year No. No. No. No. No. No. Directors Ross Love - - 300,000 - - 300,000 Sam Wright 1,923,797 - - - - 1,923,797 Brian Wall 38,218 - - - - 38,218 Heinrich Loechteken 1,625,000 - - - - 1,625,000 Miroljub Miletic - - - - - - Executive Gary Elwell 560,609 - - - 17,229 577,838 Total 4,147,624 - 300,000 - 17,229 4,464,853 For personal use only 17 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 DIRECTORS' REPORT Continued 30 June 2023 Balance at beg of year CDIs held on appointment/ resignation date Granted as Remunera- tion Exercise of options Net Change Other Balance at end of year No. No. No. No. No. No. Directors Ross Love - - - - - - Sam Wright 1,923,797 - - - - 1,923,797 Brian Wall 38,218 - - - - 38,218 Heinrich Loechteken - 1,625,000 - - - 1,625,000 Miroljub Miletic - - - - - - Bryant McLarty 1,850,045 (1,850,045) - - - - Hendrik Deurloo - - - - - - Executive Gary Elwell - 464,119 - - 96,490 560,609 Total 3,812,060 239,074 - - 96,490 4,147,624 OPTIONS OVER CDIS HELD BY KEY MANAGEMENT PERSONNEL Options over CDIs held by KMP during the current financial year and prior year are set out below: 30 June 2024 Balance at beg of year Granted during the year Exercised during the year Other changes Balance at end of the year No. No. No. No. No. Directors Ross Love 1,500,000 - - - 1,500,000 Sam Wright - - - - - Brian Wall - - - - - Heinrich Loechteken - - - - - Miroljub Miletic - - - - - Executive Gary Elwell - - - - - 1,500,000 - - - 1,500,000 For personal use only 18 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 DIRECTORS' REPORT Continued 30 June 2023 Balance at beg of year Granted during the year Exercised during the year Other changes Balance at end of the year No. No. No. No. No. Directors Ross Love(1) - 1,500,000 - - 1,500,000 Sam Wright - - - - - Brian Wall - - - - - Heinrich Loechteken(2) - - - - - Miroljub Miletic(2) - - - - - Bryant McLarty(3) - - - - - Hendrik Deurloo(4) - - - - - Executive Gary Elwell - - - - - - 1,500,000 - - 1,500,000 (1 ) appointed 13 July 2022 (2) appointed 15 November 2022 (3) appointed 20 October 2021, resigned 15 November 2022 (4) appointed 1 April 2022, resigned 15 November 2022 ADDITIONAL INFORMATION The earnings of the Group for the 5 years to 30 June 2024 are summarised below: 2024 2023 2022 2021 2020 $000’ $000’ $000’ $000’ $000’ Sales revenue 27,951 22,381 15,701 15,340 19,095 EBITDA 1,993 (274) (2,098) (478) (991) EBIT (220) (2,629) (3,735) (1,445) (2,043) Loss after income tax (1,041) (3,314) (3,851) (1,959) (2,072) The factors that are considered to affect total Shareholders return (“TSR”) are summarised below: 2024 2023 2022 2021 2020 Share price at financial year end $ 0.40 0.83 0.40 0.36 0.43 Total dividends declared - - - - - Basic earnings per share (0.77) (2.49) (3.11) (1.64) (2.19) For personal use only 19 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 DIRECTORS' REPORT Continued THIS CONCLUDES THE REMUNERATION REPORT Information given to auditors Each of the Directors has confirmed that so far as he is aware, there is no relevant audit information of which the Group's auditors are unaware, and that he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Group's auditors are aware of that information. Creditor payment policy The Group’s policy during the year was to pay suppliers in accordance with agreed terms and this policy will continue for the year ended 30 June 2024. The Group does not follow a specific code or standard in respect of such creditors. As at 30 June 2024, the Group’s trade creditors represented 55 days’ purchases (2023: 61 days). Financial instruments and risks The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Executive Chair. The Board receives monthly reports from the finance function through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below: The Group is exposed through its operations to the following financial risks: • credit risk; • liquidity risk; • foreign exchange risk The Group is exposed to the usual credit risk associated with selling on credit and manages this through credit control procedures. Further information is provided in note 24 in the notes to the financial statements. As a result of operations in Canada, USA and Australia, the Group’s assets and liabilities can be affected by movements in the C$/A$, US$/A$ and US$/A$ exchange rates. The Group also has transactional currency exposures. Such exposure arises from sales or purchases by an operating unit in currencies other than the unit’s functional currency. The Group is exposed to foreign currency risk through its Canadian-based subsidiary and the risk could increase in the future as international commercialisation of the Group’s technologies increase. There is currently no form of currency hedging or risk strategy in place, but this policy is constantly monitored, and appropriate strategies will be implemented if required. Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments, the Group monitors forecast cash inflows and outflows on a monthly basis. The Group has an established operating line of credit facility for up to CA$4.75 million to assist with day to day operating requirements (Increased to C$6.00 million subsequent to the reporting date). For personal use only 20 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 DIRECTORS' REPORT Continued Business risks and uncertainties The Group has a reliance on one customer at the present time. The customer accounts for $12.91 million of revenues totalling $27.95 million. The relationship with the customer is secured by a licence agreement and the Group is pursuing growth opportunities. The Group continues to make progress towards commercialisation of its CVM™ technology. Future developments The Directors have discussed the future developments for the business within the Strategic Report on page 4, in accordance with Section 414C of the Companies Act 2016. By order of the Board Ross Love Executive Chair & CEO 30 September 2024 For personal use only 21 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Statement of profit or loss and other comprehensive income For the year ended 30 June 2024 Consolidated Parent 2024 2023 2024 2023 Note $000’ $000’ $000’ $000’ Continuing operations Revenue Sales 27,951 22,381 - 262 Cost of sales (13,292) (10,820) - (92) Gross profit 14,659 11,561 - 170 Other income 4 164 248 992 410 Depreciation and amortisation (2,213) (2,354) - (1) Employee expenses 4 (8,634) (8,260) (670) (1,598) Impairment charges 4 - - (325) (150) Occupancy expenses - (12) - (12) Research and development expenses (889) (465) - (217) Royalty fees (122) (118) - - Sales and marketing expenses (1,026) (1,095) (146) (337) Share-based payments expenses 22 (471) (514) (471) (514) Administrative expenses (1,695) (1,728) (602) (816) Operating loss before finance costs and tax (227) (2,737) (1,222) (3,065) Finance costs (748) (703) (2) (2) Foreign exchange gains/(losses) 7 109 4 (9) Income tax benefit/(expense) 6 (73) 17 - - Loss after finance costs and tax from continuing operations (1,041) (3,314) (1,220) (3,076) Loss attributable to members of the parent (1,041) (3,314) (1,220) (3,076) Other comprehensive income Items that may be reclassified subsequently to profit or loss: Foreign currency translation (628) (65) - - Total comprehensive income for the year (628) (65) - - Loss for the year attributable to owners of Structural Monitoring Systems Plc (1,669) (3,379) (1,220) (3,076) Earnings per share (cents per share) Basic for loss from continuing operations 7 (0.77) (2.49) Diluted for loss from continuing operations 7 (0.77) (2.49) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. For personal use only 22 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Statement of financial position As at 30 June 2024 Consolidated Parent 2024 2023 2024 2023 Notes $000’ $000’ $000’ $000’ Assets Current assets Cash and cash equivalents 1,260 961 34 6 Trade receivables 8 1,963 1,981 - - Inventory 9 13,965 13,469 - - Prepayments and other receivables 10 568 615 111 133 Total current assets 17,756 17,026 145 139 Non-current assets Plant and equipment 11 1,314 1,627 - - Right-of-use assets 12 6,355 7,567 - - Intangible assets and goodwill 13 6,770 7,434 - - Deferred tax assets 14 626 - - - Loans to subsidiaries 15 - - 10,609 10,662 Total non-current assets 15,065 16,628 10,609 10,662 Total assets 32,821 33,654 10,754 10,801 Liabilities Current liabilities Trade and other payables 16 3,786 3,891 415 625 Borrowings 17 5,332 4,222 - - Lease liabilities 18 1,337 1,157 - - Provisions 19 146 86 - - Total current liabilities 10,601 9,356 415 625 Non-current liabilities Borrowings 17 997 1,196 - - Lease liabilities 18 6,103 7,753 - - Deferred tax liability 6 499 442 - - Total non-current liabilities 7,599 9,391 - - Total liabilities 18,200 18,747 415 625 Net assets 14,621 14,907 10,339 10,176 Equity attributable to equity holders of the parent Issued capital 23 31,962 31,959 31,962 31,959 Share premium reserve 23 44,612 43,210 44,612 43,210 Accumulated losses (60,994) (59,953) (64,941) (63,721) Other reserves 23 (959) (309) (1,294) (1,272) Total equity 14,621 14,907 10,339 10,176 The above statement of financial position should be read in conjunction with the accompanying notes. Approved by the Board and authorised for issue on 30 September 2024 ………………………………………. Ross Love, Executive Chair & CEO For personal use only 23 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Statement of cash flows For the year ended 30 June 2024 Consolidated Parent 2024 2023 2024 2023 Notes $000’ $000’ $000’ $000’ Cashflows from operating activities Receipts from customers 27,969 23,442 992 671 Payments to suppliers and employees (26,227) (24,508) (1,607) (2,783) Interest paid (748) (703) (2) (12) Net cash used in operating activities before tax received 20(a) 994 (1,769) (617) (2,124) Income tax received - 248 - - Net cash provided by/(used in) operating activities 994 (1,521) (617) (2,124) Cashflows from investing activities Payments for development expenses capitalised (646) (1,123) - - Proceeds from financial asset - 1,153 - - Payments for plant and equipment (110) (315) - - Net cash used in investing activities (756) (285) - - Cashflows from financing activities Proceeds from issue of shares 1,000 1,925 1,000 1,925 Issue costs (89) (150) (89) (150) Proceeds from borrowings 1,109 - - - Repayment of borrowings (166) (43) (266) - Repayment of lease liabilities (1,882) (963) - - Loans from subsidiaries - - - 355 Net cash provided by/(used in) financing activities (28) 769 645 2,130 Net increase/(decrease) in cash held 210 (1,037) 28 6 Cash and cash equivalents at beginning of year 961 1,803 6 - Effect of foreign exchange on balances 89 195 - - Cash and cash equivalents at end of year 20(b) 1,260 961 34 6 Cash and cash equivalents 1,260 961 34 6 Borrowings (6,329) (5,418) - - Cash and cash equivalents net of borrowings at end of year (5,069) (4,457) 34 6 The above statement of cash flows should be read in conjunction with the accompanying notes. For personal use only 24 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Statement of changes in equity For the year ended 30 June 2024 Issued capital Accumulated losses Share premium reserve Share-based payments reserve Foreign currency translation reserve Total Consolidated $000’ $000’ $000’ $000’ $000’ $000’ At 1 July 2023 31,959 (59,953) 43,210 999 (1,308) 14,907 Loss for the year - (1,041) - - - (1,041) Foreign currency translation - - - (628) (628) Total comprehensive loss for the year - (1,041) - - (628) (1,669) Transactions with owners: Issue of CDIs for cash 2 - 998 - - 1,000 Share-based payments: CDIs 1 - 493 (22) - 472 Share issue costs - - (89) - - (89) Total transactions with owners 3 - 1,402 (22) - 1,383 At 30 June 2024 31,962 (60,994) 44,612 977 (1,936) 14,621 At 1 July 2022 31,954 (56,789) 41,327 749 (1,243) 15,998 Loss for the year - (3,314) - - - (3,314) Foreign currency translation - - - - (65) (65) Total comprehensive loss for the year - (3,314) - - (65) (3,379) Transactions with owners: Issue of CDIs for cash 5 - 1,920 - - 1,925 Issued on conversion of performance rights - 68 - (68) - - Share-based payments: performance rights - - - 215 - 215 Share-based payments: options - - - 185 - 185 Share-based payments: CDIs - - 113 - - 113 Expiry of performance rights - 82 - (82) - - Share issue costs - - (150) - - (150) Total transactions with owners 5 150 1,883 250 - 2,288 At 30 June 2023 31,959 (59,953) 43,210 999 (1,308) 14,907 Statement of changes in equity For the year ended 30 June 2024 Issued capital Accumulated losses Share premium reserve Share-based payments reserve Foreign currency translation reserve Total Parent $000’ $000’ $000’ $000’ $000’ $000’ At 1 July 2023 31,959 (63,721) 43,210 999 (2,271) 10,176 Loss for the year - (1,220) - - - (1,220) Total comprehensive loss for the year - (1,220) - - - (1,220) Transactions with owners: Issue of CDIs for cash 2 - 998 - - 1,000 Share-based payments: CDIs 1 - 493 (22) - 472 Share issue costs - - (89) - - (89) Total transactions with owners 3 - 1,402 (22) - 1,383 At 30 June 2024 31,962 (64,941) 44,612 977 (2,271) 10,339 At 1 July 2022 31,954 (60,795) 41,327 749 (2,271) 10,964 Loss for the year - (3,076) - - - (3,076) Total comprehensive loss for the year - (3,076) - - - (3,076) Transactions with owners: Issue of CDIs for cash 5 - 1,920 - - 1,925 Issued on conversion of performance rights - 68 - (68) - - Share-based payments: performance rights - - - 215 - 215 Share-based payments: options - - - 185 - 185 Share-based payments: CDIs - - 113 - - 113 Expiry of performance rights - 82 - (82) - - Share issue costs - - (150) - - (150) Total transactions with owners 5 150 1,883 250 - 2,288 At 30 June 2023 31,959 (63,721) 43,210 999 (2,271) 10,176 The above statement of changes in equity should be read in conjunction with the accompanying notes. For personal use only 25 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 1. Corporate information and authorisation of financial statements The financial statements of Structural Monitoring Systems Plc for the year ended 30 June 2024 were authorised for issue in accordance with a resolution of the Directors on 30 September 2024 and the statements of financial position were signed on the Board’s behalf by Ross Love. Structural Monitoring Systems Plc is a public limited company incorporated and domiciled in the United Kingdom. The Company’s registered office and principal place of business are disclosed on page 2 of this report. The Company’s ordinary shares, when held as a Chess Depository Interest (CDI) and registered on the CDI register, are tradable on the Australian Securities Exchange (ASX). Ordinary shares on the UK register cannot be traded on the Australian Securities Exchange. 2. Material accounting policy information (a) Basis of Preparation The consolidated financial statements and those of the parent entity are presented in Australian dollars which is the Company’s functional currency and are rounded to the nearest one thousand Australian dollars. The average AUD:CAD rate for the year was 0.8883 (2023: 0.9011) and the reporting date AUD:CAD spot rate was 0.9130 (2023: 0.8823). CAD is the presentational currency of Anodyne Electronics Manufacturing Corp (AEM), a wholly owned subsidiary of the Company. (b) Financial Position The Group reported a net loss after tax of $1.04 million (2023: loss $3.31 million) and an operating cash inflow of $0.99 million (2023:outflow $1.52 million) for the year ended 30 June 2024 and reported working capital of $7.15 million including cash of $1.26 million as at that date. The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities, the continued financial performance of AEM, the continued development of the CVMTM technology and the realisation of assets and discharge of liabilities in the normal course of business as well as the continued availability of an established operating line of credit facility of C$4.75 million (increased to C$6.00 million subsequent to the reporting date) with Royal Bank of Canada (RBC) which is secured on receivables and inventory and is subject to loan covenants. The Directors expect compliance with the covenants to continue to be met. The Directors have prepared forecasts in respect of future trading. Achievement of such forecasts would allow the entity to manage within its current funding facilities for the foreseeable future. In developing these forecasts, the Directors have made assumptions and performed sensitivity analysis on variables such as revenues and employee costs based upon their view of the current and future economic conditions that will prevail over the forecast period of 12 months from the date of signing these financial statements. The Directors have also made assumptions regarding future funding comprising one or more of the following; The Company has the ability to issue shares for cash in accordance with the Corporations Act 2001. The Company also has the ability to renumerate directors and senior management in shares or other equity instruments rather than cash or defer payments due in cash in an effort to reduce cash outflow in the short to medium term. For personal use only 26 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) The Directors and senior management will formally consider all measures which would favourably reduce/defer operational expenses should actual cash flows be less than budgeted, as they have done in previous years. The Directors therefore continue to adopt the going concern basis of accounting in preparing the financial statements. It is noted, there is a material uncertainty over going concern should the Group be unable to execute one or more of the following, raising capital through the issue of shares, amending the current debt structure to release further funds, achieve its forecast revenue target or reduce/defer employee costs or other operating costs. (c) Statement of compliance The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the United Kingdom (previously as adopted by the European Union, no changes have arisen as a consequence of the change) as they apply to the financial statements of the Group for the year ended 30 June 2024 and are applied in accordance with the Companies Act 2006. The Group and the Company have not adopted any standards or interpretations in advance of the required implementation dates. It is not expected that adoption of standards or interpretations which have been issued by the International Accounting Standards Board but have not been adopted will have a material impact on the financial statements for the year ended 30 June 2024. See note 2(d) for further consideration. (d) Accounting standards and Interpretations New Accounting Standards and Interpretations not yet mandatory or early adopted The Directors have also reviewed all of the new and revised Standards and Interpretations in issue not yet adopted for the year ended 30 June 2024. As a result of this review the Directors have determined that there is no material impact of the Standards and Interpretations in issue not yet adopted on the Group and, therefore, no change is necessary to Group accounting policies. (e) Basis of consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Structural Monitoring Systems Plc at the end of the reporting period. A controlled entity is any entity over which Structural Monitoring Systems Plc is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Where controlled entities have entered or left the Group during the year, the financial performance of those entities is included only for the period of the year that they were controlled. In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated in full on consolidation. Non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are reported separately within the equity section of the consolidated statement of financial position and statement of comprehensive income. The non-controlling interests in the net assets comprise their interests at the date of the original business combination and their share of changes in equity since that date. For personal use only 27 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) Business Combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired, and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured at the end of each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. (f) Foreign currency translation (i) Functional currency Items included in the financial statements of each of the companies in the Group are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The functional currency of Structural Monitoring Systems Plc is Australian dollars, and its presentation currency is Australian dollars. The functional currency of its overseas subsidiary, Structural Monitoring Systems Limited, is Australian dollars and the functional currency of its overseas subsidiary, Anodyne Electronics Manufacturing Corp is Canadian dollars. (ii) Transactions and balances Foreign currency transactions are translated into the presentational currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. (iii) Group entities The results and financial position of all the Company entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; • Income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and For personal use only 28 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) (f) Foreign currency translation (continued) • All resulting exchange differences are recognised as a separate component of equity and in Other comprehensive Income. • On consolidation, exchange differences arising from the translation of any net investment in foreign entities are taken to foreign currency translation reserve. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the statement of comprehensive income, as part of the gain or loss on sale where applicable. (g) Impairment of property, plant and equipment At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of the recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. (h) Financial instruments Financial assets and financial liabilities are recognised when the Group becomes party to the contractual provisions of the instrument. Financial assets Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and other short-term deposits held by the Group with maturities of less than three months. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Trade, Group and other receivables Trade, other and group receivables are recorded initially at fair value and subsequently measured at amortised cost. For personal use only 29 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Trade, other and Group payables Trade, Group and other payables are initially measured at fair value net of direct transaction costs and subsequently measured at amortised cost. Equity instruments Equity instruments issued by the Group are recorded at fair value on initial recognition net of transaction costs. Derecognition of financial assets (including write-offs) and financial liabilities A financial asset (or part thereof) is derecognised when the contractual rights to cash flows expire or are settled, or when the contractual rights to receive the cash flows of the financial asset and substantially all the risks and rewards of ownership are transferred to another party. When there is no reasonable expectation of recovering a financial asset, it is derecognised (“written off”). The gain or loss on derecognition of financial assets measured at amortised cost is recognised in profit or loss. A financial liability (or part thereof) is derecognised when the obligation specified in the contract is discharged, cancelled, or expires. Any difference between the carrying amount of a financial liability (or part thereof) that is derecognised and the consideration paid is recognised in profit or loss. Impairment of financial assets An impairment loss is recognised for the expected credit losses on financial assets when there is an increased probability that the counterparty will be unable to settle an instrument’s contractual cash flows on the contractual due dates, a reduction in the amounts expected to be recovered, or both. The probability of default and expected amounts recoverable are assessed using reasonable and supportable past and forward-looking information that is available without undue cost or effort. The expected credit loss is a probability-weighted amount determined from a range of outcomes and takes into account the time value of money. For trade receivables, material expected credit losses are measured by applying an expected loss rate to the gross carrying amount. The expected loss rate comprises the risk of a default occurring and the expected cash flows on default based on the aging of the receivable. The risk of a default occurring always takes into consideration all possible default events over the expected life of those receivables (“the lifetime expected credit losses”). Different provision rates and periods are used based on groupings of historic credit loss experience by product type, customer type and location. For intercompany loans that are repayable on demand, expected credit losses are based on the assumption that repayment of the loan is demanded at the reporting date. If the subsidiary does not have sufficient accessible highly liquid assets in order to repay the loan if demanded at the reporting date, an expected credit loss is calculated. This is calculated based on the expected cash flows arising from the subsidiary and weighted for probability likelihood variations in cash flows. . For personal use only 30 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) Definition of default The loss allowance on all financial assets is measured by considering the probability of default. Receivables are considered to be in default when the principal or any interest is significantly more than the associated credit terms past due, based on an assessment of past payment practices and the likelihood of such overdue amounts being recovered. Write-off policy Receivables are written off by the Group when there is no reasonable expectation of recovery, such as when the counterparty is known to be going bankrupt, or into liquidation or administration. Receivables will also be written off when the amount is more than materially past due. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (j) Share-based payment transactions The Group provides benefits to employees (including directors) in the form of share-based payment transactions, whereby employees render services in exchange for rights over shares (‘equity-settled transactions’). The fair value of options is determined using the Black-Scholes pricing model or using the trinomial option pricing model. There is currently one plan in place to provide these benefits, the Employee Incentive Plan (EIP), which provides benefits to directors and employees. The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Structural Monitoring Systems Plc (‘market conditions’). The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). For personal use only 31 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects the extent to which the vesting period has expired. This opinion is formed based on the best available information at the reporting date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. (k) Revenue Revenue recognition – Repair services Repairs meet the definition of a distinct service whereby the associated revenue is to be recognised at a point in time, evidenced by the completion of the agreed upon service and delivery of the repaired parts/components to the customer. The point in time criteria is met as the following transfers of control exist: (a) The entity has the present right to payment for the asset; (b) the customer has the legal right to the asset; (c) the entity has transferred physical possession of the asset; (d) the customer has the significant risks and rewards of ownership of the asset; (e) the customer has accepted the asset. Pricing is fixed and determinable pursuant to agreed upon pricing lists that establish stand-alone selling prices. Revenue recognition – Product sales (stock or customised parts) Product sales meet the definition of a distinct service whereby the associated revenue is to be recognised at a point in time, evidenced by the delivery of the products to the customer. The point in time criteria are met as the following transfers of control exist: (a) The entity has the present right to payment for the asset; (b) the customer has the legal right to the asset; (c) the entity has transferred physical possession of the asset; (d) the customer has the significant risks and rewards of ownership of the asset; (e) the customer has accepted the asset. Pricing is fixed and determinable pursuant to agreed upon pricing lists that establish stand-alone selling prices. There are no further performance obligations associated with these sales. At times, multiple services or goods are sold to customers, however, contracts detail out separate prices for each different good or service purchased. As each service or good purchased has a standalone selling price in the negotiated contract there is no need to allocate a purchase price across multiple deliverables. In addition, each contract includes payment terms. The Group recognises revenue on shipping for stock parts, customized product and customer product. When the Group provides a service (prototyping) it generally recognizes revenue when the prototype is shipped or as the service is provided if there is no item to be shipped. The Group recognises revenue when it satisfies its performance obligation under the contract (when the Group ships the product which is also when the customer obtains control over the product or service). Rendering of services Revenue from a contract to provide services is recognised over time as the services are rendered based on a fixed price. (l) Inventories Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on a 'first in first out' basis. Cost comprises of direct materials and delivery costs, direct labour, import duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity. Costs of purchased inventory are determined after deducting rebates and discounts received or receivable. For personal use only 32 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) Stock in transit is stated at the lower of cost and net realisable value. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (m) Property, plant and equipment Plant and equipment and leasehold improvements are stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Plant and equipment 3 - 5 years Leasehold improvements 5 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. (n) Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. (o) Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in the statement of comprehensive income arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. For personal use only 33 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. 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 a success considering its commercial and technical feasibility; the consolidated entity is able to use or sell the asset; the consolidated entity 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, being their finite life of 10 years. Certifications Significant costs associated with certifications are amortised on a straight-line basis over the period of their expected benefit, being the finite life of 5 years. Licence agreement Significant costs associated with a licence agreement are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 5 years. Technology Significant costs associated with technological intellectual property are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 10 years. Customer relationships Value attached to relationships with key customers arising from business acquisitions is amortised on a straight-line basis over the period of their expected benefit, being their finite life of 5 years. Intellectual property Significant costs incurred in securing supplementary type certificates are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 10 years. (p) Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. For personal use only 34 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) (q) Income tax The charge for taxation for the year is the tax payable on the profit or loss for the year based on the applicable income tax rate for each jurisdiction and takes into account deferred tax. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit or loss and is accounted for using the balance sheet method. Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available in the foreseeable future against which the temporary differences can be utilised. (r) Other taxes Revenues, expenses and assets are recognised net of the amount of VAT/GST except: • where the VAT/GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the VAT/GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of VAT/GST included. The net amount of VAT/GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the VAT/GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of VAT/GST recoverable from, or payable to, the taxation authority. (s) Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. (t) Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Lease payments comprise of fixed repayments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. For personal use only 35 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index, or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. (u) Employee entitlements Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. (v) Investments in subsidiary undertakings Investments in subsidiary undertakings are accounted for at cost less, where appropriate, allowances for impairment. (w) Critical accounting estimates and judgements The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions concerning the future which impact the application of accounting policies and reported amounts of assets, liabilities, income, and expenses. The accounting estimates resulting from these judgements and assumptions seldom equal the actual results but are based on historical experiences and future expectations. i) Share-based payment transaction: The Group 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 using either a Black-Scholes or binomial pricing models, using the assumptions detailed in note 23 Share-based payments in the notes to the financial statements. ii) Impairment resulting from acquisition of Anodyne Electronics Manufacturing (AEM) Impairment of goodwill and intangible assets An annual review is carried out (as set out in note 14 as to whether the current carrying value of goodwill is impaired. Detailed calculations are performed based on (i) discounting expected pre-tax cash flows of the relevant cash generating units and discounting these at an appropriate discount rate; and/or (ii) the comparison of carrying value to the net selling price of the cash generating unit; the determination of these factors require the exercise of judgement. iii) Impairment of inter-company receivables The Company has intercompany loans to its subsidiary companies which are repayable on demand. As the subsidiaries did not have sufficient highly liquid resources to repay the loans at 30 June 2023, an expected credit loss provision is calculated under IFRS 9. For personal use only 36 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 2. Material accounting policy information (continued) For Structural Monitoring Systems Canada Corporation, the calculation is based upon the expectation that AEM will trade profitably in the future and that this will allow it to repay the loans in time. Forecast cash flows under a range of possible outcomes are assessed to derive a probability-weighted value for the loan based upon the time taken to repay the outstanding amount in full. These calculations rely on management judgements as to the future cash flow forecasts and the probability weightings assigned. As at 30 June 2024, there are no other critical accounting estimates and judgements contained in the financial report. 3. Operating segments The Group 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 Group operates predominantly in three industries, being avionics, contract manufacturing and structural health monitoring (CVMTM). Costs associated with maintaining the parent company listing on the Australian Securities Exchange and share-based payments are included under other segments. The main geographic areas that the entity operates in are the USA, Canada and Europe. The Group has operations in Canada. The parent company is registered in the United Kingdom. The following tables present revenue, expenditure and certain asset and liability information regarding geographical segments for the years ended 30 June 2024 and 30 June 2023: For personal use only 37 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 3. Operating segments (continued) AEM Avionics AEM Contract Manufacturing AEM CVMTM Other segments Total $000’ $000’ $000’ $000’ $000’ Year ended 30 June 2024 Revenue Sale of goods 10,605 15,546 114 - 26,265 Rendering of services 527 1,144 15 - 1,686 Total sales revenue 11,132 16,690 129 - 27,951 Other income 164 - - - 164 FX gains/(losses) - - - 7 7 Total revenue 11,296 16,690 129 7 28,122 Sales revenue by customer location: Americas 8,772 16,644 70 - 25,486 Europe/UK 1,623 46 46 - 1,715 Asia/Middle East 601 - 13 - 614 Australasia 79 - - - 79 Africa 57 - - - 57 Total sales revenue 11,132 16,690 129 - 27,951 Result EBITDA 2,151 3,202 (1,908) (1,452) 1,993 Depreciation and amortisation (2,213) Finance costs (748) Loss before income tax expense (968) Income tax expense (73) Loss for the year (1,041) Assets Segment assets 19,576 10,041 1,318 - 30,935 Unallocated assets Cash and cash equivalents 1,260 Deferred tax asset 626 Total assets 32,821 Liabilities Segment liabilities 5,063 5,631 14 - 10,708 Unallocated liabilities Trade and other payables 664 Borrowings 6,329 Deferred tax liability 499 Total liabilities 18,200 For personal use only 38 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 3. Operating segments (continued) AEM Avionics AEM Contract Manufacturing AEM CVMTM Other segments Total $000’ $000’ $000’ $000’ $000’ Year ended 30 June 2023 Revenue Sale of goods 8,712 11,770 365 - 20,847 Rendering of services 605 929 - - 1,534 Total sales revenue 9,317 12,699 365 - 22,381 Other income - - - 248 248 FX gains/(losses) - - - 18 18 Total revenue 9,317 12,699 365 266 22,647 Sales revenue by customer location: Americas 6,680 12,667 365 - 19,712 Europe/UK 2,331 32 - - 2,363 Asia/Middle East 261 - - - 261 Australasia 6 - - - 6 Africa 39 - - - 39 Total sales revenue 9,317 12,699 365 - 22,381 Result EBITDA 1,886 2,637 (1,875) (2,922) (274) Depreciation and amortisation (2,354) Finance costs (703) Loss before income tax benefit (3,331) Income tax benefit 17 Loss for the year (3,314) Assets Segment assets 20,664 11,039 990 - 32,693 Unallocated assets Cash and cash equivalents 961 Total assets 33,654 Liabilities Segment liabilities 5,802 6,263 31 - 12,096 Unallocated liabilities Trade and other payables 791 Borrowings 5,418 Deferred tax liability 442 Total liabilities 18,747 For personal use only 39 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 3. Operating segments (continued) Major customers During the year ended 30 June 2024 approximately $12.91m (2023: $9.36m) of the Group’s sales revenue was derived from sales to a single US aircraft and parts company. Revenue In accordance with IFRS 15, the group’s revenue of $27.95m (2023: $22.38m) is made up of revenue from customers only and does not include any other revenue. Goods and services are transferred at a point in time, not over time, as detailed in the group’s revenue recognition policy. The Group does not have any contract assets or contract liabilities at 30 June 2024 ($nil at 30 June 2023) as the Group does not fulfil any of its performance obligations in advance of invoicing to its customer or bill in advance for work performed. The Group however does have contractual balances in the form of trade receivables. The Group also does not have any contractual costs capitalised at 30 June 2024 ($nil at 30 June 2023) or have any outstanding performance obligations at 30 June 2024 ($nil at 30 June 2023). For personal use only 40 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 4. Income and expenses Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Income Other income SRED Recovery 108 248 - - Gain on deferred assets written off 56 - - - Management fees - - 661 410 On-charge of costs - - 331 - 164 248 992 410 Finance income/(costs) Foreign exchange gains/(losses) 7 109 4 (9) Interest and finance charges payable on borrowings (432) (286) - (2) Interest and finance charges payable on lease liabilities (316) (417) - - (741) (594) 4 (11) Analysis of expenses by nature Employee remuneration (see note 5) 8,634 8,260 670 1,598 Intangible assets Amortisation of other intangible assets 744 742 - - Property, plant and equipment Depreciation of plant and equipment 376 378 - 1 Depreciation of ROU assets 1,093 1,234 - - 1,469 1,612 - 1 Total depreciation and amortisation 2,213 2,354 - 1 Consumables and raw materials used 12,984 10,753 - 92 Provision for obsolescence 17 67 - - Freight 291 343 - - Auditor’s remuneration (see note 28) 445 373 223 148 Impairment charges - - 325 150 Share-based payments expense (see note 22) 471 514 471 514 Research and development 889 465 - - Other costs of sales, distribution, and administration 2,849 2,581 525 1,543 17,946 15,096 1,544 2,447 Impairment charges relate to loans to subsidiary undertakings which are written down to the net asset values of those entities excluding the loans at the reporting date. For personal use only 41 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 5. Employees and directors The average number of employees and directors employed by the Group during the year was: Consolidated Parent 2024 2023 2024 2023 No. No. No. No. Employee and directors’ numbers Production 58 66 - - Research 26 25 - - Selling and distribution 21 12 - 3 Administration (including directors) 20 18 9 9 125 121 9 12 Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Employee remuneration Wages and salaries 7,713 7,356 663 1,594 Social security costs 538 530 - - Defined contribution costs 383 374 7 4 Total employee costs 8,634 8,260 670 1,598 Share-based payments 471 514 471 514 9,105 8,774 1,141 2,112 Directors’ remuneration Directors’ fees, comprising cash and superannuation of $0.60m (2023: $0.55m) are included in employee expenses in the Statement of profit and loss and other comprehensive income. Directors’ share-based payments of $0.17m (2023: $0.19m) are included in share-based payments in the Statement of profit and loss and other comprehensive income. Refer to the Remuneration report in the Director’s report for further details. This also includes details of the highest paid Director. For personal use only 42 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 6. Income tax Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ The major components of income tax benefit/(expense) for the years ended 30 June 2024 and 30 June 2023 are: a) Income tax benefit/(expense) Current tax benefit/(expense) - - - - Deferred tax benefit/(expense) (73) 17 - - Income tax benefit/(expense) reported in statement of comprehensive income (73) 17 - - A reconciliation of income tax benefit/(expense) applicable to accounting loss before income tax at the statutory income tax rate to income tax expense at the effective income tax rate for the years ended 30 June 2024 and 30 June 2023 is as follows: Loss before tax (968) (3,331) (1,220) (3,076) Accounting loss before tax from continuing operations at the statutory income tax rate of 27.00% (2023: 27.00%) (261) (900) (329) (831) Expenses/(income) not assessable for income tax purposes 77 535 231 642 Deferred tax benefit/(expense) not recognised 111 382 98 189 Income tax benefit/(expense) reported in statement of comprehensive income (73) 17 - - Deferred tax liabilities/(assets) Deferred tax liabilities and assets are attributable to the following: Plant & equipment and Right of use assets 880 1,165 - - Deferred development costs 582 572 - - Lease liabilities (1,851) (2,145) - - SR&ED Investment tax credits 74 (156) - - Warranty provision (39) (23) - - Intangible assets 844 1,021 - - Costs deductible over 5 years - 13 - 13 Accrued expenses (21) (85) (23) 56 Tax losses 14,176 14,023 3,809 3,707 Deferred tax assets not recognised (14,146) (13,943) (3,786) (3,776) Deferred tax liabilities recognised 499 442 - - The Company and its subsidiaries are subject to the tax regime of the countries they operate in. Under UK and Australian tax regimes, tax losses can be carried forward indefinitely, subject to meeting certain requirements. Under the Canadian tax regime, non-capital losses can be carried forward for 20 years and carried back for up to 3 years. For personal use only 43 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 6. Income tax (continued) Potential deferred tax assets attributable to tax losses have not been brought to account at 30 June 2024 because the Directors do not believe it is appropriate to regard realisation of the deferred tax assets as probable at this point in time. These benefits will only be obtained if: i. The Group derivers future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the loss to be realised; ii. The Group continues to comply with conditions for deductibility imposed by law; and No changes in legislation adversely affect the Group in realising the benefit from the deductions for the loss. Business combination Tax losses Other timing difference Total 2024 $000’ $000’ $000’ $000’ Recognised deferred tax liabilities Movement in deferred tax liabilities during the year: Brought forward 1,021 9 (588) 442 Charge/(credit) to Statement of comprehensive income (146) - 219 73 Effect of fx on balances (30) - 14 (16) Carried forward 845 9 (355) 499 Business combination Tax losses Other timing difference Total 2023 $000’ $000’ $000’ $000’ Recognised deferred tax liabilities Movement in deferred tax liabilities during the year: Brought forward 1,231 (133) (760) 338 Charge/(credit) to Statement of comprehensive income (181) 144 20 (17) Restated 2022 (33) (4) 156 119 Effect of fx on balances 4 2 (4) 2 Carried forward 1,021 9 (588) 442 For personal use only 44 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 7. Earnings per share Basic earnings per share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. The number of options at 30 June 2024 was 1,500,000 (2023: 9,730,896) and the number of performance rights at 30 June 2024 was 300,000 (2023: 433,954). Of those performance rights 300,000 were exercisable at 30 June 2024 but have been excluded from the diluted earnings per share calculation, together with the unlisted options, on the basis they are anti-dilutive. The following reflects the income and share data used in the total operation’s basic loss per share computations: Consolidated 2024 2023 $000’ $000’ Net loss attributable to equity holders from continuing operations (1,041) (3,314) Number of shares Number of shares Weighted average number of ordinary shares for basic loss per share 135,809,021 132,838,089 Weighted average number of ordinary shares for diluted loss per share 135,809,021 132,838,089 8. Current assets – Trade receivables Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Trade receivables 1,963 1,981 - - 1,963 1,981 - - 9. Current assets - Inventory Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Raw materials 7,340 9,075 - - Work in progress 2,798 2,231 - - Finished goods 3,827 2,196 - - Provision for obsolescence - (33) - - 13,965 13,469 - - For personal use only 45 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 10. Current assets – Prepayments and other receivables Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Prepayments 405 286 62 80 Other receivable - 152 - - GST receivable 163 177 49 53 568 615 111 133 11. Non-current assets – Property, plant and equipment Leasehold improvements Plant and equipment Total Consolidated $000’ $000’ $000’ Balance at 1 July 2023 977 650 1,627 Additions - 110 110 Depreciation expense (102) (274) (376) Effect of FX movement on balances (29) (18) (47) Balance at 30 June 2024 846 468 1,314 Balance at 1 July 2022 1,103 630 1,733 Additions/(disposals) 12 303 315 Depreciation expense (133) (262) (395) Effect of FX movement on balances (5) (21) (26) Balance at 30 June 2023 977 650 1,627 For personal use only 46 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 12. Non-current assets –Right-of-use assets Land and buildings Equipment Motor vehicle Total Consolidated $000’ $000’ $000’ $000’ Balance at 1 July 2023 5,509 2,058 - 7,567 Additions - 109 - 109 Depreciation expense (631) (462) - (1,093) Effect of FX movement on balances (169) (59) - (228) Balance at 30 June 2024 4,709 1,646 - 6,355 Balance at 1 July 2022 6,118 2,653 1 8,772 Additions/(disposals) - - - - Depreciation expense (631) (602) (1) (1,234) Effect of FX movement on balances 22 7 - 29 Balance at 30 June 2023 5,509 2,058 - 7,567 The Group leases land and buildings for its offices and a manufacturing facility under a 10 year agreement. The Group also leases manufacturing equipment, IT equipment and a motor vehicle under agreements of between 3 years and 5 years. For personal use only 47 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 13. Non-current assets – Intangible assets and goodwill Reconciliations of the written down values at the beginning and end of the current financial year and prior financial year are set out below: Goodwill Technology Eagle audio IP Eagle audio customer relationships Total $000’ $000’ $000’ $000’ $000’ Consolidated Balance at 1 July 2023 1,628 2,832 2,806 169 7,435 Capitalised during the year - 646 - - 646 Written back to statement of income during the year - (545) - - (545) Amortisation expense - (360) (331) (53) (744) Effect of FX on balances (55) 122 (85) (4) (22) Balance at 30 June 2024 1,573 2,695 2,390 112 6,770 Goodwill Certifica tions Licence agreement Technology Eagle audio IP Eagle audio customer relationships Total $000’ $000’ $000’ $000’ $000’ $000’ $000’ Consolidated Balance at 1 July 2022 1,613 124 11 2,098 3,082 221 7,149 Capitalised during the year - - - 934 - - 934 Amortisation expense - (122) (11) (230) (327) (52) (742) Effect of FX on balances 15 (2) - 30 50 - 93 Balance at 30 June 2023 1,628 - - 2,832 2,805 169 7,434 For personal use only 48 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 13. Non-current assets – Intangible assets and goodwill (continued) Intangible assets Certifications AEM possesses distinct aircraft manufacturing and maintenance certifications, which are requisite to the sale and maintenance of their products in key markets. Licence agreement AEM has a licence agreement in place with one of their key customers to be the producer and seller of certain aircraft instruments. This has identifiable cash flows in the form of future sales to aircraft manufacturing and maintenance providers who require these instruments. Technology AEM has developed proprietary aircraft parts and manufacturing technology which are expected to continue to yield future sales. This intellectual property is separable and identifiable to the extent that it could be licensed or acquired. In addition, there are identifiable future benefits in the form of cash flows from the sale of the resulting products to AEM customers. Eagle audio In September 2021 the Group acquired Canadian based business, Eagle Audio including the following intangible assets: - Intellectual property comprising drawings and certifications, and - Customer relationships Amortisation The amortisation period applied to the intangible assets are as follows: Certifications – 5 years, remaining amortisation period is 2.5 years Licence agreement – 5 years, remaining amortisation period is 2.5 years Technology – 10 years, remaining amortisation period is 7.5 years Intellectual property – 10 years, remaining amortisation period is 9.2 years Customer relationships – 5 years, remaining amortisation period is 4.2 years Impairment testing Goodwill of $1.57m acquired through business combinations has been allocated to the AEM cash generating unit of Contract Manufacturing (2023 one unit AEM $1.63m). The impairment test has been carried out using a discounted cash flow model covering a 5 year period. Cash flow projections are based on a budget for 2024/2025 and extrapolated for a further 4 years using a growth rate, together with a terminal value, approved by management. The principal assumptions made in determining the recoverable amount of goodwill as at 30 June 2024 include revenue growth of 26.40% per annum in 2025 and 7.50% from 2026 onwards, EBITDA margin of 17.60% from 2025 increasing to 19.6% by 2029 (2024: 17%) and a discount rate of 12.25% (2024: 12.75%). If the revised estimated pre-tax discount rate applied to the discounted cash flows had been 5% less favourable in management’s estimate the Group would need to reduce the carrying value of goodwill by $nil (2023: $nil). For personal use only 49 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 13. Non-current assets – Intangible assets and goodwill (continued) If the EBITDA margin applied to the discounted cash flows had been 10% less favourable in management’s estimate the Group would been to reduce the carrying value of goodwill by $nil (2023: $nil). The same reduction of $nil (2023: $nil) applies if revenues had been 10% less favourable. Management believes that other reasonable changes in the key assumptions on which the recoverable amount of AEM’s division’s goodwill is based would not cause the cash generating unit’s carrying amount to exceed its recoverable amount. 14. Non-current – Deferred tax assets Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Income tax credit 626 - - - 626 - - - For personal use only 50 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 15. Non-current assets/(liabilities) - Loans Loans to subsidiary undertakings Total Company $000’ $000’ Year ended 30 June 2024 Cost At 1 July 2023 24,630 24,630 Arising during the year 272 272 At 30 June 2024 24,902 24,902 Impairment At 1 July 2023 13,968 13,968 Impairment charge 325 325 14,293 14,293 Net carrying amount at 30 June 2024 10,609 10,609 Year ended 30 June 2023 Cost At 1 July 2022 25,282 25,282 Arising during the year (652) (652) At 30 June 2023 24,630 24,630 Impairment At 1 July 2022 13,818 13,818 Impairment charge 150 150 13,968 13,968 Net carrying amount at 30 June 2023 10,662 10,662 Loans from subsidiary undertakings Total Company $000’ $000’ Year ended 30 June 2024 Cost At 1 July 2023 - - Received/(repaid) during the year - - Net carrying amount at 30 June 2024 - - Year ended 30 June 2023 Cost At 1 July 2022 298 298 Received/(repaid) during the year (298) (298) Net carrying amount at 30 June 2023 - - For personal use only 51 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 15. Non-current assets/(liabilities) – Loans (continued) Loans to/from subsidiaries are unsecured, have no fixed date for repayment and attract no interest charge. As the parent does not intend to call in the loans within the next 12 months the loans are classified as non- current assets See Note 24 for further details on impairment of intercompany receivables. The consolidated financial statements include the financial statements of the Company, and the subsidiaries listed in the following table: Country of Incorporation Type of equity % Equity Interest 2024 2023 Structural Monitoring Systems Limited Registered office: Suite 116, 1 Kyle Way Claremont WA 6010 Australia Australia Ordinary share 100 100 Structural Monitoring Systems Canada Corp (SMSCC) Registered office: Unit 100-966Crowley Avenue Kelowna BC Canada Canada Ordinary share 100 100 Anodyne Electronics Manufacturing Corp (AEM) Registered office: Unit 100-966Crowley Avenue Kelowna BC Canada Canada Ordinary share 100 100 16. Current liabilities – Trade and other payables Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Trade payables 2,266 2,524 142 272 Other payables 1,425 1,344 259 353 Taxes payable – HST, payroll tax 95 23 14 - 3,786 3,891 415 625 Trade payables are non-interest bearing and are normally settled within 30 day terms. Other payables are non-interest bearing and have an average term of 49 days (2023: 61 days). For personal use only 52 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 17. Borrowings Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000' Current Term loan 173 163 - - Line of credit - secured 5,159 4,059 - - 5,332 4,222 - - Non-current Term loan 997 1,196 - - 997 1,196 - - AEM has an operating line of credit of C$4.75m (increased to C$6.00m subsequent to the reporting date) secured at 7.55% variable with no maturity date and a 7 year term loan of C$1.25m secured at 6.78% fixed for 3 years with a Canadian banking institution. The facilities are secured on trade receivables and inventory. At the date of this report C$4.71m has been drawn on the line of credit facility. 18. Lease liabilities Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000' Opening balance 8,910 9,850 - - Interest charged 354 307 - - Repayments made during the year (1,882) (1,327) - - Lease finance purchases during the year 268 - - - Effect of foreign exchange on balances (210) 80 - - Closing balance 7,440 8,910 - - Split between: Current 1,337 1,157 - - Non-current 6,103 7,753 - - 7,440 8,910 - - 19. Current liabilities – Provisions Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Provision for warranties 146 86 - - For personal use only 53 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 20. (a) Reconciliation of the net loss after tax to the net cash provided by/(used in) operating activities before tax paid Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Loss before tax for the year (968) (3,331) (1,220) (3,076) Adjustments for: Share based payments 471 514 471 514 Depreciation and amortisation 2,213 2,354 - 1 SRED recovery (165) - - - Development costs written back to statement of income 545 - - - Impairment of investments in subsidiaries - - 325 150 Other movements - (7) - - Changes in assets and liabilities Trade receivables exc SRED recovery 18 813 - 5 Prepayments and other receivables 47 (110) 21 (61) Inventory (496) (2,137) - 172 Deferred tax asset (626) - - - Trade and other payables (105) 181 (214) 171 Provisions 60 (46) - - Net cash provided by/(used in) operating activities before tax paid 994 (1,769) (617) (2,124) 20. (b) Cash and cash equivalents Cash at bank 1,259 960 34 6 Cash on hand 1 1 - - 1,260 961 34 6 For personal use only 54 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 21. Employee benefits (a) Employees incentive plan On 11 December 2018 shareholders approved the employee incentive plan (EIP) for the granting of nontransferable Chess Depositary Interests (CDIs) or performance rights (PRs) to directors, employees and relevant contractors with more than six months’ service at the grant date. The shares vest immediately and the PRs vest upon the satisfaction of the relevant performance hurdles within 3 years of issue. During the year 853,845 shares were issued to employees under the plan (2023: 300,000 shares). (b) Pensions and other post-employment benefit plans AEM maintains a defined contribution pension plan for its’ employees. AEM contributes 5% of salary to the Plan. Employees must be employed with the company for 12 months before they are entitled to the benefit. There are currently 90 employees participating in the plan. Contributions are paid monthly and recognised in the Statement of comprehensive income totalling $0.33m (2023: $0.36m). Contributions of $nil (2023: $nil) are outstanding at 30 June 2024. 22. Share-based payments The share-based payment expense for the year is as follows: Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Issue of CDIs to directors and executives 203 - 203 - Issue of options to directors and executives - 185 - 185 Issue of CDIs to eligible staff under EIP 268 238 268 238 Issue of performance rights to eligible staff under EIP - 91 - 91 471 514 471 514 Chess Depositary Interests (CDIs) – Directors & Executives During the year 300,000 CDIs were issued to the Executive Chair & CEO, Ross Love as a sign on award agreed as part of his employment agreement. The CDIs were approved by shareholders at the Annual General Meeting held on 8 December 2023. The fair value of the CDIs was calculated by the closing share price on the grant date. During the year 50,000 CDIs were granted to Chief Financial Officer, Gary Elwell under the Company’s Employee Incentive Plan. The CDIs were granted on 20 November 2023. The fair value of the CDIs was calculated by the closing share price on the grant date. The CDIs are escrowed for 12 months from grant date. The expense recognised during the year on those CDIs was $0.203 million. For personal use only 55 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 22. Share-based payments (continued) Chess Depositary Interests (CDIs) - Staff On 20 November 2023 300,000 CDIs were granted to eligible staff under the Company’s Employee Incentive Plan. On 3 June 2024 203,845 CDIs were granted to a member of the AEM management team under the terms of his employment. The fair value of those CDIs granted was determined by the closing share price on the grant date. The CDIs are escrowed until 20 November 2024. A further 62,500 CDIs are due to a member of the AEM management team under the terms of his employment and are held in the share based payments reserve pending issue. The fair value of those CDIs was determined by the closing share price on 30 June 2024. The CDIs are subject to continuing employment with the Company until 30 June 2025. The expense recognised during the year on those CDIs was $0.268 million. The number of performance rights that were outstanding, their weighted average exercise price and their movement during the year is as follows: Weighted ave ex price 2024 2023 2024 2023 No. No. $ $ At 1 July 433,954 430,608 - 0.96 Granted - 350,000 - - Exercised - (146,654) - - Expired (133,954) (200,000) - 2.06 At 30 June 300,000 433,954 - - Exercisable at 30 June 300,000 433,954 - - The weighted average contractual term remaining on performance rights outstanding at 30 June 2024 is 6 months (2023: 18 months). The outstanding number of performance rights at 30 June 2024 and 30 June 2023 was as follows: Exercise price Grant date Expiry date 2024 No. 2023 No. $0.001 27 September 2022 31 December 2024 300,000 300,000 $0.001 18 February 2021 18 February 2024 - 30,000 $0.001 21 January 2021 21 January 2024 - 103,954 300,000 433,954 For personal use only 56 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 22. Share-based payments (continued) Terms of Performance Rights 1. The Performance Rights are non-transferable. 2. The Performance Rights do not confer any entitlement to attend or vote at meetings of the Company, to dividends, to participation in new issues of securities or entitlement tom participate in any return of capital. 3. The Performance Rights vest upon the satisfaction of the relevant performance hurdle within 3 years of the issue of the Performance Rights and at the election of the holder. 4. The Performance Rights lapse if the performance hurdle is not satisfied or the election to convert is not given by the holder within 3 years of the issue of the Performance Rights except as otherwise provided for in the terms and conditions of the Plan. 5. Upon vesting, one ordinary share will be issued for every one Performance Right on the payment of the par value of the ordinary share, being GBP0.0005 per share by the holder. The Shares will rank equally in all respects within the existing shares on issue. 6. In the event of any reconstruction (including consolidation, sub-division, reduction or return) of the issued capital of the Company prior to the vesting date, the number of Performance Rights, the share prices relevant to the performance hurdles and any exercise price may be reconstructed in accordance with the terms and conditions of the Plan. The number of unlisted options over CDIs that were outstanding, their weighted average exercise price and their movement during the year is as follows: Weighted ave ex price 2024 2023 2024 2023 No. No. $ $ At 1 July 1,500,000 - 0.90 - Granted - 1,500,000 - 0.90 At 30 June 1,500,000 1,500,000 0.90 0.90 Exercisable at 30 June 1,500,000 1,500,000 0.90 0.90 The weighted average contractual term remaining on performance rights outstanding at 30 June 2024 is 16.37 months (2023: 34.37 months). The outstanding number of unlisted options over CDIs at 30 June 2024 and 30 June 2023 was as follows: Exercise price $ Grant date Expiry date 2024 No. 2023 No. $1.200 29 September 2022 11 November 2025 500,000 500,000 $0.900 29 September 2022 11 November 2025 500,000 500,000 $0.593 29 September 2022 11 November 2025 500,000 500,000 1,500,000 1,500,000 For personal use only 57 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 23. Issued capital and reserves Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Chess depositary interests On issue 137,359,229, (2023: 134,179,803) Issued and fully paid 31,962 31,959 31,962 31,959 Total issued and fully paid 31,962 31,959 31,962 31,959 CDIs on issue (No.) $000’ Movement in chess depositary interests (CDIs) in issue At 30 June 2022 128,233,149 31,954 Issued on 20 September 2022 – CDIs issued for cash 5,500,000 5 Issued on 20 September 2022 – conversion of PRs 146,654 - Issued on 27 September 2022 – CDIs issued to staff 300,000 - At 30 June 2023 134,179,803 31,959 Issued on 9 November 2023 – CDIs issued for cash 2,325,581 2 Issued on 12 January 2024 – CDIs issued to Director/executive 350,000 - Issued on 28 June 2024 – CDIs issued to staff 503,845 1 At 30 June 2024 137,359,229 31,962 Chess Depositary Interests (CDIs) CDIs 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. For personal use only 58 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 23. Issued capital and reserves (continued) Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Share Premium Reserve Share Premium Reserve 44,612 43,210 44,612 43,210 Shares on issue (No.) $000’ Movement in ordinary shares with CDIs in issue At 1 July 2022 128,233,149 41,327 Issued on 20 September 2022 – CDIs issued for cash 5,500,000 1,920 Issued on 20 September 2022 – conversion of PRs 146,654 - Issued on 27 September 2022 – CDIs issued to staff member 300,000 113 Share issue costs (150) At 30 June 2023 134,179,803 43,210 Issued on 9 November 2023 – CDIs issued for cash 2,325,581 998 Issued on 12 January 2024 – CDIs issued to Director/executive 350,000 166 Issued on 28 June 2024 – CDIs issued to staff 503,845 326 Share issue costs (88) At 30 June 2024 137,359,229 44,612 Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Other Reserves Foreign currency translation reserve (1,936) (1,308) (2,271) (2,271) Share-based payment reserve 977 999 977 999 (959) (309) (1,294) (1,272) Performance rights on issue (PRs) No. $000’ Share-based payment reserve Outstanding at 30 June 2022 430,608 749 CDIs held in reserve pending issue - 124 Options granted during the year - 185 PRs granted during the year 300,000 91 PRs converted during the year (146,654) (68) PRs expired during the year (150,000) (82) Outstanding at 30 June 2023 433,954 999 CDIs transferred from reserve on issue - (22) PRs expired during the year (133,954) - Outstanding at 30 June 2024 300,000 977 For personal use only 59 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 23. Issued capital and reserves (continued) Nature and purpose of reserves Share premium reserve The share premium reserve is used to record increments in the value of share issues when the issue price per share is greater than the par value. The par value of shares is currently GBP0.0005 (2023: GBP0.0005). Costs of the issues are written off against the reserve. Share-based payment reserve The share-based payment reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration, or to other parties in lieu of cash compensation. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of the company. Reserves classified on the face of the consolidated statement of financial position as retained earnings represent accumulated earnings and are distributable. All the other reserves are non-distributable. 24. Financial risk management objective and policies Financial risk management Overview The Company and Group have exposure to the following risks from their use of financial instruments: • Market risk, including foreign currency risk, price risk and interest rate risk • Credit and cashflow risk • Liquidity risk This note presents information about the Company’s and Group’s exposure to each of the above risks, their objectives, policies, and processes for measuring and managing risk, and the management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. For personal use only 60 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 24. Financial risk management objective and policies (continued) Risk management policies are established to identify and analyse the risks faced by the Company and Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s and Group’s activities. The Board of Directors oversees how management monitors compliance with the Company’s and Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company and Group. The Company and the Group's principal financial instruments are cash, receivables, borrowings and payables. The financial assets are categorised as loans and receivables measured at amortised cost and the financial liabilities are categorised as other financial liabilities measured at amortised cost. Interest rate risk Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from fluctuations in interest bearing financial assets and liabilities that the group uses. Interest bearing assets comprise cash and cash equivalents which are considered to be short-term liquid assets. It is the Group's policy to settle trade payables within the credit terms allowed and therefore not incur interest on overdue balances. Interest bearing liabilities include a bank overdraft facility secured on trade receivables and inventory and lease finance on plant and equipment. Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased / (decreased) equity and profit or loss by the amounts shown below. The analysis is performed on the same basis as 2023. Profit or loss Equity Consolidated - 30 June 2024 Carrying value at year end 100bp increase 100bp decrease 100bp increase 100bp decrease $000’ $000’ $000’ $000’ $000’ Cash and cash equivalents 1,260 13 (13) 13 (13) Borrowings (6,329) (63) 63 (63) 63 (50) 50 (50) 50 Consolidated – 30 June 2023 Cash and cash equivalents 961 10 (10) 10 (10) Borrowings (5,418) (54) 54 (54) 54 (44) 44 (44) 44 Credit and cash flow risk Credit and cash flow risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers. For personal use only 61 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 24. Financial risk management objective and policies (continued) The Group trades only with recognised, creditworthy third parties. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. With respect to credit and cash flow risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and term deposits, the Group’s exposure to credit and cash flow risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. This risk is minimised by reviewing term deposit accounts from time to time with approved banks of a sufficient Fitch Ratings credit rating of at least A-, Moody’s credit rating of at least A2, and Standard & Poor’s credit rating of at least A-. The Group does not place funds on terms longer than 30 days and has the facility to place the deposit funds with more than one bank. The Group does not hold collateral as security for any of its’ receivables. The Company has exposure to credit and cashflow risk arising from the making of loans to subsidiaries. The loans carry no interest rate or date for repayment. Loans are impaired to the carrying value of the subsidiary’s’ assets. The Group and Company undertake the following procedures to determine whether there has been a significant increase in the credit risk of its other receivables, including group balances, since their initial recognition. Where these procedures identify a significant increase in credit risk, the loss allowance is measured based on the risk of a default occurring over the expected life of the instrument rather than considering only the default events expected within 12 months of the year-end. The Group and Company have not determined that credit loss has increased during the year in respect of the Group’s trade receivables. Exposure to credit and cash flow risk The carrying amount of the Group’s financial assets and liabilities represents the maximum credit exposure. The Group’s maximum exposure to credit and cash flow risk at the reporting date was: Consolidated Parent Carrying amount Carrying amount 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Cash and cash equivalents 1,260 961 34 6 Trade receivables 1,963 1,981 - - Loans to subsidiaries - - 10,609 10,662 3,223 2,942 10,643 10,668 The Group’s maximum exposure to credit and cash flow risk for trade receivables and cash and cash equivalents at the reporting date by geographic region was: Consolidated Parent Carrying amount Carrying amount 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Americas 3,189 2,931 10,609 10,662 Australasia 34 11 34 6 3,223 2,942 10,643 10,668 For personal use only 62 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 24. Financial risk management objective and policies (continued) Trade receivables at 30 June 2024 represent 26 debtors’ days (2023: 32 debtor days). There were no trade receivables impairment losses at 30 June 2024 (2023: $nil). Impairment of company receivables from subsidiaries The Company’s group receivables represent trading balances and loan amounts advanced to other group companies with no fixed repayment dates. Under IFRS 9 the fair value of this intercompany receivable is repayable on demand to the company. The Company was due the following amounts as at 30 June 2024 before the recognition of any impairment loss provisions: SMS Ltd SMSCC Total $000’ $000’ $000’ Gross 14,293 10,609 24,902 Impairment (14,293) - (14,293) Carrying value at 30 June 2024 - 10,609 10,609 In respect of the balance due from Structural Monitoring Systems Limited (SMS Ltd), the Company did not have sufficient liquid resources at 30 June 2024 to repay the loan in full. An impairment loss provision has been recognised to the extent the carrying value at 30 June 2024 is covered by the recovery of net assets in the balance sheet of SMS Ltd. This has been measured based on lifetime expected credit losses on the basis that credit risk has increased since initial recognition. In respect of the balance due from Structural Monitoring Systems Canada Corporation (SMSCC), the Company did not have sufficient liquid resources at 30 June 2024 to repay the loan in full. However, on the basis that there has been no significant increase in credit risk and the balance is expected to be recovered by the subsidiary’s trading, no impairment loss provision has been recognised on the basis that any impairment loss provision would be immaterial (2023: $nil). This has been measured based on 12 month expected credit losses. Credit risk The measurement of impairment losses depends on whether the financial asset is “performing”, “underperforming” or “non-performing” based on the company’s assessment of increases in the credit risk of the financial asset since its initial recognition and any events that have occurred before the year-end which have a detrimental impact on cash flows. The financial asset moves from “performing” to “underperforming” when the increase in credit risk since initial recognition becomes significant. In assessing whether credit risk has increased significantly, the company compares the risk of default at the year-end with the risk of a default when the investment was originally recognised using reasonable and supportable past and forward-looking information that is available without undue cost. The risk of a default occurring takes into consideration default events that are possible within 12 months of the year-end (“the 12 month expected credit losses”) for “performing financial assets, and all possible default events over the expected life of those receivables(“the lifetime expected credit losses”) for “underperforming" financial assets. For personal use only 63 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 24. Financial risk management objective and policies (continued) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The following are the contractual maturities of financial liabilities: Consolidated - 30 June 2024 Carrying amount Contractual cash flows 1 year or less More than 1 year $000’ $000’ $000’ $000’ Trade and other payables (3,691) (3,691) (3,691) - Borrowings* (6,329) (6,329) (5,332) (997) Lease liabilities (7,440) (7,440) (6,103) (1,337) (17,460) (17,460) (15,126) (2,334) Consolidated - 30 June 2023 Carrying amount Contractual cash flows 1 year or less More than 1 year $000’ $000’ $000’ $000’ Trade and other payables (3,861) (3,861) (3,861) - Borrowings* (5,418) (5,418) (4,222) (1,196) Lease liabilities (8,910) (8,910) (1,210) (7,700) (18,189) (18,189) (9,293) (8,896) *Although classed as payable within 1 year or less, the debt facility is expected to continue beyond FY2024. The carrying amount of financial assets and financial liabilities at amortised cost recorded by category is as follows: Consolidated Parent Carrying amount Carrying amount 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Financial assets measured at amortised cost Cash and cash equivalents 1,260 961 34 6 Trade receivables 1,963 1,981 - - Loans to subsidiary undertakings - - 10,609 10,662 3,223 2,942 10,643 10,668 Financial liabilities measured at amortised costs Borrowings 6,329 5,418 - - Trade and other payables 3,691 3,868 401 625 Lease liabilities 7,440 8,910 - - 17,460 18,196 401 625 For personal use only 64 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 24. Financial risk management objective and policies (continued) Foreign currency risk The Group undertakes sales and purchases that are denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations in the US dollar, Canadian dollar, the Euro and the British pound. Exposure to currency risk The Group’s exposure to foreign currency risk at reporting date was as follows, based on notional amounts: 30 June 2024 In AUD AUD 000’ CAD 000’ USD 000’ GBP 000’ Total 000’ Cash 35 541 684 - 1,260 Trade receivables - 392 1,571 - 1,963 Trade and other payables (383) (2,372) (844) (92) (3,691) Borrowings - (6,329) - - (6,329) (348) (7,768) 1,411 (92) (6,797) 30 June 2023 In AUD AUD 000’ CAD 000’ USD 000’ GBP 000’ Total000’ Cash 9 82 870 - 961 Trade receivables - 272 1,709 - 1,981 Trade and other payables (652) (1,802) (1,344) (70) (3,868) Borrowings - (5,418) - - (5,418) (643) (6,866) 1,235 (70) (6,344) The Group had net assets denominated in foreign currencies of $15.95m as at 30 June 2024 (2023: net assets of $14.63m). Based on this exposure, had the Australian dollar weakened by 10%/strengthened by 5% (2023: weakened by 10%/strengthened by 5%) against these foreign currencies with all other variables held constant, the Group’s loss before tax for the year would have been $1.59m lower/$0.80m higher (2023: $1.46m lower/$0.73m higher). The Board regularly monitors the Group’s exposure to foreign exchange fluctuations. The following significant exchange rates applied during the year: Average rate Reporting date spot rate 2024 2023 2024 2023 AUD:CAD 0.8883 0.9011 0.9130 0.8823 AUD:USD 0.6556 0.6630 0.6624 0.6734 For personal use only 65 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 24. Financial risk management objective and policies (continued) Capital risk management The Company and the Group’s objectives when managing capital are to safeguard the Company and the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The management of the Company and the Group’s capital is performed by the Board. Given the level of operations of the Group, the Board has a secured overdraft facility available with a credit limit of C$4.75 million (Increased to C$6.00 million subsequent to the reporting date). The facility was used in part in 2021 to finance the acquisition of Eagle Audio (CA$4.28m) and general working capital. The Board regularly monitors, liquidity, exchange rates, cash flow and financial assets and liabilities balances by means of financial reports and cashflow forecasting. The Company also has a history of successfully raising capital through the issue of shares to fund its activities. None of the Group’s entities are subject to externally imposed capital requirements. 25. Commitments and contingencies At the reporting date there are no changes to commitments or contingent liabilities. 26. Related party disclosure The consolidated financial statements include the financial statements of Structural Monitoring Systems Plc and the subsidiaries listed in the following table. Country of incorporation % Equity interest 2024 2023 Structural Monitoring Systems Ltd Australia 100 100 Structural Monitoring Systems Canada Corp (SMSCC) Canada 100 100 Anodyne Electronics Manufacturing Corp (AEM) Canada 100 100 Structural Monitoring Systems Plc is the ultimate parent entity and is incorporated in the United Kingdom. The Company carries on the business of developing the Group’s structural health monitoring technology. For personal use only 66 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 26. Related party disclosure (continued) Structural Monitoring Systems Limited is a subsidiary of the Group and is incorporated in Australia. It is the owner of the intellectual property pertaining to the structural health monitoring technology. SMSCC was incorporated on 24 October 2017. Anodyne Electronics Manufacturing Corporation (AEM) was acquired by SMSCC on 8 December 2017 for a consideration of $10,998,750. Remuneration paid to the Directors and executives, who are considered key management personnel, for the year is disclosed in the remuneration report in the Directors’ Report. The share-based payments charge for directors and executives for the year was $0.203m (2023: $0.185m). The following are the amounts due to key management personnel at the reporting date: 2024 $000’ 2023 $000’ Due to Director – Ross Love 113 117 Due to Director – Sam Wright 13 - Due to Director – Brian Wall 19 19 Due to Director – Miro Miletic 19 19 Due to Director – Heinrich Loechteken 19 6 Due to Executive – Gary Elwell 11 33 The terms and conditions of the transactions with key management personnel and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis. For personal use only 67 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Notes to the financial statements 30 June 2024 27. Events after the balance sheet date Subsequent to the reporting date, AEM bankers, Royal Bank of Canada have increased the limit on the Line of Credit (“LOC”) facility from C$4.75m to C$6.00m. The LOC facility is issued under the Export Development Canada (“EDC”) Trade Expansion Lending Program. Other than the above, no matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 28. Auditors’ remuneration Details of the amounts paid to the auditor of the Company, Gerald Edelman LLP, and other auditors for audit and non-audit services provided during the year are set out below. Consolidated Parent 2024 2023 2024 2023 $000’ $000’ $000’ $000’ Fees payable to Gerald Edelman LLP and its Component in respect of both audit and non-audit services are as follows: Audit services – statutory audit of parent and consolidated accounts fees payable to the company’s auditors for the audit of the company’s annual accounts 223 148 223 148 Audit of the accounts of subsidiaries 222 192 - - Other services Audit-related assurance services - 33 - - 445 373 223 148 For personal use only 68 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Consolidated Entity Disclosure Statement Name of entity Type of entity Trustee, partner or participant in JV % of share capital Place of incorporation Australian resident or foreign resident Foreign jurisdiction(s) of foreign residents Structural Monitoring Systems Plc Body corporate - n/a Australia Australian n/a Structural Monitoring Systems Ltd Body corporate - 100.00% Australia Australian n/a Structural Monitoring Systems Canada Corp (SMSCC) Body corporate - 100.00% Canada Foreign resident n/a Anodyne Electronics Manufacturing Corp (AEM) Body corporate - 100.00% Canada Foreign resident n/a For personal use only 69 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Independent auditor’s report to the members of Structural Monitoring Systems Plc Opinion We have audited the consolidated financial statements of Structural Monitoring Systems PLC (the "Company") and its subsidiaries (the "Group"), for the year ended 30 June 2024, which comprise the consolidated and Company statements of profit or loss and other comprehensive income, the consolidated and Company statements of financial position, the consolidated and Company statements of changes in equity, the consolidated and Company statements of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted International Accounting Standards (IFRS). In our opinion: • the financial statements give a true and fair view of the state of the Group's and of the Company's affairs as at 30 June 2024 and of the Group's and Company's loss for the year then ended; • the Group and Company financial statements have been properly prepared in accordance with UK adopted International Accounting Standards; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group and Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate. We draw attention to note 2 in the financial statements, which indicates that the ongoing impact of current economic, operating and trading conditions and the Group’s ability to obtain further financing may affect the future prospects and trading activities of the Group. The Group’s going concern assessment is dependent on the projected revenue growth, deferment of Key Management Personnel remuneration, continuation of the loan facility of CAD 6m from the Group bank and the ability to raise additional equity funding requirements if required. These events or conditions, along with the business risks and uncertainties and other matters as set out in note 2 indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter. For personal use only 70 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Independent auditor’s report to the members of Structural Monitoring Systems Plc The existence of a material uncertainty related to going concern requires significant judgement when developing future plans in respect of the cash flow forecast and in determining compliance with the loan covenants. Management performed an assessment in relation to the Group's ability to continue as a going concern and the assessment comprises a base case scenario that includes a reasonable worst-case scenario. The overall assessment includes key assumptions considered by management that required significant judgement in relation to the estimation of future revenues. We assessed the significant judgements made by the management in relation to the stress test to ensure that these are adequately considered and in line with current events and trading performance. We performed the following audit procedures to assess the management's judgements, key assumptions and entity's ability to continue as a going concern: • Liaising with management and discussing their going concern assessment, including their view and perspective regarding the firm's ability to continue as a going concern. • Reviewing and assessing the reliability of the forecast to ensure its accuracy and performing arithmetical checks. • Reviewing the past forecast with the actual results to determine if the prior year's estimates were adequately considered and whether management's historical approach in terms of the key assumptions was appropriate. • Reviewing the forecast in line with the potential impact of slowdown in its trading activities • Assessing the various scenario considered by management in line with the key assumptions involved and other relevant events to determine the potential impact that these may have in respect of the current covenants related to the external borrowing facilities. • Assessing the covenants attached to the external borrowing facilities and challenging management’s approach and assessment of any potential breaches of covenants during the subsequent period. • Reviewing the subsequent trading activities and performance in line with the covenants attached to the external borrowing facilities. • Reviewing the recent past track record in raising equity funding and any factors that may indicate that this may be impacted by market conditions. • Assessing the relevant disclosures within the annual report in line with the management's assessment and other related aspects considered. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. For personal use only 71 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Independent auditor’s report to the members of Structural Monitoring Systems Plc As there is a material uncertainty for the going concern assumption, this key audit matter has not been included within this key audit matters section. This is in accordance with the guidance set out within ISA (UK) 705. Key audit matter How our audit addressed the key audit matter Revenue recognition Total consolidated revenue of the financial year amounted to AUD 27.95 million (2023: AUD 22.38 million). The Group’s revenue relates to the sale of avionic products and the provision of contract electronics manufacturing services to the aviation industry. In line with IFRS 15, the Group recognises revenue when a performance obligation is satisfied either by transferring control over a promised good for sales of products or over time as the services are rendered based on a fixed price for revenue from a contract to provide services. We consider revenue recognition to be a key audit matter due to the fraud risk related to occurrence and due to revenue being a key performance indicator and therefore in internal and external stakeholders’ focus. Consequently, there might be pressure to achieve forecasted results. We instructed the component auditors of the audit procedures to be performed and reviewed work undertaken by them in relation to revenue, please see below the summary of the work performed by us and the component auditors: • Reviewed inquiries made by the component auditors with the management regarding significant new contracts and relevant changes in existing contracts. The procedures also included reviewing a sample of contracts to understand the terms and conditions and their impact on revenue recognition; •Walkthroughs were performed to gain an understanding of processes and internal controls, including management reviews, with respect to revenue recognition; •Total revenue for the year was reconciled to the external sales listing to ensure that revenue recognised was complete and consistent between the listing and the financial statements; •A sample of sales were agreed to the supporting documentation, including sales invoices, contracts and sales orders, to confirm the occurrence of revenue that has been recognised. Based on the audit work performed by us and component auditors we are satisfied that revenue has been correctly recognised, and that revenue recognised is complete, has occurred and has been accounted for in the correct accounting period. Impairment of intangible assets The Group has intangible assets of AUD 6,770,000 (2023: AUD 7,434,000) at the year- end relating to goodwill, licences, intellectual Intangibles are only assessed for impairment when indicators of impairment exist. We have considered the life cycle, public perception through the share price of the Company and the fair value of intangibles held by the Company. For personal use only 72 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Independent auditor’s report to the members of Structural Monitoring Systems Plc property and customer relationships. The goodwill of AUD 1,573,000 (2023: 1,628,000) is subject to annual impairment reviews and the other intangible assets are being amortised over a 5- 10 year period. The risk is that the goodwill may have become impaired or useful economic life of the intangible assets may be different to the management assumptions or technological advancements may render its market value below its carrying value. We instructed the component auditors of the audit procedures to be performed and reviewed work undertaken by them in relation to impairment of intangible assets, please see below the summary of the work performed by us and the component auditors: • Obtained management's forecast for future value in use of all intangible assets; • Assessed the reliability of forecasts by agreeing to historical inputs; • Reviewed management and challenged management on their judgements of the forecasted sales and estimates useful life of the intangible assets; • Assessed the appropriateness and applicability of discount rate applied to the current business performance; • Assessed the ongoing projects viability and ensured they met the criteria defined in the accounting standards for intangibles; and tested the clerical accuracy of management's forecast; • Confirmed cost and useful life by reviewing the underlying contracts for purchase of the intangible assets, including those acquired on acquisition of subsidiary during the year; • Reviewed the latest management accounts to assess post year end cashflows due to the technology and license held. Based on the audit work performed by us and the component auditors we are satisfied that no indicators of impairment of goodwill have been identified and that all intangible assets have been correctly recognised and disclosed in the financial statements. Valuation of Inventory Inventory consists of raw materials, work in progress and finished goods which are stated at the lower of cost and net realisable value. Cost comprises of direct material and delivery costs, direct labour, import duties and other The inventory balance as at year was AUD 13,965,000 which is held by Anodyne Electronics Manufacturing Corp (AEM). We instructed the component auditors of the audit procedures to be performed and reviewed work undertaken by them in relation to For personal use only 73 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Independent auditor’s report to the members of Structural Monitoring Systems Plc taxes including an appropriate level of fixed overheads based on normal operating capacity. As a result, judgement is applied in determining the levels of provisions required for obsolete inventories and an appropriate apportionment of labour and overhead. inventory, please see below the summary of the work performed by us and the component auditors: Our work performed included the following: • Reviewed the work performed in relation to slow-moving inventory by reviewing and verifying the accuracy of the aged inventory listing and assessed completeness of the provision of slow moving, damaged or obsolete inventory; • Reviewed the work performed by the component auditor on stock existence of inventory by attending stock count; • Reviewed the analytical procedure performed on the comparison of the overhead absorption rate with recent experience and operating capacity; • Reviewed work performed on the realisable value evidenced by sales subsequent to the year end; • Assessing the relevant disclosures within the annual report in line with the management's assessment and other related aspects considered. Based on the work we have performed by us and component auditors, we have not identified any material uncertainties to the valuation of inventory. Our application of materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. For personal use only 74 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Independent auditor’s report to the members of Structural Monitoring Systems Plc Based on our professional judgment, we determined materiality for the financial statements as a whole as follows Group financial statements Company financial statements AUD 420,000 AUD 160,000 How we determined it 1.5% of turnover 1.5% of gross assets Rationale for benchmark applied We believe that revenue is a primary measure used by shareholders in assessing the performance of the Group. All are generally accepted auditing benchmarks. We believe that the gross assets is an appropriate measure used by shareholders In assessing the performance of the Company and is a generally accepted auditing benchmark. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between AUD 5,000 and AUD 420,000. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above AUD 21,000 as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. An overview of the scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgments, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group financial statements are a consolidation of 3 reporting units, comprising the Group's operating businesses and holding companies. We performed audits of the complete financial information of all reporting units. Other information The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with For personal use only 75 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Independent auditor’s report to the members of Structural Monitoring Systems Plc the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors' report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors' remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of directors As explained more fully in the directors' responsibilities statement set out on page 10, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group's and Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative hut to do so. For personal use only 76 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Independent auditor’s report to the members of Structural Monitoring Systems Plc Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The extent to which the audit was considered capable of detecting irregularities including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above and on the Financial Reporting Council's website, to detect material misstatements in respect of irregularities, including fraud. Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows: • the senior statutory auditor ensured the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations; • we identified the laws and regulations applicable to the Company through discussions with directors and other management, and from our commercial knowledge and experience of the digital marketing and advertising sector. • we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the Company, including Companies Act 2006, taxation legislation, data protection, an bribery, employment, environmental, health and safety legislation and anti-money laundering regulations. • we assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit. We assessed the susceptibility of the Company's financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by: • making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; • considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations. To address the risk of fraud through management bias and override of controls, we: • performed analytical procedures to identify any unusual or unexpected relationships; tested journal entries to identify unusual transactions; • assessed whether judgements and assumptions made in determining the accounting estimates set out in Note 2 of the Group financial statements were indicative of potential bias; • investigated the rationale behind significant or unusual transactions For personal use only 77 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 Independent auditor’s report to the members of Structural Monitoring Systems Plc In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to: • agreeing financial statement disclosures to underlying supporting documentation; • reading the minutes of meetings of those charged with governance; • enquiring of management as to actual and potential litigation and claims; • reviewing correspondence with HMRC and the Company's legal advisor There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non- compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report. Other matters which we are required to address The non-audit services prohibited by the FRC's Ethical Standard were not provided to the Group or the Company and we remain independent of the Group and the Company in conducting our audit. Our audit opinion is consistent with the additional report to the audit committee. Use of our report This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. Hemen Doshi FCCA Senior Statutory Auditor For and on behalf of Gerald Edelman LLP 30 September 2024 73 Cornhill Chartered Accountants London Statutory Auditors EC3V 3QQ For personal use only 78 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 ASX ADDITIONAL INFORMATION Annual Report Disclosure on Corporate Governance The Company has established, and continues to refine and improve procedures to ensure a culture of good corporate governance exists and is respected across the consolidated entity. The Company has a written policy designed to ensure compliance with ASX Listing Rules and all other regulatory requirements for disclosures. Additionally the Company has adopted a policy designed to ensure procedures to implement the policy are suitable and effective. The Board wishes to acknowledge that nothing has come to its attention that would lead it to conclude that its current practices and procedures are not appropriate for an organisation of the size and maturity of the Company. The Corporate Governance Policy and the Company’s corporate governance practices is set out on the Company’s web site at structuralmonitoring.systems. Additional information required by the Australian Stock Exchange and not shown elsewhere in this report is as follows. The information is current as at 19 September 2024. (a) Distribution of CDI securities (b) Substantial shareholders The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Holder Number of Shares Drake Private Investments LLC 21,040,142 (15.39%) For personal use only 79 STRUCTURAL MONITORING SYSTEMS PLC – ANNUAL REPORT 2024 Registered Number 04834265 ASX ADDITIONAL INFORMATION (CONTINUED) (c) Top Holders (Grouped As Of 19 September 2024) For personal use only For personal use only