ANNUAL REPORT For the year ended 30 June 2020 Terragen Holdings Limited and Controlled Entity ABN 36 073 892 636 www.terragen.com.au TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY CHAIRMAN’S LETTER TO SHAREHOLDERS DEAR SHAREHOLDER On behalf of the Directors of Terragen Holdings Limited, I am pleased to present your company’s annual report for the financial year ended 30 June 2020. The past year has been a very significant one for the Company, with Terragen’s shares listing on the Australian Stock Exchange on 11 December 2019 following a successful Initial Public Offering to raise $20 million. Terragen develops and markets biological products for agricultural applications. Each product uses a unique combination of naturally-occurring live microbe strains selected to address soil health or help boost the productivity, welfare and resil- ience of farm production animals. Terragen has two products on the market in Australia and New Zealand: a microbial feed supplement Mylo® for animals; and a soil conditioner Great Land®. Sales growth of 56% during the year was driven by the sales of Mylo® to the dairy in- dustry where it is used to supplement feed for milking cows as well as calves. Terragen’s aim is to increase farm productivity through the use of its products, whilst providing improved environmental sustainability that will be attractive to consumers. Biological products are now becoming accepted in mainstream agricul- ture and Terragen is continuing to undertake research and development activities, including initiating preliminary studies into the potential of Mylo® to reduce greenhouse gas emissions. Terragen’s success has been due to the considerable efforts, collaboration and achievements of our employees, custom- ers, suppliers, partners and advisors. On behalf of Terragen’s Board of Directors, I would like to express our appreciation to each to you for your hard work, support and achievements throughout the year. I would also like to express my thanks to my fellow Directors for their efforts in successfully guiding Terragen through its Initial Public Offering. Finally, thank you to my fellow Terragen shareholders who have recognised the strategic growth opportunities ahead for Terragen and who have invested to help us execute on our plans. With a strong cash position, excellent sales momentum for Terragen’s products in Australia and New Zealand, and a high- ly skilled and committed team, Terragen is well placed to pursue further sales growth of its key products in Australia and New Zealand. I am excited about the year ahead and look forward to keeping you updated on our progress. Travis Dillon Chair of the Board of Directors TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 1 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY FINANCIAL REPORT CONTENTS Directors’ Report Auditor’s Independence Declaration Independent Auditor’s Report Consolidated Statement of Profit or Loss and Other Comprehensive Income 3 22 23 26 Consolidated Statement of Financial Position 27 Consolidated Statement of Changes in Equity 28 Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Shareholder Information Corporate Directory 2 29 30 60 61 64 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 DIRECTORS’ REPORT The directors of Terragen Holdings Limited (the “Company” or “Terragen”) submit herewith the financial report of the Company and the entity it controlled for the year ended 30 June 2020 (collectively “Group”). To comply with the provisions of the Corporations Act 2001, the directors report as follows. DIRECTORS The following persons were directors of Terragen Holdings Limited during the whole of the year under review and up to the date of this report, unless otherwise stated: » » » » » » » » » Travis Dillon Paul Schober Sam Brougham Ingrid van Dijken Jim Cooper Gregory Robinson John Ryals Justus Homburg David Ryan Non-Executive Chair (appointed director 1 May 2020 and Chair 27 July 2020) Non-Executive Director Non-Executive Director Non-Executive Director (appointed 11 December 2019) Managing Director (appointed 25 June 2020) Non-Executive Director (resigned 27 July 2020) Non-Executive Director (appointed 11 December 2019, resigned 27 July 2020) Managing Director (resigned 25 June 2020) Non-Executive Director (resigned 31 July 2019) Information on directors and key management personnel in office at the end of the financial year and to the date of this report. Name and Position Qualifications and Experience Travis Dillon Non-Executive Chair Appointed Director on 1 May 2020. Appointed Non- Executive Chair on 27 July 2020 Mr Dillon holds extensive commercial and strategic expertise in the agricultural distribution channel. Mr Dillon was the CEO and Managing Director of Ruralco Holdings Limited until its acquisition by Nutrien in September 2019. Prior to becoming Ruralco’s Managing Director in 2015, he was the Executive General Manager of Ruralco’s Operations. Over a career in Agriservices, spanning nearly three decades, Travis has held many positions including Branch Manager, Agronomist, and numerous Category Manager roles. Travis is a Non-Executive Director of Lifeline Australia. Other directorships in past three years: Ruralco Holdings Limited Paul Schober Non-Executive Director Appointed Non- Executive Chair 11 December 2019 until 27 July 2020 Paul has had a 30-year career in the animal health industry, including senior executive positions in which he established global distribution agreements and implemented commercial rigour for biotechnology research companies including Peptech Animal Health, Anatara Lifesciences and Apex Laboratories. Paul attained PhD and MBA degrees at the University of Sydney. Other directorships in past three years: Nil Particulars of interests in shares and options of Terragen Holdings Limited Shares# Options 219,000 held indirectly Nil 152,000 held indirectly 80,000 (investment options) held indirectly 3 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 Name and Position Qualifications and Experience Sam Brougham Non-Executive Director Appointed Non- Executive Chair 1 July 2019 until 11 December 2019 Sam Brougham has an economics degree from the University of Adelaide. Sam has over thirty years’ experience in private and public investment and is currently a director of Ellerston Global Investments and Ceres Capital, a private global equity investment firm he co-founded in 1999. Sam also co-founded Structured Asset Management in 1993. After receiving an economics degree from the University of Adelaide, he spent his early career with Price Waterhouse, and as a partner at JB Were. Sam is a director of Ellerston Asian Investments Limited. Other directorships in past three years: Ellerston Global Investments Limited. Particulars of interests in shares and options of Terragen Holdings Limited Shares# Options 14,721,616 held indirectly 1,600,000 (investment options) held indirectly Ingrid holds a Masters’ degree in International Relations from the Graduate Institute in Geneva and an undergraduate degree from the Universiteit Utrecht, in the Netherlands. 1,290,000 held indirectly 100,000 (investment options) held indirectly Ingrid has more than 20 years’ experience in private banking and funds management both in Australia and Switzerland. During these years she held senior management positions and acquired an in-depth understanding of wealth management for high net worth individuals. She currently works at a privately held funds management firm. From early 2014 until September 2018 she worked at the Impact Investment Group (IIG) in Melbourne, an Australian impact investment funds manager. She joined as the General Manager and became the Chief Operating Officer & Head of Investor Relations. She was instrumental in driving the transformation from a start-up in 2014 to a medium sized funds management business four years later. During her tenure with IIG it was involved in transactions in excess of $1 billion across commercial real estate, large scale renewable energy infrastructure and venture capital. Ingrid is a Trustee of the St Peters Eastern Hill Melbourne Charitable Foundation. She has been a non-executive board member of Escala Partners, a Melbourne based wealth management firm from 2015 until March 2019. Other directorships in past three years: Nil Greg Robinson holds a BSc (Hons) and PhD in Physics, is a fellow of the Financial Services Institute of Company Directors and a Member of the Australian Institute of Company Directors. Greg has undertaken business development in many parts of the globe, and has also managed businesses domiciled in Hong Kong, Singapore, Japan, and the United States. Other directorships in past three years: Nil Nil 563,000 held directly 3,195,000 held indirectly Ingrid van Dijken Non-Executive Director Appointed 11 December 2019 Gregory Robinson Non-Executive Director Resigned 27 July 2020 4 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 Particulars of interests in shares and options of Terragen Holdings Limited Shares# Options Nil Nil Name and Position Qualifications and Experience John Ryals Non-Executive Director Appointed 11 December 2019 Resigned 27 July 2020 Dr. Ryals has a Bachelor of Arts in biology and chemistry from the University of North Texas and masters and doctorate degrees from the University of Texas at Dallas. Dr. Ryals served as president and CEO at Metabolon from 2002 until 2018. Dr Ryals has 30 years of experience in the biotechnology industry, including senior research positions at Novartis and Ciba-Geigy. He currently serves on the Board of Directors of AgBiome, a provider of early-stage research and development for agriculture, and the advisory board of the College of Agriculture and Life Sciences at North Carolina State University. Other directorships in past three years: Nil Jim Cooper Managing Director and Chief Executive Officer Jim is an experienced agribusiness, infrastructure, and supply chain CEO with expertise in business development, stakeholders, sustainability, and strategy. Jim’s experience in infrastructure and supply chain comes from 13 years managing privatised shipping ports in Portland and Melbourne. 200,000 held indirectly Nil Appointed 25 June 2020 He has policy experience with 6 years as a Board member of Ports Australia, and he has been a member of numerous Government committees and advisory boards. Other directorships in past three years: Ports Australia Limited – Director and Deputy Chairman Justus Homburg Managing Director and Chief Executive Officer Justus holds an MBA from the University of Washington, graduate degrees from the University of Utrecht and Southern Illinois University, and is a Fulbright Scholar. Justus was appointed to the Board in June 2017 and assumed the role of CEO in July 2017. 275,000 held directly Resigned 25 June 2020 Justus’ thirty-year business career focused on commercialisation of new technologies in agriculture and human life sciences. Other directorships in past three years: Progen Pharmaceuticals Limited 2,000,000 (incentive A options) held directly 200,000 (investment options) held directly Mr Stephen Kelly Company Secretary and Chief Financial Officer Appointed 2 August 2019 Mr Kelly was appointed as the Company Secretary and Chief Financial Officer of the Company on 2 August 2019. A qualified Chartered Accountant, Mr Kelly has more than 30 years’ international experience in the areas of external and internal audit, risk management and compliance, treasury, and corporate finance across a range of industry sectors including mining, infrastructure, property development and banking and finance. 60,000 Nil COMPANY SECRETARY Stephen Kelly (appointed 2 August 2019) # Includes shares in which the Director has an indirect interest through associated entity. 5 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 MEETINGS OF DIRECTORS The number of meetings of the Group's board of directors and each board committee held during the year ended 30 June 2020, and the numbers of meetings attended by each director were as follows: Number of meetings eligible to attend Number of meetings attended BOARD MEETINGS: 8 Paul Schober Sam Brougham Gregory Robinson Justus Homburg Resigned 25 June 2020 John Ryals Appointed 11 December 2019 Ingrid van Dijken Appointed 11 December 2019 Travis Dillon Appointed 1 May 2020 Jim Cooper Appointed 25 June 2020 David Ryan Resigned 31 July 2019 8 8 8 8 5 5 1 - 1 8 8 5 8 5 5 1 - 1 6 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 On 11 December 2019 Terragen established an Audit and Risk Committee and a Nomination and Remuneration Committee. The members of those Committees during the financial year were: » » Audit and Risk Committee: Gregory Robinson (Chairperson), Sam Brougham and Paul Schober. The Audit and Risk Committee met once during the year with all members in attendance. Remuneration and Nomination Committee: Gregory Robinson (Chairperson), Ingrid van Dijken and Sam Brougham. The Remuneration and Nomination Committee did not meet during the year as remuneration matters were considered by the full Board. PRINCIPAL ACTIVITIES The consolidated entity’s principal activities during the financial year were research, development, and early market development of biological products in the agriculture sector. There were no significant changes in the nature of these activities during the financial year. CORPORATE ACTIVITIES During the year, the Group: » Commenced trading on the Australian Stock Exchange (ASX) on 11 December 2019 after the Group raised $20 million through the issue of 80 million fully paid ordinary shares. Issued 4,214,043 options in July 2019 to shareholders who participated in a prior capital raising. The options are exercisable at $0.25 and have an expiry date of 11 December 2022. No consideration was received by the Group in relation to those options. Made the following Board and Management Changes: • Appointed Mr Stephen Kelly as the Company Secretary and Chief Financial Officer on 2 August 2019. Appointed Dr John Ryals and Ingrid van Dijken as Non-Executive Directors on 11 December 2019. Appointed Mr Travis Dillon as Non-Executive Director on 1 May 2020. Appointed Mr Jim Cooper as Managing Director and Chief Executive Officer on 25 June 2020 following the resignation on that same date of Mr Justus Homburg. On 27 July 2020 Mr Travis Dillon was appointed Non-Executive Chair and Mr Gregory Robinson and Dr John Ryals resigned from the board. • • • • OPERATING AND FINANCIAL REVIEW The Group reported a loss after tax for the year of $4,925,615 (2019: loss of $3,210,741). The significant items affecting the operating result were: » Revenues, net of rebates, of $1,530,853 from the sale of the Company’s Mylo® and Great Land® products in Australia and New Zealand. This represents growth of 56% over sales revenue of $981,007 in the year ended 30 June 2019. Australian sales growth has been underpinned by the expansion of the Retail Agency Partner network. In total, 73 individual retail outlets are involved in the distribution of Great Land® and Mylo®, with each having been accredited by Terragen Biotech Pty Ltd through a product training program. Sales in Australia and New Zealand also reflect the rollout of the ‘Mylo®’ microbial feed supplement. The strong growth of Mylo® sales has been accompanied by positive feedback from farmers who have been trialing » » » » 7 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 » » Mylo®, reinforcing the results of the studies that have been undertaken in conjunction with the University of Queensland. Numerous farmers have committed to expanding the application of Mylo® to their herds. Grant income of $315,655 (2019: $234,390) was received under a Commonwealth of Australia CRC Funding program for a specific research project being undertaken in relation to banana crops. Operating expenses of $7,469,456 in the year have increased from the prior year operating expenses of $5,083,337 due to the following: • Initial public offering costs of $428,691 (2019: $Nil) expensed during the year. These costs include legal fees, printing and publishing costs and a portion of the costs of managing the initial public offer process. An increase in employee benefits expense to $3,188,241 (2019: $2,639,643) as a consequence of the appointment of additional members of the Board of Directors, and additional sales and manufacturing personnel in line with the implementation of the Company’s commercialisation and development strategy. ASX listing fees and share registry fees of $79,665 (2019: $Nil) incurred in the year in connection with the initial public offering and listing of the Company’s shares on the ASX. Advertising and marketing expenses of $260,568 (2019: $70,074) in line with the implementation of the Company’s commercialisation and development strategy including the “Pumps for Mylo program”. Depreciation and amortisation costs of $443,427, an increase of $170,417 compared with the prior year, as a result of additions to Property, Plant and Equipment as well as the application of AASB 16 effective 1 July 2019 in which right-of-use assets are now capitalised for property and equipment leases, and subsequently amortised over the life of the lease. • • • • IMPACT OF COVID-19 PANDEMIC ON OPERATIONS The outbreak of COVID-19 and the subsequent quarantine measures imposed by the Australian and other governments as well as the travel and trade restrictions imposed by Australia and other countries in early 2020 have caused disruption to businesses and economic activity. The COVID-19 pandemic has had a negligible impact on the Group’s operation and results. The Group achieved significant sales growth over the prior financial year with sales and production activity in Australia continuing throughout the COVID-19 pandemic. Sales in New Zealand were adversely impacted in April and May 2020 due to COVID-19 restrictions effectively stopping sales related activity in New Zealand which recommenced in late May 2020. In response to COVID-19, both the Federal Government and the State Government of Victoria have implemented policies and measures with the aim of containing the virus. In an effort to contain the spread of the virus, the Victorian Government, on 2 August 2020, implemented Stage 4 restrictions in Melbourne and Stage 3 restrictions in regional Victoria with quarantine restrictions, travel restrictions, closure of businesses and other restrictive movement measures. Given the principal operating location is in Queensland, these measures have only had a negligible impact on the business. The Group received a $50,000 cash boost grant from the Australian government during the financial year. Earnings per share Basic loss per share from continuing operations Basic diluted loss per shares from continuing operations 2020 3.27 cents 3.27 cents 2019 3.38 cents 3.38 cents LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Terragen is focused on sales growth of its key products in Australia and New Zealand and is pursuing continued sales growth in the coming year. 8 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 EVENTS SINCE THE END OF THE FINANCIAL YEAR The outbreak of COVID-19 and the subsequent quarantine measures imposed by the Australian and other governments as well as the travel and trade restrictions imposed by Australia and other countries in early 2020 have caused disruption to businesses and economic activity. The impact of the COVID-19 pandemic is ongoing, and the Group will continue to adjust to the varying restrictions and progress its sales growth initiatives accordingly. To the date of this report, the COVID-19 pandemic has not had a material impact on the Group’s operations or results. As the situation remains fluid (due to evolving changes in government policy and evolving business and customer reactions thereto) as at the date these financial statements are authorised for issue, the directors of the Company considered that the financial effects of COVID-19 on the Group’s consolidated financial statements cannot be reasonably estimated for future financial periods. In response to COVID-19, both the Federal Government and the State Government of Victoria have implemented policies and measures with the aim of containing the virus. In an effort to contain the spread of the virus, the Victorian Government, on 2 August 2020, implemented Stage 4 restrictions in Melbourne and Stage 3 restrictions in regional Victoria with quarantine restrictions, travel restrictions, closure of businesses and other restrictive movement measures. Given the principal operating location is in Queensland, these measures have only had a negligible impact on the business. There has been no other matter or circumstance which has arisen since the end of the year that has significantly affected, or may significantly affect the Group’s operations, the result of those operations or the Group’s state of affairs. DIVIDENDS No dividends were paid or declared during the year and no recommendation is made as to payment of dividends. ENVIRONMENTAL REGULATION The Group was not subject to any significant environmental regulation under a law of the Commonwealth or a State or Territory of Australia. 9 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 SHARES UNDER OPTION Unissued ordinary shares of the Group under option at the date of this report are as follows: Option series Grant Date Expiry Date Exercise price of options Number under options Tranche 2 Tranche 3 Tranche 4 Tranche 5 Tranche 6 Tranche 7 Tranche 8 Tranche 9 Tranche 10 Tranche 11 Tranche 12 28/10/2016 28/10/2016 24/01/2017 01/02/2017 16/08/2017 01/09/2017 17/01/2018 01/07/2018 13/06/2019 10/07/2019 17/07/2019 31/10/2020 18/01/2022 24/01/2021 01/02/2021 16/08/2021 01/09/2021 17/01/2022 01/07/2022 31/12/2022 11/12/2022 11/12/2022 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.075 $0.25 $0.25 $0.25 400,000 350,000 75,000 450,000 600,000 2,000,000 1,990,000 1,030,000 8,100,000 3,000,000 1,214,043 19,209,043 No option holder has any right under the options to participate in any other share issue of the company or any other entity. SHARES ISSUED ON THE EXERCISE OF OPTIONS During the financial year, and up to the date of this report, 1,257,000 shares were issued as a result of the exercise of options. REMUNERATION REPORT (AUDITED) This remuneration report, which forms part of the Directors’ Report, sets out information about the remuneration of Terragen Holdings Limited’s key management personnel for the financial year ended 30 June 2020. The term ‘key management personnel’ refers to those persons having authority and responsibility for planning, directing, and controlling the activities of the consolidated entity, directly or indirectly, including any director (whether executive or otherwise) of the consolidated entity. The prescribed details for each person covered by this report are detailed below under the following headings: » » » » » Key management personnel Remuneration policy Remuneration, Group performance and shareholder wealth Remuneration of key management personnel Key terms of employment contracts. 10 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 KEY MANAGEMENT PERSONNEL A) The directors and other key management personnel of the consolidated entity during or since the end of the financial year were: Non-executive directors Position Travis Dillon Paul Schober Sam Brougham Gregory Robinson John Ryals Ingrid van Dijken David Ryan Chair (since 27 July 2020), Non-Executive Director (appointed 1 May 2020) Non-Executive Director (Chair 11 December 2019 to 27 July 2020) Non-Executive Director (Chair 1 July 2019 to 11 December 2019) Non-Executive Director (resigned 27 July 2020) Non-Executive Director (appointed 11 December 2019, resigned 27 July 2020) Non-Executive Director (appointed 11 December 2019) Non-Executive Director (resigned 31 July 2019) Executive Directors Position Jim Cooper Justus Homburg Executive Director, Managing Director (appointed Managing Director 25 June 2020a Executive Director, Managing Director (resigned 25 June 2020) Other Key Management Personnel Stephen Kelly Company Secretary and Chief Financial Officer a Prior to his appointment to Managing Director on 25 June 2020, Jim Cooper was employed by the Group to provide consulting services commencing 5 March 2020. Except as noted, the named persons held their current position for the whole of the financial year and since the end of the financial year. REMUNERATION POLICY B) The Board of Terragen Holdings Limited is responsible for determining and reviewing compensation arrangements for the non-executive directors and the executive director. The Board’s remuneration policy is to ensure that the remuneration package properly reflects the person’s duties and responsibilities, 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 emolument in a variety of forms. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost to the Group. In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct. 11 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 NON-EXECUTIVE DIRECTOR REMUNERATION OBJECTIVE The Board seeks to set aggregate remuneration at a level which provides the Group with the ability to attract and retain directors of high calibre, whilst incurring a cost which is acceptable to shareholders. STRUCTURE Remuneration of non-executive directors is determined by the Board, within the maximum amount approved by the shareholders from time to time (currently set at an aggregate of $300,000 per annum as disclosed in the Prospectus dated 18 October 2019). The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The Board considers the fees paid to non-executive directors of comparable companies when undertaking the annual review process. Each non-executive director receives a fee for being a director of the Company. The non-executive chair receives an annual fee of $48,000, all other non- executive directors receive an annual fee of $36,000. In addition, non-executive directors receive an annual fee of $4,000 for each board sub-committee of which they are a member. Non-executive directors who are called upon to perform extra services beyond the director’s ordinary duties may be paid additional fees for those services. The following fees were paid to non- executive directors for additional services during the year ended 30 June 2020 (2019: $Nil): » $12,333 to Travis Dillon in relation to consulting services provided to the Sales and Marketing Team since commencing his role with the Group on 1 May 2020. Non-executive directors may also be granted equity incentives from time to time. The options granted are considered by the Board to be an effective means of appropriately compensating directors whilst preserving the Group’s cash reserves and providing an alignment between Director and shareholder interests. No equity incentives were issued to non-executive directors as remuneration during the financial year. EXECUTIVE DIRECTORS AND KEY MANAGEMENT PERSONNEL REMUNERATION OBJECTIVE The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group so as to: reward executives for Group and individual performance against agreed » targets; align the interest of executives with those of shareholders; link reward with the strategic goals and performance of the Group; and ensure total remuneration is competitive by market standards. » » » STRUCTURE In determining the level and make-up of executive remuneration, the Board has had regard to market levels of remuneration for comparable executive roles. It is the Board’s policy that employment contracts are entered into with all senior executives. 12 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 VARIABLE REMUNERATION - SHORT AND LONG-TERM INCENTIVES TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 OBJECTIVE The objectives of the incentives plan are to: » recognise the ability and efforts of the employees of the Group who have contributed to the success of the Group and to provide them with rewards where deemed appropriate; provide an incentive to the employees to achieve the long-term objectives of the Group and improve the performance of the Group; and attract persons of experience and ability to employment with the Group and foster and promote loyalty between the Group and its employees. » » STRUCTURE Long term incentives granted to senior executives are delivered in the form of share, options or performance rights in accordance with an Employee Incentive Plan. As part of the Group’s annual strategic planning process, the Board and Management agree upon a set of financial and non-financial objectives for the Group. The objectives form the basis of the assessment of Management performance and vary but are targeted directly to the Group’s business and financial performance and thus to shareholder value. REMUNERATION, GROUP PERFORMANCE AND SHAREHOLDER WEALTH C) The development of remuneration policies and structures is considered in relation to the effect on Group performance and shareholder wealth. They are designed by the Board to align director and executive behaviour with improving Group performance and ultimately shareholder wealth. The Board considers at this stage in the Group’s development, that share price growth itself is an adequate measure of total shareholder return. Executives are currently remunerated by a combination of cash base remuneration and options. The options granted are considered by the Board to provide an alignment between the employees and shareholders interests. The table below shows for the current financial year and previous financial year the total remuneration cost of the key management personnel, earnings per ordinary share (EPS), dividends paid or declared, and the closing price of ordinary shares on ASX at year end. Financial Year Total Remuneration $ 2020 2019 766,416 488,211 EPS (Cents) (3.27) (3.38) 1 The Company commenced trading on the ASX on 11 December 2019. D) REMUNERATION OF KEY MANAGEMENT PERSONNEL Dividends (cents) Share Price (cents) - - 17.5 n/a1 Compensation paid, payable or provided by the Group or on behalf of the Group, to key management personnel is set out below. Key management personnel include all directors of the Group and certain executives who, in the opinion of the Board and Managing Director, have authority and responsibility for planning, directing, and controlling the activities of the Group directly or indirectly. The Company’s Managing Director and other members of senior management are employed under individual contracts of employment with the Company. The contracts set out: » The individual’s total fixed compensation, including fixed cash remuneration and the Company’s superannuation contribution; Notice and termination provisions; and Employee entitlements including leave. » » The Company makes contributions with respect to the senior executives to complying superannuation funds in accordance with relevant superannuation legislation and the individual contracts of employment. 13 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 Summaries of material service agreements are set out below: » » » » » JIM COOPER, MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER » Term of Agreement – Commencing from 25 June 2020 and ongoing unless terminated in accordance with its terms. Base Remuneration – Effective 25 June 2020 $301,125 per annum, including superannuation contributions, on a full-time basis, subject to annual increases at the discretion of the Board of Directors. Termination – By four months’ notice from either party. Incentive benefits – Under the Employee Incentive Plan, to be determined by the Board of Directors after review of the annual company result for the relevant calendar year, and Management’s performance Equity – The Director shall be entitled to participate in the Employee Incentive Plan of the Company. STEPHEN KELLY, CHIEF FINANCIAL OFFICER AND COMPANY SECRETARIAL SERVICES The Company entered into a Consultancy Agreement with KCG Advisors Pty Limited pursuant to which Mr. Kelly was engaged to provide Chief Financial Officer and Company Secretarial services to the Company effective from 2 August 2019. The key terms of the Agreement are: » » KCG Advisors Pty Limited to receive $10,000 per month, exclusive of GST, for services provided by Mr. Kelly. Additional fee of $225 per hour for each additional hour of services provided over 60 hours in a calendar month. No additional hours were billed during the period. The Agreement is subject to a mutual 3-month notice period (but which may be immediately terminated by Terragen in the event of serious misconduct). JUSTUS HOMBURG, MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER » Base Remuneration – Effective 29 August 2019 $301,125 per annum, including superannuation contributions, on a full-time basis, subject to annual increases at the discretion of the Board of Directors. Termination – By six months’ notice from either party. Incentive benefits – Under the Employee Incentive Plan, to be determined by the Board of Directors after review of the annual company result for the relevant calendar year, and Management’s performance Equity – The Director shall be entitled to participate in the Employee Incentive Plan of the Company. » » » 14 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 15 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 2020 Salary and fees Super- annuation Employee entitlements Other (termination benefits) Total remuneration Proportion of remuneration that is performance based NON-EXECUTIVE DIRECTORS $ Paul Schober Sam Brougham f Gregory Robinson David Ryan a John Ryals b Ingrid van Dijken b Travis Dillon c, g 44,665 45,833 40,169 3,000 19,500 21,665 19,000 Total Non-Executive Directors 193,832 $ - - - - - - - - $ - - - - - - - - $ 44,665 45,833 40,169 3,000 19,500 21,665 19,000 193,832 - - - - - - - - EXECUTIVE DIRECTORS Justus Homburg d Jim Cooper e Total Executive Directors 290,785 3,466 21,048 301 294,251 21,349 6,717 267 6,984 140,000 - 458,550 4,034 140,000 462,584 OTHER KEY MANAGEMENT PERSONNEL Stephen Kelly 110,000 - - 110,000 - - - - 110,000 110,000 % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Total Key Management Personnel Total Director and KMP Compensation 598,083 21,349 6,984 140,000 766,416 0% a Resigned 31 July 2019 b Appointed 11 December 2019 c Appointed 1 May 2020 d Resigned 25 June 2020 e Appointed 25 June 2020 f Sam Brougham invoices director fees via Crofton Park Developments Pty Ltd atf Sam Brougham Family Trust. g Travis Dillon invoices director fees via Dillon Consulting Company Pty Ltd. 16 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 2019 Salary and fees Super- annuation Employee entitlements Other Total remuneration Proportion of remuneration that is performance based NON-EXECUTIVE DIRECTORS $ Paul Schober Sam Brougham Gregory Robinson Wayne Finlayson David Ryan Total Non-Executive Directors 36,000 48,000 36,000 12,000 36,000 168,000 $ - - - - - - - - - - - - EXECUTIVE DIRECTORS Justus Homburg 291,486 21,048 Total Executive Directors 291,486 21,048 7,677 7,677 Total Director and KMP Compensation 459,486 21,048 7,677 $ - - - - - - - - - $ 36,000 48,000 36,000 12,000 36,000 168,000 320,211 320,211 % 0% 0% 0% 0% 0% 0% 0% 0% 488,211 0% 17 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 SHARE-BASED COMPENSATION On 17 July 2019, Terragen established an employee incentive plan (Employee Incentive Plan) to assist in the motivation, reward and retention of its Directors, executive staff, and other selected employees. Incentives under the Employee Incentive Plan may be offered to an Eligible Employee which means: » » an employee of a Group Company; an executive director, a non-executive director, or a company secretary of a Group Company; or a contractor or consultant who provides services to a Group Company. » In selecting Eligible Employees to apply for, or otherwise receive incentives (Incentives), the Board will have regard to: » the position in the Terragen Group held or to be held by the Eligible Employee; the Eligible Employee’s length of service with the Terragen Group; the contribution made by the Eligible Employee to the Terragen Group; the potential contribution to be made by the Eligible Employee to the Terragen Group; and any other matters which the Board considers relevant. » » » » The following incentives may be issued under the Employee Incentive Plan: » » » a performance right; an option; and a share. A grant of Incentives under the Employee Incentive Plan is subject to both the rules of the Employee Incentive Plan and the terms of the specific grant. Options or performance rights granted under the Employee Incentive Plan may only be exercised if, at the time of exercise: » » the options or performance rights have vested; the options or performance rights have not been forfeited or lapsed; and the exercise price (for option or performance right (as adjusted if applicable)) has been paid. » During the financial year no incentives were issued under the Employee Incentive Plan. There are no options affecting remuneration in the current reporting period. At 30 June 2020 there are no options that have not yet been exercised, over ordinary shares in the Group, which were provided as remuneration to directors and key management personnel in prior years. The Board has rules that contain restrictions on removing the ‘at risk’ aspect of the options granted to executives. Executives may not enter into any transactions designed to remove the ‘at risk’ aspect of an instrument before it vests. There are no vesting conditions attached to the options. In the event of termination (specified circumstances) only vested options are entitled to be exercised and must be exercised within thirty days of termination or such other period as may be determined by the Board of Directors. 18 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 The assessed fair value at grant date of options granted to the individuals is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables above. Fair values at grant date are determined using an option pricing model that takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. SHARES PROVIDED ON EXERCISE OF REMUNERATION OPTIONS No shares were issued as a result of the exercise of options during the year. UNLISTED OPTION HOLDINGS The numbers of options over ordinary shares in the Group held during the financial year by each director and each key management person of the Group, including their personally related parties, are set out below: 2020 Name Balance at start of year Granted as remunera- tion Paul Schober - Sam Brougham 800,000 Gregory Robinson John Ryals Ingrid van Dijken Travis Dillon - - - - Justus Homburg 2,000,000 Jim Cooper Stephen Kelly - - Total 2,800,000 - - - - - - - - - - Acquired other than as remu- neration 80,000 800,000 - - 320,000 (320,000) - 100,000 - 200,000 - - - - - - - - Exercised Held at time of ceasing to be KMP Balance at end of year Vested and exercisable - - - - - - (2,200,000) - - 80,000 80,000 1,600,000 1,600,000 - - - - 100,000 100,000 - - - - - - - - 1,500,000 (320,000) (2,200,000) 1,780,000 1,780,000 2019 Name Balance at start of year Granted as remunera- tion Paul Schober Sam Brougham Gregory Robinson - - - Wayne Finlayson 400,000 David Ryan - Justus Homburg 2,000,000 Total 2,400,000 - - - - - - - Acquired other than as remu- neration 800,000 - - - - 800,000 Exercised Held at time of ceasing to be KMP Balance at end of year Vested and exercisable - - - - - - - - - - (400,000) - - - - 800,000 800,000 - - - - - - 2,000,000 2,000,000 (400,000) 2,800,000 2,800,000 19 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 SHARE HOLDINGS E) The number of shares in the Group held during the financial year by each director of Terragen Holdings Limited and other key management personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation (2019: nil). 2020 Balance at start of year Shares held on appoint- ment as KMP Acquisitions during the year Options converted Shares held on ceasing to be KMP Balance at the end of the year Key Management Personnel of Terragen Holdings Limited Ordinary shares Paul Schober 152,000 Sam Brougham 10,371,616 Gregory Robinson 3,363,000 David Ryan John Ryals Ingrid van Dijken Travis Dillon 741,032 - - - Justus Homburg 200,000 Jim Cooper Stephen Kelly - - - - - - - 1,290,000 - - 200,000 - - 4,350,000 - - 75,000 320,000 - - - 219,000 75,000 - 60,000 - - - - - - - - - - (741,032) - - - 152,000 14,721,616 3,758,000 - - 1,290,000 219,000 (275,000) - - - 200,000 60,000 14,827,648 1,490,000 4,779,000 320,000 (1,016,032) 20,400,616 2019 Balance at start of year Shares held on appoint- ment as KMP Acquisitions during the year Options converted Shares held on ceasing to be KMP Balance at the end of the year Key Management Personnel of Terragen Holdings Limited Ordinary shares Paul Schober - Sam Brougham 8,627,616 Gregory Robinson 3,120,000 Wayne Finlayson David Ryan 480,000 741,032 Justus Homburg - 12,968,648 - - - - - - - 152,000 1,744,000 243,000 - - 200,000 2,339,000 - - - - - - - - - - 152,000 10,371,616 3,363,000 (480,000) - - - 741,032 200,000 (480,000) 14,827,648 LOANS TO KEY MANAGEMENT PERSONNEL F) There were no loans to key management personnel at any time during the financial year however unpaid director and other fees amounted to $126,091. END OF REMUNERATION REPORT INSURANCE AND INDEMNIFICATION To the extent permitted by law, the Group has indemnified (fully insured) each director and the secretary of the Group. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings (that may be brought) against the officers in their capacity as officers of the Company or a related body, and any other payments arising 20 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2020 from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a willful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. PROCEEDINGS ON BEHALF OF THE GROUP The Group is not aware that any person has applied to the court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings in which the Group is a party, for the pur- pose of taking responsibility on behalf of the Group for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the court under section 237 of the Corporations Act 2001. NON-AUDIT SERVICES The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group are important. Details of amounts paid or payable to the auditor for audit and non-audit services provided during the year by the auditor are set out below: Other services Advice on taxation and other matters and review and lodgement of corporate tax returns Investigating accountants report for the IPO Prospectus $ 67,510 84,735 152,245 The directors are satisfied that the provision of non-audit services, during the year, by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services, as disclosed in note 2 to the financial statements, do not compromise the external auditor’s independence, for the following reasons: » all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 ‘Code of Ethics for Professional Accountants’, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. » Details of the amounts paid or payable to the auditor, Deloitte for audit services provided during the year are set out in note 2 to the financial report. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is attached to this report. AUDITOR Deloitte continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors. On behalf of the Directors, Jim Cooper Managing Director Melbourne, 28 August 2020 21 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY AUDITOR’S INDEPENDENCE DECLARATION Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia Tel: +61 (0) 3 9671 7000 Fax: +61 (0) 3 9671 7001 www.deloitte.com.au The Board of Directors Terragen Holdings Limited Unit 6, 39 Access Street COOLUM BEACH QLD 4573 28 August 2020 Dear Board Members, Terragen Holdings Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Terragen Holdings Limited. As lead audit partner for the audit of the financial statements of Terragen Holdings Limited for the financial year ended 30 June 2020, I declare to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Peter Glynn Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited 20 22 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia DX: 111 Tel: +61 (0)3 9671 7000 Fax: +61 (0)3 9671 7001 www.deloitte.com.au Independent Auditor’s Report to the members of Terragen Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Terragen Holdings Limited (the “Company”), and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2020, consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters We have determined that there are no key audit matters to communicate in our report. Other Information The directors are responsible for the other information. The other information comprises the Operating and Financial Overview, Directors’ Report and ASX Announcement – Annual Results Announcement which we obtained prior to the date of our auditors report, and also includes the following information which will be included in the Group’s annual report (but does not include the financial report and our auditor’s report thereon): Corporate Directory, Corporate Governance Report and Shareholder Information, which is expected to be made available to us after that date. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network 21 23 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, 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. When we read the Corporate Directory, Corporate Governance Report and Shareholder Information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. The Directors’ Responsibilities for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’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 to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. 22 24 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY • • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 10 to 18 of the directors’ report for the year ended 30 June 2020. 20 In our opinion, the Remuneration Report of Terragen Holdings Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of Terragen Holdings Limited are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Peter Glynn Partner Chartered Accountants Melbourne, 28 August 2020 23 25 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue Other income Accounting and audit expenses Advertising and marketing expenses ASX and share registry expenses Computer costs Consulting costs Depreciation and amortisation expense Direct research expenses Employee benefits expense Finance costs Insurance costs Initial public offering costs Legal costs Motor vehicle costs Occupancy costs Raw materials and consumables used Transport costs Travel and accommodation Other expenses Loss before income tax expense from continuing operations Income tax benefit Notes 3 3 4 5 7 2020 $ 1,530,853 495,050 (231,324) (260,568) (79,665) (88,292) (361,740) (443,427) (584,309) 2019 $ 981,007 254,205 (120,236) (70,074) - (59,447) (345,426) (273,010) (235,808) (3,188,241) (2,639,643) (29,824) (98,583) (428,691) (112,736) (94,164) (141,843) (444,225) (190,561) (152,165) (539,098) (19,581) (72,184) - (15,943) (130,083) (137,475) (338,023) (145,402) (44,653) (436,349) (5,443,553) (3,848,125) 9 517,938 637,384 Loss for the year after income tax benefit (4,925,615) (3,210,741) Other comprehensive income Items that may be reclassified subsequently to profit or loss Gain on translation of foreign operations 40 - Total comprehensive loss for the year (4,925,575) (3,210,741) Basic and diluted loss per share (cents per share) 10 (3.27) (3.38) The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 26 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Current tax asset Total current assets Non-current assets Right of use assets Property, plant, and equipment Intangible assets Other assets Total non-current assets TOTAL ASSETS Current liabilities Trade and other payables Borrowings Employee provisions Total current liabilities Non-current liabilities Borrowings Employee provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS Equity Issued capital Reserves Accumulated losses TOTAL EQUITY Notes 2020 $ 2019 $ 22 11 12 13 14 15 16 17 18 19 18 19 20 21 16,378,408 1,837,241 391,882 64,155 185,448 517,938 410,315 35,836 - 645,321 17,537,831 2,928,713 397,837 776,779 132,290 122,256 1,429,162 18,966,993 1,173,764 221,321 219,825 1,614,910 254,985 54,543 309,528 1,924,438 17,042,555 - 824,955 72,685 122,256 1,019,896 3,948,609 653,901 125,430 185,212 964,543 102,345 45,457 147,802 1,112,345 2,836,264 41,560,581 22,222,619 1,636,894 1,877,793 (26,154,920) (21,264,148) 17,042,555 2,836,264 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 27 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2020 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Balance as at 1 July 2019 22,222,619 1,877,793 (21,264,148) 2,836,264 Loss for the year Other comprehensive income Total comprehensive loss for the year - - - Transactions with owners in their capacity as owners: Issue of share capital Capital raising costs 20,050,000 (918,134) - 40 40 - - (4,925,615) (4,925,615) - 40 (4,925,615) (4,925,575) - - 20,050,000 (918,134) Options exercised or lapsed in relation to employee incentive arrangements Total transactions with owners in their capacity as owners 206,096 (240,939) 34,843 - 19,337,962 (240,939) 34,843 19,131,866 Balance as at 30 June 2020 41,560,581 1,636,894 (26,154,920) 17,042,555 2019 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Balance as at 1 July 2018 19,718,579 1,129,170 (18,053,407) 2,794,342 Loss for the year Other comprehensive income Total comprehensive loss for the year - - - Transactions with owners in their capacity as owners: Issue of share capital Capital raising costs 2,650,968 (146,928) - - - - - Fair value of share options issued - 748,623 Total transactions with owners in their capacity as owners 2,504,040 748,623 (3,210,741) (3,210,741) - - (3,210,741) (3,210,741) - - - - 2,650,968 (146,928) 748,623 3,252,663 Balance as at 30 June 2019 22,222,619 1,877,793 (21,264,148) 2,836,264 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 28 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 CONSOLIDATED STATEMENT OF CASH FLOWS Cash flow from operating activities Receipts from customers Payments to suppliers and employees Interest and other costs of finance paid Interest received Government grants received Research and development tax concessions received TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY 2020 $ 2019 $ 1,550,056 975,380 (6,472,549) (4,550,902) (29,824) 98,455 315,655 645,321 (19,581) 10,992 234,390 1,213,534 Net cash flows used in operating activities 22(b) (3,892,886) (2,136,187) Cash flow from investing activities Payments for property, plant, and equipment Proceeds from sale of property, plant & equipment Payments for intangible assets Net cash used in investing activities Cash flow from financing activities Proceeds from share issue Costs of issuing equity securities Repayments of borrowings Repayment of lease liabilities (refer note 1(e)) (376,581) (637,032) - (64,868) 54,083 - (441,449) (582,949) 20 20 20,050,000 2,882,832 (918,134) (93,207) (163,239) - - (4,323) Net cash provided by financing activities 18,875,420 2,878,509 Cash and cash equivalents at the beginning of the year 1,837,241 1,677,868 Net increase in cash and cash equivalents 14,541,085 159,373 Foreign exchange difference on cash and cash equivalents 82 - Cash and cash equivalents at the end of the year 22(a) 16,378,408 1,837,241 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 29 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY NOTES TO THE FINANCIAL STATEMENTS INTRODUCTION The financial report covers Terragen Holdings Limited (the “Company” or “Terragen”) and the entity it controlled for the year ended 30 June 2020 (collectively “Group”). Terragen Holdings Limited is a listed public company limited by shares, incorporated, and domiciled in Australia. The presentation currency and functional currency of the Company is Australian dollars. The principal activities of the Company during the financial year were research, development, and early market development of biological products in the agriculture sector. The Registered office and principal place of business address of the Company is Unit 6, 39 Access Crescent, Coolum Beach, QLD, Australia, 4573. The financial report was authorised for issue by the Board of Directors of Terragen on the date shown on the Declaration by Directors attached to the Financial Statements. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 1. The principal accounting policies which have been adopted in the preparation of these financial statements are set out below. STATEMENT OF COMPLIANCE A. The financial report is a general-purpose financial report which has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards, and Interpretations, and complies with other requirements of the law. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB). BASIS OF PREPARATION B. The financial report has been prepared on historical cost basis. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars unless otherwise noted. All values are rounded to the nearest dollar. The accounting policies have been consistently applied and, except where there is a change in accounting policy, are consistent with those of the previous year. GOING CONCERN C. The financial statements have been prepared in accordance with generally accepted accounting standards, which are based on the Company continuing as a going concern. EARNINGS PER SHARE D. Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. 30 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 NEW ACCOUNTING STANDARDS AND INTERPRETATIONS E. The Group has adopted all the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current year. New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Group include: » » AASB 16 Leases Interpretation 23 Uncertainty over Income Tax Treatments and AASB 2017-4 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatment. AASB 16 LEASES The Group has adopted the new lease accounting standard AASB 16 Lease from 1 July 2019. AASB 16 introduces significant changes to lessee accounting by removing the classification of leases as either operating or finance leases as required by AASB 117 and instead introduces a single lessee accounting model. Applying that model, a lessee is required to: » Recognise assets and liabilities for all leases with a term of more than 12 months in the Consolidated Statement of Financial Position initially measured at the present value of the future lease payments, unless the underlying asset is of low value or the leasing arrangement is short term. Recognise amortisation of lease assets separately from interest on lease liabilities in the Statement of Profit or Loss. Separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the Consolidated Cash Flow Statement. » » The Group has elected to apply the modified retrospective approach for leases. For leases, which were classified as operating leases under AASB 117, the Group has recognised right-of-use assets and lease liabilities as at the transition date (1 July 2019). The Group has reclassified assets previously classified as finance leases on the adoption date which were previously classified as property, plant & equipment. The effect as at 1 July 2019 of the recognition of the new right-of-use assets and lease liabilities is disclosed below: Increase in right of use assets Decrease in assets from property, plant & equipment (transferred to right-of-use assets) Increase in lease liabilities – current Increase in lease liabilities – non-current Impact on retained earnings The effect for the year ended 30 June 2020 was to: Increase in depreciation and amortisation expense Increase in finance costs Decrease in occupancy costs (lease rentals) 1 July 2019 ($) 421,386 (143,215) (57,563) (212,719) - (65,452) (8,138) 65,701 The application of AASB 16 has an impact on the consolidated statement of cash flows of the Group. Under AASB 16, lessees must present: » short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liability as part of operating activities; cash paid for the interest portion of a lease liability as either operating activities or financing activities, as permitted by AASB 107 (the Group has opted to include interest paid as part of financing activities); and cash payments for the principal portion for a lease liability, as part of financing activities. » » 31 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 Under AASB 117, all lease payments on operating leases were presented as part of cash flows from operating activities. Consequently, the net cash used by operating activities has decreased by $85,807, being the lease payments net of the interest expense component, and net cash used in financing activities has increased by the same amount. The adoption of AASB 16 did not have an impact on net cash flows. INTERPRETATION 23 UNCERTAINTY OVER INCOME TAX TREATMENTS AND AASB 2017-4 AMENDMENTS TO AUSTRALIAN ACCOUNTING STANDARDS – UNCERTAINTY OVER INCOME TAX TREATMENT The Group has adopted IFRIC 23 for the first time in the current year. IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The Interpretation requires the Group to: » » determine whether uncertain tax positions are assessed separately or as a group; and assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings: - If yes, the Group should determine its accounting tax position consistently with the tax treatment used or planned to be used in its income tax filings; and if no, the Group should reflect the effect of uncertainty in determining its accounting tax position using either the most likely amount or the expected value method. - As there were no uncertain tax positions, the adoption of this Standard did not have any material impact on the financial statements. NEW AND REVISED IFRS STANDARDS IN ISSUE BUT NOT YET EFFECTIVE The Directors do not consider that the adoption of any new Standards and Interpretations in issue but not yet effective at the date of these financial statements will have a material impact on the financial statements of the Group. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY F. In the application of the Group’s accounting policies, which are described below, Management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. CRITICAL JUDGEMENTS AND ESTIMATES IN APPLYING THE GROUP’S ACCOUNTING POLICIES The directors have made the following critical judgements and estimations in the process of applying the Group’s accounting policies. IMPACT OF COVID-19 The outbreak of COVID-19 and the subsequent quarantine measures imposed by the Australian and other governments as well as the travel and trade restrictions imposed by Australia and other countries in early 2020 have caused disruption to businesses and economic activity. However, as noted in the ‘Impact of COVID-19 pandemic on operations’ section of the Directors’ Report, the Board and Management have considered the impact of COVID-19 on the consolidated entity’s operations and financial performance and have noted that the Group has not been materially impacted. The COVID-19 pandemic has had a negligible impact on the Group’s operation or results. The Group achieved significant sales growth over the prior financial year with sales and production activity in Australia continuing throughout the COVID-19 pandemic. Sales in New Zealand were adversely impacted in April and May 2020 due to COVID-19 restrictions effectively stopping sales related activity in New Zealand and which recommenced in late May 2020. In response to COVID-19, both Federal and the State Government of Victoria have implemented policies and measured with the aim of containing the virus. In an effort to contain the spread of the virus, the Victorian Government, on 2 August 2020, implemented Stage 4 restrictions in Melbourne and Stage 3 restrictions in regional Victoria with quarantine 32 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 restrictions, travel restrictions, closure of businesses and other restrictive movement measures. Given the principal operating location is in Queensland, these measures have only had a negligible impact of the business. The Group received a $50,000 cash boost grant from the Australian government related to COVID-19 during the financial year. In preparing the consolidated financial report, Management has considered the impact of COVID-19 on the various balances in the financial report, including the carrying values of trade receivables and finite life non-current assets. Management determined that there was no significant impact of Covid-19 on the abovementioned balances and accounting estimates. JUDGEMENTS With regard to research and development costs incurred during the financial year it has been determined that the Group has not met the criteria as outlined in Note 1(v) as the ability to successfully commercialise Terragen’s products is dependent on broadening the range of uses which is unlikely to occur until Terragen has data to validate the benefits of its products in those wider applications. The research and development expenditure incurred by the Group during the financial year was primarily designed to provide this additional evidence. KEY SOURCES OF ESTIMATION UNCERTAINTY In the following notes are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. ESTIMATION UNCERTAINTY Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income, and expenses is provided in the following notes: TAX RECEIVABLES I. Management estimated the amount receivable that can be claimed in respect of Research and Development tax offsets based on application of the rules and requirements of the relevant tax legislation. Refer also to Note 1(p). RECOVERABILITY OF DEFERRED TAX ASSET II. Deferred tax assets have not been recognised as Management does not believe that the members of the Group satisfy the recognition criteria set out in paragraph 35 of AASB12 i.e. “that the entity has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilised by the entity”. There have been no other significant estimates and judgements made in applying accounting policies that the Directors consider would have a significant effect on the amounts recognised in the financial statements. There have been no key assumptions made concerning the future, and there are no other key sources of estimation uncertainty at the reporting date, that the Directors consider would have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. G. PRINCIPLES OF CONSOLIDATION SUBSIDIARIES Subsidiaries are all entities over which the Group has control. The Group controls an entity where the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 33 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet, respectively. When the Group ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the entity is re-measured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture, or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in a joint venture or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. FOREIGN CURRENCY TRANSLATION H. In preparing the financial statements of the Group, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within finance costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within other expenses. BORROWINGS I. Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the borrowing using the effective interest rate method. CASH AND CASH EQUIVALENTS J. Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. EMPLOYEE BENEFITS K. A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long-term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions. L. FINANCIAL INSTRUMENTS RECOGNITION AND DERECOGNITION Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. 34 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. All recognised financial assets are measured subsequently in their entirety at amortised cost. CLASSIFICATION OF FINANCIAL ASSETS Debt instruments that meet the following conditions are measured subsequently at amortised cost: » » The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows. The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Debt instruments that meet the following conditions are measured subsequently at fair value through other comprehensive income (FVTOCI): » the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. » By default, all other financial assets are measured subsequently at fair value through profit or loss (FVTPL). In the preparation of these financial statements, all financial assets are measured at amortised cost. INITIAL MEASUREMENT OF FINANCIAL ASSETS Financial assets are classified according to their business model and the characteristics of their contractual cash flows. IMPAIRMENT OF FINANCIAL ASSETS The Group makes use of a simplified approach for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators, and forward-looking information to calculate the expected credit losses. FINANCIAL LIABILITIES All financial liabilities are measured subsequently at amortised cost using the effective interest method or at FVTPL. However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, and financial guarantee contracts issued by the Group, are measured in accordance with the specific accounting policies set out below. FINANCIAL LIABILITIES MEASURED AT AMORTISED COST The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability. TRADE PAYABLES M. Trade payables and other accounts payable are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services. GOODS AND SERVICES TAX (GST) N. Revenues, expenses, and assets are recognised net of the amount of goods and services tax (GST), except: i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or for receivables and payables which are recognised inclusive of GST. ii. 35 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the statement of cash flows on a net basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. IMPAIRMENT OF ASSETS O. At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. P. INCOME TAX CURRENT TAX The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. DEFERRED TAX Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill. CURRENT AND DEFERRED TAX FOR THE YEAR Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. 36 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 Management estimates the amount of Research and Development tax offsets based on application of the rules and requirements of the legislation. The Group recognises the benefit in the determination of income tax expense/benefit. TAX CONSOLIDATION The company and its wholly-owned Australian resident entity are members of a tax-consolidated group under Australian tax law. Terragen Holdings Limited is the head entity within the tax-consolidated group. In addition to its own current and deferred tax amounts, the company also recognises the current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated group. Amounts payable or receivable under the tax-funding arrangement between the company and the entities in the tax consolidated group are determined using a ‘separate taxpayer within group’ approach to determine the tax contribution amounts payable or receivable by each member of the tax-consolidated group. This approach results in the tax effect of transactions being recognised in the legal entity where that transaction occurred, and does not tax effect transactions that have no tax consequences to the group. The same basis is used for tax allocation within the tax-consolidated group. INVENTORIES Q. Inventories are valued at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventory on hand by the method most appropriate to each class of inventory, with the majority being valued on a first in first out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. R. LEASES GROUP AS LESSEE The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right- of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant, and equipment with the exception that they factor in lease renewals where relevant. In addition, the right-of-use assets are periodically reduced by impairment losses in accordance with AASB 136 Impairment of Assets, if any, and adjusted for certain re-measurements of the lease liability. LEASE LIABILITIES The lease liability is initially measured at present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate as the discount rate. The discount rate is generally calculated using incremental borrowing rates for the specific lease terms and currencies. The weighted average incremental borrowing rate used to calculate the lease liabilities as of 1 July 2019 was 3.3%. Lease liabilities are disclosed as borrowings in the Statement of Financial Position. Lease payments included in the measurement of the lease liability comprise the following: » » fixed payments, including in substance fixed payments less any lease incentives receivables; variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement rate; amounts expected to be payable under a residual value guarantee; the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option; and payment of penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. » » » The lease liability is presented as a separate line in the consolidated statement of financial position. 37 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 The lease liability is measured at amortised cost using the effective interest method. It will be remeasured when there is a change in index rate for future lease payments, a change in the Group’s estimated amount payable under a residue value guarantee or changes in the Group’s assessment of probabilities of exercising a purchase, extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group did not make any such adjustment during the period presented. POLICIES APPLICABLE PRIOR TO 1 JULY 2019 Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. GROUP AS LESSEE Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. PROPERTY, PLANT, AND EQUIPMENT S. Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and any impairment in value. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit and loss during the financial period in which they are incurred. The depreciable amounts of all fixed assets including buildings, but excluding freehold land, are depreciated over their estimated useful lives to the Group commencing from the time the asset is held ready for use. The following depreciation rates are used in the calculation of depreciation: Depreciation Rate 10 – 40% 10 – 50% 25% 20 – 33% 25% Basis Straight line Straight line Straight line Straight line Straight line Class of Fixed Assets Plant and equipment Furniture & fittings Motor vehicles Plant and Equipment R&D Leasehold improvements 38 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 Right-of-use assets are depreciated over the shorter period of the lease term and the useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. PROVISIONS T. Provisions are recognised when the Group has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, considering the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably. U. REVENUE RECOGNITION SALE OF GOODS Revenue is recognised at the time goods are delivered to the customer as this is the point in time that the Group satisfies its performance obligations. Gross revenue is reduced for sale rebates at the point of sale. Rebates are granted to agents who are members of the Retail Agency Partner Network (having signed Retail Agency Partner Agreements). GRANT REVENUE Grant revenue is recognised at fair value when there is reasonable assurance that the grants will be received. Grant revenue is recognised in profit or loss in the same period as the relevant expenses. INTEREST REVENUE Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. V. INTANGIBLE ASSETS INTERNALLY-GENERATED INTANGIBLE ASSETS - RESEARCH AND DEVELOPMENT EXPENDITURE Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: » » » » » the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. » The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. 39 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 COMPARATIVE FIGURES W. Where necessary, the comparative figures have been adjusted to conform to changes in presentation in the current financial year. REMUNERATION OF AUDITORS 2. During the year, the following fees were paid or payable for services provided by the auditor of the parent entity and its related practices: Deloitte Touche Tohmatsu i. Audit and assurance services Audit and review of financial reports Investigating accountants report for the IPO Prospectus 2020 $ 97,325 84,735 2019 $ 28,500 - Total remuneration for audit and assurance services 182,060 28,500 ii. Other services Advice on taxation and other matters and review and lodgement of corporate tax returns 67,510 Total Remuneration 249,570 40,000 68,500 3. REVENUE AND OTHER INCOME Sale of goods Other income Grant income Interest received COVID-19 grant received Other income Total Other Income Total revenue and other income 2020 $ 2019 $ 1,530,853 981,007 315,655 98,455 50,000 30,940 234,390 10,992 - 8,823 495,050 254,205 2,025,903 1,235,212 The COVID-19 grant received is the ATO cash flow boost of $50,000. The Group did not receive any other COVID-19 related grants. 4. DEPRECIATION AND AMORTISATION EXPENSE Amortisation of Right-of-use assets (refer to note 1(e) and note 14) Amortisation of property, plant, and equipment (refer to note 15) Amortisation of intangible assets (refer to note 16) Total depreciation and amortisation expense 2020 $ 156,622 281,542 5,263 2019 $ - 267,747 5,263 443,427 273,010 40 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 5. EMPLOYEE BENEFIT EXPENSE Salaries and wages Post-employment benefits Termination benefits Employee on-costs Total employee benefit expense 6. RESEARCH AND DEVELOPMENT EXPENSE Direct research and development expenses Employee benefits expense Depreciation and amortisation expense Other expenses TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 2020 $ 2019 $ 2,647,098 2,279,993 191,595 206,000 143,548 180,739 - 178,911 3,188,241 2,639,643 2020 $ 584,309 536,369 36,437 104,103 2019 $ 235,808 988,411 39,465 219,603 Total research and development expense 1,261,218 1,483,287 The above note shows total expenditure for the research and development by function contrasting with the Consolidated Statement of Profit or Loss and Other Comprehensive Income which details expenses by nature. 7. FINANCE COSTS Interest on bank overdrafts and loans Interest on lease liabilities Other finance costs 2020 $ - 19,286 10,538 29,824 2019 $ 5,861 11,487 2,233 19,581 OPERATING SEGMENTS 8. The Group has identified its operating segments based on the internal reports that were reviewed and used by the Group’s Chief Executive (the Chief Operating Decision Maker (CODM)) in assessing performance and determining the allocation of resources during the year. The Group is managed primarily on a geographic basis, that is, the countries in which products are sold. Operating segments are therefore determined on the same basis. The CODM assesses the performance of the operating segments based on revenue and expenditure that is recognised in the statement of profit or loss in these financial statements. The measurement of gross expenditure does not include non-cash items such as depreciation expense and share based payments expense. Geographic locations from which reportable segments derive their revenues: » » Australia New Zealand 41 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 Both operating segments generated revenue during the year. Revenue is recognized at the point in time that the Group satisfies its performance obligations by transferring the promised goods to its customers. Gross revenue is subsequently reduced for sale rebates. Rebates are granted to agents who are members of the Retail Agency Partner Network (having signed Retail Agency Partner Agreements). Assets, liabilities, and cash flows are not allocated to segments in the internal reports that are prepared for the CODM. The following tables present revenue and loss information for the Group’s operating segments for year ended 30 June 2020 and 30 June 2019, respectively. III. SEGMENT PERFORMANCE 30 June 2020 Total segment revenue Segment other income Segment expenditure Segment result Reconciliation of segment result to Group loss before tax: Depreciation expense Provision for expected credit losses Other income Net loss before tax Australia $ 1,295,149 98,455 (6,615,419) (5,221,815) New Zealand $ TOTAL $ 235,704 1,530,853 - (330,440) (94,736) 98,455 (6,945,859) (5,316,551) (443,427) (80,171) 396,596 (5,443,553) MAJOR CUSTOMERS Included in revenues arising from the Australian segment, are the following revenues which arose from sales to the Group’s three largest customers. » » » No other single customers contributed 10 per cent or more to the Group’s revenue. Customer A - $349,300 Customer B - $163,484 Customer C - $161,280 30 June 2019 Total segment revenue Segment other income Segment expenditure Segment result Reconciliation of segment result to Group loss before tax: Depreciation expense Provision for expected credit losses Other income Net loss before tax Australia $ 878,108 10,992 (4,637,507) (3,748,407) New Zealand $ 102,899 - (105,873) (2,974) TOTAL $ 981,007 10,992 (4,743,380) (3,751,381) (273,010) (66,947) 243,213 (3,848,125) 42 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 SEGMENT ASSETS IV. The following tables present assets and liabilities information for the Group’s operating segments as at 30 June 2020 and 30 June 2019, respectively. 30 June 2020 Segment assets 30 June 2019 Segment assets Australia $ New Zealand $ TOTAL $ 18,713,496 253,497 18,966,993 Australia $ 3,829,708 New Zealand $ TOTAL $ 118,901 3,948,609 9. The income tax expense/benefit can be reconciled to the accounting profit/loss as follows: INCOME TAX EXPENSE a. Components of tax benefit Current tax Deferred tax b. Prima facie tax benefit Loss from continuing operations Non-deductible expenditure Income tax benefit calculated at 27.5% Non-recognition of current year taxable loss Over provision of prior year R&D offset Research and Development tax offset c. Current tax asset Opening balance R&D Tax concession received Over provision of prior year R&D offset Research and Development tax offset accrual Closing balance 2020 $ 2019 $ 1,458,174 1,079,544 (940,236) (442,160) 517,938 637,384 (5,443,553) (3,848,125) 1,566,994 1,729,453 (3,876,559) (2,118,672) 1,066,054 582,635 (1,066,054) (582,635) - 517,938 517,938 (7,937) 645,321 637,384 645,321 1,221,471 (645,321) (1,213,534) - 517,938 517,938 (7,937) 645,321 645,321 Deferred tax assets associated with income tax losses have not been recognised due to uncertainty as to the timing of their recoupment from sufficient future taxable income. Deferred tax assets relating to unused tax losses that may potentially be available to the Group, subject to meeting the requirements under tax legislation, at 27.5% tax rate is $3,353,232 as at 30 June 2020 (2019: $2,287,178). 43 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 LOSS PER SHARE 10. Both the basic and diluted loss per share have been calculated using the loss for the year. The reconciliation of the weighted average number of shares for the purpose of diluted loss per share to the weighted average number of ordinary shares used in the calculation of basic loss per share is as follows: Loss attributable to the owners of the Group Weighted average number of shares used in basic loss per share Weighted average number of shares used in diluted loss per share (i) 2020 $ 2019 $ (4,925,615) (3,210,741) 2020 Number 2019 Number 150,749,667 94,783,088 150,749,667 94,783,088 i. There were no potential ordinary shares that are considered dilutive as they did not meet the requirements for inclusion as per AASB 133 Earnings per share since the Group generated losses for the year ended 30 June 2020. 11. TRADE AND OTHER RECEIVABLES Trade receivables Loss allowance Other receivables 2020 $ 410,585 (147,118) 263,467 128,415 391,882 2019 $ 469,140 (66,947) 402,193 8,122 410,315 The average credit period on sales of goods is 47 days. No interest is charged on outstanding trade receivables. The Group has provided 100% for trade receivables overdue by more than 3 months at year-end. 12. OTHER CURRENT ASSETS Deposits and guarantees Prepayments 2020 $ 109,398 76,050 185,448 2019 $ - - - Prepayments relate principally to prepaid insurance premiums. Security deposits relate to leased properties as disclosed in Note 14 and deposits held as security against a corporate credit card facility. 13. CURRENT TAX ASSETS Tax incentive on research and development 2020 $ 2019 $ 517,938 645,321 44 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 Movements in the tax incentive due during the year are set out below: Opening balance at 1 July Tax incentive on research and development received Over provision of prior year research and development offset Accrual of tax incentive for the year Closing balance at 30 June 14. RIGHT-OF-USE ASSETS 645,321 1,221,471 (645,321) (1,213,534) - 517,938 517,938 (7,937) 645,321 645,321 Cost Balance at 30 June 2019 Initial application of AASB 16 (refer note 1(e)) Additions At 30 June 2020 Accumulated amortisation Balance at 30 June 2019 Initial application of AASB 16 (refer note 1(e)) Amortisation for the year At 30 June 2020 Carrying amount at 30 June 2020 Buildings $ Motor vehicles $ Research equipment $ Total $ - 278,171 133,073 411,244 - - 85,272 85,272 325,972 - - 217,543 109,289 - - 217,543 109,289 - 109,467 39,990 149,457 68,086 - 74,150 31,360 105,510 3,779 - 605,003 133,073 738,076 - 183,617 156,622 340,239 397,837 The consolidated entity leases several assets including buildings, motor vehicles and plant and equipment used in manufacturing and research and development activities. Refer note 1 for further information on the consolidated entity’s accounting policy for leases as a lessee. A new lease contract was entered into for an additional building space in the Group’s operating premises, to expand the original production and administration facility. This resulted in additions to right-of-use assets of $133,073. The maturity analysis of lease liabilities is presented in note 23. The following amounts were recognised in the loss for the year in relation to right-of-use assets: Amortisation expense on right of use assets Interest expense on lease liabilities The Group does not sub-lease any right-of-use assets. The total cash outflow, inclusive of interest, for leases amounted to $182,523 (2019: $74,116). 2020 $ 156,622 19,286 45 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 15. PROPERTY, PLANT, AND EQUIPMENT CARRYING AMOUNTS OF Plant and equipment Office equipment Motor Vehicles Research equipment Leasehold improvements Written down value 2020 $ 59,654 3,044 78,987 288,371 346,723 776,779 2019 $ 25,915 6,210 108,076 454,088 230,666 824,955 MOVEMENTS IN CARRYING AMOUNTS Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year: Plant & equipment $ Office equipment $ Motor vehicles $ Research equipment $ Leasehold improve- ments $ Total $ Cost Balance 1 July 2019 186,200 66,146 217,543 669,445 246,048 1,385,382 Transfer to right of use assets on initial adoption of AASB 16 (refer note 1(e)) Additions Disposals - 56,250 - - 791 - (217,543) (109,289) - (326,832) 88,471 30,819 200,250 376,581 - - - - Balance 30 June 2020 242,450 66,937 88,471 590,975 446,298 1,435,131 Accumulated depreciation Balance 1 July 2019 (160,285) (59,936) (109,467) (215,357) (15,382) (560,427) Transfer to right of use assets on initial adoption of AASB 16 (refer note 1(e)) - - 109,467 74,150 - 183,617 Depreciation Disposals Balance 30 June 2020 Written down value (22,511) (3,957) (9,484) (161,397) (84,193) (281,542) - - - - - - (182,796) (63,893) (9,484) (302,604) (99,575) (658,352) 59,654 3,044 78,987 288,371 346,723 776,779 46 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 16. INTANGIBLE ASSETS Patents & trademarks Accumulated amortisation Total intangible assets Balance at the beginning of the year Additions from separate acquisitions Amortisation charge for the year Balance at the end of the year 2020 $ 168,704 (36,414) 132,290 2020 $ 72,685 64,868 (5,263) 132,290 Patents and trademarks are amortised over their estimated useful lives, which is on average 20 years. 17. TRADE AND OTHER PAYABLES Trade payables Accrued expenses Other payables 2020 $ 289,461 774,733 109,570 2019 $ 103,836 (31,151) 72,685 2019 $ 77,666 282 (5,263) 72,685 2019 $ 107,026 420,126 126,749 Trade payables have an average credit period of 37 days from invoice date. The carrying values of the trade and other payables are considered to be a reasonable approximation of fair value. 1,173,764 653,901 47 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 18. BORROWINGS Current – at amortised cost Insurance premium funding Lease liabilities (refer note 1(e)) Non-current – at amortised cost Lease liabilities (refer note 1(e)) 2020 $ 2019 $ 38,021 183,300 221,321 2020 $ 37,495 87,935 125,430 2019 $ 254,985 102,345 MOVEMENTS IN LEASE LIABILITIES Movement in the lease liabilities between the beginning and the end of the current financial year: Balance at the beginning of the year Lease liabilities recognised on initial adoption of AASB 16 (i) (refer to note 1(e)) New leases entered into during the period Lease payments made Portion of lease payments recognised as finance cost Balance at the end of the year Recognised as: Current Non-current 2020 $ 190,280 278,171 133,073 (182,525) 19,286 438,285 183,300 254,985 438,285 2019 $ 232,097 20,812 - (74,116) 11,487 190,280 87,935 102,345 190,280 i. The lease liabilities recognised on initial adoption of AASB 16 reconciles to operating lease commitments disclosed in the financial statements for the year ended 30 June 2019 as follows: Operating lease commitments at 30 June 2019 Less: Interest component of lease payments Lease liability recognised on initial adoption of AASB 16 2020 $ 284,183 (6,012) 278,171 48 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 19. PROVISIONS Current Employee benefits Non-current Employee benefits TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 2020 $ 2019 $ 219,825 185,212 2020 $ 2019 $ 54,543 45,457 The provision for employee benefits relates to the Group’s liability for accumulated long service and annual leave entitlements. 20. ISSUED CAPITAL Ordinary shares (a) ‘B’ Class shares (b) Total 2020 $ 2019 $ 41,560,581 22,200,119 - 22,500 41,560,581 22,222,619 ORDINARY SHARES (A) At shareholder meetings, each ordinary share has the right to attend and vote, one vote for every share held. Each ordinary share has the right to participate in the dividends (if any) declared on that class of share. Ordinary shares -issued and fully paid Beginning of the year Issue of shares Shares issued on the exercise of options (refer note 21(a)) 2020 shares 2019 shares 2020 $ 2019 $ 104,508,902 91,754,859 22,200,119 19,696,079 80,200,000 12,214,043 20,050,000 2,515,968 1,112,000 - 206,096 - Shares issued as remuneration - 540,000 - 135,000 Shares issued on conversion of “B” Class shares (refer note (b)) Capital raising costs Balance at 30 June 1,000,000 - - - 22,500 - (918,134) (146,928) 186,820,902 104,508,902 41,560,581 22,200,119 At shareholder meetings, each ordinary share is entitled to attend and vote, one vote for every share held. Shares issued as remuneration are issued at the market value of the shares with reference to recent capital raisings. FULLY PAID CLASS B SHARES (B) During the year, the holders of “B” Class Shares converted their shares into fully paid ordinary shares. No consideration was payable on the conversion as the holders had previous paid consideration for the “B” Class Shares. There were no class B Shares on issue as at 30 June 2020 (2019: 1,000,000) 49 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 21. RESERVES Share based payments reserve (a) Equity options reserve (b) Foreign currency translation reserve Total reserves A) SHARE BASED PAYMENT RESERVE 2020 $ 2019 $ 1,123,062 1,364,001 513,792 513,792 40 - 1,636,894 1,877,793 2020 options 2019 options 2020 $ 2019 $ Options issued: Outstanding at the beginning of the year 8,195,000 Issued during the year Exercised during the year Lapsed during the year - (1,112,000) (188,000) 7,165,000 1,030,000 1,364,001 1,129,170 - 234,831 - - (206,096) (34,843) - - Outstanding at the end of the year 6,895,000 8,195,000 1,123,062 1,364,001 DETAILS OF THE EMPLOYEE INCENTIVE PLAN (EIP) OF THE GROUP The Group has an EIP for directors, executives, employees, contractors and consultants of the Group and its subsidiaries (Eligible Participants). As approved by the Board, disclosed in the Prospectus dated 18 October 2019, and in accordance with the terms of the EIP, Eligible Participants may be granted options or performance rights to purchase ordinary shares (Awards). Each Award converts into one ordinary share of the Group on exercise. No amounts are paid or payable by the recipient on receipt of the Award. The Awards carry neither rights to dividends nor voting rights. Awards may be exercised at any time from the date of vesting to the date of their expiry. The number of Awards granted is calculated in accordance with service and performance-based criteria approved by the Group and is subject to approval by the Board. In July 2019, 1,112,000 Tranche 1 options were exercised which had previously been valued at $206,096, reducing Tranche 1 options outstanding to nil. 50 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 EMPLOYEE SHARES OPTIONS ON ISSUE The following share-based payment arrangements were in existence as at 30 June 2020. Option series Number Grant date Vesting date Expiry date Exercise price Tranche 2 Tranche 3 Tranche 4 Tranche 5 Tranche 6 Tranche 7 Tranche 8 Tranche 9 400,000 350,000 75,000 450,000 600,000 2,000,000 1,990,000 1,030,000 28/10/2016 28/10/2016 31/10/2020 28/10/2016 28/10/2016 18/01/2022 24/01/2017 24/01/2017 24/01/2021 01/02/2017 01/02/2017 01/02/2021 16/08/2017 16/08/2017 16/08/2021 01/09/2017 01/09/2017 01/09/2021 17/01/2018 17/01/2018 17/01/2022 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 $0.05 01/07/2018 01/07/2018 01/07/2022 $0.075 Fair Value at grant date $0.1500 $0.1554 $0.1559 $0.1559 $0.1563 $0.1581 $0.1562 $0.1854 B) EQUITY OPTIONS RESERVE Options issued: 2020 options 2019 options 2020 $ 2019 $ Outstanding at the beginning of the year 8,100,000 - 513,792 - Fair value of equity options issued during the year 4,214,043 8,100,000 - Outstanding at the end of the year 12,314,043 8,100,000 513,792 513,792 513,792 DETAILS OF OTHER SHARE OPTIONS ISSUED BY THE GROUP In July 2019, the Group issued 4,214,043 options over ordinary shares to shareholders who had participated in a prior capital raising. The options are exercisable at $0.25 and have an expiry date of 11 December 2022. No consideration was received by the Group in relation to those options. The following equity options were in existence as at 30 June 2020: Option series Number Grant date Vesting date Expiry date Exercise price Tranche 10 8,100,000 13/06/2019 13/06/2019 31/12/2022 Tranche 11 3,000,000 10/07/2019 10/07/2019 11/12/2022 Tranche 12 1,214,043 17/07/2019 17/07/2019 11/12/2022 $0.25 $0.25 $0.25 51 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 22. CASH AND CASH EQUIVALENTS RECONCILIATION OF CASH AND CASH EQUIVALENTS (A) For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows can be reconciled to the related items in the statement of financial position as follows: Cash on hand Cash at bank Cash and bank balances 2020 $ 98 2019 $ 600 16,378,310 1,836,641 16,378,408 1,837,241 (B) RECONCILIATION OF PROFIT FOR THE YEAR TO NET CASH FLOWS FROM OPERATING ACTIVITIES 2020 $ 2019 $ (4,925,615) (3,210,741) 443,427 80,171 - - - 273,010 66,947 18,132 135,000 234,831 (4,402,017) (2,482,821) (61,738) (28,321) (91,716) 127,384 (191,376) 2,129 (2,842) 576,150 519,823 43,699 (114,892) 77,465 (3,892,886) (2,136,187) Loss for the year Adjustment for non-cash items Depreciation and amortisation Movement in loss allowance Loss on sale of fixed assets Share based payments – shares issued Share based payments – expense Changes in net assets and liabilities (Increase)/decrease in assets: Trade and other receivables Inventories Other assets Current tax assets Increase/(decrease) in liabilities: Trade and other payables Provisions Net cash used in operating activities 52 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 23. FINANCIAL INSTRUMENTS FINANCIAL ASSETS AND LIABILITIES BY CATEGORIES A) The following table combines information about: » » » » classes of financial instruments based on their nature and characteristics; the carrying amounts of financial instruments (except where carrying amount approximates their fair value); fair values of financial instruments (where applicable); and fair value hierarchy levels of financial assets and financial liabilities for which fair value was disclosed. All of the Group’s financial assets and financial liabilities are measured at amortised cost at 30 June 2020. At 30 June 2020 Financial assets Cash & cash equivalents Trade and other receivables Total other financial assets Total financial assets Financial liabilities Trade and other payables Total borrowings Total financial liabilities At 30 June 2019 Financial assets Cash & cash equivalents Trade and other receivables Total other financial assets Total financial assets Financial liabilities Trade and other payables Total borrowings Total financial liabilities Note TOTAL $ Amortised cost $ 16,378,408 16,378,408 391,882 307,704 391,882 307,704 17,077,994 17,077,994 1,173,764 1,173,764 476,306 476,306 1,650,070 1,650,070 Note TOTAL $ Amortised cost $ 1,837,241 1,837,241 410,315 410,315 - - 2,247,556 2,247,556 653,901 227,775 881,676 653,901 227,775 881,676 53 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 FINANCIAL RISK MANAGEMENT B) The Group manages its capital to ensure that the entity will be able to continue as a going concern whilst maximising the return to shareholders through the optimisation of the debt and equity balances. The Group’s capital includes issued capital less any accumulated losses. The Group policy is to maintain a capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Group recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Group is not subject to any externally imposed capital requirements. CREDIT RISK C) Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date of recognised financial assets is the carrying amount of those assets, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to financial statements. The Group does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the Group. The Group minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with a large number of customers. CASH DEPOSITS I. Credit risk for cash deposits is managed by holding all cash deposits with major Australian banks. TRADE RECEIVABLES II. Credit risk for trade receivables is managed by setting credit limits and completing credit checks for new customers. Outstanding receivables are regularly monitored for payment in accordance with credit terms. As the Group undertakes transactions with a range of customers and regularly monitors payment in accordance with credit terms, the financial assets that are neither past due nor impaired, are expected to be received in accordance with the credit risk. At 30 June 2020, we had 46 customers with outstanding invoices, of which 5 customers account for approximately 71% of all trade receivables. LIQUIDITY RISK D) Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is managed by forecasting and monitoring cash inflows and outflows on a continuing basis. MATURITY ANALYSIS The table below represents the undiscounted contractual settlement terms for financial instruments and Management’s expectation for settlement of undiscounted maturities. 54 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 Year ended 30 June 2020 < 6 months $ 6-12 months $ 1-5 years $ Total contractual cash flows $ Carrying amount $ Payables Borrowings Net maturities 1,173,764 148,292 1,322,056 - 88,823 88,823 - 1,173,764 1,173,764 266,622 266,622 503,737 476,306 1,677,501 1,650,070 Year ended 30 June 2019 < 6 months $ 6-12 months $ 1-5 years $ Payables Borrowings Net maturities 653,901 81,729 735,630 - 55,019 55,019 - 108,192 108,192 Total contractual cash flows $ 653,901 244,940 898,841 Carrying amount $ 653,901 227,775 881,676 FOREIGN EXCHANGE RISK E) The Group operates a branch in New Zealand and is exposed to foreign exchange risk arising from currency exposure. The Group’s policy is to convert its local currency to the foreign currency at the time of the transaction. Foreign exchange risk arises from future commercial transactions and recognised financial liabilities denominated in a currency that is not the Group’s functional currency (which is the Australian dollar). The Group manages foreign exchange risk on an as-needs basis. The risk is measured using sensitivity analysis and cash-flow forecasting. The Group’s exposure to foreign currency risk, expressed in Australian dollars at the reporting date, was as follows: At 30 June 2020 Cash and cash equivalents Trade and other receivables Total other financial assets Total assets Trade and other payables Total borrowings Net exposure AUD Denominated Balances in $AUD NZ Denominated Balances converted to $AUD 16,226,781 319,833 304,901 16,851,515 1,171,905 476,306 151,627 72,049 2,803 226,479 1,859 - TOTAL $AUD 16,378,408 391,882 307,704 17,077,994 1,173,764 476,306 15,203,304 224,620 15,427,924 55 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 At 30 June 2019 Cash and cash equivalents Trade and other receivables Total other financial assets Total assets Trade and other payables Total borrowings Net exposure AUD Denominated Balances in $AUD NZ Denominated Balances converted to $AUD 1,822,846 291,414 - 2,114,260 633,962 227,775 14,395 118,901 - 133,296 19,939 - TOTAL $AUD 1,837,241 410,315 - 2,247,556 653,901 227,775 1,252,523 113,357 1,365,880 The following table details the Group’s sensitivity to a 10% increase and decrease in the Australian dollar against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents an assessment of the reasonably possible change in foreign exchange rates. A negative number in the table represents a decrease in the operating profit before tax and reduction in equity where the Australian dollar strengthens against the relevant currency. For a 10% strengthening of the Australian dollar against the relevant currency, there would be a comparable impact on the loss or equity, and the balances below would be positive. Profit / (loss) before tax and equity – 10% increase Profit / (loss) before tax and equity – 10% decrease 2020 $ 22,462 (22,462) 2019 $ 11,336 (11,336) INTEREST RATE RISK F) The Group’s exposure to interest rate risk arises predominantly from cash and cash equivalents bearing variable interest rates, as the Group intends to hold any fixed rate financial assets to maturity. At the end of the reporting period the Group maintained the following variable rate accounts: 30 June 2020 30 June 2019 Weighted average interest rate % Balance $ Weighted average interest rate % Balance $ Cash and cash equivalents 0.5% 16,378,408 0.5% 1,837,241 At the end of the reporting period, if the interest rates had changed, as illustrated in the table below, with all other variables remaining constant, after-tax profit and equity would have been affected as follows: After-tax loss higher / (lower) Equity higher / (lower) 2020 $ 81,892 (81,892) 2019 $ 9,186 (9,186) 2020 $ 81,892 (81,892) 2019 $ 9,186 (9,186) +0.5% (50bp) -0.5% (50bp) 56 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 24. RELATED PARTY TRANSACTIONS The Group’s related parties include key management, post-employment benefit plans for the Group’s employees and others as described below. Unless otherwise stated, none of the transactions incorporate special terms and conditions and no guarantees were given or received. Outstanding balances are usually settled in cash. The aggregate compensation made to key management personnel of the Group is set out below: Salary Superannuation Director fees Termination benefits Other Total 2020 $ 404,251 21,349 193,832 140,000 6,984 2019 $ 291,486 21,048 168,000 - 7,677 766,416 488,211 Director fees for Sam Brougham are invoiced via Crofton Park Developments Pty Ltd atf Sam Brougham Family Trust. Sam Brougham is a director of the trustee and beneficiary of the trust. Fees in 2020 were 45,833 (2019: $48,000). Director fees for Travis Dillon are invoiced via Dillon Consulting Company Pty Ltd. Fees in 2020 were $19,000 comprising $6,666 in directors’ fees and $12,234 in other fees (2019: nil). OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL » Termination benefits in the amount of $140,000 accrued for Justus Homburg following his resignation on 25 June 2020. These termination benefits will be paid as consulting services to be provided to the Group over his notice period although can be terminated with payment without notice by either party. $12,333 (2019: $Nil) was paid to Travis Dillon in relation to consulting services provided to the Sales and Marketing Team since commencing his role with the Group on 1 May 2020. Two sales were made to Crofton Park Developments Pty Ltd during the year, totalling $7,409 (2019: $3,780). Jim Cooper was employed by the Company to provide consulting services commencing 5 March 2020, before his appointment to Managing Director on 25 June 2020. During this time, Mr Cooper was not a key management person. » » » 25. Significant expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows: COMMITMENTS RESEARCH AND DEVELOPMENT PROJECTS Within one year Later than one year but not later than five years Committed expenditure is for contracted research projects with The University of Queensland. There were no capital expenditure commitments at 30 June 2020 (2019: $nil). 2020 $ 2019 $ 115,894 19,962 135,856 - - - 57 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 26. There are no contingent liabilities as at 30 June 2020 (2019: nil). CONTINGENT LIABILITIES SUBSEQUENT EVENTS 27. The outbreak of COVID-19 and the subsequent quarantine measures imposed by the Australian and other governments as well as the travel and trade restrictions imposed by Australia and other countries in early 2020 have caused disruption to businesses and economic activity. The impact of the COVID-19 pandemic is ongoing, and the Group will continue to adjust to the varying restrictions and progress its sales growth initiatives accordingly. To the date of this report, the COVID-19 pandemic has had a negligible impact on the Group’s operations or results. As the situation remains fluid (due to evolving changes in government policy and evolving business and customer reactions thereto) as at the date these financial statements are authorised for issue, the directors of the Company considered that the financial effects of COVID-19 on the Group’s consolidated financial statements cannot be reasonably estimated for future financial periods. In response to COVID-19, both the Federal Government and the State Government of Victoria have implemented policies and measured with the aim of containing the virus. In an effort to contain the spread of the virus, the Victorian Government, on 2 August 2020, implemented Stage 4 restrictions in Melbourne and Stage 3 restrictions in regional Victoria with quarantine restrictions, travel restrictions, closure of businesses and other restrictive movement measures. Given the principal operating location is in Queensland, these measures have only had a negligible impact on the business. There has been no other matter or circumstance which has arisen since the end of the year that has significantly affected, or may significantly affect the Group’s operations, the result of those operations or the Group’s state of affairs. INTERESTS IN SUBSIDIARIES 28. The consolidated financial statements incorporate the assets, liabilities, and results of the following subsidiaries in accordance with the accounting policy described in note 1(g). Name of Subsidiary Country of incorporation Principal activity Terragen Biotech Pty Limited (i) Australia Agricultural biotech Equity holding 2020 % 100 2019 % 100 (i) Terragen Biotech Pty Ltd operates in Australia however also operates through a branch in New Zealand. 58 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 29. PARENT ENTITY Information relating to Terragen Holdings Limited (‘the Parent Entity’): Statement of financial position Current assets Total assets Current liabilities Total liabilities Net assets Issued capital Reserves Accumulated losses Total equity Statement of profit or loss and other comprehensive income Loss for the year Other comprehensive income Total comprehensive income The Parent Entity has no capital commitments at 30 June 2020 (2019: $Nil). The Parent Entity had no contingent liabilities at 30 June 2020 (2019: $Nil). 2020 $ 2019 $ 15,693,959 17,507,693 465,098 465,098 2,388,552 2,461,207 - - 17,042,595 2,461,207 41,560,581 22,222,619 1,636,894 1,877,793 (26,154,880) (21,639,205) 17,042,595 2,461,207 (4,515,675) (3,643,495) - - (4,515,675) (3,643,495) 59 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY DIRECTORS’ DECLARATION In the directors’ opinion: a. b. c. d. the attached financial statements and notes are in accordance with the Corporations Act 2001, including: i. ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; and giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance, as represented by the results of its operations and its cash flows, for the year ended on that date. the financial report also complies with International Reporting Standards as disclosed in note 1 (a); and there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. The Directors’ have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of directors. Jim Cooper Managing Director Melbourne, 28 August 2020 60 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY SHAREHOLDER INFORMATION In accordance with ASX Listing Rule 4.10, Terragen Holdings Limited (“Terragen”) provides the following information to shareholders not elsewhere disclosed in the Annual Report. The shareholder information set out below was applicable as of 18 September 2020. CORPORATE GOVERNANCE STATEMENT A. The Company has prepared a Corporate Governance Statement which sets out the corporate governance practices that were in operation in the year ended 30 June 2020. In accordance with ASX Listing Rule 4.10.3, the Corporate Governance Statement will be available for review on Terragen’s website www.terragen.com.au and will be lodged with the ASX at the same time that this Annual Report is lodged with the ASX. DISTRIBUTION AND NUMBER OF HOLDERS OF EQUITY SECURITIES B. The distribution and number of holders of equity securities on issue in the Company as at 18 September 2020, and the number of holders holding less than a marketable parcel of the company’s ordinary shares based on the closing market price as at 18 September 2020 is as follows: Listed fully paid ordinary shares Unlisted Options Unlisted Employee Options Number of holders % of securities Number of holders % of securities Number of holders % of securities 16 67 94 214 220 611 0.00 0.12 0.39 5.43 94.05 100.00 - 1 1 11 11 24 0.00 0.02 0.05 4.95 94.98 100.00 - - - 2 9 11 0.00 0.00 0.00 1.40 98.60 100.00 Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total There were no holders of less than a marketable parcel of fully paid ordinary shares as of 18 September 2020. The total securities on issue in each class of equity securities as at 18 September 2020 are: Listed fully paid ordinary shares Unlisted Options Unlisted Employee Options Total securities on issue 187,215,902 12,314,043 6,300,000 As of 18 September 2020, the total equity securities on issue as presented above included the following equity securities that were subject to restrictions: Fully paid ordinary shares restricted until 11 December 2020 (quoted) Fully paid ordinary shares restricted until 11 December 2021 (unquoted) Total fully paid ordinary shares subject to restrictions Unlisted options restricted until 11 December 2020 Unlisted options restricted until 11 December 2021 Total unlisted options subject to restrictions Number of securities 32,376,248 7,930,189 40,306,437 10,134,043 3,980,000 14,114,043 61 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY TWENTY LARGEST QUOTED EQUITY SECURITY HOLDERS C. Terragen has only one class of quoted equity securities, being fully paid ordinary shares (ASX:TGH). The names of the twenty largest holders of fully paid ordinary shares, the number of fully paid ordinary shares and the percentage of fully paid ordinary shares on issue as of 18 September 2020 was as follows: Name HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited J P Morgan Nominees Australia Pty Limited Stamina Pty Ltd Rubi Holdings Pty Ltd Crofton Park Developments Pty Ltd Mr Scobie Dickinson Ward Action Always Pty Ltd P M Desmond Pty Ltd East Mt Ada Pty Ltd Stephen Mahken Gardiole Pty Ltd Mr Rodney John Loone & Mrs Diane Gaye Loone Vautex Pty Ltd HSBC Custody Nominees (Australia) Limited – A/C 2 Netwealth Investments Limited Milnar Pty ltd Crofton Park Developments Pty Ltd Dempsey Capital Pty Ltd Utopia Land Co Pty Ltd Total for top twenty holders Balance of register Total Units 21,887,919 12,777,694 9,677,078 6,626,616 4,200,000 4,100,000 4,000,000 3,795,690 3,195,000 2,920,000 2,662,500 2,600,002 2,520,000 2,500,000 2,500,000 2,347,151 2,300,000 2,250,000 2,000,000 2,000,000 % of Units 11.69 6.83 5.17 3.54 2.24 2.19 2.14 2.03 1.71 1.56 1.42 1.39 1.35 1.34 1.34 1.25 1.23 1.20 1.07 1.07 96,860,650 90,355,252 187,215,902 51.74 48.26 100.00 62 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY D. HOLDERS OF MORE THAN TWENTY PERCENT OF EACH CLASS OF UNQUOTED SECURITIES Each unlisted option entitles the holder to acquire one fully paid ordinary share subject to the holder paying the exercise price on or before the expiry date. The names of the holders of more than 20% of each class of options or performance shares, other than under an Employee Incentive Scheme, is set out below: Holder Rubi Holdings Pty Ltd Unlisted $0.25 options expiring 11 December 2022 Units 4,200,000 % of units 34.11 VOTING RIGHTS E. At a general meeting of the Company, every holder of ordinary shares present in person or by proxy, attorney or representative has one vote on a show of hands, and on a poll, one vote for each ordinary share held. Options do not carry any voting rights. SUBSTANTIAL SHAREHOLDERS F. As of 18 September 2020, the names of the substantial shareholders of the Company and the number of equity securities in which those substantial shareholders and their associates have a relevant interest, as disclosed in substantial shareholding notices given to the Company were as follows: Name Scobie Dickinson Ward Sam Brougham One Funds Management Ltd atf Saville Capital Emerging Companies Fund 12,566,000 G. The Company is not currently conduction an on-market buy-back. ON-MARKET BUY-BACK H. The Company did not purchase securities on market during the reporting period. ON-MARKET BUY-BACK Number held % of issued capital 16,347,114 13,721,616 8.75% 7.75% 6.73% USE OF INITIAL PUBLIC OFFERING PROCEEDS I. The Company confirms that in the period since its listing on the Australian Stock Exchange on 11 December 2019 it has used its cash and assets in a form readily convertible into cash that it had at the time of its admission to the ASX in a manner consistent with its business objectives as set out in the Prospectus dated 18 October 2019. 63 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY CORPORATE DIRECTORY BOARD OF DIRECTORS Mr Travis Dillon Mr Sam Brougham Mr Paul Schober Ms Ingrid van Dijken Mr Jim Cooper Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Managing Director COMPANY SECRETARY Ms Kara King REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS Unit 6 39 Access Crescent Coolum Beach QLD 4573 PHONE NUMBER 1 300 837 724 POSTAL ADDRESS PO Box 1304 Coolum Beach QLD 4573 WEBSITE www.terragen.com.au SHARE REGISTRY Link Market Services Pty Ltd Level 12 680 George Street Sydney NSW 2000 PHONE NUMBER 1 300 554 474 STOCK EXCHANGE Australian Securities Exchange 20 Bridge Street Sydney, NSW 2000 ASX CODE TGH AUDITORS Deloitte 64 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 www.terragen.com.au
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