ANNUAL REPORT For the year ended 30 June 2021 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 On behalf of the Directors of Terragen Holdings Limited (Terragen) I am pleased to provide you the following annual report for your Company for the financial year ended 30 June 2021. At the commencement of the financial year, Terragen had been listed on the ASX for only seven months. The priority for the year was the renewal of Terragen’s strategy to move towards positive cashflow, the focus on sales and the resources required for the strategy. Terragen is an agricultural company that develops, manufactures and sells probiotic products to farmers. The products comprise a feed supplement for animals, such as dairy cows (called Mylo®) plus a soil conditioner (called Great Land Plus®). I was appointed Chair of the Board at the end of July 2020. Jim Cooper was appointed as the Managing Director and Chief Executive Officer a few days before the commencement of the new financial year. At the time of my appointment as Chair of the Board, two directors, Dr John Ryals and Greg Robinson, retired from the Board. Greg Robinson had served the Board of Terragen since its early years and had provided stability and guidance through to listing on the ASX. Dr John Ryals had joined more recently and brought his expertise in growing biotech companies in the United States to Terragen’s governance. I thank each of Greg and John for their contribution to the growth of Terragen. The financial year unfolded in the context of two remarkable events. The first is the best farming season in south-east Australia in many decades, with the continuation of solid rainfall in Terragen’s customer territories. The second was the ongoing COVID-19 pandemic which challenged operations and the Company’s supply chains. The focus of Terragen through the year has been on implementing strategies which will enable Terragen to reach positive cash-flow as soon as possible. Secondly it was to execute Terragen’s business in accordance with good corporate governance. I am pleased to report solid progress against each of these goals. Revenue growth for the year increased 75% on the previous year, while sales of the main product, Mylo®, a feed supplement for dairy cows, increased 241% on the previous year, representing 2/3 of the Company’s sales revenue. In terms of governance, the management team improved reporting systems, increased safety management and generally lifted the discipline required in managing a listed public company. I am highly motivated to lead the Board of Terragen and to guide the Company to success in its role of growing sustainable agriculture and farm productivity. Travis Dillon Chair of the Board of Directors 21 September 2021 1 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 MANAGING DIRECTOR AND CEO’S REPORT I am pleased to provide you the following report, for your Company, Terragen Holdings Limited, for the year ended 30 June 2021. I commenced as Terragen’s Managing Director and Chief Executive Officer a few days before the commencement of the new financial year. Terragen has a deep scientific heritage which has resulted in the development of two excellent products, Mylo®, a probiotic feed supplement for farm animals, plus Great Land Plus® a microbial soil conditioner. In addition, Terragen’s investment in scientific research has also resulted in a pipeline of future products which will help grow revenue in the future. Terragen’s goal is to sell its products to farmers, to increase farm productivity sustainably without chemicals or antibiotics. The challenge for the financial year was to develop a new strategy for the Company’s growth, to achieve positive cashflow as a priority. To achieve this, it was decided to concentrate on sales of Mylo® for dairy cows. A priority was to build new management capability to underpin strategy and execution. This resulted in a number of key appointments. Kara King was appointed in October 2020 as the Company’s first full-time Chief Financial Officer and Company Secretary. An experienced financial controller, with expertise in systems development, Kara set about implementing new reporting systems and a focus on financial discipline. With sales growth being a high imperative, there were two key appointments made in May 2021, being the General Manager Sales, Warren Ramsey and the General Manager New Zealand, Paul Grave. Each of Warren and Paul join Terragen following senior executive careers at major agricultural corporations – Warren with twenty years experience at Nufarm Limited and Paul with twenty years experience at Fonterra Limited in New Zealand. Both are accelerating the development of plans to underpin the Company’s sales growth in Australia and New Zealand. During the year a new marketing campaign was launched through television, social media, internet and traditional print media, raising the awareness of Terragen and the main product Mylo® amongst the target market of dairy farmers. Next was the focus on sales through the agent network, to increase the rate of sales growth. I am pleased to say that by the end of the financial year, Terragen had announced a market share of 4.3% of the Australian dairy herd – that is, over 60,000 cows in the Australian dairy herd – or one in twenty-five dairy cows – are taking Mylo® every day. This is a solid achievement for a new probiotic product, which aims to improve dairy farm productivity, and provide an alternative for farmers which does not involve chemicals or antibiotics. The production of Terragen’s products, Mylo® and Great Land® was improved during the year, with blending and packing being established in-house, adding to capability and providing extra capacity to the outsourced blending function. This improved expertise in-house will underpin Terragen’s growth as sales are scaled up each year. Terragen’s scientific research and development has also continued strongly throughout the year, with the intention of deepening the Company’s knowledge of the core product Mylo®, as well as continuing to develop ideas for new products and improvements on existing products. I look forward to announcing developments from this important work in due course. Jim Cooper Managing Director and Chief Executive Officer 21 September 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 3 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 5 24 25 28 Consolidated Statement of Financial Position 29 Consolidated Statement of Changes in Equity 30 Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Shareholder Information Corporate Directory 31 32 60 61 64 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 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 2021 (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 Dr Paul Schober Sam Brougham Ingrid van Dijken Jim Cooper Non-Executive Chair (appointed Chair 27 July 2020) Non-Executive Director (Chair 11 December 2019 to 27 July 2020) Non-Executive Director Non-Executive Director Managing Director Gregory Robinson Non-Executive Director (resigned 27 July 2020) Dr John Ryals Non-Executive Director (resigned 27 July 2020) 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 Travis Dillon Non-Executive Chair Appointed Non- Executive Chair on 27 July 2020 Dr Paul Schober Non-Executive Director Qualifications and Experience 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 3 decades, Mr Dillon 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; Lifeline Australia; Dillon Consulting Company Pty Ltd; Clean Seas Seafood Limited; S&W Seeds Australia Dr Schober 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. Dr Schober 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 4 5 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 Name and Position Qualifications and Experience TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 Particulars of interests in shares and options of Terragen Holdings Limited Shares# Options Jim Cooper Managing Director and Chief Executive Officer Mr Cooper 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. 400,000 held indirectly 8,000,000 (Incentive Options) held directly 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 Mrs King is a highly commercial senior finance and accounting executive. Prior to joining Terragen, Mrs King was at Port of Portland for 9 years, most recently as Financial Controller managing the overall financial activities of the organisation. Prior to that role she was the Business Development Manager, responsible for the commercial growth of the business. Mrs King has extensive experience managing projects and implementing new systems and processes in growing organisations. She is CPA qualified and holds a Bachelor of Commerce and Masters of Professional Accounting. Kara King Company Secretary and Chief Financial Officer Appointed 5 October 2020 Nil Nil # Includes shares in which the Director has an indirect interest through associated entity. TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 Name and Position Sam Brougham Non-Executive Director Qualifications and Experience Mr Brougham has an economics degree from the University of Adelaide. He 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 cofounded in 1999. Mr Brougham 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; Ellerston Asian Investments Ltd; Crofton Park Developments Pty Ltd; Ceres Capital Pty Ltd; Stamina Pty Ltd Particulars of interests in shares and options of Terragen Holdings Limited Shares# Options 15,178,718 held indirectly 1,600,000 (investment options) held indirectly Ingrid van Dijken Non-Executive Director Ms van Dijken holds a Masters’ degree in International Relations from the Graduate Institute in Geneva and an undergraduate degree from the Universiteit Utrecht, in the Netherlands. 970,000 held indirectly 100,000 (investment options) held indirectly Ms van Dijken 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. Ms van Dijken 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. Ingrid 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. Ms van Dijken 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 6 7 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 Gregory Robinson Non-Executive Director Resigned 27 July 2020 Mr 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. He has undertaken business development in many parts of the globe, and has also managed businesses domiciled in Hong Kong, Singapore, Japan, and the US. Other directorships in past three years: Nil Dr John Ryals Non-Executive Director 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. Resigned 27 July 2020 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 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. Mr Stephen Kelly Company Secretary and Chief Financial Officer Resigned 2 December 2020 Company secretaries Kara King (appointed 5 October 2020) Stephen Kelly (resigned 2 December 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 2021, and the numbers of meetings attended by each director were as follows: Number of meetings held Travis Dillon Dr Paul Schober Sam Brougham Ingrid van Dijken Jim Cooper Gregory Robinson Resigned 27 July 2020 Dr John Ryals Resigned 27 July 2020 Number of meetings eligible to attend Number of meetings attended BOARD MEETINGS: 9 9 9 9 9 9 1 1 9 9 9 8 9 1 1 All Board members sit on the Audit and Risk Committee (Chairperson: Dr Paul Schober) and Remuneration and Nomination Committee (Chairperson: Sam Brougham). The numbers of meetings attended by each committee member were as follows Number of Audit and Risk Committee meetings held Travis Dillon Dr Paul Schober Sam Brougham Ingrid van Dijken Jim Cooper Number of meetings eligible to attend Number of meetings attended BOARD MEETINGS: 2 2 2 2 2 2 2 2 2 2 2 Number of Remuneration and Nomination Committee meetings held Number of meetings eligible to attend Number of meetings attended BOARD MEETINGS: 1 Travis Dillon Dr Paul Schober Sam Brougham Ingrid van Dijken Jim Cooper 1 1 1 1 1 1 1 1 1 1 8 9 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 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: » » » Issued 8,000,000 options over ordinary shares to Managing Director Jim Cooper as a component of his remuneration. The options vested immediately on issue in December 2020, across 3 tranches, exercisable as follows: • • • No consideration was received by the Company in relation to those options. Tranche 1 - 1,000,000 options exercisable at $0.25 with an expiry date of 4 December 2025. Tranche 2 - 2,000,000 options exercisable at $0.50 with an expiry date of 4 December 2025. Tranche 3 - 5,000,000 options exercisable at $1.00 with an expiry date of 4 December 2025. During the year 3,993,333 options were exercised and converted into shares. Made the following Board and Management Changes: • Appointed Travis Dillon as Non-Executive Chairman effective 27 July 2020 • Dr Paul Schober resigned as Chairman on 27 July 2020. He remained on the Board of Directors as a non-executive Director • Appointed Kara King as the Company Secretary and Chief Financial Officer effective 5 October 2020 • Stephen Kelly resigned as Company Secretary and Chief Financial Officer on 2 December 2020 • Appointed Paul Grave as the General Manager New Zealand effective 10 May 2021 • Dr Gregory Robinson and Dr John Ryals retired from the Board effective 27 July 2020. OPERATING AND FINANCIAL REVIEW The Group reported a loss after tax for the year of $6,100,151 (2020: loss of $4,925,615). The significant items affecting the operating result were: • Additional $362,025 in Advertising and marketing spend in line with the Company strategy implemented on listing, to promote sales of Mylo® and Great Land®. The Company embarked on a number of marketing campaigns including, amongst others, the Pumps for Mylo® program, engagement of marketing agency Communicado and commencement of a print, digital, tv/radio, social campaign via Cole Media. • Additional $286,923 in research expenditure for project activities under the CRC Funding program. Some of these extra costs are offset due to there being no Initial Public Offering (IPO) costs. • 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 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 continuing throughout the COVID-19 pandemic. In response to COVID-19, both the Federal Government and the State Governments implemented policies and measures with the aim of containing the virus. In an effort to contain the spread of the virus, the State Governments implemented numerous restrictions throughout the year which included quarantine restrictions, travel restrictions, closure of businesses and other restrictive movement measures. This most notably impacted the state of Victoria and in more recent times, the state of New South Wales. Given the principal operating location of Terragen is in Queensland, these measures, to date, have only had a negligible impact on the business. EARNINGS PER SHARE Basic loss per share from continuing operations Basic diluted loss per shares from continuing operations 2020 3.23 cents 3.23 cents 2021 3.27 cents 3.27 cents Revenues of $3,652,301 from the sale of the Company’s two products Mylo® and Great Land® in Australia and New Zealand. This represents growth of 86% on sales revenue of $1,963,603 in the year ended 30 June 2020. The strong sales growth is due to a strategic focus on sales of Mylo® into dairy farms. Grant income of $203,153 (2019: $315,655) received under a Commonwealth of Australia CRC Funding program for a specific research project being undertaken in relation to banana crops. During the period, the CRC Funding program concluded, in terms of the agreement. Income tax benefit of $580,692 (2020: $517,938) comprising the accrued research and development tax benefit in relation to research and development expenditure incurred by the Group during the year. Operating expenses of $10,726,707 in the year have increased from the prior year operating expenses of $7,902,206 due principally to the following costs: • Non-cash share-based payment expense of $1,664,734 for 8,000,000 employee options issued in December - - - 2020 and vested immediately across 3 tranches as follows: Tranche 1 - 1,000,000 options exercisable at $0.25 with an expiry date of 4 December 2025. The options had a grant date fair value of $277,125. Tranche 2 - 2,000,000 options exercisable at $0.50 with an expiry date of 4 December 2025. The options had a grant date fair value of $466,493. Tranche 3 - 5,000,000 options exercisable at $1.00 with an expiry date of 4 December 2025. The options had a grant date fair value of $921,116. • Additional $583,446 in Salaries & Wages as the company strengthens its sales, manufacturing and management teams in line with its growth strategy. » » » » 10 11 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 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. 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 continues as at the date of this Report. As outlined in the “Impact of COVID-19 pandemic on operations” paragraph above the impact of COVID-19 has been negligible. 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. 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 2021. 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. 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: SIGNIFICANT CHANGES IN STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group during the financial year. Non-executive directors Position 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. 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 5 Tranche 6 Tranche 7 Tranche 9 Tranche 10 Tranche 11 Tranche 12 Tranche 13 Tranche 14 Tranche 15 01/02/2017 16/08/2017 01/09/2017 01/07/2018 13/06/2019 10/07/2019 17/07/2019 4/12/2020 4/12/2020 4/12/2020 30/09/2021 16/08/2022 17/01/2022 30/06/2022 11/12/2022 11/12/2022 11/12/2022 4/12/2025 4/12/2025 4/12/2025 $0.05 $0.05 $0.05 $0.075 $0.25 $0.25 $0.25 $0.25 $0.50 $1.00 320,000 600,000 2,000,000 795,000 8,100,000 2,000,000 1,145,710 1,000,000 2,000,000 5,000,000 22,960,710 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 3,993,333 shares were issued as a result of the exercise of options. Travis Dillon Dr Paul Schober Sam Brougham Ingrid van Dijken Gregory Robinson Dr John Ryals Chair (since 27 July 2020), Non-Executive Director Non-Executive Director (Chair 11 December 2019 to 27 July 2020) Non-Executive Director Non-Executive Director Non-Executive Director (resigned 27 July 2020) Non-Executive Director (resigned 27 July 2020) Executive Directors Position Jim Cooper Executive Director, Managing Director Other Key Management Personnel Position Paul Grave Stephen Kelly Kara King General Manager New Zealand (appointed 10 May 2021) Company Secretary and Chief Financial Officer (resigned 2 December 2020) Company Secretary and Chief Financial Officer (appointed 5 October 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. 12 13 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 NON-EXECUTIVE DIRECTOR REMUNERATION VARIABLE REMUNERATION - SHORT AND LONG-TERM INCENTIVES OBJECTIVE The objectives of the incentive 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 shares, 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, options and short-term incentives. 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 $ 2021 2020 2019 2,500,558 766,416 488,211 EPS (Cents) (3.23) (3.27) (3.38) Dividends (cents) Share Price as at 30 June (cents) - - - 28.0 17.5 n/a1 1The Company commenced trading on the ASX on 11 December 2019. 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). 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 $54,000, 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 2021: » $64,000 to Travis Dillon (2020: $12,333) in relation to consulting services provided to the Sales and Marketing Team during the year. 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. 14 15 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 REMUNERATION OF KEY MANAGEMENT PERSONNEL D) 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. 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 fulltime basis, subject to annual increases at the discretion of the Board of Directors. Additional annual car allowance of $19,495. 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. PAUL GRAVE, GENERAL MANAGER NEW ZEALAND (APPOINTED 10 MAY 2021) » Base Remuneration – Effective 10 May 2021 NZD $257,500 per annum, including KiwiSaver contributions, plus car allowance NZD$25,000, on a fulltime basis, subject to annual increases at the discretion of the Board of Directors. Annual incentive of NZD$100,000 on achievement of Key Performance Indicators set by the Company. Termination – By three months’ notice from either party. KARA KING, CHIEF FINANCIAL OFFICER AND COMPANY SECRETARIAL SERVICES » Base Remuneration – Effective 5 October 2020 $195,000 per annum, including superannuation contributions, on a fulltime basis, subject to annual increases at the discretion of the Board of Directors. Termination – By three 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 employee shall be entitled to participate in the Employee Incentive Plan of the Company. » » » » » » » » » » STEPHEN KELLY, CHIEF FINANCIAL OFFICER AND COMPANY SECRETARIAL SERVICES (RESIGNED 2 DECEMBER 2020) Up until Mr. Kelly’s resignation on 2 December 2020, the Company continued the Consultancy Agreement with KCG Advisors Pty Limited pursuant to which Mr. Kelly provided Chief Financial Officer and Company Secretarial services to the Company. The key terms of the Agreement were: » » 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). » 16 17 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 2021 2020 Cash and salary fees Super- annuation Employee entitlementsi Share based payments Other Total remuneration Proportion of remuneration that is performance based Salary and fees Super- annuation Employee entitlements Other Total remuneration Proportion of remuneration that is performance based NON-EXECUTIVE DIRECTORS $ Travis Dillon a,b Dr Paul Schober c Sam Brougham d Ingrid van Dijken Gregory Robinson e Dr John Ryals e Total Non-Executive Directors 62,000 44,000 44,000 44,000 - - 194,000 EXECUTIVE DIRECTORS $ - - - - - - - - - - - - - - - - - - - - - $ $ 64,000 126,000 - - - - - 44,000 44,000 44,000 - - 64,000 258,000 Jim Cooper 279,431 21,694 21,494 1,664,734 19,495 2,006,848 Total Executive Directors 279,431 21,694 21,494 1,664,734 19,495 2,006,848 OTHER KEY MANAGEMENT PERSONNEL 33,701 128,567 50,000 1,011h 12,214 - 2,969 3,832 - 212,268 13,225 6,801 - - - - 3,416 - - 41,097 144,613 50,000 3,416 235,710 Paul Grave f Kara King Stephen Kelly g Total Key Management Personnel Total Director and KMP Compensation % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% NON-EXECUTIVE DIRECTORS Dr Paul Schober Sam Brougham Gregory Robinson David Ryan Dr John Ryals Ingrid van Dijken Travis Dillon $ 44,665 45,833 40,169 3,000 19,500 21,665 6,667 Total Non-Executive Directors 181,499 $ - - - - - - - - EXECUTIVE DIRECTORS Justus Homburg Jim Cooper Total Executive Directors 290,785 3,466 21,048 301 294,251 21,349 OTHER KEY MANAGEMENT PERSONNEL Stephen Kelly Total Executive Directors 110,000 110,000 - - $ - - - - - - 12,333 $ 44,665 45,833 40,169 3,000 19,500 21,665 19,000 12,333 193,832 140,000 - 458,550 4,034 140,000 462,584 - - 110,000 110,000 - - - - - - - - 6,717 267 6,984 - - % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 685,699 34,919 28,295 1,664,734 86,911 2,500,558 0% Total Director and KMP Compensation 585,750 21,349 6,984 152,333 766,416 0% a Appointed Chair on 27 July 2020 b Travis Dillon invoices director fees via Dillon Consulting Company Pty Ltd. c Dr Paul Schober invoices director fees via an ABN d Sam Brougham invoices director fees via Crofton Park Developments Pty Ltd atf Sam Brougham Family Trust. e Resigned 27 July 2020 f Appointed 10 May 2021. Paul Grave’s earnings are paid in NZD and have been translated to AUD for the purposes of this table. g Resigned 2 December 2020 h KiwiSaver contribution of 3% of Gross Earnings i Reflects annual and long service leave movements during the year. 18 19 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 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. SHARES PROVIDED ON EXERCISE OF REMUNERATION OPTIONS No shares were issued as a result of the exercise of options during the year. 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 the following options were issued under the Employee Incentive Plan: » 8,000,000 options over ordinary shares to Managing Director Jim Cooper as a component of his remuneration. The options were issued in December 2020 and vested immediately on grant date across 3 tranches, exercisable as follows: • Tranche 1 - 1,000,000 options exercisable at $0.25 with an expiry date of 4 December 2025. The fair value of these options at grant date was $277,125. Tranche 2 - 2,000,000 options exercisable at $0.50 with an expiry date of 4 December 2025. The fair value of these options at grant date was $466,493. Tranche 3 - 5,000,000 options exercisable at $1.00 with an expiry date of 4 December 2025. The fair value of these options at grant date was $921,116. • • There are no further options, 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. 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. 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: 2021 Name Balance at start of year Granted as remuneration Acquired other than as remuneration Exercised Held at time of ceasing to be KMP Balance at end of year Vested and exercisable Travis Dillon - Dr Paul Schober 80,000 Sam Brougham 1,600,000 Ingrid van Dijken 100,000 Dr John Ryals Gregory Robinson Jim Cooper Paul Grave Stephen Kelly Kara King Total 2020 Name - - - - - - 8,000,000 - - - - - - - - - 1,780,000 8,000,000 Balance at start of year Granted as remuneration - - - - - - - - - - - Acquired other than as remuneration 80,000 800,000 - - - - - - - - - - - - - - - - - - - - - - - - 80,000 80,000 1,600,000 1,600,000 100,000 100,000 - - - - 8,000,000 8,000,000 - - - - - - 9,780,000 9,780,000 Exercised Held at time of ceasing to be KMP Balance at end of year Vested and exercisable Dr Paul Schober - Sam Brougham 800,000 Gregory Robinson Dr John Ryals Ingrid van Dijken Travis Dillon - - - - Justus Homburg 2,000,000 Jim Cooper Stephen Kelly Total - - 2,800,000 - - - - - - - - - - - - 320,000 (320,000) - 100,000 - 200,000 - - - - - - - - - - - - - - (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 20 21 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Directors’ Report for the year ended 30 June 2021 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). arising 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. Premiums paid during the year for Directors & Officers liability insurance were $144,592. 2021 Balance at start of year Shares held on appointment as KMP Acquisitions during the year Disposals during the year Options converted Shares held on ceasing to be KMP Balance at the end of the year Travis Dillon Dr Paul Schober 219,000 152,000 Sam Brougham 14,721,616 Ingrid van Dijken 1,290,000 Gregory Robinson 3,758,000 Dr John Ryals - Jim Cooper Paul Grave Kara King 200,000 - - Stephen Kelly 60,000 20,400,616 - - - - - - - - - - - - - 457,102 - - - 200,000 - - - - - - (320,000) - - - - - - 657,102 (320,000) - - - - - - - - - - - - - - - (3,758,000) - - - - (60,000) 219,000 152,000 15,178,718 970,000 -- - 400,000 - - - 2020 Balance at start of year Shares held on appointment as KMP Acquisitions during the year Options converted Shares held on ceasing to be KMP Balance at the end of the year Dr Paul Schober 152,000 Sam Brougham 10,371,616 Gregory Robinson 3,363,000 David Ryan 741,032 Dr John Ryals Ingrid van Dijken Travis Dillon - - - 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 (3,818,000) 16,919,718 » 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 in Note 2 to the Financial Statements. 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. ROUNDING OFF OF AMOUNTS The company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) In- strument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the directors’ report and the financial statements are rounded off to the nearest dollar unless otherwise indicated. 14,827,648 1,490,000 4,779,000 320,000 (1,016,032) 20,400,616 This report is made in accordance with a resolution of directors. 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 $106,778 (2020: $126,091). On behalf of the Directors 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 Jim Cooper Managing Director Melbourne, 27 August 2021 22 23 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY AUDITOR’S INDEPENDENCE DECLARATION 24 25 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY 26 27 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021 AS AT 30 JUNE 2021 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Notes 2021 $ 2020 $ 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 Commissions Raw materials and consumables used Transport costs Travel and accommodation Share based payment expenditure Other expenses Loss before income tax expense from continuing operations Income tax benefit Notes 3 3 2 4 6 5 7 21 9 2021 $ 3,652,301 393,563 (194,032) (622,593) (85,221) (110,467) (373,283) (524,310) (871,232) 2020 $ 1,963,603 495,050 (231,324) (260,568) (79,665) (88,292) (361,740) (443,427) (584,309) 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 (3,771,687) (3,188,241) Property, plant, and equipment (22,466) (216,739) - (126,787) (73,966) (134,245) (972,999) (464,417) (263,574) (76,023) (1,664,734) (157,932) (29,824) (98,583) (428,691) (112,736) (94,164) (141,843) (432,750) (444,225) (190,561) (152,165) - (539,098) (6,680,843) (5,443,553) 580,692 517,938 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 Loss for the year after income tax benefit (6,100,151) (4,925,615) Other comprehensive income Items that may be reclassified subsequently to profit or loss Gain on translation of foreign operations 317 40 Total comprehensive loss for the year (6,099,834) (4,925,575) Basic and diluted loss per share (cents per share) 10 (3.23) (3.27) The accompanying accounting policies and explanatory notes form an integral part of the financial statements. The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 28 22 11 12 13 14 15 16 17 18 19 18 19 20 21 11,641,681 16,378,408 322,078 3,409 243,158 547,970 64,155 185,448 1,098,630 13,308,956 517,938 17,693,919 354,581 908,713 149,578 2,560 1,415,432 14,724,388 1,055,830 144,444 219,413 1,419,687 213,513 67,900 281,413 397,837 776,779 132,290 122,256 1,429,162 19,123,081 1,329,852 221,321 219,825 1,770,998 254,985 54,543 309,528 1,701,100 2,080,526 13,023,288 17,042,555 42,438,295 41,560,581 2,801,268 1,636,894 (32,216,275) (26,154,920) 13,023,288 7,042,555 29 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS 2021 FOR THE YEAR ENDED 30 JUNE 2021 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Balance as at 1 July 2020 41,560,581 1,636,894 (26,154,920) 17,042,555 Loss for the year Other comprehensive income Total comprehensive loss for the year - - - - 317 317 (6,100,151) (6,100,151) - 317 (6,100,151) (6,099,834) Transactions with owners in their capacity as owners: 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 FOR THE YEAR ENDED 30 JUNE 2021 2021 $ 2020 $ 2,979,462 1,550,056 (7,761,435) (6,472,549) (22,467) 123,137 157,354 - (29,824) 98,455 315,655 645,321 Options exercised or lapsed in relation to employee incentive arrangements 877,714 (500,677) 38,796 415,833 Research and development tax concessions received Fair value of share options issued - 1,664,734 - 1,664,734 Net cash flows used in operating activities 22(b) (4,523,949) (3,892,886) Total transactions with owners in their capacity as owners 877,714 1,164,057 38,796 2,080,567 Balance as at 30 June 2021 42,438,295 2,801,268 (32,216,275) 13,023,288 Cash flow from investing activities 2020 Issued Capital $ Reserves $ Balance as at 1 July 2019 22,222,619 1,877,793 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 - - Accumulated Losses $ (21,264,148) Total Equity $ 2,836,264 (4,925,615) (4,925,615) - 40 (4,925,615) (4,925,575) - - 20,050,000 (918,134) Payments for property, plant, and 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 Net cash provided by financing activities (385,539) (22,479) (376,581) (64,868) (408,018) (441,449) 20 20 415,833 20,050,000 - (38,308) (918,134) (93,207) (182,601) (163,239) 194,924 18,875,420 Cash and cash equivalents at the beginning of the year Net increase in cash and cash equivalents 16,378,408 1,837,241 (4,737,043) 14,541,085 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 - Foreign exchange difference on cash and cash equivalents 316 82 19,337,962 (240,939) 34,843 19,131,866 Cash and cash equivalents at the end of the year 22(a) 11,641,681 16,378,408 Balance as at 30 June 2020 41,560,581 1,636,894 (26,154,920) 17,042,555 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 30 31 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements for the year ended 30 June 2020 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 2021 (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. 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 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 their operations and effective for the current year. None of the new and revised Standards and amendments thereof and Interpretations that became effective for the current year were applicable or material to the Group: » » » » » AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia 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 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 continuing throughout the COVID-19 pandemic. In response to COVID-19, both the Federal Government and the State Governments implemented policies and measures with the aim of containing the virus. In an effort to contain the spread of the virus, various State Governments implemented numerous restrictions throughout the year which included quarantine restrictions, travel restrictions, closure of businesses and other restrictive movement measures. This most notably impacted the state of Victoria and in more recent times, the state of New South Wales. Given the principal operating location of Terragen is in Queensland, these measures have only had a negligible impact on the business. 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. 32 33 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 JUDGEMENTS – RESEARCH & DEVELOPMENT 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(u) 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. 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 I. 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. 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: 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. TAX RECEIVABLES I. Management has 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 and the Directors do not believe that the members of the Group satisfy the recognition criteria set out in paragraph 35 of AASB112 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. SUBSIDIARIES G. 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. 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. PRINCIPLES OF CONSOLIDATION H. 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. BORROWINGS J. 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 K. 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 L. 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. M. 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. 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. » 34 35 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 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. 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 N. 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) O. 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. 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 P. 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. q. 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. Management estimates the Research and Development tax refund 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. 36 37 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 INVENTORIES R. 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. S. 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 remeasurements 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. Lease liabilities are disclosed as borrowings in the Consolidated 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 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 residual 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. PROPERTY, PLANT, AND EQUIPMENT T. 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: Class of Fixed Assets Plant and equipment Furniture & fittings Motor vehicles Plant and Equipment R&D Leasehold improvements Depreciation Rate 7 – 40% 10 – 50% 25% 10 – 33% 10 – 33% Basis Straight line Straight line Straight line Straight line Straight line 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 U. 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. V. REVENUE RECOGNITION SALE OF GOODS AND AGENT COMMISSION 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. Sales are generally made via Retail Agents who are engaged to sell Terragen product as agent for Terragen. Retail Agents are eligible for sales commissions which are recognised at the point of sale, as an expense. Where sales are made via a Retail Agent, the sales consideration from the customer is paid to the Retail Agent and then paid to Terragen, net of a Base Sales Commission. Performance-based Sales Commissions are paid by Terragen to the Retail Agent subsequent to year end, subject to the Retail Agent meeting certain criteria. Accordingly, included in the Consolidated Statement of Cash Flows, Base Commissions are deducted in determining the net cash included within Receipts from Customers and Bonus Sales Commissions are included in Payment to Suppliers. Included in the Consolidated Statement of Financial Position, the Base Sales Commission is offset against their respective Trade Receivables and Performance-based Sales Commissions are included in Trade & Other Payables. 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. 38 39 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 W. INTANGIBLE ASSETS 3. REVENUE AND OTHER INCOME 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. COMPARATIVE FIGURES X. Where necessary, the comparative figures have been adjusted to conform to changes in presentation in the current financial year. The comparative figures have been adjusted to reflect sales commissions as expenses where previously they were recognised net of revenue. This has had the impact on the 30 June 2020 comparatives of: » increasing revenues and other cost of sales by $432,750 in the consolidated statement of profit or loss and other comprehensive income increasing trade and other receivables and increasing accounts payable for outstanding commissions payable of $156,088 in the consolidated statement of financial position. » This reclassification had no impact on the comparative period reported loss, net assets, total equity or net cash flows. 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 Total remuneration for audit and assurance services ii. Other services Tax compliance services Total remuneration for audit and assurance services Total Remuneration 2021 $ 142,088 - 2020 $ 97,325 84,735 142,088 182,060 120,138 120,138 262,226 67,510 67,510 249,570 Sale of goods Other income Grant income Interest received COVID-19 grant received Other income Total Other Income Total revenue and other income 2021 $ 2020 $ 3,652,301 1,963,603 203,153 123,137 50,000 17,273 315,655 98,455 50,000 30,940 393,563 495,050 4,045,864 2,458,653 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 14) Amortisation of property, plant, and equipment (refer to note 15) Amortisation of intangible assets (refer to note 16) Total depreciation and amortisation expense 5. EMPLOYEE BENEFIT EXPENSE Salaries and wages Post-employment benefits Termination benefits Employee on-costs Total employee benefit expense 2021 $ 145,816 373,302 5,192 524,310 2020 $ 156,622 281,542 5,263 443,427 2021 $ 2020 $ 3,313,825 2,647,098 266,121 96,571 95,170 191,595 206,000 143,548 3,771,687 3,188,241 Other employee benefit expenses incurred during the year related to share based payment expenditure of $1,664,734 which has been disclosed separately on the consolidated statement of profit or loss and other comprehensive income. Refer to 21(a). 40 41 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 6. RESEARCH AND DEVELOPMENT EXPENSE I. SEGMENT PERFORMANCE Direct research and development expenses Employee benefits expense Depreciation and amortisation expense Other expenses Total research and development expense 2021 $ 871,232 1,079,400 186,772 182,109 2020 $ 584,309 536,369 36,437 104,103 30 June 2021 Total segment revenue Segment other income Segment expenditure Segment result 2,319,513 1,261,218 Reconciliation of segment result to Group loss before tax: Australia $ 3,369,203 123,137 (8,269,257) (4,776,917) New Zealand $ 283,098 - (325,400) (42,302) TOTAL $ 3,652,301 123,137 (8,594,657) (4,819,219) 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 lease liabilities Other finance costs 2021 $ 13,462 9,004 22,466 2020 $ 19,286 10,538 29,824 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 Depreciation expense Provision for expected credit losses Share based payment expenditure Other income Net loss before tax (524,310) 56,995 (1,664,734) 270,425 (6,680,843) MAJOR CUSTOMERS Included in revenues arising from the Australian segment, is the following customer where greater than 10% of revenues are generated. » No other single customers contributed 10 per cent or more to the Group’s revenue. Customer A - $415,361 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 Australia $ 1,727,899 98,455 (7,048,169) (5,221,815) New Zealand $ 235,704 - (330,440) (94,736) TOTAL $ 1,963,603 98,455 (7,378,609) (5,316,551) (443,427) (80,171) 396,596 (5,443,553) 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. Commissions are granted to agents who are members of the Retail Agency Partner Network (having signed Retail Agency Partner Agreements). Other income Net loss before tax 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 2021 and 30 June 2020, respectively. 42 43 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 III. The following tables present assets and liabilities information for the Group’s operating segments as at 30 June 2021 and 30 June 2020, respectively. 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: 30 June 2021 Segment assets 30 June 2020 Segment assets Australia $ New Zealand $ 14,258,438 465,950 Australia $ New Zealand $ 18,869,584 253,497 TOTAL $ 14,724,388 TOTAL $ 19,123,081 Loss attributable to the owners of the Group 9. The income tax expense/benefit can be reconciled to the accounting profit/loss as follows: INCOME TAX EXPENSE Weighted average number of shares used in basic loss per share Weighted average number of shares used in diluted loss per share (i) 2021 $ 2020 $ (6,100,151) (4,925,615) 2021 Number 2020 Number 188,713,251 150,749,667 188,713,251 150,749,667 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 Research and Development tax offset c. Current tax asset Opening balance R&D Tax concession received Over accrual of prior year R&D benefit Research and Development tax offset accrual Closing balance 2021 $ 2020 $ 2,018,846 1,458,174 (1,438,154) (940,236) 580,692 517,938 (6,680,843) (5,443,553) 1,536,852 1,566,994 (5,143,991) (3,876,559) (1,337,438) 1,066,054 1,337,438 (1,066,054) 580,692 580,692 517,938 517,938 517,938 645,321 - (645,321) (59,308) 640,000 - 517,938 1,098,630 517,938 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 26% (2020: 27.5%) tax rate is $4,039,883 as at 30 June 2021 (2020: $3,353,232). 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 2021 and the prior year. 11. TRADE AND OTHER RECEIVABLES Trade receivables Loss allowance Other receivables 2021 $ 332,043 (36,436) 295,607 26,471 322,078 2020 $ 566,673 (147,118) 419,555 128,415 547,970 The average credit period on sales of goods is 40 days (2020: 47 days). No interest is charged on outstanding trade receivables. The Group has applied 100% expected credit loss rate for trade receivables overdue by more than 3 months at year-end. 12. OTHER CURRENT ASSETS Deposits and guarantees Prepayments 2021 $ 110,598 132,560 243,158 2020 $ 109,398 76,050 185,448 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. 44 45 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 13. CURRENT TAX ASSETS Tax benefit on research and development Movements in the tax benefit due during the year are set out below: Opening balance at 1 July Tax benefit on research and development received Over accrual of prior year research and development offset Accrual of tax benefit for the year Closing balance at 30 June 14. RIGHT-OF-USE ASSETS 2021 $ 2020 $ 1,098,630 517,938 517,938 645,321 - (645,321) (59,308) 640,000 1,098,630 - 517,938 517,938 Cost At 1 July 2019 Initial application of AASB 16 Additions Balance at 30 June 2020 Additions At 30 June 2021 Accumulated amortisation At 1 July 2019 Initial application of AASB 16 Amortisation for the year Balance at 30 June 2020 Amortisation for the year At 30 June 2021 Carrying amount at 30 June 2021 Buildings $ Motor vehicles $ Research equipment $ Total $ - 278,171 133,073 411,244 - 411,244 - - 85,272 85,272 99,428 184,700 226,544 - - 217,543 109,289 - - 217,543 109,289 102,560 320,103 - 109,289 - - 109,467 74,150 39,990 149,457 42,609 192,066 128,037 31,360 105,510 3,779 109,289 - - 605,003 133,073 738,076 102,560 840,636 - 183,617 156,622 340,239 145,816 486,055 354,581 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. During the year, two new lease contracts were entered into for motor vehicles for members of the sales team. This resulted in additions to right-of-use assets of $102,560. 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. 15. PROPERTY, PLANT, AND EQUIPMENT CARRYING AMOUNTS OF Plant and equipment Office equipment Motor Vehicles Research equipment Leasehold improvements Capital works in progress Written down value 2021 $ 145,816 13,462 2020 $ 156,622 19,286 2021 $ 228,632 16,746 58,864 256,165 301,496 46,810 908,713 2020 $ 59,654 3,044 78,987 288,371 346,723 - 776,779 No impairment losses were recognised during the year in respect of property, plant and equipment. 46 47 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 2021 $ 191,184 (41,606) 149,578 2021 $ 132,290 22,480 (5,192) 2020 $ 168,704 (36,414) 132,290 2020 $ 72,685 64,868 (5,263) 149,578 132,290 2021 $ 147,784 776,487 131,559 2020 $ 289,461 930,821 109,570 1,055,830 1,329,852 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: 16. INTANGIBLE ASSETS 2021 Plant & equipment $ Office equipment $ Motor vehicles $ Research equipment $ Leasehold improve- ments $ Capital WIP Total $ Patents & trademarks Accumulated amortisation Total intangible assets Cost Balance 1 July 2020 Additions Balance 30 June 2021 Accumulated depreciation 242,450 205,191 447,641 66,937 22,139 89,076 88,471 2,468 90,939 590,975 446,298 - 154,566 745,541 74,062 520,360 46,810 46,810 1,435,131 505,236 1,940,367 Balance 1 July 2020 (182,796) (63,893) (9,484) (302,604) (99,575) Depreciation (36,213) (8,437) (22,591) (186,772) (119,289) Balance 30 June 2021 (219,009) (72,330) (32,075) (489,376) (218,864) - - - (658,352) (373,302) (1,031,654) Written down value 228,632 16,746 58,864 256,165 301,496 46,810 908,713 Balance at the beginning of the year Additions from separate acquisitions Amortisation charge for the year Balance at the end of the year Patents and trademarks are amortised over their estimated useful lives, which is on average 20 years. 17. TRADE AND OTHER PAYABLES 2020 Plant & equipment $ Office equipment $ Motor vehicles $ Research equipment $ Leasehold improve- ments $ Total $ Trade payables Accrued expenses Other payables 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 Additions Balance 30 June 2020 Accumulated depreciation - 56,250 242,450 - 791 66,937 (217,543) (109,289) - (326,832) 88,471 88,471 30,819 200,250 376,581 590,975 446,298 1,435,131 Balance 1 July 2020 (160,285) (59,936) (109,467) (215,357) (15,382) (560,427) Transfer to right of use assets on initial adoption of AASB 16 Depreciation Balance 30 June 2020 Written down value - - 109,467 74,150 - 183,617 (22,511) (3,957) (182,796) (63,893) 59,654 3,044 (9,484) (9,484) 78,987 (161,397) (84,193) (281,542) (302,604) 288,371 (99,575) 346,723 (658,352) 776,779 48 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. 18. BORROWINGS Current – at amortised cost Insurance premium funding Lease liabilities Non-current – at amortised cost Lease liabilities 2021 $ 2020 $ - 144,444 144,444 2021 $ 38,021 183,300 221,321 2020 $ 213,513 254,985 49 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 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 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 19. PROVISIONS Current Employee benefits Non-current Employee benefits 2021 $ 438,285 - 102,560 2020 $ 190,280 278,171 133,073 (196,350) (182,525) 13,462 357,957 144,444 213,513 357,957 19,286 438,285 183,300 254,985 438,285 2021 $ 2020 $ 219,413 219,825 2021 $ 2020 $ 67,900 54,543 Beginning of the year Issue of shares Shares issued on the exercise of options (refer note 21(a) and (b)) Shares issued on conversion of “B” Class shares Capital raising costs Balance at 30 June 2021 shares 2020 shares 2021 $ 2020 $ 186,820,902 104,508,902 41,560,581 22,200,119 - 80,200,000 - 20,050,000 3,993,333 1,112,000 877,714 206,096 - - 1,000,000 - - - 22,500 (918,134) 190,814,235 186,820,902 42,438,295 41,560,581 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. Shares issued on the exercise of options consisted of: » » 2,925,000 employee options which had a fair value of $461,811 and exercise price proceeds of $148,820; and 1,068,333 investor which had a nil fair value as they were issued as bonus options to pre-existing options. The $267,083 reflects the exercise price proceeds. 21. RESERVES Share based payments reserve (a) Equity options reserve (b) Foreign currency translation reserve Total reserves A) SHARE BASED PAYMENT RESERVE 2021 $ 2020 $ 2,287,119 1,123,062 513,792 513,792 357 40 2,801,268 1,636,894 2021 options 2020 options 2021 $ 2020 $ The provision for employee benefits relates to the Group’s liability for accumulated long service and annual leave entitlements. Options issued: 20. ISSUED CAPITAL Ordinary shares - issued and fully paid 2021 $ 2020 $ 42,438,295 41,560,581 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. Outstanding at the beginning of the year 6,895,000 8,195,000 1,123,062 1,364,001 Issued during the year (i) 8,000,000 - 1,664,734 - Exercised during the year (ii) (2,925,000) (1,112,000) (461,881) Lapsed during the year Outstanding at the end of the year (255,000) 11,715,000 (188,000) 6,895,000 (38,796) 2,287,119 (206,096) (34,843) 1,123,062 50 51 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 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, 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. i. In December 2020, the Group issued 8,000,000 options over ordinary shares across three tranches as follows: • Tranche 1 - 1,000,000 options exercisable at $0.25 with an expiry date of 4 December 2025. The options have a fair value of $277,125. Tranche 2 - 2,000,000 options exercisable at $0.50 with an expiry date of 4 December 2025. The options have a fair value of $466,493. Tranche 3 - 5,000,000 options exercisable at $1.00 with an expiry date of 4 December 2025. The options have a fair value of $921,116. • • No consideration was received by the Group in relation to those options. The above options vested immediately at grant date. ii. During the year the following options were exercised which had previously had a cumulative fair value within the reserve of $461,811: • • • • • • 250,000 Tranche 2 options. The remainder 150,000 Tranche 2 options lapsed reducing the Tranche to nil. 245,000 Tranche 3 options. The remainder 105,000 Tranche 3 options lapsed reducing the Tranche to nil. 75,000 Tranche 4 options, reducing Tranche 4 options to nil. 130,000 Tranche 5 options 1,990,000 Tranche 8 options, reducing Tranche 8 options to nil. 235,000 Tranche 9 options EMPLOYEE SHARES OPTIONS ON ISSUE The following share-based payment arrangements were in existence as at 30 June 2021: Option series Number Grant date Vesting date Expiry date Exercise price Tranche 5 Tranche 6 Tranche 7 Tranche 9 320,000 600,000 01/02/2017 01/02/2017 30/09/2021 16/08/2017 16/08/2017 16/08/2021 2,000,000 01/09/2017 01/09/2017 17/01/2022 $0.05 $0.05 $0.05 795,000 01/07/2018 01/07/2018 30/06/2022 $0.075 Tranche 13 1,000,000 04/12/2020 04/12/2020 04/12/2025 Tranche 14 2,000,000 04/12/2020 04/12/2020 04/12/2025 Tranche 15 5,000,000 04/12/2020 04/12/2020 04/12/2025 $0.25 $0.50 $1.00 Fair Value at grant date $0.1559 $0.1563 $0.1581 $0.1854 $0.2771 $0.2332 $0.1842 52 B) EQUITY OPTIONS RESERVE Options issued: 2021 options 2020 options 2021 $ 2020 $ Outstanding at the beginning of the year 12,314,043 8,100,000 513,792 513,792 Exercised during the year (i) (1,068,333) - Fair value of equity options issued during the year - 4,214,043 - - - Outstanding at the end of the year 11,245,710 12,314,043 513,792 513,792 i. During the year the following options were exercised: • • 1,000,000 Tranche 11 options with a nil fair value at grant date. 68,333 Tranche 12 options with a nil fair value at grant date. The following equity options were in existence as at 30 June 2021: Option series Number Grant date Vesting date Expiry date Exercise price Tranche 10 8,100,000 13/06/2019 13/06/2019 11/12/2022 Tranche 11 2,000,000 10/07/2019 10/07/2019 11/12/2022 Tranche 12 1,145,710 17/07/2019 17/07/2019 11/12/2022 $0.25 $0.25 $0.25 Fair Value at grant date $0.0634 $- $- 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 2021 $ 53 2020 $ 98 11,641,628 16,378,310 11,641,681 16,378,408 (B) RECONCILIATION OF PROFIT FOR THE YEAR TO NET CASH FLOWS FROM OPERATING ACTIVITIES: Loss for the year Adjustment for non-cash items Depreciation and amortisation Movement in loss allowance Share based payment expenditure 2021 $ 2020 $ (6,100,151) (4,925,615) 524,310 (56,996) 443,427 80,171 1,664,734 - (3,968,103) (4,402,017) 53 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 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 23. FINANCIAL INSTRUMENTS 282,888 60,747 (57,711) (580,692) (61,738) (28,321) (91,716) 127,384 (274,023) 12,945 519,823 43,699 (4,523,949) (3,892,886) 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 2021. 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. I. Credit risk for cash deposits is managed by holding all cash deposits with major Australian banks. CASH DEPOSITS 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 2021, we had 27 customers with outstanding invoices, of which 4 customers account for approximately 65% of total trade receivables. (2020: 46 customers with outstanding invoices, of which 5 customers accounted 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. Year ended 30 June 2021 < 6 months $ 6-12 months $ 1-5 years $ Payables Borrowings Net maturities 1,055,830 74,790 1,136,991 - 69,653 74,042 - 213,513 219,233 Year ended 30 June 2020 < 6 months $ 6-12 months $ 1-5 years $ Total contractual cash flows $ - 357,957 374,436 Total contractual cash flows $ Carrying amount $ 1,055,830 357,957 1,413,787 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 54 55 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 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 2021 AUD Denominated Balances in $AUD NZ Denominated Balances converted to $AUD Cash and cash equivalents Trade and other receivables Total other financial assets Total assets Trade and other payables Total borrowings Net exposure 11,167,388 311,278 245,718 11,724,384 1,030,398 357,957 10,336,029 474,293 10,800 - 485,093 25,432 - 459,661 At 30 June 2020 AUD Denominated Balances in $AUD NZ Denominated Balances converted to $AUD Cash and cash equivalents Trade and other receivables Total other financial assets Total assets Trade and other payables Total borrowings Net exposure 16,226,781 319,833 304,901 16,851,515 1,171,905 476,305 15,203,304 151,627 72,049 2,803 226,479 1,859 - 224,620 TOTAL $AUD 11,641,681 322,078 245,718 12,209,477 1,055,830 357,957 10,795,690 TOTAL $AUD 16,378,408 391,882 307,704 17,077,994 1,173,764 476,305 15,427,924 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 2021 30 June 2020 Weighted average interest rate % Balance $ Weighted average interest rate % Balance $ Cash and cash equivalents 0.5% 11,641,681 0.5% 16,378,408 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) 2021 $ 58,208 (58,208) 2020 $ 81,892 (81,892) 2021 $ 58,208 (58,208) 2020 $ 81,892 (81,892) +0.5% (50bp) -0.5% (50bp) 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 – cash 2021 $ 491,699 34,919 194,000 2020 $ 404,251 21,349 193,832 1,664,734 - - 115,206 140,000 6,984 2,500,558 766,416 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. Director fees – share based payment expenditure Termination benefits Other Total Profit / (loss) before tax and equity – 10% increase Profit / (loss) before tax and equity – 10% decrease 2021 $ 45,966 (45,966) 2020 $ 22,462 (22,462) 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 2021 were $44,000 (2020: $45,833). Director fees for Travis Dillon are invoiced via Dillon Consulting Company Pty Ltd. Fees in 2021 were $62,000 comprising $54,000 in Chairman fees and $8,000 in Committee fees (2020: $6,666). 56 57 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY Notes to the financial statements 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 OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL » $64,000 (2020: $12,333) was paid to Travis Dillon in relation to consulting services provided to the Sales and Marketing Team. 29. PARENT ENTITY 25. Significant expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows: COMMITMENTS Information relating to Terragen Holdings Limited (‘the Parent Entity’): Statement of financial position RESEARCH AND DEVELOPMENT PROJECTS Within one year Later than one year but not later than five years 2021 $ 2020 $ - - - 115,894 19,962 135,856 Committed expenditure in the prior year was for contracted research projects with The University of Queensland. There were no capital expenditure commitments at 30 June 2021 (2020: $nil). 26. There are no contingent liabilities as at 30 June 2021 (2020: nil). CONTINGENT LIABILITIES Current assets Total assets Current liabilities Total liabilities Net assets Issued capital Reserves Accumulated losses Total equity 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 continues as at the date of this Report. As outlined in the “Impact of COVID-19 pandemic on operations” paragraph above the impact of COVID-19 has been negligible. Loss for the year Other comprehensive income Total comprehensive income Statement of profit or loss and other comprehensive income 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. The Parent Entity has no capital commitments at 30 June 2021 (2020: $Nil). The Parent Entity had no contingent liabilities at 30 June 2021 (2020: $Nil). 2021 $ 2020 $ 11,027,552 11,177,230 292,507 292,507 15,693,959 17,507,693 465,098 465,098 10,884,722 17,042,595 42,438,295 41,560,581 2,801,268 1,636,894 (34,354,841) (26,154,880) 10,884,722 17,042,595 (8,238,440) (4,515,675) - - (8,238,440) (4,515,675) 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 2021 % 100 2020 % 100 (i) Terragen Biotech Pty Ltd operates in Australia however also operates through a branch in New Zealand. 58 59 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY 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 2021 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, 27 August 2021 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 23 September 2021. 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 2021. 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 23 September 2021, 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 23 September 2021 is as follows: Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 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 22 120 108 294 186 730 0.00 0.18 0.45 6.63 92.73 100.00 - 1 1 9 13 24 - 0.03 0.06 4.81 95.11 100.00 - - 1 2 9 12 - - 0.10 1.60 98.30 100.00 There were no holders of less than a marketable parcel of fully paid ordinary shares as of 23 September 2021. The total securities on issue in each class of equity securities as at 23 September 2021 are: Listed fully paid ordinary shares Unlisted Options Unlisted Employee Options Total securities on issue 192,814,235 11,245,710 9,715,000 As of 18 September 2021, 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 2021 (quoted) Total fully paid shares subject to restrictions Unlisted options restricted until 11 December 2021 Total unlisted options subject to restrictions 9,930,189 9,930,189 1,980,000 1,980,000 60 61 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 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 23 September 2021 was as follows: Name CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED STAMINA PTY LTD UBS NOMINEES PTY LTD CROFTON PARK DEVELOPMENTS PTY LTD RUBI HOLDINGS PTY LTD ACTION ALWAYS PTY LTD P M DESMOND PTY LTD EAST MT ADA PTY LTD STEPHEN MAHKEN MUTUAL TRUST PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 MR RODNEY JOHN LOONE & MRS DIANE GAYE LOONE MILNAR PTY LTD MR T JUSTUS HOMBURG CROFTON PARK DEVELOPMENTS PTY LTD NETWEALTH INVESTMENTS LIMITED MS KYLIE LYNETTE NUSKE & MR MATTHEW JAMES COOK CROFTON PARK DEVELOPMENTS PTY LTD TELICA NOMINEES PTY LTD Total for top twenty holders Balance of register Total Units % of Units 34,601,021 28,031,198 17.95 14.54 6,627,616 4,650,000 4,557,102 4,200,000 3,695,690 3,195,000 2,920,000 2,662,500 2,600,002 2,500,000 2,370,000 2,300,000 2,275,000 2,250,000 2,037,009 1,846,350 1,744,000 1,714,657 3.44 2.41 2.36 2.18 1.92 1.66 1.51 1.38 1.35 1.30 1.23 1.19 1.18 1.17 1.06 0.96 0.90 0.89 116,777,145 76,037,090 192,814,235 60.56 39.44 100.00 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 37.35 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 23 September 2021, 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 One Funds Management Ltd atf Saville Capital Emerging Companies Fund 20,000,000 Sam Brougham 15,178,718 G. The Company is not currently conducting 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 33,345,761 17.29% 10.37% 7.87% 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. 62 63 TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021TERRAGEN HOLDINGS LIMITED AND CONTROLLED ENTITY ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2021 CORPORATE DIRECTORY BOARD OF DIRECTORS Mr Travis Dillon Mr Sam Brougham Dr 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 Mr Miles Brennan 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 5807 Brisbane QLD 4000 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 2021 www.terragen.com.au