CARBONXT GROUP LIMITED — Annual Report 2017

Jan 16, 2018

Carbonxt Group Limited ABN 59 097 247 464

Annual Report Year Ended 30 June 2017

	- 2 -	Carbonxt Group Limited
		Directors’ report
		30 June 2017
Contents		Page 2
Directors’ Report		3
Auditor’s Independence Declaration		10
Statement of Comprehensive Income		11
Statement of Financial Position		12
Statement of Changes in Equity		13
Statement of Cash Flows		14
Contents on Notes to the Financial Statements		15
Directors’ Declaration		40
Independent Auditor’s Report to the Members		41

Carbonxt Group Limited Directors’ report 30 June 2017

• 3 -

DIRECTORS’ REPORT

Your directors present their report on the Company and its controlled entities (“the Group”) for the financial year ended 30 June 2017.

Directors

The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Matthew Quinn - Chairman

Matthew was Managing Director of Stockland, Australia’s largest diversified property group and a top 50 ASX listed company, from 2000 to 2013. He began his career in the United Kingdom as a Chartered Accountant and moved to Australia in 1987 with Price Waterhouse. Matthew was National President of the Property Council of Australia from 2003 to 2005, and a director of the Business Council of Australia in 2012. Matthew has a first class honours degree in Chemistry and Management Science from Imperial College, London and is an associate of the Royal College of Science. Matthew is a non-executive director of CSR Limited (ASX: CSR) and chairman of Class Limited (ASX: CL1).

Warren Murphy – Managing Director

Warren was previously Co-Head of the Australian Infrastructure & Project Finance Group and Head of Energy at Babcock & Brown based in the Sydney office. Warren led the development of Babcock & Brown’s energy sector capability in Australia and New Zealand, including the founding of Infigen Energy (and its unlisted predecessor, Global Wind Partners) where he served as a director from inception until June 2009. He was also a director of the ASX listed Alinta Limited and Sydney Gas Limited, as well as the unlisted Coogee Resources Limited. Warren has a B.E. (Electrical and Electronic Engineering)(Hons) and a B.Com (Accounting and Economics).

David Mazyck – Director of Technology and CEO Carbonxt Inc.

Dr. Mazyck is a world-leading expert on Activated Carbon and its applications including mercury capture. He has developed AC products for the major multinational AC manufacturers and has regularly consulted for them on technical issues. Dr. Mazyck is Chairman of the Activated Carbon Standards Committee for the American Waterworks Association and has developed products for NASA. He is a member of the World Coal Association and appointee to the United Nations efforts on developing a global treaty for mercury. He received his Ph.D. from Penn State University in Environmental Engineering where he also earned a Ph.D. minor in fuel science.

Company Secretary

Tom Bloomfield

Remuneration Report - Audited

This report for the year ended 30 June 2017 outlines the remuneration arrangements for the Group in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This information has been audited in accordance with section 308(3C) of the Act.

The remuneration report details the remuneration arrangements of key management personnel (KMP) who are defined as those persons having the authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Parent company.

For the purposes of this report, the term ‘Executive’ includes the executive directors, senior executives and general managers of the Group, whilst the term ‘NED’ refers to Non-Executive Directors only.

The Remuneration Report is set out under the following main headings:

• a) Policy Used to Determine the Nature and Amount of Remuneration;

• b) Key Management Personnel;

• c) Details of Remuneration;

• d) Cash Bonuses;

• e) Equity Instruments;

• f) Service Agreements; and

• g) Financial Performance.

Carbonxt Group Limited Directors’ report 30 June 2017

• 4 -

(a) Policy Used to Determine the Nature and Amount of Remuneration

The objective of the Company’s remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders. The Board believes that executive remuneration satisfies the following key criteria:

• Competitiveness and reasonableness;

• Acceptability to shareholders;

• Performance linkage / alignment of executive compensation;

• Transparency; and

• Capital management.

These criteria result in a framework which can be used to provide a mix of fixed and variable remuneration and a blend of short and long-term incentives in line with the Company’s limited financial resources.

Fees and payments to the Company’s Non-executive Directors and Senior Executives reflect the demands which are made on, and the responsibilities of, the Directors and the Senior Management. Such fees and payments are reviewed annually by the Board. The Company’s Executive and Non-executive Directors, Senior Executives and Officers are entitled to receive Performance Rights under the Company’s Performance Rights Plan which was approved by shareholders at the Annual General Meeting held on 11 November 2013.

Fees for Non-executive Directors are not linked to the performance of the Group.

Use of Remuneration Consultants

The Group has not used any remuneration consultants during the year.

Comments made at the Group’s 2016 Annual General Meeting

The Group did not receive any specific feedback on its remuneration practices at the 2016 Annual General Meeting or during the year.

(b) Key Management Personnel

The following persons were Key Management Personnel of the Carbonxt Group Limited Group during the financial year:

Name	Position	Appointment	Resignation
Matthew Quinn	Non-Executive Chairman	24 November 2010	22 January 2013
		Reappointed 10 May 2013
Warren Murphy	Managing Director	22 March 2013	-
David Mazyck	Director of Technology and CEO Carbonxt Inc.	10 May 2013	-

(c) Details of Remuneration

Directors are entitled to remuneration out of the funds of the Company but the remuneration of the Non-executive Directors may not exceed in any year the amount fixed by the Company in general meeting for that purpose. Directors are also entitled to be paid reasonable travelling, accommodation and other expenses incurred in consequence of their attendance at Board Meetings and otherwise in the execution of their duties as Directors.

Details of the nature and amount of each element of the remuneration of each of the Directors of Carbonxt Group Limited and the Key Management Personnel of the Company and the consolidated entity during the year ended 30 June 2017 are set out in the following tables:

Carbonxt Group Limited Directors’ report 30 June 2017

• 5 -

Sen

Sen
Name Short- term benefits Post employment benefits Other long- term benefits $ $ $ 2017 Matthew Quinn 131,886 1,900 - Warren Murphy 157,490 - - David Mazyck 520,405 - -	Share-based payments Total Performance Base Shares Performance Rights/ Options $ $ $ $ - - 133,786 0% - - 157,490 0% - - 520,405 0%
Total compensation 809,781 1,900 -	-	- **811,681 **
2016 Matthew Quinn 130,800 - - Warren Murphy 130,800 - - David Mazyck 533,047 - -	- - -	90,026 220,826 41% 90,026 220,826 41% 90,026 623,073 14%
Total compensation 794,647 - -	-	270,078 1,064,725

Options and shares do not represent cash payments to Directors or Senior Executives and performance rights/share options granted may or may not be exercised by the Directors or Executives.

During the financial year to 30 June 2017 no new share Performance Rights were granted to Directors. Performance rights outstanding at 30 June 2016 were cancelled.

(d) Cash Bonuses

No cash bonuses were paid to Key Management Personnel during the 2016-2017 financial year (2015-2016: nil).

(e) Equity Instruments

The Company rewards Directors and Executives for their performance and aligns their remuneration with the creation of shareholder wealth by issuing shares, options or performance rights. Share-based compensation is at the discretion of the Board and no individual has a contractual right to participate in any share-based plan or receive any guaranteed benefits.

(i) Shareholdings

Details of equity instruments (other than options and rights) held directly, indirectly or beneficially by Key Management Personnel and their related parties are as follows:

Name 2017 Matthew Quinn Warren Murphy David Mazyck Total Name 2016 Matthew Quinn Warren Murphy David Mazyck Total	Balance at 1 July 2016 Granted as compensation Received on exercise of Performance Rights Other changes Balance at 30 June 2017 24,200,000 - - 2,000,000 26,200,000 2,000,000 - - - 2,000,000 2,000,000 - - - 2,000,000
	28,200,000 - - 2,000,000 30,200,000
	Balance at 1 July 2015 Granted as compensation Received on exercise of Performance Rights Other changes Balance at 30 June 2016 22,200,000 - 2,000,000 - 24,200,000 - - 2,000,000 - 2,000,000 - - 2,000,000 - 2,000,000
	22,200,000 - 6,000,000 - 28,200,000

No shares were granted to key management personnel as remuneration in the 2017 Financial Year.

No shares were issued during the 2017 financial year to Key Management Personnel as a result of options exercised that had previously been granted as remuneration.

Carbonxt Group Limited Directors’ report 30 June 2017

• 6 -

(ii) Options and Performance Rights Holdings

No options or performance rights were granted by Carbonxt Group Limited to the Key Management Personnel of the Group during the financial year as part of their remuneration.

Details of options and rights held directly, indirectly or beneficially by Key Management Personnel and their related parties are as follows:

Name 2017 Matthew Quinn Warren Murphy David Mazyck Total	Balance at 1 July 2016 Granted as compensation Rights exercised Rights lapsed or cancelled Balance at 30 June 2017 Total vested and exercisable at 30 June 2017 Total vested and un- exercisable at 30 June 2017 4,000,000 - - (4,000,000) - - - 4,000,000 - - (4,000,000) - - - 4,000,000 - - (4,000,000) - - -
	12,000,000 - - (12,000,000) - - -

Name 2016 Matthew Quinn Warren Murphy David Mazyck Total	Balance at 1 July 2015 Granted as compensation Rights exercised Rights lapsed or cancelled Balance at 30 June 2016 Total vested and exercisable at 30 June 2016 Total vested and un- exercisable at 30 June 2016 6,000,000 - (2,000,000) - 4,000,000 - 4,000,000 6,000,000 - (2,000,000) - 4,000,000 - 4,000,000 6,000,000 - (2,000,000) - 4,000,000 - 4,000,000
	18,000,000 - (6,000,000) - 12,000,000 - 12,000,000

(f) Service Agreements

Remuneration and other terms of employment for the Key Management Personnel are formalised in Service/Appointment Agreements.

All contracts with Executives may be terminated early by either party within the stipulated notice period, subject to any termination payments as detailed below.

Matthew Quinn

There is a written agreement dated 8 May 2017 with Mr Quinn, who received in his role as Non-executive Chairman of the Company, cash payments and benefits totalling $133,786 during the 2017 financial year. The payments were made to Mr Quinn personally and to a consulting entity related to Mr. Quinn.

Warren Murphy

There is a written agreement dated 22 March 2013 with Mr Murphy, who received in his role as Managing Director and Chief Executive Officer of the Company, cash payments and benefits totalling $157,490 during the 2017 financial year. The payments were made to a consulting entity related to Mr Murphy.

David Mazyck

There is a written agreement dated 10 May 2013 with Mr Mazyck, who received in his role as Director of Technology and CEO Carbonxt Inc., cash payments and benefits totalling $520,405 during the 2017 financial year. The payments were made to a consulting entity related to Mr Mazyck

Loans to Key Management Personnel

No loans have been made to Key Management Personnel including their personally-related entities.

(g) Financial Performance

The table below shows the gross revenue, losses and earnings per share for five years to 30 June 2017 for the consolidated group.

Carbonxt Group Limited Directors’ report 30 June 2017

• 7 -

Year ended	Measure	2017	2016	2015	2014	2013
Revenue	$	3,791,960	885,378	41,715	367,796	2,105
Net loss after tax	$	(4,734,427)	(4,651,432)	(3,774,571)	(3,266,175)	(4,152,000)
Net Assets	$	(2,400,458)	(1,713,061)	(4,235,933)	(3,985,731)	(11,199,647)
Cash and cash equivalents	$	520,522	402,648	767,755	989,257	190,675
Cash flows from operating activities	$	(3,025,052)	(1,793,125)	(3,731,101)	(4,964,933)	(4,093,868)
Basic Earnings/(loss) per share	Cents	(1.02)	(1.23)	(1.21)	(1.44)	(1.68)

End of audited Remuneration Report.

Operating results

The loss for the Group for the financial year after providing for income tax was $4,734,427 (2016: $4,651,432). The loss included the following significant items:

Loss Before Significant Items Significant Items: -Convertible note net movement -Licence Royalty net movement -Share based payment expense Loss After Tax after Significant Items	2017 2016 $ $ (3,957,473) (3,278,119) (544,170) (627,484) (232,784) (427,751) - (318,078)
	(4,734,427) (4,651,432)

Review of operations

The Group's main business is the development and sale of activated carbon products, principally for the capture of mercury from coal fired power stations in the USA to enable them to comply with environmental legislation.

The Group’s proprietary product, Magnetic Powdered Activated Carbon (MPAC), is produced by reprocessing and enhancing thirdparty activated carbon without the need for significant capital expenditure.

Mercury is a known toxin which can impede the development of the brain in unborn babies and infants.

Carbonxt has made significant progress in commercialising its proprietary Activated Carbon products which are used for the removal of mercury from power station emissions in the United States. Carbonxt has secured five supply agreements with energy utilities since the Environmental Protection Agency’s mercury Air Toxic Standards (MATS) regulations came into force in April 2016.

The majority of Activated Carbon products commercially available for use in mercury capture from flue gas or wastewater use halogens (primarily bromine), which can cause corrosion of energy producing plant and equipment at significant cost to the utility companies. Carbonxt’s products are non-brominated, and the Company is not aware of any competing non-brominated Activated Carbon products for use in mercury capture. Carbonxt has demonstrated that its non-brominated products provide superior performance (lower amount of Activated Carbon used to meet MATS requirements) relative to many brominated products, and without the corrosive impact.

Carbonxt has been successful in winning three new supply contracts in 2017, which has approximately doubled the volumes of Activated Carbon under contract. Subsequent to year-end, three of our supply contracts were extended for periods of between 18 months and three years.

The start date for our first major supply contract of our new Activated Carbon pellets product has been delayed by more than six months due to delays in the commissioning of the power plant that it will service. This contract is expected to commence supply to the utility by 30 June 2018. The Company’s ability to engineer and manufacture Activated Carbon pellets is expected to open up new commercial opportunities.

Carbonxt aims to continue increasing its share of the market for mercury removal AC products with its non-halogenated Activated Carbons. In addition, Carbonxt is realising successes via PAC injection into Wet Flue Gas Desulphurisation Device (WFGD) applications which is a novel approach in the industry.

The Company is also looking at new market segments where it can use its expertise to develop and sell new AC products and reduce

its reliance on the mercury capture market.

In August 2016, the Company completed an approved Placement for $1.512m, through the issuance of 37,810,812 shares at 4 cents per share.

Carbonxt Group Limited Directors’ report 30 June 2017

• 8 -

In March 2017, the Company placed 5,000,000 shares at 4 cents per share to raise $0.2m.

During the second half of the year, the Company issued 670,000 convertible notes at a face value of $1 per note to raise $670,000. These notes were converted into shares on 30 June 2017.

In June 2017, the Company raised a further $1.56m from the issue of 31,197,803 shares at 5 cents per share through a 2:9 NonRenounceable Rights offer.

Principal activities

The principal activities of the Group during the financial year were the ownership and development of technologies for capturing mercury and other emissions from coal fired power stations.

Significant changes in state of affairs

No significant change in the nature of these activities occurred during the year.

After balance date events

Since 30 June 2017 the Group has raised $1,960,000 from placement of 39,197,803 shortfall shares at $0.05 per shares from the 2017 entitlements offer.

The maturity date of 2,193,333 Convertible notes at $1.00 issue price have been extended by agreement to 31 December 2019 (see Note 15 of the financial statements for further information).

Future development, prospects and business strategies

The Group is currently responding to a significant number of Requests for Proposal from US power utilities and, if successful, expects to enter into further sales contracts for the supply of its activated carbon products within the next six months.

Depending on the success or otherwise of achieving sales contracts, the Group may require further capital to fund its operations.

Environmental issues

The Group’s operations are not regulated by any significant environmental regulations under a law of the Commonwealth or of a state or territory of Australia.

Dividends

The Company has not declared dividends during the year (2016: nil).

Indemnifying directors and officers

Premiums of $64,947 (2016: $61,367) were paid for directors and officers liability insurance during or since the end of the financial year.

Indemnification of auditors

To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the end of the financial year.

Proceedings on behalf of company

No person has applied for leave of Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings.

The Group was not a party to any such proceedings during the year.

Carbonxt Group Limited Directors’ report 30 June 2017

• 9 -

Directors Meetings

The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director are as follows:

	Number of meetings attended	Number of meetings held
Matthew Quinn	9	9
Warren Murphy	9	9
David Mazyck	9	9

Non-audit services

There were no non-audit services provided by the Company’s auditor, Ernst & Young.

Auditor’s Independence Declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 10 and forms part of this directors’ report.

Signed in accordance with a resolution of the Board of Directors.

==> picture [130 x 57] intentionally omitted <==

___________ Warren Murphy Managing Director

8 November 2017

Annual Report 30 June 2017

• 10 - Carbonxt Group Limited

Auditor’s Independence Declaration

Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001

Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au

==> picture [61 x 72] intentionally omitted <==

Auditor’s Independence Declaration to the Directors of Carbonxt Group Limited and its controlled entities

As lead auditor for the audit of Carbonxt Group Limited and its controlled entities for the financial year ended 30 June 2017, I declare to the best of my knowledge and belief, there have been:

• a) no contraventions of the auditor independence requirements of the Corporations Act 2001 relation to the audit ; and

• b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Carbonxt Group Limited and the entities it controlled during the financial year.

Ernst & Young

==> picture [80 x 37] intentionally omitted <==

Julian M. O’ Brien Partner Sydney

8 November 2017

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation

7

Annual Report 30 June 2017

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2017

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2017
		Consolidated
	Notes	2017	2016
		$	$
Revenue
Sales revenue	4	3,574,020	876,880
Other income	4	217,940	8,498
Total revenue		3,791,960	885,378
Goods used and sold in cost of testing and production		(3,918,246)	(1,172,927)
Re-measurement of convertible notes	15	(544,170)	(627,484)
Depreciation and amortisation expenses	5	(182,003)	(202,638)
Employee benefits expense	5	(1,600,843)	(1,843,277)
Interest expense	5	(212,686)	(186,614)
Otherexpenses	5	(2,068,439)	(1,503,870)
Loss before income tax		(4,734,427)	(4,651,432)
Income tax expense	6	-	-
Lossforthe yearafter income tax		(4,734,427)	(4,651,432)
Other comprehensive income
Foreign currency translation		(132,648)	93,921
**Other comprehensive income for the period, net of tax **		(132,648)	93,921
Total comprehensive loss for theperiod		(4,867,075)	(4,557,511)
Loss for the period is attributable to:
Owners of the Parent		(4,734,427)	(4,651,432)
Total comprehensive loss for the period is attributable to:
Owners of the Parent		(4,867,075)	(4,557,511)
Earnings per share (cents per share)	17
Basic loss per share for the year attributable to ordinary
equity holders of the parent		(1.02)	(1.23)
Diluted loss per share for the year attributable to ordinary
equityholders ofthe parent		(1.02)	(1.23)

The statement of comprehensive income should be read in conjunction with the accompanying notes.

Annual Report 30 June 2017

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017
		Consolidated
	Notes	2017	2016
		$	$
Assets
Current Assets
Cash and cash equivalents	8	520,522	402,648
Trade and other receivables	9	477,941	529,879
Inventories	10	227,038	201,577
Other current assets	11	62,417	87,455
Total Current Assets		1,287,918	1,221,559
Non-Current Assets
Property, plant and equipment	12	1,567,493	1,120,451
Intangible assets	13	1,509,908	1,587,705
Total Non-Current Assets		**3,077,401 **	2,708,156
Total Assets		4,365,319	3,929,715
Liabilities
Current Liabilities
Trade payables and customer deposits	14	2,181,149	1,566,056
Loans and borrowings	15	**2,474,867 **	66,166
Total Current Liabilities		4,656,016	1,632,222
Non Current Liabilities
Loans and borrowings	15	-	2,133,578
Other liabilities	16	**2,109,761 **	1,876,976
Total Non Current Liabilities		**2,109,761 **	4,010,554
Total Liabilities		6,765,777	5,642,776
Net Assets		(2,400,458)	(1,713,061)
Equity
Equity attributable to members of the parent entity:
Contributed Equity	18	45,216,728	41,505,387
Reserves	19	12,815,323	12,479,634
Accumulated Losses		(60,432,509)	(55,698,082)
Total Equity		(2,400,458)	(1,713,061)

The statement of financial position should be read in conjunction with the accompanying notes.

Annual Report 30 June 2017

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2017

		Contributed	Reserves	Accumulated	Total
	Notes	Equity		Losses	Equity
		$	$	$	$
Consolidated
Balance at 30 June 2015		34,939,323	11,871,394	(51,046,650)	(4,235,933)
Comprehensive income
Loss for the year		-	-	(4,651,432)	(4,651,432)
Other comprehensive income		-	93,921	-	93,921
Total comprehensive income for the year		-	93,921	(4,651,432)	(4,557,511)
Restated transactions with owners
in their capacity as owners:
Issued shares	18	6,566,064	-	-	6,566,064
Remeasurement of convertible note		-	537,574	-	537,574
Share based payments expense		-	(23,255)	-	(23,255)
Total transactions with owners
intheircapacity as owners		6,566,064	514,319	-	7,080,383
Balance at 30 June 2016		41,505,387	12,479,634	(55,698,082)	(1,713,061)
Loss for the year		-	-	(4,734,427)	(4,734,427)
Othercomprehensiveincome		-	(132,648)	-	(132,648)
Total comprehensive income for the year		-	(132,648)	(4,734,427)	(4,867,075)
Transactions with owners
In their capacity as owners:
Issued shares	18	3,041,341	-	-	3,041,341
Conversion of convertible notes		670,000	-	-	670,000
Remeasurement ofconvertiblenote		-	468,337	-	468,337
Total transactions with owners
intheircapacity as owners		3,711,341	**468,337 **	-	4,179,678
Balance at 30 June 2017		45,216,728	12,815,323	(60,432,509)	(2,400,458)

The statement of changes in equity should be read in conjunction with the accompanying notes.

Annual Report 30 June 2017

STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED 30 JUNE 2017

STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED 30 JUNE 2017
		Consolidated
	Notes	2017	2016
		$	$
Cash flows from operating activities
Cash receipts		3,821,609	360,178
Payments to suppliers and employees		(6,830,309)	(2,138,206)
Interest paid		(18,878)	(15,928)
Interest received		2,526	831
Net cash used inoperating activities	22	(3,025,052)	(1,793,125)
Cash flows from investing activities
Proceeds from disposal of property, plant & equipment		19,931	-
Payments for intellectual property		(152,841)	-
Payments for property, plant & equipment	12	(579,007)	(572,408)
Net cash used in investing activities		(711,917)	(572,408)
Cash flows from financing activities
Issued shares	18	3,278,008	2,047,200
Conversion of convertible notes		670,000	-
Repayment of loans		-	(10,380)
Share issue transaction costs	18	(83,652)	-
Net cash provided by financing activities		3,864,356	2,036,820
Net change in cash and cash equivalents		127,387	(328,713)
Net foreign exchange differences		(9,513)	(36,394)
Cash and cash equivalents at beginning of financial year		402,648	767,755
**Cash and cash equivalents at end of financial year **	8	520,522	402,648

The statement of cash flows should be read in conjunction with the accompanying notes.

-15- Carbonxt Group Limited Annual Report 30 June 2017

Contents on Notes to the Financial Statements

1 Corporate information 2 Summary of significant accounting policies 3 Critical accounting estimates and judgements 4 Revenue 5 Expenses 6 Income tax expense 7 Auditor’s remuneration 8 Current assets – Cash and cash equivalents 9 Current assets – Trade and other receivables 10 Current assets – Inventories 11 Current assets – Other current assets 12 Non current assets – Property, plant and equipment 13 Non current assets – Intangible assets 14 Current liabilities – Trade payables and customer deposits 15 Current and non current liabilities – Loans and borrowings 16 Non current liabilities – Other liabilities 17 Earnings per share 18 Contributed equity 19 Reserves 20 Commitments and contingencies 21 Parent entity information 22 Cash flow information 23 Events after the balance sheet date 24 Financial instrument risk management 25 Controlled entities 26 Key management personnel 27 Share-based payment plans 28 Fair value disclosures

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

16

1 Corporate information

This financial report of Carbonxt Group Limited (the ‘Company’) for the year ended 30 June 2017 was authorised for issue in accordance with a resolution of the directors on 7 November 2017. Carbonxt Group Limited (the Parent) is a company limited by shares incorporated in Australia. The shares are not publically traded. Carbonxt Group Limited does not have an ultimate holding company. The Company is a For Profit entity.

The nature of the operations and principal activities of the Group are described in the directors’ report.

2 Summary of significant accounting policies

(a) Basis of preparation

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets and financial instruments for which the fair value basis of accounting has been applied. All amounts are presented in Australian dollars which is the Group’s functional and presentation currency, unless otherwise noted.

(b) Compliance with IFRS

The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

(c) New Accounting Standards and Interpretations

(i) Standards and Interpretations affecting amounts reported in the current period

The accounting policies adopted are consistent with those of the previous financial year. From 1 July 2016, the Group has adopted all the standards and interpretations mandatory for annual periods beginning on or after 1 July 2016. Adoption of these standards and interpretations did not have any effect on the statements of financial position or performance of the Consolidated Entity. The Consolidated Entity has not elected to early adopt any new standards or amendments.

(ii) Standards and interpretations in issue not yet adopted

The following standards, amendments to standards and interpretations have been identified as those which may impact the Group in the period of initial application. They have been issued but are not yet effective and are available for early adoption at 30 June 2017, but have not been applied in preparing this financial report.

		Application
Reference		date for the
and title	Details of New Standard / Amendment / Interpretation	Group
AASB 16 (issued	AASB 16 eliminates the operating and finance lease classifications for lessees currently	1 July 2019
February 2016)	accounted for under AASB 117 Leases. It instead requires an entity to bring most leases
	onto its balance sheet in a similar way to how existing finance leases are treated under
	AASB 117. An entity will be required to recognise a lease liability and a right of use asset in
	its balance sheet for most leases. There are some optional exemptions for leases with a
	period of 12 months or less and for low value leases. This standard will not apply to leases
	to explore for or use minerals.
AASB 15	AASB 15 establishes principles for reporting the nature, amount, timing and uncertainty of	1 July 2018
Revenue from contracts with	revenue and cash flows arising from an entity’s contracts with customers.
customers

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

17

2 Summary of significant accounting policies Cont.

		Application
Reference		date for the
and title	Details of New Standard / Amendment / Interpretation	Group
AASB 9 / IFRS 9 Financial Instruments	The revised IFRS 9 will eventually replace AASB 139 and all previous versions of IFRS 9. The revised standard includes changes to the:	1 July 2018
	 classification and measurement of financial assets and financial liabilities
AASB 2010-7
and AASB 2012-6	 expected credit loss impairment model
Amendments to	 hedge accounting.
AAS’s arising	Financial assets are measured at amortised cost, fair value through profit or loss, or fair
from AASB 9	value through other comprehensive income, based on both the entity’s business model for
	managing the financial assets and the financial asset’s contractual cash flow characteristics.
	Apart from the ‘own credit risk’ requirements, classification and measurement of financial
	liabilities is unchanged from existing requirements.

The Directors have not yet assessed but do not anticipate that the above amendments and interpretations will not have a material impact on the financial report of the Group in the year or period of initial application .

Apart from the above, other accounting standards, amendments and interpretations that will be applicable in future periods have been considered, however their impact is considered insignificant to the Group

(d) Going concern

As at 30 June 2017, the Group has made a loss before tax of $4.8m and had a net cash outflow from operating activities of $3.2m. As at 30 June 2017 the Group had a deficiency in net assets of $2.3 million, which includes non-current liabilities of $2.1m relating to royalties for the use of a patent, which are only payable if and when revenue is generated at certain pricing thresholds as disclosed in note 28. The Group has a corresponding licensed patent asset with a deemed cost of $1.4 million which is amortised over the life of the asset and has a carrying value of $1m at 30 June 2017.

The ability of the Group to continue as a going concern is dependent on the ability to raise capital. However should additional capital not be available, the Group may be unable to continue as a going concern.

The directors are confident of raising additional capital to continue as a going concern having successfully done so in prior financial periods. No adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Group not continue as a going concern.

(e) Principles of Consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 30 June 2017. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Specifically, the Group controls an investee if and only if the Group has:

• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

• Exposure, or rights, to variable returns from its involvement with the investee; and

• The ability to use its power over the investee to affect its returns

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement with the other vote holders of the investee

• Rights arising from other contractual arrangements

• The Group’s voting rights and potential voting rights

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

18

2 Summary of significant accounting policies Cont.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

• De-recognises the assets (including goodwill) and liabilities of the subsidiary

• De-recognises the carrying amount of any non-controlling interests

• De-recognises the cumulative translation differences recorded in equity

• Recognises the fair value of the consideration received

• Recognises the fair value of any investment retained

• Recognises any surplus or deficit in profit or loss

• Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities

(f) Income Tax

The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity.

Current tax

Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority.

Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur.

Deferred tax

Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses.

Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability.

Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.

Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future.

Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

19

2 Summary of significant accounting policies Cont.

(g) Property, Plant and Equipment

Each class of property, plant and equipment is carried at cost or recoverable amount less, where applicable, any accumulated depreciation and impairment losses.

Plant and equipment

Plant and equipment are measured at cost less depreciation and impairment losses.

The cost of fixed assets constructed within the Group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation

The depreciable amount of all fixed assets including building and capitalised leased assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset Depreciation Rate Office Equipment 10-37.5% Plant and Equipment 20% Motor Vehicles 20%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are included in the income statement.

When re-valued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

(h) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, that are transferred to entities in the Group are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.

(i) Financial Instruments

Initial recognition and measurement

Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument.

When financial instruments are recognised initially, they are measured at fair value, plus, in the case of assets not at fair value through profit and loss, directly attributable transaction costs. Transaction costs related to instruments classified at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

20

2 Summary of significant accounting policies Cont.

Effective interest rate method

The effective interest method is a method of calculating the amortised cost of financial assets and liabilities and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial assets, or, where appropriate, a shorter period.

Income is recognised on an effective interest rate basis for debt instruments other than those financial assets ‘at fair value through profit or loss’.

Classification and subsequent measurement

• Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short term profit taking, where they are derivatives not held for hedging purposes, or designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Realised and unrealised gains and losses arising from changes in fair value are included in profit or loss in the period in which they arise.

• Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.

– Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated as such or that are not classified in any of the other categories. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. They are held at fair value with changes in fair value taken through the financial assets reserve directly in equity.

Impairment of financial assets

At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether impairment has arisen. Impairment losses are recognised in the income statement.

The carrying amount of financial assets including uncollectable trade receivables is reduced by the impairment loss through the use of an allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognised directly in equity.

Impairment of Non-Financial Assets

At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. 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.

Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement.

Impairment testing is performed annually for goodwill, intangible assets with indefinite lives and intangible assets not yet available for use. 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.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

21

2 Summary of significant accounting policies Cont.

(j) Intangibles

Capitalised Expenditure

Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over their useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cashgenerating unit level consistent with the methodology outlined for goodwill above. Such intangibles are not amortised.

The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis.

(k) Foreign Currency Transactions and Balances

Functional and presentation currency

The functional currency of each entity is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

Transaction and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange difference arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement.

Group companies

The financial results and position of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows:

• Assets and liabilities are translated at year-end exchange rates prevailing at that reporting date.

• Income and expenses are translated at average exchange rates for the period, where this approximates the rate at the transaction date.

• Retained earnings are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations are transferred directly to the Group’s foreign currency translation reserve in the balance sheet. These differences are recognised in the income statement in the period in which the operation is disposed.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

22

2 Summary of significant accounting policies Cont.

(l) Employee Benefits

Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs.

Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows.

(m) Provisions

Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

Provisions are measured using the best estimate of amounts required to settle the obligation at balance date.

(n) Cash and Cash Equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

(o) Sales revenue, cost of sales, other testing and production costs

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and that it can be reliably measured.

Revenue from the sale of activated carbon is recognised in the financial period during which the activated carbon is produced or purchased, provided that prior to the reporting date they are either sold or delivered in the normal course of business in accordance with agreements with purchasers. Sales revenue represents amounts invoiced, excluding applicable taxation.

Interest revenue 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.

Cost of sales includes purchase and production testing costs, milling, blending and bagging costs. Other Production Costs include direct labour costs, storage and freight handling costs.

All revenue is stated net of the amount of goods and services tax (GST).

(p) Borrowing Costs

Borrowing costs are recognised in the income statement in the period in which they are incurred.

(q) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

(r) Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less an allowance for impairment.

Collectability of trade receivables is reviewed on an on-going basis. Debts that are known to be uncollectable are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that the Group will not be able to collect the debt.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

23

2 Summary of significant accounting policies Cont.

(s) Trade and other payables

Trade and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect to the purchase of these goods and services. The amounts are unsecured.

(t) Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(u) Convertible notes

Convertible notes are separated into liability and equity components based on the terms of the contract.

On issuance of the convertible notes, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond. This amount is classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished on conversion.

The remainder of the proceeds is allocated to the conversion option that is recognised and included in equity.

Transaction costs are deducted from equity, net of associated income tax. The carrying amount of the conversion option is not re-measured in subsequent years.

Transaction costs are apportioned between the liability and equity components of the convertible preference shares based on the allocation of proceeds to the liability and equity components when the instruments are initially recognised.

(v) Contributed Equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(w) Share –based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled sharebased transactions are set out in note 27. The fair value determined at the grant date of the equity-settled share-based payments is expensed on vesting. There are no unvested equity settled share-based payments.

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At the end of each reporting period until the liability is settled, and at the date of settlement, the fair value of the liability is re-measured, with any changes in fair value recognised in profit or loss for the year.

(x) Fair value measurement

When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principle market; or in the absence of a principal market, in the most advantageous market.

Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

24

2 Summary of significant accounting policies Cont.

Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement.

For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data.

(y) Inventories

Inventories are stated at the lower of cost and net realisable value on a “first in first out” basis.

Cost comprises direct materials and delivery costs, direct labour, import duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity, and where applicable, transfers from cash flow hedging reserves in equity.

Costs of purchased inventory are determined after deducting rebates and discounts received or receivable.

Cost of Activated Carbon and Raw Materials are valued at average cost including haulage.

Stock in transit is stated at the lower of cost and net realisable value. Cost comprises purchase and delivery costs, net of rebates and discounts received or receivable.

Net realisable value is the estimated future selling price in the ordinary course of business, based on prevailing metal prices, less the estimated costs of completion and the estimated costs necessary to make the sale.

3 Critical accounting estimates and judgements

The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. 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.

Key estimates — Impairment

The Group assesses impairment at each reporting date by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations, which incorporate various key assumptions.

No impairment has been recognised at reporting date. The Group assesses the estimated useful life of assets based upon historical experience, industry experience and estimated usage for each class of asset.

Significant judgments — Taxation

Deferred tax assets are not recognised for deductible temporary differences as management considers that it is not virtually certain that future taxable profits will be available to utilise those temporary differences.

Deferred tax assets, including those arising from recouped tax losses, capital losses and temporary differences, will be recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. As at 30 June 2017 the Company had carry forward income tax losses of approximately $14.3 million and carrying forward capital losses of approximately $3 million. Carried forward net operating losses for US subsidiaries are approximately $24.3M (USD $18.3M) subject to valuation allowance considerations.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

25

3 Critical accounting estimates and judgements cont.

Significant judgments - Fair value of financial instruments

When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Refer to note 24 for further discussion.

Key estimates – Share based payments

Management judgment is applied in determining the following key assumptions that are used in the valuation of sharebased payments:

• Market price of the underlying asset

• Prevailing level of the risk free rate

• Expected volatility of the value of the underlying asset over the period until the expiry of the option

• Level of dividends expected to be paid on the asset in the period until the expiry of the option and their timing

• Probability of options held being exercised

• Performance conditions

Key estimates – Convertible notes

Management judgment is applied in determining the following key assumptions that are used in the valuation of the convertible notes liability:

• Market price of the underlying asset

• Prevailing level of the applicable interest rate

• Probability of notes held being converted to shares or repaid

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

26

4 Revenue

4 Revenue
	Consolidated
	2017	2016
	$	$
Income
Sales	3,574,020	876,880
Other Income
Interest income	2,526	831
Consulting fees	215,414	-
Miscellaneous income	-	7,667
Total other income	217,940	8,498
Total income	3,791,960	885,378

5 Expenses

5	Expenses
		Consolidated
		2017	2016
		$	$
Profit before income tax includes the following expenses:
Depreciation and amortisation expense
-	Property, plant and equipment	56,991	83,090
-	Borrowing costs	-	26,400
-	Intellectualproperty	125,012	93,148
Total depreciation and amortisation expense		182,003	202,638
Interest expense
-	Interest expense	20,563	15,928
-	Convertible note imputed interest	192,123	170,686
Total interest expense		212,686	186,614
Employee benefit expense
-	Wages, salaries and directors’ fees	1,586,143	1,525,199
-	Share based payment expense	-	318,078
Total employee benefits expense		1,586,143	1,843,277
Other expenses
-	Administration	430,985	247,382
-	Consultancy and legal fees	428,794	180,969
-	Insurance costs	244,906	166,229
-	Licensing rights fair value adjustment	232,784	427,751
-	Marketing	80,606	66,050
-	Occupancy costs	141,309	133,666
-	Other expenses	13,656	1,682
-	Technical feasibility	196,311	80,869
-	Travel expenses	299,088	199,272
Totalotherexpenses		2,068,439	1,503,870

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

27

6 Income tax expense

6 Income tax expense
	Consolidated
	2017	2016
	$	$
The prima facie tax on loss from ordinary activities before income tax is
reconciled to the income tax as follows:
Prima facie tax payable on loss from ordinary activities before income tax at
27.5% (2016: 30%)
Consolidated entity	(1,301,967)	(1,395,430)
Add:
Tax effect of:
Non-deductible expenses	1,091,723	1,268,881
Deferred tax asset not recognised	210,244	126,549
Income taxexpense	-	-

Deferred tax assets, including those arising from recouped tax losses, capital losses and temporary differences will be recognised only where it is considered probably that they will be recovered, which is dependent on the generation of sufficient future taxable profits. As at 30 June 2017 the Company had carry forward Australian income tax losses of around $14.3 million (2016: $13.8 million) and carrying forward capital losses of approximately $3 million. Availability of using these losses in the future is subject to the Company meeting certain criteria (e.g. continuity of ownership or same business test). Carried forward net operating losses for US subsidiaries are approximately $24.3M (USD $18.3M), subject to valuation allowance considerations

7 Auditor’s remuneration

7 Auditor’s remuneration
	Consolidated
	2017	2016
	$	$
Remuneration of the auditor of the parent entity for auditing the financial report
‘- half year review	51,500	-
‘-year end audit	78,795	66,213
Totalauditor’sremuneration	130,295	66,213

8 Current assets - Cash and cash equivalents

	Consolidated
	2017	2016
	$	$
Cash at bank and on hand	520,522	402,648
Totalcashat bankand on hand	520,522	402,648

9 Current assets - Trade and other receivables

9 Current assets - Trade and other receivables
	Consolidated
	2017	2016
	$	$
Trade and other receivables (net of provision for doubtful debts)	477,941	529,879
Totaltrade and other receivables	477,941	529,879

10 Current assets – Inventories

10 Current assets – Inventories
	Consolidated
	2017	2016
	$	$
Activated carbon finished goods	44,040	85,767
Raw materials	182,998	115,810
Total inventories	227,038	201,577

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

28

11 Current assets – Other current assets

	Consolidated
	2017	2016
	$	$
GST receivable	40,817	11,563
Prepayments	21,600	75,892
Total other current assets	62,417	87,455

12 Non-current assets – Property, plant and equipment

12 Non-current assets – Property, plant	and equipment
	Consolidated
	2017	2016
	$	$
Plant and equipment
At cost	2,108,190	1,643,757
Accumulated depreciation	(540,697)	(523,306)
Total plant and equipment	1,567,493	**1,120,451 **

Movements in Carrying Amounts

Movement in the carrying amounts for property, plant and equipment between the beginning and the end of the current financial year:

	Consolidated
	2017	2016
	$	$
Opening balance at 1July	**1,120,451 **	604,695
Additions	566,526	578,423
Disposals	(24,974)	-
Exchange differences	(37,519)	20,423
Depreciation expense	(56,991)	(83,090)
Carrying amount at 30 June	1,567,493	1,120,451

13 Non-current assets – Intangible assets

13 Non-current assets – Intangible assets
	Consolidated
	2017	2016
	$	$
Intellectual property
Owned and licensed patents and pending patents at cost	2,338,038	2,202,669
Accumulated amortisation	(828,130)	(614,964)
Total intangible assets	1,509,908	1,587,705

Movements in Carrying Amounts

Movement in the carrying amounts for intellectual property between the beginning and the end of the current financial year:

year:
	Consolidated
	2017	2016
	$	$
Opening balance at 1 July	1,587,705	1,577,893
Additions	149,546	-
Exchange differences	(102,331)	102,960
Amortisation expense	(125,012)	(93,148)
Carrying amount at 30 June	1,509,908	1,587,705

A licensed patent with a deemed cost of $1,445,822 pertains to the Group’s exclusive license to a patent owned by Engineering Performance Solutions (EPS) for magnetic activated carbon technology that maximises mercury capture from flue gas.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

29

13 Non-current assets – Intangible assets Cont.

The Group acquired the licence in 2012 in consideration for EPS becoming entitled to royalties based on a percentage of revenue from the sale of products by the Group that use EPS’ technology. The fair value of future royalty payments on the acquisition date was assessed at $1,445,822, which is deemed to be the cost of the asset acquired.

The deemed cost of the patent licence is amortised over the life of the asset. Amortization expense for the EPS patent included in the 2017 income statement totals $90,360 (2016: $90,360).

The fair value of the royalty liability changes year on year and the movement is booked through the Statement of Comprehensive Income (refer to note 16).

14 Current liabilities – Trade payables and customer deposits

	Consolidated
	2017	2016
	$	$
Trade payables	1,151,500	519,388
Customer deposits	975,039	1,009,965
Other payables	54,610	36,703
Totaltrade and otherpayables	2,181,149	1,566,056

All amounts are short term and the carrying values are considered to be a reasonable approximation of fair value.

15 Current and non current liabilities – Loans and borrowings

		Consolidated
	Notes	2017	2016
		$	$
Current liabilities
Loans		73,333	66,166
Convertiblenotes		2,401,534	-
Loans and borrowings		**2,474,867 **	66,166
Non current liabilities
Convertible notes		-	2,133,578
Loans and borrowings		-	2,133,578

The convertible notes were reclassified as a current liability in FY 2017 as the notes mature on 31 December 2017 at 30 June 2017. Subsequent to the end of the financial year the maturity date of the convertible notes has been extended, by agreement, to 31 December 2019.

Movement of the convertible notes following conversion and re-measurement between the beginning and the end of the current financial year:

Opening balance of convertible notes at 1July 2016	2,133,578	6,050,513
New convertible notes issued	670,000	-
Conversion of convertible notes	(670,000)	(3,612,723)
Re-measurement of convertible notes	75,833	627,484
Imputed interest	192,123	170,686
Re-measurement of convertible notes on conversion	-	(16,475)
Recognition of equity component of the extended convertible notes	-	(537,574)
Convertiblenote premiumsettled (Note18 (b))	-	(548,333)
Closing balance of convertible notes at 30 June 2017	**2,401,534 **	2,133,578

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

30

15 Current and non current liabilities – Loans and borrowings Cont.

(a) Convertible notes converted during the year

670,000 notes and the corresponding liability of $670,000 were converted into 16,750,000 shares at $0.04 each on 30 June 2017.

(b) Outstanding convertible notes

The key terms and conditions are:

Amount: $2,193,333 Issue price: $1 per note Maturity date: 31 December 2017 Interest rate: 8% Conversion: The note holder has the option to convert $1.1 million of these notes into shares at 7 cents per share at any date prior to maturity at a conversion price based on a specified formula. Redemption: If not converted, the notes would be redeemed for cash.

The movement in these notes during the year was:

Opening balance – 1 July 2016 Imputed interest Remeasurement of convertible notes Closing balance – 30 June 2017	Number of notes Valuation $ 2,193,333 2,133,578 - 192,123 - 75,833
	2,193,333 2,401,534

Subsequent to the end of the financial year, the maturity date of 2,193,333 Convertible notes at $1.00 issue price noted above have been extended by agreement to 31 December 2019.

16 Non current liabilities – Other liabilities

	Consolidated
	2017	2016
	$	$
Royalty payable	2,109,761	1,876,976
Total -Other liabilities	2,109,761	1,876,976

The Group has an exclusive licence from EPS to use its patented technology. Royalties are payable to EPS out of revenue received by the Group from the sale of products using the EPS technology as follows:

• Sale price below US$2,000 per ton -1% of revenue.

• Sale price of US$2,000 to US$2,500 per ton - 2% of revenue.

• Sale price of US$2,500 to US$3,000 per ton - 3% of revenue.

• Sale price above US$3,000 per ton - 4% of revenue.

The patent has been recognised as an intangible asset (refer to note 13) and the corresponding liability for future royalties is valued using a probability weighted discounted cash flow methodology. The movement in the valuation of the liability of $232,784 has been taken as income to the Statement of Comprehensive Income.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

31

17 Earnings per share

a.	Basic Loss per share
i.	Basic Loss per share (cents per share)
ii.	Net loss used to calculate basic loss per share
	Weighted average number of ordinary shares outstanding during the year used
iii.	in calculating basic loss per share
b.	Diluted loss per share
	The Company’s potential ordinary shares, being its options granted, are not
	considered dilutive as the conversion of these options would result in a
	decrease in the net loss per share.

Consolidated	Consolidated
2017	2016
(1.02)	(1.23)
(4,734,427)	(4,651,432)
464,671,810	377,716,501

18 Contributed equity

18 Contributed equity
		Consolidated
		2017	2016
		$	$
(a) Share capital
“A” Class Shares – Fully paid		44,679,176	40,967,835
US Subsidiary Capital Premium*		**537,552 **	537,552
Total share capital		45,216,728	41,505,387
(b) Movements in ordinary share capital	Number	Price	$
	of shares	per share
“A” Class Shares
Balance at 30 June 2015	337,939,573		34,401,771
Share placement	14,960,000	$0.0700	1,047,200
Shares issued to Werft Pty Ltd associate (EGM April 2016)	25,000,000	$0.0400	1,000,000
Shares issued to convertible note holders	7,833,333	$0.0700	548,333
Shares issued on conversion of convertible notes	38,081,826	$0.0953	3,629,198
Shares issued on vesting of performance rights**	8,533,333	$0.0400	341,333
Sub total	94,408,492		6,566,064
Balance at 30 June 2016	432,348,065		40,967,835
Share placement	37,810,802	$0.0400	1,512,432
Share placement	5,000,000	$0.0400	200,000
Conversion of convertible notes	16,750,000	$0.0400	670,000
Shares issued in lieu of payment for convertible note Interest	42,125	$0.0400	1,685
Share placement	75,000	$0.0533	4,000
Entitlements offer share issue	31,197,803	$0.0500	1,559,891
Issue costs			(236,667)
Sub total	90,875,730		3,711,341
Balance at 30 June 2017	523,223,795		44,679,176

• The US subsidiary capital premium resulted from the premium paid by outside equity interests for shares in the Company’s subsidiary Carbonxt Inc. prior to the Group acquiring the remaining 27% minority interest.

Capital Management

The Group’s objective is to ensure it has sufficient funds to meet its obligations over the next 12 months. The Company aims to achieve positive cash flow within 12 months.

There are no externally imposed capital requirements.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

32

19 Reserves

Nature and purpose of other reserves

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

Convertible note equity reserve

The Convertible Note Equity Reserve records the equity portion of the convertible notes issued as described in Note 15.

Fair value of financial liability reserve

This reserve records movements in the fair value of investor loans when investor loans were converted to capital in 2008.

Share based payment reserve

This reserve records the fair value of the performance rights issued to directors and key executives.

		Consolidated	Consolidated
	Fair value	Share	Convertible	Foreign	Total
	of financial	based	note equity	currency
	liability	payments	reserve	translation
		reserve		reserve
	$	$	$	$	$
At 30 June 2015	8,853,868	2,795,382	25,557	196,587	11,871,394
Currency translation differences	-	-	-	93,921	93,921
Remeasurement of convertible note	-		537,574	-	537,574
Share based payment expense	-	(23,255)	-	-	(23,255)
At 30 June 2016	8,853,868	2,772,127	563,131	290,508	12,479,634
Currency translation differences	-	-	-	(132,648)	(132,648)
Remeasurement of convertible note	-	-	468,337	-	468,337
Share based payment expense	-	-	-	-	-
At 30 June 2017	8,853,868	2,772,127	1,031,468	157,860	12,815,323

20 Commitments and contingencies

As at 30 June 2017, the Group had no finance lease commitments or capital commitments and had one operating lease in Gainesville, Florida. Future minimum lease rental payments for the operating lease are:

	Consolidated	Consolidated
	2017	2016
	$	$
Within one year	102,841	103,422
Afterone butnotmore than five years	73,231	182,379
Total minimum lease payments	176,072	285,801

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

33

21 Parent entity information

Financial information in relation to: i. Statement of Comprehensive Income Loss after income tax Total comprehensive loss ii. Statement of Financial Position Total Current Assets Total Non Current Assets Total Assets Total Current Liabilities Total Non Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Accumulated losses Total Equity	Parent entity 2017 2016 $ $ (4,818,827) (3,749,724)
	(4,818,827) (3,749,724)
	374,519 68,493
	1,039,202 1,219,922
	1,413,721 1,288,415
	2,916,760 161,152
	2,109,761 4,010,554
	5,026,521 4,171,706
	(3,612,800) (2,883,291)
	44,679,176 40,967,835 12,657,463 12,189,126 (60,949,439) (56,040,252)
	(3,612,800) (2,883,291)

Contingent liabilities

The parent entity had no contingent liabilities as at 30 June 2017 and 30 June 2016.

Capital commitments

The parent entity had no capital commitments as at 30 June 2017 and 30 June 2016.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

34

22 Cash flow information

22	Cash flow information
		Consolidated
		2017	2016
		$	$
Reconciliation of Cash Flow from Operations with Profit after Income
Tax
Loss after income tax		(4,734,427)	(4,651,432)
Non-cash flows in profit:
–	Depreciation and amortisation	182,003	202,638
–	Imputed interest expense on convertible notes	192,123	170,686
–	Loss recognised on re-measurement to fair value of convertible notes	544,170	627,484
–	Loss/(Gain)recognised on re-measurement to fair value of licence royalty	232,784	427,751
–	Share based payment expense	-	318,078
–	Loss on Disposal of Non Current Assets	5,594	-
Changes in assets and liabilities
–	Decrease (Increase) in trade and other receivables	51,938	(529,879)
–	(Increase) Decrease in inventories	(25,461)	441,393
–	Decrease/(Increase) in other current assets	25,038	(34,193)
–	Increase in trade creditors and customer deposits	501,186	1,234,349
Net	cash flows used in operating activities	(3,025,052)	(1,793,125)

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

35

23 Events after the balance sheet date

Equity Raising

Since 30 June 2017 the Group has raised $1,960,000 from placement of 39,197,803 shortfall shares from the 2017 entitlements offer.

The maturity date of 2,193,333 Convertible notes at $1.00 issue price have been extended by agreement to 31 December 2019 (see Note 15 of the financial statements for further information).

There has not been any other matter or circumstance that has arisen after balance date that has significantly affected, or may significantly affect, the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial periods.

24 Financial instrument risk management

The Group is exposed to a variety of financial risks through its use of financial instruments.

This note discloses the Group’s objectives, policies and processes for managing and measuring these risks.

a. Interest rate risk At balance date, the Group had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk that are not designated in cash flow hedges:

	Consolidated
	2017	2016
	$	$
Cash and cash equivalents	520,522	402,648
	520,522	402,648
Net Exposure	520,522	402,648

The Group constantly analyses its interest rate exposure. Within this analysis, consideration is given to potential renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable interest rates.

The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date:

	Consolidated
	2017	2016
	$	$
Change in loss
+1% (100 basis points)	5,200		99
-0.5% (50 basis points)	(2,600)		(49)
Change in equity
+1% (100 basis points)	5,200		99
-0.5% (50 basis points)	(2,600)		(49)

b. Foreign currency risk

Exposure to currency exchange rate risk arises from the Group's overseas operations, which are denominated in US dollars.

The Group also has transactional currency exposures. Such exposure arises from sales or purchases by an operating entity in currencies other than the functional currency. The effect of a movement of 10% of the exchange rate used on the translation of the income statement of the US subsidiaries would amount to a change in the equity balance of the subsidiaries of $216,638.

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

36

24 Financial instrument risk management Cont.

c. Liquidity risk

The Group’s current objective is to maintain continuity of funding.

Consolidated ≤ 6 Months 6-12 Months Financial Assets Cash and cash equivalents 520,522 - Trade and other receivables 477,941 -	1-5 Years - -	> 5 Years Total - 520,522 - 477,941
998,463 - Financial Liabilities - - Trade and other payables 2,181,149 - Other loans - 73,333 Convertible notes payable (conversion date 31 Dec 17) - **2,401,534 **	- - - - -	- 998,463 - - - 2,181,149 - 73,333 - **2,401,534 **
2,181,149 2,474,867	-	- 4,656,016
Net Maturity (1,182,686) (2,474,867)	-	- (3,657,553)

25 Controlled entities

25 Controlled entities
	Country of Incorporation	Percentage	Owned (%)
		2017	2016
Controlled Entities Consolidated
Subsidiaries of Carbonxt Group Limited:
Carbonxt Inc.	United States of America	100%	100%
Clear Carbon Innovations LLC	United States of America	100%	100%
Carbonxt Group Holdings LLC	United States of America	100%	100%

26 Key management personnel

Key Management Personnel during the period are as follows:

Matthew Quinn – Chairman Warren Murphy – Managing Director David Mazyck – Director of Technology and CEO Carbonxt Inc.

a. Compensation of key management personnel

Key management personnel compensation included within employee expenses is:

Short-term benefits Termination benefits $ $ 2016 794,647 -	Post employment benefit $ -	Other long- term benefits $ -	Share based benefits Total $ $ 270,078 1,064,725
Totalcompensation 794,647 -	-	-	270,078 1,064,725
2017 809,781 -	1,900	-	- 811,681
Total compensation 809,781 -	1,900	-	- **811,681 **

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

37

26 Key management personnel Cont.

b. Shareholdings of key management personnel

Shares and Performance Rights held directly or indirectly in The Company :

	“A” Class Shares		Performance	Rights
	2017	2016	2017	2016
	No.	No.	No.	No.
Matthew Quinn	26,200,000	24,200,000	-	4,000,000
Warren Murphy	2,000,000	2,000,000	-	4,000,000
David Mazyck	2,000,000	2,000,000	-	4,000,000

c. Other transactions of key management personnel and their related parties

David Mazyck no longer has a beneficial interest in EPS, (2016: 25%) which has provided a licence to the Group to use its patent (refer to note 16). Dr Mazyck was excluded from negotiations between EPS and the Group in respect of this transaction.

27 Share-based payment plans

a. Recognised share-based payment

The amount recognised for services received during the year is shown in the table below.

	Consolidated	Consolidated
	2017	2016
	$	$
Value of equity-settled share-based payment transactions	-	(23,255)
	-	(23,255)

b. Share-based payment plan

	2017 No.	2016 No.	WAEP
Outstanding at the beginning ofthe year	-	22,500,000	$0
Granted during the year	-	1,200,000	$0
Exercised during the year	-	(8,533,333)	$0
Cancelled during the year	-	(500,000)	$0
Expired during the year	-	(14,666,667)	$0
Outstanding at the end ofthe year	-	-	$0

c. Performance rights granted to key personnel

No performance rights were granted to key personnel during the year.

28 Fair value disclosures

Fair value hierarchy

The following tables detail the consolidated entity's assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3: Unobservable inputs for the asset or liability

Carbonxt Group Limited Notes to the financial statements for the year ended 30 June 2017

38

The carrying amounts of cash, trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature.

The table below shows the assigned level for each asset and liability held at fair value by the Group:

	Level 1	Level 2	Level 3	Total
30 June 2016	$	$	$	$
Recurring fair value measurements
Other loans	-	66,166	-	66,166
Royalty payable	-	-	1,876,976	1,876,976
Convertible notes payable	-	-	2,133,578	2,133,578
	Level 1	Level 2	Level 3	Total
30 June 2017	$	$	$	$
Recurring fair value measurements
Other loans	-	73,333	-	73,333
Royalty payable	-	-	2,109,761	2,109,761
Convertible notes payable	-	-	2,401,534	2,401,534

There were no non-recurring fair value measurements for the year ended 30 June 2017.

There were no transfers between fair value hierarchy categories during the year.

Royalty payable

The terms of the liability has been disclosed in note 16. The fair value has been determined using the discounted cash flow method.

Significant unobservable valuation inputs are provided below:

Sales price per ton: $2,000 - $3,000 per tonne (2016: No change)

Sales tons: 5,000 - 20,000t/p.a. (2016: No change)

US Discount rate: 2.30% (2016: 1.58%) (risk free rate) at 30 June 2017

Significant increases (decreases) in the sales price per ton and tons sold would result in higher (lower) fair value of the royalty payable, while significant increases (decreases) in the discount rate would result in lower (higher) fair value of the liability.

Convertible notes payable

The terms of the liability have been disclosed in note 15. The fair value has been determined using a probability weighted valuation method depending on the expected conversion or redemption of these notes.

Conversion method : fair value has been determined using a predetermined formula as per the convertible note deed.

Significant unobservable valuation inputs are provided below:

Price per share: $0.04 (2016: $0.07)

Redemption method : fair value has been determined by multiplying the face value of the notes with the premium attached on redemption and a net present value determined using an appropriate discount rate.

Significant unobservable valuation inputs are provided below:

Price per share: $0.04 (2016: $0.04)

Redemption premium: 125% or 150% of face value (depending on scenarios) (2016: No change)

39

Carbonxt Group Limited

Notes to the financial statements for the year ended 30 June 2017

Market based interest rate: 20% (2016: 20%) Australian Discount rate: 2.50% (2016: 1.47%) (risk free rate) at 30 June 2017.

An estimate has been made as to the probability of various scenarios occurring, each of which would give rise to a different fair value of the convertible notes. These probabilities have been weighted and incorporated into the fair value of the convertible notes payable as disclosed in note 15.

Significant increase (decrease) in the price per share and interest rate would result in higher (lower) fair value of the convertible payable, while significant increase (decrease) in the discount rate would result in lower (higher) fair value of the liability.

Carbonxt Group Limited Annual Report 30 June 2016

• 40 -

DIRECTORS’ DECLARATION

The directors of the company declare that:

1. The financial statements and notes, as set out on pages 11 to 39 are in accordance with the Corporations Act 2001:

2. a comply with Accounting Standards (including the Australian Accounting Interpretation) and the Corporations Regulations 2001; and

3. a give a true and fair view of the financial position as at 30 June 2017 and of the performance for the year ended on that date of the company and consolidated group; and

4. b complies with International Financial Reporting Standards as disclosed in Note 2

5. In the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

==> picture [136 x 47] intentionally omitted <==

Director: __________

Warren Murphy

• 8 November, 2017

Auditor’s Report

Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001

Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au

==> picture [62 x 72] intentionally omitted <==

Independent Auditor's Report to the Members of Carbonxt Group Limited

Opinion

We have audited the financial report of Carbonxt Group Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration.

In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001 , including:

• a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated financial performance for the year ended on that date; and

• b) complying with Australian Accounting Standards and the Corporations Regulations 2001 .

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the directors of Carbonxt Group Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Regarding Continuation as a Going Concern

We draw attention to Note 2(d) Going Concern in the financial report, which discloses the conditions present that indicate a material uncertainty exists that may cast significant doubt the ability of the Group to continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the consolidated entity not continue as a going concern. Our opinion is not modified in respect of this matter.

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation

Page 2

==> picture [62 x 72] intentionally omitted <==

Information Other than the Financial Report and Auditor’s Report Thereon

The directors are responsible for the other information. The other information is the directors’ report accompanying the financial report.

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Financial Report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation

Page 3

==> picture [62 x 72] intentionally omitted <==

• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on the Audit of the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2017.

In our opinion, the Remuneration Report of Carbonxt Limited for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001.

Responsibilities

The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

==> picture [85 x 37] intentionally omitted <==

Ernst & Young

==> picture [87 x 40] intentionally omitted <==

Julian M. OBrien Partner Sydney 8 November 2017

A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation