LARK DISTILLING CO. LTD — Interim / Quarterly Report 2020

Aug 27, 2020

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(Formerly known as Australian Whisky Holdings Limited) ABN 62 104 600 544

Appendix 4E Preliminary Final Report – 30 June 2020 Provided to the ASX under Listing Rule 4.3A

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Corporate directory 30 June 2020

Corporate directory 30 June 2020
Directors	Mr David Dearie (Chairman)
	Mr Geoff Bainbridge (Managing Director)
	Mr Warren Randall (Non-Executive Director)
	Mr Laurent Ly (Non-Executive Director)
	Ms. Laura McBain (Non-Executive Director)
Company secretary	Melanie Leydin
Registered office	Level 1
	30 Argyle Street
	Hobart TAS 7000
Principal place of business	Level 1
	30 Argyle Street
	Hobart TAS 7000
Auditor	Deloitte
	Level 8
	22 Elizabeth Street
	Hobart TAS 7000
Stock exchange listing	Lark Distilling Co. Ltd shares are listed on the Australian Securities Exchange (ASX
	code: LRK)

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Contents 30 June 2020

Appendix 4E 4 Review of operations 6 Statement of profit or loss and other comprehensive income 7 Statement of financial position 8 Statement of changes in equity 9 Statement of cash flows 10 Notes to the financial statements 11

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Appendix 4E Preliminary final report

1. Company details

Name of entity: Lark Distilling Co. Ltd ABN: 62 104 600 544 Reporting period: For the year ended 30 June 2020 Previous period: For the year ended 30 June 2019

2. Results for announcement to the market

2. Results for announcement to the market
			$
Revenues from ordinary activities	up	34.5% to	7,426,459
Loss from ordinary activities after tax attributable to the owners of Lark
Distilling Co. Ltd	down	70.6% to	(1,272,296)
Loss for the year attributable to the owners of Lark Distilling Co. Ltd	down	70.6% to	(1,272,296)

Dividends

There were no dividends paid, recommended or declared during the current financial period.

Comments

Refer to attached review of operations for commentary over the results for the period.

3. Net tangible assets

Net tangible assets per ordinary security	Reporting period Cents 47.64	Previous period Cents 49.69

On 3 April 2020 Lark Distilling Co. finalised its consolidation of its securities on a 30 for 1 basis. This has been reflected in the prior reporting period for comparative purposes.

4. Control gained/lost over entities

Not applicable.

5. Dividends

Current period

There were no dividends paid, recommended or declared during the current financial period.

Previous period

There were no dividends paid, recommended or declared during the previous financial period.

6. Dividend reinvestment plans

Not applicable.

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Appendix 4E Preliminary final report

7. Details of associates and joint venture entities

Not applicable.

8. Foreign entities

Details of origin of accounting standards used in compiling the report:

Not applicable.

9. Audit qualification or review

Details of audit/review dispute or qualification (if any):

The financial statements are in the process of being audited.

10. Attachments

Details of attachments (if any):

The review of operations, statement of comprehensive income, statement of financial position statement of cash flows and statement of changes in equity are attached to this report, as are key notes to those financial statements.

11. Signed

Signed _________ Geoff Bainbridge Managing Director

Date: 28 August 2020

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Review of operations 30 June 2020

Review of operations – 2020

Lark undertook significant marketing investment throughout the year which resulted in sales revenues for the year ended 30 June 2020 being 35% higher than the previous corresponding period. The sales growth for the June quarter was 45% higher year on year to $2.2m. The Group undertook its first ever National advertising campaign for Lark Whisky, designed to raise domestic brand awareness and provide support to key off premise accounts.

Implementing a direct distribution model, Lark ceased the mainland Australia distribution arrangement with Proof & Co. effective 1 July 2020, with the direct model now under the leadership of Head of Sales, Phil Henderson.

Lark continued its focus of production and investment in whisky inventories, reporting a 54% increase on its 1[st] July 2019 opening balance, through efficiency yields and the addition of a 2[nd] shift at its Cambridge site maximising new make spirit production.

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The Group closed out the year with total whisky inventories under maturation of 711,313 litres, at a cost of $16.74m and a maturation value of $98.8m. The maturation market value is based on an estimated future net sales value which is equal to what the Group’s net sales value achieved today. The market value presented has an inherent risk in that the estimated net sales value will be achieved on maturation, therefore consideration needs to be given to market conditions at that point in time.

The June quarter saw the completion of a new column still at a cost of approximately $743k for the production of a new whisky product line, working title AX8, as well as the base alcohol for Forty Spotted Gin and Lark Sanitiser.

Management continued to drive its focus on the Lark brand by divesting non-core assets through the sale of the Overeem Single Malt Whisky trademark and limited whisky inventory on the 19[th] February 2020 and execution of a share/inventory swap with Old Kempton Distillery on 8 April 2020.

In order to support future growth plans and further improve the balance sheet position the Group obtained access to $5m of debt funding on the 14[th] March 2020, through a facility provided by its largest shareholder Quality Life Pty Ltd.

Financial Position

The net assets of the Lark remain strong at $37.38 million as at 30 June 2020 (a decrease of $0.66 million from 30 June 2019). This decrease is largely due to the following:

• Net loss for year of $1.28 million; driven by the following:

• a) Gross profit of $4.04 million;

• b) Other income of $0.75 million;

• c) Operating expenses of $5.90 million;

• d) Net finance costs of $0.17 million.

• Lark’s working capital, being current assets less current liabilities, is $9.00 million at 30 June 2020 (30 June 2019: $11.69 million).

• Net cash outflows utilised in funding operating activities during the year was $3.53m. However, this included $7.89 million in inventory costs paid to lay down new make spirit for future sale. The inventory payments represent a significant investment in the Group’s inventory to underpin future revenue streams.

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Statement of profit or loss and other comprehensive income For the year ended 30 June 2020

Note Revenue Sales revenue 2 Cost of sales 4 Gross profit Other income 3 Expenses Selling and distribution expenses 4 Administration expenses Employee benefits expense Depreciation and amortisation expense 5 Impairment expenses 4 Loss before interest and tax expense Finance income 6 Finance costs 7 Loss before income tax expense Income tax expense 8 Loss after income tax expense for the year attributable to the owners of Lark Distilling Co. Ltd 4 Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the year, net of tax Total comprehensive income / (loss) for the year attributable to the owners of Lark Distilling Co. Ltd Basic earnings per share Diluted earnings per share	Consolidated 2020 2019 $ $ 7,426,459 5,523,207 (3,384,365) (2,639,740) 4,042,094 2,883,467 748,803 30,681 (824,856) (371,091) (2,401,675) (3,129,769) (2,541,438) (2,070,493) (127,068) (57,428) - (1,367,269) (1,104,140) (4,081,902) 19,117 116,908 (187,273) (362,075) (1,272,296) (4,327,069) - - (1,272,296) (4,327,069) 447 - 447 - (1,271,849) (4,327,069) Cents Cents (2.34) (7.96) (2.34) (7.96)
	4,042,094
	748,803 (824,856) (2,401,675) (2,541,438) (127,068) -
	(1,104,140) 19,117 (187,273)
	(1,272,296) -
	(1,272,296) 447
	447
	(1,271,849)
	Cents (2.34) (2.34)

The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Statement of financial position As at 30 June 2020

Note Assets Current assets Cash and cash equivalents 9 Trade and other receivables 10 Inventories 11 Prepaid assets Total current assets Non-current assets Trade and other receivables 12 Inventories 13 Financial assets 14 Property, plant and equipment 15 Right-of-use assets 16 Intangibles 17 Total non-current assets Total assets Liabilities Current liabilities Trade and other payables 18 Financial liabilities 19 Employee benefits 20 Total current liabilities Non-current liabilities Trade and other payables Borrowings 21 Financial liabilities 22 Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital 23 Reserves 24 Accumulated losses 25 Total equity	Consolidated 2020 2019 $ $ 6,119,362 6,731,306 1,532,937 525,868 4,950,050 6,306,572 21,244 39,368 12,623,593 13,603,114 - 185,705 14,329,411 8,469,516 - 300,000 7,907,617 6,802,476 206,930 - 11,229,315 11,031,472 33,673,273 26,789,169 46,296,866 40,392,283 3,054,055 1,277,015 423,612 474,024 150,263 161,337 3,627,930 1,912,376 17,247 5,017 5,000,000 - 176,060 377,236 98,531 58,347 5,291,838 440,600 8,919,768 2,352,976 37,377,098 38,039,307 49,475,985 49,361,969 543,712 47,641 (12,642,599) (11,370,303) 37,377,098 38,039,307
	12,623,593
	- 14,329,411 - 7,907,617 206,930 11,229,315
	33,673,273
	46,296,866
	3,054,055 423,612 150,263
	3,627,930
	17,247 5,000,000 176,060 98,531
	5,291,838
	8,919,768
	37,377,098
	49,475,985 543,712 (12,642,599)
	37,377,098

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

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Statement of changes in equity For the year ended 30 June 2020

Issued capital Consolidated $ Balance at 1 July 2018 37,964,572 Loss after income tax expense for the year - Other comprehensive income for the year, net of tax - Total comprehensive income / (loss) for the year - Transactions with owners in their capacity as owners: FX arising from translating - Non-controlling interest of Lark Distillery Pty Ltd - Shares issued during the year 11,946,049 Shares issue cost (548,652) Balance at 30 June 2019 49,361,969 Consolidated Balance at 1 July 2019 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income / (loss) for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 23) Share-based payments Balance at 30 June 2020	Issued capital $ 37,964,572 - -	Reserves $ 47,813 - -	Retained profits $ (7,047,849) (4,327,069) -	Non- controlling interest $ 4,615 - -	Total equity $ 30,969,151 (4,327,069) -
	- - - 11,946,049 (548,652)	- (172) - - -	(4,327,069) - 4,615 - -	- - (4,615) - -	(4,327,069) (172) - 11,946,049 (548,652)
	49,361,969	47,641	(11,370,303)	-	38,039,307
		Issued capital $ 49,361,969 - -	Reserves $ 47,641 - 447	Retained profits $ (11,370,303) (1,272,296) -	Total equity $ 38,039,307 (1,272,296) 447
		- 114,016 -	447 - 495,624	(1,272,296) - -	(1,271,849) 114,016 495,624
		49,475,985	543,712	(12,642,599)	37,377,098

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

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Statement of cash flows For the year ended 30 June 2020

Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Statement of cash flows For the year ended 30 June 2020
Note Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Purchase of inventory Interest paid Interest received Net cash used in operating activities 27 Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Proceeds from sale of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Payment of lease liabilities under AASB 16 Share issue transaction costs Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 9	Consolidated 2020 2019 $ $ 8,348,262 6,709,266 (3,858,586) (5,206,874) (7,887,738) (5,797,616) (163,315) (362,075) 33,385 116,908 (3,527,992) (4,540,391) (1,330,644) (656,470) (244,996) (52,007) 6,000 - (1,569,640) (708,477) - 11,946,049 5,000,000 262,301 (490,354) (6,401,333) (23,958) - - (687,662) 4,485,688 5,119,355 (611,944) (129,513) 6,731,306 6,860,819 6,119,362 6,731,306
	(3,527,992)
	(1,330,644) (244,996) 6,000
	(1,569,640)
	- 5,000,000 (490,354) (23,958) -
	4,485,688
	(611,944) 6,731,306
	6,119,362

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

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 1. General information

The following notes are disclosed to assist with understanding the preliminary financial report and are not intended to include all notes that will accompany the audited financial statements.

This preliminary financial report has been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. The entity is involved in significant expansionary activity and as such, is currently cash absorbing. During the period the entity incurred a loss of $1,272,296 (FY19: $4,327,069) and had net cash outflows from operating activities of $3,527,992 (FY19: $4,540,391). As at 30 June 2020 the entity had cash and cash equivalents of $6,119,362 (FY19: $6,731,306).

The directors have approved a cash flow forecast which includes further expansionary activities in the production of new-make spirit for the FY2021 year which will absorb cash throughout FY2021 and beyond. Due to having no current contracted or legal obligations to increase production or undertake expansionary capital expenditure, the entity has the ability to undertake mitigating actions in response to any cash flow uncertainties or potential risks that may arise after the date of this report. Such actions include ceasing or reducing the level of expansionary whisky production, and the deferral or suspension of non-critical capital expenditure.

At the date of this report and having considered the current cash balance, cash flow forecasts and mitigating plans, the directors are confident that the Group will be able to continue as a going concern.

Note 2. Revenue

Operating activity Whisky revenue Gin revenue Other	Consolidated 2020 2019 $ $ 4,889,832 3,219,020 1,360,944 1,439,085 1,175,683 865,102 7,426,459 5,523,207
	7,426,459

Revenue recognition

The Group recognises revenue as follows:

Revenue from contracts with customers

Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised.

Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and returns, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined and consistently applied using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability.

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 2. Revenue (continued)

Sale of goods

Revenue derived from the sale of inventories to customers is recognised at the time of delivery.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

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

Interest

Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Other revenue

Other revenue is primarily hand sanitiser for the current year, as well as brandy and other alcohol sold, and is recognised when it is received or when the right to receive payment is established.

Note 3. Other income

R&D grant income Government grant income Excise rebate income Gain on sale of Overeem brand Other income	Consolidated 2020 2019 $ $ 30,185 30,681 336,457 - 100,000 - 165,000 - 117,161 - 748,803 30,681
	748,803

Government grant income

Government grant incentive relates to Job Keeper government incentive payments in response to COVID-19.

Gain on sale of Overeem brand

On 19 February 2020 the Group executed a binding Heads of Agreement with Sawford Distillery Pty Limited for the sale of the Overeem Single Malt Whisky trademark and limited whisky inventory.

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 4. Loss before income tax expense

Loss before income tax determined after Impairment expense - Group assets Cost of goods sold Directors fees Consulting fees Selling and marketing expenses Legal fees Occupancy costs Transport, travel and entertainment Impairment of group assets relates to: Goodwill impaired - relating to Nant acquisition Bothwell real estate asset writedown	Consolidated 2020 2019 - (1,367,269) (3,384,363) (1,714,946) (542,997) (223,425) (499,728) (696,283) (824,857) (371,091) (336,307) (593,761) (234,674) (237,483) (98,840) (318,160)	Consolidated 2020 2019 - (1,367,269) (3,384,363) (1,714,946) (542,997) (223,425) (499,728) (696,283) (824,857) (371,091) (336,307) (593,761) (234,674) (237,483) (98,840) (318,160)
	(5,921,766)	(5,522,418)
	Consolidated 2020 2019 - (837,586) - (529,683)
	-	(1,367,269)

*Impairment of group assets relates to: Goodwill impaired - relating to Nant acquisition Bothwell real estate asset writedown

Note 5. Depreciation and amortisation

Note 5. Depreciation and amortisation
Depreciation on property, plant and equipment Amortisation on intangibles Depreciation on right-of-use assets Total depreciation and amortisation expense Depreciation capitalised into inventory Note 6. Finance income Interest income Note 7. Finance costs Interest expense Bank and other fees	Consolidated 2020 2019 (48,097) (23,282) (47,135) (34,146) (31,836) -
	(127,068)	(57,428)
	(171,406)	(162,818)
	Consolidated 2020 2019 19,117 116,908
	Consolidated 2020 2019 $ $ (147,672) (318,101) (39,601) (43,974)
	(187,273)	(362,075)

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 8. Income tax expense

Numerical reconciliation of income tax expense and tax at the statutory rate Loss before income tax expense Tax at the statutory tax rate of 27.5% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Asset impairment Legal fees Share-based payments R&D offset income Tax losses not recognised Income tax expense Tax losses not recognised Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit @ 27.5%

Consolidated 2020 2019 $ $ (1,272,296) (4,327,069) (349,881) (1,189,944) - 375,999 - 163,285 148,687 - (8,300) - (209,494) (650,660) 209,494 650,660 - - Consolidated 2020 2019 $ $ 27,280,068 23,527,985 7,502,019 6,470,196

7,502,019

The above potential tax benefit for tax losses has not been recognised in the statement of financial position. These tax losses can only be utilised in the future if the continuity of ownership test is passed, or failing that, the same business test is passed and future taxable profits are available to offset against the carry forward tax losses.

Note 9. Current assets - cash and cash equivalents

Note 9. Current assets - cash and cash equivalents
Cash on hand Cash at bank Cash on deposit	Consolidated 2020 2019 $ $ 3,767 4,253 6,115,595 668,520 - 6,058,533 6,119,362 6,731,306
	6,119,362

Accounting policy for cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents includes cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts.

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 10. Current assets - trade and other receivables

Note 10. Current assets - trade and other receivables
Trade receivables Other receivables Expected future credit losses Deposits paid	Consolidated 2020 2019 $ $ 1,228,265 397,017 279,376 89,832 (20,828) (5,442) 46,124 44,461 1,532,937 525,868
	1,532,937

Accounting policy for trade and other receivables

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days.

Note 11. Current assets - inventories

Note 11. Current assets - inventories
Raw materials - at cost Work in progress - at cost Finished goods - at cost Inventory in casks	Consolidated 2020 2019 $ $ 1,486,300 1,831,490 784,961 - 346,094 518,562 2,332,695 3,956,520 4,950,050 6,306,572
	4,950,050

Accounting policy for inventories

Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on a 'first in first out' basis. Cost comprises of direct materials and delivery costs, direct labour, import duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity, 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.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Note 12. Non-current assets - trade and other receivables

Note 12. Non-current assets - trade and other receivables
Deposit paid Other receivables	Consolidated 2020 2019 $ $ - 184,621 - 1,084 - 185,705
	-

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 13. Non-current assets - inventories

Inventory in casks	Consolidated 2020 2019 $ $ 14,329,411 8,469,516

Non-current inventory represents whisky in casks that is expected to be maturing for at least a further 12 months. The company does not expect these casks to be decanted or sold within the next 12 months.

Note 14. Non-current assets - financial assets

Investment in Old Kempton - at fair value	Consolidated 2020 2019 $ $ - 300,000

On 8 April 2020, the group executed a Buy-Back Agreement with Old Kempton Distillery (OKD) whereby OKD bought back LRK's 12% share of OKD (acquired in 2016 for $300,000) in return for 12% of the current whisky inventory of OKD.

Note 15. Non-current assets - property, plant and equipment

Land - at cost Impairment Freehold improvements - at cost Less: Accumulated depreciation Office and computer equipment - at cost Less: Accumulated depreciation Plant, machinery & production assets - at cost Less: Accumulated depreciation Motor vehicles - at cost Less: Accumulated depreciation	Consolidated 2020 2019 $ $ 4,564,644 4,564,644 (529,683) (529,683) 4,034,961 4,034,961 131,951 102,654 (4,601) (2,615) 127,350 100,039 395,535 35,617 (8,491) (4,282) 387,044 31,335 4,115,281 3,181,780 (828,424) (628,247) 3,286,857 2,553,533 154,044 154,044 (82,639) (71,436) 71,405 82,608 7,907,617 6,802,476
	4,034,961
	131,951 (4,601)
	127,350
	395,535 (8,491)
	387,044
	4,115,281 (828,424)
	3,286,857
	154,044 (82,639)
	71,405
	7,907,617

Accounting policy for property, plant and equipment

Items of property, plant and equipment are measured at cost, less accumulated depreciation and any accumulated impairment losses.

If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 15. Non-current assets - property, plant and equipment (continued)

Freehold land is not depreciated.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are recognised in profit and loss.

The depreciable amount of all fixed assets is depreciated on a straight line basis over their useful lives to the consolidated group commencing from the time the asset is held ready for use.

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

Freehold improvements 0% - 2.5% Office and computer equipment 25% - 33% Plant, machinery & production assets 5% - 33% Motor vehicles 10% - 20%

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

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

Note 16. Non-current assets - right-of-use assets

Note 16. Non-current assets - right-of-use assets
Land and buildings - right-of-use Less: Accumulated depreciation	Consolidated 2020 2019 $ $ 238,766 - (31,836) -
	206,930	-

Accounting policy for right-of-use assets

A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.

Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities.

The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred.

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 17. Non-current assets - intangibles

Note 17. Non-current assets - intangibles
Goodwill - at cost Intangible assets - at cost Less: Accumulated amortisation	Consolidated 2020 2019 $ $ 10,934,839 10,934,839 461,752 216,773 (167,276) (120,140) 294,476 96,633 11,229,315 11,031,472
	461,752 (167,276)
	294,476
	11,229,315

Accounting policy for intangible assets

Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period.

Goodwill

Goodwill is carried at cost less any accumulated impairment losses.

Goodwill is calculated as the excess of the sum of:

(i) the consideration transferred;

(ii) any non-controlling interest (determined under either the full goodwill or proportionate interest method); and (iii) the acquisition date fair value of any previously held equity interest;

over the acquisition date fair value of any identifiable assets acquired and liabilities assumed.

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

The amount of goodwill recognised on acquisition of each subsidiary in which the Group holds less than 100% interest will depend on the method adopted in measuring the non-controlling interest. The Group can elect in most circumstances to measure the non-controlling interest in the acquiree either at fair value (full goodwill method) or at the non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets (proportionate interest method). In such circumstances, the Group determines which method to adopt for each acquisition and this is stated in the respective note to the financial statements disclosing the business combination.

Under the full goodwill method, the fair value of the non-controlling interest is determined using valuation techniques which make the maximum use of market information where available.

Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments.

Goodwill is tested for impairment annually and is allocated to the Group’s cash-generating units or groups of cashgenerating units, representing the lowest level at which goodwill is monitored and not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of.

Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions and do not affect the carrying amounts of goodwill.

18

Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 17. Non-current assets - intangibles (continued)

Other intangible assets

Other intangible assets including patents and trademarks and the whisky barrel fund, that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.

Subsequent expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

Amortisation

Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straightline method over their estimated useful lives, and is generally recognised in profit or loss. Goodwill is not amortised. The estimated useful lives for current and comparative periods are as follows:

Intangible asset	Useful life
Intangible assets	5-8 years

Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Note 18. Current liabilities - trade and other payables

Trade payables Sundry creditors and accrued expenses Other payables Note 19. Current liabilities - Financial liabilities Barrel Finance and Logistics Motor vehicles lease Eclipx Lease liability	Consolidated 2020 2019 $ $ 1,010,227 482,201 1,377,569 484,312 666,259 310,502 3,054,055 1,277,015 Consolidated 2020 2019 $ $ 329,570 366,634 47,016 18,336 - 89,054 47,026 - 423,612 474,024
	423,612

Note 19. Current liabilities - Financial liabilities

Accounting policy for financial liabilities

Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

19

Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 20. Current liabilities - employee benefits

Employee benefits	Consolidated 2020 2019 $ $ 150,263 161,337

Accounting policy for employee benefits

Short-term employee benefits

Provision is made for the consolidated group’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits 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. Other 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 cashflows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cashflows.

Contributions are made by the consolidated group to employee superannuation funds and are charged as expenses when incurred.

Note 21. Non-current liabilities - Borrowings

Loan - Quality Life Pty Ltd	Consolidated 2020 2019 $ $ 5,000,000 -

The key terms of the loan are as follows:

• Facility amount up to AUD $5,000,000 (fully drawn as at 30 June 2020;

• Term is 5 years after initial drawdown (initial drawdown in March 2020);

• Interest rate of 4% per annum plus the RBA published cash rate paid quarterly;

• Interest only loan with principal due at the end of the term.

Total secured liabilities

The total secured liabilities (current and non-current) are as follows:

Loan - Quality Life Pty Ltd

Consolidated	Consolidated
2020	2019
$	$
5,000,000		-

Assets pledged as security

The loan is secured by a registered security interest in real property and whisky held by the Group.

Note 22. Non-current liabilities - financial liabilities

Barrel Finance and Logistics Motor vehicles Lease liability	Consolidated 2020 2019 $ $ - 329,573 - 47,663 176,060 -	Consolidated 2020 2019 $ $ - 329,573 - 47,663 176,060 -
	176,060	377,236

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Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 23. Equity - issued capital

Note 23. Equity - issued capital
2020 Shares Ordinary shares - fully paid 54,453,167 Movements in ordinary share capital Details Date Balance 1 July 2018 Issue of fully paid ordinary shares 12 November 2018 Issue of fully paid ordinary shares 26 November 2018 Share issue costs Balance 30 June 2019 Issue of shares to settle liabilities 16 March 2020 Issue of shares to settle liabilities 16 March 2020 Consolidation of shares on 30 for 1 basis 28 April 2020 Balance 30 June 2020	2020 Shares 54,453,167		Consolidated 2019 2020 Shares $ 1,630,579,441 49,475,985	2019 $ 49,361,969
			Shares 1,339,212,384 242,586,570 48,780,487 -	$ 37,964,572 9,946,049 2,000,000 (548,652)
				49,361,969 89,600 24,416 -
				49,475,985

Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital.

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

Share buy-back

There is no current on-market share buy-back.

Note 24. Equity - reserves

Note 24. Equity - reserves
Foreign currency reserve Share-based payments reserve	Consolidated 2020 2019 $ $ 48,088 47,641 495,624 -
	543,712	47,641

Foreign currency reserve

The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations.

21

Lark Distilling Co. Ltd (Formerly known as Australian Whisky Holdings Limited) Notes to the financial statements 30 June 2020

Note 25. Equity - accumulated losses

Note 25. Equity - accumulated losses
Accumulated losses at the beginning of the financial year Loss after income tax expense for the year Accumulated losses at the end of the financial year	Consolidated 2020 2019 $ $ (11,370,303) (7,043,234) (1,272,296) (4,327,069)
	(12,642,599)	(11,370,303)

Note 26. Interests in subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy:

accordance with the accounting policy:
		Ownership interest
Name	Principal place of business /Country of incorporation	2020 %	2019 %
Australian Whisky Holdings Bothwell Pty Ltd	Level 1, 30 Argyle Street, Hobart TAS 7000	100.00%	100.00%
Australian Whisky Holdings Services Pty Ltd	Level 1, 30 Argyle Street, Hobart TAS 7000	100.00%	100.00%
Australian Whisky Holdings Management Pty Ltd	Level 1, 30 Argyle Street, Hobart TAS 7000	100.00%	100.00%
Aowei Liquor Industries Beijing Limited (former name Beijing Montec Commercial Limited)	Beijing PRC 100022	100.00%	100.00%
Australian Whisky Holdings (HK) Limited (former name Montec International (HK) Limited)	Kowloon, Hong Kong	100.00%	100.00%
Lark Distillery Pty Ltd	20 Denholms Road, Cambridge, TAS 7170	100.00%	100.00%

Note 27. Reconciliation of loss after income tax to net cash used in operating activities

Loss after income tax expense for the year Adjustments for: Depreciation and amortisation Impairment charges Lease payments classified as financing Payables settled via share issue Non-cash share based payments Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Increase in inventories Decrease in prepayments Increase in other provisions Decrease in financial assets Decrease/Increase in trade creditors and accruals Net cash used in operating activities	Consolidated 2020 2019 $ $ (1,272,296) (4,327,069) 298,492 220,246 - 1,367,269 23,958 - 114,016 139,010 496,071 - (862,490) 265,865 (4,503,373) (3,158,048) 18,124 282,369 29,110 (35,005) 300,000 254,232 1,830,396 450,740	Consolidated 2020 2019 $ $ (1,272,296) (4,327,069) 298,492 220,246 - 1,367,269 23,958 - 114,016 139,010 496,071 - (862,490) 265,865 (4,503,373) (3,158,048) 18,124 282,369 29,110 (35,005) 300,000 254,232 1,830,396 450,740
	(3,527,992)	(4,540,391)

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