Announcement PDF Carbonxt Group Limited Appendix 4E Preliminary final report 1. Company details Name of entity: ABN: Reporting period: Previous period: Carbonxt Group Limited 59 097 247 464 For the year ended 30 June 2023 For the year ended 30 June 2022 2. Results for announcement to the market $ Revenues from ordinary activities down 15.8% to 15,461,953 Underlying Earnings Before Interest, Tax, Depreciation and Amortisation ('EBITDA') down 4398.5% to (2,193,360) Loss from ordinary activities after tax attributable to the owners of Carbonxt Group Limited up 34.2% to (5,983,771) Loss for the year attributable to the owners of Carbonxt Group Limited up 34.2% to (5,983,771) Dividends There were no dividends paid, recommended or declared during the current financial period. Comments The loss for the Group after providing for income tax amounted to $5,983,771 (30 June 2022: $4,458,505). Revenues decreased 15.8% compared to prior year primarily due to planned downtime during the year at both activated carbon plants to install updated equipment which resulted in lower production and sales than typical for the period as well as the Group's largest customer deferring sales into FY24 due to an unplanned outage at its operations. The directors consider Underlying Earnings Before Interest, Tax, Depreciation and Amortisation (‘EBITDA’) and Underlying EBIT to reflect the core earnings of the Group. Underlying EBITDA and underlying EBIT are financial measures which are not prescribed by Australian Accounting Standards (‘AAS’) and represent the profit or loss under AAS adjusted for non-cash and significant items. The following table summarises key reconciling items between statutory loss after income tax and underlying EBITDA for the current and previous year period: Consolidated 2023 2022 $ $ Revenue 15,461,953 18,363,422 Gross margin Other income Shipping and distribution costs Operating expenses 4,579,280 552,619 (1,667,001) (5,658,258) 6,216,902 481,930 (1,659,576) (5,088,014) Underlying EBITDA Depreciation and amortisation (2,193,360) (2,444,432) (48,758) (2,138,540) Underlying Earnings before interest and tax ('EBIT') Net Interest expense Share-based payment expense Other non-cash items (4,637,792) (1,168,149) (177,830) - (2,187,298) (1,090,763) (841,141) (339,303) Loss before income tax expense (5,983,771) (4,458,505) Carbonxt Group Limited Appendix 4E Preliminary final report For further commentary refer to 'Review of operations' section within the Directors' report of the Annual Report and the attached market announcement. 3. Net tangible assets Reporting period Cents Net tangible assets per ordinary security Previous period Cents 1.96 0.66 The net tangible assets calculation does not include rights-of-use assets of $5,101,083 (30 June 2022: $4,507,400) but include the lease liabilities of $2,132,186 (30 June 2022: $2,284,992). 4. Control gained over entities Not applicable. 5. Loss of control over entities Not applicable. 6. 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. 7. Dividend reinvestment plans Not applicable. 8. Details of associates and joint venture entities Reporting entity's percentage holding Name of associate / joint venture NewCarbon Processing, LLC Contribution to profit/(loss) (where material) Reporting period % Previous period % 33.33% - Reporting period $ Previous period $ - - Group's aggregate share of associates and joint venture entities' profit/(loss) (where material) Profit/(loss) from ordinary activities before income tax - - Income tax on operating activities - - Carbonxt Group Limited Appendix 4E Preliminary final report 9. Foreign entities Details of origin of accounting standards used in compiling the report: Not applicable. 10. Audit qualification or review Details of audit/review dispute or qualification (if any): The financial statements have been audited and an unmodified opinion has been issued with a paragraph addressing material uncertainty related to going concern. 11. Attachments Details of attachments (if any): The Annual Report of Carbonxt Group Limited for the year ended 30 June 2023 is attached. 12. Signed As authorised by the Board of Directors Signed ___________________________ Warren Murphy Managing Director Sydney Date: 31 August 2023 Carbonxt Group Limited ABN 59 097 247 464 Annual Report - 30 June 2023 Carbonxt Group Limited Contents 30 June 2023 Corporate directory Chairman's letter Directors' report Auditor's independence declaration Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors' declaration Independent auditor's report to the members of Carbonxt Group Limited Shareholder information 1 2 4 6 18 19 20 21 22 23 56 57 63 Carbonxt Group Limited Corporate directory 30 June 2023 Directors Matthew Driscoll - Chairman Warren Murphy - Managing Director David Mazyck - Director of Technology and Chief Executive Officer Carbonxt Inc. Imtiaz Kathawalla – Non-Executive Director Company secretary Laura Newell Registered office c/- Boardroom Pty Limited Level 8, 210 George Street Sydney NSW 2000 Australia Tel: +61 2 9290 8600 Principal place of business Suite 111 3951 NW 48th Terrace Gainesville FL 32606 United States of America Share register Boardroom Pty Limited Level 8, 210 George Street Sydney NSW 2000 Australia Tel: +61 2 9290 9600 Auditor Ernst & Young 200 George Street Sydney NSW 2000 Australia Solicitors Thomson Geer Level 14 16 Martin Place Sydney NSW 2000 Australia Stock exchange listing Carbonxt Group Limited shares are listed on the Australian Securities Exchange (ASX code: CG1) Website www.cglimited.com.au Business objectives The development and sale of specialised Activated Carbon ('AC') products, including Powdered Activated Carbon ('PAC') and AC pellets for the removal of pollutants and toxins in industrial processes. 2 Carbonxt Group Limited Corporate directory 30 June 2023 Corporate Governance Statement The directors and management are committed to conducting the business of Carbonxt Group Limited in an ethical manner and in accordance with the highest standards of corporate governance. Carbonxt Group Limited has adopted and has substantially complied with the ASX Corporate Governance Principles and Recommendations (Fourth Edition) ('Recommendations') to the extent appropriate to the size and nature of its operations. The Group’s Corporate Governance Statement, which sets out the corporate governance practices that were in operation during the financial year and identifies and explains any Recommendations that have not been followed, and ASX Appendix 4G are released to the ASX on the same day the Annual Report is released. The Corporate Governance Statement and Corporate Governance Compliance Manual can be found on the Company’s website at www.cglimited.com.au 3 Carbonxt Group Limited Chairman's letter 30 June 2023 Dear Shareholder, I am pleased to present our Annual Report for the financial year ending 30 June 2023 (“FY23”). The highlight of the year without a doubt was the signing of final documentation for the construction of an activated carbon facility in Kentucky. Carbonxt is collaborating with our partner, Kentucky Carbon Processing, LLC (“KCP”) to convert an existing waste-to-energy power station at Inez, Kentucky into a state-of-the-art activated carbon (“AC”) manufacturing facility. The conversion of the existing infrastructure greatly reduces the risk of construction completion and shortens the time to build the facility considerably. It is expected that the facility will be fully operational in the first half of calendar 2024. The facility will be owned by a newly incorporated entity, NewCarbon Processing, LLC (“NewCarbon”). KCP sold its Inez Power assets into NewCarbon and is taking the construction risk to deliver the activated carbon facility. Carbonxt funded USD 5.0m to acquire an initial 33% equity interest, with the ability to pay a further USD 5.0m over the next year to acquire up to 50% of NewCarbon. Financing was achieved via an equity raising in 1H23 and by an increased senior debt facility of $15.0m provided by Pure Asset Management. We thank our shareholders and Pure Asset Management for their support. The Board recently met with our new partners in Kentucky and visited the site. Construction is on schedule, and it was exciting to see the extensive efforts of our team and that of KCP coming to fruition. The KCP team is highly skilled and committed, and we look forward to seeing the first 10,000 tons per annum of capacity being operational in 2024. The new plant in Kentucky enables Carbonxt’s entry into the liquid phase of the AC market. Entry into the utility water market will substantially increase the Company’s addressable market by some USD $300 million today, growing to some USD $900 million should the forecast from the American Water Works Association (“AWWA”) prove correct. AWWA is the leading industry body for water utilities in the USA. AWWA’s forecast is predicated on a substantial increase in demand as a result of the introduction of legislation to capture PFAS chemicals. PFAS, or per and polyfluoroalkyl substances, are a large chemical family of over 4,700 chemicals. These chemicals have been used traditionally to make products including cooking utensils and fire fighting foams resistant to heat, grease, and water. PFAS are often referred to as “forever chemicals,” as they barely degrade. Long-term exposure to these chemicals has been linked to significant health risks. The US Environmental Protection Agency (“EPA”) determined that PFAS chemicals are likely carcinogens, which means that they are likely to cause cancer and that there is no level of these contaminants that is without a risk of adverse health effects. In early 2023, the EPA announced new legal limits for six PFAs of four parts per trillion. These limits would be the first-ever national drinking water standard for the United States of America. The EPA announced also that it will be deploying USD $9 billion specifically to invest in communities with drinking water impacted by PFAS and other such contaminants. The EPA has now closed the public comment period for the proposed rule, and it is on record as promulgating a final rule by the end of this calendar year. Our financial results in FY23 were impacted by outages at both Arden Hills and Black Birch to affect operational efficiencies, and by deferral of pellet purchases by our largest customer in the last quarter of the year. These events resulted in an approximate 16% reduction in revenue and a larger decrease in gross margins. However, we expect to see a significant improvement in gross margins in FY24 as the above actions to improve operational costs come to fruition, as well as new higher pricing coming into effect across our product ranges. We are already seeing these improvements in results to date in the first quarter of FY24. 4 Carbonxt Group Limited Chairman's letter 30 June 2023 FY24 should represent the beginning of a major change in scale of our business. This growth is the culmination of many years of effort, building upon our position as the only U.S. supplier of activated carbon pellets. Yours sincerely Matthew Driscoll Chairman 31 August 2023 5 Carbonxt Group Limited Directors' report 30 June 2023 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Carbonxt Group Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2023. Directors The following persons were directors of Carbonxt Group Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Matthew Driscoll - Chairman Warren Murphy David Mazyck Imtiaz Kathawalla (appointed 19 July 2023) Fadi Diab (appointed 8 September 2022 and resigned 29 November 2022) Principal activities During the financial year the principal continuing activities of the Group consisted of the development and sale of specialised Activated Carbon ('AC') products, including Powdered Activated Carbon ('PAC') and AC pellets for the removal of pollutants and toxins in industrial processes. These products are used in industrial air purification, waste water treatment and other liquid and gas phase markets, primarily for the capture of mercury and sulphur in order to reduce harmful emissions into the atmosphere, as required by global regulations. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations The loss for the Group after providing for income tax amounted to $5,983,771 (30 June 2022: $4,458,505). Revenue for the year was $15,461,953 (before other income) and $16,014,572 (after other income) representing a decrease of 15.80% and 15.02% respectively on the prior year's revenue of $18,363,422 (before other income) and $18,845,352 (after other income). In US dollars, revenue was US$10,412,064 (before other income) and US$10,784,213 (after other income) representing a decrease of 28.01% and 26.83% respectively on the prior year’s revenue of US US$13,328,172 (before other income) and US$13,677,956 (after other income). Revenues decreased 15.8% compared to FY22 primarily due to planned downtime in 1H23 at both activated carbon plants to install updated equipment which resulted in lower production and sales than typical for the period as well as the Group's largest customer deferring sales into FY24 due to an unplanned outage at its operations. The directors consider Underlying Earnings Before Interest, Tax, Depreciation and Amortisation (‘EBITDA’) and Underlying EBIT to reflect the core earnings of the Group. Underlying EBITDA and underlying EBIT are financial measures which are not prescribed by Australian Accounting Standards (‘AAS’) and represent the profit or loss under AAS adjusted for non-cash and significant items. The following table summarises key reconciling items between statutory loss after income tax and underlying EBITDA for the current and previous year period: 6 Carbonxt Group Limited Directors' report 30 June 2023 Consolidated 2023 2022 $ $ Revenue 15,461,953 18,363,422 Gross margin Other income Shipping and distribution costs Operating expenses 4,579,280 552,619 (1,667,001) (5,658,258) 6,216,902 481,930 (1,659,576) (5,088,014) Underlying EBITDA Depreciation and amortisation (2,193,360) (2,444,432) (48,758) (2,138,540) Underlying Earnings before interest and tax ('EBIT') Net Interest expense Share-based payment expense Other non-cash items (4,637,792) (1,168,149) (177,830) - (2,187,298) (1,090,763) (841,141) (339,303) Loss before income tax expense (5,983,771) (4,458,505) As a result of the loss incurred for the year ended 30 June 2023 and the liquidity at the reporting date, there is a material uncertainty on whether the Group can continue as a going concern. The directors consider that the Group will continue as a going concern, as explained in note 2 to the financial statements. Liquidity During the financial year ended 30 June 2023, the Group incurred a net loss after tax of $5,983,771 (30 June 2022: $4,458,505) and a cash outflow from operating activities of $2,420,250 (30 June 2022: $1,879,348). As at 30 June 2023, the Group had net assets of $16,276,611 (30 June 2022: $11,123,632) and cash and cash equivalents of $4,305,838 (30 June 2022: $1,090,450). As a result of the loss incurred for the year ended 30 June 2023 and the liquidity at the reporting date, there is a material uncertainty on whether the Group can continue as a going concern. The directors consider that the Group will continue as a going concern, as explained in note 2 to the financial statements. Business risks The following is a summary of material business risks that could adversely affect the Group's financial performance and growth potential in future years and how the Group proposes to mitigate such risks: Competition risk The Group operates in a dynamic AC market. There is a possibility that existing or new competitors may increase competitive pressure through technological advancements, volume increases or pricing and other strategies. Any significant advancements in technology for producing AC have the potential to change the competitive environment in which the Group operates. Ability to retain existing clients or attract new clients The Group’s business depends on its ability to retain contracts with existing customers and to attract further business from existing customers or attract new customers. The loss of existing customers or the inability to attract new customers would have an adverse impact on the financial position of the Group. Regulatory risk The Group is heavily reliant on US environmental policies and regulation. Any change to or reversal of current legislation would have a significant negative effect on the Group’s business model and financial performance. Intellectual property risk The Group relies on its intellectual property (including technology, know how, trademarks, designs and patents) and there can be no assurance that competitors or other parties will not imitate or develop technology and know-how that challenges or competes with the Group or supersedes the Group’s intellectual property. In addition, any unauthorised use or disclosure of the Group’s intellectual property may also have an adverse effect on the Group's financial performance. 7 Carbonxt Group Limited Directors' report 30 June 2023 Reliance on key personnel The Group employs, or engages as consultants, a number of key management and scientific personnel. The inability of the Group to retain and attract highly qualified and experienced personnel could have a material adverse impact on the Group’s business and financial performance. Safety and industrial accidents The manufacture and supply of the Group’s products are subject to safety related risks, which are managed carefully by the Group. Despite the relevant safety guards there is no guarantee a serious accident will not occur in the future, which may negatively affect the financial performance of the Group. Brand establishment and maintenance Establishing and maintaining its brand in the industry is critical to growing the Group’s customer base and product acceptance. Prior to entering into supply agreements, the Group is required to undertake vigorous testing of its Activated Carbon solutions. Any unsuccessful tests for potential customers could adversely affect the Group’s brand, and its business and operating results could be adversely affected. The Group must also maintain and support its existing customer relationships to maintain its brand and attract further customers. Offshore operations While the Group’s corporate management is in Australia, its operations are based in the United States. The global nature of the pollution control business, may result in the Group's activities extending to other countries in the future. Geographic diversity adds risk to the ability of the Group to manage its operations and employees, and introduces additional risks relating to the general economic, regulatory, legal, social and political environment in the jurisdictions in which it intends to operate, which may in turn adversely affect the Group's business and financial condition. Exchange rate risk The Group is exposed to movements in exchange rates as the vast majority of the Group's revenue and expenses are denominated in USD. Adverse movements in the AUD/USD exchange rate may have an adverse effect on the reported financial performance and/or financial position of the Group. Product liability and uninsured risks The Group is exposed to potential product liability risks, which are inherent in the research and development, manufacturing, marketing and use of its products or products that are developed in the future. Whilst the Group has liability insurance to help manage such risks, the Group may not be able to maintain insurance for product or service liability on reasonable terms in the future and/or the Group’s insurance may not be sufficient to cover large claims, or the insurer could disclaim coverage on any such claims. Significant changes in the state of affairs Capital raising On 2 August 2022, the Group announced the successful completion of institutional entitlement offer raising approximately $400,888 (before issue costs) from 2,863,483 ordinary shares at an issue price of $0.14. The shares were issued on 10 August 2022. On 26 September 2022, the Group announced the commitment to raise $7,000,000 through the placement of 70,000,000 fully paid shares at $0.10 per share before issue costs in two tranches. The tranche 1 shares of 13,114,383 were issued at $0.10 per share raising a total of $1,311,719 before issue costs. The issuance of tranche 2 was approved by shareholders in the AGM, a total of 51,742,810 shares were issued at $0.10 per share raising a total of $5,174,281 before issue costs. Total amount raised on the share placement is $6,486,000 before issue costs. On 30 September 2022, the Company announced the share purchase plan to provide existing shareholders as at 23 September 2022, the opportunity to subscribe for new shares at the offer price of $0.10 per share. A total of 16,103,000 shares were issued under the share purchase plan and raised a total of $1,610,300. The shares were issued on 3 November 2022. Borrowing facility The Group entered into an agreement with Pure Asset Management Pty ltd ("Pure") on 23 May 2023 to amend and restate the Facility Agreement dated 24 May 2019 with effect on and from 31 May 2023. Under the amended and restated loan facility agreement, the existing loan of $5,500,000 was refinanced and an additional $9,500,000 was drawdown from the facility which will be used to fund the NewCarbon Processing LLC, acquisitions and product development, and for working capital purposes. Refer to note 18 for further details on the loan. 8 Carbonxt Group Limited Directors' report 30 June 2023 Investment in NewCarbon On 29 July 2022, the Company signed a term sheet for the 50% ownership in a new state-of-the-art activated carbon plant located in Eastern Kentucky, USA in an agreement with Kentucky Carbon Processing LLC ('KCP'), an established and leading industry player that is well capitalised and well connected in the US market. On 31 May 2023, the Company announced the execution of a legally binding agreement ('NewCarbon'), established with KCP to establish a new state-of-the-art activated carbon plant in Kentucky, USA. Refer to note 13 for further details. The Group has agreed to contribute US$10,000,000 in cash to NewCarbon while KCP agreed to contribute US$10,000,000 in value of assets, infrastructure and equipment. The contributions will result to a 50-50 ownership between the two parties. As at 30 June 2023, the Group made an initial contribution of US$5,000,000 which resulted to a 33.33% ownership in NewCarbon and shall make the remaining contributions of US$5,000,000 in stages subject to completion of milestones to increase its ownership to 50%. There were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2023 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Likely developments and expected results of operations The Group will continue to expand its industrial AC pellet business in vapour control, liquid solvent recovery and other specific industrial uses of pellets. In line with this expansion, the Group shall make the remaining contributions of US$5,000,000 in stages, subject to completion of milestones, to increase its ownership in NewCarbon to 50%. The expansion will significantly increase production capacity and gross margins and will allow existing capacity to be repositioned to produce more specialised technologies, The Group will continue to provide its PAC solution for emission capture and wastewater treatment and will leverage the competitive advantage of its non-brominated PAC, that does not cause corrosion and damage to plant equipment. Furthermore, there is a renewed and continuing emphasis from a majority of US companies on ESG objectives. Carbonxt’s PAC products made at its Black Birch plant utilise renewable feedstock and thus would satisfy the needs of those who are seeking focus on renewable feedstocks. The Group’s current and prospective customers continue to emphasise a desire for US-made pellets. Carbonxt is the only activated carbon industrial pellet developer and producer located in the United States, and this is expected to continue to drive both revenue and margin growth. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. 9 Carbonxt Group Limited Directors' report 30 June 2023 Information on directors Name: Title: Qualifications: Experience and expertise: Matthew Driscoll Non-Executive Chairman BA, Dip Ed, Grad.Dip.App.Fin. SF Fin, MSAA, GAICD Matthew Driscoll is an agile, entrepreneurial thinker, with strong networks and significant experience across several industries, including manufacturing, online technologies, financial services, fintech, property and resources. Matthew has over 35 years’ experience in capital markets and the financial services industry, with major financial institutions. Accomplished company Director in roles with listed and private companies, undertaking leadership positions on the Board (as Chairman) and on various committees (including audit and risk committees). Significant experience in international business growth, mergers and acquisitions, equity and debt raisings and building strategic political, financial, and commercial alliances. Passionate about high growth, innovative businesses, committed to ethical, commercial, and consumer-based outcomes. Clear, concise communicator able to grasp and disseminate complex issues effectively. A serial investor and strong supporter of start-ups providing seed and expansion capital with unique skills bringing private companies to the listed environment. Other current directorships: Chair Tennant Minerals (TMS) a gold copper explorer in the NT, Chair of Smoke Alarms Holdings the market leader in servicing smoke alarms in rental properties in Australia, Chair of Workspace Australia a multi-regional business incubator network in Central Victoria, NED Energy Technologies Limited (EGY) an investment company focused on Australian based manufacturing businesses, NED and Responsible Manager of Advocate Strategic Investments. AFSL: 224560 a Melbourne-based independent investment management firm that provides institutional and sophisticated investor clients with customised alternative investment strategies, Local Councillor-Mount Alexander Shire. Former directorships (last 3 years): Chair, Powerwrap Limited (PWL) Chair, Killara Resources Limited (KRA) Interests in shares: 2,083,881 ordinary shares Interests in options: None Name: Title: Qualifications: Warren Murphy Managing Director B.E. (Electrical and Electronic Engineering) (Hons), B.Com (Accounting and Economics) Experience and expertise: 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 Australia's largest renewable energy company, Infigen Energy (and its unlisted predecessor, Global Wind Partners). Other current directorships: None Former directorships (last 3 years): None Interests in shares: 1,375,229 ordinary shares Interests in options: None Name: Title: Qualifications: Dr David Mazyck Director of Technology and Chief Executive Officer ('CEO') Carbonxt Inc. Ph.D. from Penn State University in Environmental Engineering and Ph.D. minor in fuel science. Experience and expertise: David is a world-leading expert on AC and its applications. He has developed AC products for the major multinational AC manufacturers and has regularly consulted for them on technical issues. David was Chairman of the Activated Carbon Standards Committee for the American Water Works Association ('AWWA') and has developed products for National Aeronautics and Space Administration ('NASA'). Other current directorships: None Former directorships (last 3 years): None Interests in shares: 426,062 ordinary shares Interests in options: none 10 Carbonxt Group Limited Directors' report 30 June 2023 Name: Title: Experience and expertise: Imtiaz Kathawalla (appointed 19 July 2023) Director Dr Kathawalla has an extensive experience in the activated carbon and water purification industries. He was previously a Vice-President at NYSE-listed Cabot Corporation, a global chemical company where he had a 27-year career. He ran Cabot Corporation's global activated carbon business Other current directorships: None Former directorships (last 3 years): none Interests in shares: None Name: Title: Qualifications: Fadi Diab (appointed 8 September 2022 and resigned 29 November 2022) Director BBus (HRM), IR from University of Western Sydney and MBM from University of Technology Sydney Experience and expertise: Fadi is a seasoned corporate executive with over 10 years experience in large financial institutions. He has