Phoslock Environmental Technologies : Appendix 4E - FY 2021

For personal use only

Phoslock Environment Technologies Limited (ASX:PET)

Full year results - 31 December 2021

Friday, 11 March 2022

Phoslock Environment Technologies Limited released audited Appendix 4E for the full year ended 31 December 2021, today.

The prior announcement and preliminary Appendix 4E released on 28 February 2022, included an unreviewed full year financial report.

Net Operating Profit/(Loss) after tax (NPAT) was unchanged from preliminary to audited Appendix 4E.

The outcome of the changes to the full year ended 31 December 2021 is detailed below:

	31 Dec 2021	31 Dec 2021
		Audited		Unaudited
				(Prior Reported)
		$000's		$000's
Revenue	6,297		6,297
Net Operating Profit/(Loss) after Tax ('NPAT')	(3,937)		(3,937)
Add: income tax (benefit)/expense	-		-
Add: Finance costs	61		78
Add: Impairment/(reversals of impairment) of receivables	(2,441)		(2,441)
Add: Impairment of assets	1,631		1,631
Add: Share-based expense (reversal)/expense	-		-
Add: Foreign exchange losses	129		129
Less: Interest revenue	(92)		(92)
Less: Gain on remeasurement of lease liabilities	(3,247)		(3,240)
Underlying EBIT*
	(7,896)			(7,872)

*Underlying EBIT is a financial measure which is not prescribed by Australian Accounting Standards ('AAS') and represents the profit or loss under AAS adjusted for the add back of income tax, finance costs and certain non-cash income and expense items that are deemed to not have an ongoing affect to the underlying performance of the business. The Company believes that presenting Underlying EBIT provides a better understanding of its financial performance by facilitating a more representative comparison of financial performance between financial periods.

onlyPhoslock Environmental Technologies Limited

ABN 88 099 555 290

useAnnual Report - 31 December 2021 personalFor

Phoslock Environmental Technologies Limited

Contents

31 December 2021

Corporate directory Chairman's letter

Managing Director and CEO's Report Directors' report

onlyAuditor's independence declaration Corporate Governance Statement

Statement of profit or loss and other comprehensive income Statement of financial position

Statement of changes in equity Statement of cash flows

N tes to the financial statements Directors' declaration

Independent auditor's report to the members of Phoslock Environmental Technologies Limited Shareholder information

For usepersonal

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Phoslock Environmental Technologies Limited Corporate directory

31 December 2021

Directors

onlyCompany secretary

Notice of annual general meeting

Registered office

usePrincipal place of business

Share register

personalAuditor

Stock exchange listing

W bsite

For

David Krasnostein AM - Chairman

Brenda Shanahan AO

Lachlan McKinnon

Barry Sechos

Bob Prosser

Matthew Parker

The details of the annual general meeting of Phoslock Environmental Technologies Limited are:

27 May 2022

Notification of the time and venue for the meeting will be released separately

Unit D

Level 2, Como Centre

650 Chapel Street

South Yarra, VIC 3141

Unit D

Level 2, Como Centre

650 Chapel Street

South Yarra VIC 3141

Computershare Investor Services Pty Limited

Level 3, 60 Carrington Street

Sydney, NSW 2000 Australia

Phone: [phone]

ShineWing Australia

Level 10

530 Collins Street

Melbourne VIC 3000

Phone: [phone]

Phoslock Environmental Technologies Limited shares are listed on the Australian Securities Exchange (ASX code: PET)

www.phoslock.com.au

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Phoslock Environmental Technologies Limited Chairman's letter

31 December 2021

Dear Shareholders,

This past year at PET has been dominated by both continuing challenges and positive renewal. When I was appointed Chair

in May, the quantum and seriousness of the challenges facing the Company were daunting for both directors and onlymanagement. The fraud and mismanagement that emerged in 2020 has had far reaching impacts on PET's accounts, our

listing on the ASX, compliance, management and recruitment, and importantly - our culture. Together with our CEO and CFO, the Board dedicated itself to dealing with these issues and laying the groundwork for renewal.

I am greatly heartened by the progress that has been made. This is a very different company to one I observed early last year.

Our new management team in China, Europe, and the USA, along with a senior appointment in Australia, have brought new

skills and experience to PET, and a level of enthusiasm and focus that is very gratifying to see. With exciting new ideas and approaches, we expect to see these benefit our operations in 2022.

As Covid starts to recede globally, our team is more able to travel and meet customers and pursue new business. And

useand redirect their focus and energies on renewal. We have done much of the work in terms of restructuring the business and p tting in place processes and other governance standards that ensure these matters cannot recur.

gov rnments around the world are better able to revisit their other priorities, including mounting environmental issues that

have been only worsening during these past two years. The world more than ever needs our first in class product Phoslock®

to remediate pollution in many of the lakes and water catchments across the planet. Time and again we have brought back to life these lakes that were choked with algae and unable to support marine life or be used for recreational activities.

With a number of our legacy issues having now been managed, this has freed up more management time to look to the future

I want to acknowledge the hard work, wise counsel and determination of my fellow directors to restore the Company to its full personalpotential. Barry Sechos joined the Board in January 2021 and Chairs our Remuneration Committee. Bob Prosser joined the shares were not being traded while the Company continued with the investigations and attempted to quantify the impact of

Bo rd in March 2021 and agreed to assume the Chair of the Audit and Risk Committee. And my thanks also to Brenda

Sh nahan for her depth of knowledge and providing us with invaluable continuity over this difficult period.

The Company has provided shareholders with regular and detailed updates on these events, but I believe it is important that we again place on record how these matters evolved and how the Company has responded.

When our new CEO Lachie McKinnon and CFO Matthew Parker joined the Company in January and May 2020, respectively, their early priority was to familiarise themselves with the quality and rigour of the systems and procedures in place at the Company, and, in particular, with respect to our China operations. During that process, potential irregularities were identified which led the internal investigations to clarify and validate those matters. In August 2020 Arnold Bloch Leibler, our external legal counsel, was instructed to retain KPMG forensic to assist with the investigations.

S parately, PET notified the irregularities to KPMG's audit department which undertook additional investigations focusing on

pot ntial accounting irregularities, particularly those associated with related parties. KPMG's preliminary findings were subsequently reported to the Board, and it was decided that the Company should seek a trading halt on the ASX and then request a suspension of trading, which came into effect on 21 September 2020. The suspension ensured the Company's

irregularities.

ForThe Company also engaged global corporate finance consulting group FTI in Beijing to provide independent consulting support f r ur China business. FTI assisted with the ongoing management of the China business on an interim basis, and, in coperation with Arnold Block Leibler, undertook a forensic review focusing on the Chinese manufacturing operations. This laid the groundwork for reconstructing our financials with the level of integrity necessary for our external auditors to complete their

work.

As a result of its extensive investigations, PET identified false accounting across both its China sales organisation and in relation to its China factory operations. Among other matters, it was established that invoices had been falsified and fictitious transactions had been documented with vendors who did not exist or who had provided no service or product to the Company.

To assist with the gathering of evidence, PET also retained expert IT consultants to retrieve Company records and documents that had been deleted or destroyed. This process was costly and time consuming due to the need to comply with local Chinese regulations relating to moving some of these records and material outside of China. Focusing on a four-year period, the task of creating a true record of what transactions occurred, and the true beneficiaries of various payments that were made, was difficult and took some 10 months to conclude.

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