Carbon Revolution plc

05/14/2025 | Press release | Distributed by Public on 05/14/2025 14:32

Annual Report for Fiscal Year Ending June 30, 2024 (Form 20-F)

OPERATING AND FINANCIAL REVIEW AND PROSPECTS


A.
Operating Results

The following discussion and analysis provides information which the Company's management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. This discussion and analysis should also be read together with Item 4 of this Report and financial statements and notes included in Item 18 of this Report. This discussion and analysis contains forward-looking statements based upon current expectations that are subject to known and unknown risks, uncertainties and assumptions. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those set forth in the section entitled "Risk Factors" under Item 3 of this Report and elsewhere in this Report. You should read the following discussion in conjunction with the sections entitled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors".

The financial information reported herein has been derived from the financial statements which have been prepared in accordance with IFRS or the underlying accounting records of the Company and is presented in Australian dollars unless otherwise stated.

This discussion and analysis focuses on information and key statistics from the audited consolidated financial statements and considers known risks and uncertainties relating to the automotive sector. This discussion should not be considered all-inclusive, as it excludes possible future changes that may occur in general economic, political, and environmental conditions. Additionally, other elements may or may not occur which could affect industry conditions and/or the Company in the future.

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Company Overview

Carbon Revolution Public Limited Company ("Carbon Revolution PLC" or the "Company"), while incorporated in Ireland is a primarily Australian-based technology business manufacturing advanced carbon fiber wheels. Established in 2007, Carbon Revolution is the first company globally to successfully develop and manufacture single-piece carbon fiber wheels to original equipment vehicle manufacturer ("OEM") quality standards, with commercial adoption currently across fourteen awarded programs in the market (both in production and/or in aftersales) and a further four awarded programs in development, across six major OEM customers.

Carbon Revolution designs and manufactures technically advanced, high-performing, lightweight carbon fiber automotive wheels. These wheels deliver a weight saving of up to 40-50% compared to aluminum automotive wheels. This weight saving delivers significant performance and handling benefits along with efficiency, noise, vibration and harshness benefits, in both ICE and EV vehicles. The weight saving could deliver up to 5-10% increase in range for an electric vehicle if associated weight reduction were to be reinvested in the vehicle's battery mass (and based on current battery technology) with the top end of range assuming further benefits derived from additional aerodynamic, NVH and structural enhancements.

Since its first OEM program for Ford in 2015, the Group has prioritized the automotive new vehicle wheel market and progressively increased production capacity to address increasing OEM demand. The Group has eighteen lifetime awarded programs and is currently supplying wheels for fourteen programs (of which seven are in the serial production phase and seven are in aftersales) to the automotive market for premium/luxury and high-performance vehicles, and sports utility vehicles (SUVs), and has in production and is developing wheels for electric vehicles under contract for its OEM customers. The portfolio of contracted programs not yet in production includes four awarded programs, of which three are in the performance or premium/luxury internal combustion engine vehicle segments, with the other one being in the electric vehicle SUV/pick-up segment.

The Company's wheels and manufacturing processes are protected by an extensive intellectual property ("IP") portfolio, including trade secrets and (as of April 24, 2025) around 122 patents (94 granted, 28 pending including one pending international (PCT) application) across multiple patent families and key jurisdictions around the world.

The Company's growth focus includes bringing awarded programs to production, securing additional programs to fill, or substantially fill, the capacity in the Australian facility, and securing higher volume OEM wheel programs with intended production at a potential new manufacturing facility (or facilities) closer to OEM customers as it penetrates beyond the performance and premium/luxury vehicle segments and larger formats such as SUVs and light trucks, whilst continuing to service and expand within the performance and premium/luxury vehicle segments.

Wheel production involves a complex series of primarily bespoke productive assets that perform discrete processes with specialized tooling to support those assets. The Company is driving the industrialization of its production processes including its first Mega-line. The Mega-line, and associated capacity expansion equipment, represent an industrialized and highly automated advanced manufacturing cell. Wheel production began off the line in 2023 and the full commissioning completed early 2024.

The Company continues to invest to add incremental production capacity to facilitate expected volumes from awarded programs as they enter production, with this additional capacity being progressively added through 2025 to early 2026.

The Company believes that it is well positioned in the market. It is the only company globally to have successfully developed and manufactured single piece carbon fiber automotive wheels to OEM quality standards with commercial adoption across several major OEMs.

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New Debt Program

In May 2023 Carbon Revolution PL entered into a debt program (the "New Debt Program" or "USD term loan") arranged by PIUS Limited LLC and its affiliates ("PIUS") under which Carbon Revolution Operations issued Series 2023-A notes in exchange for US$60 million. UMB Bank, National Association, a trust company (the "Trustee") acts as trustee and as disbursing agent under the New Debt Program on behalf of the noteholders and Gallaher IP Solutions LLC, a Delaware limited liability company as successor to Newlight Capital LLC, a North Carolina limited liability company, an affiliate of PIUS and the servicer and collateral agent under the various loan documents (the "Servicer").

Impact of Business Combination and Related Financing Transactions

Closing of the Business Combination

On November 3, 2023, Twin Ridge, the Company, Carbon Revolution PL and MergerSub, consummated the business combination pursuant to the terms of the BCA, dated November 29, 2022, as amended or supplemented from time to time, pursuant to which, among other things, Twin Ridge merged with and into MergerSub, with MergerSub surviving as a wholly-owned subsidiary of the Company, with shareholders of Twin Ridge receiving Ordinary Shares, in exchange for their existing Twin Ridge ordinary shares and existing Twin Ridge warrant holders having their warrants automatically exchanged by assumption by the Company of the obligations under such warrants, including to become exercisable for one-tenth of an Ordinary Share instead of one Twin Ridge ordinary share, in proportion to the exchange ratio. In addition, Twin Ridge, Carbon Revolution PL and the Company implemented a scheme of arrangement under Part 5.1 of the Corporations Act 2001 (Cth) and a capital reduction under Part 2J.1 of the Corporations Act 2001 (Cth) in accordance with the Scheme Implementation Deed, which resulted in all shares of Carbon Revolution PL being canceled in return for consideration, with Carbon Revolution PL issuing one share to the Company (resulting in Carbon Revolution PL becoming a wholly-owned subsidiary of the Company) and the Company issuing Ordinary Shares to the shareholders of Carbon Revolution PL.

The Company had no operations prior to entering into the Scheme Implementation Deed and BCA, including as of June 30, 2023. The Company's sole purpose was to become a holding company following the Business Combination. Upon the closing of the Business Combination, the Company became the direct parent of Carbon Revolution PL.

On November 3, 2023, the Company completed the Business Combination and Carbon Revolution PL became a wholly owned subsidiary of the Company. Upon consummation of the Transactions, the Company became publicly traded on Nasdaq under the ticker symbol "CREV" and Public Warrants trading under the ticker symbol "CREVW."

Accounting Treatment

The Business Combination was accounted for as a capital reorganization. Under this method of accounting, the Company was treated as the "acquired" company for financial reporting purposes. For accounting purposes, Carbon Revolution PL is deemed to be the accounting acquirer in the Transaction and, consequently, the Transaction is treated as a capital reorganization. Accordingly, the Business Combination is treated as the equivalent of Carbon Revolution PL issuing shares at the closing for the net assets of the Company (including the net assets of Twin Ridge) as of the closing date, accompanied by a recapitalization as Carbon Revolution PL was not the legal acquiror. Carbon Revolution PL is, consequently, deemed to be the accounting predecessor meaning that Carbon Revolution PL's consolidated assets, liabilities and results of operations will become the historical financial statements of the Company. Under IFRS2, the difference between the fair value of the Ordinary Shares issued to Twin Ridge shareholders compared to the net liabilities of Twin Ridge is recognized in the profit and loss statement as a listing expense. The shares issued by the accounting acquirer are recognized at fair value and recorded as consideration for the acquisition of the public shell company, Twin Ridge. The net assets of Twin Ridge are stated at historical cost, with no goodwill or other intangible assets recorded. This is expected to be consistent with carrying value. The Transaction, which is not within the scope of IFRS 3 since Twin Ridge does not meet the definition of a business in accordance with IFRS 3, is accounted for within the scope of IFRS 2.

OIC Class A Preferred Shares and OIC Warrants

2 Foreign exchange rate is as of May 23, 2023 at a rate of $1 USD = $1.501 AUD.

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Concurrently with the execution of the Business Combination, the Company consummated a securities purchase agreement with OIC Structured Equity Fund I Range, LLC and affiliated entities ("OIC") on November 3, 2023, together with a number of related documents, collectively comprising the "OIC Financing". Pursuant to the original agreement:


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OIC subscribed for and purchased from the Company Class A redeemable preferred shares with a 12% fixed accumulating distribution (the "Preferred Shares") and warrants ("SEF Warrants") for aggregate gross proceeds of US$35 million (equivalent to A$54.7 million) less transaction costs.


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The Class A preference shares are recognized as a financial liability at amortized cost as they must be redeemed by November 2028. The Company may elect to redeem Class A preferred shares on issue at an earlier date at its discretion subject to a return to the holder the greater of (i) a 1.75x Multiple on Invested Capital ("MOIC") return on face value, or (ii) a 12% IRR.


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The SEF warrants carry a US$0.01 strike price and entitle OIC to up to a maximum 19.99% of the fully diluted Company shares on issue (subject to, in tranches, certain milestones including the further issuance of Class A shares below). The warrant may be exercised, in whole or in part, at the discretion of the holder. The warrant terms initially included a 'cashless' exercise feature which was subsequently removed in June 2024. The warrants were treated as derivative liabilities at fair value through profit and loss between issuance in November 2023 and June 2024, resulting in a gain of A$5.8 million for the 2024 financial year. In June 2024 the warrants were reclassified to equity as the Company considered them to now meet the fixed for fixed criteria in IAS32 upon OIC's undertaking on the cashless exercise feature.


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The proceeds were allocated on a fair value basis, firstly to the SEF warrant derivative liability and then the residual to the Class A preferred share obligation. Transaction costs were allocated on a relative fair value basis.


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OIC also provided commitments in November 2023 to purchase further tranches of preferred shares subject to achievement of certain milestones for which US$35 million was placed in escrow. The Company has not recognized any financial liability or allocation of proceeds in November 2023 or during the 2024 financial year for these preferred shares as the associated escrow deposit was not considered to be within the control of the Company. These commitments and escrow arrangements were subsequently modified in June 2024 on issuance of loan notes to OIC.


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Of the SEF warrants of up to 19.99% of the fully diluted Company shares on issue, 12.49% vested on completion of the initial US$35 million funding, a further 5% would vest on release of the US$35 million held in escrow (such release subject to certain conditions and milestones), and the final 2.5% would vest on release of the final US$40 million funding (such release subject to certain conditions and milestones including OIC investment committee approval).


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The proceeds received from the issuance of Class A Preferred Shares under the OIC financing must generally be used consistent with a budget agreed between the Company and OIC.

OIC Class B preferred shares, Series 2024-A Notes and Amendments to the New Debt Program

Between April 2024 and October 2024, under amendments to the OIC Financing and the New Debt Program (such amendments collectively referred to herein as the "Escrow Tranche Amendments"), the Company issued a series of loan notes and Class B Preferred Shares, and additional warrants, to OIC for consideration of US$35 million, replacing an original commitment to issue further preferred equity upon completion of certain milestones. The terms of the issuance are:


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US$5 million advanced in the form of Class B Preferred Shares in April 2024, and US$30 million advanced in the form of loan notes (Series 2024-A notes) between May 2024 and October 2024 (of which US$10 million was advanced during the financial year ending June 30, 2024);

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In relation to the Class B Preferred Shares: mandatory redemption on November 3, 2028 aligned with the Class A Preferred Shares, with a 12% fixed accumulating dividend, and the Company may elect to redeem outstanding Class B Preferred Shares at an earlier date at its discretion subject to returning to the holder the greater of (i) a 1.75x MOIC return on face value, or (ii) a 12% IRR.


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In relation to the Series 2024-A Notes, maturity date of May 2027 concurrent with maturity of the New Debt Program / USD term loan;


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In relation to the Series 2024-A Notes, 12% interest comprising an 8.5% coupon rate payable monthly and a further 3.5% monthly payment in kind (which is capitalized progressively into the amount outstanding);


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In relation to the Series 2024-A Notes, progressive monthly repayments of principal commencing June 2026 - concurrent with the modified 2023 USD term loan;


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An exit premium payable on the Series 2024-A Notes of 2.0x invested capital plus a further $10 million, such exit premium being payable upon the earlier of a refinancing of the Series 2024-A notes, sale of the Company or maturity in May 2027, inclusive of any principal and interest payments to date. The repayment of the exit premium in full will be reduced or delayed in certain limited circumstances;


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The exit premium on the Class B Preferred Shares is reduced by an amount equal to the amount of cash dividends and redemption payments that have been paid to the holder(s) of Class B Preferred Shares; equally the amounts required to redeem the Class B Preferred Shares are reduced on account of payments made towards the exit premium, and where the amount required to redeem the Class B Preferred Shares is reduced to zero, the holder(s) of the Class B Preferred Shares will surrender those shares for no additional consideration;


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The Company obtained a modification of the 2023 USD term loan such that it would rank equally to the Series 2024-A notes issued; and


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Further, US$0.01 SEF warrants to purchase a number of ordinary shares equivalent to 25.35% of ordinary shares issued calculated on a fully diluted basis (as defined in the OIC warrant) at the time of exercise, the terms of which are equivalent to the November 2023 SEF warrants.

The Company has determined that the Series 2024-A notes should be accounted for as financial liabilities at amortized cost to be accreted over the term up to the minimum return amount at maturity. Proceeds from the Series 2024-A notes have been allocated between the amortized cost liability and the fair value of the warrants issued concurrently. Transaction costs were allocated on a relative fair value basis.

OIC Series 2025-A Notes and Amendment to the New Debt Program

In December 2024, the Company and the OIC Investors agreed to further amendments to the Securities Purchase Agreement, to facilitate funding US$25 million of the remaining $40 million (from the original US$110 million) upon satisfaction of certain conditions, agreed upon and set forth in such amendment, in exchange for interest thereon payable at a rate of 12% per annum, of which 8.5% is payable in cash and 3.5% is payable in-kind and the issuance of Fixed Rate Senior Notes, Series 2025-A Notes (the "Series 2025-A Notes") pursuant to the Indenture, and the Indenture and related documents under the New Debt Program were also amended to facilitate the release to Carbon Revolution Operations of an aggregate of US$2 million from the payment reserve fund established under the New Debt Program, in equal instalments of US$400,000 with each $5 million tranche of funding under the above-mentioned amendments to the Securities Purchase Agreement, in exchange for interest thereon payable at a rate of 12% per annum, of which 8.5% is payable in cash and 3.5% is payable in-kind and the issuance of an equivalent amount of additional Series-2023 A Notes. Upon redemption or maturity of the Series 2025-A Notes and additional Series-2023 A Notes, Carbon Revolution Operations is required to pay the holders thereof an exit premium equal to 2.0 times the amount funded or released in exchange for such notes minus any cash interest or principal payments or fee payments thereon. In connection with the funding of each of the five tranches of US$5 million, the Company will issue to the OIC Investors and the Existing Lenders, pro rata in proportion to the amount of their investment relative to the total amount invested by the OIC Investors and the Existing Lenders (between them on a pro-rata basis) in each tranche, penny warrants to purchase an aggregate number of shares equal to 5.0% of the Company's shares outstanding, determined on a "Fully-Diluted Basis" in the same manner as applicable to the existing warrants previously issued to the OIC Investors. Additionally, after the issuance of the Series 2025-A Notes in the amount of US$25 million to the OIC Investors and release of the US$2 million from the payment reserve fund as described above, each holder of Series 2023-A Notes agrees to waive cash interest not to exceed an aggregate of US$3 million (the "Cash Interest Suspension Period") in exchange for the Trustee receiving payment in kind in an amount equal to such waived cash interest plus interest thereon payable at a rate of 12% per annum, of which 8.5% is payable in cash and 3.5% is payable in-kind for the benefit of the holders of the Series 2023-A Notes, and the OIC Investors also agree to waive cash interest on the Series 2024-A Notes and the Series 2025-A Notes, on the same terms, for the same period. Such amendments collectively are referred to herein as the "December 2024 Amendments". The Escrow Tranche Amendments and the December 2024 Amendments are referred to herein as the "2024 Amendments". The Series 2024-A notes and Series 2025-A notes are collectively referred to herein as the "OIC Notes".

Pursuant to the December 2024 Amendments, on each of December 20, 2024 January 21, 2025, March 7, 2025 and May 9 2025, US$5 million was funded in exchange for interest payable thereon and the issuance to the OIC Investors of US$5 million aggregate principal amount of Series 2025-A Notes and the release from the payment reserve fund for the Existing Lenders of US$400,000 in exchange for interest payable thereon and the issuance to the of US$400,000 aggregate principal amount of additional Series 2023-A Notes, and the OIC Investors (4.63%) and the Existing Lenders (0.37%) were issued penny warrants to purchase an aggregate number of shares equal to 5.0% of the Company's shares outstanding, determined on a "Fully-Diluted Basis".

As of the date of this Annual Report, warrants to purchase ordinary shares equivalent to a total of 56.36% of ordinary shares issued calculated on a fully diluted basis, have now been issued to the OIC Investors and vested, and warrants to purchase ordinary shares equivalent to a total of 1.48% of ordinary shares issued calculated on a fully diluted basis, have now been issued to Existing Lenders and vested.

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Key Factors Affecting Operating Results in Future Periods

2025 Business Outlook

The initial Mega-line commissioning is a significant milestone and, combined with our ongoing capacity expansion program, positions us to meet the expected demand from global OEMs.

The Company's key operational focus areas for the upcoming 12 months include:


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Successful launches of production of new programs. Three programs have recently entered production and a further four awarded programs are currently in development or launch phase. These programs are in the performance or premium/luxury/SUV and pick-up segments and include both internal combustion engine and EV drivetrains. We expect these programs currently in development or launch phase to commence production during CY25;

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Award of new customer programs. The Company is in discussions with customers and potential new customers about new wheel programs and expects that it will win new customer program awards which, together with existing awarded programs (both those currently in production and yet to enter production) would aim to fill the capacity at the existing Australian manufacturing facility (such capacity is being added over time in line with expected demand);

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Following completion of the initial phase of the Mega-line, further expansion of the production capacity of the Mega-line and other areas of the plant through both efficiency gains, driving the industrialization of production processes, and additional associated investments across the facility, to support expected future production requirements for awarded programs;

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Improvement in gross margin, with further efficiencies expected as further programs come online and volume ramps; and

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Leveraging the benefits of expected increased volumes in the Australian facility during the second half of the calendar year and realizing the benefits of the investment in automation and capacity increases, reducing material costs through improved prices from certain suppliers as a result of volume increases, substituting certain materials with lower cost materials, sourcing certain materials from lower cost providers, shifting certain supply arrangements from spot purchases to long term contracts, consolidating consumables suppliers, and implementing production processes and designs which utilize less material and production consumables. Overheads are also being managed closely to align requirements with the Company's program development lifecycles.

Short term company liquidity measures include:


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Meeting the conditions for the release of the remaining US$5 million of the US$25 million of OIC funding agreed pursuant to the December 2024 Amendments, the release from the payment reserve fund of the remaining US$0.4 million of the US$2 million agreed to be released pursuant to the December 2024 Amendments, and the waiver of US$3 million cash interest by the Existing Lenders for the Cash Interest Suspension Period, and the waiver by the OIC Investors of an approximately equivalent amount of cash interest on the Series 2024-A Notes and the Series 2025-A Notes, on the same terms, for the same period, pursuant to the December 2024 Amendments;

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Securing agreement for ongoing deferral of previously agreed transaction costs deferrals from the capital reorganization (as per Note 3.6.1) amounting to a total of US$15.0 million (A$22.5 million). Under an agreement the Group had reached with these creditors to delay payment, US$5 million (A$7.6 million) was payable in November 2024, with the remainder to be paid from the proceeds of certain fundraising transactions or on a straight line basis over 5 years (depending on the option selected by the supplier). The US$5 million (A$7.6 million) payment was not made in November 2024 and a further US$10.0 million (A$15.0 million) is now payable or payable during the next 12 months from signing date, unless the relevant suppliers agree to or accept further deferral of the transaction costs for at least twelve months from signing date and until sufficient cashflow can be generated from operations or alternative sources of funding are obtained to pay down these debts;

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Securing agreement from key customers for ongoing bailment payments for shipped wheels to provide working capital relief;

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Pursuing certain claims against certain customers, including claim for payment for wheels shipped but not yet utilized in production by a customer, potential claims in relation to programs in which ordered volumes have been below the volumes which the Company was required to build and reserve capacity for under its customer contracts, and a claim in relation to cancellation of a wheel program;

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Securing continued support from suppliers in the form of deferred payment terms; and

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Compliance with the terms of the MMI grant and receipt of the remaining milestone-based A$0.5 million funding amount payable under the MMI grant.

Other potential sources of funding or liquidity include:


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Potential repurposing of the remaining US$15 million of the up to US$110 million contemplated under the original OIC Financing. The final US$40 million of the up to US$110 million OIC Financing was intended to be for the purpose of funding towards a new manufacturing facility. Assuming OIC releases the final US$5 million tranche of the US$25 million of OIC funding agreed pursuant to the December 2024 Amendments, a further US$15 million of the up to US$110 million contemplated under the original OIC Financing will remain. If the Company did require near term assistance after exhausting all other reasonable sources of liquidity, OIC may consider repurposing these funds to support the Company's pathway to profitability in Australia; and

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Potential access to capital through the issuance of other debt or equity securities via public or private placement or utilization of the Committed Equity Facility through the equity purchase agreement with Yorkville Advisors.

As of April 24, 2025, the Company has eleven active awarded programs with five global OEMs (seven of which programs are currently in the serial production phase and four of which are in the development phase). The Company expects all of these four programs to complete development and enter the production stage during CY25. The Company is also in discussions with customers and potential new customers about new wheel programs and expects that it will win new customer program awards. The ability to secure award of new customer programs and the timing, size and profitability of such programs, the launch timing for new programs entering production, and the demand, and rate of production volumes for new and ongoing programs will be key factors affecting operating results. The launch timing of new programs by OEM customers is largely outside the control of the Company and can impact operating results. When a program is awarded, the OEMs do not provide volume commitments and the contracts are not take or pay by nature. The Company has experienced delays in orders for wheels in the past, including where commencement of production is later than expected as a result of the OEM delaying the release of the relevant vehicle. Average pricing will be driven by sales mix as well as being impacted by the outcome of price negotiations or working capital initiatives.

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The Company expects to continue to expand production capacity at the Australian facility through 2025 and early 2026 in line with expected demand from awarded programs. The Company expects demand to increase over that period and in particular from around late 2025 as new programs are expected to have largely entered production (noting that demand fluctuates from month to month and quarter to quarter). The Company's ability to deliver program volumes also depends on its ability to ensure that the production facility has sufficient capacity to produce expected wheel volumes. Our future operating results also depend upon our ability to manage expenses, including our initiatives to improve our production efficiency and reduce labor costs per wheel, as well as the costs of raw materials. Direct labor costs will be driven largely by production volumes, the plant efficiency initiatives and the introduction of new productive equipment and hourly labor rates. Hourly labor rates are driven by negotiated outcomes in the production site's enterprise bargaining agreement as well as shift structure and overtime premiums paid to deliver required production output, and the extent of the use of labor hire. Raw material costs will be impacted by the spot price of raw materials, the outcome of negotiations with certain suppliers, volume increases, and the success of initiatives to substitute for lower cost materials for certain materials, source certain materials from lower cost providers, shift certain supply arrangements from spot purchases to long term contracts, consolidate consumables suppliers, and implement production processes and designs which utilize less material and production consumables, as well as freight costs.

As the Company is an early-stage business, fixed costs are relatively high proportionally, and a delay or reduction in wheel sales can have a significant impact on the financial results. Research and Development costs will be incurred to deliver the programs currently in development as well as any ongoing development on production programs and research to expand the Company's technology. Fixed costs will also be driven by full year US-listed company and other compliance costs.

Available liquidity for the future periods is likely to be impacted by a number of factors, including the outcome of the above-mentioned short-term liquidity measures.

Refer to the section entitled "Risk Factors" in Item 3 of this Report.

Financial Overview

The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Report.

Comparison of Years Ended June 30, 2024 and June 30, 2023

Revenuefor the year ended June 30, 2024 of A$71.5 million increased by 86.8% compared to the year ended June 30, 2023. Revenue from sale of wheels increased by 80.3% compared to the prior period, with a ramp to full production of the Range Rover Sport SV program combined with increased volumes shipped for the Corvette Z06 / E-Ray program.

Gross loss increased from A$16.8 million to A$110.8 million for the year ended June 30, 2024. This increase was primarily driven by an impairment of A$83.7 million of fixed and right of use assets and an increase in manufacturing overheads, largely related to increased scale, an extended shift structure and production ramp. In addition, increased scrap costs were incurred, associated with commissioning, introduction and ramp of new programs while commissioning the Mega-line.

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Although still negative, as a percentage to revenue, gross loss (excluding impairment) has improved from -44.0% in 2023 to -37.9% in 2024. This improvement comes with the benefit of the positive contribution from volume growth, combined with labor productivity and improved wheel quality, somewhat offset by increased manufacturing overheads included in cost of goods sold. Raw material costs were impacted by the ongoing inflationary environment.

Improvements in future periods are expected to arise from the benefit of certain price increases, efficiency improvements and the delivery of scale benefits. Production rates will vary based on the mix of new program introduction and volumes from existing and completing programs. With completed price initiatives, capacity expansion near completion and planned efficiency gains, the Company's profitability plan requires achieving growth in sales to push beyond its profit and cash breakeven points.

The financial statements for the year ended June 30, 2024 include total impairment of assets of A$102.6 million arising from impairment testing, which included revised growth expectations for the Company considering the uncertainties and risk driven by the political and economic environment in the US market, that could have a significant impact on wheel sales and also taking into account the low market value of the Company and its continued loss making position. This A$102.6 million impairment included impairment of property, plant & equipment (A$76.6 million) and right of use assets (A$7.1 million) which have both been recognized in the profit and loss statement in the gross loss line. Additionally, an impairment of intangible assets (A$18.9 million) has been recognized in the profit and loss statement in the research and development expense line (described below).

Selling, general and administration expenses (being operational, administrative and marketing expenses) for the year ended June 30, 2024 of A$23.6 million increased by 24.0% compared to the year ended June 30, 2023. The increase in costs occurred primarily due to the onboarding training of new direct staff, higher D&O insurance costs and higher costs associated with being listed in the U.S.

Research and developmentfor the year ended June 30, 2024 of A$36.1million increased by 123.1% compared to the year ended June 30, 2023. This includes an impairment of intangible assets of A$18.9 million. Excluding the impairment of assets, research and development expenses increased by 6.6%, reflectingthe investment in wheel design, testing, validation and new program launch costs for the larger number of wheel programs in development and launch phase and the engineering costs to implement new production technology and plant capacity. These investments are required to improve our carbon fiber wheel technology, bring our production processes to full industrialization and develop an increased number of customer programs in production.

Capital raising transaction costs for the year ended June 30, 2024 of A$31.6 million increased by 27.6% compared to the year ended June 30, 2023. This incorporates costs associated with the business combination and NASDAQ listing, as well as other transaction related costs.

Other income for the year ended June 30, 2024 of A$2.1 million decreased by 30.6% compared to the year ended June 30, 2023, which comprised primarily of government grants.

Finance costs for the year ended June 30, 2024 of A$30.1 million increased by 447.1% compared to the year ended June 30, 2023, largely reflecting both a full year of borrowings costs related to the PIUS borrowings entered into in May 2023 and part year of borrowing costs related to the OIC borrowings entered into in November 2023 and subsequently modified in June 2024.

Finance income for the year ended June 30, 2024 of $A9.0 million included the gain on remeasurement of warrant liabilities of A$6.7 million alongside an unrealized foreign exchange gain of A$2.1 million.

These impairment of assets, higher finance and capital raise costs substantially contributed to the increased net loss for the year of A$221.1 million, compared with a net loss for the year of A$79.2 million for the year ended June 30, 2023.

Comparison of Years Ended June 30, 2023 and June 30, 2022

Revenuefor the year ended June 30, 2023 of A$38.3 million decreased by 5.1% compared to the year ended June 30, 2022. Wheel revenue decreased by 2.1% compared to the prior period as Corvette wheel sales were pushed back by approximately 6 months, from early to mid-FY23 after General Motors delayed wheel orders due to supply chain challenges on the vehicle. Average price per wheel increased 6% to A$2,847 primarily due to product mix changes, partially offsetting delayed wheel orders.

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Gross loss reduced from A$17.1 million to A$16.8 million for the year ended June 30, 2023 with the 6% increased average price offset by the 6% increase in Cost of Goods Sold (COGS) per wheel sold. Gross loss, as a percentage of revenue, was 44% for the year ended June 30, 2023 compared to 42% for the year ended June 30, 2022.

Selling, general and administration expenses (being operational, administrative and marketing expenses) for the year ended June 30, 2023 of A$19.1 million increased by 14.1% compared to the year ended June 30, 2022 as inflationary pressures on these expenses were offset by a focus on cost control.

Research and developmentfor the year ended June 30, 2023 of A$16.2 million decreased by 4.4% compared to the year ended June 30, 2022. This reflected the ongoing investment in wheel design, testing, validation and new program launch costs for the larger number of wheel programs in development and launch phase offset by tight cost control.

Capital raising transaction costs for the year ended June 30, 2023 of A$24.7 million increased from A$0 for the year ended June 30, 2022. This incorporates the majority of the costs associated with the business combination and NASDAQ listing.

Other income for the year ended June 30, 2023 of A$3.1 million decreased by 28.3% compared to the year ended June 30, 2022, which comprised primarily of government grants.

Finance costs for the year ended June 30, 2023 of A$5.5 million increased by 295.8% compared to the year ended June 30, 2022, reflecting costs incurred to support the establishment, and part year borrowing costs, of the PIUS borrowings entered into in May 2023.

These higher finance costs and the capital raise costs were the main contributors to the increased net loss of A$79.2 million, compared with a net loss of A$47.8 million for the year ended June 30, 2022.

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B.
Liquidity and Capital Resources

Overview

Since it was established in 2007, the Company has funded its operations principally through the issuance of ordinary shares, the incurrence of debt, and government grants or subsidies. As of June 30, 2024, the Company had A$3.7 million in cash and cash equivalents. The table below presents the Company's cash flows for the periods indicated.

Cash Provided by (Used in) Operating Activities, Investing Activities and Financing Activities

Cashflow
2024
A $m

2023
A $m
2022
A $m
Change
2024 -
2023
A
$m
Net cash used in operating activities
(76.8
)
(52.5
)
(46.0
)
(24.3
)
Payments for property, plant & equipment
(19.6
)
(13.1
)
(15.6
)
(6.5
)
Payments for intangible assets
(5.4)

(4.9)
(6.0
)
(0.6
)
Net cash used in investing activities
(25.1
)
(18.0
)
(21.6
)
(7.1
)
Net cash provided by financing activities
85.1

66.5
3.3
18.6
Net (decrease)/increase in cash and cash equivalents held
(16.8
)
(4.0
)
(64.3
)
(12.8
)

Negative operating cash flow was A$76.8 million for the year ended June 30, 2024, versus A$52.5 million for the year ended June 30, 2023. With the growth in sales, receipts from customers increased by 45.9%, however this was offset by lower government grants, and increases of A$33.8 million in payments to suppliers and employees. For the year ended June 30, 2023 net cash used in operating activities increased to A$52.5 million from A$46.0 million with increases in receipts from customers of A$12.1 million and receipt of grants and research and development incentives of A$11.7 million respectively which included a level of early payments arising from liquidity initiatives. These were offset by increases in borrowing costs of A$20.7 million related to the initial cost of the New Debt Program and A$9.0 million of capital raising transaction costs.

Compared to the year ended June 30, 2023, net cash used in investing activities increased by 39.7% to A$25.1 million as a result of the Company's capacity expansion program and investment in program development and new program launches. Net cash used in investing activities decreased for the year ending June 30, 2023 by 17.0% to A$18.0 million. While the Company continued to support Mega-line milestones and invested in program development, management of cash expenditure and collections was a priority focus throughout the year given balance sheet constraints, especially before the completion of the New Debt Program in May 2023.

Net cash provided by financing activities of A$85.1 million for the year ended June 30, 2024 primarily comprised inflows from the OIC Class A Preferred Shares, as well as the OIC Series 2024-A Notes. Net cash provided by financing activities for the year ended June 30, 2023 of A$66.5 million arose primarily from net proceeds of the New Debt Program.

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Liquidity and Capital Resources

The Company has incurred losses since inception, incurred a net loss of A$221.1 million, $118.5 million before impairment, (2023: A$79.2 million) and used A$76.8 million (2023: A$52.5 million) of cash in operating activities during the year ended June 30, 2024 and has a net current liability position at June 30, 2024 of A$9.6 million (2023: net current asset position: A$25.9 million). The Company expects to continue to incur net losses and negative cash flows from operating activities in accordance with its operating plan over the next twelve months from the date of the filing of this Annual Report, but it expects that both capital expenditure (in relation to the Australian manufacturing facility) and unit production costs will reduce in the next 12 months from the date of the filing of this Annual Report as the capacity expansion at the Australian plant will be substantially completed by that stage.

As an early-stage growth company, the Company's ability to access additional capital is critical to fund operating losses, finalize the development and launch of awarded wheel programs and complete the incremental capacity expansion to scale up production capacity to support projected demand. As the Company's current level of cash and cash equivalents and other committed funding sources are not sufficient to execute our business plan, failure to obtain additional financing will have a material, adverse impact on our business operations including developing, launching and producing new wheel programs and satisfying obligations as they become due.

The Company's anticipated principal sources of liquidity as at the date of the filing of this Annual Report are:


•
meeting the conditions for the release of the remaining US$5 million (A$7.6 million) of the US$25 million (A$37.9 million) of OIC funding agreed pursuant to the December 2024 Amendments, the release from the payment reserve fund of the remaining US$0.4 million (A$0.7 million) of the US$2 million (A$3.0 million) agreed to be released pursuant to the December 2024 Amendments, and the waiver of US$3 million (A$4.5 million) cash interest by the Existing Lenders for the Cash Interest Suspension Period, and the waiver by the OIC Investors of an approximately equivalent amount of cash interest on the Series 2024-A Notes and the Series 2025-A Notes, on the same terms, for the same period, pursuant to the December 2024 Amendments;

•
potential repurposing of the remaining US$15 million (A$22.7 million) of the up to US$110 million (A$166.7 million) contemplated under the original OIC Financing. The final US$40 million (A$60.6 million) of the up to US$110 million (A$166.7 million) OIC Financing was intended to be for the purpose of funding towards a new manufacturing facility. Assuming OIC releases the final US$5 million (A$7.6 million) tranche of the US$25 million (A$37.9 million) of OIC funding agreed pursuant to the December 2024 Amendments, a further US$15 million (A$22.7 million) of the up to US$110 million (A$166.7 million) contemplated under the original OIC Financing will remain. If the Company did require near term assistance after exhausting all other reasonable sources of liquidity, OIC may consider repurposing these funds to support the Company's existing operations in Australia;

•
its unrestricted cash balance of A$1.5 million at April 30, 2025; and

•
potential access to capital through the potential issuance of other debt or equity securities via public or private placement and under the Committed Equity Facility ("CEF").

As a result of our recurring losses from operations, accumulated deficit and projected capital needs, significant doubt exists regarding the Company's ability to continue as a going concern within the twelve months after the issuance date of these consolidated financial statements.

The Company's ability to continue as a going concern is contingent upon successful execution of management's intended plan over the next twelve months to improve liquidity and working capital. This plan relates to initiatives that were agreed upon for the next twelve months from the date of the filing of this Annual Report and which includes, but is not limited to:


•
Achieving the Company's operating plan (for a summary of the key focus areas for 2025, refer to "Item 5. Operating and Financial Review and Prospects-A. Operating Results-Key Factors Affecting Operating Results in Future Periods-2025 Business Outlook");

•
Meeting the conditions for the release of the remaining US$5 million (A$7.6 million) of the US$25 million (A$37.9 million) of OIC funding agreed pursuant to the December 2024 Amendments, the release from the payment reserve fund of the remaining US$0.4 million (A$0.7 million) of the US$2 million (A$3.0 million) agreed to be released pursuant to the December 2024 Amendments, and the waiver of US$3 million (A$4.5 million) cash interest by the Existing Lenders for the Cash Interest Suspension Period, and the waiver by the OIC Investors of an approximately equivalent amount of cash interest on the Series 2024-A Notes and the Series 2025-A Notes, on the same terms, for the same period, pursuant to the December 2024 Amendments;

•
Achieving forecast production levels, sales mix and pricing;

•
Reducing unit costs, reducing fixed overheads and limiting non-contracted capital expenditures in accordance with cost reduction initiatives;

•
Securing agreement for ongoing deferral of previously agreed transaction costs deferrals from the capital reorganization (as per Note 3.6.1) amounting to a total of US$15.0 million (A$22.5 million). Under an agreement the Group had reached with these creditors to delay payment, US$5 million (A$7.6 million) was payable in November 2024, with the remainder to be paid from the proceeds of certain fundraising transactions or on a straight line basis over 5 years (depending on the option selected by the supplier). The US$5 million (A$7.6 million) payment was not made in November 2024 and a further US$10.0 million (A$15.0 million) is now payable or payable during the next 12 months from the date of the filing of this Annual Report, unless the relevant suppliers agree to or accept further deferral of the transaction costs for at least twelve months from signing date and until sufficient cashflow can be generated from operations or alternative sources of funding are obtained to pay down these debts;

• ongoing support from suppliers and customers in the form of favorable payment terms and bailment payments;

•
Successful outcome of claims which the Group has made or plans to make against customers primarily associated with ordered volumes that are below the volumes which the Group was required to build and reserve capacity for under its customer contracts, and cancellation of a wheel program; and

• Raising capital to fund operations through the issuance of debt or equity securities via public or private placement (including through the CEF).

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In addition to successfully achieving these initiatives, it is also important that the Company complies with the New Debt Program loan covenants and the OIC Notes and conditions of the Class A Preferred Shares and Class B Preferred Shares. The Company will also need to obtain the consent of the Servicer under the New Debt Program, and of OIC, prior to entering any new debt funding arrangements that are not classified as permitted indebtedness under the agreements with those parties respectively, and the consent of OIC prior to entering into certain equity funding arrangements.

There is significant doubt that the Company will be successful in achieving these initiatives.

There can be no assurance that the Company will be able to obtain the financing or customer or supplier support needed to achieve its goals on acceptable terms or at all. Additionally, any equity or equity linked financings would likely have a dilutive effect on the holdings of existing stockholders.

Contractual Obligations

Leases (in AUD, as of June 30, 2024)

as of
June 30, 2024
AUD $m
as of
June 30, 2023
AUD $m
Right-of-use assets
Property
-
7.4
Lease liabilities
Current
0.7
0.6
Non-current
7.1
7.4
7.8
8.0
The Company has one lease for the head office and production facility. The lease agreement does not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. The Right-of-use asset was impaired as a result of the overall Cash Generating Unit impairment assessment.

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Borrowings

Borrowings (in AUD, as of June 30, 2024)
Interest rate %
Maturity
as of
June 30, 2024
AUD $m
as of
June 30, 2023
AUD $m
Current borrowings
Unsecured
Term loan with customer
10.00
%
June 2024
-
4.5
Supplier finance arrangement
6.00%
+ RBA cash rate
June 2025
14.0
9.3
Lease liabilities

0.7
0.6
14.7
14.5
Non-current borrowings
Secured
OIC Class A preferred shares
12.00
%
November 2028
46.4
-
USD Term loan
12.00
%
May 2027
78.5
70.8
OIC Series 2024-A notes
12.00
%
May 2027
10.9
-
OIC Class B preferred shares (USD)
12.00
 %
 November 2028 5.1
 -
Derivative liabilities - Warrants


0.5
-
Lease liabilities

7.1
 7.4
148.4
78.2

Supplier finance arrangement

In 2021, Carbon Revolution PL entered into a supply chain finance agreement with a logistics company. Under the arrangement the logistics company agrees to pay amounts to the participating supplier in respect of invoices owed by Carbon Revolution PL and receives settlement from Carbon Revolution PL at a later date. The principal purpose of this arrangement is to facilitate efficient ordering, importation, warehousing, invoice management and payment processing. The arrangement is only for a limited number of suppliers and specific materials. As the arrangement results in extended payment terms beyond the terms agreed with those suppliers the agreement is disclosed as a current borrowing. The facility has a fixed interest rate of 6% + RBA cash rate from June 28, 2023 onwards.

New Debt Program

In May 2023, Carbon Revolution Operations entered into New Debt Program arranged by PIUS under which Carbon Revolution Operations issued Series 2023-A notes in exchange for US$60 million. Pursuant to the Escrow Tranche Amendments, Carbon Revolution Operations issued Series 2024-A notes to the OIC Investors. The Series 2024-A notes are pari passu with the Series 2023-A notes subject to limited exceptions. The loan is denominated in U.S. Dollar and is translated to Australian dollars at each reporting period. The program includes certain reserves in an amount of A$7.2 million (as of June 30, 2024), that are not available at Carbon Revolution's discretion and disclosed as restricted trust funds (refer to Note 4.1.1 in the financial statements). A$1.6 million of this reserve has subsequently been released to the Company. Costs of A$20.7 million incurred in regard to the establishment of the term loan have been netted off with the loan amount and are being amortized over the term of the loan through the effective interest rate method.

As a result of amendments to the New Debt Program agreed in May 2024, under the New Debt Program:

•
Interest only is payable until June 2026, and from June 2026 interest will continue to be payable each month together with monthly principal repayments of USD$2 million until maturity in May 2027 with the remaining balance of the principal being paid as a balloon payment at maturity;

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•
Interest will be payable at 12% per annum (8.5% pa coupon plus an additional 3.5% accumulating paid-in-kind interest); and

•
3% amendment fee (US$1.8 million) payable at maturity.

Under the original terms of the New Debt Program, the Company was required to complete a qualified capital raise of at least US$45 million by December 31, 2023. The Company did not achieve this, and as a result, the Company is required to pay US$1.5 million and issue 50,000 ordinary shares to the Servicer upon the earlier of the refinancing or payoff of the loan or its maturity in May 2027.

OIC Financing

OIC Class A Preferred Shares

In connection with the OIC Financing, in November 2023, the Company issued 350 Class A Preferred Shares to the OIC Investors with a 12% fixed accumulating distribution and warrants for aggregate gross proceeds of US$35 million (equivalent to A$54.7 million) less transaction costs.

These Class A Preferred Shares are recognized as a financial liability at amortized cost as they must be redeemed by November 2028. The Company may elect to redeem Class A Preferred Shares on issue at an earlier date at its discretion subject to a minimum return of the greater of a 12% internal rate of return or 1.75x return on face value, in all circumstances, to the holders of the Preferred Shares.

The OIC Investors have also received warrants in exchange for the funding released to the Company under the OIC Financing ("OIC Warrants"). As at the date of this document, the OIC Investors have received OIC Warrants entitling them to up to approximately 56.36% of the fully diluted Company Ordinary Shares on issue. The OIC Warrants may be exercised, in whole or in part, at the discretion of the holders. The initial OIC Warrants included a 'cashless' exercise feature which was subsequently removed in June 2024 by way of the then existing OIC Warrants being reissued with amended terms. Due to the OIC Warrants initially including that feature, the initial OIC Warrants were treated as derivative liabilities at fair value through profit and loss between issuance in November 2023 and June 2024, resulting in a gain of A$5.8 million for the 2024 financial year. In June 2024 the warrants were reclassified to equity as the Company considered them to now meet the fixed for fixed criteria in IAS32 upon the removal of the cashless exercise feature.

Under the original terms of the OIC Financing, OIC retained the right to subscribe for further Class A Preferred Shares after November 2023 in exchange for further releases of funding from escrow to the Company, subject to the Company achieving certain milestones. The Company has not recognized any financial liability or allocation of proceeds in November 2023 or during the 2024 financial year for these preferred shares as the associated escrow deposit was not considered to be within the control of the Company. These commitments and escrow arrangements were subsequently modified from April 2024.

OIC Class B Preferred Shares and Series 2024-A notes and Amendment to the New Debt Program

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Between April 2024 and October 2024, under amendments to the OIC Financing and the New Debt Program, the Company issued a series of loan notes and Class B Preferred Shares, and additional warrants, to OIC for consideration of US$35 million, replacing an original commitment to issue further preferred equity upon completion of certain milestones. The terms of the issuance are:


•
US$5 million advanced in the form of Class B Preferred Shares in April 2024, and US$30 million advanced in the form of loan notes (Series 2024-A notes) between May 2024 and October 2024 (of which US$10 million was advanced during the financial year ending June 30, 2024);


•
In relation to the Class B Preferred Shares: mandatory redemption on November 3, 2028 aligned with the Class A Preferred Shares, with a 12% fixed accumulating dividend, and the Company may elect to redeem outstanding Class B Preferred Shares at an earlier date at its discretion subject to returning to the holder the greater of (i) a 1.75x MOIC return on face value, or (ii) a 12% IRR.


•
In relation to the Series 2024-A Notes, maturity date of May 2027 concurrent with maturity of the USD term loan;


•
In relation to the Series 2024-A Notes, 12% interest comprising an 8.5% coupon rate payable monthly and a further 3.5% monthly payment in kind (which is capitalized progressively into the amount outstanding);


•
In relation to the Series 2024-A Notes, progressive monthly repayments of principal commencing June 2026 - concurrent with the modified 2023 USD term loan;


•
An exit premium payable on the Series 2024-A Notes of 2.0x invested capital plus a further $10 million, such exit premium being payable upon the earlier of a refinancing of the Series 2024-A notes, sale of the Company or maturity in May 2027, inclusive of any principal and interest payments to date. The repayment of the exit premium in full will be reduced or delayed in certain limited circumstances;


•
The exit premium on the Class B Preferred Shares is reduced by an amount equal to the amount of cash dividends and redemption payments that have been paid to the holder(s) of Class B Preferred Shares; equally the amounts required to redeem the Class B Preferred Shares are reduced on account of payments made towards the exit premium, and where the amount required to redeem the Class B Preferred Shares is reduced to zero, the holder(s) of the Class B Preferred Shares will surrender those shares for no additional consideration;


•
The Company obtained a modification of the 2023 USD term loan such that it would rank equally to the Series 2024-A notes issued; and


•
Further, US$0.01 SEF warrants to purchase a number of ordinary shares equivalent to 25.35% of ordinary shares issued calculated on a fully diluted basis (as defined in the OIC warrant) at the time of exercise, the terms of which are equivalent to the November 2023 SEF warrants.

The Company has determined that the Series 2024-A notes should be accounted for as financial liabilities at amortized cost to be accreted over the term up to the minimum return amount at maturity. Proceeds from the Series 2024-A notes have been allocated between the amortized cost liability and the fair value of the warrants issued concurrently. Transaction costs were allocated on a relative fair value basis.

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OIC Series 2025-A Notes and Amendment to the New Debt Program

In December 2024, the Company and the OIC Investors agreed to further amendments to the Securities Purchase Agreement, to facilitate funding US$25 million of the remaining $40 million (from the original US$110 million) upon satisfaction of certain conditions, agreed upon and set forth in such amendment, in exchange for interest thereon payable at a rate of 12% per annum, of which 8.5% is payable in cash and 3.5% is payable in-kind and the issuance of Fixed Rate Senior Notes, Series 2025-A Notes (the "Series 2025-A Notes") pursuant to the Indenture, and the Indenture and related documents under the New Debt Program were also amended to facilitate the release to Carbon Revolution Operations of an aggregate of US$2 million from the payment reserve fund established under the New Debt Program, in equal instalments of US$400,000 with each $5 million tranche of funding under the above-mentioned amendments to the Securities Purchase Agreement, in exchange for interest thereon payable at a rate of 12% per annum, of which 8.5% is payable in cash and 3.5% is payable in-kind and the issuance of an equivalent amount of additional Series-2023 A Notes. Upon redemption or maturity of the Series 2025-A Notes and additional Series-2023 A Notes, Carbon Revolution Operations is required to pay the holders thereof an exit premium equal to 2.0 times the amount funded or released in exchange for such notes minus any cash interest or principal payments or fee payments thereon. In connection with the funding of each of the five tranches of US$5 million, the Company will issue to the OIC Investors and the Existing Lenders, pro rata in proportion to the amount of their investment relative to the total amount invested by the OIC Investors and the Existing Lenders (between them on a pro-rata basis) in each tranche, penny warrants to purchase an aggregate number of shares equal to 5.0% of the Company's shares outstanding, determined on a "Fully-Diluted Basis" in the same manner as applicable to the existing warrants previously issued to the OIC Investors. Additionally, after the issuance of the Series 2025-A Notes in the amount of US$25 million to the OIC Investors and release of the US$2 million from the payment reserve fund as described above, each holder of Series 2023-A Notes agrees to waive cash interest not to exceed an aggregate of US$3 million (the "Cash Interest Suspension Period") in exchange for the Trustee receiving payment in kind in an amount equal to such waived cash interest plus interest thereon payable at a rate of 12% per annum, of which 8.5% is payable in cash and 3.5% is payable in-kind for the benefit of the holders of the Series 2023-A Notes, and the OIC Investors also agree to waive cash interest on the Series 2024-A Notes and the Series 2025-A Notes, on the same terms, for the same period.

Pursuant to the December 2024 Amendments, on each of December 20, 2024, January 21, 2025 March 7, 2025 and May 9, 2025, US$5 million was funded in exchange for interest payable thereon and the issuance to the OIC Investors of US$5 million aggregate principal amount of Series 2025-A Notes and the release from the payment reserve fund for the Existing Lenders of US$400,000 in exchange for interest payable thereon and the issuance to the of US$400,000 aggregate principal amount of additional Series 2023-A Notes, and the OIC Investors (4.63%) and the Existing Lenders (0.37%) were issued penny warrants to purchase an aggregate number of shares equal to 5.0% of the Company's shares outstanding, determined on a "Fully-Diluted Basis".

As of the date of this Annual Report, warrants to purchase ordinary shares equivalent to a total of 56.36% of ordinary shares issued calculated on a fully diluted basis, have now been issued to the OIC Investors and vested, and warrants to purchase ordinary shares equivalent to a total of 1.48% of ordinary shares issued calculated on a fully diluted basis, have now been issued to Existing Lenders and vested.


C.
Research and development, patents and licenses, etc.

See "Item 4. Information on the Company-Business Overview-Research and Development."


D.
Trend Information

See "Item 5. Operating and Financial Review and Prospects-A. Operating Results."


E.
Critical Accounting Policies and Estimates

Overview

Our consolidated financial statements are prepared in accordance with IFRS, which require us to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Critical Accounting Policies and Estimates

Inventories
Management's judgement is applied in determining the provision for impaired wheels. Impaired wheel provisioning has been calculated using historical data as well as management experience in determining an adequate provision.

Property, plant and equipment

Management's judgement is applied in determining whether any impairment is required on the property, plant and equipment. The impairment testing is performed at a CGU level, being the consolidated Carbon Revolution group itself, due to the nature of its business operations.

Intangible Assets

Internal development expenditure, including wheel prototypes, is capitalized if it meets the recognition criteria of IAS 38 Intangible Assets. This is considered a key judgment. The Company regularly assesses the probable future cash flows supporting the capitalization of development costs in accordance with the standard. The internal development expenditure is amortized beginning when the wheel prototype development is complete. Where the recognition criteria under IAS 38 are not met, the expenditures are recognized as an expense in the consolidated statements of profit or loss and other comprehensive income.

Deferred income

Under the relevant grant agreements, the government has a right to require all or part of a grant to be repaid in certain circumstances (which vary between different grant agreements), including where the Company defaults under the agreement (and, if applicable under the relevant agreement, where a remediable breach is not remedied). In relation to the MMI grant agreement, any failure by the Company to comply with the agreement, may also impact the Company's eligibility for the expected future A$0.5 million grant installment under that agreement. The Company considers it unlikely that funding previously provided under government grants will be clawed back.

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F.
SUPPLEMENTAL NON-IFRS MEASURES AND RECONCILIATIONS

Overview

In addition to providing measures prepared in accordance with IFRS, we present certain supplemental non-IFRS measures. These measures are EBITDA, Adjusted EBITDA and Adjusted Net Debt. These non-IFRS measures do not have any standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other companies. We believe these measures are useful in evaluating the operating performance of the Company's ongoing business. These measures should be considered in addition to, and not as a substitute for, operating expenses, net income, cash flows and other measures of financial performance and liquidity reported in accordance with IFRS. The calculation of these non-IFRS measures has been made on a consistent basis for all periods presented.

EBITDA and Adjusted EBITDA
These supplemental non-IFRS measures are provided to assist readers in determining our operating performance. We believe these measures are useful in assessing performance and highlighting trends on an overall basis. We also believe EBITDA and Adjusted EBITDA are frequently used by securities analysts and investors when comparing our results with those of other companies. EBITDA differs from the most comparable IFRS measure, net loss for the year, primarily because it does not include interest expense and interest income, income taxes, depreciation of property, plant and equipment, and amortization of intangible assets. Adjusted EBITDA adjusts EBITDA for capital raising transaction costs, share-based payment expenses, impairment of assets, loss on modification, loss on extinguishment, supplier financing costs, realized foreign exchange loss, gain on remeasurement of warrant liabilities and unrealized foreign exchange gain. This definition of Adjusted EBITDA differs from that used by lenders under their assessment of financial performance against covenants. The following tables show a reconciliation of net loss for the year to EBITDA and Adjusted EBITDA for the years ended June 30, 2024, June 30, 2023 and June 30, 2022:

2024
AUD $m
2023
AUD $m
2022
AUD $m
Net loss for the year
(221.1
)
(79.2
)
(47.8
)
Income tax expense
-
-
-
Depreciation & Amortization
13.2
10.5
9.0
Effective interest on third party borrowings
16.0
1.4
-
Cash Interest on third party borrowings
9.2
2.7
0.6
Interest on lease liabilities
0.3
0.3
0.3
Interest other
0.6
0.6
0.3
Interest income


(0.2
)

(0.1 )

(0.1
)
Earnings before Interest, Tax, Depreciation & Amortization (EBITDA)


(182.0 )

(63.8
)

(37.8
)
Capital raising transaction costs


31.6


24.7


-
Share based payment expenses


(0.2
)

3.1


3.2
Impairment of assets


102.6


-


-
Loss on Modification


0.9


-


-
Loss on extinguishment
2.1
-
-
Supplier Financing costs
1.0
0.4
0.2
Realized foreign exchange loss
0.1
-
-
Gain on remeasurement of warrant liabilities
(6.7
)
-
-
Unrealized foreign exchange gain
(2.1
)
-
-
Adjusted EBITDA
(52.7
 )
(35.6
)
(34.3
)

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Adjusted Net Debt

Adjusted Net Debt is calculated as total Borrowing, Lease liabilities and Derivative liabilities (current and non-current) less cash and cash equivalents and restricted trust fund. We believe that Adjusted Net Debt is an important measure to monitor leverage and evaluate our financial position. A limitation associated with using Adjusted Net Debt is that it subtracts cash and cash equivalents and restricted trust fund and therefore may imply that there is less Company debt than the comparable IFRS measures indicate. We believe that investors may find it useful to monitor leverage and evaluate our financial position using Adjusted Net Debt, although these measures are not explicitly defined under IFRS.

The non-IFRS financial measures described in this Report should not be viewed in isolation and are not a substitute for IFRS total debt. Additionally, our calculation of Adjusted Net Debt may be different from the calculation used by other companies, including our competitors, and therefore, our measures may not be comparable to those of other companies.

Set forth below is a presentation of Adjusted Net Debt, including the items included in this measure and a reconciliation from total debt for the year.

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Adjusted Net Debt (in AUD, as of June 30, 2024)

as of
June 30, 2024
AUD $m
as of
June 30, 2023
AUD $m
as of June 30, 2022
AUD $m
Borrowings and other financial liabilities
Current Borrowings and Lease Liabilities
14.7
14.5
19.3
Non-current Borrowings, Lease and Derivative Liabilities
148.4
78.2
11.8
Total Borrowings and other financial liabilities
163.1
92.7
31.1
Less: Cash and cash equivalents
(3.7
)
(19.6
)
(22.7
)
Less: Restricted trust fund
(7.7
)
(14.7
)
-
Adjusted Net Debt
151.7
58.4
8.4

For the year ended June 30, 2024, adjusted net debt increased by A$93.3 million mainly due to the issuance of the OIC Class A preferred shares, as well as the drawdown of the OIC Series 2024-A Notes.

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