UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO SECTION 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
 
For the month of October 2022
 
Commission File Number: 001-41072
 
Iris Energy Limited
(Translation of registrant’s name into English)

Level 12, 44 Market Street
Sydney, NSW 2000 Australia
+61 2 7906 8301
(Address of principal executive office)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F ☒ Form 40-F ☐
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐



EXPLANATORY NOTE
 
On October 13, 2022, Iris Energy Limited (the “Company”) released its consolidated annual financial report for the year ended 30 June 2022 (the “Annual Report”). The Annual Report is posted to the investor relations section of the Company’s website at https://investors.irisenergy.co. A copy of the Company’s Annual Report is furnished hereto as Exhibit 99.1.


EXHIBIT INDEX

Exhibit
No.
 
Description
   
 
Iris Energy Limited, Consolidated Annual Financial Report, dated September 15, 2022


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
Iris Energy Limited
     
Date: October 13, 2022
By:
 /s/ Daniel Roberts
   
Daniel Roberts
   
Co-Chief Executive Officer and Director




Exhibit 99.1


Iris Energy Limited

Consolidated Annual Financial Report - 30 June 2022


Iris Energy Limited
Table of contents
30 June 2022

Directors' report
3
Consolidated statements of profit or loss and other comprehensive income
8
Consolidated statements of financial position
9
Consolidated statements of changes in equity
10
Consolidated statements of cash flows
11
Notes to the consolidated financial statements
12
Directors' declaration
50
Auditor's independence declaration
51
Independent auditors report
52


Iris Energy Limited
Directors' report
30 June 2022

The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Iris Energy 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 2022.
 
Directors
The following persons were Directors of Iris Energy Limited during the financial year and at the date of this report:

Mr. Daniel Roberts (Executive Director and Co-CEO) (Appointed 6 November 2018)
Prior to Iris Energy, Mr. Roberts worked at Palisade Investment Partners, an infrastructure funds management business based in Sydney. Mr. Roberts worked at Macquarie Group and PricewaterhouseCoopers in London and Sydney, respectively. Mr. Roberts has over 15 years’ experience in the finance, infrastructure and renewables industries. Mr. Roberts has previously served as a board member of various entities involved in airports, ports, gas pipelines, bulk liquid storage businesses, waste treatment facilities and wind and solar farms, including Granville Harbour Wind Farm, Ross River Solar Farm, Northern Territory Airports, Sunshine Coast Airport, ANZ Terminals Pty Ltd and Tasmanian Gas Pipeline. Mr. Roberts holds a Bachelor of Business from University of Technology Sydney and a Master of Finance (Dean’s List) from INSEAD Business School. Mr. Roberts is the brother of William Roberts, who also serves as a Co-Chief Executive Officer of Iris Energy.
 
Mr. William Roberts (Executive Director and Co-CEO) (Appointed 6 November 2018)
Prior to Iris Energy, Mr. Roberts worked across accounting & banking, resources, commodities and real assets at Macquarie Group, Westpac and Brookfield Multiplex. Mr. Roberts has over 11 years’ experience in  finance, real assets and commodities markets, including debt financing and principal investment across resources mining projects, as well as managing foreign exchange and commodity price risks. At Macquarie Group, he co-founded the newly established Digital Assets team. Mr. Roberts holds a Bachelor of Business (Distinction) from the University of Technology Sydney. Mr. Roberts is the brother of Daniel Roberts, who also serves as a Co-Chief Executive Officer of Iris Energy.

Mr. David Bartholomew (Chair) (Appointed 24 September 2021)
Mr. Bartholomew currently serves as a non-executive director on the boards of Atlas Arteria, a global owner and operator of toll roads, Endeavour Energy (a NSW electricity distributor) and Keolis Downer (provides public transport operation and maintenance services in Australia). Mr. Bartholomew is also External Independent Chair of the Executive Price Review Steering Committee of AusNet Services. Mr. Bartholomew’s executive background includes the role of Chief Executive Officer of DUET Group, where he oversaw the ASX listed company’s transition to a fully internalized management and governance structure and in which he was appointed to the boards of DUET’s portfolio companies including United Energy Distribution (Victorian electricity distribution), Multinet Gas (Victorian gas distribution), the Dampier to Bunbury Natural Gas Pipeline, Energy Developments Limited (remote and waste-to-energy electricity generation) and Duquesne Light (Pittsburgh, USA electricity distribution). He has also held executive roles at Hastings Funds Management, Lend Lease, The Boston Consulting Group and BHP Minerals. Mr. Bartholomew has also served on the boards of Vector Limited, Power and Water Corporation (NT), Dussur (Saudi Arabia), The Helmsman Project, Interlink Roads (Sydney’s M5 Motorway), Statewide Roads (Sydney’s M4 Motorway), Epic Energy (gas transmission), Sydney Light Rail, Port of Geelong, various forestry companies and Nextgen Networks (communications cable network), representing investors managed by Hastings Funds Management. Mr. Bartholomew holds a Bachelor of Economics (Honours) degree from Adelaide University and an MBA from The Australian Graduate School of Management.
 
Mr. Chris Guzowski (Director) (Appointed 19 December 2019)
Mr. Guzowski has over 15 years’ international experience in renewable energy project development across Europe & Australia. Mr. Guzowski founded Baltic Wind, developing large scale wind farm projects in Europe from greenfield to operations. He also founded Mithra Energy, developing 10+ solar PV projects in Poland since 2012. Mr. Guzowski was the Project Development Director and commercial development partner of Photon Energy, with a major solar PV pipeline under development in Australia. Mr. Guzowski was the Founding Director of ADCCA - Australian Digital Currency Commerce Association and was a founder of ABA Technology in 2014 (Australian blockchain technology). Mr. Guzowski holds a Bachelor of Business from University of Technology Sydney and an MBA in Energy Management from Vienna University of Economics and Business.

3

Iris Energy Limited
Directors' report
30 June 2022

Mr. Michael Alfred (Director) (Appointed 21 October 2021)
Mr. Alfred is a private investor, advisor, and board member. Previously, he served as the Chief Executive Officer of Digital Assets Data, Inc., a financial technology and data company building enterprise-grade software and data feeds for the digital asset ecosystem, from when he co-founded the company in January 2018 through its sale to New York Digital Investment Group LLC in November 2020. Mr. Alfred has served as an Advisor to the Chief Executive Officer of Amenify, a real estate technology company, since July 2020, and on the Advisory Board of Outerbridge Capital Management, LLC since December 2019. From October 2016 to January 2018, Mr. Alfred was a Managing Director and member of the five-person executive committee for Strategic Insight, Inc., a provider of data and software to the global asset management industry, which was acquired by Institutional Shareholder Services (ISS) in 2019. Prior to that, Mr. Alfred served as the Chief Executive Officer of BrightScope, Inc., a financial information company providing 401k analyses and tools for retirement plan participants, sponsors and advisors, from February 2008 until it was acquired by Strategic Insight, Inc. in October 2016. Prior to co- founding BrightScope, Inc., Mr. Alfred served as Co-Founder and Portfolio Manager of Alfred Capital Management, LLC, a registered investment advisor serving high net worth individuals. Mr. Alfred also serves as a principal investor in a variety of industries including technology and consumer products. Mr. Alfred has served on the Board of Directors of Crestone Group, LLC, a national artisan bakery, since March 2015; HOHM, Inc., a custom-engineered sleeping pod creator, since December 2017; and Eaglebrook Advisors, a tech-driven digital asset management platform for financial advisors and their clients, since September 2019. Mr. Alfred received a Bachelor of Arts degree in History from Stanford University.

Mr. Paul Gordon also served as a Director of the Company from 19 December 2019 to 24 October 2021.
 
Company Secretary
Ms Joanna Brand BA, JD, MBA, GAICD, was appointed to the position of Company Secretary in September 2021. Ms Brand has 25 years’ experience as a lawyer and company secretary, including as General Counsel and Company Secretary for ME Bank, Billabong International and Epic Energy, and as Chief Legal Counsel for Jetstar Airways. Ms Brand holds a Bachelor of Arts from Duke University, a Juris Doctorate from Harvard Law School, an MBA (Executive) from the Australian Graduate School of Management and is a Graduate of the Australian Institute of Company Directors.

Principal activities
The Group is an owner and operator of institutional-grade, highly efficient proprietary Bitcoin mining data centers powered by renewable energy. During the year ended 30 June 2022, the Group developed and operated from two principal sites at Canal Flats and Mackenzie in British Columbia, Canada. The Group has commenced development of two other data center sites located at Prince George, British Columbia, Canada and Childress, Texas, USA.
 
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 $419,770,000 (30 June 2021: $60,390,000).

Key business operations are noted below:

Bitcoin mining revenue of $59,037,000 (30 June 2021: $7,898,000)

the number of Bitcoin earned from mining was 1,398 (30 June 2021: 241)

Significant changes in the state of affairs
On 4 November 2021, the Company effected a 1-for-5 reverse share split of its ordinary shares. Unless otherwise indicated, the per ordinary share information has been retroactively adjusted to reflect the 1-for-5 reverse share split.
 
The Company listed its 55,036,108 ordinary shares on Nasdaq as part of an Initial Public Offering (‘IPO’) on 17 November 2021. 8,269,231 ordinary shares were issued as part of this offering at a price of $28.00. The IPO was led by lead book- runners J.P. Morgan, Canaccord Genuity and Citigroup and raised total gross proceeds of $231,538,468.
 
There were no other significant changes in the state of affairs of the Group during the financial year.

4

Iris Energy Limited
Directors' report
30 June 2022
 
Matters subsequent to the end of the financial year
Advanced delivery of Mining Hardware
As at 30 June 2022, the Group held $158,184,000 in prepayments made to Bitmain for future mining hardware deliveries. Since the end of the financial year, the Group made all final scheduled payments to utilize $30,127,000 of this balance, which is expected to increase the Group’s operating capacity to 4.3 EH/s.
 
On 1 August, the Group announced it had reached an agreement with Bitmain to ship an additional 1.7 EH/s of mining hardware. This shipment is expected to increase the Group’s operating capacity to 6.0 EH/s. The agreement utilizes $46,006,000(1) of the $158,184,000 mining hardware prepayments held by the Group as at 30 June 2022, along with $5,900,000 of cash on hand. This additional 1.7 EH/s is now fully paid for by the Group (excluding shipping and taxes).

Utilization of the remaining $82,051,000(2) of prepayments, and the timing and volume of any additional future mining hardware deliveries (i.e. beyond the 6.0 EH/s outlined above) continue to be subject to ongoing discussions with Bitmain.

No other matter or circumstance has arisen since 30 June 2022 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
In the opinion of the Directors, disclosure of further information about any likely developments in the Group's operations and the expected results of such operations is commercially sensitive and would likely be detrimental and result in unreasonable prejudice to the Group.

Environmental regulation
The Group's ordinary course operations and properties are subject to various laws and regulations governing health and safety, the discharge of pollutants into the environment or otherwise relating to health, safety and environmental protection requirements in the countries and localities in which the Group operates. The Directors believe that there are adequate systems in place for the management of the Group’s environmental requirements and are not aware of any material breach of those environmental requirements.

Meetings of Directors
The number of meetings of the Company's Board of Directors ('the Board') and the Audit and Risk Committee (‘ARC’) held during the year ended 30 June 2022, and the number of meetings attended by each Director are set out below:
 
    Board Meeting     Audit and Risk Committee  
   
Attended
   
Held
   
Attended
   
Held
 
David Bartholomew
   
6
     
6
     
2
     
2
 
Christopher Guzowski
   
6
     
6
     
2
     
2
 
Michael Alfred
   
5
     
6
     
1
     
2
 
Daniel Roberts
   
5
     
6
     
-
     
-
 
William Roberts
   
6
     
6
     
-
     
-
 
Paul Gordon
   
-
     
-
     
-
     
-
 
 
Held: represents the number of meetings held during the time the Director held office.
 
Indemnity and insurance of officers
During the financial year, the Company paid a premium in respect of a contract to insure the Directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.
 
Indemnity and insurance of auditor
The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor.
 
During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity.

(1) The cash payment made by the Canadian subsidiary of the Group was $46,670,0000. The retranslated balance of the prepayment as at 30 June 2022 is $46,006,000.
(2) The cash payment made by the Canadian subsidiary of the Group was $83,340,000. The retranslated balance of the prepayment as at 30 June 2022 is $82,051,000.

5

Iris Energy Limited
Directors' report
30 June 2022
 
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.
 
Non-audit services
There were no non-audit services provided during the financial year by the auditor.
 
Rounding of amounts
The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that Instrument, amounts in the consolidated financial statements and Directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.

Auditor's independence declaration
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this Directors' report.
 
Shares under option
Details of outstanding shares under option issued by the Company are set out in Note 31 and Note 35 of the consolidated financial statements.

6

Iris Energy Limited
Directors' report
30 June 2022
 
Restricted Share Units (‘RSUs’)
Subsequent to 30 June 2022, the Group issued a total of 1,953,535 restricted share units. These RSUs include a grant of 1,073,706 RSUs to the below Directors of the Company:

Director
Title
Number of RSUs granted
Daniel Roberts
Executive Director and Co-CEO
534,853
William Roberts
Executive Director and Co-CEO
534,853
Michael Alfred
Non-Executive Director
4,000
 
229,223 of the RSUs each granted to Daniel Roberts and William Roberts have associated vesting conditions of which 50% of each individual's RSU grant will vest after three years and the remaining 50% will vest after four years, subject to the following criteria which is tested at the end of each respective vesting period:


80% vesting based on continued service with the Group over the vesting period; and
 

20% vesting based on total shareholder return against a peer group of Nasdaq listed entities (and continued service over the vesting period).
 
305,630 of the RSUs granted to each of Daniel Roberts and William Roberts are subject to a sole vesting condition and will immediately vest when the daily closing share price of the of the ordinary shares of Company exceeds $28 for 10 trading days out of any 15 consecutive full trading day period following the grant date.
 
The 4,000 RSUs issued to Michael Alfred will vest subject to a sole service condition of remaining as a Non-executive Director of the Company until 15 December 2022.

371,260 RSUs were also granted to the below executive Key Management Personnel (‘KMP’) and Company Secretary:
 
KMP
Title
Number of RSUs granted
Lindsay Ward
President
160,858
David Shaw
Chief Operating Officer
84,450
Belinda Nucifora
Chief Financial Officer
80,107
Joanna Brand
Company Secretary
45,845
 
All of these RSU’s have identical vesting conditions of which 50% of each individual's RSU grant will vest after three years and the remaining 50% will vest after four years, subject to the following criteria which is tested at the end of each respective vesting period:
 

80% vesting based on continued service with the Group over the vesting period; and
 

20% vesting based on total shareholder return against a peer group of Nasdaq listed entities (and continued service over the vesting period).

For all RSUs issued the Board has full discretion to, at any time, interpret, apply or not apply, amend, modify, or terminate the LTIP, any plan rules and any individual RSU granting and vesting.

This report is made in accordance with a resolution of Directors.

/s/ David Bartholomew
/s/ Daniel Roberts
David Bartholomew
Daniel Roberts
Chair
Co-CEO


15 September 2022
15 September 2022

7

Iris Energy Limited
Consolidated statements of profit or loss and other comprehensive income
For the year ended 30 June 2022

         
Consolidated
Year ended
30 June 2022
   
Year ended
30 June 2021
 
   
Note
   
US$'000
   
(restated*) US$'000
 
Revenue
                 
Bitcoin mining revenue
         
59,037
     
7,898
 
                       
Other income
   
5
     
12
     
590
 
                         
Expenses
                       
Depreciation
   
6
     
(7,741
)
   
(1,252
)
Electricity charges
           
(10,978
)
   
(2,654
)
Employee benefits expense
           
(7,448
)
   
(2,221
)
Share-based payments expense
   
31
     
(13,896
)
   
(805
)
Impairment of assets
           
(167
)
   
(432
)
Loss on disposal of assets
           
-
     
(202
)
Professional fees
           
(6,807
)
   
(980
)
Other operating expenses
   
7
     
(11,705
)
   
(466
)
                         
Profit/(loss) before interest, foreign exchange gains and income tax
           
307
     
(524
)
                         
Finance expense
   
8
     
(425,441
)
   
(61,175
)
Interest income
           
79
     
6
 
Foreign exchange gains
           
8,009
     
2,542
 
                         
Loss before income tax expense
           
(417,046
)
   
(59,151
)
                         
Income tax expense
   
9
     
(2,724
)
   
(1,239
)
                         
Loss after income tax expense for the year
           
(419,770
)
   
(60,390
)
                         
Other comprehensive income/(loss)
                       
                         
Items that may be reclassified subsequently to profit or loss
                       
Foreign currency translation
           
(23,553
)
   
1,313
 
                         
Other comprehensive income/(loss) for the year, net of tax
           
(23,553
)
   
1,313
 
                         
Total comprehensive loss for the year
           
(443,323
)
   
(59,077
)
                     
           
Cents
   
Cents
 
                     
Basic earnings per share
   
24
     
(1,025.30
)
   
(292.74
)
                         
Diluted earnings per share
   
24
     
(1,025.30
)
   
(292.74
)

The above consolidated statements of profit or loss and other comprehensive income/(loss) should be read in conjunction with the accompanying notes.
*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

8

Iris Energy Limited
Consolidated statements of financial position
As at 30 June 2022
 
                Consolidated        
         
30 June 2022
   
30 June 2021
   
30 June 2020
 
 
 
Note
   

   
(restated*)
   
(restated*)
 
          US$'000
    US$'000
    US$'000
 
Assets
                       
 
                       
Current assets
                       
Cash and cash equivalents
   
10
     
109,970
     
38,990
     
1,956
 
Other receivables
   
11
     
23,654
     
793
     
331
 
Prepayments and deposits
   
13
     
26,630
     
647
     
283
 
Total current assets
           
160,254
     
40,430
     
2,570
 
 
                               
Non-current assets
                               
Property, plant and equipment
   
14
     
247,562
     
15,935
     
8,038
 
Right-of-use assets
   
15
     
1,253
     
1,404
     
397
 
Goodwill
   
16
     
634
     
659
     
568
 
Deferred tax assets
   
9
     
2,235
     
911
     
-
 
Mining hardware prepayments
   
12
     
158,184
     
75,129
     
-
 
Other assets
           
338
     
-
     
-
 
Total non-current assets
           
410,206
     
94,038
     
9,003
 
 
                               
Total assets
           
570,460
     
134,468
     
11,573
 
 
                               
Liabilities
                               
 
                               
Current liabilities
                               
Borrowings
   
17
     
60,484
     
71,983
     
1,961
 
Embedded derivatives
   
18
     
-
     
96,721
     
-
 
Income tax
           
1,204
     
533
     
-
 
Employee benefits
           
2,136
     
109
     
43
 
Trade and other payables
   
20
     
18,813
     
1,118
     
751
 
Provisions
   
19
     
2,469
     
-
     
-
 
Total current liabilities
           
85,106
     
170,464
     
2,755
 
 
                               
Non-current liabilities
                               
Borrowings
   
17
     
47,803
     
11,840
     
-
 
Deferred tax liabilities
   
9
     
189
     
1,618
     
-
 
Total non-current liabilities
           
47,992
     
13,458
     
-
 
 
                               
Total liabilities
           
133,098
     
183,922
     
2,755
 
 
                               
Net assets/(liabilities)
           
437,362
     
(49,454
)
   
8,818
 
 
                               
Equity
                               
Issued capital
   
21
     
926,581
     
10,338
     
10,338
 
Reserves
   
22
     
(6,814
)
   
2,843
     
725
 
Accumulated losses
           
(482,405
)
   
(62,635
)
   
(2,245
)
 
                               
Total equity/(deficit)
           
437,362
     
(49,454
)
   
8,818
 

The above consolidated statements of financial position should be read in conjunction with the accompanying notes.
*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

9

Iris Energy Limited
Consolidated statements of changes in equity
For the year ended 30 June 2022

 
 
 
Consolidated
 
Issued
capital
(restated*)
US$'000
   
Reserves
(restated*)

US$'000
   
Accumulated
losses
(restated*)
US$'000
   
Total equity/
(deficit)
(restated*)
US$'000
 
                         
Balance as at 1 July 2020
   
10,338
     
725
     
(2,245
)
   
8,818
 
                                 
Loss after income tax expense for the year
   
-
     
-
     
(60,390
)
   
(60,390
)
Other comprehensive income for the year, net of tax
   
-
     
1,313
     
-
     
1,313
 
                                 
Total comprehensive income/(loss) for the year
   
-
     
1,313
     
(60,390
)
   
(59,077
)
                                 
Transactions with owners in their capacity as owners:
                               
Share-based payments (note 31)
   
-
     
805
     
-
     
805
 
                                 
Balance as at 30 June 2021
   
10,338
     
2,843
     
(62,635
)
   
(49,454
)

 
 
 
Consolidated
 
Issued
capital
US$'000
   
Reserves
US$'000
   
Accumulated
losses
US$'000
   
Total equity/
(deficit)
US$'000
 
                         
Balance as at 1 July 2021
   
10,338
     
2,843
     
(62,635
)
   
(49,454
)
                                 
Loss after income tax expense for the year
   
-
     
-
     
(419,770
)
   
(419,770
)
Other comprehensive loss for the year, net of tax
   
-
     
(23,553
)
   
-
     
(23,553
)
                                 
Total comprehensive loss for the year
   
-
     
(23,553
)
   
(419,770
)
   
(443,323
)
                                 
Transactions with owners in their capacity as owners:
                               
Share-based payments (note 31)
   
-
     
13,896
     
-
     
13,896
 
Issue of ordinary shares (net of capital raise costs) (note 21)
   
220,683
     
-
     
-
     
220,683
 
Conversion of hybrid financial instruments (note 21)
   
695,383
     
-
     
-
     
695,383
 
Share-based payments, prepaid in advance (note 21)
   
177
     
-
     
-
     
177
 
                                 
Balance as at 30 June 2022
   
926,581
     
(6,814
)
   
(482,405
)
   
437,362
 

The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes
*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

10

Iris Energy Limited
Consolidated statements of cash flows
For the year ended 30 June 2022

         
Consolidated
 
   

   
Year ended
30 June 2022
   
Year ended
30 June 2021
 
    Note
          (restated*)
 

 
   
US$'000
   
US$'000
 
Cash flows from operating activities
 
         
 
Receipts from Bitcoin mining activities
         
59,037
     
7,898
 
Payments for electricity, suppliers and employees (inclusive of GST)
         
(32,231
)
   
(6,400
)

         
26,806
     
1,498
 
Interest received
         
4
     
6
 
Other income received
         
-
     
590
 
Interest paid
         
(5,253
)
   
(333
)
                       
Net cash from operating activities
   
29
     
21,557
     
1,761
 
                         
Cash flows from investing activities
                       
Payments for property, plant and equipment
           
(83,654
)
   
(7,300
)
Prepayments for mining hardware
           
(210,593
)
   
(73,815
)
Prepayments and deposits
           
(22,038
)
   
(250
)
Advancement of loan
           
(1,870
)
   
-
 
Proceeds from disposal of property, plant and equipment
           
40
     
2
 
                         
Net cash used in investing activities
           
(318,115
)
   
(81,363
)
                         
Cash flows from financing activities
                       
Proceeds from hybrid financial instruments
           
107,845
     
105,662
 
Capital raising costs
           
(4,212
)
   
-
 
Proceeds from mining hardware finance
           
65,200
     
17,084
 
Repayment of borrowings
           
(12,120
)
   
(2,118
)
Proceeds (net of underwriting fees) from Initial Public Offering
   
21
     
215,331
     
-
 
Payment of borrowing transaction costs
           
-
     
(2,569
)
Repayment of lease liabilities
           
(6
)
   
(34
)
                         
Net cash from financing activities
           
372,038
     
118,025
 
                         
Net increase in cash and cash equivalents
           
75,480
     
38,423
 
Cash and cash equivalents at the beginning of the financial year
           
38,990
     
1,956
 
Effects of exchange rate changes on cash and cash equivalents
           
(4,500
)
   
(1,389
)
                         
Cash and cash equivalents at the end of the financial year
   
10
     
109,970
     
38,990
 

The above consolidated statements of cash flows should be read in conjunction with the accompanying notes
*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

11

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022
 
Note 1. General information
 
The consolidated financial statements cover Iris Energy Limited as a Group consisting of Iris Energy Limited (‘Company’ or ‘Parent Entity’) and the entities it controlled at the end of, or during, the year (collectively, the ‘Group’).

Iris Energy Limited was previously known as Iris Energy Pty Ltd until 7 October 2021, when it converted to an Australian public unlisted company limited by shares. Iris Energy Limited is incorporated and domiciled in Australia. Its registered office and principal place of business are:
 
Registered office
Principal place of business



c/o Pitcher Partners
Level 13, 664 Collins Street
Docklands VIC 3008
Australia

Level 12, 44 Market Street
Sydney NSW 2000
Australia

The Group completed an initial public offering (‘IPO’) on 17 November 2021. The IPO was led by lead book-runners J.P. Morgan, Canaccord Genuity and Citigroup and raised total gross proceeds of $231,538,468.
 
The Group is an owner and operator of institutional-grade, highly efficient proprietary Bitcoin mining data centers powered by renewable energy.
 
The consolidated financial statements were authorized for issue, in accordance with a resolution of Directors, on 13 September 2022. The Directors have the power to amend and reissue the consolidated financial statements.
 
Reverse share split
On 4 November 2021, the Company effected a 1-for-5 reverse share split of its ordinary shares. Unless otherwise indicated, the per ordinary share information has been retroactively adjusted to reflect the 1-for-5 reverse share split.

Note 2. Significant accounting policies
 
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below.
 
Going concern
The Group has determined there is material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern but has concluded it is appropriate to prepare the consolidated financial statements on a going concern basis which contemplates continuity of normal business activities, the realization of assets and settlement of liabilities in the ordinary course of business. The operating cashflows generated by the Group are inherently linked to several key uncertainties and risks including, but not limited to, volatility associated with the economics of Bitcoin mining and the ability of the Group to execute its business plan.
 
For the year ended 30 June 2022, the Group incurred a loss after tax of $419,770,000 (2021: $60,390,000) and net operating cash inflows of $21,557,000 (2021: $1,761,000). As at 30 June 2022, the Group had net current assets of $75,148,000 (2021: net current liabilities of $130,034,000) and net assets of $437,362,000 (2021: net liabilities of $49,454,000).
 
As further background, the Group’s miners are designed specifically to mine Bitcoin and its future success will depend in a large part upon the value of Bitcoin, and any sustained decline in Bitcoin’s value could adversely affect the business and results of operations. Specifically, the revenues from Bitcoin mining operations are predominantly based upon two factors:
(i)  the number of Bitcoin rewards that are successfully mined and (ii) the value of Bitcoin. A continued decline in the market price of Bitcoin, an increase in the difficulty of Bitcoin mining, changes in the regulatory environment and/or adverse changes in other inherent risks would significantly negatively impact the Group’s operations. Due to the volatility of the Bitcoin price and the effects of possible changes in the other aforementioned factors, there can be no guarantee that future mining operations will be profitable.

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

12

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022
 
Note 2. Significant accounting policies (continued)
 
The strategy to mitigate these risks and uncertainties is to execute a business plan aimed at continued security, operational efficiency, revenue growth, improving overall mining profit, managing operating expenses and working capital requirements, maintaining capital expenditure optionality, and securing additional financing, as needed, through one or more debt and/or equity capital raisings.
 
The Group can wind down its operations (including not acquiring any additional mining hardware and/or incurring the associated infrastructure growth capital expenditure) in the event of unfavourable pricing in Bitcoin. The continuing viability of the Group and its ability to continue as a going concern and meet its debts and commitments as they fall due are therefore significantly dependent upon several factors. These factors have been considered in preparing a cash flow forecast over the next 12 months to consider the going concern of the Group. The key considerations include:

A base case scenario assuming current Bitcoin prices and global hashrate for the next 12 months, which has been considered at various bitcoin and hashrate scenarios;

The completion of key construction projects including the commissioning of the 50MW site at Prince George, British Columbia, an additional 30MW at Mackenzie, British Columbia (currently 50MW capacity) and energization at Childress, Texas;

As at 30 June 2022, the Group held $158,184,000 in prepayments made to Bitmain Technologies Limited (‘Bitmain’) for future mining hardware deliveries. $30,127,000 of this prepayment balance relates to a portion of deliveries assumed to increase the Group’s operating capacity to 4.3 EH/s by the end of the quarter ending 31 December 2022;
 
On 1 August 2022, the Group announced that it had reached agreement with Bitmain to ship an additional 1.7 EH/s of miners, which is assumed to increase the Group’s operating capacity to 6.0 EH/s before the end of the fiscal year 2023. The agreement utilizes $46,006,000(1) of prepayments, along with $5,869,000 of cash on hand. This additional 1.7 EH/s is now fully paid for by the Group (excluding shipping and taxes). Refer to Note 36 for further information;
 
Utilization of the remaining $82,051,000(2) of prepayments, and the timing and volume of any additional future miner deliveries (i.e. beyond the 6.0 EH/s outlined above) continue to be subject to ongoing discussions with Bitmain. For the purposes of this going concern assessment, the Group does not currently expect to make upcoming payments under the relevant contract with Bitmain; and
 
The Group does not currently have any corporate level debt outstanding. For the purposes of this going concern assessment, all existing limited-recourse financing facilities are assumed to be repaid in line with the contractual terms.
 
These key assumptions have been considered using a range of historic Bitcoin price and global hashrate scenarios. The Group aims to maintain a degree of flexibility in both operating and capital expenditure cashflow management where it practicably makes sense, including ongoing internal cashflow monitoring and projection analysis performed to identify potential liquidity risks arising and to be able to respond accordingly.
 
As a result, the Group has concluded there is material uncertainty related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern and, therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business. However, the Group considers that it will be successful in the above matters and will have adequate cash reserves to enable it to meet its obligations for at least one year from the date of approval of the consolidated financial statements, and, accordingly, has prepared the consolidated financial statements on a going concern basis.

(1) The cash payment made by the Canadian subsidiary of the Group was $46,670,0000. The retranslated balance of the prepayment as at 30 June 2022 is $46,006,000.
(2) The cash payment made by the Canadian subsidiary of the Group was $83,340,000. The retranslated balance of the prepayment as at 30 June 2022 is $82,051,000.
*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

13

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022

Note 2. Significant accounting policies (continued)
 
Basis of preparation
The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (‘AASBs’) adopted by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (‘IFRS’) adopted by the International Accounting Standards Board (‘IASB’).
 
Historical cost convention
The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of financial assets and liabilities at fair value through profit or loss.
 
Critical accounting estimates
The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 3.

Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in Note 33. Parent entity disclosures
 
Rounding off
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, and in accordance with that Instrument all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated.

Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Iris Energy Limited as at 30 June 2022 and 30 June 2021 and the results of all subsidiaries for the years ended 30 June 2022, 30 June 2021, and 30 June 2020.

Subsidiaries are all those entities over which the Group has control (as listed in note 28). The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
 
Intercompany transactions, balances and unrealized gains on transactions between entities in the Group are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries align to the policies adopted by the Group.
 
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognized directly in equity attributable to the parent.
 
Where the Group loses control over a subsidiary, it derecognizes the assets including goodwill, liabilities and non- controlling interest in the subsidiary, together with any cumulative translation differences recognized in equity. The Group recognizes the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss.
 
Operating segments
Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance.

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

14

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022
 
Note 2. Significant accounting policies (continued)

Functional and presentation currency
The Directors have elected to change the Group’s presentation currency from Australian dollars (‘A$’) to United States dollars (‘$’, ‘US$’ or ‘US dollars’) effective from 1 July 2021. The change in presentation currency is a voluntary change which is accounted for retrospectively. All other accounting policies are consistent with those adopted in the annual financial report for the year ended 30 June 2021. The consolidated financial statements have been restated to US dollars using the procedures outlined below:

Statement of profit or loss and other comprehensive income and statement of cash flows for each Group entity have been consolidated into US dollars using average foreign currency rates prevailing for the relevant period.

Assets and liabilities in the consolidated statement of financial position have been translated into US dollars at the closing foreign currency rates on the relevant balance sheet dates.

The equity section of the consolidated statement of financial position, including foreign currency translation reserve, accumulated losses, issued capital and the other reserves, have been translated into US dollars using historical rates.
 
Earnings per share and dividend disclosures have also been restated to US dollars to reflect the change in presentation currency.

The functional currency of the Parent Entity is Australian dollars, whilst the presentation currency of the Group is now in US dollars. Some subsidiaries have a functional currency other than Australian dollars, which is translated to the presentation currency.

Transactions in currencies other than an entity’s functional currency are initially recorded in the functional currency by applying the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in currencies other than an entity’s functional currency are retranslated at the foreign exchange rate ruling at the reporting date. Foreign exchange differences arising on translation are recognized in the statement of profit and loss.
 
Non-monetary assets and liabilities that are measured in terms of historical cost in currencies other than an entity’s functional currency are translated using the exchange rate at the date of the initial transaction.
 
Foreign operations
The assets and liabilities of foreign operations are translated into US dollars using the relevant exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into US dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognized in other comprehensive income/(loss) through the foreign currency translation reserve in equity.
 
The foreign currency translation reserve is recognized in profit or loss when the foreign operation or net investment is disposed of.
 
Revenue and other income recognition
The Group recognizes revenue and other income as follows:

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

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

15

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022

Note 2. Significant accounting policies (continued)
 
Bitcoin mining revenue
The Group operates data center infrastructure supporting the verification and validation of Bitcoin blockchain transactions in exchange for Bitcoin, referred to as Bitcoin mining. The Group has entered into arrangements with mining pools, whereby computing power is directed to the mining pools in exchange for non-cash consideration in the form of Bitcoin. The provision of computing power is the only performance obligation in the contract with the mining pool operators.
 
In certain mining pools that, the Group participated in during the year ended 30 June 2020, the amount of reward for computing power depends on the pool’s success in mining blocks. In this type of pool, the total Bitcoin mined by the pool is distributed daily to the pool participant’s, net of the fees of the mining pool operator.
 
In other pools that, the Group participated in during the years ended 30 June 2020, 30 June 2021 and 30 June 2022, the Group is not directly exposed to the pool’s success in mining blocks. The Group is rewarded in Bitcoin for the hashrate it contributes to these mining pools. The reward for the hashrate contributed by the Group is based on the current network difficulty and global daily revenues from transaction fees, less mining pool fees.
 
Bitcoin mining revenue comprises of the block reward and transaction fees bundled together in a gross daily deposit of Bitcoin into the Group’s exchange wallet. Bitcoin received from the mining pool operator are remitted to the pool participants’ wallets net of the fees of the mining pool operator. The mining pool operator fees are reflected in the quantity of Bitcoin received by the Group and recorded as a reduction in Bitcoin mining revenue.
 
The Group measures the non-cash consideration received at the fair market value of the Bitcoin received. Management estimates fair value, on a daily basis, as the quantity of Bitcoin received multiplied by the price quoted on www.coinmarketcap.com (‘Coinmarketcap’) on the day it was received. Management considers the prices quoted on Coinmarketcap to be a level 1 input under IFRS 13 Fair Value Measurement. The Group did not hold any Bitcoin on hand as at 30 June 2022 (30 June 2021: Nil).
 
Other income
Other income is recognized when it is received or when the right to receive payment is established.
 
Income tax
The income tax expense for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognized for prior periods, where applicable.
 
Deferred tax assets and liabilities are recognized for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for:
 
when the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or
 
when the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
 
Deferred tax assets are recognized for deductible temporary difference only if the Group considers it probable that future taxable amounts will be available to utilize those temporary differences and losses.

The carrying amount of recognized and unrecognized deferred tax assets are reviewed at each reporting date. Deferred tax assets recognized are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognized deferred tax assets are recognized to the extent that it is probable that there are future taxable profits available to recover the asset.

Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously.

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

16

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022

Note 2. Significant accounting policies (continued)

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. These uncertainties may require management to adjust expectations based on changes in circumstances, which may impact the amount of deferred tax assets and deferred tax liabilities recognized in the statement of financial position and the amount of other tax losses and temporary differences not recognized. In such circumstances, some or all of the carrying amounts of recognized deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the consolidated statement of profit or loss and other comprehensive income/(loss).

Current and non-current classification
Assets and liabilities are presented in the consolidated statement of financial position based on current and non-current classification.
 
An asset is classified as current when it is either expected to be realized or intended to be sold or consumed in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realized within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current.
 
A liability is classified as current when it is either expected to be settled in the Group’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current.
 
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Other receivables
Other receivables are recognized at amortized cost, less any allowance for expected credit losses.
 
Investments and other financial assets
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortized cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless an accounting mismatch is being avoided.
 
Financial assets are derecognized when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, its carrying value is written off.
 
Financial assets at amortized cost
A financial asset is measured at amortized cost only if both of the following conditions are met: (i) it is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and (ii) the contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.
 
Impairment of financial assets
The Group recognizes a loss allowance for expected credit losses on financial assets which are either measured at amortized cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Group’s assessment at the end of each reporting period as to whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

17

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022

Note 2. Significant accounting policies (continued)
 
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset’s lifetime expected credit losses. The amount of expected credit loss recognized is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.

Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
 
Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows:
 
Buildings 20 years
Plant and equipment 3-7 years
Mining hardware
4 years

The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.
 
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
 
An item of property, plant and equipment is derecognized upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss.
 
Assets under construction consist of capitalized site preparation fees and buildings (including data centers) currently being built. Assets under construction are not depreciated until they are available for use. Once an asset becomes available for use, it is transferred to another category within property, plant and equipment and depreciated over its useful economic life.
 
Mining hardware includes both installed hardware units and units that have been delivered but are in storage, yet to be installed. Depreciation of mining hardware commences once units are onsite and available for use.
 
Repair and maintenance costs incurred in connection with planned major maintenance activities are expensed to ‘other expenses’ in profit or loss.
 
Leases
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets.
 
A right-of-use asset is recognized at the commencement date of a lease. The right-of-use asset is measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of the right-of-use assets includes the amount of the lease liability recognized, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

18

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022
 
Note 2. Significant accounting policies (continued)
 
At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amount expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate.

In calculating the present value of the lease payments, the Group uses the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. Variable lease payments that depend on an index or rate are included in the lease liability, measured using the index or rate as at the date of recognition. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The Group has applied judgement to determine the lease term for contracts which include renewal and termination options.
 
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortized. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed.
 
Impairment of assets
At the end of the reporting period, property, plant and equipment, goodwill and right-of-use assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If there is an indication of possible impairment, the recoverable amount of any affected asset (or cash generating units) is estimated and compared with its carrying amount. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount, where the recoverable amount is the higher of an asset’s fair value less costs of disposal (‘FVLCOD’) or the value in use (‘VIU’). In assessing FVLCOD or VIU, the estimated future cash flows of the asset are discounted to their present value using a discount rate that reflects the risks specific to the asset or the cash-generating unit (‘CGU’) to which the asset belongs and relevant market assessments. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (CGU).
 
Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.

Borrowings
Loans and borrowings are initially recognized at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortized cost using the effective interest method.
 
Hybrid financial instruments (SAFE and convertible notes)
Hybrid financial instruments are separated into the host liability and embedded derivative components based on the terms of the agreement. On issuance, the liability component of the hybrid financial instrument is initially recognized at the fair value of a similar liability that does not have an equity conversion option. The embedded derivative component is initially recognized at fair value and changes in the fair value are recorded in profit or loss. The host debt is carried at amortized cost using the effective interest method until it is extinguished on conversion or redemption. Any directly attributable transaction costs are allocated to the liability and embedded derivative components in proportion to their initial carrying amount.

De-recognition of financial liabilities
The Group de-recognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

19

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022
 
Note 2. Significant accounting policies (continued)

Finance costs
Finance costs attributable to qualifying assets are capitalized as part of the asset. All other finance costs are expensed using the effective interest rate method.
 
Provisions
Provisions are recognized when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognized as a finance cost.

Employee benefits
 
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled.
 
Share-based payments
Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares and restricted stock units, that are provided to employees in exchange for the rendering of services.
 
The cost of equity-settled transactions is measured at fair value on grant date. Fair value is independently determined using the Black-Scholes-Merton option pricing model and Monte-Carlo simulations which take into account the exercise price, the term of the option, the impact of dilution, the share price at grant date, expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment.
 
The cost of equity-settled transactions is recognized as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognized in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognized in previous periods.
 
Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied.

If equity-settled awards are modified, as a minimum, an expense is recognized as if the modification has not been made. An additional expense is recognized, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification.

Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.
 
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

20

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022

Note 2. Significant accounting policies (continued)
 
Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement.
 
For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data.

Issued capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
 
Earnings per share
 
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of Iris Energy Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for any bonus elements in ordinary shares issued during the financial year. The weighted average number of shares is also adjusted for any ordinary shares to be issued under mandatorily convertible instruments issued by the Group (SAFE see note 17).
 
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.
 
Goods and Services Tax (‘GST’) and other similar taxes
Revenues, expenses and assets are recognized net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognized as part of the cost of the acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
 
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.
 
New or amended Accounting Standards and Interpretations adopted
The Group has adopted all of the new or amended AASBs and Interpretations as issued by AASB that are mandatory for the current reporting period. These new standards did not have a material impact on the Group

Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The Group believes that the impact of recently issued standards or amendments to existing standards that are not yet effective will not have a material impact on the Group’s consolidated financial statements.

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

21

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022
 
Note 3. Critical accounting judgements, estimates and assumptions
 
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the consolidated financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.

Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes-Merton option- pricing model and Monte-Carlo simulations which take into account the terms and conditions upon which the instruments were granted. Management has exercised its best judgements in determining the key inputs for the valuation models used, which includes volatility, grant-date share price, expected term and the risk-free rate. Please refer to note 31 for the key assumptions.
 
Estimation of useful lives of assets
The Group determines the estimated useful lives and related depreciation and amortization charges for its property, plant and equipment. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortization charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold, will be written off or written down.
 
Impairment of non-financial assets other than goodwill
The Group assesses impairment of non-financial assets other than goodwill at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves assessing the value of the asset at FVLCOD or using VIU models, which incorporate a number of key estimates and assumptions. For the year ended 30 June 2022, the Group recorded an impairment of $167,000 on right- of-use assets held in relation to prepaid hosting fees. For the year ended 30 June 2021, the Group recorded an impairment of $432,000 on buildings and mining hardware assets.

No triggers existed at the reporting date which suggested any additional impairment of assets was necessary.
 
Deferred tax
Deferred tax assets relating to temporary differences and unused tax losses are recognized only to the extent that it is probable that the future taxable profit will be available against which the benefits of the deferred tax can be utilized. At the reporting date, deferred tax assets have only been recognized to the extent of deferred tax liabilities if they are related to the same tax jurisdiction. Deferred tax assets in relation to losses have not been recognized in the consolidated statement of financial position and will not be recognized until such time when there is more certainty in relation to the availability of future taxable profits.
 
Income tax
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. These uncertainties may require management to adjust expectations based on changes in circumstances, which may impact the amount of deferred tax assets and deferred tax liabilities recognized in the consolidated statement of financial position and the amount of other tax losses and temporary differences not yet recognized. In such circumstances, some or all of the carrying amounts of recognized deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to profit or loss or other comprehensive income/(loss).

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

22

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022
 
Note 4. Operating segments
 
Identification of reportable operating segments
The Group consists of a single operating segment, being the operation of building and operating data center sites for the purpose of Bitcoin mining and reports to the CODM on the performance of the Group as a whole.
 
Major customers
The Group generated 100% of Bitcoin mining revenues (2021: 100%) through the provision of computing power to two Bitcoin mining pools (2021: three) for the year ended 30 June 2022.
 
Note 5. Other income

   
Consolidated
 
   
Year ended
30 June 2022
   
Year ended
30 June 2021
(restated*)
 
   
US$'000
   
US$'000
 
                 
Net gain on disposal of property, plant and equipment
   
12
     
-
 
Government grants
   
-
     
165
 
Insurance recoveries
   
-
     
418
 
Proceeds from the issuance of options to Executive Directors
   
-
     
7
 
                 
     
12
     
590
 

Insurance proceeds were received during the years ended 30 June 2021 and 30 June 2020 in relation to a building fire from an adjacent property at the Group’s Canal Flats, British Columbia site in 2020.
 
Note 6. Depreciation

   
Consolidated
 
   
Year ended
30 June 2022
   
Year ended
30 June 2021
(restated*)
 
   
US$'000
   
US$'000
 
             
Depreciation of property, plant and equipment
 
7,682
   
1,209
 
Depreciation of right-of-use assets
   
59
     
43
 
                 
     
7,741
     
1,252
 
 
Note 7. Other operating expenses

   
Consolidated
 
   
Year ended
30 June 2022

   
Year ended
30 June 2021
(restated*)
 
   
US$'000
   
US$'000
 
                 
Insurance
   
5,065
     
95
 
Advertising, marketing and sponsorship
   
305
     
29
 
Office rental and expenses
   
177
     
92
 
Site expenses
   
1,644
     
170
 
Charitable donations
   
464
     
-
 
Filing fees
   
462
     
1
 
Site identification costs
   
258
     
-
 
Non-refundable sales tax
   
2,469
     
-
 
Other expenses
   
861
     
79
 
                 
Total other expenses
   
11,705
     
466
 

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

23

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022
 
Note 8. Finance expense
 
   
Consolidated
 
   
Year ended
30 June 2022
   
Year ended
30 June 2021
(restated*)
 
   
US$'000
   
US$'000
 
                 
Interest expense on borrowings
   
5,343
     
311
 
Interest expense on hybrid financial instruments
   
26,748
     
14,182
 
Interest expense on lease liabilities
   
99
     
22
 
Amortization of capitalized borrowing costs
   
2,508
     
1,968
 
Loss on embedded derivatives held at fair value through profit or loss
   
390,743
     
44,692
 
                 
     
425,441
     
61,175
 
 
Note 9. Income tax expense


 
Consolidated
 

 
Year ended
30 June 2022
   
Year ended
30 June 2021
(restated*)
 

 
US$'000
   
US$'000
 
                 
Numerical reconciliation of income tax expense and tax at the statutory rate
               
Loss before income tax expense
   
(417,046
)
   
(59,151
)
                 
Tax at the statutory tax rate of 30% (2021: 26%)
   
(125,114
)
   
(15,379
)
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:                
Non-deductible/non-allowable items
   
128,643
     
16,061
 

   
3,529
     
682
 
Current year tax losses not recognized
   
534
     
704
 
Recognition of previously unrecognized tax losses
   
(1,019
)
   
(240
)
Difference in overseas tax rates
   
203
     
(3
)
Impact of future tax rate changes
   
-
     
94
 
Current year temporary differences not recognized
   
-
     
2
 
Prior year current tax under/(over) provision
   
(523
)
   
-
 
                 
Income tax expense
   
2,724
     
1,239
 
 
   
Consolidated
 
   
Year ended
30 June 2022
   
Year ended
30 June 2021
(restated*)
 
   
US$'000
   
US$'000
 
             
Income tax expense
 

   

 
Current tax
   
672
     
532
 
Deferred tax
   
2,052
     
707
 
                 
Income tax expense
   
2,724
     
1,239
 
 
The Group’s statutory tax rate is determined by the parent entity’s statutory tax rate. Iris Energy Limited is the ultimate parent entity incorporated in Australia. For the year ended 30 June 2021, Iris Energy Limited was considered a Base Rate Entity (‘BRE’) under Australian tax legislation with a statutory tax rate of 26%. For the year ended 30 June 2022, the Group’s aggregated turnover exceeded the BRE threshold of $34,474,000 (A$50,000,000) and is therefore subject to a statutory tax rate of 30%.

*Prior period comparative information has been restated due to a voluntary change in the Group’s presentation currency from AUD to USD, refer to note 2 for further details.

24

Iris Energy Limited
Notes to the consolidated financial statements
30 June 2022

Note 9. Income tax expense (continued)

Unrecognized deferred tax assets
 

 
   
Consolidated
   
 

 
30 June 2022
   
30 June 2021
   
30 June 2020
 
   

US$’000
   
(restated*) US$’000