ALEXIUM INTERNATIONAL GROUP LIMITED ANNUAL REPORT For the Year Ended 30 June 2020 ABN 91 064 820 408 PRESENTED IN US DOLLARS TABLE OF CONTENTS Company Directory Letter from the Chair Letter from CEO Directors’ Report Declaration of Independence Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes on the Consolidated Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information 1 2 3 4 19 20 21 22 23 24 48 49 53 ALEXIUM INTERNATIONAL GROUP LIMITED COMPANY DIRECTORY DIRECTORS COMPANY SECRETARY REGISTERED OFFICE AUDITORS SHARE REGISTRY BANKERS SOLICITORS ABN Ms Rosheen Garnon Brigadier General Stephen Cheney, USMC(Ret) Mr Simon Moore Dr Paul Stenson Dr Robert Brookins Mark Licciardo and Belinda Cleminson (Appointed 1 March 2020) Maja McGuire (Resigned 29 February 2020) Level 7, 330 Collins Street Melbourne VIC 3000 Telephone: +61 8 9384 3160 Grant Thornton Audit Pty Ltd Level 17 383 Kent Street Sydney NSW 2000 Automic Registry Services Level 5, 126 Phillip St Sydney NSW 2000 Telephone: 1300 288 664 Macquarie Bank Level 23, 235 St Georges Terrace Perth WA 6000 Steinepreis Paganin Level 4, The Read Buildings 16 Milligan Street Perth WA 6000 91 064 820 408 DOMICILE AND COUNTRY OF INCORPORATION Australia LEGAL FORM OF ENTITY SECURITY EXCHANGE Listed Public Company Australian Securities Exchange Limited Home Exchange: Perth ASX Code: AJX ALEXIUM INTERNATIONAL GROUP LIMITED 1 LETTER FROM THE CHAIR Dear Shareholders, Three themes best describe this past year for Alexium and its shareholders which culminated amidst a global pandemic. Perseverance. Innovation. Advancement. Perseverance Through a collaborative approach, we were committed to adjusting our R&D, sales and other operational practices in the face of the health and economic challenges COVID-19 posed to our industry. Inside the company, we instituted new remote work/training programs and improved our facilities to create a safe working environment for our employees. Beyond our walls, we maintained steady communication and safe interaction with our customers highlighted by the launch of our redesigned website. This took a genuine commitment from everyone and I greatly appreciate the due diligence and perseverance of our team in this respect. Innovation Our culture of continuous improvement means we’re always finding new ways to provide consumers with the latest, innovative technologies in cooling and flame-retardant solutions. The recent release of the Alexicool® Phonon™ Perpetual Cooling Technology represents a major game changer in bedding and other market segments such as upholstery, medical, sporting goods, outdoor apparel/accessory and others. And the flame- retardant Alexiflam® NF Technology treatment of natural cotton removes fiberglass from mattress barriers, providing a new solution that is both sustainable and safe. Innovation developed and ready for early stage commercialisation, which includes early evaluation by existing customers, in spite of the pandemic. Advancement It’s pivotal to recognize the financial accomplishments captured in our quarterly earnings reports including the $22.3m capital raise completed in January of 2020 and repayment of $9.47m the outstanding debt (US dollars). This coupled with new commercial agreements, a strengthening sales pipeline and expanded product portfolio has Alexium well-positioned to achieve our milestones. This year I was also pleased to welcome two new members to the Board of Directors. Paul Stenson will serve as a Non-Executive Director with a wealth of experience in advanced material sciences R&D and product launches through third party distributors. Simon Moore was also named as Non-Executive Director who brings over 20 years of experience in senior private equity roles onto our team. In closing, Alexium is at the forefront of the industry reaching agreements with distributors to ensure our continued success for years to come. In my second year as Chair, it has been a privilege to oversee such a talented and dedicated team. Stay safe and healthy. Sincerely, Ms Rosheen Garnon Chair of the Board ALEXIUM INTERNATIONAL GROUP LIMITED 2 LETTER FROM THE CEO Dear Shareholders, FY2020 has been a key period for Alexium as the management team put critical pieces in place to strengthen the company for sustained future growth. To achieve this, we have focused on two key points: 1. Drive our major initiatives to success. 2. Position the company with the financial and operational resources to do this. In the annual report, you can see how we have made significant accomplishments in this regard. For our major initiatives, a number of key milestones have been achieved including: • • • Alexiflam® NF Technology Passed UL Flammability Trial: This solution provides an advanced sustainable design for flame-retardant cotton/polyester blend sock barriers that are required for foam mattresses. It’s also 100% fiberglass-free, a safer alternative that keeps fiberglass shards out of the bedroom. Alexicool® Partnership with Soft-Tex International: Reached an exclusive 2-year supply agreement with Soft-Tex to purchase Alexicool® phase-change material for bedding systems. Agreement with Pegasus Home Fashions for Alexicool® Top-of-Bed Applications: With a focus on pillows, the 2-year supply term ensures a proven distribution for Alexicool® products. These commercial achievements speak to how we have driven the growth of the company and will continue to do so in the future. To the second point, I’m pleased with our progress in strengthening the balance sheet and cash position after the mid-year capital raise. This allowed the company to eliminate the prior high-cost debt and to provide working capital for our initiatives. All of this works to drive growth of the company and realize the commercial value of Alexium’s proprietary technologies. Our entire Alexium team has the experience, confidence and strategy to drive through challenging times to meet our commercial targets, and we will continue to maintain a tight focus on costs and operations to manage our business responsibly considering the continuing economic environment. Thank you for your continued support as we embark on a new fiscal year. Sincerely, Dr. Bob Brookins Chief Executive Officer ALEXIUM INTERNATIONAL GROUP LIMITED 3 DIRECTORS’ REPORT Your Directors present their report on Alexium International Group Limited and its subsidiaries (‘Company’) for the period ended 30 June 2020. DIRECTORS The Directors of the Company in office during the period ended 30 June 2020 and until the date of this report are as follows. Directors were in office for the entire period unless otherwise stated. Brigadier General Stephen Cheney Dr Robert Brookins • Ms Rosheen Garnon • • • Mr Simon Moore (Appointed 1 February 2020) • Dr Paul Stenson (Appointed 15 June 2020) • Ms Claire Poll (Resigned 1 March 2020) PRINCIPAL ACTIVITIES The development of advanced materials where there is a market opportunity for commercialisation. During the period activities included: Research and development in consultation with end clients; • • Obtaining patents in relation to new products developed; and • Commercialisation and sales of the products. DIVIDENDS No dividend was paid during the period and the Board has not recommended the payment of a dividend (2019:nil). SHARE CAPITAL The following were on issue: Type Ordinary shares Unlisted options Outstanding warrants Performance rights 30-Jun-20 634,456,542 1,500,000 3,829,787 2,992,160 30-Jun-19 345,443,598 2,400,000 4,255,319 4,960,938 OPERATING AND FINANCIAL REVIEW Operations and Technology Review The Company’s corporate and operating activities are performed from our single facility located in Greer, South Carolina, USA. Alexium, Inc., a US formed company incorporated in 2007. The company utilizes contract manufacturers to produce finished goods; this creates a variable cost model for manufacturing overhead and allows the Company to focus efforts on product development and commercialization of high-performance products. The main product families are phase change material (“PCM”) for the bedding industry and flame retardant (“FR”) technologies for markets such as bedding, military, and workwear. Alexium has made great progress during the year in the following areas: Agreement with Pegasus Home Furnishings: The Company entered into an agreement with an initial two-year term (renewable annually after first term) to supply Alexicool® for Pegasus top of bed applications with a focus on pillows. This has been a relationship that has been ongoing since 2017. PCM applications to foam: The Company was able to leverage the development of applying Alexicool® on foam which lead to the signing of a supply agreement with Soft-Tex International as the exclusive provider of PCM for their Reactex™ technology. This success lays the foundation for penetration into the foam market. Perpetual Cooling Technology for Textile/Foam Products: The Company developed a unique cooling approach the provides never-ending comfort to consumer products. This IP protected technology marketed as Alexicool® Phonon™ is a lightweight product that has benefits of being adaptive/responsive cooling, non-flammable, non-toxic and is environmentally friendly. In contrast to PCM Technology, which works by absorbing heat, Phonon™ technology builds on this by counteracting the insulative effects of foam and textiles and constantly moving heat away from the consumer. Alexiflam® NF-treated Sock for Foam Mattresses: The Company developed an application to apply the Alexiflam® NF technology to a 100% cotton- based FR sock and passed the flammability requirements under 16 CFR 1633 as regulated by the US Consumer Product Safety Commission enabling ALEXIUM INTERNATIONAL GROUP LIMITED 4 DIRECTORS’ REPORT the commercial launch of this product line. The sock’s FR barrier properties provide protection for the highly flammable foam components. With these milestones completed the next step will be to scale up to production while introducing the product to new and existing customers. Alexiflam® FR for military uniforms: In CY 2019, the Company signed a mutually exclusive Development Agreement with Pine Belt Processing (Pine Belt), a subsidiary of Warmkraft, Inc., covering the development and potential supply of the Company’s flame-retardant chemistry for the treatment of nylon/cotton military uniforms. During the current year, the Company has actively worked towards commercial scale up of the product and application with Pine Belt in their facilities. The Company will work with Pine Belt to comply with their production requirements and to facilitate the provision of treated uniforms by Pine Belt to the US military for limited user evaluation (LUE). Commercialisation of Alexiflam® NF: The Company signed a supply and evaluation agreement for the commercialisation of Alexiflam NF® with a major flame-retardant chemical company (“Business Partner”) following an MOU announced April 4, 2019. The agreement grants access to the technology for the Business Partner to actively evaluate the potential uses with target markets of global FR cotton including workwear. The Company will market the technology in FR socks for foam mattresses, cotton fleece, and military uniforms. Financing: The Company strengthened the balance sheet and cash position by successfully executing a financing strategy of a capital raise combined with a convertible loan. The strategy raised a total of A$22.3M that was used to pay off an existing loan of US$9.5M (circa A$14.0M). The balance of the proceeds after capital raise costs are to be used as working capital to fund the growth of the company. The Company also obtained $0.5M loan from the US CARES act Paycheck Protection Program which is expected to forgivable based on the submission of qualifying expenses. COVID-19: With the unexpected development of the COVID-19 global pandemic, the safety and security of our employees and stakeholders became a top priority. By implementing safety protocols at the onset of the outbreak, the Company was able to respond to the unique circumstances and provide a safe working environment while continuing to serve our customers and work with our contract manufacturers and suppliers. The financial impact of COVID-19 was focused in the fourth quarter. As local governments enacted shelter in place orders for non-essential services in early April, manufacturing plants ceased operation and product orders slowed. A rebound in sales began in May and continued into June which represented near normal return to revenue as our customers began ramping up production. Revenue and gross profit for the quarter amounted to 20.7% and 19.7% of their respective annual totals. Operationally, the Company was able to maintain headcount throughout the fourth quarter. Travel restrictions and cancellation of industry conferences reduced travel expenses for the quarter and are expected to remain in place into the near future. Other fixed operating costs remained flat to down over the affected quarter as management continued to manage costs. Management has taken a multifaceted approach to reviewing the balance sheet for COVID-19 related asset impairment. In estimating the recoverable amount of intangible assets as part of impairment testing, management has considered any potential impacts. The results of our assessment indicate that assets are not held at amounts higher than the recoverable amount. Further, no expected credit losses are recognised, and year end customer receivables are considered fully collectable. In response to the unprecedented risk of economic injury, governments worldwide extended various stimulus packages to support businesses. In Australia, the “Boosting Cash Flow for Employers” program provided up to $100,000 to eligible small and medium sized businesses in the form of a credit on BAS filings. The company was able to participate in this program and anticipates continued program credits for three quarters after year end. In the US, the “CARES Act” provided low interest loans to support continued employment levels. The Company was granted a loan in the amount of $460,352 funded by the Small Business Administration which is designed to be up to 100% forgivable when the funds are used for program qualifying costs. The Company anticipates full forgiveness of this loan. As we monitor the industries served, the Company has not seen any major impacts after the initial downturn in revenue in the fourth quarter. Manufacturing in the bedding industry shows continuing activity and momentum with indications that there may be shift from traditional brick and mortar sales channels to online retail. We do not expect changes in the US military’s initiative for widening use of FR to service members. Financial Result Overview The Company’s net loss attributable to members of the Company for the financial year ended 30 June 2020 was $6,125,476 (2019: $6,939,521). This represents a 12% decrease in net loss over the prior period. The primary drivers behind this are described below. Revenues from ordinary operating activities were up 20% from the prior year at $6,078,857 (2019: $5,059,039) as the Company continued to focus on development and expansion of the Alexicool® product line. Along with the increase in revenue the company experienced an improvement in gross profit for the period which was $2,313,099 (2019: $1,605,742) representing an average gross margin percentage across all lines of business of 38% (2019: 32%). Operating costs decreased 22% to $5,025,347 from $6,408,915 by continued stewardship of expenditures through controls and processes. As at 30 June 2020 the cash position was $4,741,251 (2019: $3,843,343). An improved cash position and balance sheet structure was achieved through a capital raise / new term loan mid-year that allowed the company to pay off a high cost loan in late December. The company was also able to obtain $460,352 loan from the US CARES act Paycheck Protection Program. ALEXIUM INTERNATIONAL GROUP LIMITED 5 DIRECTORS’ REPORT Material Business Risks The Company has identified the below specific risks which could impact upon its prospects: Maintaining strong intellectual property position: Product innovation is key to the Company's business model, thus maintaining a strong intellectual property position is critical. To ensure this, the Company is attentive to developing next-generation products that are not only well-differentiated in the market but are also inventive and meet market needs. Maintaining a well-educated and highly experienced technical staff will continue to be a focus for the Company. Competition in key markets: The Company has worked diligently on its PCM-based products to ensure that market competition is well understood and that the Company’s product portfolio adequately responds to these competitors. This response includes: • Effective pricing strategies and product innovation; • Analytical tools and methods that objectively demonstrate the value of the Company’s products versus competitor’s; and • Identification of market gaps where current commercial technologies are not effective Sufficient capital for achieving profitability: The Company monitors and manages its resources to ensure there is sufficient capital for achieving profitability. Based on the Company’s budget, the Board is confident that the Company’s revenue forecasts, commercial pipeline, and funding options will ensure that the Company is sufficiently capitalised for the upcoming twelve months. Commercial risks due to market dynamics: Beyond threats from competitors, the Company identifies changes in the markets themselves as potential risks, and they are working to mitigate these risks through diversification of its product portfolio, customer driven product innovation, and building a broader customer base. Covid-19 Impact: COVID-19 presents business challenges due to the uncertainty of long-term impact to consumer spending and potential supply- chain disruption in the bedding related Industry. The Company is proactively managing the circumstances as it evolves to protect employees and stakeholder’s interests. Likely Developments During the reporting period, the Company continued to capitalise on the work and developments over the past several years which have positioned Alexium well in terms of its initiatives. In FY2021, Alexium is committed to: • Continued expansion of Alexicool® FM into bedding products; • initiate limited user evaluation of FR NyCo technology for military uniforms; • Develop key partnerships for commercialization of Alexiflam® NF; • First revenues from Alexiflam® FR Sock • Increased expansion of revenue outside of the US. • Significant growth of the Company’s revenue; • Achieving positive EBITDA; and • Ensuring a financially strong and stable business through detailed planning, responsible management and transparency of strategy and outcomes. The Company’s business strategies to achieve the above goals include: • Leveraging market position and Company resources for greater market penetration; • Strengthening and maintaining key relationships supporting the Company’s initiatives; and • Applying a disciplined and conservative approach to expenditure relative to sales growth. EVENTS SINCE THE END OF THE FINANCIAL PERIOD There has not arisen any item, transaction or event of a material and unusual nature; which in the opinion of the Directors is likely to significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. No other significant event has occurred since the end of the financial year that may have a significant impact on the financial position of the Company. ENVIRONMENTAL REGULATIONS The Company’s operations are currently located solely in the United States, and as such are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory in Australia. The Directors have considered compliance with the National Greenhouse and Energy Reporting Act 2007 which requires entities to report annual greenhouse gas emissions and energy use. ALEXIUM INTERNATIONAL GROUP LIMITED 6 DIRECTORS’ REPORT US Laws concerning the environment that affect or could affect our operations include, among others, the Clean Water Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, regulations promogulated under these Acts, and any other federal, state or local laws or regulations governing environmental matters. We believe that we are in compliance with these laws and that future compliance will not materially affect our earnings or competitive position. A key focus of the Company’s product portfolio is the environmentally friendly nature of its products. With this, the Company can ensure that the environmental impact by its customers products are minimal and acceptable. Additionally, the Company’s manufacturing partners are selected in part based on their adherence to established environmental standards as well as compliance with manufacturing standards such as ISO 9001. For the period ended 30 June 2020, the Board is not aware of any breach of applicable environmental regulations by the Company. CORPORATE GOVERNANCE STATEMENT The documents that govern the Company’s corporate governance framework, including its Constitution, charters and polices are available in the Corporate Governance section on the Company’s website - www.alexiuminternational.com/about/#corpGov INFORMATION ON DIRECTORS The names of the Directors holding office during the period ended 30 June 2020 are set out below, together with details of Directors’ experience, qualifications, special responsibilities, and other company directorships during the past three financial years. Ms Rosheen Garnon Ms Garnon has been an independent Non-Executive Director of the Company since 19 September 2018. She was appointed Non-Executive Chair of the Board of Directors on 31 March 2019. Experience: Ms Garnon has had a distinguished career in the accounting profession as a chartered accountant and taxation advisor. She was a senior partner with KPMG and held senior executive leadership roles with the firm in Australia and at a global level. Ms Garnon was a member of the KPMG Australian Executive Leadership Team for 6 years as the National Managing Partner for the Taxation Division. She has extensive experience of working with Boards and C Suite executives. Ms Garnon is a Non-Executive Director of Australian Rail Track Corporation, a Non-Executive Director of Resolution Life Australia, and a Trustee of the Sydney Cricket and Sports Ground Trust. She is Chair of the Board of Taxation, an independent advisory board, that advises the Federal Treasurer and the Assistant Treasurer on Australia’s taxation policy. Her not for profit and volunteer roles include a Non-Executive Director of The Smith Family; a Non-Executive Director of Creative Partnerships Australia; Member of the Finance, Audit and Risk Committee, The University of Sydney and a Non- Executive Director of Women Corporate Directors. Ms Garnon’s qualifications include a Bachelor of Economics (Accounting Major) and Bachelor of Laws from the Australian National University. She is a Fellow of Chartered Accountants in Australia and New Zealand, a Chartered Tax Advisor, and a Graduate of the Australian Institute of Company Directors. Qualifications: BEc (Accounting major), LLB, FCA, CTA, GAICD Other directorships during the last 3 financial years: Company Resolution Life Australia Pty Limited Australian Rail Track Corporation The Smith Family Australian Business Arts Foundation Limited trading as Creative Partnerships Australia Women Corporate Directors Limited Residence: Ms Garnon is an Australian resident and resides in Sydney, New South Wales. Commenced Nov-19 Nov-18 Feb-19 May-13 2012 Ceased Current Current Current Current Current Brigadier General Stephen Cheney General Cheney has been an independent Non-Executive Director of the Company since 15 April 2015. General Cheney is the Chairman of the Nomination and Remuneration Committee and a member of the Audit Committee and Risk Committee. Experience: General Cheney is the former Inspector General of the Marine Corps and Commanding General of Parris Island Marine Base. He is also the former Deputy Executive Secretary to US Defence Secretary Dick Cheney under President George H.W. Bush. General Cheney sat on Secretary of State John Kerry’s Foreign Affairs Policy Board and is and is the President of the Washington D.C. based 501(C)3 policy group The American Security Project as well as President of their 501(C)(4) company The American Security Action Fund. Qualifications: USMC (ret) ALEXIUM INTERNATIONAL GROUP LIMITED 7 DIRECTORS’ REPORT Other directorships during the last 3 financial years: Company American Security Project The American Security Action Fund Commenced 2007 2017 Ceased Current Current Mr Simon Moore Mr Moore has been an independent Non-Executive Director of the Company since January 2020 and is currently Chair of the Audit Committee and a member of the Nomination and Remuneration Committee and the Risk Committee. Experience: Mr Moore is the Senior Partner of investment firm, Colinton Capital Partners. Prior to establishing Colinton Capital Partners in 2017, Mr Moore was a Global Partner of The Carlyle Group having established their operation in Australia in 2005. In his time at The Carlyle Group, he oversaw the Firm’s investments in and served on the Boards of Directors of Coates Hire, Healthscope and Qube. Mr Moore’s qualifications include a Bachelor of Commerce (Hons) and a Bachelor of Laws (Hons) from the University of Queensland Qualifications: BComm (Hons); LLB (Hons) University of Queensland, Brisbane, Australia. Other directorships during the last 3 financial years: Company Palla Pharma - Chairman AMA Group – Deputy Chairman Megaport – Deputy Chairman FirstWave Cloud Technology – Non-executive Director Commenced Jul-16 Nov-18 Nov-14 Feb-17 Ceased Current Current Sep-19 Aug-19 Residence: Mr Moore is an Australian resident and resides in Sydney, New South Wales. Dr Paul H. Stenson Dr Stenson has been an independent Non-Executive Director of the Company since 15 June 2020. Dr Stenson if the chair of the Risk Committee and a member of the Audit Committee and Remuneration Committee. Experience: Dr Stenson has a distinguished career with the research, development, manufacture, and commercialization of new materials in the fields of coatings, adhesives, nonwovens, and pharmaceuticals. Dr Stenson has been President and CEO of StanChem Inc. since January 2018. StanChem Inc. comprises two companies – StanChem Polymers which is a manufacturer of water-based polymers for the coatings and adhesives industries, and Albi Protective Coatings which focuses on the specialty sector of fire protective intumescent paints. Prior to joining StanChem in 2017, Dr Stenson worked as a global technology director at Axalta Coating Systems. Between 2011 and 2016, Dr Stenson was the executive vice president of technology and product development at Ahlstrom for nonwoven and specialty high performance paper products. Prior to joining Ahlstrom, Dr Stenson was the vice president of technology for industrial and packaging coatings at Valspar based in Minneapolis and Zurich, Switzerland from 1993 until 2011. Dr Stenson is also the chairman of TopChem Pharmaceuticals (Ireland) which is a manufacturer of active pharmaceutical ingredients. Dr Stenson earned a PhD in chemistry from University College Dublin, Ireland in 1986 and studied at Institute Chimie Substances Naturelles - Paris, France. Qualifications: BSc (Science), PhD (Chemistry). Other directorships during the last 3 financial years: Company TopChem Pharmaceuticals (Ireland) Limited StanChem Holdings LLC Commenced Jul-09 Jul-17 Ceased Current Current Residence: Dr Stenson is a citizen of Ireland and the USA and resides in Connecticut, USA Dr Robert Brookins Dr Brookins was appointed as the Company’s Chief Executive Officer and Managing Director on 13 July 2018. ALEXIUM INTERNATIONAL GROUP LIMITED 8 DIRECTORS’ REPORT Experience: Dr Brookins has more than 15 years of experience in organic synthesis and materials chemistry. He received his PhD from the University of Florida in the areas of synthesis and characterisation of conjugated polyelectrolytes and polymers with an emphasis on developing new polymerisation methods. Upon completion of his PhD, he worked at the US Air Force Research Laboratory at Tyndall AFB, FL where he developed decontamination methods for chemical and biological threats and developed novel synthetic routes for reactive and functional surfaces. In 2010, Dr Brookins joined Alexium where he and his team pioneered new classes of flame retardants for key textile markets. Additionally, his research focuses on phase change materials, particularly novel application methods and analytical tools. Dr Brookins has been instrumental in the research and development of the Company’s innovative technologies. Dr Brookins led the development and commercialisation of Alexium’s phase change material (PCM) platform technologies and the Alexicool® product line, which is the foundation of the Company’s success in the bedding and top-of-bed markets. Dr Brookins has, during his 8 years with the Company, been involved in multiple facets of the business, including working with customers on product design and marketing, analysing markets to assess opportunities, and planning for logistics and supply-chain management. In addition, Dr Brookins co-invented Alexium’s flame retardant (FR) technologies for military uniforms and formaldehyde-free, flame retardant products for cotton-based materials. Dr Brookins has been immersed in the operations and strategy of the business and has gained significant experience working within the senior leadership team of the Company. Qualifications : PhD, M.A.E. BA, BSc Other listed directorships in the past 3 financial years: N/A Other directorships in the past 3 financial years: N/A Residence: Greer, South Carolina, USA Other Directors in office during the reporting period: Director Ms Claire Poll Office held Non-Executive Chair Commenced 11-Dec-17 Ceased 1-Mar-20 Ms Claire Poll Ms Claire Poll is an experienced corporate director over the past 20 years having led strategy and corporate development for start-up technology companies through to large multibillion-dollar companies in Australia, the United Kingdom (UK) and more recently the United States (US). Ms Poll, who originally qualified as a solicitor in Western Australia, has worked as a non-executive director, corporate executive and general counsel in private and public listed companies in the US, UK and Australia in the areas of venture capital, mobile satellite communications, information technology and biopharmaceuticals. Ms Poll started her corporate career with Burns Philp & Co, Limited, the diversified global company involved in food manufacturing, shipping, and general trading. Ms Poll is a founding executive of Nasdaq and AIM listed Verona Pharma plc (AIM: VRP; Nasdaq: VRNA) and a non-executive director of Landgate. COMPANY SECRETARY Mr Mark Licciardo and Ms Belinda Cleminson, both of Mertons Corporate Services Pty Ltd were appointed as Joint Company Secretaries effective 1 March 2020 following the resignation of Ms Maja McGuire also effective 1 March 2020. Mertons was established in 2007 by Mr Licciardo as a specialist corporate governance and company secretarial consultancy. His 35-year corporate career has encompassed executive roles in banking, finance, funds management, investment, and infrastructure development. Ms Cleminson has had a 17-year career providing outsourced company secretarial services to a variety of public and private companies. MEETINGS OF DIRECTORS The number of meetings of the Company’s Board of Directors and of each Board committee held during the reporting period ended 30 June 2020, and the number of meetings attended and number of meetings applicable based on appointment/resignation date for each Director were: Directors Board of Directors Audit & Risk Committee1 Audit Committee Risk Committee Remuneration & Ms Garnon Mr Cheney Mr Moore Dr Stenson Dr Brookins Ms Poll 26/26 25/26 6/6 - 26/26 21/22 2/2 2/2 - - - 2/2 3/3 3/3 2/2 - - 2/2 3/3 3/3 3/3 - - - (1) Audit & Risk Committee was organized into separate committees beginning in August 2019 The Board and committees meet regularly on an informal basis in addition to the above meetings. Nomination Committee 4/4 4/4 2/2 - - 2/2 ALEXIUM INTERNATIONAL GROUP LIMITED 9 DIRECTORS’ REPORT - REMUNERATION REPORT REMUNERATION REPORT - AUDITED The information provided in this Remuneration Report has been audited as required under section 308(3C) of the Corporations Act (Cth). A. Key Management Personnel (‘KMP’) For the purposes of this report personnel deemed KMP at any time during the reporting period ended 30 June 2020 are: Name Position Appointed Resigned Ms Rosheen Garnon Brigadier General Stephen Cheney Mr Simon Moore Dr Paul Stenson Ms Claire Poll Dr Robert Brookins Mr Jason Lewis Mr Allen Reihman Non-Executive Chair Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer Chief Financial Officer Chief Commercial Officer 01-Feb-20 15-Jun-20 01-Mar-20 B. Remuneration Policy The objective of the Company’s remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered and set to attract and retain suitably qualified and experienced candidates. The Remuneration and Nomination Committee continuously monitors the remuneration framework with a goal of ensuring that remuneration is aligned with performance and the creation of value for shareholders. The Company’s remuneration framework aims to ensure that: • • • • • Rewards reflect the competitive global market in which the Company operates; Incentive remuneration is linked to KPI’s, which are designed to encourage behaviours that are short, medium and long term in nature; Rewards to executives are linked to the creation of value to shareholders; Executives are rewarded for both financial and non-financial performance; and Remuneration arrangements ensure equity between executives and facilitate the deployment of human resources. The Board seeks independent advice on remuneration policies and practices. In accordance with best practice corporate governance, the structure of Non-Executive and Executive remuneration is separate and distinct. Remuneration Committee responsibilities are carried out by Brigadier General Cheney (Chair), Ms Garnon, Mr Moore and Dr Stenson. Non-Executive Director Remuneration Policy Fees and payments to the Non-Executive Directors reflect the demands which are made on and the responsibilities of the Directors. The Non- Executive Director’s fees and payments are reviewed by the remuneration committee to ensure they are appropriate and in line with the market. Non-Executive Directors receive a fixed fee for service. The Non-Executive Directors’ fees are determined within an aggregate director’s’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum currently stands at $375,000 per annum and was approved by shareholders at the 2016 Annual General Meeting. No retirement benefits are provided other than compulsory superannuation. Executive Remuneration Policy The Company’s Managing Director and Executives remuneration packages contain the following key elements: • Primary benefits – base salary, short-term incentives, pension contributions and medical benefit plan for US based executives. • Equity – performance rights and shares under the Company’s Performance Rights Plan and Incentive Share Plan External remuneration information provides benchmark information to ensure remuneration is set to reflect the market for a comparable role. Base fees are reviewed annually to ensure the level is competitive with the market. There is no guaranteed salary increase included. ALEXIUM INTERNATIONAL GROUP LIMITED 10 DIRECTORS’ REPORT - REMUNERATION REPORT C. Remuneration Governance The Remuneration Committee is a committee of the Board. It is primarily responsible for: • Reviewing and approving the executive remuneration policy to attract and retain executives and Directors who will create shareholder value; • Ensuring that the executive remuneration policy demonstrates a clear relationship between key executive performance and remuneration; • Recommending to the Board the remuneration of executive and non-executive Directors; • Fairly and responsibly rewarding executives having regard to the performance of the Company, the performance of the executive and the prevailing remuneration expectations in the market; • Reviewing the Company’s recruitment, retention and termination policies and procedures for senior management; • Reviewing and approving the remuneration of direct reports to the Chief Executive Officer/Managing Director, and as appropriate other senior executives; and • Reviewing and approving any equity-based plans and other incentive schemes. The Corporate Governance Statement provides further information on this Committee. D. Consequence on Shareholder Wealth In considering the performance of the Company and the benefits for shareholder wealth, the Remuneration Committee has regard to a range of indicators in respect of senior executive remuneration and have linked these to the previously described short- and long-term incentives. The following table presents these indicators over the past five financial years: Net profit/ (loss) Dividends declared Share price as at 30 June (A$) EPS (cents) 2020 2019 2018 2017 20161 (6,125,476) (6,939,521) (3,691,119) (9,136,923) (10,912,499) Nil 0.060 (1.26) Nil 0.155 (2.01) Nil 0.120 (1.22) Nil 0.560 (3.03) Nil 0.700 (4.93) (1) Net loss for fiscal year 2016 was originally reported in AUD. These totals reflect the USD equivalent at the average exchange rate for the year ALEXIUM INTERNATIONAL GROUP LIMITED 11 DIRECTORS’ REPORT - REMUNERATION REPORT E. Details of Remuneration Short-term incentive plans paid as a cash bonus were awarded on 30 June 2020 for the achievement of a range of financial and non-financial corporate objectives during the current fiscal year. The percentage of bonus granted for all KMP’s was 20% and 80% was forfeited due to not meeting performance criteria, including: a. Financial – EBITDA and cash improvements targets b. Non-Financial - Securing supply contracts and licensing agreements with key partners and new product commercialization c. Shareholder Value – increase in share price Details of the remuneration of the KMP of the Company is set out below: Short-term benefits Share-based payments Salary and fees Non- Monetary benefits Bonus1 Other Performance Rights 2 Shares in lieu of salary 3 Super- annuation Other Benefits Long- term benefits Termination Benefits Performance based % of Total Total 2020 Non-Executive Directors Ms Garnon BGen Cheney Mr Moore Dr Stenson Ms Poll4 Total 72,777 49,637 29,166 2,916 47,290 201,786 - - - - - - - - - - - - Managing Director Dr Brookins 314,269 15,953 18,900 Total 314,269 15,953 18,900 Executives Mr Lewis Mr Reihman Total Total 264,039 15,953 15,900 232,692 12,779 9,320 496,731 28,732 25,220 1,012,786 44,685 44,120 - - - - - - - - - - - - - - - - - - 30,068 19,944 - - - 10,154 - - - - 50,012 10,154 42,767 42,767 23,738 22,071 45,809 - - - - - - - - - - 88,576 50,012 10,154 - - - - - - - - - - - - - - - - - - - - - - - - 112,999 69,581 29,166 2,916 47,290 261,952 0.0% 0.0% 0.0% 0.0% 0.0% 391,889 15.7% 391,889 12.4% 11.3% 319,630 276,862 596,492 1,250,333 (1) Short-term incentive plans paid as a cash bonus were awarded on 30 June 2020 for the achievement of a range of financial and non-financial corporate objectives during the current fiscal year. The percentage of bonus granted for all KMP’s was 20% and 80% was forfeited due to not meeting all of the performance criteria, including: a. Financial – EBITDA and cash improvements targets b. Non-Financial - Securing supply contracts and licensing agreements with key partners and new product commercialization c. Shareholder Value – increase in share price (2) Performance Rights Plan details are found at Note 16 (3) Shares granted to directors in lieu of salary included $12,705 of total shares awarded under the FY 19 performance rights plan approved by shareholder at the 2018 AGM, and $37,307 approved by shareholders at the 2019 AGM but are not under a performance rights plan (4) Resigned 1 March 2020 ALEXIUM INTERNATIONAL GROUP LIMITED 12 DIRECTORS’ REPORT - REMUNERATION REPORT Short-term benefits Share-based payments Other Benefits Salary and fees Non- Monetary benefits Bonus3 Other Performance Rights1 Shares in lieu of salary2 Super- annuation Long-term employee benefits Termination Benefits Total Performance based % of Total 2019 Non-Executive Directors Ms Garnon BGen Cheney Ms Poll Ms Thomas Mr Metz Ms Thurman Total Managing Director 39,021 57,068 57,208 26,250 24,194 22,333 226,074 - - - - - - - - - - - - - - 2,742 - - 115,4264 - - 118,168 - - - - - - - 21,750 14,183 - 52,500 - - 3,758 - - - - - 88,433 3,758 Dr Brookins 305,001 10,231 71,040 Total 305,001 10,231 71,040 - - 83,794 83,794 67,271 71,251 57,208 194,176 24,194 22,333 436,433 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 470,066 470,066 32.9% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Executives Mr Lewis Mr Reihman Mr Krech7 Total Total 166,154 10,630 38,400 48,0005 164,423 46,282 8,585 2,688 36,000 50,2226 - - 15,440 14,475 - 376,859 21,903 74,400 98,222 29,915 907,934 32,134 145,440 216,390 113,709 88,433 3,758 278,624 273,705 80,876 129,846 80,876 682,175 80,876 1,588,674 19.3% 18.4% 0.0% (1) Performance Rights Plan details are found at Note 16 (2) Rights granted to directors in lieu of salary have vested at 30 June 2019 but not been issued as at that date (3) Short-term incentive plans paid as a cash bonus were awarded on 30 June 2019 for the achievement of a range of financial and non-financial corporate objectives during the current fiscal year. The percentage of bonus granted for all KMP’s was 80% and 20% was forfeited due to not meeting all of the performance criteria. Performance criteria included; d. Financial - EBIT and revenue growth within key partners e. Non-Financial - Securing supply contracts and licensing agreements with key partners (4) Executive remuneration as permitted under section 13.9 of the Constitution was payable to Susan Thomas for services performed in addition to her role as Non- Executive Chair on behalf of the Company. This work was required during this transition of the Company in relation to business plans, review of the Company’s skills matrix, and development of new financial models. These fees are in line with market comparable rates and due to the short-term nature of this work, the Board were of the view that it was more appropriate to manage through additional fees rather than create an Executive Chair position. (5) Sign-on bonuses awarded after six months of service equivalent to 20% of annual salary (6) Relocation reimbursement and sign-on bonuses awarded after six months of service equivalent to 20% of annual salary (7) Resigned 30 September 2018 F. Service Agreements On appointment, the Non-Executive Directors enter into an agreement with the Company in the form of a letter of appointment. The letter outlines the Board’s policies and terms, including remuneration relevant to the office of director. Non-Executive directors are compensated for their contributions to the board and any committees they lead or serve. These agreements can be terminated without cause by either party at any time. The Company has also entered into service agreements with executives, which contain standard terms and conditions for agreements of this nature, including confidentiality restraint on competition and intellectual property provisions. These agreements may be terminated by six months’ notice by either party, or earlier in the event of certain breaches of the terms and conditions. The Company may at its sole discretion terminate the employment without cause by giving six months written notice or make a payment of 6 months’ salary in lieu of notice. Remuneration is reviewed annually and approved by the Board of Directors and includes potential short-term and long-term incentive opportunities as well as salary and other benefits. ALEXIUM INTERNATIONAL GROUP LIMITED 13 DIRECTORS’ REPORT - REMUNERATION REPORT G. Share-based Compensation Performance Rights KMP were issued or are entitled to the following share-based remuneration during the reporting period: o 948,152 Performance Rights (2019: 2,283,464) with a value of $31,811 (2019: $217,868) were granted o 995,064 Performance Rights (2019: 966,610) with a value of $88,576 (2019: $113,709) vested o Nil were forfeited (2019: 25,128) with a value of nil (2019: $7,813) The valuation of performance rights granted and vested to KMP is detailed below: Managing Director Dr Brookins Total Managing Director Executives Mr Lewis Mr Reihman Mr Krech Total Executives Total KMP 2020 2019 Granted ($) Vested ($) Forfeited ($) Granted ($) Vested ($) Forfeited ($) 14,046 14,046 42,767 42,767 9,453 8,312 - 17,765 31,811 23,738 22,071 - 45,809 88,576 - - - - - - - 128,123 128,123 83,794 83,794 - - 46,320 43,425 - 89,745 217,868 15,440 14,475 - 29,915 113,709 - - (7,813) (7,813) (7,813) The number of performance rights held during the reporting periods to KMP including their personally related parties is set out below: 2020 Managing Director Dr Brookins Total Managing Director Executives Mr Lewis Mr Reihman Total Executives Total KMP 2019 Managing Director Dr Brookins Total Managing Director Executives Mr Lewis Mr Reihman Mr Krech Total Executives Total KMP Balance at start of year Granted Issued Forfeited Balance at end of year Vested- not issued 1,282,584 1,282,584 418,654 418,654 (619,262) (619,262) 537,829 504,215 1,042,044 2,324,628 281,761 247,737 529,498 948,152 (179,277) (168,072) (347,349) (966,611) Balance at start of year Granted Issued Forfeited - - - - - - - - 1,081,976 1,081,976 471,214 471,214 640,313 583,880 1,224,193 2,306,169 273,198 250,652 523,850 995,064 Balance at end of year Vested-not issued 1,282,584 1,282,584 619,262 619,262 41,164 41,164 1,241,420 1,241,420 - - 25,128 25,128 66,292 537,829 504,215 - 1,042,044 2,283,464 - - - - - - - - - (25,128) (25,128) (25,128) 537,829 504,215 - 1,042,044 2,324,628 179,277 168,072 - 347,348 966,610 ALEXIUM INTERNATIONAL GROUP LIMITED 14 DIRECTORS’ REPORT - REMUNERATION REPORT Number of Performance rights granted during 2020: Executives Dr Brookins Mr Lewis Mr Reihman Granted Grant Date Vesting Date Expiry Date FV per Right at Grant Date 418,654 281,761 247,737 25-Feb-20 25-Feb-20 25-Feb-20 Various Various Various 25-Feb-23 25-Feb-23 25-Feb-23 0.050 0.050 0.050 The performance rights vest equally over a three-year schedule beginning 30 June 2020 and include a service obligation through the vesting date. Rights will be exercised at nil cost in the quarter following the vesting date. Options: No options were granted to directors during the reportable financial years. The movement in the number of options held by the KMP’s, including their personally related parties, are set out below: 2020 Non-Executive Directors BGen Cheney Total Directors Total KMP 2019 BGen Cheney Mr Metz Total Directors Total KMP Balance at start of year Granted Exercised Other Changes Balance at end of year Vested and exercisable 750,000 750,000 750,000 750,000 750,000 1,500,000 1,500,000 - - - - - - - - - - - - - - - - - - - - - 750,000 750,000 750,000 750,000 750,000 750,000 750,000 750,000 1,500,000 750,000 750,000 1,500,000 1,500,000 1,500,000 ALEXIUM INTERNATIONAL GROUP LIMITED 15 DIRECTORS’ REPORT - REMUNERATION REPORT Shares: The value of shares issued or agreed to be issued in lieu of salary during the year was $50,012 (2019: $88,433) which was calculated based on an issue price of AUD$0.1374 and was approved at the 2019 Annual General Meeting on 10 October 2019. The issue price represents volume weighted average closing price of shares on ASX in the fourteen trading days prior to 13 September 2019. The movement in the number of shares held by the KMP, including their personally related parties, are set out below: 2020 Non-Executive Directors Ms Garnon BGen Cheney Mr Moore Ms Poll Total Directors Managing Director Dr Brookins Total Managing Director Executives Mr Lewis Mr Reihman Total Executives Total KMP Balance at start of year Granted as remuneration in lieu of salary Received on conversion of performance rights Received on exercise of options 227,159 219,225 - 28,572 474,956 3,120,000 3,120,000 - - - 3,594,956 312,344 203,023 - - 515,367 - - - - - - - 619,262 619,262 - - - 515,367 179,277 168,072 347,349 966,611 - - - - - - - - - - - Other changes1 Balance at end of year 1,666,667 - 71,145,234 333,333 73,145,234 2,206,170 422,248 71,145,234 361,905 74,135,557 980,400 980,400 4,719,662 4,719,662 - - - 74,125,634 179,277 168,072 347,349 79,202,568 (1) Shares purchased during the reporting period capital raise by individual or related parties 2019 Non-Executive Directors Ms Garnon BGen Cheney Ms Poll Ms Thomas Mr Metz Ms Thurman Total Directors Managing Director Dr Brookins Total Managing Director Executives Mr Krech Total Executives Total KMP Granted during year as remuneration in lieu of salary Received during year on conversion of performance rights Received during year on exercise of options Balance at start of year Other changes during year Balance at end of year - 71,572 28,572 285,715 28,572 14,286 428,717 227,159 147,653 - 546,602 - - 921,414 3,162,240 3,162,240 - - 80,000 80,000 3,670,957 - - 921,414 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 227,159 219,225 28,572 832,317 28,572 14,286 1,350,131 (42,240) (42,240) 3,120,000 3,120,000 - - (42,240) 80,000 80,000 4,550,131 ALEXIUM INTERNATIONAL GROUP LIMITED 16 DIRECTORS’ REPORT - REMUNERATION REPORT H. Additional Disclosures Relating to KMP The interests of the Directors and other KMP of the Company in the shares and options is set out below: Non-Executive Directors Ms Garnon BGen Cheney Mr Moore Ms Poll Total Directors Managing Director Dr Brookins Total Managing Director Executives Mr Lewis Mr Reihman Total Executives Total Directors and Executives I. Loans to KMP No. of ordinary shares No. of performance rights No. of options over ordinary shares 2,206,170 422,248 71,145,234 361,905 74,135,557 - - - - - - 750,000 - - 750,000 4,719,662 4,719,662 1,081,976 1,081,976 - - 179,277 168,072 347,349 79,202,568 640,313 583,880 1,224,193 2,306,169 - - - 750,000 No loans have currently been provided to KMP of the Company. THIS IS THE END OF THE AUDITED REMUNERATION REPORT ALEXIUM INTERNATIONAL GROUP LIMITED 17 DIRECTORS’ REPORT SHARES UNDER OPTION/WARRANT As at the date of this report there were 5,329,787 unlisted options and warrants (2019 – 6,665,319). Details of these options are as follows: Date Options Granted 01-Oct-15 31-Dec-19 Expiry Date 30-Sep-20 29-Mar-23 Exercise price of shares A$ 0.75 A$ 0.06 Total No. under options 1,500,000 3,829,787 5,329,787 No option/warrant holder has any right under the options/warrants to participate in any other share issue of the Company or any other entity. The options/warrants are exercisable at any time after vesting and on or before the expiry date. Refer to Note 16 for details of the movements of the options during the year and ASX announcements for options exercised subsequent to the year end and to the date of this report. The Company has granted 1,259,482 (2019: 2,956,744) performance rights for the reporting period. These rights have been allocated to staff based on the rules set forth in the performance rights plan. INSURANCE OF OFFICERS During the reporting period, the Company paid a premium in respect of a contract ensuring the Directors and Officers of the Company against a liability incurred as a Director or Officer to the extent permitted by the Corporations Act 2001 (Cth). Due to a confidentiality clause in the policy, the amount of the premium has not been disclosed. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Company, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a willful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 (Cth) for leave to bring proceedings on behalf of the economic entity, or to intervene in any proceedings to which the entity is a party, for the purpose of taking responsibility on behalf of the entity for all or part of those proceedings. No proceedings have been brought or intervened in or on behalf of the entity with leave of the Court under section 237 of the Corporations Act 2001 (Cth). ROUNDING OFF AMOUNTS Amounts in the financial statements and Directors’ report are presented in US dollars and all values are rounded to the nearest dollar, unless otherwise stated. INDEMNITY OF AUDITORS The Company has agreed to indemnify their auditors, Grant Thornton Audit Pty Ltd, to the extent permitted by law, against any claim by a third party arising from the Company’s breach of their agreement. The indemnity stipulates that Alexium will meet the full amount of any such liabilities including a reasonable amount of legal costs. NON-AUDIT SERVICES The Company’s auditor, Grant Thornton Audit Pty Ltd corporate tax group has provided services to the Company beginning with the tax year ending 30 June 2020. The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 (Cth) is attached. This report is made in accordance with a resolution of the Directors. Rosheen Garnon Chair Dated 28 August 2020 ALEXIUM INTERNATIONAL GROUP LIMITED 18 DECLARATION OF INDEPENDENCE ALEXIUM INTERNATIONAL GROUP LIMITED 19 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 June 2020 Revenue Cost of sales Gross Profit Administrative expenses Sales and marketing expenses Occupancy expenses Research and development costs Other expenses Operating expenses Loss before finance costs Interest expense Loss on debt extinguishment Gain / (Loss) on embedded derivative Interest received Total finance costs Loss before tax Tax expense Loss for the year after tax Other comprehensive income - Exchange differences on translation of foreign operations which may subsequently be reclassified to profit or loss Total comprehensive loss for the year Loss for the year attributable to members of the group Total comprehensive loss for the year attributable to members of the group Note 3 4 15 15 3 7 2020 2019 US$ 6,078,857 (3,765,758) 2,313,099 (3,000,901) (935,575) (553,061) (353,285) (182,525) (5,025,347) US$ 5,059,039 (3,453,297) 1,605,742 (3,609,008) (1,282,435) (557,287) (413,074) (547,111) (6,408,915) (2,712,248) (4,803,173) (1,882,358) (1,522,003) (27,523) 18,656 (3,413,228) (6,125,476) - (6,125,476) (188,947) (6,314,423) (6,125,476) (6,314,423) (2,793,604) - 629,642 27,614 (2,136,348) (6,939,521) - (6,939,521) (31,893) (6,971,414) (6,939,521) (6,971,414) Basic and diluted loss per share (cents) 8 (1.26) (2.01) This consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes to the financial statement ALEXIUM INTERNATIONAL GROUP LIMITED 20 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 June 2020 Current Assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total Current Assets Non-Current Assets Other financial assets Property, plant and equipment Intangible assets Right of use asset Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Lease liabilities Total Current Liabilities Non-Current Liabilities Borrowings Derivative liability Lease liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Reserves Accumulated losses Total Equity Note 18 9 10 11 12 11 13 14 15 15 14 16 2020 US$ 4,741,251 979,680 921,554 41,500 6,683,985 17,682 1,095,886 2,678,615 1,194,166 4,986,349 11,670,334 905,514 136,753 1,042,267 2,440,230 1,810,494 949,786 5,200,510 6,242,777 5,427,557 2019 US$ 3,843,343 962,023 1,153,453 74,917 6,033,736 17,982 1,727,001 1,778,484 - 3,523,467 9,557,203 1,558,500 170,974 1,729,474 6,786,592 658,141 - 7,444,733 9,174,207 382,996 65,943,807 (927,236) (59,589,014) 5,427,557 54,367,832 5,078,244 (59,063,080) 382,996 This consolidated statement of financial position should be read in conjunction with the accompanying notes to the financial statements ALEXIUM INTERNATIONAL GROUP LIMITED 21 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS AT 30 June 2020 Contributed equity $ Options & Warrants Reserve $ Performance Rights Reserve $ Balance at 1 July 2019 54,367,832 5,634,968 1,021,204 Foreign Currency Translation Reserve $ (1,577,928) Consolidated Accumulated Losses $ (59,063,080) Total $ 382,996 Loss for the period Foreign currency translation Total comprehensive income / (loss) Transactions with owners in their capacity as owners: Reclass to accumulated losses Issued capital Capital raising costs Performance rights issued Performance rights exercised Share-based payments Warrants outstanding Balance at 30 June 2020 - - - - - - - - - - (188,947) (188,947) (6,125,476) - (6,125,476) (6,125,476) (188,947) (6,314,423) - 11,768,661 (634,502) - 427,199 14,617 - 65,943,807 (4,992,832) - - - - - 83,934 726,070 (606,710) - - 113,569 (427,199) 12,705 - 113,569 - - - - - - - (1,766,875) 5,599,542 - - - - - - (59,589,014) - 11,768,661 (634,502) 113,569 - 27,322 83,934 5,427,557 Balance at 1 July 2018 Change in accounting estimate Loss for the period Foreign currency translation Total comprehensive income / (loss) Transactions with owners in their capacity as owners: Issued Capital Capital Raising Costs Performance Rights Expense Options Exercised Share-based payment in lieu of salary Balance at 30 June 2019 54,367,832 - - - - - - - - - 54,367,832 5,634,968 - - - - - - - - - 5,634,968 652,423 - - (593) (593) 136,430 (1,695,787) - (18,571) (18,571) (53,806,617) 1,695,787 (6,939,521) (12,729) (6,952,250) 6,985,036 - (6,939,521) (31,893) (6,971,414) - - 280,941 - 88,433 1,021,204 - - - - - (1,577,928) - - - - - (59,063,080) - - 280,941 - 88,433 382,996 (1) Accumulated Losses and Foreign Currency Reserve balances at 1 July 2018 were adjusted from the 30 June 2018 balances reported in the FY 2018 Annual Report to reflect a reallocation of $1,695,786 between the two accounts related to the foreign currency translation. This consolidated statement of changes in equity should be read in conjunction with the accompanying notes to the financial statement ALEXIUM INTERNATIONAL GROUP LIMITED 22 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 June 2020 Note 3 18(b) 18(c) Cash flow from operating activities Receipts from customers and other income Payments to suppliers and employees Interest received Interest and other costs of finance paid Goods & services tax received from ATO Net cash flows (used in) operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of other non-current assets Proceeds from disposal of property, plant and equipment Payments for development costs Net cash flows (used in) investing activities Cash flows provided by financing activities Proceeds from issue of ordinary shares Proceeds from borrowings Transaction costs related to issues of shares Transaction costs related to issues of convertible notes Repayment of borrowings Net cash flows from/ (used in) financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year 18(a) 2020 US$ 6,422,456 (8,762,060) 18,656 (906,208) 52,021 (3,175,135) (102,281) - 430 (1,098,264) (1,200,115) 11,768,661 4,071,918 (634,502) (111,952) (9,587,713) 5,506,412 1,131,162 3,843,343 (233,254) 4,741,251 2019 US$ 4,844,649 (8,052,450) 27,614 (1,219,230) 57,876 (4,341,541) (90,683) (60,000) - (987,153) (1,137,836) - - - - (1,258,696) (1,258,696) (6,738,073) 10,641,763 (60,347) 3,843,343 This consolidated statement of cash flows should be read in conjunction with the accompanying notes to the financial statement ALEXIUM INTERNATIONAL GROUP LIMITED 23 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 1. CORPORATE INFORMATION The consolidated financial statements of Alexium International Group Limited and its subsidiaries (collectively ‘Company’) for the year ended 30 June 2020 were authorised for issue in accordance with a resolution of the directors on 28 August 2020. Alexium International Group Limited (‘Parent’) is a company limited by shares incorporated and domiciled in Australia, whose shares are publicly traded on the Australian Securities Exchange under the trading AJX. These financial statements include the consolidated financial statements and notes of Alexium International Group Limited and its controlled entities. This financial report, the comparative period within, and all future financial reports, are presented in US Dollars. This presentation aligns the Company’s financial reporting with the nature of the business operations which primarily occur in the United States. The nature of the operations and principal activities of the Company are described in the Directors’ Report. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation These general-purpose financial statements have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001 (Cth). The Company is a for-profit entity for the purpose of preparing the financial statements. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial statements containing relevant and reliable information about transactions, events, and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Material accounting policies adopted in the preparation of the financial statements are presented below. They have been consistently applied unless otherwise stated. The financial statements have been prepared on an accrual basis and are based on historical costs, modified where applicable by the measurement at fair value. Separate financial statements for the Company as an individual entity are no longer presented as the consequence of a change to the Corporations Act 2001 (Cth), however, required financial information for the Company as an individual entity is included in Note 23. (b) New and amended standards adopted by the Company in this financial report AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. Under the new standard, a lessee is required to: (a) recognise all right of use assets and lease liabilities, except for short-term (under 12 months) and low value leases, on the statement of financial position. The liability is initially measured at the present value of future lease payments for the lease term; (b) recognise depreciation of right of use assets and interest on lease liabilities in profit or loss over the lease term; and (c) separate the total amount of cash paid into a principal portion (presented within financing activities) and interest portion (which the Company presents in operating activities) in the statement of cash flows. The new standard: • Replaces AASB 117 Leases and some lease-related Interpretations. • Requires all leases to be accounted for ‘on-balance sheet’ by lessees, other than short-term and low value asset leases. • Provides new guidance on the application of the definition of lease and on sale and lease back accounting. • Largely retains the existing lessor accounting requirements in AASB 117. • Requires new and different disclosures about leases. The Company implemented the new standard using the modified retrospective method also known as the cumulative catch-up approach. Under the modified retrospective method, the cumulative impact (if any) is recognized at the date of initial application (1 July 2019). The modified retrospective approach permits the measurement of the right-of-use asset equal to the lease liability at adoption. Under a modified retrospective approach, the Company • Calculates lease assets and lease liabilities as at the beginning of the current period; • Does not restate its prior-period financial information; • Recognises an adjustment in equity at the beginning of the current period; and • Carries forward all existing finance lease liabilities; • Makes additional disclosures specified in the new standard and is exempt from certain of the disclosures usually required by AASB 108 para 28. ALEXIUM INTERNATIONAL GROUP LIMITED 24 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 The Company undertook a detailed assessment of the impact of AASB 16 and determined the standard to have a material impact on the transactions and balances recognised in the financial statements. At 30 June 2019, $628,964 was previously recorded as a finance lease and classified as property, plant and equipment. This balance was classified to the right-of-use asset at 1 July 2019 upon adoption of the Standard. Management has recorded the initial recognition of right of use asset and corresponding lease liability for operating leases at a book value of $902,952 at the implementation date. Net book value of right of use assets at 30 June 2020 is $1,194,166 as detailed in Note 11. Reconciliation of lease liabilities at adoption Total operating lease commitments disclosed at 30 June 2019 Lease commitments beyond five-year disclosure requirement Variable lease payments not recognized Operating lease liabilities before discounting Future value of operating leases Discounted using incremental borrowing rate (9.7%) Operating lease liabilities Operating lease liabilities Finance lease obligations Total lease liabilities recognised under AASB 16 at 1 July 2019 01-Jul-19 890,440 851,657 (332,547) 1,409,550 1,409,550 (506,598) 902,952 902,952 361,413 1,264,365 Where a right to control an asset specified in a lease agreement exists, the Company recognises a right-of-use asset, representing its right to use the underlying leased asset, and a lease liability representing its obligation to make lease payments. Right-of-use assets are recognized similarly to other non-financial assets (such as property, plant and equipment) and lease liabilities similarly to financial liabilities. Therefore, a lessee recognises depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them as such in the statement of cash flows. Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-variable lease payments expected to be incurred for the term of the lease. The term of the lease is determined by reference to non-cancellable periods and those periods subject to exercise of an option, where that option is considered reasonably certain to be exercised. The Company has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed as incurred on a straight-line basis. In addition, certain variable lease payments are not permitted to be recognised as lease liabilities and are expensed as incurred. The Company has applied practical expedient and excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application. The weighted average incremental borrowing rate applied to lease liabilities recognised in the statement of financial position at the date of initial application was 9.7%. (c) Impact of standards issued but not yet applied by the Company There will be no new or revised Standards and Interpretations issued by the AASB that will be adopted by the Company that are relevant to its operations and effective for the upcoming reporting period. (d) Company Accounting Policies Fair Value of Assets and Liabilities The Company measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable Australian Accounting Standard. Fair value is the price the Company would receive to sell an asset or would have to pay to transfer a liability in an orderly (i.e. unforced) transaction between independent, knowledgeable, and willing market participants at the measurement date. As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (i.e. the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (i.e. the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. The fair value of liabilities and the entity's own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instruments, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. ALEXIUM INTERNATIONAL GROUP LIMITED 25 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 Valuation techniques In the absence of an active market for an identical asset or liability, the Company selects and uses one or more valuation techniques to measure the fair value of the asset or liability. The Company selects a valuation technique that is appropriate in the circumstances and for which sufficient data is available to measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of the asset or liability being measured. The valuation techniques selected by the Company are consistent with one or more of the following valuation approaches: • Market approach uses prices and other relevant information generated by market transactions for identical or similar assets or liabilities. • Income approach converts estimated future cash flows or income and expenses into a single discounted present value. • Cost approach reflects the current replacement cost of an asset at its current service capacity. Each valuation technique requires inputs that reflect the assumptions that buyers and sellers would use when pricing the asset or liability, including assumptions about risks. When selecting a valuation technique, the Company gives priority to those techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Inputs that are developed using market data (such as publicly available information on actual transactions) and reflect the assumptions that buyers and sellers would generally use when pricing the asset or liability are considered observable, whereas inputs for which market data is not available and therefore are developed using the best information available about such assumptions are considered unobservable. Fair value hierarchy AASB 13: Fair value measurement requires the disclosure of fair value information by level of the fair value hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level that an input that is significant to the measurement can be categorised into as follows: Level 1: Measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2: Measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Measurements based on unobservable inputs for the asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. If all significant inputs required to measure fair value are observable, the asset or liability is included in Level 2. If one or more significant inputs are not based on observable market data, the asset or liability is included in Level 3. The Company would change the categorisation within the fair value hierarchy only in the following circumstances: • if a market that was previously considered active (Level 1) became inactive (Level 2 or Level 3) or vice versa; or • if significant inputs that were previously unobservable (Level 3) became observable (Level 2) or vice versa. When a change in the categorisation occurs, the Company recognises transfers between levels of the fair value hierarchy (i.e. transfers into and out of each level of the fair value hierarchy) on the date the event or change in circumstances occurred. (e) Principles of Consolidation The consolidated financial statements incorporate all assets, liabilities and results of the Company. Subsidiaries are entities the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and can affect those returns through its power over the entity. A list of the subsidiaries is provided in Note 21. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Company from the date on which control is obtained by the Company. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between Company entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Company. Equity interests in a subsidiary not attributable, directly, or indirectly, to the Company are presented as “non-controlling interests". The Company initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary's net assets on liquidation at either fair value or at the non-controlling interests' proportionate share of the subsidiary's net assets. After initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non- controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income. (f) Foreign currency translation The consolidated financial statements are presented in United States Dollars ($). The functional currency of the Parent is Australian Dollar and the functional currencies of the subsidiaries are the Pound Sterling and the US Dollar. Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date and exchange differences are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the date of the ALEXIUM INTERNATIONAL GROUP LIMITED 26 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. All resulting exchange differences are recognised on other comprehensive income. As at the reporting date the assets and liabilities of these subsidiaries are translated into the presentation currency at the rate of exchange ruling at the reporting date and the statements of comprehensive income are translated at the weighted average exchange rates for the year. All resulting exchange differences are recognised on other comprehensive income. On disposal of a foreign entity, the cumulative exchange differences are reclassified to profit or loss as part of the gain or loss on sale. (g) Property, plant, and equipment Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. Leases assets Right-of-use assets under lease agreements are initially measured at the present value of future lease payments using an incremental borrowing rate. Book value is stated as net present value less accumulated depreciation. Upon completion of the certain finance lease terms, ownership of the subject asset is transferred to the Company which begins recognition as property, plant, and equipment. Subsequent costs The Company recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other costs are recognised in profit or loss as an expense as incurred. Depreciation Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each asset. The estimated useful lives in the current and comparative years are as follows: Asset Type Computer equipment Machinery and equipment Furniture, fixtures and office equipment Leased plant and equipment Years 3 years 3 to 15 years 3 to 10 years Shorter of the lease term or the useful life The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually. (h) Intangible assets Acquired intangible assets Intangible assets acquired separately are capitalised at cost. Following initial recognition, the cost model is applied to the class of intangible assets whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives, which is considered five years, as these assets are considered finite. Other intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and impairment losses. Internally Generated Intangible Assets Expenditure on internally generated goodwill and brands is recognised in the statement of comprehensive income as an expense as incurred. Expenditure on the research phase of projects to develop new specialty chemicals is recognised as an expense as incurred. Costs that are directly attributable to a project’s development phase are recognised as intangible assets, provided they meet the following recognition requirements: • Development costs can be measured reliably; • Project is technically and commercially feasible, • The Company intends to and has sufficient resources to complete the project, • The Company has the ability to use or sell the asset; and • The asset will generate probable future economic benefits. Costs directly attributable to capitalized development include employee expenses incurred on technology development, external testing fees, and product trial costs. Costs not meeting these criteria are expensed as incurred. The ultimate recoupment of costs carried forward for capitalized development is dependent on the successful development and commercialization of the Company’s technology. Any internally generated asset that is not yet complete and not fully amortised is subject to impairment testing. Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures are expensed as incurred. ALEXIUM INTERNATIONAL GROUP LIMITED 27 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 Amortisation Goodwill and intangible assets with an indefinite life are systematically tested for impairment at each annual reporting date. Capitalised development costs, patents, and trademarks with a finite life are amortised based on estimated future economic life. Amortisation charges are included as an expense in the consolidated statement of profit or loss and other comprehensive income. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the profit or loss. The useful lives of intangible assets are assessed to be either finite or indefinite. Where amortisation is charged on assets with finite lives, this expense is taken to the profit or loss. Intangible assets are tested for impairment where an indicator of impairment exists. Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted as appropriate. (i) Impairment of assets At each reporting date, the Company assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Company makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount to profit or loss. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less cost to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. (j) Trade and other receivables Trade receivables are recognised and carried at original invoice amount less any expected credit losses (ECL) determined under the simplified approach to accounting for trade and other receivables as detailed in AASB 9. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses. The Group assess impairment of trade receivables on a collective basis as they possess shared credit risk characteristics they have been grouped based on the days past due. (k) Determination and presentation of operating segments For management purposes, the Company is organised into one main operating segment which involves the development and commercialisation of its proprietary flame retardant and phase change material technologies and selling its specialised chemistry to customers. All the Company’s activities are interrelated, and discrete financial information is reported to the Chief Executive Officer as a single segment. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The Company has applied AASB 8 Operating Segments from 1 July 2009. AASB 8 requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes. An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. An operating segment’s results are reviewed regularly by the Board to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Board considers the business from both a product and a geographical perspective and takes the view that the Company operates under a single operating segment. (l) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash on hand and short-term deposits. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (m) Financial instruments Recognition and derecognition Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled, or expires. Classification and initial measurement of financial assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Financial assets, other than those designated and effective as hedging instruments, are classified into the following categories: • amortised cost • fair value through profit or loss (FVTPL) • fair value through other comprehensive income (FVOCI). All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. ALEXIUM INTERNATIONAL GROUP LIMITED 28 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL): • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Company’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments as well as listed bonds that were previously classified as held-to-maturity under AASB 139. In the periods presented the corporation does not have any financial assets measured at amortized cost. Financial assets at fair value through profit or loss (FVTPL) Financial assets that are held within a different business model other than ‘hold to collect’ or ‘hold to collect and sell’ are categorised at fair value through profit and loss. Further, irrespective of business model financial assets whose contractual cash flows are not solely payments of principal and interest are accounted for at FVTPL. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply (see below). Assets in this category are measured at fair value with gains or losses recognised in profit or loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists. Financial assets at fair value through other comprehensive income (FVOCI) The Company accounts for financial assets at FVOCI if the assets meet the following conditions: • they are held under a business model whose objective it is “hold to collect” the associated cash flows and sell and • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Any gains or losses recognised in other comprehensive income (OCI) will be recycled upon derecognition of the asset. The Company does not have any financial assets categorised as FVOCI. Impairment of financial assets AASB 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. Instruments within the scope of the ECL model included loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under AASB 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss. Recognition of credit losses is not dependent on the Company first identifying a credit loss event. Instead the Company considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. In applying this forward-looking approach, a distinction is made between: • Financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) • Financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’). • ‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date. ‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the second category. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. Trade and other receivables and contract assets The Company makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Company uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix. The Company assess impairment of trade receivables on a collective basis as they possess shared credit risk characteristics they have been grouped based on the days past due. At the reporting date expected lifetime credit losses are nil. Classification and measurement of financial liabilities The Company’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Company designated a financial liability at fair value through profit or loss. Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments). All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. ALEXIUM INTERNATIONAL GROUP LIMITED 29 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 (n) Embedded Derivative The Company has issued liability classified embedded derivatives in connection with its convertible debt. An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative. The embedded derivative is separated from the host contract and accounted for as a derivative if the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract. The embedded derivative is measured at fair value with changes in value being recorded in profit or loss. (o) Trade and other payables Trade and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 60 days of recognition. (p) Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income, net of any reimbursement. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. (q) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (r) Revenue recognition In accordance with the standard, revenue is recognised and measured when the entity satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset [AASB 15.31] and no additional goods or services, warranties, repurchase agreements, or public return policies, or other limitations exist that that would not allow the Company to consider its performance completed at this time of transfer. The Company considers the transfer complete in line with “FOB Shipping Point” Incoterms and recognizes the completion of this performance obligation when the finished product is shipped. Revenue is recognized at this point in time. Sale of goods Revenue is recognised at a specific point in time and measured when the entity satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. AASB 15 - Revenue from Contracts with Customers outlines the accounting requirements for when and how revenue is recognized using one core principle: “Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.“ This is accomplished by using a 5- step recognition process consisting of the following: 1.) 2.) Identify the contract - The Company utilizes a set of criteria to clearly identify the existence of contracts with customers, which includes contract approval by both parties, identification of each parties’ rights and commitments, determination of payment terms, presence of commercial substance and a probability consideration will be collected. Identify the performance obligations - The Company has identified the sole performance obligation of customer contracts to be the complete transfer of the goods to the customer. In accordance with AASB 15.24, there are no additional goods or services, warranties, repurchase agreements, or public return policies, or other limitations of the seller that would not allow the Company to consider its performance completed at this time of transfer. The Company considers the transfer complete in line with “FOB Shipping Point” Incoterms and recognizes the completion of this performance obligation when products are shipped. 3.) Determine the transaction price - The Company considers the transaction price to be the amount of consideration to which it expects to be entitled in exchange for transferring promised goods or services to a customer. As and when a performance obligation is satisfied the Company recognizes revenue to the extent of the transaction price allocated to that performance obligation taking into account the impact of constraints arising from variable consideration [AASB 15.46]. 4.) Allocate the transaction price to separate performance obligations - Given that there is a single performance obligation to each contract, and the price is clearly identified in the contract, the Company allocates the full contract price to the transfer of goods discussed in Step 2, with the exception of combined contracts noted as having variable consideration. 5.) Recognize revenue when each obligation is satisfied - at contract inception the Company has determined that the sole performance obligation is the complete transfer of goods to the customer. The Company must then determine the specific point in time at which it is appropriate to recognize revenue for the contract. AASB 15 states that an entity shall consider indicators of the transfer of control, which include, but are not limited to, the following ALEXIUM INTERNATIONAL GROUP LIMITED 30 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 • Company has a present right to payment for the asset; • Customer has legal title to the asset; • Company has transferred physical possession of the asset; • Customer has the significant risks and rewards of ownership of the asset; and • Customer has accepted the asset. Management recognizes that the application of the control criteria requires judgment and there are various factors to consider, as described above. Accordingly, management believes that control is transferred in accordance with the shipping terms, as this is the point in time that the customer obtains legal title, when customer obtains the risk and rewards of ownership, and when the customer has an obligation to pay for the asset. The standard discusses that an entity should consider whether there is any agreement to repurchase the asset transferred to the customer, or a component. This topic is not applicable to the Company as it is not the practice nor discussed in any contracts. Management recognizes that contracts and arrangements could change as the Company enters new markets and expands its customer base. Management will continue to monitor any changes to ensure the accounting is in line with the context of AASB 15. Interest and dividends Interest income is recorded when earned based on cash balances. Interest expenses are reported on an accrual basis using the effective interest method. Dividends are recognised at the time the right to receive payment is established. (s) Income and other taxes Deferred income tax is provided on all temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for the financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: • Except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. • Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: • Except where the deferred income tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised, or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of comprehensive income. Other taxes Revenues, expenses, and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (t) Earnings per share Basic earnings per share (‘EPS’) is calculated by dividing the net profit attributable to members of the parent entity for the reporting year, after excluding any costs of servicing equity (other than ordinary shares and converting preference shares classified as ordinary shares of EPS calculation purposes), by weighted average number of ordinary shares of the Company, adjusted for any bonus issue. ALEXIUM INTERNATIONAL GROUP LIMITED 31 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 (u) Employee benefits Termination benefits Termination benefits are recognised as an expense when the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value. Long-Term Employee Benefits The Company’s liabilities for annual leave are included in other current liabilities. Any adjustments and changes in assumptions are recognised in profit or loss in the periods in which the changes occur. The Company presents employee benefit obligations as current liabilities in the statement of financial position if the Company does not have an unconditional right to defer settlement for at least twelve months after the reporting period, irrespective of when the actual settlement is expected to take place. Short-term employee benefits Short-term employee benefits are benefits, other than termination benefits, that are expected to be settled wholly within twelve (12) months after the end of the period in which the employees render the related service. Examples of such benefits include wages and salaries, non-monetary benefits and accumulating sick leave. Short-term employee benefits are measured at the undiscounted amounts expected to be paid when the liabilities are settled. There are no employee-benefit expenses recognised within cost of sales. Share-based payment transactions The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. (v) Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for, as follows: • Raw materials: average cost; and • Finished goods and work in progress: cost of direct materials and manufacturing charges from contract manufacturer. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (w) Significant accounting judgements, estimates and assumptions The preparation of the Company’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur. Share-based payments The Company initially measures the cost of cash-settled transactions with employees using a binomial model to determine the fair value of the liability incurred. The Company initially 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. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. For cash-settled share-based payment transactions, the liability needs to be remeasured at the end of each reporting period up to the date of settlement, with any changes in fair value recognised in profit or loss. This requires a reassessment of the estimates used at the end of each reporting period. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 16. Fair value of financial instruments When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow (DCF) and Black-Scholes option pricing models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. The assessed fair values of the embedded derivatives were determined using a Black-Scholes option pricing model which approximates the results that would have been achieved by using a binomial lattice. The model considers the expected price volatility of the underlying instrument, expected dividend yield and the risk-free interest rate. The twelve-month share price history has been used to determine the expected price volatility. Changes in assumptions in relation to these factors could affect the reported fair value of financial instruments. See Note 22(f) for further disclosures. ALEXIUM INTERNATIONAL GROUP LIMITED 32 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 Intangible Assets The Company assesses at initial recognition whether an internally developed asset has met the recognition requirements established in AASB 138 and measures the direct and indirect costs of development using several estimates and assumptions. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. In assessing impairment, management estimates the recoverable amount of each asset or cash-generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results, the determination of a suitable discount rate, and the appropriate classification of cash generating units. See Note 12 for further disclosures. (x) Going Concern These financial statements have been prepared on the basis of going concern, which contemplates the continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. The director’s assessment is based on forecasted growth in commercial sales, which the Company expects to continue over the next twelve months. During the financial year ended 30 June 2020, the Company generated a loss of $6,125,476 (2019: $6,939,521) and the Company has used cash in operating and investing activities of $4,375,250 (2019: $5,479,377). As at 30 June 2020 the Company had net assets of $5,427,557 (2019: $382,996) and a cash balance of $4,741,251 (2019: $3,843,343). 3. REVENUE & OTHER INCOME Revenue is recognised at a specific point in time and measured when the entity satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. Sale of goods Rebates Total Interest received 4. ADMINISTRATIVE EXPENSES Employee benefit expense Professional fees Other administrative expenses Insurance expense Amortisation Total 5. DEPRECIATION AND AMORTISATION EXPENSE Depreciation Amortisation Total 6. AUDITORS’ REMUNERATION Amount received or due and receivable by Grant Thornton Australia for: (a) an audit or review of the financial report of the Company (b) Tax compliance services in relation to the entity and any other entity in the Company (c) Other services in relation to the entity and any other entity in the Company Total 2020 6,422,859 (344,002) 6,078,857 2019 5,225,286 (166,247) 5,059,039 18,656 27,614 2020 2,168,879 482,245 146,949 177,080 25,748 3,000,901 2020 430,526 158,041 588,567 2019 2,662,003 653,150 156,008 128,011 9,836 3,609,008 2019 338,240 17,411 355,651 2020 2019 141,770 7,954 7,132 156,856 143,671 7,043 7,179 157,893 ALEXIUM INTERNATIONAL GROUP LIMITED 33 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 7. TAXATION (a) Income tax recognised in profit and loss Profit /(loss) before tax Prima facie tax on operating loss before income tax at 30.0% Deferred tax asset not recognised Temporary differences not recognized Tax effect of permanent differences: Other Meals and entertainment Interest on convertible note Fair value movement Share-based payments expense Lobbying expenses Differences in jurisdictional tax rates Tax losses not brought to account Income tax benefit attributable to reversal of deferred tax liability on intangible assets (b) Deferred tax assets Deferred tax assets at 30 June brought to account: Employee benefits Accrued expenses Expenses deducted over 5 years Income tax losses (c) Deferred tax liability Unrealised FX Basis difference on fixed assets (d) Net deferred tax position Deferred tax assets Deferred tax liabilities Net deferred tax position (e) Deferred tax assets not recognised Charitable contributions Accrued and prepaid expenses Other 263A costs 163(j) limitation Income tax losses Net deferred tax position 2020 2019 (6,125,476) (6,939,521) (1,837,643) (1,908,368) (387,962) (331,123) 558,706 3,216 329,749 8,196 - - 235,152 1,090,586 - - 25,909 58,734 2,021,908 2,106,551 1,575,652 530,899 2,106,551 2,106,551 2,106,551 - 20,107 58,840 23,587 1,271 - 9,255,446 9,359,251 - 10,611 399,648 (173,152) 48,720 1,219 333,306 1,619,139 - 1,339 23,902 83,671 1,583,548 1,692,460 1,334,855 357,605 1,692,460 1,692,460 1,692,460 - 23,978 174,965 - - - 8,507,735 8,706,678 No income tax is payable by the Company. The Directors have considered it prudent not to bring to account the future income tax benefit of income tax losses until it is probable of deriving assessable income of a nature and amount to enable such benefit to be realised. The Company has estimated unrecouped income tax losses of $52,753,419 (2019: $43,498,018) which may be available to offset against taxable income in future years. The benefit of these losses and timing differences will only be obtained if there is sufficient probability that taxable profits will be generated by the Company in future periods. Deferred tax assets and liabilities which relate to income taxes levied by the same taxation authority are offset where the Company intends to settle those tax assets and liabilities on a net basis. ALEXIUM INTERNATIONAL GROUP LIMITED 34 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 8. EARNINGS PER SHARE Classification of securities as ordinary shares The Company has only one category of ordinary shares included in basic earnings per share. Classification of securities as potential ordinary shares There are currently no securities to be classified as dilutive potential ordinary shares on issue. Weighted average number of ordinary shares Basic loss ($) Basic / Diluted loss per share (cents) 2020 486,421,703 2019 345,443,598 (6,125,476) (1.26) (6,939,521) (2.01) The above calculation does not include instruments that could potentially dilute basic earnings per share in the future as these instruments were anti-dilutive in the years presented. A summary of such instruments is as follows: Equity securities As the Company has incurred a loss for the year, the diluted earnings per share is therefore disclosed as the same as the basic earnings per share. Options over ordinary shares Warrant options Performance rights Total 9. TRADE AND OTHER RECEIVABLES Trade receivables Other receivables Total None of the trade and other receivables are past due or impaired. 10. INVENTORIES Raw materials Finished goods Provision for obsolescence Total 2020 Number 1,500,000 3,829,787 1,286,182 6,615,969 2020 944,496 35,184 979,680 2019 Number 2,400,000 4,255,319 2,989,775 9,645,094 2019 943,027 18,996 962,023 2020 500,566 426,453 (5,465) 921,554 2019 699,183 462,500 (8,230) 1,153,453 ALEXIUM INTERNATIONAL GROUP LIMITED 35 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 11. PROPERTY, PLANT AND EQUIPMENT Cost Balance at 30 June 2018 Additions Disposals Transfers Foreign exchange movements Balance at 30 June 2019 Initial application of AASB 16 Additions Disposals Transfers Foreign exchange movements Balance at 30 June 2020 Depreciation and impairment Balance at 30 June 2018 Depreciation Disposals Foreign exchange movements Balance at 30 June 2019 Initial application of AASB 16 Depreciation Disposals Transfers Foreign exchange movements Balance at 30 June 2020 Net book value At 30 June 2018 At 30 June 2019 At 30 June 2020 Furniture and equipment Right-of-use equipment Right-of-use building Construction in progress 1,669,961 134,987 (119,601) 9,450 (2,646) 1,692,151 - 94,122 (62,597) 328,876 - 2,052,552 477,906 203,740 (86,099) (1,433) 594,114 - 199,394 (59,100) 222,258 - 956,665 1,006,817 - - - - 1,006,817 - - (328,876) - 677,941.49 243,353 134,500 - - 377,853 - 121,683 - (222,258) - 277,278 1,192,055 1,098,037 1,095,886 763,464 628,964 400,663 - - - - - - 902,952 - - - - 902,952 - - - - - - 109,449 - - - 109,449 - - 793,503 - 9,450 - (9,450) - - - - - - - - - - - - - - - - - - - - - - Total 2,676,778 144,437 (119,601) - (2,646) 2,698,968 902,952 94,122 (62,597) - - 3,633,445 721,259 338,240 (86,099) (1,433) 971,967 - 430,526 (59,100) - - 1,343,393 1,955,519 1,727,001 2,290,052 ALEXIUM INTERNATIONAL GROUP LIMITED 36 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 12. INTANGIBLE ASSETS Cost Balance at 30 June 2018 Additions Disposals Foreign exchange movements Balance at 30 June 2019 Additions Disposals Foreign exchange movements Balance at 30 June 2020 Amortization and impairment Balance at 30 June 2018 Amortisation Disposals Foreign exchange movements Balance at 30 June 2019 Amortisation Disposals Foreign exchange movements Balance at 30 June 2020 Net book value At 30 June 2018 At 30 June 2019 Balance at 30 June 2020 Patents and trademarks Capitalised development costs Software Total 202,339 - (161,817) - 40,522 - - - 40,522 113,645 9,836 (112,988) - 10,493 25,748 - 92 36,333 662,717 1,023,574 - - 1,686,291 1,098,264 - - 2,784,555 - 1,583 - - 1,583 108,546 - - 110,129 88,694 30,029 4,189 662,717 1,684,708 2,674,426 15,377 60,000 - - 75,377 - (40,000) - 35,377 5,638 5,992 - - 11,630 23,747 - - 35,377 9,739 63,747 - 880,433 1,083,574 (161,817) - 1,802,190 1,098,264 (40,000) - 2,860,454 119,283 17,411 (112,988) - 23,706 158,041 - 92 181,839 761,150 1,778,484 2,678,615 Impairment testing for intangible assets An impairment loss is recognised for the amount by which the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value-in-use. Cash flow forecasting inputs are based on the Board approved budget for FY2021 along with forecasts from management for an additional four years. Management forecasts include an assessment of market size and the ability of the Company to penetrate the market. The forecasting methods also include identifiable and addressable markets for the Company along with consideration for customer adoption rates. These forecasts are also based on management’s knowledge of the business and assessment of the likely current economic environment impacts, adjusted to account for an expected arm’s length market participant’s view of cash flow risks. In particular, the discounted cash flow forecast for Alexiflam® technologies in relation to military uniforms is based on current supply chain information which has been accumulated during the development process including current production scale trials and evaluations taking place with the military. The directors note that whilst there is an exclusivity agreement in place regarding the development of this technology, no supply agreement has been entered as at the reporting date. With the assistance of an independent third-party valuation firm, the Company estimated the recoverable amount of two Cash Generating Units (“CGUs”) as of 30 June 2020. A CGU is the smallest group of assets that includes the subject asset and generates cash inflows that are largely independent of cash inflows from other assets or groups of assets. The Company determined Alexiflam® and Alexicool® to be independent cash- generating units that are unable to be disaggregated. The valuer used a combination of management provided cash flow projections and observable external market information to determine the key assumptions for their determination. The fair value measurement is categorized in its entirety as Level 3 in the fair value hierarchy designated in AASB 13. This categorization has several market observable factors including public companies deemed comparable to the Company, market royalty rates for comparable transactions and discount rate market factors for such items as risk free rate, beta, equity risk premium and size premium. Carrying values of Alexiflam® and Alexicool® CGU’s at year end were $1.6M and $1.1M respectively, while estimated recoverable amount of each was $2.2M and $2.1M. There are important assumptions used in the valuation including the enterprise value. Management forecasts include growth rates of 0.0% to 10.0% after a technology has been commercialized, risk adjusted discount rates averaging 27%, obsolescence factors and royalty rates ranging from 3.0% in the first quartile to a maximum of 8.0%. The valuation was subject to stress-testing by conducting sensitivity analysis with respect to the various key assumption inputs. Management do not believe that any reasonable possible change in these assumptions would result in an impairment of either CGU technologies. No impairment loss has been recognised for Alexiflam® and Alexicool® technologies CGUs as of 30 June 2020 (2019: $nil). ALEXIUM INTERNATIONAL GROUP LIMITED 37 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 13. TRADE AND OTHER PAYABLES Trade payables Other payables Interest payable Additional Provisions Total 2020 230,846 639,159 35,509 - 905,514 2019 557,098 752,152 101,250 148,000 1,558,500 Trade and other payable amounts represent liabilities for goods and services provided to the Company prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days or recognition. 14. LEASE LIABILITIES The Company leases facilities, office and lab equipment, and IT infrastructure under various agreements. These assets are used for administration and operational activities with remaining lease terms of 1-7 years. Where a right to control an asset specified in a lease agreement exists, the Company recognises a right-of-use asset, representing its right to use the underlying leased asset, and a lease liability representing its obligation to make lease payments. Lease liabilities are recognized similarly to financial liabilities with cash repayments recorded into a principal portion and an interest portion and presents them as such in the statement of cash flows. Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-variable lease payments expected to be incurred for the term of the lease. The term of the lease is determined by reference to non-cancellable periods and those periods subject to exercise of an option, where that option is considered reasonably certain to be exercised. 2020 2019 Lease payments during the period: Principal payments Interest Variable lease payments not included in measurement of lease liability Total Minimum future rental payments under non-cancellable leases: Current Non-current Total Present value of future minimum rental payments under leases: Current commitments: Lease liability Finance charges Net present value Non-current commitments: Lease liability Finance charges Net present value Total 15. BORROWINGS Convertible note carrying value Other borrowings Principal balance outstanding 178,319 112,899 33,081 324,299 235,484 1,285,257 1,520,741 136,753 98,731 235,484 949,786 335,471 1,285,257 1,520,741 2020 1,979,878 460,352 2,440,230 210,406 44,776 - 255,182 198,438 206,217 404,655 170,974 190,439 361,413 - 43,242 43,242 404,655 2019 6,596,153 190,439 6,786,592 ALEXIUM INTERNATIONAL GROUP LIMITED 38 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 Convertible note On 24 December 2019 the Company entered a convertible note, secured by the Company’s assets, with an institutional lender. The $3.5 million ($A5.15M) note carries a four-year term and 6.0% annual interest rate with coupon interest payments due quarterly. The note is convertible into ordinary shares at the holder’s discretion and with shareholder approval. The proceeds from the funding were used to pay down the loan facility originated on 30 September 2017, which carried a higher interest rate and was due to expire on 30 September 2020. The Borrowings have been measured at amortised cost in accordance with AASB 9 and gain or loss is recognised in profit or loss through the amortisation process and when the borrowings are derecognised. The Company allocates interest payments over the term of the borrowings at a constant rate on the carrying value. The carrying balance over the remaining life of the facility will increase to the current principal balance of $3.5 million. Convertible note carrying value Remaining amortization of effective interest Foreign currency exchange rate impact Principal balance outstanding 2020 1,979,878 1,631,688 (70,369) 3,541,197 2019 6,596,153 2,403,847 - 9,000,000 Other borrowings On 6 May 2020, the Company was granted a loan in the amount of $460,352 funded by the Small Business Administration and administered by Wells Fargo. Under Division A, Title I of the CARES Act enacted 27 March 2020. The program called Paycheck Protection Program was created with the goal to support small businesses during the COVID-19 pandemic. The loan is in the form of a note that matures on 5 May 2022 and bears interest at a rate of 1% per annum, payable monthly principal and interest payments commencing on 6 November 2020. The note may be prepaid by the Borrower at any time prior to maturity without prepayment penalty. Funds from the loan are intended to support payroll costs, costs used to continue health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations which were impacted by the COVID-19 pandemic. The loan is designed to be forgivable up to 100% of the loan value when used for expenses described above. Derivative liability The current and previous borrowings are considered hybrid instruments with host and derivative liability components. When initially recorded the derivative is measured at fair value and separated from the host liability. Subsequently changes in value are recorded in profit or loss upon revaluation. This has been valued using a Black-Scholes option pricing model which approximates a Monte Carlo binomial lattice simulation. Pricing model inputs of the current derivative include exercise price (A$0.075), risk-free rate (0.575%), remaining term (3.5 years) and volatility (105.02%). Derivative liability Gain/ (Loss) on embedded derivative 2020 1,810,494 2019 658,141 (27,523) 629,642 Loss on debt extinguishment The previous loan with a $9,000,000 balance was paid in full on 31 December 2019 and was measured at the amortised cost using the effective interest method. The residual value was amortised to face value over the life of the note. On extinguishment, the liability was derecognised and the difference between the carrying amount of the extinguished liability and the consideration paid is recognised in profit or loss. The attached embedded derivative liability is also derecognised and netted against the residual value of the host liability and the consideration paid. Loss on debt extinguishment 2020 (1,522,003) 2019 - ALEXIUM INTERNATIONAL GROUP LIMITED 39 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 16. CONTRIBUTED EQUITY (a) Issued capital Ordinary shares fully paid (b) Movement in share capital Balance at 1 July Capital raising Costs of capital raising Conversion of performance rights Share-based payments Shares issued - severance Balance at 30 June (c) Movements in performance rights Balance at 1 July Previously granted not yet vested at July 1 Granted in lieu of director's fees Converted to shares Forfeited Granted Granted not yet vested Balance at 30 June 2020 Shares 2019 Shares 2020 $ 2019 $ 634,456,542 345,443,598 65,943,807 54,367,832 345,443,598 285,727,610 - 2,068,366 1,216,968 - 634,456,542 345,443,598 - - - - - 345,443,598 54,367,832 11,768,661 (634,502) 331,213 110,603 - 65,943,807 54,367,832 - - - - - 54,367,832 2,989,775 1,971,163 140,554 (3,130,334) (238,480) 1,259,482 (1,705,978) 1,286,182 - 1,324,000 921,414 - (241,220) 2,956,744 (1,971,163) 2,989,775 414,501 226,352 12,705 (427,213) (27,378) 42,256 (127,654) 113,569 - 403,380 83,288 - (185,344) 339,529 (226,352) 414,501 (d) Share options issued At year-end there were Nil free attaching options outstanding (2019: Nil) and 1,500,000 share-based payment options outstanding (2019: 2,400,000). Warrants issued under the extinguished convertible note and previously recognized as a derivative liability were transferred to the option reserve account at the payoff date. (e) Movements in share options Grant Date Exercise Price Expiry date Balance at start of year Granted Exercised Expired Balance at end of year 2020 Unlisted options Unlisted options Unlisted options Unlisted options Warrants Total 2019 Unlisted options Unlisted options Unlisted options Unlisted options Total 01-Oct-15 04-Nov-16 04-Nov-16 04-Nov-16 31-Dec-19 $0.75 30-Sep-20 $0.75 04-Nov-19 $1.25 04-Nov-19 $1.75 04-Nov-19 $0.06 29-Mar-23 01-Oct-15 04-Nov-16 04-Nov-16 04-Nov-16 $0.75 30-Sep-20 $0.75 04-Nov-19 $1.25 04-Nov-19 $1.75 04-Nov-19 1,500,000 300,000 300,000 300,000 - 2,400,000 1,500,000 300,000 300,000 300,000 2,400,000 - - - - 3,829,787 3,829,787 - - - - - - - - - - - - - - - - - (300,000) (300,000) (300,000) - (900,000) - - - - - 1,500,000 - - - 3,829,787 5,329,787 1,500,000 300,000 300,000 300,000 2,400,000 ALEXIUM INTERNATIONAL GROUP LIMITED 40 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 (f) Details of share options Outstanding at 1 July Granted Exercised Expired Outstanding at 30 June (1) Weighted average exercise price (2) Weighted average remaining contractual life a) Warrants b) Directors c) Services rendered Total Number 2,400,000 3,829,787 - (900,000) 5,329,787 2020 WAEP1 WARCL2 0.94 0.04 - (1.25) 0.25 0.91 1.97 - - 2.04 Number 2,400,000 - - - 2,400,000 2019 WAEP WARCL 0.94 - - - 0.94 0.91 - - - 0.91 2020 Average fair value per option $ Number 0.04 - - 142,025 - - 142,025 - 1,500,000 900,000 2,400,000 2019 Average fair value per option - - - $ - - - - Number 3,829,787 1,500,000 - 5,329,787 (g) Terms and conditions of contributed equity Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation. (h) Capital management The Company’s objectives in managing capital are to safeguard the Company’s ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits for the stakeholders and to maintain an optimal capital structure to reduce the cost of capital. 17. SHARE-BASED PAYMENTS The following is the summary of share-based payments expensed during the year: Shares in lieu of salary Performance rights vested but not issued Professional services Shares forfeited Total 2020 2019 Number 526,523 1,286,182 1,453,704 - 3,266,409 $ 50,012 113,569 56,763 - 220,344 Number $ 921,414 2,068,366 - (241,220) 2,748,560 88,433 328,898 - (173,767) 243,564 The equity-settled share-based payments provided during the year related to: (a) Shares 526,523 shares (2019: 921,414) in lieu of salary for non-executive directors and 1,453,704 shares (2019: nil) for professional services. (b) Performance rights During the reporting period performance rights totalling 1,286,182 (2019: 2,068,366) were granted. An operating expense of $113,569 (2019: $328,898) was recognised for the vested performance rights. ALEXIUM INTERNATIONAL GROUP LIMITED 41 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 18. NOTES TO THE STATEMENT OF CASH FLOWS (a) Cash and cash equivalents Cash on hand 2020 2019 4,741,251 3,843,343 (b) Reconciliation of operating loss after income tax to net cash used in operating activities Operating loss after income tax (6,125,476) (6,939,521) Non-cash items: Depreciation and amortisation of non-current assets Share-based payment Amortisation on borrowings Loss on impairment Loss on debt extinguishment Loss on fair value movement- embedded derivative Loss on disposal of assets Changes in assets and liabilities net of effect of purchase of subsidiaries: (Increase) in trade and other receivables Decrease in inventories on hand Decrease / (Increase) in other current assets (Decrease) / Increase in trade and other payables (Decrease) / Increase in other current liabilities Net cash (used in) operating activities (c) Reconciliation to net cash used in investing activities Property, plant, and equipment additions and proceeds from disposal Intangible asset additions Non-cash items Foreign exchange movement on transfers (Increase) / Decrease in working capital Net cash flows (used in) investing activities 19. RELATED PARTY TRANSACTIONS (a) Related party transactions 588,567 220,344 1,084,075 - 1,522,003 27,523 2,694 (17,657) 231,899 33,417 (708,304) (34,221) (3,175,135) 355,651 369,374 1,453,261 48,750 - (629,642) - (448,223) 363,095 (5,041) 616,205 474,550 (4,341,541) 93,691 1,098,264 144,437 1,083,574 - 8,160 - (90,175) 1,200,115 1,137,836 Colinton Capital Partners During the period, $333,904 (2019: Nil) was paid to Colinton Capital Partners, a related party of Simon Moore, Non-Executive Director Coupon interest on convertible note Due Diligence Underwriting fee Total 2020 105,381 103,305 125,218 333,904 2019 - - - - ALEXIUM INTERNATIONAL GROUP LIMITED 42 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 (b) Transactions with KMP Short-term employee benefits Salary and fees Non-monetary benefits Other Total Post-employment super-annuation Total Share-based payments- Performance rights Share-based payments – Shares in lieu of salary Total Bonus Termination Benefits Total Total 20. SEGMENT REPORTING 2020 2019 1,012,786 44,685 - 1,057,471 10,154 10,154 88,576 50,012 138,588 44,120 - 44,120 907,934 32,134 216,390 1,156,458 3,758 3,758 113,709 88,433 202,142 145,440 80,876 226,316 1,250,333 1,588,674 The financial results from this segment are equivalent to the financial statements of the Company as a whole. Geographic information of revenue and non-current assets excluding financial instruments are as follows: 2020 Revenue Interest received Other income Interest expense Property, plant and equipment Right of use asset Intangible assets Depreciation and amortisation 2019 Revenue Interest received Other income Interest expense Property, plant and equipment Intangible assets Depreciation and amortisation Australia US Cyprus - 15,468 - 1,192,013 - - - - 6,078,857 3,189 - 690,345 1,095,886 1,194,166 2,675,292 562,819 - - - - - - 3,323 25,748 Australia US Cyprus - 12,321 - 1,453,261 - - - 5,059,039 15,293 - 1,340,343 1,727,001 1,748,455 343,880 - - - - - 30,029 11,771 Total 6,078,857 18,656 - 1,882,358 1,095,886 1,194,166 2,678,615 588,567 Total 5,059,039 27,614 - 2,793,604 1,727,001 1,778,484 355,651 ALEXIUM INTERNATIONAL GROUP LIMITED 43 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 21. INVESTMENTS IN CONTROLLED ENTITIES Parent Entity Alexium International Group Limited Subsidiaries of Alexium International Group Limited Alexium Limited Alexium Inc. Percentage Owned (ordinary shares) 2020 2019 Country of Incorporation Australia Cyprus USA 100 100 100 100 (1) The parent entity has an interest free unsecured loan with Alexium Inc. amounting to $42,523,293 (2019: $39,186,654). (2) The parent entity has an interest free unsecured loan with Alexium Ltd amounting to $282,820 (2019: $291,446). 22. FINANCIAL INSTRUMENTS (a) Interest rate risk exposures The Company is exposed to interest rate risk through primary financial assets and liabilities. The carrying amounts of financial assets and financial liabilities held at balance date approximate their estimated net fair values and are given below. The net fair value of a financial asset or a financial liability is the amount at which the asset could be exchanged, or liability settled in a current transaction between willing parties after allowing for transaction costs. The Company’s exposure to interest rate risk and the effective weighted average interest rate for classes of financial assets and financial liabilities is set out below: Weighted Average Effective Interest Rate % Variable Interest Rate $ Fixed Maturity Dates > 1 Year $ 1-5 Years $ 5+ years $ Non- Interest Bearing $ Total $ 2020 Financial Assets Cash and cash equivalents Trade and other receivables/other financial assets Financial Liabilities Trade and other payables Lease liabilities Convertible note Derivative liability Other borrowings 2019 Financial Assets Cash and cash equivalents Trade and other receivables/other financial assets Financial Liabilities Trade and other payables Lease liabilities Convertible note Derivative liability 0.27 3,503,515 1,237,736 - - - 3,503,515 - 1,237,736 - - - - - - - 4,741,251 979,680 979,680 979,680 5,720,931 - 9.60 6.00 - 1.0 - - - - - - - - 235,484 - - - 235,484 - 1,004,491 3,611,566 1,810,494 460,352 6,886,903 - 280,766 - - - 280,766 905,513 - - - - 905,513 905,513 1,520,741 3,611,566 1,810,494 460,352 8,308,666 0.38 3,138,132 - - - 3,138,132 - - - - - - - 9.27 13.50 - - - - - - - - 198,438 - - 198,438 - 206,217 9,000,000 658,141 9,864,358 - - - - - - - - 705,211 3,843,343 962,023 1,667,234 962,023 4,805,366 1,558,500 - - - 1,558,500 404,655 9,000,000 658,141 1,558,500 11,621,296 ALEXIUM INTERNATIONAL GROUP LIMITED 44 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 (b) Interest rate risk At 30 June 2020, if interest rates had increased by 1% from the yearend variable rates with all other variables held constant, post tax profit and equity for the Company would have been $47,413 higher (2019: $38,433 higher) based on cash and cash equivalents. The 1% sensitivity is based on reasonable possible changes using an observed range of historical RBA movements over the last year. (c) Foreign currency risk The Company currently conducts its operations across international borders. A large proportion of the Company’s revenues, cash inflows, other expenses, capital expenditure and commitments are denominated in foreign currencies, mostly with costs and income in US dollars with smaller, less frequent transactions in GBP, Euros and Australian Dollars. Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the Company holds financial instruments which are other than the AUD functional currency of the parent or USD functional currency of US Alexium, Inc. or the UK pound sterling functional currency of Alexium Ltd. With instruments being held by overseas operations, fluctuations in the Australian dollar and to a lesser degree UK pound sterling may impact on the Company’s financial results. The following table shows the foreign currency risk on the financial assets and liabilities of the Company’s operations denominated in currencies other than the functional currency of the operations. 2020 Australian dollar US dollar UK pound sterling Statement of financial position exposure 2019 Australian dollar US dollar UK pound sterling Statement of financial position exposure Net Financial Assets/(Liabilities) in USD USD AUD GBP Total USD 42,523,293 - 559,032 43,082,325 - (42,523,293) (282,820) (42,806,113) 282,820 (559,032) - (276,212) 42,806,113 (43,082,325) 276,212 - 39,186,654 - 560,632 39,747,286 - (39,186,654) (291,446) (39,478,100) 291,446 (560,632) - (269,186) 39,478,100 (39,747,286) 269,186 - The above balances relate to intercompany loans between member companies of the Company. (d) Credit Risk Credit risk arises from the financial assets of the Company, which comprise cash and cash equivalents. The Company's exposure to credit risk arises from potential default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The Company does not hold any credit derivatives to offset its credit exposure. The Company’s exposure to credit risk is minimal. Total bad debt expense for the year was nil. As the Company does not currently have any significant debtors, lending, stock levels or any other credit risk, a formal credit risk management policy is not maintained. (e) Liquidity risk The Company manages liquidity risk by continuously monitoring scheduled debt servicing payments for long-term financial liabilities as well as forecasted cash inflows and outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day basis, as well as based on a rolling 30-day projection. Long-term liquidity needs for a 180-day and 360-day period are identified monthly. Net cash requirements are compared to available borrowing facilities to determine headroom or shortfalls. The Company’s non-derivative financial liabilities have contractual maturities as summarised below: 2020 Trade and other payables Lease liabilities Borrowings Statement of financial position exposure 2019 Trade and other payables Finance lease obligations Borrowings Statement of financial position exposure ALEXIUM INTERNATIONAL GROUP LIMITED Current 1-5 Years 5+ years 905,513 235,484 - 1,140,997 - 1,004,491 5,981,427 6,985,918 - 280,766 - 280,766 1,558,500 198,438 - 1,756,938 - 206,217 10,944,000 11,150,217 - - - - 45 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 (f) Fair values of financial assets and liabilities Cash and cash equivalents The carrying amount approximates fair value because of their short-term to maturity. Trade receivables and trade creditors The carrying amount approximates fair value Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3: unobservable inputs for the asset or liability. As at 30 June 2020 and 2019, there were no other financial assets and liabilities other than cash, trade receivables and payables, and borrowings. Measurement of fair value of financial instruments The Company’s finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values, in consultation with third party valuation specialists for complex valuations. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. Valuation processes and fair value changes are discussed among the audit committee and the valuation team at least every year. Embedded derivatives (Level 3) The assessed fair values of the derivatives were determined using a Black-Scholes option pricing model which approximates the results that would have been achieved by using a Monte Carlo binomial lattice simulation. The model considers the expected price volatility of the underlying instrument, expected dividend yield and the risk-free interest rate. A collection of comparable companies has been used as a proxy for the volatility determined. The embedded derivative liability is classified as non-current based on a convertible note maturity of four years. The following shows the levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis: 2020 Derivative liability Statement of financial position exposure 2019 Derivative liability Statement of financial position exposure There were no Level 1 or Level 2 transfers in 2020 or 2019. 23. PARENT ENTITY INFORMATION Level 1 Level 2 Level 3 Total - - - - - - - - 1,810,494 1,810,494 1,810,494 1,810,494 658,141 658,141 658,141 658,141 The following details information related to the parent entity, Alexium International Group Limited. The information presented here has been prepared using consistent accounting policies as presented in Note 2. Current Assets Non-current assets Total Assets Current Liabilities Long Term Liabilities Total Liabilities Contributed equity Accumulated losses Performance rights reserves Option reserves Total Equity Loss for the year 2020 1,656,632 7,794,935 9,451,567 233,638 3,790,372 4,024,010 2019 698,849 7,067,227 7,766,076 128,786 7,254,294 7,383,080 65,943,807 (61,355,889) 113,569 726,070 5,427,557 54,367,832 (60,641,008) 1,021,204 5,634,968 382,996 (6,314,423) (6,971,414) ALEXIUM INTERNATIONAL GROUP LIMITED 46 NOTES ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 June 2020 24. COMMITMENTS AND CONTINGENCIES The Company has the following contingent liabilities and commitments: (a) Commitments The Company does not have any commitments beyond those disclosed as disclosed in the notes above. (b) Contingencies The Company has no contingent liabilities. 25. DIVIDENDS No dividend has been declared or paid during the current financial year or the prior financial year. The Company does not have any franking credits available for current or future years as it is not in a tax paying position. 26. SUBSEQUENT EVENTS There has not arisen any item, transaction or event of a material and unusual nature, which in the opinion of the Directors of the Company, is likely to significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company, in future financial years. ALEXIUM INTERNATIONAL GROUP LIMITED 47 DIRECTOR’S DECLARATION The Directors of the Company declare that: 1. The financial statements, comprising the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of financial position, consolidated statement of cash flows, consolidated statement of changes in equity and accompanying notes, are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards and the Corporations Regulations 2001, other mandatory professional reporting requirements b. give a true and fair view of the Company’s financial position as at 30 June 2020 and of its performance for the year ended on that date; and c. comply with International Financial Reporting Standards as disclosed in Note 2 of the financial statements. 2. The remuneration disclosures included in the Directors’ Report (as part of the audited Remuneration Report) for the year ended 30 June 2020, comply with section 300A of the Corporations Act 2001 (Cth). 3. In the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 4. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001 (Cth). This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Rosheen Garnon Chair Dated 28 August 2020 ALEXIUM INTERNATIONAL GROUP LIMITED 48 INDEPENDENT AUDITOR’S REPORT ALEXIUM INTERNATIONAL GROUP LIMITED 49 INDEPENDENT AUDITOR’S REPORT ALEXIUM INTERNATIONAL GROUP LIMITED 50 INDEPENDENT AUDITOR’S REPORT ALEXIUM INTERNATIONAL GROUP LIMITED 51 INDEPENDENT AUDITOR’S REPORT ALEXIUM INTERNATIONAL GROUP LIMITED 52 SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 11 August 2020. Quoted equity securities 634,456,542 fully paid ordinary shares are held by 4,502 shareholders. Unquoted equity securities Date Options/Warrants Granted 01-Oct-15 04-Nov-16 04-Nov-16 04-Nov-16 31-Dec-19 Expiry Date 30-Sep-20 04-Nov-19 04-Nov-19 04-Nov-19 29-Mar-23 Exercise price of shares No. under options A$ 0.75 A$ 0.75 A$ 1.25 A$ 1.75 A$ 0.35 1,500,000 300,000 300,000 300,000 4,255,319 Shareholder distribution The number of shareholders, by size of holding, are: Holding Range Units Holders Total Units 1 1,001 5,001 10,001 100,001 - - - - - 1,000 5,000 10,000 100,000 999,999,999 481 1,077 684 1,720 540 4,502 194,969 3,199,246 5,473,803 65,122,336 560,466,188 634,456,542 % Issued Share Capital 0.03% 0.50% 0.86% 10.26% 88.34% 100.00% Unmarketable parcels Minimum parcel A$500 at $0.060 per unit Holding Range Units Substantial holders Rank Name 1 COLINTON CAPITAL PARTNERS PTY LTD - COLINTON CP FUND 1 (A) A/C 2 SANDHURST TRUSTEES LTD - WENTWORTH WILLIAMSON A/C 3 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 4 DR STUART LLOYD PHILLIPS & MRS FIONA JANE PHILLIPS - L & FJ PHILLIPS PENS F A/C Holders Total Units 1,936 5,919,899 % Issued Share Capital 0.93% Total Units 71,145,234 58,826,712 50,497,322 36,803,605 % Issued Share Capital 11.21% 9.27% 7.96% 5.80% Voting rights The voting rights attaching to each class of equity securities are set out below: • Ordinary shares: On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. • Options: No voting rights. • Warrants: No voting rights. Stock exchange listing • Quotation has been granted for all the ordinary shares of the company on all Member Exchanges of the Australian Stock Exchange Ltd. ALEXIUM INTERNATIONAL GROUP LIMITED 53 SHAREHOLDER INFORMATION Equity Security Holders Twenty largest holders of quoted equity securities: Name COLINTON CAPITAL PARTNERS PTY LTD - COLINTON CP FUND 1 (A) A/C SANDHURST TRUSTEES LTD - WENTWORTH WILLIAMSON A/C J P MORGAN NOMINEES AUSTRALIA PTY LIMITED DR STUART LLOYD PHILLIPS & MRS FIONA JANE PHILLIPS - L & FJ PHILLIPS PENS F A/C HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NAAM GROUP PTY LTD - NAAM INVESTMENT A/C HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 BOND STREET CUSTODIANS LIMITED - LAM1 - D08059 A/C DDH GRAHAM LIMITED - THE LUGARNO FUND A/C Rank 1 2 3 4 5 6 7 8 9 10 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - EUROCLEAR BANK SA NV A/C 11 MR HERMAN BROOKINS 12 DUCKY'S LIFELINE PTY LTD - THE R EDWARDS SUPER A/C 13 MNM CAPITAL PTY LTD - BRIGHT FUTURE A/C 14 15 MR MARTIN KEITH THOMAS & MRS HELEN PATRICIA THOMAS 16 17 18 DR STUART LLOYD PHILLIPS & MRS FIONA JANE PHILLIPS - SL & FJ PHILLIPS S/F A/C 19 DAVID RIVETT PTY LIMITED - SUPER FUND A/C 20 LOMAND SERVICES LIMITED CANNOW PTY LTD - C & T FAMILY S/FUND A/C BOND STREET CUSTODIANS LIMITED - LAM1 - D08047 A/C CITICORP NOMINEES PTY LIMITED Total Units 71,145,234 58,826,712 50,497,322 36,803,605 22,460,535 18,874,256 13,835,189 9,966,667 9,200,000 8,337,055 8,333,333 8,200,552 6,658,082 6,174,040 5,431,500 5,281,500 4,400,000 4,280,000 4,000,000 3,772,798 % Issued Share Capital 11.21% 9.27% 7.96% 5.80% 3.54% 2.97% 2.18% 1.57% 1.45% 1.31% 1.31% 1.29% 1.05% 0.97% 0.86% 0.83% 0.69% 0.67% 0.63% 0.59% ALEXIUM INTERNATIONAL GROUP LIMITED 54
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