Alterity Therapeutics Limited
Annual Report 2019

Plain-text annual report

A N N U A L R E P O R T 2 0 1 9 An alternate future Alterity Therapeutics Limited (formerly Prana Biotechnology Limited) ACN 080 699 065 Lodged with the ASX under Listing Rule 4.3A. This information should be read in conjunction with the Annual report. Alterity Therapeutics Limited Appendix 4E - Preliminary Final Report For the year ended 30 June 2019 Name of entity ABN or equivalent company reference Current reporting period Corresponding reporting period Alterity Therapeutics Limited 37 080 699 065 30 June 2019 30 June 2018 Results for announcement to the market $ Revenue for ordinary activities Net loss after tax (from ordinary activities) for the period attributable to members Net loss after tax for the period attributable to members Down Up Up 46.0% to 49.3% 49.3% to to 108,538 12,337,830 12,337,830 Net tangible assets per share Net tangible asset backing per share (cents) Explanation of results 30 June 2019 30 June 2018 1.92 3.01 Alterity Therapeutics Limited recorded revenue of $108,538 for the year ended 30 June 2019 (2018: $201,174), which is interest received on the Group’s bank accounts. Alterity Therapeutics Limited has incurred a loss for the year of $12,337,830 (2018: $8,265,737). This loss has increased due to the increased research and development expenditure relating to the Phase 1 clinical trial of the Company's lead product candidate PBT434. For further details relating to the current period’s results, refer to the Review of operations and activities contained within this document. Changes in controlled entities N/A Other information required by Listing Rule 4.3A N/A Audit These accounts have been audited. An unmodified audit report is provided with the accompanying financial report. Contents Corporate directory Chairman's letter Review of operations and activities Intellectual property report Directors' report Auditor's Independence Declaration Consolidated financial statements Independent auditor's report to the members Shareholder information Page 1 2 3 21 24 43 44 84 90 Directors Mr. Geoffrey Kempler Chairman & CEO Mr. Brian Meltzer Independent Non-Executive Director Mr. Peter Marks Independent Non-Executive Director Mr. Lawrence Gozlan Non-Executive Director Dr. David Sinclair (appointed 8 April 2019) Non-Executive Director Mr. Tristan Edwards (appointed 8 April 2019) Non-Executive Director Dr. George Mihaly (resigned 8 April 2019) Independent Non-Executive Director Dr. Ira Shoulson (resigned 8 April 2019) Non-Executive Director Secretary Mr. Phillip Hains Principal registered office in Australia Level 3, 62 Lygon Street Carlton Victoria 3053, Australia +61 3 9824 5254 Share register Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street Abbotsford Victoria 3067 1300 85 05 05 (within Australia) & +61 3 9414 4000 (overseas) Auditor PricewaterhouseCoopers 2 Riverside Quay Southbank Victoria 3006, Australia Solicitors Quinert Rodda & Associates Level 6/400 Collins St Melbourne Victoria 3000, Australia Website www.alteritytherapeutics.com Alterity Therapeutics Limited Corporate directory 1 Alterity Therapeutics Limited Chairman's letter Dear shareholders, The Company has strengthened its position over the past 12 months, and with this new positioning comes our new identity: Alterity Therapeutics. Alterity means to be in an alternative or different state, and this ties into our science which is based on the altering of proteins in the brain, and our new development path. The recent completion and results of the Phase 1 clinical trial for PBT434, our lead drug compound, validates Alterity’s proposition and is a key milestone in finding unmet clinical needs for treating neurodegenerative Parkinsonian disorders such as Multiple system atrophy (MSA). PBT434 is an oral drug that inhibits alpha-synuclein protein in the brain, which is scientifically implicated in diseases such as MSA, and was found to be safe and well-tolerated in both the elderly and healthy participants in the study. Participants received repeated doses and had adverse event rates comparable to placebo. Alongside this, the drug crossed the blood-brain barrier. This is very encouraging as it indicates that the drug has the potential to impact directly those parts of the brain that are affected by disease, and disrupts the brain’s natural design; keeping anything foreign or external out. We are now planning to present the full data set to several scientific conferences and finalizing opportunities for publication in a peer-reviewed scientific publication. Our reset over this last year was supported through an investment led by the Boston-based company Life Biosciences LLC with A$11.44M received to date. This commitment serves as both an important validation of our drug, and the expertise of our drug development and commercialization team led by David Stamler, MD. This team has a demonstrable track record in successful drug development with three drugs approved by the FDA in the neurodegenerative space. Attracting a team of this calibre speaks to the novelty and promise of our approach to treating some of the most devastating neurodegenerative diseases. The importance of the completion of the Phase 1 trial to investors is transcended only by the patients that we hope to one day treat; patients with atypical Parkinsonian diseases who do not respond to existing drugs or have no effective drug options. With no effective treatments, protein accumulates in their brains and leads to great pain, including slowed movement, muscle rigidity, bowel and bladder problems, and blood pressure issues. With no known alternative treatments currently for Parkinsonian diseases such as MSA, the estimate peak size of sales for PBT434 to treat MSA alone is around US$750 million in the US, this is not to mention the other Parkinsonian diseases PBT434 could potentially treat and jurisdictions outside of the US. The sad treatment predicament for patients with MSA is recognized by global regulators and Alterity was granted Orphan designation by the FDA earlier this year for the treatment of MSA. Orphan Drug designation by the FDA entitles Alterity to seven years of market exclusivity for the use of PBT434 in the treatment of MSA and qualifies the sponsor of the drug for various development incentives of the Orphan Drug Act, including tax credits for qualified clinical testing. Orphan drugs are defined as those intended for the treatment, prevention or diagnosis of a rare disease or condition. The Company has been strengthening its patent portfolio throughout the year with various potential indications for both PBT2 and PBT434 granted which may provide development opportunities for Alterity in the coming years. We also continue to mine our substantial drug discovery library for new compounds within and outside of the neurodegenerative space. We recognize that we have much work to do, to re-engage with investors and raise the profile of our strategy and direction at Alterity. The growing body of evidence in our scientific foundations and PBT434 is not yet reflected in our current market valuation, and as we continue to progress, we expect that this will also reset. We would like to thank you all for your investment in Alterity. The team is committed to grow Alterity into a world class drug company that delivers real value for its investors and we thank them for their tireless and unwavering commitment to creating a better future for those with neurodegenerative disease. Yours sincerely, Mr. Geoffrey Kempler Chairman & CEO 2 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 Review of operations and activities This report provides details of activities and progress for Alterity Therapeutics (formerly Prana Biotechnology) for the year ended 30 June 2019. Alterity is developing first-in-class therapies to treat neurodegenerative diseases. Its lead drug candidate, PBT434, has demonstrated pre-clinical evidence as a potential treatment of Parkinsonian disorders and has had encouraging results in its Phase 1 clinical program, which was completed this year. The scientific hypothesis of PBT434 is that it prevents brain cells from dying by blocking the formation of toxic alpha- synuclein fibrils. The accumulation of the alpha-synuclein protein within neurons and glial support cells is a pathological hallmark of Multiple system atrophy (MSA), a Parkinsonian disorder and Alterity’s first therapeutic target. PBT434 has previously been shown in animal models of Parkinson’s disease (PD) and MSA to reduce alpha-synuclein aggregation, preserve neurons and improve motor function. The Company commenced the year as Prana Biotechnology and following shareholder approval at an Extraordinary General Meeting on 5 April 2019 changed its name to Alterity Therapeutics. The Company will be referred to as Alterity throughout this report. Lead drug compound PBT434 completes phase 1 clinical trial Just prior to the end of the last reporting year, Alterity received ethics committee approval for a clinical trial evaluating the safety and pharmacokinetics of PBT434 in healthy volunteers. The Phase 1 study, conducted in Australia, recruited 70 adult volunteers and ten elderly volunteers with the key goals of assessing the safety, tolerability and drug disposition within the body (pharmacokinetics) of PBT434 after single and multiple oral dose administration. The volunteers in the single ascending dose phase of the study, made up of four cohorts, received progressively higher single oral doses of PBT434 followed by blood sampling over the next 72 hours. In the multiple ascending dose phase of the study, volunteers received eight days dosing with PBT434, administered as three successively higher dose levels, with intensive blood sampling for pharmacokinetics on days 1 and 8. At the two highest multiple dose levels, cerebrospinal fluid was collected at steady state to determine drug penetration to the site of action in the brain. The trial was successfully completed with systemic exposure to the drug comparable between elderly and healthy volunteers. PBT434 was found to be safe and well tolerated. Adverse event rates were found to be comparable with placebo and no subject experienced a serious adverse event or an adverse event that led to discontinuation of the study drug. Importantly, the results indicated that PBT434 not only crosses the blood brain barrier in humans, confirming previous observations in animal studies, but that clinically tested doses achieve concentrations in the brain comparable to those associated with efficacy in animal models of disease. The interim clinical data were presented at the American Academy of Neurology Annual Meeting in Philadelphia, USA in May with plans for the full data to be presented at various scientific conferences in the coming months. The Company has commenced preparations for further clinical studies targeting MSA. Potential drug targets Alterity is focusing on the treatment of Parkinsonian disorders, a group of neurological disorders which have Parkinsonism as a feature. Parkinsonism is a general term for symptoms of slowed of movement, stiffness and tremor, and occurs in idiopathic Parkinson's disease (PD) and atypical forms such as MSA, progressive supranuclear palsy (PSP), among others. The atypical forms of Parkinsonism have a limited response to available drugs for treating symptoms of PD. Alterity is targeting MSA, a highly debilitating disease with no approved treatments. MSA is a rapidly progressive neurodegenerative disorder leading to severe disability and impairment in quality of life. It is a sporadic disease (not inherited) and typically presents in the 50s to 60s. It is an Orphan disease with a prevalence of approximately 5 per 100,000 in the US. In addition to Parkinsonism as described above, affected individuals experience symptoms of autonomic failure such as orthostatic hypotension, bladder dysfunction, erectile dysfunction and constipation as well as cerebellar impairments such as impaired gait, lack of coordination or difficulty speaking. 3 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Orphan Drug designation Alterity applied to the US Food & Drug Administration (FDA) for Orphan Drug designation for the proposed use of PBT434 for the treatment of MSA and the designation was granted in January 2019. Orphan designation entitles Alterity to seven years of market exclusivity for the use of PBT434 in the treatment of MSA and qualifies the sponsor of the drug for various development incentives of the Orphan Drug Act, including tax credits for qualified clinical testing. Pre-clinical evidence building Alterity has continued to build on its body of scientific evidence for PBT434 drug, with the presentation of pre-clinical evidence of PBT434 treatment for MSA at the International Congress of Parkinson’s Disease and Movement Disorders at Hong Kong in October 2018. The pre-clinical data demonstrated that PBT434 prevented α-synuclein aggregation, preserved neurons, decreased the number of glial cell inclusions and reduced motor impairment in an animal model of MSA. These findings are consistent with previous findings in animal models of Parkinson’s disease, in which PBT434 treatment preserved neurons and improved motor function. Candidate product discovery and translational biology programs Important to maintaining a competitive advantage in the biopharmaceutical field is the ability for continuous improvement and innovation in the discovery of novel product candidates. The Alterity research team is making significant progress in evaluating new chemical scaffolds that have potential to intercede in various disease processes. Using structure-activity relationship insights that have been developed over years of testing and validation by Alterity scientists, innovative patentable chemical compounds are being generated. These compounds are initially screened for activity in biological systems relevant to candidate diseases we are targeting. New screens are being investigated that will assess the ability of a compound to intercede in the pathogenic steps thought to underlie the target disease process, such as protein aggregation and hyperphosphorylation as well as downstream activities such as oxidative stress and cell death. Promising candidates arising from the Translational Research program will be tested in relevant animal models of Parkinsonian diseases, other neurodegenerative diseases, and potential applications outside of neurodegeneration. Portfolio development In addition to PBT434, Alterity is continuing to explore clinical development options for PBT2 outside the area of neurodegenerative diseases. Results of operations The Group reported a loss for the year of $12,337,830 (2018: $8,265,737). The loss is after fully expensing all research and development costs. Other income We had other income of $4,951,167 (2018: $3,125,775) relating to a 43.5% tax incentive rebate for eligible research and development activities. Research and development expenses Our research and development expenses consist primarily of expenses for contracted research and development activities conducted by third parties on our behalf. Research and development expenses also include costs associated with the acquisition, development of patents, salaries and fees paid to employees and consultants involved in research and development activities. Our research and development expenses (including research and development expenses paid to related parties) increased to $12,983,185 for the year ended 30 June 2019 from $6,698,016 for the year ended 30 June 2018, an increase of $6,285,169, or 94%. The increase in research and development expenses in the year ended 30 June 2019 is primarily due to the increased research and development activities in relation to the Group’s lead product candidate PBT434 including the Phase I study. 4 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) We believe that Australian Government tax incentive scheme relating to eligible research and development activities, introduced on 1 July 2011, will continue to provide us with significant benefits in future years. Such eligible R&D activities include but are not limited to: • Core activities, which are experimental activities whose outcome cannot be known or determined in advance, but can only be determined by applying a systematic progression of work; • Core activities conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved processes and materials); or Supporting activities that are directly related and designed to support the above. • Under the research and development incentive scheme, entities with an aggregated turnover for the income year of less than A$20 million will be entitled to a 43.5% refundable tax offset. In the year ended 30 June 2019, we recorded $4,825,270 as receivable with respect to funds we will receive in relation to the 2019 financial year under the research and development incentive scheme. Financial position and capital resources As at 30 June 2019, the Group had cash reserves of $14,399,904 (30 June 2018: $15,235,556). For the years ended 30 June 2019 and 30 June 2018, we incurred an operating loss of $12,337,830 and $8,265,737, respectively, and an operating cash outflow of $13,954,818 and $6,245,188, respectively. Cash flows Net cash used in operating activities was $13,954,818 and $6,245,188 during the years ended 30 June 2019 and 30 June 2018, respectively. Our payments to suppliers and employees during the years ended 30 June 2019 and 30 June 2018 were $17,325,579 and $9,466,459, respectively. The $7,709,630 increase in net cash used in operating activities for the year ended 30 June 2019 compared to the year ended 30 June 2018 reflects increased research and development activities related to the conduct of the Phase 1 Clinical trial of PBT434 and other research and development activities. During the years ended 30 June 2019 and 30 June 2018, our payments to suppliers and employees was partially offset by interest income of $119,089 and $198,598 respectively. 5 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks Related to Our Financial Condition We have a history of significant operating losses since we began operations, we expect to continue to incur operating losses for the foreseeable future and may never achieve or maintain profitability. We have not sufficiently advanced the development of any of our product candidates, to market or generate revenues from their commercial application. We have incurred losses in every period since we began operations in 1997 and reported net losses of A$12,337,830, A$8,265,737 and A$7,542,076 during the fiscal years ended June 30, 2019, 2018 and 2017 respectively. As of 30 June 2019, our accumulated deficit was A$141,236,838. We expect to continue to incur additional operating losses over at least the next several years as we expand our research and development and pre-clinical activities and commence clinical trials of our product candidates that includes PBT434 for Parkinsonian diseases, prospectively PBT2 for alternative indications and the development of other compounds. Our actual cash requirements may vary materially from those now planned and will depend upon numerous factors, including: • • • • • • • If we fail to generate revenue and eventually become and remain profitable, or if we are unable to fund our continuing losses, our shareholders could lose all or part of their investments. the continued progress of our research and development programs; the timing, scope, results and costs of nonclinical studies and clinical trials; the cost, timing and outcome of regulatory submissions and approvals; determinations as to the commercial potential of our product candidates; our ability to successfully expand our contract manufacturing services; our ability to establish and maintain collaborative arrangements; and the status and timing of competitive developments. We will need substantial additional funding to complete our clinical trials and to operate our business; such funding may not be available or, if it is available, such financing is likely to substantially dilute our existing shareholders. We have raised US$1,163,562 from the sale of our ordinary shares pursuant to our at-the-market offering facility in the year ended June 30, 2019. We will need to secure additional financing in order to continue to meet our longer-term business objectives, including advancement of our research and development programs and we may also require additional funds to pursue regulatory clearances, defend our intellectual property rights, establish commercial scale manufacturing facilities, develop marketing and sales capabilities and fund operating expenses. We intend to seek such additional funding through public or private financings and/or through licensing of our assets or strategic alliances or other arrangements with corporate partners. Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never achieve, we expect to finance our cash needs primarily through public or private equity offerings, debt financings or through strategic alliances. We cannot be certain that additional funding will be available on acceptable terms or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials, collaborative research or development programs or future commercialization initiatives. In addition, any additional funding that we do obtain will dilute the ownership held by our existing security holders. The amount of this dilution may be substantially increased if the trading price of our shares are lower at the time of any financing. Regardless, the economic dilution to shareholders will be significant if our stock price does not increase significantly, or if the effective price of any sale is below the price paid by a particular shareholder. Any debt financing could involve substantial restrictions on activities and creditors could seek a pledge of some or all of our assets. We have not identified potential sources for the additional financing that we will require, and we do not have commitments from any third parties to provide any future financing. If we fail to obtain additional funding as needed, we may be forced to cease or scale back operations, and our results, financial condition and stock price would be adversely affected. 6 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks Related to Our Financial Condition (continued) We are a development stage company whose pharmaceutical products are designed to treat degenerative diseases of the brain. We have not sufficiently advanced the development of any of our candidate products, to market or generate revenues from their commercial application. Our current or any future product candidates, if successfully developed, may not generate sufficient or sustainable revenues to enable us to be profitable. Risks Related to Our Business We are a development stage company of pharmaceutical products and our success is uncertain. We are a development stage company whose pharmaceutical products are designed to treat degenerative diseases of the brain. We have not sufficiently advanced the development of any of our candidate products, to market or generate revenues from their commercial application. Our current or any future product candidates, if successfully developed, may not generate sufficient or sustainable revenues to enable us to be profitable. We are faced with uncertainties related to our research Our research programs are based on scientific hypotheses and experimental approaches that may not lead to desired results. In addition, the timeframe for obtaining proof of principle and other results may be considerably longer than originally anticipated, or may not be possible given time, resource, financial, strategic and collaborator scientific constraints. Success in one stage of testing is not necessarily an indication that the particular program will succeed in later stages of testing and development. It is not possible to predict whether any of the candidate products designed for these programs will prove to be safe, effective, and suitable for human use. Each candidate product will require additional research and development, scale-up, formulation and extensive clinical testing in humans. Unsatisfactory results obtained from a particular study relating to a program may cause us to abandon our commitment to that program or product candidate being tested. The discovery of toxicities, lack of sufficient efficacy, unacceptable pharmacology, inability to increase scale of manufacture, market attractiveness, regulatory hurdles, competition, as well as other factors, may make our targets, lead therapies or product candidates unattractive for further development or unsuitable for human use, and we may abandon our commitment to that program, target, or product candidate. Clinical trials are expensive and time consuming, and their outcome is uncertain In order to obtain approvals to market a new drug product, we or our potential partners must demonstrate proof of safety and efficacy in humans. To meet these requirements, we or our potential partners will have to conduct extensive non-clinical testing and “adequate and well-controlled” clinical trials. Conducting clinical trials is a lengthy, time- consuming and expensive process. The length of time may vary substantially according to the type, complexity, novelty and intended use of the product candidate, and often can be several years or more per trial. Even if we obtain positive results from such non-clinical or initial clinical trials, we may not achieve the same success in future trials. Clinical trials may not demonstrate adequate safety or sufficient effectiveness to obtain the requisite regulatory approvals for product candidates employing our technology. The failure of clinical trials to demonstrate safety and efficacy for a particular desired indication could harm development of that product candidate for other indications as well as other product candidates. We expect to commence new clinical trials from time to time as our product development work continues. Any change in, or termination of, our clinical trials could materially harm our business, financial condition and results of operations. We may experience delays in our clinical trials that could adversely affect our business and operations We do not know whether planned clinical trials will begin on time or whether we will complete any of our clinical trials on schedule or at all. Our ability to commence and complete clinical trials may be delayed by many factors, including: • government or regulatory delays, including delays in obtaining approvals from applicable hospital ethics committees and internal review boards; slower than expected patient enrolment; our inability to manufacture sufficient quantities of our new proprietary compound or our other product candidates or matching controls; unforeseen safety issues; or lack of efficacy or unacceptable toxicity during the clinical trials or non-clinical studies. 7 • • • • Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to our business (continued) Patient enrolment is a function of, among other things, the nature of the clinical trial protocol, the existence of competing protocols, the size and longevity of the target patient population, and the availability of patients who comply with the eligibility criteria for the clinical trial. Delays in planned patient enrolment may result in increased costs, delays or termination of the clinical trials. Moreover, we rely on third parties such as clinical research organizations to assist us in clinical trial management functions including; clinical trial database management, statistical analyses, site management and monitoring. Any failure by these third parties to perform under their agreements with us may cause the trials to be delayed or result in a failure to complete the trials. If we experience delays in testing or approvals or if we need to perform more, larger or more complex clinical trials than planned, our product development costs may increase. Significant delays could adversely affect the commercial prospects of our product candidates and our business, financial condition and results of operations. We rely on research institutions to conduct our clinical trials and we may not be able to secure and maintain research institutions to conduct our future trials We rely on research institutions to conduct our clinical trials. Our reliance upon research institutions, including public and private hospitals and clinics, provides us with less control over the timing and cost of clinical trials, clinical study management personnel and the ability to recruit subjects. If we are unable to reach agreements with suitable research institutions on acceptable terms, or if any resulting agreement is terminated, we may be unable to secure, maintain or quickly replace the research institution with another qualified institution on acceptable terms. We may not be able to complete the development of our product candidates or develop other pharmaceutical products We may not be able to progress with the development of our current or any future pharmaceutical product candidates to a stage that will attract a suitable collaborative partner for the development of any current or future pharmaceutical product candidates. The projects initially specified in connection with any such collaboration and any associated funding may change or be discontinued as a result of changing interests of either the collaborator or us, and any such change may change the budget for the projects under the collaboration. Additionally, our research may not lead to the discovery of additional product candidates, and any of our current and future product candidates may not be successfully developed, prove to be safe and efficacious in clinical trials, meet applicable regulatory standards and receive regulatory approval, be capable of being produced in commercial quantities at reasonable costs, or be successfully or profitably marketed, either by us or a collaborative partner. The products we develop may not be able to penetrate the potential market for a particular therapy or indication or gain market acceptance among health care providers, patients and third-party payers. We cannot predict if or when the development of our current product candidates or any future product candidates will be completed or commercialized, whether funded by us, as part of a collaboration or through a grant. We may need to prioritize the development of our most promising candidates at the expense of the development of other products We may need to prioritize the allocation of development resources and/or funds towards what we believe to be our most promising candidate product or products. The nature of the drug development process is such that there is a constant availability of new information and data which could positively or adversely affect a product in development. We cannot predict how such new information and data may impact in the future the prioritization of the development of our current or future product candidates or that any of our products, regardless of its development stage or the investment of time and funds in its development, will continue to be funded or developed. Our research and development efforts will be seriously jeopardized if we are unable to retain key personnel and cultivate key academic and scientific collaborations Our future success depends to a large extent on the continued services of our senior management and key scientific personnel. We have entered into employment or consultancy agreements with these individuals. The loss of their services could negatively affect our business. Competition among biotechnology and pharmaceutical companies for qualified employees is intense, including competition from larger companies with greater resources, and we may not be able to continue to attract and retain qualified management, technical and scientific personnel critical to our success. Our success is highly dependent on our ability to develop and maintain important relationships with leading academic 8 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to our business (continued) institutions and scientists who conduct research at our request or assist us in formulating our research and development strategies. These academic and scientific collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, these collaborators may have arrangements with other companies to assist such companies in developing technologies that may prove competitive to ours. If we are unable to successfully keep pace with technological change or with the advances of our competitors, our technology and products may become obsolete or non-competitive The biotechnology and pharmaceutical industries are subject to rapid and significant technological change. Our competitors are numerous and include major pharmaceutical companies, biotechnology firms, universities and other research institutions. These competitors may develop technologies and products that are more effective than any that we are developing, or which would render our technology and products obsolete or non-competitive. Many of these competitors have greater financial and technical resources and manufacturing and marketing capabilities than we do. In addition, many of our competitors have much more experience than we do in pre-clinical testing and human clinical trials of new or improved drugs, as well as in obtaining regulatory approvals. We know that competitors are developing or manufacturing various technologies or products for the treatment of diseases that we have targeted for product development. Some of these competitive products use therapeutic approaches that compete directly with our product candidates. Our ability to further develop our products may be adversely affected if any of our competitors were to succeed in obtaining regulatory approval for their competitive products sooner than us. Acceptance of our products in the marketplace is uncertain, and failure to achieve market acceptance will negatively impact our business and operations Our current or future candidate products may not achieve market acceptance even if they are approved by regulatory authorities. The degree of market acceptance of such products will depend on a number of factors, including: • • the receipt and timing of regulatory approvals for the uses that we are studying; the establishment and demonstration to the medical community of the safety, clinical efficacy or cost- effectiveness of our product candidates and their potential advantages over existing therapeutics and technologies; and the pricing and reimbursement policies of governments and third-party payors. • Physicians, patients, payors or the medical community in general may be unwilling to accept, use or recommend any of our products. We have limited large-scale manufacturing experience with our product candidates. Delays in manufacturing sufficient quantities of such materials to the required standards for pre-clinical and clinical trials may negatively impact our business and operations We lack the resources to manufacture any of our product candidates on a clinical or commercial scale and do not currently have, nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug supplies for use in the conduct of our clinical trials. We rely on collaborators and/or third parties for development, scale- up, formulation, optimization, management of clinical trial and commercial scale manufacturing and commercialization. There are no assurances we can scale-up, formulate or manufacture any product candidate in sufficient quantities with acceptable specifications for the conduct of our clinical trials or for the regulatory agencies to grant approval of such product candidate. We have not yet commercialized any products and have no commercial manufacturing experience. To be successful, our products must be properly formulated, scalable, stable and safely manufactured in clinical trial and commercial quantities in compliance with good manufacturing practices (GMP) and other regulatory requirements and at acceptable costs. Should any of our suppliers or our collaborators be unable to supply or be delayed in supplying us with sufficient supplies, no assurance can be given that we will be able to find alternative means of supply in a short period of time. Should such parties’ operations suffer a material adverse event, the manufacturing of our products would also be adversely affected. Furthermore, key raw materials could become scarce or unavailable. We may not be able to meet specifications previously established for product candidates during scale-up and manufacturing. 9 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to our business (continued) There may be a limited number of third parties who can manufacture our products. Our reliance on third parties to manufacture our product candidates will expose us and our partners to risks including the following, any of which could delay or prevent the commercialization of our products, result in higher costs, or deprive us of potential product revenue: • Contract manufacturers can encounter difficulties in achieving the scale-up, optimization, formulation, or volume production of a compound as well as maintaining quality control with appropriate quality assurance. They may also experience shortages of qualified personnel. Contract manufacturers are required to undergo a satisfactory GMP inspection prior to regulatory approval and are obliged to operate in accordance with FDA, International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use ("ICH"), European and other nationally mandated GMP regulations and/or guidelines governing manufacturing processes, stability testing, record keeping and quality standards. A failure of these contract manufacturers to follow GMP and to document their adherence to such practices or failure of an inspection by a regulatory agency may lead to significant delays in the availability of our product candidate materials for clinical study, leading to delays in our trials. • • For each of our current product candidates we will initially rely on a limited number of contract manufacturers. Changing these or identifying future manufacturers may be difficult. Changing manufacturers requires re- validation of the manufacturing processes and procedures in accordance with FDA, ICH, European and other mandated GMP regulations and/or guidelines. Such re-validation may be costly and time-consuming. It may be difficult or impossible for us to quickly find replacement manufacturers on acceptable terms, if at all. Our contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to produce, store and distribute our products successfully. The failure to establish sales, marketing and distribution capability would materially impair our ability to successfully market and sell our pharmaceutical products We currently have no experience in marketing, sales or distribution of pharmaceutical products. If we develop any commercially marketable pharmaceutical products and decide to perform our own sales and marketing activities, we will require additional management, will need to hire sales and marketing personnel and will require additional capital. Qualified personnel may not be available in adequate numbers or at a reasonable cost. Further, our sales staff may not achieve success in their marketing efforts. Alternatively, we may be required to enter into marketing arrangements with other parties who have established appropriate marketing, sales and distribution capabilities. We may not be able to enter into marketing arrangements with any marketing partner, or if such arrangements are established, our marketing partners may not be able to commercialize our products successfully. Other companies offering similar or substitute products may have well-established and well-funded marketing and sales operations in place that will allow them to market their products more successfully. Failure to establish sufficient marketing capabilities would materially impair our ability to successfully market and sell our pharmaceutical products. If healthcare insurers and other organizations do not pay for our products, or impose limits on reimbursement, our future business may suffer The drugs we hope to develop may be rejected by the marketplace due to many factors, including cost. The continuing efforts of governments, insurance companies, health maintenance organizations and other payors of healthcare costs to contain or reduce healthcare costs may affect our future revenues and profitability and those of our potential customers, suppliers and collaborative partners, as well as the availability of capital. In Australia and certain foreign markets, the pricing or profitability of prescription pharmaceuticals is already subject to government control. We expect initiatives for similar government control at both the state and federal level to continue in the United States and elsewhere. The adoption of any such legislative or regulatory proposals could adversely affect our business and prospects. 10 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to our business (continued) Our ability to commercially exploit our products successfully will depend in part on the extent to which reimbursement for the cost of our products and related treatment will be available from government health administration authorities, private health coverage insurers and other organizations. Third-party payors, such as government and private health insurers, are increasingly challenging the price of medical products and services. Uncertainty exists as to the reimbursement status of newly approved health care products and in foreign markets, including the United States. If third-party coverage is not available to patients for any of the products we develop, alone or with collaborators, the market acceptance of these products may be reduced, which may adversely affect our future revenues and profitability. In addition, cost containment legislation and reductions in government insurance programs may result in lower prices for our products and could materially adversely affect our ability to operate profitably. We may be exposed to product liability claims, which could harm our business The testing, marketing and sale of human health care products also entails an inherent risk of product liability. We may incur substantial liabilities or be required to limit development or commercialization of our candidate products if we cannot successfully defend ourselves against product liability claims. We have historically obtained no fault compensation insurance for our clinical trials and intend to obtain similar coverage for future clinical trials. Such coverage may not be available in the future on acceptable terms, or at all. This may result in our inability to pursue further clinical trials or to obtain adequate protection in the event of a successful claim. We may not be able to obtain product liability insurance in the event of the commercialization of a candidate product or such insurance may not be available on commercially reasonable terms. Even if we have adequate insurance coverage, product liability claims or recalls could result in negative publicity or force us to devote significant time, attention and financial resources to those matters. Breaches of network or information technology security, natural disasters or terrorist attacks could have an adverse effect on our business Cyber-attacks or other breaches of network or information technology (IT) security, natural disasters, terrorist acts or acts of war may cause equipment failures or disrupt our research and development operations. In particular, both unsuccessful and successful cyber-attacks on companies have increased in frequency, scope and potential harm in recent years. Such an event may result in our inability, or the inability of our partners, to operate the research and development facilities, which even if the event is for a limited period of time, may result in significant expenses and/or significant damage to our experiments and trials. While we maintain insurance coverage for some of these events, the potential liabilities associated with these events could exceed the insurance coverage we maintain. In addition, a failure to protect employee confidential data against breaches of network or IT security could result in damage to our reputation. Any of these occurrences could adversely affect our results of operations and financial condition. We have been subject, and will likely continue to be subject, to attempts to breach the security of our networks and IT infrastructure through cyber-attack, malware, computer viruses and other means of unauthorized access. However, to date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, resulted in a material impact to our operations or financial condition. We expect to expand our drug development, regulatory and business development capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations We expect to experience significant growth in the number of our employees and consultants and the scope of our operations, particularly in the areas of drug development, regulatory affairs and business development. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations, and have a materially adverse effect on our business. 11 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to government regulation If we do not obtain the necessary governmental approvals, we will be unable to commercialize our pharmaceutical products Our ongoing research and development activities are, and the production and marketing of our pharmaceutical product candidates derived from such activities will be, subject to regulation by numerous international regulatory authorities. Prior to marketing, any therapeutic product developed must undergo rigorous pre-clinical testing and clinical trials and, to the extent that any of our pharmaceutical products under development are marketed abroad, by the relevant international regulatory authorities. For example, in Australia, principally the Therapeutics Goods Administration, or TGA; the Food and Drug Administration, or FDA, in the United States; the Medicines and Healthcare products Regulatory Agency, or MHRA, in the United Kingdom; the Medical Products Agency, or MPA, in Sweden; and the European Medicines Agency, or EMA. These processes can take many years and require the expenditure of substantial resources. Governmental authorities may not grant regulatory approval due to matters arising from pre-clinical animal toxicology, safety pharmacology, drug formulation and purity, insufficient efficacy, clinical side effects or patient risk profiles, or medical contraindications. Failure or delay in obtaining regulatory approvals would adversely affect the development and commercialization of our pharmaceutical product candidates. We may not be able to obtain the clearances and approvals necessary for clinical testing or for manufacturing and marketing our pharmaceutical product candidates. Even if regulatory authorities approve any of our product candidates, the manufacture, labelling, storage, recordkeeping, reporting, distribution, advertising, promotion, marketing, sale, import and export of these drugs will be subject to strict and ongoing regulation. If we, our partners, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may suspend any ongoing clinical trials; issue warning letters or untitled letters; suspend or withdraw regulatory approval; refuse to approve pending applications or supplements to applications; suspend or impose restrictions on operations; seize or detain products, prohibit the export or import of products, or require us to initiate a product recall; seek other monetary or injunctive remedies; or impose civil or criminal penalties. We will not be able to commercialize any current or future product candidates if we fail to adequately demonstrate their safety, efficacy and superiority over existing therapies Before obtaining regulatory approvals for the commercial sale of any of our pharmaceutical products, we must demonstrate through pre-clinical testing and clinical studies that our product candidates are safe and effective for use in humans for each target indication. Results from early clinical trials may not be predictive of results obtained in large- scale, later-stage clinical testing. Even though a candidate product shows promising results in clinical trials, regulatory authorities may not grant the necessary approvals without sufficient safety and efficacy data. We may not be able to undertake further clinical trials of our current and future product candidates as therapies for Alzheimer’s disease, Huntington disease, Parkinsonian movement disorders or other indications or to demonstrate the safety and efficacy or superiority of any of these product candidates over existing therapies or other therapies under development, or enter into any collaborative arrangement to commercialize our current or future product candidates on terms acceptable to us, or at all. Clinical trial results that show insufficient safety and efficacy could adversely affect our business, financial condition and results of operations. Positive results in previous clinical trials of a product candidate may not be predictive of similar results in future clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development. Accordingly, the results from the completed pre-clinical studies and clinical trials for our product candidates may not be predictive of the results we may obtain in later stage trials. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain FDA or EMA approval for their products. 12 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to government regulation (continued) Even if approved, any product candidates that we or our subsidiaries may develop and market may be later withdrawn from the market or subject to promotional limitations We may not be able to obtain the labelling claims necessary or desirable for the promotion of our product candidates if approved. We may also be required to undertake post-marketing clinical trials. If the results of such post-marketing studies are not satisfactory or if adverse events or other safety issues arise after approval, the FDA or a comparable regulatory agency in another country may withdraw marketing authorization or may condition continued marketing on commitments from us or our subsidiaries that may be expensive or time consuming to complete. In addition, if we or others identify adverse side effects after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of our or our subsidiaries’ products, additional clinical trials, changes in labelling of our or our subsidiaries’ products and additional marketing applications may be required. Any reformulation or labelling changes may limit the marketability of such products if approved. Healthcare reform measures and other statutory or regulatory changes could adversely affect our business In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could impact our business. For example, the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “ACA”), enacted in March 2010, substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare D program. Legislative and regulatory proposals impacting upon the healthcare system are submitted regularly and the existing framework in force in various jurisdictions may not apply in the short to long term. If we fail to comply with our reporting and payment obligations under the Medicaid program or other governmental pricing programs, we could be subject to additional reimbursement requirements, penalties, sanctions and fines which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Pricing and rebate calculations vary among products and programs. The calculations are complex and will often be subject to interpretation by us, governmental or regulatory agencies and the courts. If we become aware that our reporting of pricing data for a prior quarter was incorrect, we will be obligated to resubmit the corrected data. For the Medicaid drug rebate program, corrected data must be submitted for a period not to exceed twelve quarters from the quarter in which the data originally were due. Such restatements and recalculations increase our costs for complying with the laws and regulations governing the Medicaid drug rebate program and other governmental pricing programs. We may be liable for errors associated with our submission of pricing data. If we are found to have knowingly submitted false pricing data to the Medicaid program, we may be liable for civil monetary penalties in the amount of up to $100,000 per item of false information. Our failure to submit pricing data to the Medicaid program on a timely basis could result in a civil monetary penalty of $10,000 per day for each day the information is late. Such failure also could be grounds to terminate our Medicaid drug rebate agreement, which is the agreement under which we might participate in the Medicaid drug rebate program. In the event that our rebate agreement is terminated, federal payments may not be available under Medicaid for our covered outpatient drugs. We cannot assure you that our submissions will not be found to be incomplete or incorrect. If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be directly or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. 13 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to government regulation (continued) The pharmaceutical and biotechnology industries are subject to extensive regulation, and from time to time legislative bodies and governmental agencies consider changes to such regulations that could have significant impact on industry participants. For example, in light of certain highly-publicized safety issues regarding certain drugs that had received marketing approval, the U.S. Congress has considered various proposals regarding drug safety, including some which would require additional safety studies and monitoring and could make drug development more costly. The implementation of cost containment measures or other healthcare system reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. Such reforms could have an adverse effect on anticipated revenues from product candidates that impact we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates. In addition, it is possible that there will be further legislation or regulation that could harm our business, financial condition and several results of operations. We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act Our business operations may be subject to anti-corruption laws and regulations, including restrictions imposed by the U.S. Foreign Corrupt Practices Act (the “FCPA”). The FCPA and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. We cannot provide assurance that our internal controls and procedures will always protect us from criminal acts committed by our employees or third parties with whom we work. If we are found to be liable for violations of the FCPA or similar anti-corruption laws in international jurisdictions, either due to our own acts or out of inadvertence, or due to the acts or inadvertence of others, we could suffer from criminal or civil penalties which could have a material and adverse effect on our results of operations, financial condition and cash flows. Risks related to intellectual property Our success depends upon our ability to protect our intellectual property and our proprietary technology, to operate without infringing the proprietary rights of third parties and to obtain marketing exclusivity for our products and technologies obtain and maintain patents to protect our own product candidates and technologies; obtain orphan designation for our product candidates and technologies; obtain licenses to the patented technologies of third parties; operate without infringing on the proprietary rights of third parties; and protect our trade secrets, know-how and other confidential information. Any future success will depend in large part on whether we can: • • • • • Patent matters in biotechnology are highly uncertain and involve complex legal and factual questions. Accordingly, the availability and breadth of claims allowed in biotechnology and pharmaceutical patents cannot be predicted. Any of the pending or future patent applications filed by us or on our behalf may not be approved, we may not develop additional proprietary products or processes that are patentable, or we may not be able to license any other patentable products or processes. Our products may be eligible for orphan designation for particular therapeutic indications that are of relatively low prevalence and for which there is no effective treatment. Orphan drug designation affords market exclusivity post marketing authorization for a product for a specified therapeutic utility. The period of orphan protection is dependent on jurisdiction, for example, seven years in the United States and ten years in Europe. The opportunity to gain orphan drug designation depends on a variety of requirements specific to each marketing jurisdiction and can include; a showing of improved benefit relative to marketed products, that the mechanism of action of the product would provide plausible benefit and the nature of the unmet medical need within a therapeutic indication. It is uncertain if our products will be able to obtain orphan drug designation for the appropriate indications and in the jurisdictions sought. There is a risk that the U.S. Congress, for example, could amend laws to significantly shorten the exclusivity period. Once any regulatory period of exclusivity expires, depending on the status of our patent coverage and the nature of the product, we may not be able to prevent others from marketing products that are biosimilar to or interchangeable with our products, which would materially adversely affect us. 14 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to intellectual property (continued) Our commercial success will also depend, in part, on our ability to avoid infringement of patents issued to others. If a court determines that we were infringing any third-party patents, we could be required to pay damages, alter our products or processes, obtain licenses or cease certain activities. Licenses required under patents held by third parties may not be made available on terms acceptable to us or at all. To the extent that we are unable to obtain such licenses, we could be foreclosed from the development, export, manufacture or commercialization of the product requiring such license or encounter delays in product introductions while we attempt to design around such patents, and any of these circumstances could adversely affect our business, financial condition and results of operations. We may have to resort to litigation to enforce any patents issued or licensed to us or to determine the scope and validity of third-party proprietary rights. We may have to defend the validity of our patents in order to protect or enforce our rights against a third party. Third parties may in the future assert against us infringement claims or claims that we have infringed a patent, copyright, trademark or other proprietary right belonging to them. Any infringement claim, even if not meritorious, could result in the expenditure of significant financial and managerial resources and could negatively affect our profitability. While defending our patents, the scope of the claim may be reduced in breadth and inventorship of the claimed subject matter, and proprietary interests in the claimed subject matter may be altered or reduced. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Any such litigation, regardless of outcome, could be expensive and time consuming, and adverse determinations in any such proceedings could prevent us from developing, manufacturing or commercializing our products and could adversely affect our business, financial condition and results of operations. The patents for our product candidates have varying expiration dates and, if these patents expire, we may be subject to increased competition and we may not be able to recover our development costs or market any of our approved products profitably. In some of the larger potential market territories, such as the United States and Europe, patent term extension or restoration may be available to compensate for time taken during aspects of the product’s development and regulatory review or by procedural delays before the relevant patent office. However, such an extension may not be granted, or if granted, the applicable time period or the scope of patent protection afforded during any extension period may not be sufficient. In addition, even though some regulatory authorities may provide some other exclusivity for a product under their own laws and regulations, we may not be able to qualify the product or obtain the exclusive time period. If we are unable to obtain patent term extension/restoration or some other exclusivity, we could be subject to increased competition and our opportunity to establish or maintain product revenue could be substantially reduced or eliminated. Furthermore, we may not have sufficient time to recover our development costs prior to the expiration of our U.S. and non-U.S. patents. We may face difficulties in certain jurisdictions in protecting our intellectual property rights, which may diminish the value of our intellectual property rights in those jurisdictions The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States and the European Union, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If we or our collaboration partners encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished and we may face additional competition from others in those jurisdictions. Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired and our business, financial condition and results of operations may be adversely affected. Intellectual property rights do not address all potential threats to our competitive advantage The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative: 15 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to intellectual property (continued) • Others may be able to make products that are similar to ours but that are not covered by the claims of the patents that we own. • • • • • • • • Others may independently develop similar or alternative technologies or otherwise circumvent any of our technologies without infringing our intellectual property rights. We or any of our collaboration partners might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we own, license or will own or license. We or any of our collaboration partners might not have been the first to file patent applications covering certain of the patents or patent applications that we or they own or have obtained a license, or will own or will have obtained a license. It is possible that our pending patent applications will not lead to issued patents. Issued patents that we own may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors. Our competitors might conduct research and development activities in countries where we do not have patent rights, or in countries where research and development safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets. The patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business. Compulsory licensing provisions of certain governments to patented technologies that are deemed necessary for the government to access. Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products or product candidates. As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involves both technological and legal complexity. Therefore, obtaining and enforcing pharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the America Invents Act was recently enacted in the United States, resulting in significant changes to the U.S. patent system. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. Patent and Trademark Office, or USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Similarly, the complexity and uncertainty of European patent laws has also increased in recent years. In addition, the European patent system is relatively stringent with regard to the type of amendments that are allowed during prosecution. These changes could limit our ability to obtain new patents in the future that may be important for our business. Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and protect other proprietary information We consider proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets and/or confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and/or confidential know-how can be difficult to maintain as confidential. To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements with us. However, current or former employees, consultants, contractors and advisers may unintentionally or wilfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third-party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. 16 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to intellectual property (continued) Failure to obtain or maintain trade secrets and/or confidential know-how trade protection could adversely affect our competitive position. Moreover, our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets and/or confidential know-how. Risks related to our securities Our stock price may be volatile and the U.S. trading market for our ADSs is limited The market price for our securities, like that of the securities of other pharmaceutical and biotechnology companies, has fluctuated substantially and may continue to be highly volatile in the future. During the last two fiscal years ended 30 June 2019 and subsequently until 30 August 2019, the market price for our ordinary shares on the ASX has ranged from as low as A$0.023 to a high of A$0.078 and the market price of our ADSs on the NASDAQ Capital Market has ranged from as low as U.S.$0.91 to a high of U.S.$3.79. The market price for our securities has been affected by both broad market developments and announcements relating to actual or potential developments concerning products under development. We believe that the following factors, in addition to other risk factors described above and elsewhere in this annual report, will continue to significantly affect the market price of our ordinary shares: • • • • • the results of pre-clinical testing and clinical trials by us and our competitors; developments concerning research and development, manufacturing, and marketing alliances or collaborations by us and our competitors; announcements of technological innovations or new commercial products by us and our competitors; determinations regarding our patent applications, patents and those of others; publicity regarding actual or potential results relating to medicinal products under development by us and our competitors; litigation; economic and other external factors; and period-to-period fluctuations in our operating results. proposed governmental regulations and developments in Australia, the U.S. and elsewhere; • • • • In addition, stock markets have experienced extreme price and volume fluctuations. These fluctuations have especially affected the stock market price of many high technology and healthcare related companies, including pharmaceutical and biotechnology companies, and, in many cases, are unrelated to the operating performance of the particular companies. Market fluctuations, as well as general political and economic conditions, such as a recession, interest rate or currency rate fluctuations, could adversely affect the market price of our securities. Ownership interest in our company may be diluted as a result of additional financings We may seek to raise funds from time to time in public or private issuances of equity, and such financings may take place in the near future or over the longer term. In May 2011, we registered U.S.$50,000,000 of securities for public sale pursuant to our registration statement on Form F-3. In July 2011, we issued a prospectus under such registration statement providing for the sale of up to 50 million ordinary shares represented by 5 million ADSs pursuant to an “At- The-Market” facility. In August 2013 we issued a prospectus providing for the sale of up to U.S.$47,184,000 of our ordinary shares under an amended “At-The-Market” facility. On November 26, 2014, we entered into Amendment No. 2 to our At-The-Market Issuance Sales Agreement, to continue the at-the-market equity program under which we may from time to time sell up to an additional aggregate of $50,000,000 of our ordinary shares represented by ADSs. From November 26, 2014 until June 30, 2015 we sold A$7.1 million of additional ordinary shares under this program. On October 13, 2016, we entered into an At-Market Issuance Sales Agreement, for an at-market offering program under which we may from time to time sell up to an aggregate of U.S.$44,460,787 of our ordinary shares represented by ADSs. On November 8, 2017 we entered into Amendment No. 1 to our At-Market Issuance Sales Agreement to continue the at-market offering program which we may from time to time sell up to an aggregate of $50,000,000 of our ordinary shares represented by ADSs. Since July 1, 2018 and to date, we sold U.S.$1,355,474 of additional ordinary shares under this program. Since the inception of our At-The-Market” facility in 2011 and to date we sold an aggregate of 208,684,810 ordinary shares under this facility and raised a total of A$48.4 million (U.S.$43.9 million) in gross proceeds. 17 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to our securities (continued) Without shareholder approval, we may not issue more than 25% of our outstanding ordinary shares in any twelve month period other than by a pro rata rights offering or a share purchase plan offer (of shares with a value at the issue price of up to A$15,000 per shareholder to a maximum of 30% of our outstanding shares) in each case to the then existing shareholders in accordance with the listing rules of the ASX. Sales of our ADSs offered through our “At-The-Market” facility and future equity offerings may result in substantial dilution to the interests of our current shareholders. The sale of a substantial number of securities to investors, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. There is a substantial risk that we are a passive foreign investment company, or PFIC, to some U.S. investors which will subject those investors to adverse tax rules Holders of our ADSs who are U.S. residents face income tax risks. There is a substantial risk that we are a passive foreign investment company, commonly referred to as a PFIC to some U.S. investors, and a controlled foreign corporation, or CFC to other U.S. investors. Our treatment as a PFIC could result in a reduction in the after-tax return to the holders of our ADSs and would likely cause a reduction in the value of such ADSs. For U.S. federal income tax purposes, we will be classified as a PFIC for any taxable year in which either (i) 75% or more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of passive income. For this purpose, cash is considered to be an asset that produces passive income. As a result of our substantial cash position and the decline in the value of our stock, we believe that we became a PFIC during the taxable year ended June 30, 2005, and once again qualified as a PFIC during each of the following fiscal years. We believe that we once again will be classified as a PFIC for the taxable year ended 30 June 2019 for some U.S. investors. Highly complex rules will apply to U.S. holders owning ADSs. Accordingly, you are urged to consult your tax advisors regarding the application of such rules. We do not anticipate paying dividends on our ordinary shares We have never declared or paid cash dividends on our ordinary shares and do not expect to do so in the foreseeable future. The declaration of dividends is subject to the discretion of our Board of Directors and will depend on various factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our board of directors. You should not rely on an investment in our company if you require dividend income from your investment in our company. The success of your investment will likely depend entirely upon any future appreciation of the market price of our ordinary shares, which is uncertain and unpredictable. There is no guarantee that our ordinary shares will appreciate in value or even maintain the price at which you purchased your ordinary shares. Currency fluctuations may adversely affect the price of our ordinary shares Our ordinary shares are quoted in Australian dollars on the ASX and our ADSs trade on the NASDAQ Capital Market in U.S. dollars. Movements in the Australian dollar/U.S. dollar exchange rate may adversely affect the U.S. dollar price of our ordinary shares. In the past year the Australian dollar has generally depreciated against the U.S. dollar. Any continuation of this trend may negatively affect the U.S. dollar price of our ordinary shares, even if the price of our ordinary shares in Australian dollars decreases or remains unchanged. However, this trend may not continue and may be reversed. If the Australian dollar strengthens against the U.S. dollar, the U.S. dollar price of the ordinary shares could increase, even if the price of our ordinary shares in Australian dollars decreases or remains unchanged. Risks related to our compliance with Sarbanes-Oxley We may fail to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, which could adversely affect our operating results, investor confidence in our reported financial information, and the market price of our ordinary shares and ADSs The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. To comply with this statute, we are required to document and test our internal control over financial reporting. Our efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, governing internal control and procedures for financial reporting, have resulted in increased general and administrative expenses and a diversion of management time and attention, and we expect these efforts to require the continued commitment of significant resources. We may identify material weaknesses or significant deficiencies in our assessments of our internal control over financial 18 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks related to our compliance with Sarbanes-Oxley (continued) reporting. Failure to maintain effective internal control over financial reporting could result in investigations or sanctions by regulatory authorities and could adversely affect our operating results, investor confidence in our reported financial information, and the market price of our ordinary shares and ADSs. Material weaknesses in our disclosure controls and procedures could negatively affect shareholder and customer confidence Under Sarbanes-Oxley, we are required to assess the effectiveness of our disclosure controls and procedures (as defined in Sarbanes-Oxley) on an annual basis. If we were to conclude that our disclosure controls and procedures were ineffective, shareholder and customer confidence could be negatively affected, which could have a material adverse impact on the market price of our ADSs. Risks Related to Our Location in Australia It may be difficult to enforce a judgment in the United States against us and our officers and directors or to assert U.S. securities laws claims in Australia or serve process on our officers and directors. We are incorporated in Australia. At least half of our executive officers and directors are non-residents of the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws in an Australian court against us or any of those persons or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to enforce civil liabilities under U.S. federal securities laws in original actions instituted in Australia. As a foreign private issuer whose shares are listed on The NASDAQ Capital Market, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements As a foreign private issuer whose shares are listed on The NASDAQ Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of The NASDAQ Stock Market Rules, with regard to, among other things, the composition of the board of directors and its committees, director nomination process, compensation of officers and quorum at shareholders’ meetings. In addition, we may choose to follow Australian law instead of The NASDAQ Stock Market Rules that require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. A foreign private issuer that elects to follow a home country practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annual reports each such requirement that it does not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules. As of the date of this report, we have elected to follow home country practices instead of the following NASDAQ requirements: • the Rule related to Audit Committee Composition rule 5605(c)(2)(A)): we may have an audit committee composed of two members instead of “at least three members”. We may not follow NASDAQ rules regarding independence of such members (as long as comply Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, subject to the exemptions provided in rule 10A-3(c)), and we may not have a financially sophisticated member as defined. • the Rule requiring maintaining a majority of independent directors (Rule 5605(b)(1)) • the Rule requiring that our independent directors have regularly scheduled meetings at which only independent directors are present (Rule 56505(b)(2) • the Rule regarding independent director oversight of director nominations process for directors (Rule 5605(e) • the Rule regarding independent director oversight of executive officer compensation (Rule 5605(d) • the requirement to obtain shareholder approval for the establishment or amendment of certain equity based compensation plans (Rule 5635(c), an issuance that will result in a change of control of the company (Rule 5635(b), certain transactions other than a public offering involving issuances of a 20% or more interest in the company (Rule 5635(d) and certain acquisitions of the stock or assets of another company (Rule 5635(a)). 19 Alterity Therapeutics Limited Review of operations and activities 30 June 2019 (continued) Risks Related to Our Location in Australia (continued) Australian takeovers laws may discourage takeover offers being made for us or may discourage the acquisition of large numbers of our ordinary shares. We are incorporated in Australia and are subject to the takeovers laws of Australia. Among other things, we are subject to the Australian Corporations Act 2001, or the Corporations Act. Subject to a range of exceptions, the Corporations Act prohibits the acquisition of a direct or indirect interest in our issued voting shares if the acquisition of that interest will lead to a person’s voting power in us increasing from 20% or below to more than 20%, or increasing from a starting point that is above 20% and below 90%. Australian takeovers laws may discourage takeover offers being made for us or may discourage the acquisition of large numbers of our ordinary shares. This may have the ancillary effect of entrenching our board of directors and may deprive or limit our shareholders’ strategic opportunities to sell their ordinary shares and may restrict the ability of our shareholders to obtain a premium from such transactions. Our Constitution and other Australian laws and regulations applicable to us may adversely affect our ability to take actions that could be beneficial to our shareholders. As an Australian company we are subject to different corporate requirements than a corporation organized under the laws of the United States. Our Constitution, as well as the Corporations Act, set forth various rights and obligations that are unique to us as an Australian company. These requirements operate differently than from many U.S. companies and may limit or otherwise adversely affect our ability to take actions that could be beneficial to our shareholders. For more information, you should carefully review the summary of these matters set forth under the section entitled, “Item 10.B - Additional Information - Memorandum and Articles of Association” as well as our Constitution. 20 Alterity Therapeutics Limited Intellectual property report 30 June 2019 Intellectual property report Since 30 June 2018 Alterity Therapeutics has continued to advance its patents both locally and internationally. Alterity chemists have invented and synthesized a large number of compounds across different chemical groups. Accordingly, in March 2019 the company filed a new provisional patent application that exemplifies in excess of 180 novel compounds. Alterity Therapeutics is confident of securing patent claims to both the composition of matter of those compounds as well as to methods of treating diseases with the use of those compounds. New and ongoing biological data will determine our IP strategy going forward into 2020. In the past 12 months Alterity Therapeutics has advanced a number of existing patent families, as described below. First, ‘National Phase’ patent applications have been prosecuted in 12 jurisdictions, including China, Europe, Japan and the USA for the 4H-Pyrido(1,2-a) Pyrimidin-4-one compounds patent family. The majority of these patent cases include claims to metal protein attenuating compounds (MPAC) compositions of matter. Second, Alterity Therapeutics’ patent family entitled “Method of treating immunoglobulin light chain amyloidosis” has progressed to National Phase in Australia, China, Europe, Japan and the USA. This patent family is directed to the use of PBT2 for the treatment of Light Chain Amyloidosis, which is not a neurodegenerative disease. The company’s Granted patent that claims 8-hydroxyquinoline compounds including PBT2, confers additional patent protection to the PBT2 therapeutic candidate. Another five cases are maintained, being directed to several ‘Follow Up’ or next generation MPAC chemical classes, which comprise MPAC scaffolds that are an alternative to the 8-hydroxyquinoline chemical scaffold. Numerous provisional patents remain filed and are directed to proprietary methods of synthesizing key compounds. Patent prosecution update Patent “8-Hydroxyquinoline Derivatives” Filed: July 16, 2003 Applicant: Prana Biotechnology Limited “Neurologically-Active Compounds” Filed: October 3 , 2003 Applicant: Prana Biotechnology Limited Invention The invention is directed to chemical scaffolds of the 8- Hydroxyquinoline MPAC class and their utility in the treatment of neurological conditions. The invention is directed to alternative MPAC chemical structures and their utility in the treatment of neurological conditions. Status Patents in Europe, the USA, New Zealand, Canada, Japan, Russia, Singapore, South Korea, Australia, Israel, China, Mexico and South Africa have been Granted. A patent in Hong Kong has been registered. Patents in the USA, New Zealand, Canada, Japan, Mexico, India, Australia, China, South Korea, Japan, Israel, South Africa and Singapore have been Granted. A case has been Granted in Europe and has been validated in separate countries. A patent in Hong Kong has been registered. 21 Alterity Therapeutics Limited Intellectual property report 30 June 2019 (continued) Patent prosecution update (continued) Patent “Neurologically- Active Compounds” Filed: April 1, 2005 Applicant: Prana Biotechnology Limited “Method of treatment and prophylaxis and agents useful for same" Filed: April 13, 2007 Applicant: Prana Biotechnology Limited Status Patents have been Granted in Singapore, Japan, Mexico, Russia, Australia, the USA, China, Canada, Europe, India, Sth Korea, Israel, New Zealand and South Africa. A case has been Granted in Europe and has been validated in separate countries. A patent in Hong Kong has been registered. Patents have been Granted in Australia, Singapore, South Africa, Canada, Japan, Israel, China and New Zealand and the USA. A case has been Granted in Europe and has been validated in separate countries. An application is under examination in Brazil. Invention The invention is directed to ‘F4’ MPAC chemical structures and their utility in the treatment of neurological conditions and includes Parkinson’s Disease lead compounds. This invention was originally filed to claim the use of MPAC compounds for the treatment of Age related Macular Degeneration. “A method of prophylaxis or treatment and agents for same”. Filed: June 22, 2007 Applicant: Prana Biotechnology Limited A patent has been Granted in the USA, China, Australia, Canada and Japan. A case has been Granted in Europe and has been validated in separate countries. This invention is directed to novel MPAC compounds and compounds for treating certain brain cancers. “Quinazolinone compounds” Filed: 24 December 2008 Applicant: Prana Biotechnology Limited Patents have been Granted in Japan, Australia, Europe and the USA. This invention is directed to novel MPAC compounds and to selected MPAC’s used in the treatment of Parkinson’s Disease. Particularly new 2,3 disubstituted F4 compounds. “4H-Pyrido(1,2-a) Pyrimidin-4-one compounds” Filed: 2 December 2015 Applicant: Prana Biotechnology Limited PCT National phase patent applications has been filed in Australia, Brazil, Canada, China, EA, EU, India, Japan, Malaysia, NZ, Korea and the USA. A case in the USA has proceed to Grant. This invention is directed to novel MPAC compounds for the treatment of neurodegenerative diseases. Particularly new ‘F3’ compounds. “Method of treating immunoglobulin light chain amyloidosis” Filed: 1 July 2016 Applicant: Prana Biotechnology Limited “Compounds for Methods of Treating Diseases” Filed 15 March 2019 Applicant: Prana Biotechnology Limited A PCT patent application has entered National Phase and awaits examination. This invention is directed to the treatment of light chain amyloidosis with a known compound. An Australian provisional patent application has been filed. This invention is directed to novel new compounds and for the treatment of neurodegenerative diseases. 22 Alterity Therapeutics Limited Intellectual property report 30 June 2019 (continued) Patent prosecution update (continued) Patent “A method of the production of 2- substituted-3H-quinazolin-4-ones- I” Filed: 12 March 2019 Applicant: Prana Biotechnology Limited “A method of the production of 2- substituted-3H-quinazolin-4-ones- II” Filed: 12 March 2019 Applicant: Prana Biotechnology Limited “Processes for the preparation of 8-Hydroxyquinoline Derivatives” Filed: 4 January 2019 Applicant: Prana Biotechnology Limited Status An Australian provisional application has been refiled. Invention This invention is directed to synthetic routes for quinazolinone compounds. An Australian provisional application has been refiled. This invention is directed to synthetic routes for quinazolinone compounds. An Australian provisional application has been refiled. This invention is directed to synthetic routes for 8- Hydroxyquinoline Derivatives. 23 Alterity Therapeutics Limited Directors' report 30 June 2019 Directors' Report Your directors present their report on the consolidated entity consisting of Alterity Therapeutics Limited (formerly Prana Biotechnology Limited) and the entities it controlled at the end of, or during, the year ended 30 June 2019. Throughout the report, the consolidated entity is also referred to as the group. Directors and company secretary The following persons held office as directors of Alterity Therapeutics Limited during the financial year: Mr. Geoffrey Kempler, Chairman & CEO Mr. Brian Meltzer, Independent Non-Executive Director Mr. Peter Marks, Independent Non-Executive Director Mr. Lawrence Gozlan, Non-Executive Director Dr. David Sinclair, Non-Executive Director (appointed 8 April 2019) Mr. Tristan Edwards, Non-Executive Director (appointed 8 April 2019) Dr. George Mihaly, Independent Non-Executive Director (resigned 8 April 2019) Dr. Ira Shoulson, Non-Executive Director (resigned 8 April 2019) Company secretary Mr. Phillip Hains is a Chartered Accountant operating a specialist public practice, 'The CFO Solution'. The CFO Solution focuses on providing back office support, financial reporting and compliance systems for listed public companies. A specialist in the public company environment, Mr. Hains has served the needs of a number of company boards and their related committees. He has over 25 years' experience in providing businesses with accounting, administration, compliance and general management services. He holds a Master of Business Administration from RMIT and a Public Practice Certificate from the Institute of Chartered Accountants. Principal activities The Group's principal activities during the course of the year were to commercialise research into Parkinsonian movement disorders, Alzheimer's disease, Huntington disease and other neurodegenerative disorders. There have been no significant changes in the nature of those principal activities during the financial year. Dividends paid or recommended The Directors did not pay any dividends during the financial year (2018: nil). The Directors do not recommend the payment of a dividend in respect of the 2019 financial year (2018: nil). Review and results of operations The consolidated net loss of the group after providing for income tax amounted to $12,337,830 (2018: $8,265,737). For further details, refer to the Review of operations and activities set out on pages 3 to 20. Share options granted to directors and key management personnel During or since the end of the financial year 1,250,000 share options were granted by Alterity Therapeutics Limited to the directors or other key management personnel of the Group (2018: 10,000,000). Loss per share Basic and diluted loss per share for the year 2019 was 2.00 cents (2018: 1.55 cents). Corporate structure Alterity Therapeutics Limited is a company limited by shares that was incorporated in and is domiciled in Australia. Alterity Therapeutics Limited has 2 wholly owned subsidiaries: 24 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Corporate structure (continued) • Alterity Therapeutics Inc. (formerly Prana Biotechnology Inc), a company limited by shares that was incorporated in and is domiciled in the United States; and • Alterity Therapeutics UK Limited (formerly Prana Biotechnology UK Limited), a company limited by shares that was incorporated in and is domiciled in the United Kingdom. Employees The Group had 14 employees (excluding Directors) at 30 June 2019 (30 June 2018: 14 employees). Significant changes in the state of affairs Investment by Life Biosciences LLC In December 2018, Alterity entered into a securities purchase agreement for a lead investment by Boston-based Life Biosciences LLC. This transaction was approved by shareholders on 5 April 2019 and completed on 8 April 2019. A$10.52 million has been received from Life Biosciences LLC as part of this investment. An additional A$0.92m was also raised from unrelated third-party investors at the same time. Name change to Alterity Therapeutics Limited Linked to the strategic investment of Life Biosciences the Company changed its name to Alterity Therapeutics Limited from Prana Biotechnology Limited. Alterity means to be in an alternative or different state, which ties to both the Company’s science which is based on the altering of proteins in the brain, and to the impact we hope to have on the patients who will one day have access to our treatments; to alter the course of their disease for the better. There have been no other significant changes in the state of affairs of the group during the year. Events since the end of the financial year Information relating to events since the end of the financial year is set out in note 14 of the consolidated financial statements. On 29 July 2019, the Group announced it has successfully completed its Phase 1 study of PBT434, a novel, orally bioavailable small molecule inhibitor of alpha-synuclein aggregation. No other matters or circumstances, other than those disclosed in note 14 of the consolidated financial statements, have arisen since 30 June 2019 that have significantly affected the group's operations, results or state of affairs, or may do so in future years. Likely developments and expected results of operations The likely developments in the Group's operations, to the extent that such matters can be commented upon, are covered in the Review of operations and activities on pages 3 to 20 of this report. Environmental regulation The Group is involved in scientific research and development, and the activities do not create any significant environmental impact to any material extent. The Group's scientific research activities are in full compliance with all prescribed environmental regulations. Information on directors The names and particulars of Directors of the Group in office as at the date of this report: 25 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Information on directors (continued) Mr. Geoffrey Kempler Chairman & CEO Appointed to the Board Last elected by shareholders Qualifications Experience and expertise Other current directorships Former directorships in last 3 years Committees Interests in shares and options 11 November 1997 17 November 2004 B.Sc. Grad. Dip. App. Soc. Psych Mr Kempler has served as Chairman of our Board of Directors since November 1997, between November 1997 and August 2004 he served as our Chief Executive Officer, and in June 2005 he again assumed the position of Chief Executive Officer. Mr Kempler is one of the founders of the Group. Mr Kempler is a qualified psychologist. Mr Kempler, who has extensive experience in investment and business development, has been responsible for the implementation of our strategic plan and the commercialisation of our technology. Opthea Limited (appointed 30 November 2015) Nil Nil Ordinary shares Options over ordinary shares 18,011,000 5,000,000 Mr. Brian Meltzer Independent Non-Executive Director Appointed to the Board Last elected by shareholders Qualifications Experience and expertise Other current directorships Former directorships in last 3 years Committees Interests in shares and options 9 December 1999 17 November 2016 B. Com., M Ec. Subsequent to several years as Chief Economist of ICI Australia (now Orica), Mr Meltzer spent 25 years in investment banking. His breadth of expertise includes major property transactions, corporate advisory, corporate finance, management buyouts, venture capital and large scale syndications. He has held a number of Board and Board Advisory roles for private companies in the human resources, health, aged care, software, entertainment and finance sectors, including Director of a federal government licensed Innovation Investment Fund and co-founder of OSA Group, a provider of mental health services to corporates. Mr Meltzer is also a Director of the Australia-Israel Chamber of Commerce, Chairman of Independence Australia and Chairman of a privately owned corporate health business. Nil Nil Chairman of the Audit Committee and member of the Remuneration Committee. Ordinary shares Options over ordinary shares 326,666 1,250,000 26 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Information on directors (continued) Mr. Peter Marks Independent Non-Executive Director Appointed to the Board Last elected by shareholders Qualifications Experience and expertise Other current directorships Former directorships in last 3 years Committees Interests in shares and options 29 July 2005 17 November 2017 BEc LLB Grad. Dip. Comm. Law MBA For the period November 21, 2006 to October 20, 2011, Mr. Marks has also served as Executive Chairman of iSonea Ltd, formerly KarmelSonix Ltd, a medical devices company listed on the ASX that was focused on developing and commercializing a range of devices in the respiratory and medicine space. For over 13 years until the end of August 2014, Mr. Marks was a Director of Peregrine Corporate Ltd, an Australian-based investment bank. Mr. Marks was until late 2016, a Director of Armadale Capital Plc (formerly Watermark Global Plc), an AIM listed investment company, focused on natural resources projects based principally in Africa with its current major investments being a gold exploration company in DRC and a coal briquetting operation in South Africa. Mr. Marks is currently a Principal of Henslow Pty Ltd (formerly Halcyon Corporate Pty Ltd), a corporate and capital markets advisory firm specializing in advising small to mid-cap companies. Mr. Marks is a non-executive Director of Fluence Corporation Ltd. (formerly Emefcy Group Limited and prior to that Savcor Group Limited), an ASX listed municipal & industrial waste water technology business. Mr. Marks is also a non-executive director of Terragenic International Ltd, (renamed to Electriq~Global Ltd) an unlisted public company developing a novel hydrogen fuel system. He also currently serves as Director of ASX listed biotech company, Noxopharm Ltd. which is progressing a clinical program in using chemical sensitisers to enhance the effectiveness of existing chemotherapy drugs and radiation therapies and a Director of Noxopharm subsidiary, Nyrada Inc, which is developing several pre-clinical non-oncology projects. From September 1998 until March 2001, Mr. Marks was employed by KPMG Corporate Finance Ltd (Australia), where he rose to Director and was responsible for heading up the equity capital markets group in Melbourne. From January 1992 until July 1994, Mr. Marks served as Head of the Melbourne Companies Department at the ASX and was founding Director of Momentum Funds Management Pty Ltd, an Australian venture capital firm. From December 1990 until December 1991, Mr. Marks served as Director of Corporate Finance at Burdett Buckeridge & Young Ltd in their Melbourne offices, from August 1988 until November 1990, he held senior corporate finance position at Barings Securities Ltd, and from July 1985 until July 1988, he served as an Associate Director of McIntosh Securities, now Merrill Lynch Australia. In his roles with these various financial institutions, Mr. Marks was responsible for advising a substantial number of listed and unlisted companies on issues ranging from corporate and company structure, to valuation, business strategies, acquisitions and international opportunities. Mr. Marks holds a Bachelor of Economics degree, a Bachelor of Law degree and Graduate Diploma in Commercial Law from Monash University in Melbourne, Australia, and an MBA degree from the Scottish School of Business at the University of Edinburgh. Fluence Corporation Ltd (appointed March 2015) Noxopharm Ltd (appointed March 2016) Nyrada Inc (appointed March 2018) Armadale Capital Plc Member of the Audit Committee and Chairman of the Remuneration Committee Ordinary shares Options over ordinary shares 43,111 1,250,000 27 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Information on directors (continued) Mr. Lawrence Gozlan Non-Executive Director Appointed to the Board 8 August 2011 17 November 2017 Last elected by shareholders Qualifications Experience and expertise Mr. Gozlan, a leading biotechnology investor and advisor, is the Chief Investment Officer and Founder of Scientia Capital, a specialised global investment fund focused exclusively in life sciences. Scientia Capital was founded to provide high level expertise and to manage investments for high net worth individuals, family offices and institutional investors wanting exposure to the biotechnology industry. B.Sc.(Hons) Prior to this, Mr. Gozlan was responsible for the largest biotechnology investment portfolio in Australia as the institutional biotechnology analyst at QIC (“the Queensland Investment Corporation”), an investment fund with over A$60 billion under management. He previously worked as the senior biotechnology analyst in the equities team at Foster Stockbroking Pty Ltd, and gained senior corporate finance experience advising life sciences companies at Deloitte. Mr. Gozlan is currently a Director of a number of private biotechnology companies in the USA. He holds a Bachelor of Science with Honors in microbiology and immunology from the University of Melbourne. Other current directorships Former directorships in last 3 years Committees Interests in shares and options Nil Nil Nil Ordinary shares Options over ordinary shares Nil 1,250,000 28 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Information on directors (continued) Dr. David Sinclair Non-Executive Director Appointed to the Board Last elected by shareholders Qualifications Experience and expertise Other current directorships Former directorships in last 3 years Committees Interests in shares and options 8 April 2019 5 April 2019 Ph.D., AO Dr. Sinclair is the co-founder and chairman of Life Biosciences LLC. He is also a tenured professor in the Department of Genetics at Harvard Medical School, a co-director of the Paul F. Glenn Center for the Biology of Aging Research, and serves on the non-profit boards of the American Federation for Aging Research and the Sanford Lorraine Cross Award. Dr. Sinclair is regarded as one of the world’s leading researchers on aging and age-associated diseases, with key contributions to understanding why we age and how to slow and even reverse the process. He has co-founded multiple biotechnology and genomics companies working on aging, neurological, metabolic, infectious and rare diseases. He has received more than 35 awards for his medical research, innovation, and teaching. In 2014, he was named in TIME Magazine’s “100 Most Influential People in the World” and in 2018 was named in TIME Magazine’s “50 Most Influential People in Health Care”. In 2018 Dr Sinclair was appointed an Officer of the Order of Australia for “distinguished service to medical research into the biology of aging and lifespan extension, as a geneticist and academic, to biosecurity initiatives, and as an advocate for the study of science”. Nil Nil Nil Ordinary shares Options over ordinary shares Nil Nil 29 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Information on directors (continued) Mr. Tristan Edwards Non-Executive Director Appointed to the Board Last elected by shareholders Qualifications Experience and expertise Other current directorships Former directorships in last 3 years Committees Interests in shares and options 8 April 2019 5 April 2019 BCom, CFA, CMT, CPA following a 16-year investment career spanning Mr Edwards is the co-founder and President of Life Biosciences LLC. Tristan has extensive global financial capital markets, regulatory compliance, and fiduciary oversight experience, financial organizations across Australia, London, HK and Singapore. His professional background has been in senior investment roles at leading financial groups such as Goldman Sachs, Brevan Howard, Trafalgar Capital and Mosaic Asset Management. He started his career as an analyst with the Australian Commonwealth Department of Finance. Tristan has a degree in Commerce from the University of Tasmania, and held the CFA, CMT and CPA designations. Nil leading Nil Nil Ordinary shares Options over ordinary shares Nil Nil 30 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Remuneration report The information provided under sections (a) to (f) includes remuneration disclosures that are required under Accounting Standard AASB 124 Related Party Disclosures. The information in this report has been audited as required by section 308(3C) of the Corporations Act 2001. Directors The following persons were Directors of the Group during the financial year: Name Position Mr. Geoffrey Kempler Chairman & CEO Mr. Brian Meltzer Dr. George Mihaly Mr. Peter Marks Independent Non-Executive Director Independent Non-Executive Director (resigned 8 April 2019) Independent Non-Executive Director Mr. Lawrence Gozlan Non-Executive Director Dr. David Sinclair Non-Executive Director (appointed 8 April 2019) Mr. Tristan Edwards Non-Executive Director (appointed 8 April 2019) Dr. Ira Shoulson Non-Executive Director (resigned 8 April 2019) Other key management personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly during the financial year: Name Position Ms. Kathryn Andrews Chief Financial Officer Dr. David Stamler Chief Medical Officer and Senior Vice President Clinical Development Mr Kempler, Ms Andrews and Dr Stamler were the only executives of the Group during the financial year ended 30 June 2019. The remuneration report is set out under the following main headings: (a) (b) (c) (d) (e) (f) Principles used to determine the nature and amount of remuneration Details of remuneration Share-based compensation Key management personnel disclosure Employment contracts of Directors and other key management personnel Additional information 31 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Remuneration report (continued) (a) Principles used to determine the nature and amount of remuneration Remuneration policy versus group financial performance The Group's remuneration policy is not entirely based on both the Group's performance, rather on industry practice. The Group's primary focus is research activities with a long-term objective of developing and commercialising its research and development results. The tables below set out summary information about the Group’s earnings and movement in shareholder wealth for the five years to 30 June 2019: Interest income Total comprehensive loss for the year 2019 $ 108,538 2018 $ 201,174 2017 $ 132,396 2016 $ 142,657 2015 $ 176,842 (12,337,830) (8,265,737) (7,542,076) (7,729,551) (5,885,069) No dividends have been paid for the five years to 30 June 2019. ASX share price at start of the year ASX share price at end of the year Basic and diluted loss per share (cents) 2019 $ 0.04 0.03 (2.00) 2018 $ 0.05 0.04 (1.58) 2017 $ 0.10 0.05 (1.41) 2016 $ 0.15 0.10 (1.45) 2015 $ 0.22 0.15 (1.17) The Group envisages its performance in terms of earnings will remain negative whilst the Group continues in the research and/or trial phase. Shareholder wealth reflects this speculative and volatile market sector. This pattern is indicative of the Group's performance over the past 5 years. Performance based remuneration The purpose of a performance bonus is to reward individual performance in line with Group objectives. Consequently, performance based remuneration is paid to an individual where the individual's performance clearly contributes to a successful outcome for the Group. This is regularly measured in respect of performance against key performance indicators ("KPI's"). The Group uses a variety of KPI's to determine achievement, depending on the role of the Executive being assessed. These include: • • • For details of performance-based remuneration refer to Employment Contracts of Directors and Key Management Personnel on pages 39 to 40. successful contract negotiations; Group share price reaching a targeted rate on the ASX or applicable market over a period of time; or achievement of research project milestones within scheduled time and/or budget 32 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Remuneration report (continued) (b) Details of remuneration Details of remuneration for the current year The remuneration for each Director and each of the other Key Management Personnel of the Group during the year ended 30 June 2019 was as follows: Directors Mr. Geoffrey Kempler (1) Mr. Brian Meltzer Dr. George Mihaly (2) Mr. Peter Marks Mr. Lawrence Gozlan (3) Dr. Ira Shoulson (2) Dr. David Sinclair (2) Mr. Tristan Edwards (2) Other key management personnel Ms. Kathryn Andrews (1) Dr. David Stamler (1) Total (1) (2) (3) Cash salary and fees $ Non- monetary benefits $ Super- annuation contribution $ 395,728 80,000 66,667 60,000 580,000 58,314 10,750 10,750 1,262,209 236,665 547,622 784,287 2,046,496 - - - - - - - - - - - - - 20,531 - - - - - - - 20,531 20,531 - 20,531 41,062 Long service leave $ 7,794 - - - - - - - 7,794 15,222 - 15,222 23,016 Equity $ - - - - - 20,443 - - 20,443 - - - 20,443 Total $ 424,053 80,000 66,667 60,000 580,000 78,757 10,750 10,750 1,310,977 272,418 547,622 820,040 2,131,017 Cash salary and fees includes movements in the annual leave provision relating to Geoffrey Kempler, Kathryn Andrews and David Stamler. The remuneration for Dr. George Mihaly and Dr. Ira Shoulson covered the period from 1 July 2018 to 8 April 2019, being the last day of being the Company's directors. The remuneration for Dr. David Sinclair and Mr. Tristan Edwards covered the period from 8 April 2019, being the date of their appointment as directors of the Company, to 30 June 2019. Includes corporate advisory fees paid to an associated entity of Mr. Lawrence Gozlan in the amount of $520,000 for corporate advisory services including seeking and advancing opportunities to expand the company’s product pipeline and other sources of funding to commence and continue the company’s clinical trials. 33 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Remuneration report (continued) (b) Details of remuneration (continued) Details of remuneration for the prior year The remuneration for each Director and each of the other Key Management Personnel of the Group during the year ended 30 June 2018 was as follows: Directors Mr. Geoffrey Kempler (1) (5) Mr. Brian Meltzer (5) Dr. George Mihaly (5) Mr. Peter Marks (5) Mr. Lawrence Gozlan (5) Dr. Ira Shoulson (2) Other key management personnel Ms. Kathryn Andrews (1) (3) Ms. Dianne Angus (1) (4) Dr. David Stamler (3) Cash salary and fees $ Non- monetary benefits $ Super- annuation contribution $ 381,340 82,500 77,500 60,000 60,000 78,885 740,225 196,689 81,589 504,274 782,552 1,522,777 - - - - - - - - - - - - 20,049 - - - - - 20,049 18,604 5,736 - 24,340 44,389 Long service leave $ 7,763 - - - - - 7,763 96 (8,920) - (8,824) (1,061) Equity $ 235,000 58,750 58,750 58,750 58,750 - 470,000 15,735 (3,433) 125,877 138,179 608,179 Total $ 644,152 141,250 136,250 118,750 118,750 78,885 1,238,037 231,124 74,972 630,151 936,247 2,174,284 Cash salary and fees includes movements in the annual leave provision relating to Geoffrey Kempler, Dianne Angus and Kathryn Andrews. Includes consulting fees paid to Dr. Ira Shoulson in the amount of $12,021. The equity component of Kathryn Andrews' and David Stamler's remuneration represented the portion of unlisted options granted in the year ending 30 June 2017 but vested during the year ending 30 June 2018. The remuneration for Ms. Dianne Angus covers the period from 1 July 2017 to 10 October 2017, being the last day of her employment with the Company. The amount also includes payments of unused leave balances. The Directors received unlisted options during the year. The option prices were calculated using the Black-Scholes Model. Total (1) (2) (3) (4) (5) Performance income as a proportion of total remuneration All Executives are eligible to receive incentives as determined by the Board from time to time. Their performance payments are based on a set monetary value, set number of shares or options or as a portion of base salary. Therefore, there is no fixed proportion between incentive and non-incentive remuneration. Non-Executive Directors are not entitled to receive bonuses and/or incentives. During the past two years, the Directors have received equity as part of their total remuneration. Employees have received equity as recommended by the Remuneration Committee. 34 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Remuneration report (continued) (b) Details of remuneration (continued) Performance income as a proportion of total remuneration (continued) The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Directors Mr. Geoffrey Kempler Mr. Brian Meltzer Dr. George Mihaly Mr. Peter Marks Mr. Lawrence Gozlan Dr. Ira Shoulson Dr. David Sinclair Mr. Tristan Edwards Other key management personnel of the group Ms. Kathryn Andrews Ms. Dianne Angus Dr. David Stamler Fixed remuneration 2019 % 2018 % At risk - LTI 2019 % 2018 % 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 - - 100 100 100 - - - - - - - - - - - - - - - - - - - - - - At risk long term incentive (LTI) relates to remuneration provided in the form of share based payments. There are no short-term incentives considered to be at risk in the current or prior year. (c) Share-based compensation At the Annual General Meeting held on 17 November 2004, Shareholders approved the establishment of a new Employee and Consultant Plan designed to reward Executives, Employees and/or Consultants for their contributions to the consolidated entity. The plan is to be used as a method of retaining key personnel for the growth and development of the Group's intellectual property rights. Due to the Group's United States presence, an United States plan and an Australian plan were developed. At 30 June 2019, equity had been issued to 4 Directors, 2 former Directors, 2 Key Management Personnel, 11 employees and 7 consultants under the Australian Plan. The term and conditions of each grant of options affecting Directors and Key Management Personnel remuneration in this reporting period are as follows: Grant date a 4-Nov-13 3-Oct-14 7-Jun-17 18-Dec-17 2-Nov-18 Date vested and exercisable a Expiry date Exercise price Vested Value per option at grant date 4-Nov-13 3-Oct-14 7-Jun-18 18-Dec-17 2-Nov-18 3-Nov-18 2-Oct-18 6-Jun-22 14-Dec-22 14-Dec-22 $0.73 $0.34 $0.07 $0.11 $0.11 Yes Yes Yes Yes Yes $0.21 $0.17 $0.03 $0.05 $0.02 Options granted under the plan carry no dividend or voting rights. 35 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Remuneration report (continued) (c) Share-based compensation (continued) When exercisable, each option is convertible into one ordinary share as soon as practical after the receipt by the Group of the completed exercise form and full payment of such exercise price. The exercise price of options will be equal to or less than the weighted average price at which the Group's shares are traded on the Australian Securities Exchange during the 5 days up to and including the grant date or such other exercise price that the Remuneration Committee determines to be appropriate under the circumstances. The plan rules contain a restriction on removing the 'at risk' aspect of the instruments granted to executives. Plan participants may not enter into any transaction designed to remove the 'at risk' aspect of an instrument before it vests. Details of options over ordinary shares provided as remuneration to each of the Directors and Key Management Personnel of the Group during the 2019 financial year are as follows (2018: 10,000,000 options): Directors Dr. Ira Shoulson No. of options granted as remuneration No. of options vested during the year 1,250,000 1,250,000 1,250,000 1,250,000 No ordinary shares were issued as a result of exercise of remuneration options by Directors and Key Management Personnel of Alterity Therapeutics Limited during the current or previous financial year. (d) Key management personnel disclosure Options and right holdings The number of options over ordinary shares in the Group held during the financial year by each Director of Alterity Therapeutics Limited and other Key Management Personnel of the Group, including their personally related parties, are set out below: Option and right holdings 30 June 2019 Directors Mr. Geoffrey Kempler Mr. Brian Meltzer Dr. George Mihaly* Mr. Peter Marks Mr. Lawrence Gozlan Dr. Ira Shoulson* Dr. David Sinclair Mr. Tristan Edwards Other key management personnel Ms. Kathryn Andrews Dr. David Stamler Balance at the start of the year No. 5,000,000 1,250,000 1,250,000 1,250,000 1,250,000 - - - 500,000 4,000,000 Vested and exercisable No. Unvested No. Granted as compensation No. Options exercised No. Other movements No. - - - - - 1,250,000 - - - - - - - (1,250,000) - - - - - (1,250,000) - - - - Balance at the end of the year No. 5,000,000 1,250,000 - 1,250,000 1,250,000 - - - 5,000,000 1,250,000 - 1,250,000 1,250,000 - - - - - - - - - 500,000 4,000,000 500,000 4,000,000 14,500,000 1,250,000 - (2,500,000) 13,250,000 13,250,000 - - - - - - - - - - - * Other movements represented the holdings of Dr. George Mihaly and Dr Ira Shoulson when they ceased to be directors of the Group on 8 April 2019. 36 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Remuneration report (continued) (d) Key management personnel disclosure (continued) Options and right holdings (continued) Granted as compensation No. Options exercised No. Options expired /forfeited No. Balance at the end of the year No. Vested and exercisable No. Unvested No. Option and right holdings 30 June 2018 Directors Mr. Geoffrey Kempler Mr. Brian Meltzer Dr. George Mihaly Mr. Peter Marks Mr. Lawrence Gozlan Dr. Ira Shoulson Other key management personnel Ms. Kathryn Andrews Ms. Dianne Angus* Dr. David Stamler Balance at the start of the year No. 4,000,000 1,000,000 1,000,000 1,000,000 1,000,000 - 5,000,000 1,250,000 1,250,000 1,250,000 1,250,000 - 500,000 2,360,000 4,000,000 14,860,000 - - - 10,000,000 - (4,000,000) - (1,000,000) - (1,000,000) - (1,000,000) - (1,000,000) - - 5,000,000 1,250,000 1,250,000 1,250,000 1,250,000 - 5,000,000 1,250,000 1,250,000 1,250,000 1,250,000 - 500,000 - - - - (2,360,000) - 4,000,000 - - (10,360,000) 14,500,000 14,500,000 500,000 - 4,000,000 - - - - - - - - - - * Ms. Dianne Angus terminated employment effective 10 October 2017. The reduction in her option holdings includes options forfeited due to not meeting vesting condition, and options expired as they were not exercised during the required period set out in the option agreement. All vested options are exercisable at the end of the year. Shares provided on exercise of remuneration options No ordinary shares were issued to key management personnel as a result of the exercise of remuneration options during the financial year ended 30 June 2019 and 30 June 2018. Shareholdings The number of shares in the group held during the financial year by each Director of Alterity Therapeutics Limited and other Key Management Personnel other than for remuneration, including their personally related parties, are set out below: Shareholdings 30 June 2019 Directors Mr. Geoffrey Kempler Mr. Brian Meltzer Dr. George Mihaly Mr. Peter Marks Mr. Lawrence Gozlan Dr. Ira Shoulson Dr. David Sinclair Mr. Tristan Edwards Other key management personnel Ms. Kathryn Andrews Dr. David Stamler Balance at the start of the year No. Received as compensation No. Options exercised No. Net change other No. Balance at the end of the year No. 18,011,000 326,666 226,666 43,111 - - - - - - 18,607,443 - - - - - - - - - - - - - - - - - - - - - - - - (226,666) - - - - - 18,011,000 326,666 - 43,111 - - - - - - - - (226,666) 18,380,777 37 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Remuneration report (continued) (d) Key management personnel disclosure (continued) Shareholdings (continued) Shareholdings 30 June 2018 Directors Mr. Geoffrey Kempler Mr. Brian Meltzer Dr. George Mihaly Mr. Peter Marks Mr. Lawrence Gozlan Dr. Ira Shoulson Other key management personnel Ms. Kathryn Andrews Ms. Dianne Angus Dr. David Stamler Balance at the start of the year No. Received as compensation No. Options exercised No. Net change other No. 18,011,000 326,666 226,666 43,111 - - - 146,128 - 18,753,571 - - - - - - - - - - - - - - - - - - - - Balance at end of the year No. 18,011,000 326,666 226,666 43,111 - - - - - - - - - (146,128) - - - - (146,128) 18,607,443 Loans to key management personnel There were no loans made to the Directors or other Key Management Personnel, including their personally related parties. Other transactions with key management personnel There were no further transactions with Key Management Personnel not disclosed above. 38 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Remuneration report (continued) (e) Employment contracts of Directors and other key management personnel The following Directors and Key Management Personnel were under contract at 30 June 2019: Directors Duration Notice Requirements Mr. Geoffrey Kempler Until termination by either party. Signed 21 September 2007 For Good Reason Mr Kempler may terminate with 30 days’ notice Without Good Reason Mr Kempler may terminate with 90 days’ notice Without Cause the Group may terminate with 90 days’ notice With Cause the Group may terminate with 30 days’ notice Termination * Pay Geoffrey Kempler within ninety (90) days of the termination date $1,000,000 provided the Group has sufficient capital requirements to fulfil this clause * Accrued entitlements including all unreimbursed business expenses * Accelerate the vesting of any unvested options * Bonus pro-rated only if termination occurs in 1st year * Pay Geoffrey Kempler within ninety (90) days of the termination date $1,000,000 provided the Group has sufficient capital requirements to fulfil this clause * Accrued entitlements including all unreimbursed business expenses * Accelerate the vesting of any unvested options * Bonus pro-rated only if termination occurs in 1st year Key management personnel Ms. Kathryn Andrews Duration Notice Requirements Termination Until termination by either party. Signed 11 November 2014 Ms Andrews may terminate with 30 days’ notice, or * Accrued entitlements including all unreimbursed business expenses Without Cause the Group may terminate with 30 days’ notice, or * Unexercised options shall be exercisable within 30 days after With Cause the Group may the date of termination terminate without notice 39 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Remuneration report (continued) (e) Employment contracts of Directors and other key management personnel Key management personnel Duration Notice Requirements Termination Dr. David Stamler Until termination by either party. Signed 18 April 2017 By the Group without cause or by Dr Stamler with good reason, each party is required to provide 3 months notice, increasing to 6 months notice after 18 months of employment, unless otherwise agreed in writing With Cause, the Group may terminate at any time upon written notice * Payment equivalent to seventy five percent of current annualised salary. * Accrued entitlements including all unreimbursed business expenses * Unexercised options shall be exercisable within 30 days after the date of termination * Accrued entitlements including all unreimbursed business expenses * Unexercised options shall be exercisable within 30 days after the date of termination (f) Additional information Details of remuneration: cash bonuses and options No other cash bonuses were paid or have been forfeited in the current and prior year. The following table provides the percentage of the available grant of share options that was paid or that vested in the financial year and the percentage that was forfeited. Year granted Vested (%) Forfeited (%) Financial years in which options may vest Minimum total value of grant yet to vest ($) Total value of grant yet to vest ($) a Directors Mr. Geoffrey Kempler Mr. Brian Meltzer Dr. George Mihaly Mr. Peter Marks Mr. Lawrence Gozlan Dr. Ira Shoulson Dr. David Sinclair Mr. Tristan Edwards a Other key management personnel Ms. Kathryn Andrews Dr. David Stamler 2018 2018 2018 2018 2018 2019 - - 100% 100% 100% 100% 100% 100% - - 2017 2017 100% 100% - - - - - - - - - - - - - - - - - - - - [End of remuneration report] - - - - - - - - - - - - - - - - - - - - 40 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Meetings of directors The following table sets out the number of Directors' Meetings (including meetings of committees of Directors) held during the financial year and the number of meeting attended by each Director. Mr. Geoffrey Kempler Mr. Brian Meltzer Mr. Peter Marks Mr. Lawrence Gozlan Dr. David Sinclair Mr. Tristan Edwards Dr. George Mihaly Dr. Ira Shoulson Board meetings A 20 19 20 19 4 4 15 15 B 20 18 20 18 4 4 14 15 A - 6 5 - - - 5 - Meetings of committees Audit Remuneration B A - - 1 1 1 1 - - - - - - 1 1 - - B - 6 5 - - - 5 - A = Number of meetings held during the time the director held office or was a member of the committee during the year B = Number of meetings attended Indemnifying directors and officers During the financial year, the Group maintained an insurance policy to indemnify all current Directors and Officers against certain liabilities incurred as a Director or Officer, including costs and expenses associated in successfully defending legal proceedings. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Group has not otherwise, during or since the financial year, indemnified or agreed to indemnify an Officer or Auditor of the Group or any related body corporate against a liability incurred as such an Officer or Auditor. Share options/warrants on issue at 30 June 2019 As at 30 June 2019 the unissued ordinary shares of Alterity Therapeutics Limited under options/warrants were as follows: Date of expiry 18-Feb-20 25-May-20 6-Jun-22 14-Dec-22 31-Jan-23 19-Dec-19 Exercise price ($) $0.26 $0.27 $0.07 $0.11 $0.083 $0.045 Number under options/warrants 2,000,000 1,400,000 7,350,000 13,850,000 700,000 586,672,964 611,972,964 Shares issued as a result of the exercise of options/warrants During the year ended 30 June 2019 there have been no ordinary shares of Alterity Therapeutics Limited issued as a result of the exercise of options. Since 30 June 2019, there have been no ordinary shares of Alterity Therapeutics Limited issued as a result of the exercise of options. Shares issued as a result of the exercise of options/warrants (continued) There are no amounts unpaid on the shares issued as a result of the exercise of the options during and since the end of the 2019 financial year. The amount paid per share is the same as the exercise price. Proceedings on behalf of the Group No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001. 41 Alterity Therapeutics Limited Directors' report 30 June 2019 (continued) Non-audit services The company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor's expertise and experience with the company and/or the group are important. During the year ended 30 June 2019, the Group did not engage the external auditor to provide non-audit services. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 43. Corporate governance statement In accordance with ASX listing Rule 4.10.3, the Company’s 2019 Corporate Governance Statements can be found on its website at www.alteritytherapeutics.com. Signed in accordance with a resolution of the Directors made pursuant to s298(2) of the Corporations Act 2001. Mr. Geoffrey Kempler Chairman & CEO Melbourne 30 August 2019 42 Auditor’s Independence Declaration As lead auditor for the audit of Alterity Therapeutics Limited (formerly known as Prana Biotechnology Limited) for the year ended 30 June 2019, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Alterity Therapeutics Limited and the entities it controlled during the period. Sam Lobley Partner PricewaterhouseCoopers Melbourne 30 August 2019 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Alterity Therapeutics Limited Consolidated financial statements 30 June 2019 Contents Consolidated financial statements 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 to the financial statements Directors' declaration Page 45 46 47 48 49 83 These consolidated financial statements are for the Group consisting of Alterity Therapeutics Limited and its subsidiaries. A list of major subsidiaries is included in note 15. The consolidated financial statements are presented in the Australian currency. Alterity Therapeutics Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office is: Level 3, 62 Lygon Street Carlton Victoria 3053 Its principal place of business is: Level 3, 460 Bourke Street Melbourne Victoria 3000 The consolidated financial statements were authorised for issue by the directors on 30 August 2019. The directors have the power to amend and reissue the consolidated financial statements. All press releases, financial reports and other information are available at our Shareholders' Centre on our website: www.alteritytherapeutics.com 44 Alterity Therapeutics Limited Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2019 Interest income Other income Expenses Intellectual property expenses General and administration expenses Research and development expenses Other operating expenses Other gains/(losses) Loss before income tax Income tax expense Loss for the year Other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive loss for the year Notes 2 2 3 3 3 4 2019 $ 108,538 4,951,167 2018 $ 201,174 3,125,775 (322,097) (4,308,352) (12,983,185) (132,965) 349,064 (12,337,830) - (12,337,830) (224,580) (4,341,058) (6,698,016) (58,172) (270,860) (8,265,737) - (8,265,737) - (12,337,830) Cents - (8,265,737) Cents Loss per share for profit attributable to the ordinary equity holders of the company: Basic loss per share Diluted loss per share 18 18 2.00 2.00 1.55 1.55 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 45 Alterity Therapeutics Limited Consolidated statement of financial position As at 30 June 2019 Notes 5(a) 6(a) 5(c) 6(b) 6(b) 30 June 2019 $ 30 June 2018 $ 14,399,904 4,829,497 631,769 19,861,170 15,235,556 3,152,410 266,625 18,654,591 48,748 48,748 19,909,918 71,422 71,422 18,726,013 2,718,174 601,995 3,320,169 2,055,247 588,693 2,643,940 34,976 34,976 3,355,145 16,554,773 916 916 2,644,856 16,081,157 7(a) 7(c) 7(b) 156,632,636 143,910,328 1,753,954 (141,236,838) (129,583,125) 1,158,975 16,554,773 16,081,157 ASSETS Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-current assets Property, plant and equipment Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Provisions Total current liabilities Non-current liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Accumulated losses Total equity The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 46 Alterity Therapeutics Limited Consolidated statement of changes in equity For the year ended 30 June 2019 Notes 7(a) Balance at 1 July 2017 Loss for the year Total comprehensive loss for the year Transactions with owners in their capacity as owners: Share-based payment expenses Transaction costs Expired options Balance at 30 June 2018 Balance at 1 July 2018 Loss for the year Total comprehensive loss for the year Transactions with owners in their capacity as owners: Issue of ordinary shares Share-based payment expenses Transaction costs Expired options Balance at 30 June 2019 Reserves $ Attributable to owners of Alterity Therapeutics Limited Accumulated losses $ 2,320,480 (122,648,452) (8,265,737) (8,265,737) - - Contributed equity $ 144,018,006 - - Total equity $ 23,690,034 (8,265,737) (8,265,737) - (107,678) - (107,678) 143,910,328 143,910,328 - - 13,084,629 - (362,321) - 12,722,308 156,632,636 764,538 - - - 1,331,064 (1,331,064) (566,526) 1,331,064 1,753,954 (129,583,125) 1,753,954 (129,583,125) (12,337,830) (12,337,830) - - 764,538 (107,678) - 656,860 16,081,157 16,081,157 (12,337,830) (12,337,830) - - 89,138 - - - 684,117 (684,117) (594,979) 684,117 1,158,975 (141,236,838) 13,084,629 89,138 (362,321) - 12,811,446 16,554,773 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 47 Cash flows from operating activities Payments to suppliers and employees R&D tax refund Interest received Net cash (outflow) from operating activities Cash flows from investing activities Withdrawal of rental deposit Payments for property, plant and equipment Net cash (outflow) from investing activities Cash flows from financing activities Proceeds from issues of shares and other equity securities Transaction costs relating to issue of equity Net cash inflow (outflow) from financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year Alterity Therapeutics Limited Consolidated statement of cash flows For the year ended 30 June 2019 Notes 2019 $ 2018 $ 8(a) 7(a) 7(a) (17,325,579) 3,251,672 119,089 (13,954,818) (9,466,459) 3,022,673 198,598 (6,245,188) - (7,022) (7,022) 43,988 (62,405) (18,417) 13,084,629 (362,320) 12,722,309 (1,239,531) 15,235,556 403,879 14,399,904 - (107,678) (107,678) (6,371,283) 21,884,957 (278,118) 15,235,556 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 48 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 How numbers are calculated This section provides additional information about those individual line items in the consolidated financial statements that the directors consider most relevant in the context of the operations of the entity, including: (a) accounting policies that are relevant for an understanding of the items recognised in the financial statements. These cover situations where the accounting standards either allow a choice or do not deal with a particular type of transaction (b) analysis and sub-totals, including segment information (c) information about estimates and judgements made in relation to particular items. 1 Segment information 2 Interest and other income 3 Loss for the year 4 Income tax expense 5 Financial assets and financial liabilities 6 Non-financial assets and liabilities 7 Equity 8 Cash flow information 50 50 50 51 52 54 56 58 49 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 1 Segment information Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer of Alterity Therapeutics Limited. For the current and previous reporting periods, the Group's activities are predominantly within Australia and cover research into Parkinson’s disease, Alzheimer's disease, Huntington disease and other neurodegenerative disorders. Accordingly, the Group has identified one reportable segment. 2 Interest and other income Interest income R&D tax incentive 2019 $ 108,538 4,951,167 5,059,705 2018 $ 201,174 3,125,775 3,326,949 As the Group is still in the early stage of research and development for its products, it has neither generated revenue from contracts with customers, nor decided on the revenue strategy (licensing, sale of pharmaceutical products) for when the development phase is completed. As at and for the year ended 30 June 2019, the Group had no revenue from contracts with customers. Other income is made up of interest income which is recognised on a time proportion basis using the effective interest method. Critical judgements in calculating R&D tax incentive The Group's research and development activities are eligible under an Australian Government tax incentive for eligible expenditure from 1 July 2011. Management has assessed these activities and expenditure to determine which are likely to be eligible under the incentive scheme. For the year ended 30 June 2019 the Group has recorded an item in other income of $4,951,167 (2018: $3,125,775) to recognise this amount which relates to this financial year. 3 Loss for the year Loss before income tax has been determined after: General and administration expenses Depreciation on fixed assets Employee expenses (non R&D related) Consultant and director expenses Audit, internal control and other assurance expenses Corporate compliance expenses Insurance expenses Office rental Other administrative and office expenses 2019 $ 2018 $ 29,696 735,775 1,477,369 208,972 470,294 448,769 132,836 804,641 4,308,352 21,799 909,756 1,403,608 186,660 351,611 422,475 142,233 902,916 4,341,058 50 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 2019 $ 2018 $ 2,645,512 10,337,673 12,983,185 2,223,807 4,474,209 6,698,016 (349,064) (349,064) 270,860 270,860 3 Loss for the year (continued) Research and development expenses Employee expenses Other research and development expenses Other operating expenses Foreign exchange (gain)/loss 4 Income tax expense (a) Income tax expense No income tax expense has arisen in the current or prior years from either current or deferred taxation. (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit (Loss) from continuing operations before income tax expense Tax at the Australian tax rate of 27.5% (2018 - 27.5%) Tax at the oversea tax rate of 35.0% (2018 - 35.0%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Research and development expenditure (net of tax incentive) Entertainment Share-based payment Other non-deductible expenses Future tax benefits not recognised as an asset Income tax expense (c) Tax losses Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit at 27.5% - Australia & 35.0% - Overseas 2019 $ (12,337,830) (3,392,903) 19,045 2018 $ (8,265,737) (2,273,078) 12,375 1,688,887 1,730 24,513 119,002 (1,539,726) 1,539,726 - 1,187,557 1,694 210,248 112,308 (748,896) 748,896 - 2019 $ 2018 $ 130,709,461 125,041,203 34,373,956 35,913,682 Subject to the Group continuing to meet the relevant statutory tests, the tax losses are available for offset against future taxable income. 51 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 4 Income tax expense (continued) (c) Tax losses (continued) At 30 June 2019, the Group had a potential tax benefit related to tax losses carried forward of $130,709,461. Such amount includes net losses of $186,194 related to subsidiaries in the United States (U.S.). The Tax Cuts and Jobs Act (TCJA) enacted by Congress in the U.S on 22 December 2017 cut the top corporate income tax rate from 35% to 21%. For tax years beginning after December 31, 2017, the graduated corporate tax rate structure is eliminated and corporate taxable income will be taxed at 21-percent flat rate. Additionally, the previous 20-year limitation on carry forward net operating losses (NOL’s) has been removed, allowing the NOL’s to be carried forward indefinitely. The remaining tax losses carried forward are indefinite and are attributable to the Group’s operations in Australia. As such the total unused tax losses available to the Group, equal $130,790,461. As at balance date, there are unrecognised tax losses with a benefit of approximately $35,913,682 (2018: $34,373,956) that have not been recognised as a deferred tax asset to the Group. These unrecognised deferred tax assets will only be obtained if: • • • The Group companies derive future assessable income of a nature and amount sufficient to enable the benefits to be realised; The Group companies continue to comply with the conditions for deductibility imposed by the law; and No changes in tax legislation adversely affect the Group companies from realising the benefit. (d) Unrecognised temporary differences Temporary differences for which no deferred tax asset has been recognised as recovery is not probable Section 40-880 deductions Accruals and provisions Foreign exchange Unrecognised deferred tax relating to the above temporary differences 2019 $ 2018 $ 418,289 1,105,153 (403,879) 1,119,563 307,880 238,868 737,151 278,117 1,254,136 376,241 Future benefits attributable to net temporary differences have not been brought to account, as the Directors do not regard the realisation of such benefits as probable. 5 Financial assets and financial liabilities This note provides information about the Group’s financial instruments, including: • • • • an overview of all financial instruments held by the Group specific information about each type of financial instrument accounting policies (where relevant) information about determining the fair value of the instruments, including judgements and estimation uncertainty involved (if any). 52 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 5 Financial assets and financial liabilities (continued) (a) Trade and other receivables R&D tax incentive receivable Accrued interest income Goods and services tax receivable 30 June 2019 30 June 2018 Current $ 4,825,270 2,129 2,098 4,829,497 Non- Current Total current $ $ $ - 4,825,270 3,125,775 12,680 - - 13,955 - 4,829,497 3,152,410 2,129 2,098 Non- Total current $ $ - 3,125,775 12,680 - - 13,955 - 3,152,410 R&D tax incentive receivable represents the amount of R&D tax incentive the Group expects to recover. For further details, see note 2. (i) Classification as trade and other receivables Trade and other receivables are amounts due from external parties for entitlements that arise during the ordinary course of business. They are generally due for settlement within 365 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. The Group’s impairment and other accounting policies for trade and other receivables are outlined in notes 10(b) and 20(j) respectively. (ii) Fair value of trade and other receivables Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value. (iii) Impairment and risk exposure Information about the impairment of trade and other receivables, their credit quality and the Group’s exposure to credit risk, foreign currency risk and interest rate risk can be found in note 10(a) and 10(b). (b) Cash and cash equivalents Current assets Cash at bank and in hand Deposits at call 30 June 2019 $ 30 June 2018 $ 11,194,862 3,205,042 14,399,904 9,042,843 6,192,713 15,235,556 53 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 5 Financial assets and financial liabilities (continued) (b) Cash and cash equivalents (continued) (i) Classification as cash equivalents Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours notice with no loss of interest. See note 20(i) for the Group’s other accounting policies on cash and cash equivalents. (c) Trade and other payables Trade payables Accrued expenses Other payables 30 June 2019 30 June 2018 Notes Current $ 1,693,885 5(c)(i) 1,012,569 11,720 2,718,174 Non- current Total Current $ $ $ - 1,693,885 1,333,890 710,166 - 1,012,569 11,191 11,720 - - 2,718,174 2,055,247 Non- current Total $ $ - 1,333,890 710,166 - 11,191 - - 2,055,247 Trade payables are unsecured and are usually paid within 30 days of recognition. The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short- term nature. (i) Accrued expenses R&D accruals Other accrued expenses 30 June 2019 Current $ 752,156 260,413 1,012,569 Non- Total current $ $ 752,156 - 260,413 - - 1,012,569 Current $ 333,645 376,521 710,166 30 June 2018 Non- current $ - - - Total $ 333,645 376,521 710,166 6 Non-financial assets and liabilities This note provides information about the group's non-financial assets and liabilities, including: • • specific information about each type of non-financial asset and non-financial liability • provisions (note 6(b)) accounting policies 54 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 30 June 2019 $ 621,737 10,032 631,769 30 June 2018 $ 256,821 9,804 266,625 6 Non-financial assets and liabilities (continued) (a) Other current assets Current assets Prepayments Others (b) Provisions Annual leave Long service leave 30 June 2019 Non- current $ - 34,976 34,976 Current $ 245,804 356,191 601,995 30 June 2018 Non- current $ - 916 916 Total $ 266,487 323,122 589,609 Total $ 245,804 391,167 636,971 Current $ 266,487 322,206 588,693 A provision has been recognised for employee entitlements relating to long service leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits has been included in note 20 to this report. (i) Amounts not expected to be settled within the next 12 months The current provision for long service leave includes all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. Majority of the balance is presented as current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued long service leave or require payment within the next 12 months. (ii) Movements in provisions 2019 Annual leave $ 266,487 308,032 (330,601) 1,886 245,804 Long service leave $ 323,122 68,045 - - 391,167 Total $ 589,609 376,077 (330,601) 1,886 636,971 Carrying amount at start of year - additional provisions recognised Amounts used during the year Change in foreign exchange Carrying amount at end of year 55 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) Annual leave $ 298,508 261,354 (293,375) 266,487 Long service leave $ 399,970 26,515 (103,363) 323,122 Total $ 698,478 287,869 (396,738) 589,609 6 Non-financial assets and liabilities (continued) (b) Provisions (continued) (ii) Movements in provisions (continued) 2018 Carrying amount at start of year - additional provisions recognised Amounts used during the year Carrying amount at end of year 7 Equity (a) Contributed equity Ordinary shares - fully paid (i) Movements in ordinary shares: Details Opening balance 1 July 2017 Transaction costs Balance 30 June 2018 Shares issued during the year Transaction costs Balance 30 June 2019 Notes 7(a)(i), 7(a)(ii) 30 June 2019 Shares 30 June 2018 Shares 30 June 2019 $ 30 June 2018 $ 860,837,432 533,891,470 156,632,636 143,910,328 Number of shares $ - 533,891,470 144,018,006 (107,678) 533,891,470 143,910,328 13,084,628 326,945,962 (362,320) - 860,837,432 156,632,636 2019 Details a Issue of shares under ATM Facility 13-Jul-18 Issue of shares under ATM Facility 4-Jan-19 4-Feb-19 Issue of shares under ATM Facility 21-Mar-19 Issue of shares under ATM Facility 21-Mar-19 Issue of shares under ATM Facility 21-Mar-19 Issue of shares under ATM Facility 21-Mar-19 Issue of shares under ATM Facility 8-Apr-19 8-Apr-19 Issue of shares under strategic investment by LifeBiosciences LLC Issue of shares to sophisticated and professional investors Number Issue price $ 3,083,580 15,789,360 1,912,440 7,930,740 3,723,120 156,000 1,014,240 269,905,533 23,430,949 326,945,962 0.054 0.047 0.041 0.054 0.045 0.047 0.043 0.039 0.039 There were no new ordinary shares issued during the prior year. Amount $ 166,086 749,614 78,508 430,346 169,064 7,341 43,544 10,526,318 913,807 13,084,628 56 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 7 Equity (continued) (a) Contributed equity (continued) (ii) Ordinary shares Ordinary shares have no par value and the Group does not have a limited amount of authorised capital. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll, each share is entitled to one vote. (b) Accumulated losses Movements in accumulated losses were as follows: Balance at the beginning of the year Net loss for the year Reclassify expired options from reserves Balance at the end of the year (c) Reserves Share based payment reserve Notes Options over fully paid ordinary shares 7(c)(i) Notes 7(c)(i) 30 June 2019 $ 30 June 2018 $ 129,583,125 122,648,452 12,337,830 8,265,737 (1,331,064) (684,117) 141,236,838 129,583,125 30 June 2019 Options/ Warrants 30 June 2018 Options/ Warrants 30 June 2019 $ 30 June 2018 $ 25,300,000 611,972,964 25,216,490 25,216,490 1,158,975 1,158,975 1,753,954 1,753,954 (i) Options over fully paid ordinary shares During the year ended 30 June 2019, the following options over fully paid ordinary shares were issued to the directors and employees under the 2004 Employees, Directors and Consultants Share and Option Plan. For further details, see note 16. The table below also presents the number of options issued, lapsed or expired during the year then ended. 2019 Details Options granted in prior period and issued in current period a 13-Jul-18 04-Aug-18 Options lapsed during the period 28-Aug-18 Options granted during the period Options lapsed during the period 01-Oct-18 Options lapsed during the period 24-Oct-18 02-Nov-18 Options granted during the period 03-Nov-18 Options lapsed during the period 11-Dec-18 Options lapsed during the period Options lapsed during the period 5-Feb-19 Share-based payment expenses - options issued in prior period 30-Jun-19 Number 700,000 (306,490) 500,000 (360,000) (200,000) 1,250,000 (200,000) (1,200,000) (100,000) - 83,510 Amount $ - (54,016) 9,927 (62,776) (33,959) 20,443 (42,280) (427,293) (63,793) 58,768 (594,979) There were no options over fully paid ordinary shares exercised or forfeited during the current and prior years. 57 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) Notes 30 June 2019 Options/ Warrants 30 June 2018 Options/ Warrants 30 June 2019 $ 30 June 2018 $ 7(c)(ii) 586,672,964 586,672,964 - - - - - - 7 Equity (continued) (c) Reserves (continued) Warrants Short-term warrants (ii) Short-term warrants On 9 April 2019, the Group issued a total of 586,672,964 two for one free-attaching warrants each with an exercise price of A$0.045 (4.5 cents), vesting on 8 June 2019 and expiring on 19 December 2019. These warrants were issued as part of the strategic investment made by Life Biosciences LLC, and an accompanying placement with sophisticated investors. (iii) Nature and purpose of reserves The share based payments reserve is used to recognise the fair value of options and warrants issued to directors, employees and consultants but not exercised. 8 Cash flow information (a) Reconciliation of profit after income tax to net cash inflow from operating activities Loss for the year Adjustment for: Depreciation Non-cash employee benefits expense - share-based payments Net foreign exchange differences Change in operating assets and liabilities: Increase/(decrease) in provisions (Increase)/ decrease in trade and other receivables (Increase) /decrease in other current assets Increase/(decrease) in trade and other payables Net cash outflow from operating activities (b) Non-cash investing and financing activities Notes 30 June 2019 $ (12,337,830) 30 June 2018 $ (8,265,737) 29,696 89,138 (403,879) 21,799 764,539 278,117 47,362 (1,677,087) (365,144) 662,926 (13,954,818) (108,869) (116,837) 18,988 1,162,812 (6,245,188) There have been no non-cash investing and financing activities during the current and prior year. 58 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) Risk This section of the notes discusses the group’s exposure to various risks and shows how these could affect the group’s financial position and performance. 9 Critical estimates, judgements and errors 10 Financial risk management 11 Capital management 60 61 64 59 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 9 Critical estimates, judgements and errors The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the group’s accounting policies. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Going concern basis The Group is a development stage medical biotechnology company and as such expects to be utilising cash until its research activities have become marketable. For the year ended 30 June 2019, the Group incurred an operating loss of $12,337,830 (2018: $8,265,737) and an operating cash outflow of $13,954,818 (2018: $6,245,188). As at 30 June 2019, the net assets of the Group stood at $16,554,773 (2018: $16,081,157) and the cash position has decreased to $14,399,904 from $15,235,556 million at 30 June 2018. The Group has recorded a Trade and Other Receivable at 30 June 2019 in the amount of $4,825,270 from the Australian Taxation Office in respect of its 2019 research and development tax incentive claim. The Group expects to receive this amount during the 12 months ended 30 June 2020 and also expects the research and development tax incentive to continue to be applicable in the subsequent years. On 8 April 2019, the Company completed the strategic investment by Life Biosciences LLC ("Life") of an initial US$7.5 million (approximately A$10.526 million) in the Company. The Company also completed a private placement to raise another A$0.9M from sophisticated investors. As part of these transactions, the Company also issued a total of 586,672,964 warrants each with an exercise price of A$0.045 (4.5 cents), vesting on 8 June 2019 and expiring on 19 December 2019, which can potentially raise up to approximately another A$26.4 million upon the holders' election to convert in to the Company's ordinary shares. There is no commitment in this regard. The Directors intend to raise new equity funding within the next twelve months to progress the Group's planned research and development expenditure. Notwithstanding these plans, the Directors are confident that the Group has sufficient liquidity with cash and other assets available as at 30 June 2019 to meet its creditors and other commitments. Further, no asset is likely to be realised for an amount less than the amount at which it is recorded in the consolidated statement of financial position as at 30 June 2019. (b) R&D tax incentive Refer to note 2 for details. (c) Share-based payments The value attributed to share options and remuneration shares issued is an estimate calculated using an appropriate mathematical formula based on an option-pricing model. The choice of models and the resultant option value require assumptions to be made in relation to the likelihood and timing of the conversion of the options to shares and the value and volatility of the price of the underlying shares. 60 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 9 Critical estimates, judgements and errors (continued) (c) Share-based payments (continued) Refer to note 16 for more details. 10 Financial risk management The Group's activities expose it to a variety of financial risks including market risk, credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Risk management is carried out under policies approved by the Board of Directors and overseen by the Audit Committee. (a) Market risk (i) Foreign exchange risk The Group engages in international purchase transactions and is exposed to foreign currency risk arising from various currency exposures, primarily with respect to the Australian dollar. The parent entity also has exposure to foreign exchange risk in the currency cash reserves it holds to meet its foreign currency payments. The Group does not make use of derivative financial instruments to hedge foreign exchange risk. The following financial assets and liabilities are subject to foreign currency risk, all the amounts in the table below are displayed in $AUD at year-end spot rates: Exposure The group's exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollar, was as follows: Cash and cash equivalents Trade and other payables Total exposure USD $ 9,726,790 (1,196,358) 8,530,432 30 June 2019 EUR $ 178 - 178 GBP $ 433 (35,242) (34,809) USD $ 6,309,829 (607,150) 5,702,679 30 June 2018 EUR $ 173 (1,439) (1,266) GBP $ 428 (39,167) (38,739) Sensitivity As shown in the table above, the group is primarily exposed to changes in USD/AUD exchange rates. The sensitivity of profit or loss to changes in the exchange rates arises mainly from US-dollar denominated financial instruments and there is no impact on other components of equity. The Group's exposure to interest rate risk, which is the risk that a financial instruments value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities. Based on the financial instruments held at 30 June 2019, had the Australian dollar weakened/strengthened by 6.36% (2018: 7.18%) against the USD with all other variables held constant, the Group's post-tax loss for the year would have been A$542,116 lower/higher (2018: A$409,391 lower/higher). 61 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 10 Financial risk management (continued) (a) Market risk (continued) Interest rate risk (ii) The Group's exposure to interest rate risk, which is the risk that a financial instruments value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities. 2019 Financial assets Cash and cash equivalents Receivables Total financial assets Financial liabilities Trade and other payables Total financial liabilities 2018 Financial assets Cash and cash equivalents Receivables Total financial assets Financial liabilities Trade and other payables Total financial liabilities Weighted average effective interest rate % Floating interest rate $ Fixed interest rate - within 1 year $ Fixed interest rate - 1 to 5 years $ Fixed interest rate - over 5 years $ Non-interest bearing $ Total $ 0.42 - 0.42 - - 1.09 - 1.09 - - 1,400,257 - 1,400,257 3,205,042 - 3,205,042 - - - - 8,925,124 - 8,925,124 6,192,713 - 6,192,713 - - - - - - - - - - - - - - - - - - - - - - - - 9,794,605 14,399,904 4,829,497 4,829,497 14,624,102 19,229,401 (2,718,174) (2,718,174) (2,718,174) (2,718,174) 117,718 15,235,555 3,152,410 3,152,410 3,270,128 18,387,965 (2,055,247) (2,055,247) (2,055,247) (2,055,247) 62 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 10 Financial risk management (continued) (a) Market risk (continued) Interest rate risk (continued) (ii) There has been a decrease in the Group's exposure to interest rate risk in the current year as the Group maintained a lower balance of financial assets which are exposed to the fluctuation in interest rates. The Group maintains the same manner in which it manages and measures its risk as it did in prior years. Sensitivity An increase or decrease of 1% in interest rates at the reporting date would have the following increase/(decrease) effect on after tax loss and equity. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2018. The percentage change is based on the expected volatility of interest rates using market data and analysts’ forecasts. Interest rates - increase by 100 basis points Interest rates - decrease by 100 basis points (b) Credit risk Impact on post-tax loss 2019 $ 14,003 (14,003) 2018 $ 89,251 (89,251) Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has no significant concentration of credit risk and it is not the Group's policy to hedge credit risk. There has been no significant change in the Group's exposure to credit risk since the previous year. The carrying amount of the Group's financial assets represent the maximum credit exposure. (i) Risk management The Group ensures that surplus cash is invested with financial institutions of appropriate credit worthiness and limits the amount of credit exposure to any one counter party. The financial institution where all cash is invested has a Standard and Poors Rating of AA- as at 30 June 2019. The Group's most significant receivable comprises of the R&D tax incentive receivable from the Australian Taxation Office, part of the Australian Government which has a Standard and Poors Rating of AAA. Impairment of financial assets (ii) The Group has one type of financial asset subject to the expected credit loss model, being the trade and other receivables. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, the identified impairment loss was immaterial. The group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade and other receivables. The expected loss rates are based on the payment profiles over a period of 60 months before 30 June 2019 and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. On that basis, the loss allowance as at 30 June 2019 was concluded as nil as the Group has never experienced any write-offs from the Australian Taxation Office, in relation to its R&D incentive over the past 60 months. 63 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 10 Financial risk management (continued) (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group manages liquidity risk by maintaining sufficient bank balances to fund its operations. Management monitors rolling forecasts of the Group's liquidity reserve on the basis of expected cash flows. Maturities of financial liabilities Contractual maturities of financial liabilities At 30 June 2019 Trade and other payables Total At 30 June 2018 Trade and other payables Total 11 Capital management Between 1 and 2 years Between 2 and 5 years Over 5 years $ - - - - $ - - - - $ - - - - Total contractu al cash flows Carrying amount liabilities $ $ $ - 2,718,174 2,718,174 - 2,718,174 2,718,174 - 2,055,247 2,055,247 - 2,055,247 2,055,247 Less than 6 months $ 6 - 12 months 2,718,174 2,718,174 2,055,247 2,055,247 The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholder value. In order to maintain or achieve an optimal capital structure, the Group may issue new shares or reduce its capital, subject to the provisions of the Group's constitution. The capital structure of the Group consists of equity attributed to equity holders of the Group, comprising contributed equity, accumulated losses and reserves disclosed in notes 7(a), 7(b) and 7(c). By monitoring undiscounted cash flow forecasts and actual cash flows provided to the Board by the Group's Management the Board monitors the need to raise additional equity from the equity markets. 64 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) Unrecognised items This section of the notes provides information about items that are not recognised in the consolidated financial statements as they do not (yet) satisfy the recognition criteria. In addition to the items and transactions disclosed below, there are also: (a) Unrecognised tax amounts – see note 6 (b) Non-cash investing and financing transactions – see note 10(b). 12 Contingent liabilities and contingent assets 13 Commitments 14 Events occurring after the reporting period 66 66 66 65 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 12 Contingent liabilities and contingent assets There are no contingent assets or liabilities at the date of this report. The Group is not involved in any legal or arbitration proceedings and, so far as the Directors are aware, no such proceedings are pending or threatened against the Group. As at balance sheet date, the Group had a bank guarantee of $41,701 in relation to the head office lease. 13 Commitments (a) Non-cancellable operating leases Expenditure commitments relating to operating leases as detailed below, relate to the Group. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years 30 June 2019 $ 94,726 17,085 - 111,811 30 June 2018 $ 115,885 111,121 - 227,006 The table above comprises of commitments related to the operating lease arrangements on the Australia and U.S offices. The Australia office lease is a non-cancellable lease with a 3-year term, with rent payable monthly in advance. The lease expires on 17 September 2020. The U.S office lease is a non-cancellable lease with a 2-year term, with rent payable monthly in advance. The lease expires on 31 October 2019. (b) Remuneration commitments Amounts disclosed as remuneration commitments include commitments arising from the service contracts of key management personnel referred to in the remuneration report on pages 31 to 40 that are not recognised as liabilities and are not included in the key management personnel compensation. 14 Events occurring after the reporting period On 29 July 2019, the Company announced it has successfully completed its Phase 1 study of PBT434, a novel, orally bioavailable small molecule inhibitor of alpha-synuclein aggregation. No other matter or circumstance has occurred subsequent to year end that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or economic entity in subsequent financial years. 66 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) Additional information This section of the notes includes additional information that must be disclosed to comply with the accounting standards and other pronouncements, but that is not immediately related to individual line items in the consolidated financial statements. 15 Related party transactions 16 Share-based payments 17 Remuneration of auditors 18 Loss per share 19 Parent entity financial information 20 Summary of significant accounting policies 68 68 71 71 72 73 67 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 15 Related party transactions (a) Parent entity Detailed remuneration disclosures are provided in the remuneration report on pages 31 to 40. Alterity Therapeutics Limited (formerly Prana Biotechnology Limited), a company limited by shares that was incorporated in and is domiciled in Australia is the parent entity of the Group. The financial information for the parent entity is disclosed in note 19. (b) Subsidiaries The parent entity has two wholly owned subsidiaries: • • Alterity Therapeutics Inc, a company limited by shares that was incorporated in and is domiciled in the United States; and Alterity Therapeutics UK Ltd, a company limited by shares that was incorporated in and is domiciled in the United Kingdom. (c) Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments (d) Transactions with other related parties The following transaction occurred with related parties: 2019 $ 2,046,496 41,062 23,016 20,443 2,131,017 2018 $ 1,522,777 44,389 (1,061) 608,179 2,174,284 During the year ended 30 June 2019 the Group paid a total of $520,000 (exc GST) in corporate advisory fees to Montoya Pty Ltd, an associated entity of Mr. Lawrence Gozlan, a Non-Executive Director of the Group. Corporate advisory services included seeking and advancing opportunities to expand the company’s product pipeline and other sources of funding to commence and continue the company’s clinical trials. No outstanding balance remained unpaid as at 30 June 2019. There were no other related party transactions other than those related to Director and Key Management Personnel remuneration and equity and transactions by the parent with its subsidiaries. 16 Share-based payments (a) Employee and Consultant Plan Equity based compensation benefits are provided to directors, employees and consultants under the 2004 ASX Option Plan and the 2018 American Depository Receipts (ADS) Option Plan. These plans are to be used as a method of retaining key personnel for the growth and development of the Group's intellectual property rights. At 30 June 2019, equity had been issued to 4 Directors, 2 former Directors, 2 Key Management Personnel, 11 employees and 7 consultants under the 2004 ASX Plan. 68 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 16 Share-based payments (continued) (a) Employee and Consultant Plan (continued) Under this plan, eligible employees and consultants are offered shares or share options at nil consideration. The amount of share or options that will vest depends on specific conditions set out by the CEO, the Remuneration Committee or the full Board of Directors, where applicable. Once vested, the options remain exercisable until they expire. (i) 2004 Australian Employee, Directors and Consultants Share and Option Plan - Shares Outstanding at the beginning of the year Granted Forfeited Exercised Options Outstanding at the end of the year 2019 Number of shares 13,277,715 - - - 13,277,715 2018 Number of shares 13,277,715 - - - 13,277,715 (ii) 2004 Australian Employee, Directors and Consultants Share and Option Plan - Options As at 1 July Granted during the year Forfeited/expired during the year As at 30 June Vested and exercisable at 30 June 2019 2018 Average exercise price per share option $ 0.19 0.10 0.87 0.12 0.12 Number of options 25,216,490 2,450,000 (2,366,490) 25,300,000 25,300,000 Average exercise price per share option $ 0.29 0.11 0.31 0.19 0.19 Number of options 26,826,063 12,100,000 (13,709,573) 25,216,490 25,216,490 Share options outstanding at the end of the year have the following expiry date and exercise prices: Series Grant date Expiry date Exercise price PBTAA PBTAD PBTAE PBTAF PBTAH PBTAR PBTAY PBTAZ PBTAS PBTAAA PBTAI 25-Oct-13 4-Nov-13 13-Dec-13 7-Feb-14 19-Feb-15 27-May-15 5-Aug-13 2-Oct-13 7-Jun-17 18-Dec-17 1-Feb-18 24-Oct-18 3-Nov-18 11-Dec-18 5-Feb-19 18-Feb-20 25-May-20 4-Aug-18 1-Oct-18 6-Jun-22 14-Dec-22 31-Jan-23 $0.61 $0.73 $1.04 $1.12 $0.26 $0.27 $0.66 $0.66 $0.07 $0.11 $0.08 Share options Share options 30 June 2018 30 June 2019 - - - - 2,000,000 1,400,000 - - 7,350,000 13,850,000 700,000 25,300,000 200,000 200,000 1,200,000 100,000 2,000,000 1,400,000 306,490 360,000 7,350,000 12,100,000 - 25,216,490 Weighted average remaining contractual life of options outstanding at end of period 2.95 3.56 69 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 16 Share-based payments (continued) (a) Employee and Consultant Plan (continued) (ii) 2004 Australian Employee, Directors and Consultants Share and Option Plan - Options (continued) Life of the Option The life is the time period from grant date through to expiry. Share price volatility Historical volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of future movements. The life of the options is based on historical exercise patterns, which may not eventuate in the future. Dividend yield The Group has yet to pay a dividend so it has been assumed the dividend yield on the shares underlying the options will be 0%. Risk free interest rate This has been sourced from the Reserve Bank of Australia historical interest rate tables for government bonds. Model inputs Series Grant date PBTAY PBTAZ PBTAA PBTAD PBTAE PBTAF PBTAG PBTAB PBTAH PBTAR PBTAS PBTAAA PBTAI a 5-Aug-13 2-Oct-13 25-Oct-13 4-Nov-13 13-Dec-13 7-Feb-14 7-Apr-14 3-Oct-14 19-Feb-15 27-May-15 7-Jun-17 18-Dec-17 1-Feb-18 Exercise price Share price at Grant date $ $ Expected share price volatility Years to expiry Dividend yield Risk-free interest rate 0.66 0.66 0.61 0.73 1.04 1.12 0.25 0.34 0.26 0.27 0.07 0.11 0.08 0.38 0.41 0.38 0.44 0.69 1.18 0.23 0.22 0.16 0.17 0.05 0.07 0.06 62.00% 61.00% 63.60% 68.80% 70.70% 58.50% 289.40% 130.50% 74.80% 69.40% 100% 100% 100% 5.00 5.00 5.00 5.00 5.00 5.00 4.00 4.00 5.00 5.00 5.00 5.00 5.00 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 3.05% 3.24% 3.31% 3.46% 3.45% 3.44% 3.02% 2.71% 2.00% 2.25% 1.97% 2.38% 2.24% The closing share market price of an ordinary share of Alterity Therapeutics Limited on the Australian Securities Exchange at 30 June 2019 was $0.03 (30 June 2018: $0.04). (b) Options issued outside of the Employee and Consultant Plan There were no options granted during the year ended 30 June 2019 and 30 June 2018 outside of the plan. There are no options outstanding at 30 June 2019. All equity issued outside of the plan has been expensed in prior periods. 70 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 17 Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Audit and review of financial statements Other assurance services Audit and review of internal controls Total remuneration for audit and other assurance services 2019 $ 279,622 20,800 300,422 2018 $ 232,960 20,000 252,960 Audit and review of financial statements consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements. Included in this balance are amounts related to additional regulatory filings during the 2019 and 2018 financial years. 18 Loss per share (a) Basic loss per share Basic loss per share (b) Diluted loss per share Diluted loss per share (c) Reconciliation of loss used in calculating loss per share 2019 Cents 2.00 2019 Cents 2.00 2018 Cents 1.55 2018 Cents 1.55 2019 $ 2018 $ Basic loss per share Loss attributable to the ordinary equity holders of the Group used in calculating basic loss per share: 12,337,830 8,265,737 Diluted loss per share Loss attributable to the ordinary equity holders of the Group used in calculating basic loss per share: 12,337,830 8,265,737 (d) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic and diluted loss per share (e) Information concerning the classification of securities 2019 Number 2018 Number 615,772,236 533,891,470 Options and warrants that are considered to be potential ordinary shares are excluded from the weighted average number of ordinary shares used in the calculation of basic loss per share. Where dilutive, potential ordinary shares are included in the calculation of diluted loss per share. All the options on issue do not have the effect to dilute the loss per share. Therefore, they have been excluded from the calculation of diluted loss per share. 71 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 19 Parent entity financial information The individual financial statements for the parent entity show the following aggregate amounts: Statement of financial position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Shareholders' equity Contributed equity Reserves Accumulated losses Total equity 30 June 2019 $ 19,861,170 235,803 20,096,973 3,316,609 34,976 3,351,585 30 June 2018 $ 18,654,591 512,576 19,167,167 2,640,553 916 2,641,469 1,158,975 156,632,636 143,910,328 1,753,954 (141,046,223) (129,138,584) 16,525,698 16,745,388 Statement of profit or loss and other comprehensive income Loss for the year Total comprehensive loss for the year (12,591,757) (12,591,757) (8,430,740) (8,430,740) 72 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 20 Summary of significant accounting policies This note provides a list of all significant accounting policies adopted in the preparation of these consolidated financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated financial statements are for the Group consisting of Alterity Therapeutics Limited and its subsidiaries. (a) Basis of preparation These general purpose consolidated financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Alterity Therapeutics Limited is a for-profit entity for the purpose of preparing the consolidated financial statements. (i) Compliance with IFRS The consolidated financial statements of the Alterity Therapeutics Limited Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) Historical cost convention These consolidated financial statements have been prepared under the historical cost basis. (iii) Reclassification of comparatives The group has reclassified certain expenditure items in prior year comparatives in order to be consistent with the current year classification and presentation. (iv) New and amended standards adopted by the Group The Group has applied the following standards and amendments for first time in their annual reporting period commencing 1 July 2018: • • • • • • AASB 9 Financial Instruments AASB 15 Revenue from Contracts with Customers AASB 2016-5 Amendments to Australian Accounting Standards - Classification and Measurement of Share-based Payment Transactions AASB 2017-1 Amendments to Australian Accounting Standards - Transfers to Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments AASB 2017-2 Amendments to Australian Accounting Standards - Further Annual Improvements 2014-2016 Cycle Interpretation 22 Foreign Currency Transactions and Advance Consideration. The Group also elected to adopt the following amendments early: • AASB 2018-1 Amendments to Australian Accounting Standards - Annual Improvements 2015-2017 Cycle. The Group had to change its accounting policies without making retrospective adjustments following the adoption of AASB 9 and AASB 15. This is disclosed in note 21. Most of the other amendments listed above did not have any impact on the amounts recognised in prior years and are not expected to significantly affect the current or future years. (v) New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2019 reporting years and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. 73 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 20 Summary of significant accounting policies (continued) (a) Basis of preparation (continued) (v) New standards and interpretations not yet adopted (continued) Title of standard AASB 16 Leases Nature of change Impact AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the consolidated statement of financial position by lessees, as the distinction between operating and finance leases is removed for lessees. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short- term and low-value leases. The group has reviewed all leasing arrangements in light of the new lease accounting rules in AASB 16. The standard will affect the accounting for the group’s operating leases. As at the reporting date, the group has non-cancellable operating lease commitments of $111,811 see note 13(a). The group expects to recognise right-of-use assets of approximately $101,528 on 1 July 2019 and lease liabilities of $108,525 (after adjustments for prepayments and accrued lease payments recognised as at 30 June 2019). Overall net assets will be approximately $6,914 lower, and net current assets will be $14,293 lower due to the presentation of a portion of the liability as a current liability. The group expects that net loss after tax will increase by approximately $6,238 for the year ended 30 June 2020 as a result of adopting the new rules. Operating cash flows will increase and financing cash flows decrease by approximately $94,857 as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities. The Group’s activities as a lessor are not material and hence the Group does not expect any significant impact on the consolidated financial statements. However, some additional disclosures will be required from next year. The Group will apply the standard from its mandatory adoption date of 1 July 2019. The Group intends to apply the modified retrospective transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). Mandatory application date/ Date of adoption by Group There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting years and on foreseeable future transactions. (b) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Alterity Therapeutics Limited as at 30 June 2019 and the results of all subsidiaries for the year then ended. Alterity Therapeutics Limited and its subsidiaries together are referred to in this financial report as the Group. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. 74 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 20 Summary of significant accounting policies (continued) (b) Principles of consolidation (continued) In preparing the consolidated financial statements, all inter-company balances and transactions, and unrealised profits/losses arising within the consolidated entity are eliminated in full. Investments in subsidiaries are accounted for at cost in the individual financial statements of Alterity Therapeutics Limited. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer of Alterity Therapeutics Limited. For the current and previous reporting periods, the Group operated in one segment, being research into Parkinson’s disease, Alzheimer's disease, Huntington disease and other neurodegenerative disorders. (d) Foreign currency translation (i) Functional and presentation currency Items included in the consolidated financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Australian dollars ($), which is Alterity Therapeutics Limited's functional and presentation currency. (ii) Transactions and balances All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction (spot rates). Foreign currency monetary items at reporting date are translated at the exchange rate existing at reporting date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Exchange differences are recognised in the statement of profit or loss and other comprehensive income in the period in which they arise except for exchange difference on monetary items receivable from or payable to a foreign operation for which settlement is neither planned or likely to occur, which form part of the net investment in a foreign operation, are recognised in the foreign currency translation reserve and recognised in profit or loss on disposal of the net investment. (iii) Group companies The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate at the end of the respective reporting period. • • income and expenses for each consolidated income statement and consolidated statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and all resulting exchange differences are recognised in other comprehensive income. (e) Revenue recognition The accounting policies for the group’s revenue from contracts with customers are explained in note 21. Interest income is recognised on a time proportion basis using the effective interest method. 75 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 20 Summary of significant accounting policies (continued) (f) Income tax The income tax expense or revenue for the period is the tax payable/receivable on the current period's taxable income/loss based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group's subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The Group has significant unused tax losses and as such a significant deferred tax asset; however, the deferred tax asset has not been recognised, as it is not probable that future taxable profit will be available which the unused losses and unused tax credits can be utilised, given the nature of the Group's business (research and development) and its history of losses. (g) Leases Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases (note 13). Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. 76 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 20 Summary of significant accounting policies (continued) (h) Impairment of assets At each reporting date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have been impaired. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the consolidated statement of profit or loss and other comprehensive income immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is reversed to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised in the consolidated statement of profit or loss and other comprehensive income immediately. (i) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. (j) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. See note 5(a) for further information about the Group’s accounting for trade receivables and note 10(b) for a description of the Group's impairment policies. (k) Investments and other financial assets (i) Classification From 1 July 2019, the Group classifies its financial assets in the following measurement categories: • • those to be measured subsequently at fair value (either through OCI or through profit or loss), and those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). 77 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 20 Summary of significant accounting policies (continued) (k) Investments and other financial assets (continued) (ii) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. (iii) Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the consolidated statement of profit or loss. Equity instruments The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group’s right to receive payments is established. (iv) Impairment From 1 July 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables, see note 10(b) for further details. (l) Options Options recorded as equity instruments under AASB 132 are valued at fair value using the Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non- transferability, exercise restrictions, and behavioural considerations. At each reporting date, the options are re-valued to their current fair value, with the difference in fair value recorded in the consolidated statement of profit or loss and other comprehensive income. (m) Property, plant and equipment All property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting year in which they are incurred. 78 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 20 Summary of significant accounting policies (continued) (n) Intangible assets Research and development Expenditure during the research phase of a project is recognised as an expense when incurred. Where no internally generated intangible assets can be recognised, development expenditure is recognised as an expense in the period as incurred. Development costs are capitalised if and only if, all of the following are demonstrated: • • • • • the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. • Internally-generated intangible assets, capitalised development costs, are stated at cost less accumulated amortisation and impairment, and are amortised on a straight-line basis over their useful lives from the point at which the asset is ready for use. (o) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. (p) Share-based payments Equity-based compensation benefits are provided to directors, employees and consultants via the 2004 Australian Employee, Directors and Consultants Share and Option Plan & the 2018 US Employee, Directors and Consultants Share and Option Plan. Information relating to these plans is set out in note 16. The fair value of options granted under the 2004 Australian & 2018 US Employee, Directors and Consultants Share and Option Plan is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the recipients become unconditionally entitled to the options. The fair value at grant date is determined using a Black-Scholes (for options without market condition) and Barrier Pricing (for options with market conditions) model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The expected price volatility is based on historical volatility, going back the number of years based on the life of the option. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. 79 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 20 Summary of significant accounting policies (continued) (q) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably estimated. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably. (r) Employee benefits (i) Short-term obligations Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, and salaries. Short-term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The Group’s obligations for short-term employee benefits such as wages and salaries are recognised as a part of current trade and other payables in the consolidated statement of financial position. The Group’s obligations for annual leave are presented as part of provisions in the consolidated statement of financial position. The obligations are presented as current liabilities in the consolidated statement of financial position if the Group does not have an unconditional right to defer settlement for at least twelve months after the reporting period regardless of when the actual settlement is expected to occur. (ii) Other long-term employee benefit obligations The liabilities for long service leave are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. It is therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of government bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting year, regardless of when the actual settlement is expected to occur. (s) Contributed equity Ordinary share capital is recognised as equity at the fair value of the consideration received by the Group. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. 80 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 20 Summary of significant accounting policies (continued) (t) Loss per share Basic loss per share is determined by dividing the net loss after income tax expense by the weighted average number of ordinary shares outstanding during the financial period. For all periods presented, diluted loss per share is equivalent to basic loss per share as the potentially dilutive securities are excluded from the computation of diluted loss per share because the effect is anti-dilutive. (u) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. 21 Changes in accounting policies This note explains the impact of the adoption of AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers on the Group’s financial statements. (a) Impact on the financial statements As a result of the changes in the entity’s accounting policies, prior year financial statements have not been restated. (b) AASB 9 Financial Instruments AASB 9 replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of AASB 9 Financial Instruments from 1 July 2018 resulted in changes in accounting policies but no adjustments to the amounts recognised in the consolidated financial statements. The new accounting policies are set out in note 20(k) and below. In accordance with the transitional provisions in AASB 9(7.2.15) and (7.2.26), comparative figures have not been restated. (i) Classification and measurement On 1 July 2018 (the date of initial application of AASB 9), the Group’s management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate AASB 9 categories. No reclassification was required upon the adoption of AASB 9. (ii) Impairment of financial assets The Group has only one type of financial assets that are subject to AASB 9’s new expected credit loss model, which is trade and other receivables. The Group was required to revise its impairment methodology under AASB 9 for each of these classes of assets. The impact of the change in impairment methodology on the Group’s accumulated losses and equity is immaterial. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, the identified impairment loss was immaterial. 81 Alterity Therapeutics Limited Notes to the financial statements 30 June 2019 (continued) 21 Changes in accounting policies (continued) (c) AASB 15 Revenue from Contracts with Customers The Group has adopted AASB 15 Revenue from Contracts with Customers from 1 July 2018 which resulted in changes in accounting policies but no adjustments to the amounts recognised in the consolidated financial statements. As the Group is still in the early stage of research and development for its products, it has neither generated revenue from contracts with customers, nor decided on the revenue strategy (licensing, sale of pharmaceutical products) for when the development phase is completed. Accordingly, the adoption of AASB 15 has no impact on the financial statements. In prior reporting periods, revenue and other income of the Group primarily comprised of interest income and R&D tax incentive which are not affected by the adoption of AASB 15. 82 Alterity Therapeutics Limited Directors' declaration 30 June 2019 In the directors' opinion: (a) (b) the consolidated financial statements and notes set out on pages 44 to 82 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity's financial position as at 30 June 2019 and of its performance for the financial year ended on that date, and there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. Note 20(c) confirms that the consolidated financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. This declaration is made in accordance with a resolution of directors. Mr. Geoffrey Kempler Director Melbourne 30 August 2019 83 Independent auditor’s report To the members of Alterity Therapeutics Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Alterity Therapeutics Limited (formerly known as Prana Biotechnology Limited) (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group's financial position as at 30 June 2019 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises:       the consolidated statement of financial position as at 30 June 2019 the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the consolidated statement of profit or loss and other comprehensive income for the year then ended the notes to the financial statements, which include a summary of significant accounting policies the directors’ declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. The Group runs a research and development (R&D) stage biopharmaceutical operation and is in the process of developing potential treatments for neurodegenerative diseases. The Group owns a portfolio of proprietary compounds with applications across different neurodegenerative diseases. It is headquartered in Melbourne, Australia. Materiality  For the purpose of our audit we used overall Group materiality of $616,800, which represents approximately 5% of the Group’s loss before tax.  We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.  We chose Group loss before tax because, in our view, it is the benchmark against which the performance of the Group is most commonly measured.  We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. Audit Scope  Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We communicated the key audit matters to the Audit Committee. Key audit matter How our audit addressed the key audit matter Recognition of third party R&D contractual costs (Refer to note 3) As the Group is in the R&D phase, a number of R&D activities are conducted under contracts with third parties. These contracts can have complex terms which can impact the timing and recognition of these costs. There is judgement involved in determining whether the key terms of the contract have been met by the third party and therefore whether a liability should be recognised by the Group. We have focused on the recognition of contractual costs as part of the audit because these expenses are a material item on the consolidated statement of profit or loss and other comprehensive income and a key contributor to the Group’s overall performance. We have performed the following procedures, amongst others:      obtained an understanding and evaluated the design of the key controls over the purchasing and payables process; tested the operating effectiveness of key controls designed to monitor contractual costs; tested a sample of third party expenses to underlying invoices to assess the appropriate classification; tested a sample of payments made subsequent to 30 June 2019 to assess whether they were appropriately recorded as a liability as at 30 June 2019; and obtained the contract register and examined a sample of contracts to assess whether key terms were appropriately recognised in the financial statements. Valuation of the R&D tax incentive receivable (Refer to note 5(a)) $4.8 million The Group claims certain expenditures under the Australian Taxation Office (ATO) R&D Tax Incentive scheme. The Group can claim a 43.5% refundable tax offset for eligible expenditure if its aggregated turnover is less than $20 million per annum, amongst other requirements (the R&D tax incentive). The estimated value of the R&D tax incentive receivable at 30 June 2019 was $4.8 million. The estimated R&D tax incentive is recorded as an item We obtained and examined the Group’s estimate of the R&D tax incentive receivable recognised as at 30 June 2019. As part of our procedures we:  compared the estimate recorded in the consolidated statement of financial position as at 30 June 2018 to the amount of cash received after lodgement of the 2018 R&D tax incentive return to evaluate the accuracy of the Group’s estimate as the R&D tax incentive Key audit matter How our audit addressed the key audit matter of other income within the consolidated statement of profit or loss and other comprehensive income with a corresponding receivable entry. An R&D tax incentive return is filed with the ATO in the subsequent financial year, based on which the Group receives the incentive in cash. The Group makes a number of judgements in determining the classification of eligible expenses and the value of the R&D tax incentive is a key area of estimation for the Group. The Group engaged third party experts to assist with the review of the classification of expenses underlying the Group’s claim and with the lodgement of the R&D refund application. We have focused on the R&D tax incentive receivable as it is a material balance in the consolidated statement of financial position and involves a degree of judgement and interpretation of the R&D tax legislation by the Group to determine the eligibility of R&D expenditures under the scheme. Accounting for the securities purchase agreement with Life Biosciences LLC (Refer to note 7) During the year ended 30 June 2019, the Group completed a strategic investment transaction with Life Biosciences LLC (Life Biosciences). Under the terms of the transaction, the Group issued 269,905,533 fully paid ordinary shares at 3.9 cents per share, and 586,672,964 in free-attaching warrants to Life Biosciences. The warrants have an exercise price of 4.5 cents per share and expire on 19 December 2019. The Group received $10.5 million in cash on completion of the transaction. We have focused on the transaction with Life Biosciences because it is a material capital raising event and the terms and conditions in the agreement give rise to complexities in the classification and measurement of the shares and warrants issued.    receivable as at 30 June 2019 will be lodged and received after the date of this audit report; compared the nature of the R&D expenditures included in the current year estimate to the nature of the R&D expenditures in the prior year estimate; tested on a sample basis the R&D expenditures against the eligibility criteria of the R&D tax incentive scheme; and obtained and read the correspondence and advice from the Group’s third party expert and compared this advice to the Group’s calculation of the R&D tax incentive receivable as at 30 June 2019. In conjunction with our technical team in aspects of our work, we performed the following procedures, amongst others:   obtained and read the securities purchase agreement between the Group and Life Biosciences to obtain an understanding of the key terms and conditions in order to evaluate the application of the Australian Accounting Standards; obtained and evaluated the Group’s assessment of the classification and measurement of the shares and warrants issued in light of the requirements of the Australian Accounting Standards; and  agreed the receipt of cash associated with the issuance of the securities to bank statements. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 31 to 40 of the directors’ report for the year ended 30 June 2019. In our opinion, the remuneration report of Alterity Therapeutics Limited for the year ended 30 June 2019 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Sam Lobley Partner Melbourne 30 August 2019 Alterity Therapeutics Limited Shareholder information 30 June 2019 The shareholder information set out below was applicable as at 28 August 2019. A. Distribution of equity securities Ordinary shares 868,799,492 fully paid ordinary shares are held by 2,961 individual shareholders. All ordinary shares carry one vote per share. Analysis of numbers of equity security holders by size of holding: Holding No. of holders 1 - 1000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over including: Unmarketable parcels Options/Warrants 506 941 439 858 217 2,961 2,131 • 1,400,000 unlisted options exercisable at $0.27 on or before 25 May 2020, are held by 4 individual shareholders • 2,000,000 unlisted options exercisable at $0.26 on or before 18 February 2020, are held by 2 individual shareholders • 7,350,000 unlisted options exercisable at $0.07 on or before 6 June 2022, are held by 15 individual shareholders • 13,850,000 unlisted options exercisable at $0.11 on or before 14 December 2022, are held by 9 individual shareholders • 700,000 unlisted options exercisable at $0.08 on or before 31 January 2023, are held by 1 individual shareholders • 586,672,964 short term warrants exercisable at $0.045 on or before 19 December 2019, are held by 8 individual shareholders. All options/warrants do not carry a right to vote. Voting rights will be attached to the unissued shares when the options have been exercised. 90  B. Equity security holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Name HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED LIFE BIOSCIENCES LLC JAGEN PTY LTD BAYWICK PROPRIETARY LIMITED MARQUETTE HOLDINGS PTY LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED DONATELLO NIZZI MS JIA LU SCHWA PTY LTD MR JAMES V BABCOCK THE ENTRUST GROUP INC CITOS SUPER PTY LTD NRB DEVELOPMENTS PTY LTD MS CHAO LEI HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 STONY RISES PTY LTD MOUBRAY PTY LTD A/C> MR DAVID JOHN SOUTHON ROBERT & ARDIS JAMES FOUNDATION/C MRS KATE ELIZABETH SCHROETER Unquoted equity securities There are no unquoted equity securities holding greater than 20%. Alterity Therapeutics Limited Shareholder information 30 June 2019 (continued) Ordinary shares Number held Percentage of issued shares 47.58 31.07 1.79 1.63 0.89 0.71 0.54 0.50 0.46 0.46 0.41 0.36 0.34 0.29 0.28 0.23 0.23 0.23 0.21 0.20 88.41 413,392,841 269,905,533 15,567,983 14,165,000 7,692,308 6,143,499 4,678,362 4,309,879 4,000,000 3,980,263 3,598,740 3,085,499 2,970,000 2,520,422 2,421,246 2,035,000 2,000,000 2,000,000 1,826,024 1,724,993 768,017,592 C. Shareholder enquiries Shareholders with enquiries about their shareholdings should contact the Share Registry: Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street Abbotsford, Victoria, 3067, Australia Telephone: 1300 85 05 05 (within Australia) + 61 3 9415 4000 (overseas) Facsimile: + 61 3 9473 2500 Email: essential.registry@computershare.com.au Website: www.computershare.com.au D. Change of address, change of name and consolidation of shareholdings Shareholders should contact the Share Registry to obtain details of the procedure required for any of these changes. 91 Alterity Therapeutics Limited Shareholder information 30 June 2019 (continued) E. Annual report mailing Shareholders who wish to receive a hard copy of the Annual Financial Report should advise the Share Registry or the Group in writing. Alternatively, an electronic copy of the Annual Financial Report is available from www.asx.com.au or www.alteritytherapeutics.com. All shareholders will continue to receive all other shareholder information. F. Tax file numbers It is important that Australian resident shareholders, including children, have their tax file number or exemption details noted by the Share Registry. G. CHESS (Clearing House Electronic Sub-register System) Shareholders wishing to move to uncertified holdings under the Australian Securities Exchange CHESS system should contact their stockbroker. H. Uncertified share register Shareholding statements are issued at the end of each month that there is a transaction that alters the balance of your holding. I. Website Shareholders wishing to access specific information about their holding can visit the Share Registry's website at www.computershare.com.au 92 Copyright © Alterity Therapeutics. 1 

Continue reading text version or see original annual report in PDF format above